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Bill Moyers: Jim Hightower
BILL MOYERS: I don't know anyone who embodies that old-time, populist gospel, the high spirits and fierce commitment to justice that you just witnessed among the good people of Iowa more than my longtime friend, Jim Hightower.
With a down home wit and a finely honed outrage, Hightower pins the tail on the plutocrats.
A recovering politician, one time commissioner of agriculture in Texas, he now broadcasts daily radio commentaries and publishes this indispensable monthly newsletter, "The Hightower Lowdown." I admire the journalism in "The Lowdown" so much I helped raise money to raise its profile some years ago. In the spirit of fair trade, Jim has allowed me to borrow some of his best lines, including that rousing populist cry from deep in our native East Texas, "the water won't clear up until we get the hogs out of the creek."
He's been at it so long that this weekend, Jim is being honored at Texas State University in San Marcos with an exhibition celebrating his life's work as a populist journalist, historian and advocate.
They're calling the event "Swim Against the Current" because that's what he does, and in fact, that's the title of his most recent book.
Welcome to the Journal.
JIM HIGHTOWER: Thank you, Bill.
BILL MOYERS: What do you think about those people from Iowa?
JIM HIGHTOWER: Well, the thing that struck me most is, it's a coalition of farmers, of environmentalists, workers, young people, old people, working for the community. And it's not just about me, me, me all the time. They're exactly in the tradition of people who, you know, are mad as hell but do something about it. You know, it's one thing to be mad. But it's another thing to get organized, and find your way around it. You know, my mama told me that two wrongs don't make a right, but three left turns do.
And that's what we have to do. We have to figure a way around these blockages of Wall Street today. Of the corporate interests that are squeezing out small business. Of the blockages in the marketplaces. The drug companies, for example, that are gouging consumers. Have to figure out a way around that. It's not enough to whine. Even in the media.
You know? Because the populists faced that same thing of the media of the day, being primarily newspapers and magazines. Wouldn't cover this populist movement. In fact, when I worked for Ralph Yarborough, years ago, a Senator from Texas, "The Dallas Morning News" just ignored the progressives of that day. And Yarborough could have a meeting in Dallas and there'd be 5,000 people there. And not a word in "The Dallas Morning News." So, we had a new name, a new subtitle for the Dallas News. If it happens in Dallas it's news to us.
BILL MOYERS: Populism began in Texas, didn't it?
JIM HIGHTOWER: It did. In 1877, out near Lampasas. A group of farmers sitting around a table much like this. And getting run over by the banks and by the railroad monopolies, not unlike what's happening today. People were being knocked down by corporate power. And that power was initially the banks that just gouged them. Usurious rates of lending. Cause farmers live on credit. You know, they were getting stuck with, you know, 20 percent, 25-30 percent interest rates. And realizing they were going to go broke. And said, "We've got to do something." And out of that, you know, that question has come up so much throughout history. We got to do something.
And people figure it out. And it became an incredible, they, the most extensive and most successful mass grassroots movement ever in this country around economic issues. It didn't begin as political movement. They found ways to get credit, establish their own credit system. Bypassing the banks.
Their own supply system. Seed, fertilizer and that sort of thing. And then their own marketing system. And then they began to build a cultural movement around it, as well. They educated people. They had a speaker's bureau. They had 40,000 members in it. So--
BILL MOYERS: They had quite a network of intellectual power, didn't they?
JIM HIGHTOWER: Yes. And it was an intellectual movement. It was an education movement, cultural movement, economic movement. Then it became political. They, and they elected all across the country, by the way, New York to California.
BILL MOYERS: Yeah, it spread from Texas to Kansas and--
JIM HIGHTOWER: Up to the Plains States. And over into the Upper Midwest. And then east and then west and then down through the South. So, it was everywhere. And a very powerful movement.
BILL MOYERS: They were the first party to call for a woman's right to vote. To call for the direct election of Senators. To oppose all subsidies to corporations. They called for pensions for veterans. They wanted to corral the power of lobbyists. What do we owe them?
JIM HIGHTOWER: We owe them imitation. We owe them the continuation of that spirit that we do not have to just accept what is handed to us. We can battle back against the powers. But it's not just going to a rally and shouting. It's organizing and it's thinking. And reaching out to others. And building a real people's movement.
BILL MOYERS: How does the Tea Party differ from the people you're talking about? We have two groups of Americans, both angry and defiant, and both calling themselves populists. What don't they have in common?
JIM HIGHTOWER: Here's what populism is not. It is not just an incoherent outburst of anger. And certainly it is not anger that is funded and organized by corporate front groups, as the initial Tea Party effort is, and as most of it is still today. Though there is legitimate anger within it, in terms of the people who are there. But what populism is at its essence is a, a just determined focus on helping people be able to get out of the iron grip of the corporate power that is overwhelming our economy, our environment, energy, the media, government. And I guess that's one big difference between real populism and what the Tea Party thing is, is that real populists understand that government has become a subsidiary of corporations. So you can't say, let's get rid of government. You need to be saying let's take over government.
BILL MOYERS: Why don't you call yourself a liberal?
JIM HIGHTOWER: The difference between a liberal and a progressive is that liberals want to assuage the problems that we have from corporate power. Populists want to get rid of corporate power. An example is what's happening, right now, with the Wall Street reform that's in Washington.
BILL MOYERS: I heard quotation marks around that word reform.
JIM HIGHTOWER: Here come the Democrats, again, you know, just weaker than Canadian hot sauce. You know? Offering a little reform. I saw one of the Senators, Democrats, saying, we're going to have a robust disclosure program. Oh, good. They're going to tell us they're stealing from us. But at least we're going to know. So, instead, liberals like--
BILL MOYERS: We need to regulate the corporation.
JIM HIGHTOWER: Yes, yes. Rather than break it down. When you're too big to--
BILL MOYERS: What do you mean break it down?
JIM HIGHTOWER: If you're too big to fail, you're too big period. And now they've become not only too big to fail, but too big to care.
BILL MOYERS: So when you identify yourself as a populist, what are you saying?
JIM HIGHTOWER: I'm saying pretty clearly that I see the central issue in politics to be the rise of corporate power. Overwhelming, overweening corporate power that is running roughshod over the workaday people of the country. They think they're the top dogs, and we're a bunch of fire hydrants, you know? Out here in the countryside. And they can do what they want to with us. What's been missing is what can we do about it? And those people in Iowa, by the way, are not alone. There are people in Minnesota doing that, people in Oregon that I know. People in Texas. All across the country.
It's about the long haul. And the target is not government, it's those who are pulling the strings of government, which are those corporate lobbyists and the money that the corporate executives and now corporations directly can put into our campaigns.
BILL MOYERS: Because of the recent Supreme Court decision.
JIM HIGHTOWER: Yes. Citizens United, which is a, really a black robed coup by five men on the Supreme Court. And Bill, there's another fraud. Is these people on the Supreme Court call themselves conservatives. And the media goes along with it. The conservative majority in the Supreme-- but there's nothing conservative at all about that decision to allow corporations to be people. And to contribute all the money that they want out of their corporate treasuries into our campaigns. That is a usurpation of democratic power.
BILL MOYERS: You wouldn't call them conservative, what would you call them?
JIM HIGHTOWER: I would call those five really traitors to the democratic ideal that was put forward of self government of people, not of corporations.
BILL MOYERS: I was taken recently by something you said in-- about all this. You said in the last 30 to 40 years, our landscape has been radically altered.
JIM HIGHTOWER: And both political parties have been a part of this. Have basically gotten away with it. But the altering has been done by the corporate interests. And they have changed the way our economy works. And beat up on labor unions. So that they can now fire at will. They can offshore. They can downsize. They can do what they want with the workers.
BILL MOYERS: You quote a Wall Street honcho who says quote, "American business is about maximizing shareholder value...You basically don't want workers."
JIM HIGHTOWER: Exactly. And that's what's happening. And so, they've changed the whole dynamic in the way our-- in where power is in our economy. It is now concentrated in these corporate-- suites. They have the lobbying power. And the financial contributions to our members of Congress. That enormous power. Already corporations have amassed almost half a billion dollars for the 2010 elections.
And that doesn't count the-- what's going to come with the Supreme Court decision. When all that, the money from the corporate treasuries themselves can be unleashed on candidates. Already the U.S. Chamber of Commerce is spending more money than either the Democratic National Party or the Republican National Party in our politics.
Now, it'll become a major front group for these kind of-- and all sorts of other front groups exist for this. And rather than, let's pass an amendment that says, no, a corporation cannot contribute its money to politics. And in fact, originally most of the state charters in the country prohibited any corporate involvement in politics whatsoever.
They not only regulated corporations the founders, Jefferson and Madison, they feared corporate power. Because they knew it could amass unlimited amounts of money that would overwhelm the government.
They put strict standards for performance, because this was a selfish entity that had really no public responsibility. And so, it was a dangerous threat and it has to be, not only strictly regulated but structured in such a way that serves us rather than vice versa.
BILL MOYERS: And yet, isn't part of the problem the fact that so many people in high places are afraid of populism? I mean, they see it--
JIM HIGHTOWER: Of course.
BILL MOYERS: --as a menace to their position. Let me show a little montage we have here.
SENATOR JUDD GREGG: Well the problem we have is that there's populist fervor, sort of this Huey Long attitude out there that says that all banks are bad and that the financial system is evil and that as a result we must do things which will basically end up reducing our competitiveness as a nation...
MAYOR MIKE BLOOMBERG: And the real danger here is that we write a bill based on populist reaction, "I'm going to get those S.O.B.'s," because of a financial crisis which incidentally they may or, they had something to do with but were not the only ones responsible for.
SENATOR BOB CORKER: Look, we, this is important stuff. This isn't about populist ideas and this isn't about a political issue. We're going to have to live with this. It's going to affect our competitiveness around the world in big ways.
BILL MOYERS: They're afraid of you.
JIM HIGHTOWER: Absolutely. I mean, if ignorance is bliss, these people must be ecstatic, because they don't have a clue about what's going on in the countryside. It is not just populist anger. It's information. It's education. People are informed, they do know what's going on. And in fact, despite Senator Judd's comments there, people do not hate all banks.
They know the difference between Goldman Sachs and the local community bank. They know the difference between JPMorgan Chase and their credit union. They know who's serving the community and who is not. And who's offering financial products that actually serve our society and those that are just gimmicks to further enrich the rich.
BILL MOYERS: You were very influenced, I know, in this, by your father. What was it he said? Everyone--
JIM HIGHTOWER: Everybody does better when everybody does better.
BILL MOYERS: Which means?
JIM HIGHTOWER: That means that instead of tinkle down economics, which we've been trying for the last 30 years in this country. Let's just help the rich and then the rest of us will-- we'll all enjoy a seven course dinner. Well ours turns out to be a possum and a six pack. You know? So-- and--
BILL MOYERS: He was a small business owner.
JIM HIGHTOWER: He was a small business guy.
BILL MOYERS: Where?
JIM HIGHTOWER: The Main Street newsstand in Denison, Texas. And had a wholesale magazine business. And he and my mother did. And, but he never thought that he did that by himself, you know? He knew there was something called the New Deal that offered a lot of opportunities. And, but he was always having to battle the banks. And then ultimately battle Wal-Mart and the chain stores.
He knew about the power of the oil lobby down in Austin and the legislature. So, he thought he was a conservative. But when you talk to him about these issues, then he was a William Jennings Bryan radical. He wanted to go get them. And that's the kind of politics, I think, the Democratic Party has to have. Because that's why the Democratic Party exists. Not to be friends of the corporate interests. The Goldman Sachs and et cetera, but to challenge those corporate interests on behalf of everybody else.
BILL MOYERS: There's someone we both know said to me just this morning, the Republicans work for Wall Street and the Democrats are afraid to work against them.
JIM HIGHTOWER: Isn't that strange? You know, the-- it's odd to me that we've got a President who ran from the outside and won. And now is trying to govern from the inside. You can't do progressive government from the inside. You have to rally those outsiders and make them a force to come inside.
I grew up in Denison, Texas, I said. A small town. I was a small guy. So, I learned early on, you should never hit a man with glasses. You should use something much heavier. And our heavy weight is the people themselves. They've got the fat cats, but we've got the alley cats. And we need to organize them and bring them inside. But I'll tell you right now, the Democrats, not Obama, not Nancy Pelosi, not Harry Reid, none of them, really organize the grassroots. They'll say, "Well, write your Congressman or send an email or make a call."
BILL MOYERS: Send us five dollars on the internet.
JIM HIGHTOWER: Yeah, exactly. But rather than seeing that this is our strength. And we have to organize that strength in strategic ways. And in tactical ways. To come to bear on these issues. You know, Jesse Jackson said something strong. He said, we might not all come over on the same boat, but we're in the same boat now. That's a powerful political reality. When people grasp that, they can see the possibility of getting together and doing something.
BILL MOYERS: So, what is a good populist to do in this regard? I mean, corporations are here to stay. They do employ millions of people. And many of them do good things in the country like supporting this broadcast.
JIM HIGHTOWER: Yes, well--
BILL MOYERS: What do we do?
JIM HIGHTOWER: Well, you support those that support us. And there are corporations that do that. But you also do something else. And that is devise alternatives. There's a huge cooperative movement in America that you almost never hear about. There are some 72,000 co-ops operating today. Most of them are consumer co-ops. There are insurance co-ops. There are health care co-ops. There are food co-ops, of course. There are banking co-ops. There are all kinds of cooperatives out across the country. And those entities have 120 million people participating in them. Members.
You never hear about this movement. I've worked with a number of them. There's a great one, Madison Cab Company. Union Cab Company, Madison, Wisconsin. A bunch of cabbies going broke back in the '70s. Getting treated like Kleenex by the manager. And so, they formed a union. And the owner said, well, hell with that. I'm not dealing with any union. You know, I'll just sell the thing.
So, they said, well, what the hell. We do the work here. You know, we do the dispatching and the driving and mechanical work. We could run it. So, they created a co-op. And they had a lot of ups and downs. But over the next 30 years, they were able to make it. And it's the most successful cab company in all of Madison, Wisconsin. They get a high consumer approval rating.
And I learned about this, because I rode a cab to the airport there in Madison once. And the guy turned around, full body, by the way, to look at me in the back. And you know, you're in a union cab. And I said, well, no, I didn't. And then he told me the story. But he said, he was one of the original founders. And he had been able to put his two kids through college driving a cab. Because the owners were the workers themselves. And doing a great service to the public.
BILL MOYERS: You know, I have to say it's been interesting to watch you over these 30 years. Because you've suffered a lot of defeat. You got defeated in your last race by the man who's now been Governor of Texas longer than anyone in history, whose campaign mentor was Karl Rove.
JIM HIGHTOWER: Karl Rove.
JIM HIGHTOWER: A guy who puts the goober in gubernatorial. By the way--
BILL MOYERS: But I mean you got beat there. You-- a lot of what you want hasn't happened. And yet, every time I see you or hear you, you haven't-- you don't give up.
JIM HIGHTOWER: Yeah. Well it could be stupidity. But what it really is, is that I'm a lucky duck. And that I travel a whole lot. I give a lot of speeches. And that takes me all across the country on a regular basis. I've been just about every place that's got a zip code, I think. And what I find in every one of those places is someone or some group of someones who is in rebellion.
And again, not just ranting about it, but actually organizing others and taking on some aspect of this corporate power. And winning. So, I see victories just every week across the country in my travels. You can go anywhere and you see victories. Some of them political. But most of them in terms of just civic action. People engaged in, and making a difference in their communities. So, you want to see the populist movement where it actually is today, it's at the zip code level. It's in the communities.
BILL MOYERS: Like those people in Iowa.
JIM HIGHTOWER: Yes, exactly. I go all the way back to Thomas Paine, of course. I mean, that was kind of the ultimate rebellion. And then when the media tool was a pamphlet. You know, a pamphleteer or a broadside that you put on the community bulletin board. So the whole American Revolution itself, but not the great men. They didn't-- they wrote the Bill of Rights and the Constitution and the Declaration of Independence. But that didn't create democracy. It made democracy possible.
What created democracy was Thomas Paine and the Shays Rebellion the suffragists and the abolitionists and on down through the populists, the labor movement. Including the Wobblies. Tough in their face people. The-- Mother Jones, Woody Guthrie, you know, the cultural aspect of it, as well. Of course, Martin Luther King and Caesar Chavez. And now it's down to us.
You know, the-- these are agitators. They extended democracy decade after decade. You know, sometimes we get in the midst of these fights. We think we're making no progress. But, you know, you look back. We've made a lot of progress. And you've seen it. And I have, as well. You know, that agitator after all is the center post in the washing machine that gets the dirt out. So, we need a lot more agitation. And that's the only thing that succeeds from a progressive side in changing politics in America.
BILL MOYERS: So, is that what you mean when you say the water won't clear up until we get the hogs out of the creek?
JIM HIGHTOWER: That's it. That's right. They are in the creek. And they're fouling our environmental, political and economic waters. And you don't get a hog out of the creek, Bill, by saying, here hog, here hog. You know? You got to put your shoulder to it and shove it out of the creek.
BILL MOYERS: Jim Hightower, have fun this weekend.
JIM HIGHTOWER: I will, thank you.
BILL MOYERS: Good to see you.
JIM HIGHTOWER: Same here.
BILL MOYERS: You've no doubt figured out my bias by now. I've hardly kept it a secret. In this regard, I take my cue from the late Edward R. Murrow, the Moses of broadcast news.
Ed Murrow told his generation of journalists bias is okay as long as you don't try to hide it. So here, one more time, is mine: plutocracy and democracy don't mix. Plutocracy, the rule of the rich, political power controlled by the wealthy.
Plutocracy is not an American word but it's become an American phenomenon. Back in the fall of 2005, the Wall Street giant Citigroup even coined a variation on it, plutonomy, an economic system where the privileged few make sure the rich get richer with government on their side. By the next spring, Citigroup decided the time had come to publicly "bang the drum on plutonomy."
And bang they did, with an "equity strategy" for their investors, entitled, "Revisiting Plutonomy: The Rich Getting Richer." Here are some excerpts:
"Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper...[and] take an increasing share of income and wealth over the last 20 years..."
"...the top 10%, particularly the top 1% of the US-- the plutonomists in our parlance-- have benefited disproportionately from the recent productivity surge in the US...[and] from globalization and the productivity boom, at the relative expense of labor."
"...[and they] are likely to get even wealthier in the coming years. [Because] the dynamics of plutonomy are still intact."
And so they were, before the great collapse of 2008. And so they are, today, after the fall. While millions of people have lost their jobs, their homes, and their savings, the plutonomists are doing just fine. In some cases, even better, thanks to our bailout of the big banks which meant record profits and record bonuses for Wall Street.
Now why is this? Because over the past 30 years the plutocrats, or plutonomists — choose your poison — have used their vastly increased wealth to capture the flag and assure the government does their bidding. Remember that Citigroup reference to "market-friendly governments" on their side? It hasn't mattered which party has been in power — government has done Wall Street's bidding.
Don't blame the lobbyists, by the way; they are simply the mules of politics, delivering the drug of choice to a political class addicted to cash — what polite circles call "campaign contributions" and Tony Soprano would call "protection."
This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet. According to a study from the Pew Research Center last month, nine out of ten Americans give our national economy a negative rating. Eight out of ten report difficulty finding jobs in their communities, and seven out of ten say they experienced job-related or financial problems over the past year.
So it is that like those populists of that earlier era, millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Then, the remedy was a popular insurgency that ignited the spark of democracy.
Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs.
So along with Jim Hightower and Iowa's concerned citizens, and many of you, I am biased: democracy only works when we claim it as our own.
With a down home wit and a finely honed outrage, Hightower pins the tail on the plutocrats.
A recovering politician, one time commissioner of agriculture in Texas, he now broadcasts daily radio commentaries and publishes this indispensable monthly newsletter, "The Hightower Lowdown." I admire the journalism in "The Lowdown" so much I helped raise money to raise its profile some years ago. In the spirit of fair trade, Jim has allowed me to borrow some of his best lines, including that rousing populist cry from deep in our native East Texas, "the water won't clear up until we get the hogs out of the creek."
He's been at it so long that this weekend, Jim is being honored at Texas State University in San Marcos with an exhibition celebrating his life's work as a populist journalist, historian and advocate.
They're calling the event "Swim Against the Current" because that's what he does, and in fact, that's the title of his most recent book.
Welcome to the Journal.
JIM HIGHTOWER: Thank you, Bill.
BILL MOYERS: What do you think about those people from Iowa?
JIM HIGHTOWER: Well, the thing that struck me most is, it's a coalition of farmers, of environmentalists, workers, young people, old people, working for the community. And it's not just about me, me, me all the time. They're exactly in the tradition of people who, you know, are mad as hell but do something about it. You know, it's one thing to be mad. But it's another thing to get organized, and find your way around it. You know, my mama told me that two wrongs don't make a right, but three left turns do.
And that's what we have to do. We have to figure a way around these blockages of Wall Street today. Of the corporate interests that are squeezing out small business. Of the blockages in the marketplaces. The drug companies, for example, that are gouging consumers. Have to figure out a way around that. It's not enough to whine. Even in the media.
You know? Because the populists faced that same thing of the media of the day, being primarily newspapers and magazines. Wouldn't cover this populist movement. In fact, when I worked for Ralph Yarborough, years ago, a Senator from Texas, "The Dallas Morning News" just ignored the progressives of that day. And Yarborough could have a meeting in Dallas and there'd be 5,000 people there. And not a word in "The Dallas Morning News." So, we had a new name, a new subtitle for the Dallas News. If it happens in Dallas it's news to us.
BILL MOYERS: Populism began in Texas, didn't it?
JIM HIGHTOWER: It did. In 1877, out near Lampasas. A group of farmers sitting around a table much like this. And getting run over by the banks and by the railroad monopolies, not unlike what's happening today. People were being knocked down by corporate power. And that power was initially the banks that just gouged them. Usurious rates of lending. Cause farmers live on credit. You know, they were getting stuck with, you know, 20 percent, 25-30 percent interest rates. And realizing they were going to go broke. And said, "We've got to do something." And out of that, you know, that question has come up so much throughout history. We got to do something.
And people figure it out. And it became an incredible, they, the most extensive and most successful mass grassroots movement ever in this country around economic issues. It didn't begin as political movement. They found ways to get credit, establish their own credit system. Bypassing the banks.
Their own supply system. Seed, fertilizer and that sort of thing. And then their own marketing system. And then they began to build a cultural movement around it, as well. They educated people. They had a speaker's bureau. They had 40,000 members in it. So--
BILL MOYERS: They had quite a network of intellectual power, didn't they?
JIM HIGHTOWER: Yes. And it was an intellectual movement. It was an education movement, cultural movement, economic movement. Then it became political. They, and they elected all across the country, by the way, New York to California.
BILL MOYERS: Yeah, it spread from Texas to Kansas and--
JIM HIGHTOWER: Up to the Plains States. And over into the Upper Midwest. And then east and then west and then down through the South. So, it was everywhere. And a very powerful movement.
BILL MOYERS: They were the first party to call for a woman's right to vote. To call for the direct election of Senators. To oppose all subsidies to corporations. They called for pensions for veterans. They wanted to corral the power of lobbyists. What do we owe them?
JIM HIGHTOWER: We owe them imitation. We owe them the continuation of that spirit that we do not have to just accept what is handed to us. We can battle back against the powers. But it's not just going to a rally and shouting. It's organizing and it's thinking. And reaching out to others. And building a real people's movement.
BILL MOYERS: How does the Tea Party differ from the people you're talking about? We have two groups of Americans, both angry and defiant, and both calling themselves populists. What don't they have in common?
JIM HIGHTOWER: Here's what populism is not. It is not just an incoherent outburst of anger. And certainly it is not anger that is funded and organized by corporate front groups, as the initial Tea Party effort is, and as most of it is still today. Though there is legitimate anger within it, in terms of the people who are there. But what populism is at its essence is a, a just determined focus on helping people be able to get out of the iron grip of the corporate power that is overwhelming our economy, our environment, energy, the media, government. And I guess that's one big difference between real populism and what the Tea Party thing is, is that real populists understand that government has become a subsidiary of corporations. So you can't say, let's get rid of government. You need to be saying let's take over government.
BILL MOYERS: Why don't you call yourself a liberal?
JIM HIGHTOWER: The difference between a liberal and a progressive is that liberals want to assuage the problems that we have from corporate power. Populists want to get rid of corporate power. An example is what's happening, right now, with the Wall Street reform that's in Washington.
BILL MOYERS: I heard quotation marks around that word reform.
JIM HIGHTOWER: Here come the Democrats, again, you know, just weaker than Canadian hot sauce. You know? Offering a little reform. I saw one of the Senators, Democrats, saying, we're going to have a robust disclosure program. Oh, good. They're going to tell us they're stealing from us. But at least we're going to know. So, instead, liberals like--
BILL MOYERS: We need to regulate the corporation.
JIM HIGHTOWER: Yes, yes. Rather than break it down. When you're too big to--
BILL MOYERS: What do you mean break it down?
JIM HIGHTOWER: If you're too big to fail, you're too big period. And now they've become not only too big to fail, but too big to care.
BILL MOYERS: So when you identify yourself as a populist, what are you saying?
JIM HIGHTOWER: I'm saying pretty clearly that I see the central issue in politics to be the rise of corporate power. Overwhelming, overweening corporate power that is running roughshod over the workaday people of the country. They think they're the top dogs, and we're a bunch of fire hydrants, you know? Out here in the countryside. And they can do what they want to with us. What's been missing is what can we do about it? And those people in Iowa, by the way, are not alone. There are people in Minnesota doing that, people in Oregon that I know. People in Texas. All across the country.
It's about the long haul. And the target is not government, it's those who are pulling the strings of government, which are those corporate lobbyists and the money that the corporate executives and now corporations directly can put into our campaigns.
BILL MOYERS: Because of the recent Supreme Court decision.
JIM HIGHTOWER: Yes. Citizens United, which is a, really a black robed coup by five men on the Supreme Court. And Bill, there's another fraud. Is these people on the Supreme Court call themselves conservatives. And the media goes along with it. The conservative majority in the Supreme-- but there's nothing conservative at all about that decision to allow corporations to be people. And to contribute all the money that they want out of their corporate treasuries into our campaigns. That is a usurpation of democratic power.
BILL MOYERS: You wouldn't call them conservative, what would you call them?
JIM HIGHTOWER: I would call those five really traitors to the democratic ideal that was put forward of self government of people, not of corporations.
BILL MOYERS: I was taken recently by something you said in-- about all this. You said in the last 30 to 40 years, our landscape has been radically altered.
JIM HIGHTOWER: And both political parties have been a part of this. Have basically gotten away with it. But the altering has been done by the corporate interests. And they have changed the way our economy works. And beat up on labor unions. So that they can now fire at will. They can offshore. They can downsize. They can do what they want with the workers.
BILL MOYERS: You quote a Wall Street honcho who says quote, "American business is about maximizing shareholder value...You basically don't want workers."
JIM HIGHTOWER: Exactly. And that's what's happening. And so, they've changed the whole dynamic in the way our-- in where power is in our economy. It is now concentrated in these corporate-- suites. They have the lobbying power. And the financial contributions to our members of Congress. That enormous power. Already corporations have amassed almost half a billion dollars for the 2010 elections.
And that doesn't count the-- what's going to come with the Supreme Court decision. When all that, the money from the corporate treasuries themselves can be unleashed on candidates. Already the U.S. Chamber of Commerce is spending more money than either the Democratic National Party or the Republican National Party in our politics.
Now, it'll become a major front group for these kind of-- and all sorts of other front groups exist for this. And rather than, let's pass an amendment that says, no, a corporation cannot contribute its money to politics. And in fact, originally most of the state charters in the country prohibited any corporate involvement in politics whatsoever.
They not only regulated corporations the founders, Jefferson and Madison, they feared corporate power. Because they knew it could amass unlimited amounts of money that would overwhelm the government.
They put strict standards for performance, because this was a selfish entity that had really no public responsibility. And so, it was a dangerous threat and it has to be, not only strictly regulated but structured in such a way that serves us rather than vice versa.
BILL MOYERS: And yet, isn't part of the problem the fact that so many people in high places are afraid of populism? I mean, they see it--
JIM HIGHTOWER: Of course.
BILL MOYERS: --as a menace to their position. Let me show a little montage we have here.
SENATOR JUDD GREGG: Well the problem we have is that there's populist fervor, sort of this Huey Long attitude out there that says that all banks are bad and that the financial system is evil and that as a result we must do things which will basically end up reducing our competitiveness as a nation...
MAYOR MIKE BLOOMBERG: And the real danger here is that we write a bill based on populist reaction, "I'm going to get those S.O.B.'s," because of a financial crisis which incidentally they may or, they had something to do with but were not the only ones responsible for.
SENATOR BOB CORKER: Look, we, this is important stuff. This isn't about populist ideas and this isn't about a political issue. We're going to have to live with this. It's going to affect our competitiveness around the world in big ways.
BILL MOYERS: They're afraid of you.
JIM HIGHTOWER: Absolutely. I mean, if ignorance is bliss, these people must be ecstatic, because they don't have a clue about what's going on in the countryside. It is not just populist anger. It's information. It's education. People are informed, they do know what's going on. And in fact, despite Senator Judd's comments there, people do not hate all banks.
They know the difference between Goldman Sachs and the local community bank. They know the difference between JPMorgan Chase and their credit union. They know who's serving the community and who is not. And who's offering financial products that actually serve our society and those that are just gimmicks to further enrich the rich.
BILL MOYERS: You were very influenced, I know, in this, by your father. What was it he said? Everyone--
JIM HIGHTOWER: Everybody does better when everybody does better.
BILL MOYERS: Which means?
JIM HIGHTOWER: That means that instead of tinkle down economics, which we've been trying for the last 30 years in this country. Let's just help the rich and then the rest of us will-- we'll all enjoy a seven course dinner. Well ours turns out to be a possum and a six pack. You know? So-- and--
BILL MOYERS: He was a small business owner.
JIM HIGHTOWER: He was a small business guy.
BILL MOYERS: Where?
JIM HIGHTOWER: The Main Street newsstand in Denison, Texas. And had a wholesale magazine business. And he and my mother did. And, but he never thought that he did that by himself, you know? He knew there was something called the New Deal that offered a lot of opportunities. And, but he was always having to battle the banks. And then ultimately battle Wal-Mart and the chain stores.
He knew about the power of the oil lobby down in Austin and the legislature. So, he thought he was a conservative. But when you talk to him about these issues, then he was a William Jennings Bryan radical. He wanted to go get them. And that's the kind of politics, I think, the Democratic Party has to have. Because that's why the Democratic Party exists. Not to be friends of the corporate interests. The Goldman Sachs and et cetera, but to challenge those corporate interests on behalf of everybody else.
BILL MOYERS: There's someone we both know said to me just this morning, the Republicans work for Wall Street and the Democrats are afraid to work against them.
JIM HIGHTOWER: Isn't that strange? You know, the-- it's odd to me that we've got a President who ran from the outside and won. And now is trying to govern from the inside. You can't do progressive government from the inside. You have to rally those outsiders and make them a force to come inside.
I grew up in Denison, Texas, I said. A small town. I was a small guy. So, I learned early on, you should never hit a man with glasses. You should use something much heavier. And our heavy weight is the people themselves. They've got the fat cats, but we've got the alley cats. And we need to organize them and bring them inside. But I'll tell you right now, the Democrats, not Obama, not Nancy Pelosi, not Harry Reid, none of them, really organize the grassroots. They'll say, "Well, write your Congressman or send an email or make a call."
BILL MOYERS: Send us five dollars on the internet.
JIM HIGHTOWER: Yeah, exactly. But rather than seeing that this is our strength. And we have to organize that strength in strategic ways. And in tactical ways. To come to bear on these issues. You know, Jesse Jackson said something strong. He said, we might not all come over on the same boat, but we're in the same boat now. That's a powerful political reality. When people grasp that, they can see the possibility of getting together and doing something.
BILL MOYERS: So, what is a good populist to do in this regard? I mean, corporations are here to stay. They do employ millions of people. And many of them do good things in the country like supporting this broadcast.
JIM HIGHTOWER: Yes, well--
BILL MOYERS: What do we do?
JIM HIGHTOWER: Well, you support those that support us. And there are corporations that do that. But you also do something else. And that is devise alternatives. There's a huge cooperative movement in America that you almost never hear about. There are some 72,000 co-ops operating today. Most of them are consumer co-ops. There are insurance co-ops. There are health care co-ops. There are food co-ops, of course. There are banking co-ops. There are all kinds of cooperatives out across the country. And those entities have 120 million people participating in them. Members.
You never hear about this movement. I've worked with a number of them. There's a great one, Madison Cab Company. Union Cab Company, Madison, Wisconsin. A bunch of cabbies going broke back in the '70s. Getting treated like Kleenex by the manager. And so, they formed a union. And the owner said, well, hell with that. I'm not dealing with any union. You know, I'll just sell the thing.
So, they said, well, what the hell. We do the work here. You know, we do the dispatching and the driving and mechanical work. We could run it. So, they created a co-op. And they had a lot of ups and downs. But over the next 30 years, they were able to make it. And it's the most successful cab company in all of Madison, Wisconsin. They get a high consumer approval rating.
And I learned about this, because I rode a cab to the airport there in Madison once. And the guy turned around, full body, by the way, to look at me in the back. And you know, you're in a union cab. And I said, well, no, I didn't. And then he told me the story. But he said, he was one of the original founders. And he had been able to put his two kids through college driving a cab. Because the owners were the workers themselves. And doing a great service to the public.
BILL MOYERS: You know, I have to say it's been interesting to watch you over these 30 years. Because you've suffered a lot of defeat. You got defeated in your last race by the man who's now been Governor of Texas longer than anyone in history, whose campaign mentor was Karl Rove.
JIM HIGHTOWER: Karl Rove.
JIM HIGHTOWER: A guy who puts the goober in gubernatorial. By the way--
BILL MOYERS: But I mean you got beat there. You-- a lot of what you want hasn't happened. And yet, every time I see you or hear you, you haven't-- you don't give up.
JIM HIGHTOWER: Yeah. Well it could be stupidity. But what it really is, is that I'm a lucky duck. And that I travel a whole lot. I give a lot of speeches. And that takes me all across the country on a regular basis. I've been just about every place that's got a zip code, I think. And what I find in every one of those places is someone or some group of someones who is in rebellion.
And again, not just ranting about it, but actually organizing others and taking on some aspect of this corporate power. And winning. So, I see victories just every week across the country in my travels. You can go anywhere and you see victories. Some of them political. But most of them in terms of just civic action. People engaged in, and making a difference in their communities. So, you want to see the populist movement where it actually is today, it's at the zip code level. It's in the communities.
BILL MOYERS: Like those people in Iowa.
JIM HIGHTOWER: Yes, exactly. I go all the way back to Thomas Paine, of course. I mean, that was kind of the ultimate rebellion. And then when the media tool was a pamphlet. You know, a pamphleteer or a broadside that you put on the community bulletin board. So the whole American Revolution itself, but not the great men. They didn't-- they wrote the Bill of Rights and the Constitution and the Declaration of Independence. But that didn't create democracy. It made democracy possible.
What created democracy was Thomas Paine and the Shays Rebellion the suffragists and the abolitionists and on down through the populists, the labor movement. Including the Wobblies. Tough in their face people. The-- Mother Jones, Woody Guthrie, you know, the cultural aspect of it, as well. Of course, Martin Luther King and Caesar Chavez. And now it's down to us.
You know, the-- these are agitators. They extended democracy decade after decade. You know, sometimes we get in the midst of these fights. We think we're making no progress. But, you know, you look back. We've made a lot of progress. And you've seen it. And I have, as well. You know, that agitator after all is the center post in the washing machine that gets the dirt out. So, we need a lot more agitation. And that's the only thing that succeeds from a progressive side in changing politics in America.
BILL MOYERS: So, is that what you mean when you say the water won't clear up until we get the hogs out of the creek?
JIM HIGHTOWER: That's it. That's right. They are in the creek. And they're fouling our environmental, political and economic waters. And you don't get a hog out of the creek, Bill, by saying, here hog, here hog. You know? You got to put your shoulder to it and shove it out of the creek.
BILL MOYERS: Jim Hightower, have fun this weekend.
JIM HIGHTOWER: I will, thank you.
BILL MOYERS: Good to see you.
JIM HIGHTOWER: Same here.
BILL MOYERS: You've no doubt figured out my bias by now. I've hardly kept it a secret. In this regard, I take my cue from the late Edward R. Murrow, the Moses of broadcast news.
Ed Murrow told his generation of journalists bias is okay as long as you don't try to hide it. So here, one more time, is mine: plutocracy and democracy don't mix. Plutocracy, the rule of the rich, political power controlled by the wealthy.
Plutocracy is not an American word but it's become an American phenomenon. Back in the fall of 2005, the Wall Street giant Citigroup even coined a variation on it, plutonomy, an economic system where the privileged few make sure the rich get richer with government on their side. By the next spring, Citigroup decided the time had come to publicly "bang the drum on plutonomy."
And bang they did, with an "equity strategy" for their investors, entitled, "Revisiting Plutonomy: The Rich Getting Richer." Here are some excerpts:
"Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper...[and] take an increasing share of income and wealth over the last 20 years..."
"...the top 10%, particularly the top 1% of the US-- the plutonomists in our parlance-- have benefited disproportionately from the recent productivity surge in the US...[and] from globalization and the productivity boom, at the relative expense of labor."
"...[and they] are likely to get even wealthier in the coming years. [Because] the dynamics of plutonomy are still intact."
And so they were, before the great collapse of 2008. And so they are, today, after the fall. While millions of people have lost their jobs, their homes, and their savings, the plutonomists are doing just fine. In some cases, even better, thanks to our bailout of the big banks which meant record profits and record bonuses for Wall Street.
Now why is this? Because over the past 30 years the plutocrats, or plutonomists — choose your poison — have used their vastly increased wealth to capture the flag and assure the government does their bidding. Remember that Citigroup reference to "market-friendly governments" on their side? It hasn't mattered which party has been in power — government has done Wall Street's bidding.
Don't blame the lobbyists, by the way; they are simply the mules of politics, delivering the drug of choice to a political class addicted to cash — what polite circles call "campaign contributions" and Tony Soprano would call "protection."
This marriage of money and politics has produced an America of gross inequality at the top and low social mobility at the bottom, with little but anxiety and dread in between, as middle class Americans feel the ground falling out from under their feet. According to a study from the Pew Research Center last month, nine out of ten Americans give our national economy a negative rating. Eight out of ten report difficulty finding jobs in their communities, and seven out of ten say they experienced job-related or financial problems over the past year.
So it is that like those populists of that earlier era, millions of Americans have awakened to a sobering reality: they live in a plutocracy, where they are disposable. Then, the remedy was a popular insurgency that ignited the spark of democracy.
Now we have come to another parting of the ways, and once again the fate and character of our country are up for grabs.
So along with Jim Hightower and Iowa's concerned citizens, and many of you, I am biased: democracy only works when we claim it as our own.
Wednesday, August 4, 2010
Bill Moyers: Andrew Bacevich
ANNOUNCER: The conversation with Andrew Bacevich continues online.
BILL MOYERS: And what do we do? President Obama himself has said that our strategy there is not ultimately a military victory per se, but to win the hearts and minds of the Afghani people.
ANDREW BACEVICH: War termination for us has come to be very difficult, because of our inability to understand the war that we undertake. And I think that both Iraq and Afghanistan illustrate the point- Iraq probably better. I mean, the Bush administration expected that a conventional invasion and occupation of Iraq that toppled Saddam Hussein, that that act would end the war and would produce a host of positive effects. When instead all we did was to expand the war, extend the war, with virtually no political benefits to the United States. Why did that happen? Well, a lot of reasons. But not least among them was that the Bush administration fundamentally misunderstand what its own global war on terror was all about.
BILL MOYERS: So President Obama comes along and says, "Let's get that damn thing behind us. You know, let's just get out of there."
ANDREW BACEVICH: Well-
BILL MOYERS: "Get out of Iraq."
ANDREW BACEVICH: We were all saying at that point, "Let's forget Iraq." And he endorsed that notion. I mean, I voted for President Obama. And I think President Obama is probably the smartest guy to come down the pike, in terms of our politics in a long time. But I believe that his decision in December to escalate the war in Afghanistan was a tragic mistake, a squandered opportunity. That was his oppor- that was his chance. The Afghanistan decision was his chance to change course, when it comes to the fundamentals of US national security policy. And instead, he made in December, made the same decision with regard to Afghanistan as John McCain would have made, had we elected John McCain president.
ANDREW BACEVICH: And so, how could this incredibly smart guy have made that incredibly, in my view, stupid decision? I think that one of the explanations, I think, is that even though the president has styled himself as the man who's going to bring change and is going to change the way Washington works, the president surrounded himself with a national security team of very conventional and orthodox thinkers. I mean, we have a retired Marine four-star general as a National Security Advisor. We've got retired four-star as Director of National Intelligence.
We carried over Mr. Gates, the Republican security of defense as the new Secretary Of Defense. Even Secretary Clinton the Secretary of State is frankly a rather hawkish Democrat. So my sense is that as the president engaged with the Afghanistan question, in the inner circle of advisors, there may not have been any influential voices proposing a genuinely radical course change.
BILL MOYERS: But how do you explain that a country is so passive about a war that to so many people who, like you, seems to be at cross-purposes. Why are we so passive about it?
ANDREW BACEVICH: Well, this is the unintended and, I think, unanticipated consequences of moving to an all-volunteer force, and in essence, driving a stake through the tradition of the citizen-soldier. That we do have a circumstance today in which there is a significant gap, I think, between those who serve in uniform and the rest of us.
You know, life is tough. Unemployment is close to 10 percent. You know, raising kids, putting food on the table, that's a full-time job for most Americans. And since the 1970s, when this implicit contract was negotiated between the American people and the American government that removed from the people any obligation to serve, we've gotten very accustomed to the notion that whatever is going on in Afghanistan or Iraq or wherever else is, in a sense, not our affair. I mean others have made the point. I've made the point.
I think that that condition directly stems from the decision made back in the Nixon era to kill the draft and to opt for a professional military. Not that people in those days anticipated the long-term consequences, but we today deal with those consequences.
BILL MOYERS: Let's come back to the reality on the ground right now. What could be Karzai's motive for pushing back against the west, against the NATO powers, against the United States, against President Obama, as he has been doing?
ANDREW BACEVICH: Well, tough to say. I think, again, from our vantage point, but my guess would be that that has something to do with his own domestic political situation. That to be- to seem to be the puppet of the Americans is not in his long-term interests.
And so he's pushing back. He's a politician and I think almost all politicians privilege their own personal ambitions. They are determined to maintain their hold on power, and if President Karzai perceives that the kind of pressure he's getting from the United States and other NATO allies is contrary to his own interests, he's not going to go along with it.
ANDREW BACEVICH: I mean, we had to- I keep going back to the Vietnam comparisons, but you will remember that the events leading up to the assassination of President Diem on-
BILL MOYERS: 19-
ANDREW BACEVICH: November first, 1963- in which the United States was complicit. That assassination plot stemmed in part from fears that members of Diem's own inner circle were contemplating opening up negotiations with North Vietnamese. And in order to prevent any such event from occurring we decided we needed to collaborate with Vietnamese generals in bringing about his overthrow.
BILL MOYERS: A coup.
ANDREW BACEVICH: A coup, in which, ultimately culminating in his murder. So this problem of finding a partner who will be sufficiently independent to not look like a puppet, and yet will be sufficiently compliant that he will contribute to our purposes, it's a very difficult problem.
BILL MOYERS: Is he indispensable to our effort there?
ANDREW BACEVICH: I honestly don't know enough about Afghan politics, I think. But I mean, I know of no one waiting in the wings who would be able to take his place. I mean, when we eliminated Diem, we did so anticipating that the generals would be better partners in the waging of the war against the Viet Cong. It turned out that the generals actually were much worse than Diem had been.
BILL MOYERS: And as a matter of fact, Karzai cannot afford to give up on the western effort in Afghanistan. Can he?
ANDREW BACEVICH: I don't know. You know, he's made these noises about cutting deals with the Taliban. I would think that there are enormous risks in doing that from his point of view, but I wouldn't pretend to be able to assess how he evaluates the risks of cutting deals with the Taliban versus the risks of continuing to collaborate with the Americans and the west.
BILL MOYERS: What's your take on this big offensive that is supposed to come this summer in the southern part of the country around Marjah? Where I had thought- we had thought there was a big offensive in February, in March, right?
ANDREW BACEVICH: Well, I think the Marjah offensive in February I think was intended to provide kind of a trial run of the new McChrystal approach, in which western forces, with Afghan forces, would clear an area of Taliban. And then establish a continuing presence. And then hard on the heels of that continuing security presence, to introduce a package of government services that would culminate in winning the hearts and minds. General McChrystal, at the time of the Mar- at the time that the Marjah operation began, promised that he was providing government out of a box. That was the phrase that he used.
My own sense is that we probably have succeeded in clearing the enemy in Marjah. We probably can succeed in clearing the enemy in any part of the country. I'm quite skeptical about whether this government out of the box concept is viable. Matter of fact, it strikes me as remarkably naïve.
BILL MOYERS: Why are you skeptical?
ANDREW BACEVICH: Well, we've tried this before in Marjah. This notion of bringing government or development out of the box. It turns out that back in the 1950s, in the Eisenhower era, the US Agency for International Development had undertaken a massive agricultural reform project in Marjah with the intention of basically converting the nomadic local population into peasant farmers.
It was well-funded. I am sure that the people who designed it had the best intentions in the world. And it was utter, complete and total flop. Why was it a total flop? Because the people who lived in the region simply didn't share the view of the United States about what a better life looked like.
And the point here is, again, granting that people who are in the development business have the best will in the world. There are enormous cultural barriers that interfere with the effective deliverance of the kind of programs that are promised. So, I mean, no, let us see- but I think that the Americans tend to come at these problems with a sense of optimism and expectation that tends not to be justified by what we know from the history of development programs.
BILL MOYERS: You wrote the other day, I think, in "America" magazine, that we—Americans suffer from a deficit of self-awareness. Explain that to me.
ANDREW BACEVICH: Well, it's this forgetfulness. It's this assumption that what we value, what we believe is the- are the keys to happiness, necessarily are shared by people who come from a different place, whether it's a different place historically or culturally or religiously. I have a wonderful student of mine at Boston University who worked in Afghanistan in their ministry of economic development on an internship a summer ago. And she just finished her master's degree and is heading back to Afghanistan.
And she is smart and she is just a terrific person in every respect. But the other day, we were- she was defending her MA thesis. And we were sort of arguing about this cultural question. And she said to me, "You know, there are some things that we tried to do that aren't cultural." And she-
BILL MOYERS: That we Americans try to do?
ANDREW BACEVICH: That in our programs that we try to introduce in places like Afghanistan. Not everything has a cultural connotation. And she said, "Let me give you an example." And the example she offered was a laptop. She said that, "You know, in order to have a functioning society, in order to advance yourself, in order to grow an economy, you have to have access to the Internet. And therefore, you need to know how to use a laptop."
And my response was, "I understand what you just said. But the laptop carries with it enormous cultural connotations. The Internet carries enormous cultural connotations. And for us simply to assume that because we view those mechanisms as central to our understanding of modernity, it doesn't follow that people in Afghanistan are going to share that view." That's part of our problem, I think, that we work from the assumption that at the end of the day we have the answers. And we're trying to share the answers with those who apparently need them.
BILL MOYERS: And you've written about one specific cultural phenomenon in particular, in which the Afghanis look at life as both religious and political. That is, they don't make the divisions that so many secular Americans make. And that our efforts to try to separate their commitments to religion and their involvement in politics are futile.
ANDREW BACEVICH: I don't want to try to pretend that I'm an expert in Islam, because I'm not. But one of the things I do understand from reading about it is that part of the Islamic view is that politics and belief are intimately and inextricably tied together, that there is no separation between those two dimensions of human existence. Where we in the West, who once believed that those two aspects of life were intimately connected, have, over a period of time, whether for good or for ill, come to believe that they're best kept apart. You know, that what we do on the Sabbath is fine. But that doesn't necessarily inform and shape every other aspect of our life.
And that we're comfortable with that. We believe that makes sense. And I think that implicitly our efforts in places like Afghanistan are informed by an expectation that if we can persuade the Afghans to learn to separate Islam from the rest of life, that they will be better off. And I strongly suspect that they are utterly and completely opposed to that proposition.
BILL MOYERS: I saw a study this week that was done by some researchers at Tufts University.
ANDREW BACEVICH: Yeah.
BILL MOYERS: They had a team of researchers who interviewed a representative sample of Afghani, ordinary Afghani people, who it turns out have a very negative view of our efforts there, of our economic and aid efforts there. Now what explains that? That we would keep trying to do it, when they have such a negative reaction to it?
ANDREW BACEVICH: Well, I think that gets to this deficit of self-awareness. There is a confidence that we have accrued. I think particularly since World War II. This is not something that somehow appeared overnight. A confidence that history as we understand history—and in many respects, I think the only history that Americans even have any awareness of really is the history of the 20th century.
And Americans tend to see the history of the 20th century as a triumphal narrative. It was in the 20th century that the United States achieved such enormous preeminence. It was in the 20th century that seemingly, we demonstrated the superiority of our system as competitors- totalitarian competitors in the left and the right either were crushed or fell by the wayside.
And I think as a consequence of that interpretation of the 20th century. It's not an interpretation that I would agree with, but as a consequence of that interpretation of the 20th century, Americans have come to believe quite deeply that the answers to the world's ills are found here. That the keys to life, liberty and happiness that we have embraced are not only applicable to Americans, but they're applicable to Afghans and they're applicable to Pakistanis and so on.
And we're simply not willing to acknowledge either the contradictions in our own way of life or the possibility that if you're an Afghan or a Pakistani, that you may just define happiness or fulfillment in a radically different way. And despite the fact that we confront failures like Vietnam, and I think I would also argue strongly like Iraq, we cling to this notion that we possess history's secrets. And of course, that's we're called upon to share them with others.
But I think the larger question really is the cultural one. I have come to believe that- this refers back to what we were talking about a couple of minutes ago- that the Islamic world is wrestling with this enormous crisis or this enormous challenge of how to reconcile a belief with modernity.
BILL MOYERS: An ancient belief of about who they are-
ANDREW BACEVICH: And who God is and God's role in human life, trying to reconcile that conviction to which believing Muslims, I think, adhere. And reconcile that with the demands of living in the 21st century, in the world of the 21st century. And my belief is that that reconciliation, if it happens, is going to happen according to their schedule and according to their terms.
I mean, put simply, rather than insisting that we can change Islam, that we can force it to change along a certain path. That was the purpose of the global war on terror, to force the greater Middle East to change in ways that were conducive to American interests. Rather than insisting on that, I think we need to let Islam be Islam, to let it change the way it is going to change on its own terms.
BILL MOYERS: What then is the role of counterinsurgency in Afghanistan? And this brings us back to the beginning of our discussion. What, then, is the goal of counterinsurgency in Afghanistan?
ANDREW BACEVICH: Well, I mean, the stated goal is to win their hearts and minds. But strategically, I would argue that makes no sense. And indeed strategically, I think it's actually counterproductive. If the basis of a well-defined and potentially successful strategy is to let Islam be Islam, to let it evolve as it will evolve, then our very presence, our very insistence on trying to determine the fate of this country as we've tried to determine the fate of Iraq is, in my mind, likely to cause Muslims around the world to view us that much more negatively, to see us as a threat. We're trying to tell them how to do their business.
BILL MOYERS: And to sign up at the local recruiting office?
ANDREW BACEVICH: Well, exactly right. That I- my sense is that the longer the long war goes, and again, we're already approaching the end of its first decade, the more likely it is that we will actually exacerbate the problem that gave rise to the 9/11 attacks in the first place. We have you know we Americans believe that the global war on terror began on 9/11, that the long war began on 9/11.
And again, this is a convenient sort of absence of historical awareness and memory. My own sense of a better start date to understand how we've gotten where we are would be Jimmy Carter's promulgation of the Carter doctrine in January of 1980. That was the policy statement that kicked off the process of militarizing US policy in the Islamic world.
BILL MOYERS: And what did the president say? What did president carter say?
ANDREW BACEVICH: What the president what the president said, and this was in response to the Soviet invasion of Afghanistan, which was incorrectly perceived to suggest that the Soviets were about to, you know, sweep across the entire Persian Gulf. The president said that the Persian Gulf is a vital national security interest. And the United States will use all means necessary to include military force in order to prevent a hostile power from controlling the Persian Gulf.
What the Carter doctrine became was a rationale for militarizing US policy, not simply in the Persian Gulf, but more broadly across the Middle East. And if we look at the record of US interventionism since 1980, whether we begin with President Reagan's intervention in Lebanon that ended with the catastrophic Beirut bombing. Or up through the various wars in Iraq and Afghanistan and so on.
You know, if we if we look back over 30 years and say, "Okay, given the trillions of dollars invested, given the thousands of American lives lost, is that 30 year project stabilizing the greater Middle East? Is it is it contributing to American security? Is it is it is it enhancing American power in abundance? Or is it possible that the 30 year long effects are just the opposite?" And again, it seems to me you think about it for about three seconds. It becomes crystal clear that this military approach to trying to ensure stability, in fact, is creating ever more instability.
ANDREW BACEVICH: So why continue down that path?
BILL MOYERS: It creating instability, because the Muslims reacted how?
BILL MOYERS: The Arabs and Muslims reacted how?
ANDREW BACEVICH: With resentment and antagonism, and again, regardless of how we would wish to portray our purposes and involvement, I think from their point of view, it is imperialism. It's colonialism. It is the west once again, as has happened in their past before it is the west once again insisting that the west will determine the fate and the future of these peoples. How could they not see that as imperialism?
BILL MOYERS: Let me circle back to something that's been in my mind since you first said it. You say that these examples of you say that these incidents of the slaughter of civilians suggest that General McChrystal is not in control of all of his forces. But if he comes out of the special operations forces, understands their world view, their mentality and their training, why is he not in control of them? He's in charge there.
ANDREW BACEVICH: Well, I think this is a very good question. And I don't think I can answer it. I mean we need to understand that a commander, any anybody above about a company commander, a guy who's or a woman who's in charge of about 150 soldiers. Anybody above that level is in command, but is not in the position to personally and directly supervise the activities of all his or her soldiers.
So McChrystal, as the four-star commander of 100 thousand soldiers, is not personally, directly and immediately supervising these sorts of nighttime raids, I expect. What the commander needs to do, what the commander must be held responsible for doing, is to establish a climate such that those soldiers outside of his eyesight will, in fact, act in ways consistent with the purposes that he has designated. Now if those soldiers are not doing that, either he has failed as a commander to establish a climate where there is effective control. And if that's the case, the commander should be held accountable. Or and this gets to your point that McChrystal comes from the special operations community himself, is it possible that coming from the black world, McChrystal himself either implicitly or explicitly is willing to allow special operations forces to operate by a different set of rules?
BILL MOYERS: Why do you call it the black world?
ANDREW BACEVICH: Well, I think it's a commonplace term used to describe national security activities that are that we, the people are not allowed to see, to know about. That we're kept in the dark. That the claims of security override our need to know, in the eyes of people within the national security establishment.
BILL MOYERS: If that is the case, then these killings, these this slaughter of civilian, noncombatants, is a natural consequence of that kind of wink and nod.
ANDREW BACEVICH: I think again, one would have to know more facts than we have. Of course, it's hard to get the facts, because they're kept from us. But that would be my concern at this point. I mean, were I Secretary Gates—I think Secretary Gates is a pretty admirable guy. He's doing I mean don't like everything he does, but he's probably a pretty good guy.
Were I Gates I would be demanding at this juncture to know much more about exactly what US special operations forces are up to. What are their rules of engagement? And when catastrophic incidents like this occur, I would demand to know where the responsibility was being fixed and what actions were being undertaken to preclude the repeat of these kinds of things.
BILL MOYERS: Do we know if those questions are even being asked right now?
ANDREW BACEVICH: I don't know. And again, this is this is where the secrecy of the special operations world is so pernicious. I mean, when the Abu Ghraib scandal broke, horrific set of occurrences in 2004 thanks to the fact that the photographs leaked, there was an enormous public outcry. And there was at least some semblance of an effort by authorities in Washington, both military and civilian, to get to the root of what had occurred. It's impossible for us as citizens to be able to say whether any kind of inquiry is going on inside the special operations world.
BILL MOYERS: Have you seen the videos this week of the episode in 2007?
ANDREW BACEVICH: Right.
BILL MOYERS: American-
ANDREW BACEVICH: I saw part of it. Yeah.
BILL MOYERS: What did you think as you saw that, and listened to the soundtrack of what these soldiers were saying?
ANDREW BACEVICH: Well-
BILL MOYERS: Quite gripping.
ANDREW BACEVICH: It was very gripping, and you know, what we could see is what we could see. I mean, we were looking through a camera lens, weak saw frame. And the point there is that we could not see the environment in which this incident occurred. And frankly, the environment may have been relatively benign or it may have been awful. We just don't know.
I myself, simply watching it on television, had a difficult time discerning that the people on the ground were armed, as the air crew and the helicopter claim that they were. I'm simply saying I could not see that they were armed. Certainly the group of people on the ground did not appear to be engaging in any kind of activity that posed a threat to US forces. They were sort of milling around. I mean, they were not in fighting positions. Or they were not there was no really organized activity whatsoever. So it becomes difficult, I think, from our vantage point to understand why it was necessary to kill those people.
BILL MOYERS: But what does it say to you that this video, that these pictures in possession of the Pentagon were, in fact, withheld for three years, and then leaked by somebody to this site run by an Australian? And it's the first time we've seen it.
ANDREW BACEVICH: The Pentagon has an interest. And I think has a recognized interest in keeping the American people informed. But the fact of the matter is, they keep the American people informed about things they wish the American people to be informed about. And in that sense there is a universe of information that is kept from us, ostensibly in the interests of national security.
I think when an episode like this occurs it is it gives us a little bit of a hint as to the extent of information in that universe that's kept to from us, that it's kept from us in order to keep us in the dark. It's impossible for us to know what's in that universe. Except every once in a while, we get a sense that the rules of the game are not defined are not are not informed by a desire to ensure that you and I are fully informed about the activities of the United States military. They are informed by a desire to keep us partially informed and partially in the dark.
BILL MOYERS: You've no doubt seen the stories this week that Senator Feingold and Representative McGovern are calling for a flexible timetable, reminiscent of Congressional proposals that eventually won support during the Vietnam War, to get our troops out of Afghanistan. Could this work there?
ANDREW BACEVICH: I don't think so. It's not going to work because the party leadership's not going to support them. I mean, I think it's a very admirable initiative on their part. But I would be surprised if either the majority leader or Speaker Pelosi climbed on board this bandwagon.
BILL MOYERS: Why?
ANDREW BACEVICH: Be because I mean, frankly, the answer goes back to the aftermath of the 2006 off-year elections. You'll remember that this was the election in which Democratic leaders in the Congress said, "give us the power and we will shut down the Iraq War." We gave them the power. They reneged on the promise. So the Democratic Party even when there was a Republican president was not willing to confront the president and to act in ways to limit the prerogatives of the commander-in-chief.
BILL MOYERS: But what do we make of that?
ANDREW BACEVICH: I think what we what we make of that is that the militarization of our political class is far more advanced or far deeper I think than most of us appreciate.
BILL MOYERS: Andrew Bacevich, thank you for being with me again on the Journal.
BILL MOYERS: And what do we do? President Obama himself has said that our strategy there is not ultimately a military victory per se, but to win the hearts and minds of the Afghani people.
ANDREW BACEVICH: War termination for us has come to be very difficult, because of our inability to understand the war that we undertake. And I think that both Iraq and Afghanistan illustrate the point- Iraq probably better. I mean, the Bush administration expected that a conventional invasion and occupation of Iraq that toppled Saddam Hussein, that that act would end the war and would produce a host of positive effects. When instead all we did was to expand the war, extend the war, with virtually no political benefits to the United States. Why did that happen? Well, a lot of reasons. But not least among them was that the Bush administration fundamentally misunderstand what its own global war on terror was all about.
BILL MOYERS: So President Obama comes along and says, "Let's get that damn thing behind us. You know, let's just get out of there."
ANDREW BACEVICH: Well-
BILL MOYERS: "Get out of Iraq."
ANDREW BACEVICH: We were all saying at that point, "Let's forget Iraq." And he endorsed that notion. I mean, I voted for President Obama. And I think President Obama is probably the smartest guy to come down the pike, in terms of our politics in a long time. But I believe that his decision in December to escalate the war in Afghanistan was a tragic mistake, a squandered opportunity. That was his oppor- that was his chance. The Afghanistan decision was his chance to change course, when it comes to the fundamentals of US national security policy. And instead, he made in December, made the same decision with regard to Afghanistan as John McCain would have made, had we elected John McCain president.
ANDREW BACEVICH: And so, how could this incredibly smart guy have made that incredibly, in my view, stupid decision? I think that one of the explanations, I think, is that even though the president has styled himself as the man who's going to bring change and is going to change the way Washington works, the president surrounded himself with a national security team of very conventional and orthodox thinkers. I mean, we have a retired Marine four-star general as a National Security Advisor. We've got retired four-star as Director of National Intelligence.
We carried over Mr. Gates, the Republican security of defense as the new Secretary Of Defense. Even Secretary Clinton the Secretary of State is frankly a rather hawkish Democrat. So my sense is that as the president engaged with the Afghanistan question, in the inner circle of advisors, there may not have been any influential voices proposing a genuinely radical course change.
BILL MOYERS: But how do you explain that a country is so passive about a war that to so many people who, like you, seems to be at cross-purposes. Why are we so passive about it?
ANDREW BACEVICH: Well, this is the unintended and, I think, unanticipated consequences of moving to an all-volunteer force, and in essence, driving a stake through the tradition of the citizen-soldier. That we do have a circumstance today in which there is a significant gap, I think, between those who serve in uniform and the rest of us.
You know, life is tough. Unemployment is close to 10 percent. You know, raising kids, putting food on the table, that's a full-time job for most Americans. And since the 1970s, when this implicit contract was negotiated between the American people and the American government that removed from the people any obligation to serve, we've gotten very accustomed to the notion that whatever is going on in Afghanistan or Iraq or wherever else is, in a sense, not our affair. I mean others have made the point. I've made the point.
I think that that condition directly stems from the decision made back in the Nixon era to kill the draft and to opt for a professional military. Not that people in those days anticipated the long-term consequences, but we today deal with those consequences.
BILL MOYERS: Let's come back to the reality on the ground right now. What could be Karzai's motive for pushing back against the west, against the NATO powers, against the United States, against President Obama, as he has been doing?
ANDREW BACEVICH: Well, tough to say. I think, again, from our vantage point, but my guess would be that that has something to do with his own domestic political situation. That to be- to seem to be the puppet of the Americans is not in his long-term interests.
And so he's pushing back. He's a politician and I think almost all politicians privilege their own personal ambitions. They are determined to maintain their hold on power, and if President Karzai perceives that the kind of pressure he's getting from the United States and other NATO allies is contrary to his own interests, he's not going to go along with it.
ANDREW BACEVICH: I mean, we had to- I keep going back to the Vietnam comparisons, but you will remember that the events leading up to the assassination of President Diem on-
BILL MOYERS: 19-
ANDREW BACEVICH: November first, 1963- in which the United States was complicit. That assassination plot stemmed in part from fears that members of Diem's own inner circle were contemplating opening up negotiations with North Vietnamese. And in order to prevent any such event from occurring we decided we needed to collaborate with Vietnamese generals in bringing about his overthrow.
BILL MOYERS: A coup.
ANDREW BACEVICH: A coup, in which, ultimately culminating in his murder. So this problem of finding a partner who will be sufficiently independent to not look like a puppet, and yet will be sufficiently compliant that he will contribute to our purposes, it's a very difficult problem.
BILL MOYERS: Is he indispensable to our effort there?
ANDREW BACEVICH: I honestly don't know enough about Afghan politics, I think. But I mean, I know of no one waiting in the wings who would be able to take his place. I mean, when we eliminated Diem, we did so anticipating that the generals would be better partners in the waging of the war against the Viet Cong. It turned out that the generals actually were much worse than Diem had been.
BILL MOYERS: And as a matter of fact, Karzai cannot afford to give up on the western effort in Afghanistan. Can he?
ANDREW BACEVICH: I don't know. You know, he's made these noises about cutting deals with the Taliban. I would think that there are enormous risks in doing that from his point of view, but I wouldn't pretend to be able to assess how he evaluates the risks of cutting deals with the Taliban versus the risks of continuing to collaborate with the Americans and the west.
BILL MOYERS: What's your take on this big offensive that is supposed to come this summer in the southern part of the country around Marjah? Where I had thought- we had thought there was a big offensive in February, in March, right?
ANDREW BACEVICH: Well, I think the Marjah offensive in February I think was intended to provide kind of a trial run of the new McChrystal approach, in which western forces, with Afghan forces, would clear an area of Taliban. And then establish a continuing presence. And then hard on the heels of that continuing security presence, to introduce a package of government services that would culminate in winning the hearts and minds. General McChrystal, at the time of the Mar- at the time that the Marjah operation began, promised that he was providing government out of a box. That was the phrase that he used.
My own sense is that we probably have succeeded in clearing the enemy in Marjah. We probably can succeed in clearing the enemy in any part of the country. I'm quite skeptical about whether this government out of the box concept is viable. Matter of fact, it strikes me as remarkably naïve.
BILL MOYERS: Why are you skeptical?
ANDREW BACEVICH: Well, we've tried this before in Marjah. This notion of bringing government or development out of the box. It turns out that back in the 1950s, in the Eisenhower era, the US Agency for International Development had undertaken a massive agricultural reform project in Marjah with the intention of basically converting the nomadic local population into peasant farmers.
It was well-funded. I am sure that the people who designed it had the best intentions in the world. And it was utter, complete and total flop. Why was it a total flop? Because the people who lived in the region simply didn't share the view of the United States about what a better life looked like.
And the point here is, again, granting that people who are in the development business have the best will in the world. There are enormous cultural barriers that interfere with the effective deliverance of the kind of programs that are promised. So, I mean, no, let us see- but I think that the Americans tend to come at these problems with a sense of optimism and expectation that tends not to be justified by what we know from the history of development programs.
BILL MOYERS: You wrote the other day, I think, in "America" magazine, that we—Americans suffer from a deficit of self-awareness. Explain that to me.
ANDREW BACEVICH: Well, it's this forgetfulness. It's this assumption that what we value, what we believe is the- are the keys to happiness, necessarily are shared by people who come from a different place, whether it's a different place historically or culturally or religiously. I have a wonderful student of mine at Boston University who worked in Afghanistan in their ministry of economic development on an internship a summer ago. And she just finished her master's degree and is heading back to Afghanistan.
And she is smart and she is just a terrific person in every respect. But the other day, we were- she was defending her MA thesis. And we were sort of arguing about this cultural question. And she said to me, "You know, there are some things that we tried to do that aren't cultural." And she-
BILL MOYERS: That we Americans try to do?
ANDREW BACEVICH: That in our programs that we try to introduce in places like Afghanistan. Not everything has a cultural connotation. And she said, "Let me give you an example." And the example she offered was a laptop. She said that, "You know, in order to have a functioning society, in order to advance yourself, in order to grow an economy, you have to have access to the Internet. And therefore, you need to know how to use a laptop."
And my response was, "I understand what you just said. But the laptop carries with it enormous cultural connotations. The Internet carries enormous cultural connotations. And for us simply to assume that because we view those mechanisms as central to our understanding of modernity, it doesn't follow that people in Afghanistan are going to share that view." That's part of our problem, I think, that we work from the assumption that at the end of the day we have the answers. And we're trying to share the answers with those who apparently need them.
BILL MOYERS: And you've written about one specific cultural phenomenon in particular, in which the Afghanis look at life as both religious and political. That is, they don't make the divisions that so many secular Americans make. And that our efforts to try to separate their commitments to religion and their involvement in politics are futile.
ANDREW BACEVICH: I don't want to try to pretend that I'm an expert in Islam, because I'm not. But one of the things I do understand from reading about it is that part of the Islamic view is that politics and belief are intimately and inextricably tied together, that there is no separation between those two dimensions of human existence. Where we in the West, who once believed that those two aspects of life were intimately connected, have, over a period of time, whether for good or for ill, come to believe that they're best kept apart. You know, that what we do on the Sabbath is fine. But that doesn't necessarily inform and shape every other aspect of our life.
And that we're comfortable with that. We believe that makes sense. And I think that implicitly our efforts in places like Afghanistan are informed by an expectation that if we can persuade the Afghans to learn to separate Islam from the rest of life, that they will be better off. And I strongly suspect that they are utterly and completely opposed to that proposition.
BILL MOYERS: I saw a study this week that was done by some researchers at Tufts University.
ANDREW BACEVICH: Yeah.
BILL MOYERS: They had a team of researchers who interviewed a representative sample of Afghani, ordinary Afghani people, who it turns out have a very negative view of our efforts there, of our economic and aid efforts there. Now what explains that? That we would keep trying to do it, when they have such a negative reaction to it?
ANDREW BACEVICH: Well, I think that gets to this deficit of self-awareness. There is a confidence that we have accrued. I think particularly since World War II. This is not something that somehow appeared overnight. A confidence that history as we understand history—and in many respects, I think the only history that Americans even have any awareness of really is the history of the 20th century.
And Americans tend to see the history of the 20th century as a triumphal narrative. It was in the 20th century that the United States achieved such enormous preeminence. It was in the 20th century that seemingly, we demonstrated the superiority of our system as competitors- totalitarian competitors in the left and the right either were crushed or fell by the wayside.
And I think as a consequence of that interpretation of the 20th century. It's not an interpretation that I would agree with, but as a consequence of that interpretation of the 20th century, Americans have come to believe quite deeply that the answers to the world's ills are found here. That the keys to life, liberty and happiness that we have embraced are not only applicable to Americans, but they're applicable to Afghans and they're applicable to Pakistanis and so on.
And we're simply not willing to acknowledge either the contradictions in our own way of life or the possibility that if you're an Afghan or a Pakistani, that you may just define happiness or fulfillment in a radically different way. And despite the fact that we confront failures like Vietnam, and I think I would also argue strongly like Iraq, we cling to this notion that we possess history's secrets. And of course, that's we're called upon to share them with others.
But I think the larger question really is the cultural one. I have come to believe that- this refers back to what we were talking about a couple of minutes ago- that the Islamic world is wrestling with this enormous crisis or this enormous challenge of how to reconcile a belief with modernity.
BILL MOYERS: An ancient belief of about who they are-
ANDREW BACEVICH: And who God is and God's role in human life, trying to reconcile that conviction to which believing Muslims, I think, adhere. And reconcile that with the demands of living in the 21st century, in the world of the 21st century. And my belief is that that reconciliation, if it happens, is going to happen according to their schedule and according to their terms.
I mean, put simply, rather than insisting that we can change Islam, that we can force it to change along a certain path. That was the purpose of the global war on terror, to force the greater Middle East to change in ways that were conducive to American interests. Rather than insisting on that, I think we need to let Islam be Islam, to let it change the way it is going to change on its own terms.
BILL MOYERS: What then is the role of counterinsurgency in Afghanistan? And this brings us back to the beginning of our discussion. What, then, is the goal of counterinsurgency in Afghanistan?
ANDREW BACEVICH: Well, I mean, the stated goal is to win their hearts and minds. But strategically, I would argue that makes no sense. And indeed strategically, I think it's actually counterproductive. If the basis of a well-defined and potentially successful strategy is to let Islam be Islam, to let it evolve as it will evolve, then our very presence, our very insistence on trying to determine the fate of this country as we've tried to determine the fate of Iraq is, in my mind, likely to cause Muslims around the world to view us that much more negatively, to see us as a threat. We're trying to tell them how to do their business.
BILL MOYERS: And to sign up at the local recruiting office?
ANDREW BACEVICH: Well, exactly right. That I- my sense is that the longer the long war goes, and again, we're already approaching the end of its first decade, the more likely it is that we will actually exacerbate the problem that gave rise to the 9/11 attacks in the first place. We have you know we Americans believe that the global war on terror began on 9/11, that the long war began on 9/11.
And again, this is a convenient sort of absence of historical awareness and memory. My own sense of a better start date to understand how we've gotten where we are would be Jimmy Carter's promulgation of the Carter doctrine in January of 1980. That was the policy statement that kicked off the process of militarizing US policy in the Islamic world.
BILL MOYERS: And what did the president say? What did president carter say?
ANDREW BACEVICH: What the president what the president said, and this was in response to the Soviet invasion of Afghanistan, which was incorrectly perceived to suggest that the Soviets were about to, you know, sweep across the entire Persian Gulf. The president said that the Persian Gulf is a vital national security interest. And the United States will use all means necessary to include military force in order to prevent a hostile power from controlling the Persian Gulf.
What the Carter doctrine became was a rationale for militarizing US policy, not simply in the Persian Gulf, but more broadly across the Middle East. And if we look at the record of US interventionism since 1980, whether we begin with President Reagan's intervention in Lebanon that ended with the catastrophic Beirut bombing. Or up through the various wars in Iraq and Afghanistan and so on.
You know, if we if we look back over 30 years and say, "Okay, given the trillions of dollars invested, given the thousands of American lives lost, is that 30 year project stabilizing the greater Middle East? Is it is it contributing to American security? Is it is it is it enhancing American power in abundance? Or is it possible that the 30 year long effects are just the opposite?" And again, it seems to me you think about it for about three seconds. It becomes crystal clear that this military approach to trying to ensure stability, in fact, is creating ever more instability.
ANDREW BACEVICH: So why continue down that path?
BILL MOYERS: It creating instability, because the Muslims reacted how?
BILL MOYERS: The Arabs and Muslims reacted how?
ANDREW BACEVICH: With resentment and antagonism, and again, regardless of how we would wish to portray our purposes and involvement, I think from their point of view, it is imperialism. It's colonialism. It is the west once again, as has happened in their past before it is the west once again insisting that the west will determine the fate and the future of these peoples. How could they not see that as imperialism?
BILL MOYERS: Let me circle back to something that's been in my mind since you first said it. You say that these examples of you say that these incidents of the slaughter of civilians suggest that General McChrystal is not in control of all of his forces. But if he comes out of the special operations forces, understands their world view, their mentality and their training, why is he not in control of them? He's in charge there.
ANDREW BACEVICH: Well, I think this is a very good question. And I don't think I can answer it. I mean we need to understand that a commander, any anybody above about a company commander, a guy who's or a woman who's in charge of about 150 soldiers. Anybody above that level is in command, but is not in the position to personally and directly supervise the activities of all his or her soldiers.
So McChrystal, as the four-star commander of 100 thousand soldiers, is not personally, directly and immediately supervising these sorts of nighttime raids, I expect. What the commander needs to do, what the commander must be held responsible for doing, is to establish a climate such that those soldiers outside of his eyesight will, in fact, act in ways consistent with the purposes that he has designated. Now if those soldiers are not doing that, either he has failed as a commander to establish a climate where there is effective control. And if that's the case, the commander should be held accountable. Or and this gets to your point that McChrystal comes from the special operations community himself, is it possible that coming from the black world, McChrystal himself either implicitly or explicitly is willing to allow special operations forces to operate by a different set of rules?
BILL MOYERS: Why do you call it the black world?
ANDREW BACEVICH: Well, I think it's a commonplace term used to describe national security activities that are that we, the people are not allowed to see, to know about. That we're kept in the dark. That the claims of security override our need to know, in the eyes of people within the national security establishment.
BILL MOYERS: If that is the case, then these killings, these this slaughter of civilian, noncombatants, is a natural consequence of that kind of wink and nod.
ANDREW BACEVICH: I think again, one would have to know more facts than we have. Of course, it's hard to get the facts, because they're kept from us. But that would be my concern at this point. I mean, were I Secretary Gates—I think Secretary Gates is a pretty admirable guy. He's doing I mean don't like everything he does, but he's probably a pretty good guy.
Were I Gates I would be demanding at this juncture to know much more about exactly what US special operations forces are up to. What are their rules of engagement? And when catastrophic incidents like this occur, I would demand to know where the responsibility was being fixed and what actions were being undertaken to preclude the repeat of these kinds of things.
BILL MOYERS: Do we know if those questions are even being asked right now?
ANDREW BACEVICH: I don't know. And again, this is this is where the secrecy of the special operations world is so pernicious. I mean, when the Abu Ghraib scandal broke, horrific set of occurrences in 2004 thanks to the fact that the photographs leaked, there was an enormous public outcry. And there was at least some semblance of an effort by authorities in Washington, both military and civilian, to get to the root of what had occurred. It's impossible for us as citizens to be able to say whether any kind of inquiry is going on inside the special operations world.
BILL MOYERS: Have you seen the videos this week of the episode in 2007?
ANDREW BACEVICH: Right.
BILL MOYERS: American-
ANDREW BACEVICH: I saw part of it. Yeah.
BILL MOYERS: What did you think as you saw that, and listened to the soundtrack of what these soldiers were saying?
ANDREW BACEVICH: Well-
BILL MOYERS: Quite gripping.
ANDREW BACEVICH: It was very gripping, and you know, what we could see is what we could see. I mean, we were looking through a camera lens, weak saw frame. And the point there is that we could not see the environment in which this incident occurred. And frankly, the environment may have been relatively benign or it may have been awful. We just don't know.
I myself, simply watching it on television, had a difficult time discerning that the people on the ground were armed, as the air crew and the helicopter claim that they were. I'm simply saying I could not see that they were armed. Certainly the group of people on the ground did not appear to be engaging in any kind of activity that posed a threat to US forces. They were sort of milling around. I mean, they were not in fighting positions. Or they were not there was no really organized activity whatsoever. So it becomes difficult, I think, from our vantage point to understand why it was necessary to kill those people.
BILL MOYERS: But what does it say to you that this video, that these pictures in possession of the Pentagon were, in fact, withheld for three years, and then leaked by somebody to this site run by an Australian? And it's the first time we've seen it.
ANDREW BACEVICH: The Pentagon has an interest. And I think has a recognized interest in keeping the American people informed. But the fact of the matter is, they keep the American people informed about things they wish the American people to be informed about. And in that sense there is a universe of information that is kept from us, ostensibly in the interests of national security.
I think when an episode like this occurs it is it gives us a little bit of a hint as to the extent of information in that universe that's kept to from us, that it's kept from us in order to keep us in the dark. It's impossible for us to know what's in that universe. Except every once in a while, we get a sense that the rules of the game are not defined are not are not informed by a desire to ensure that you and I are fully informed about the activities of the United States military. They are informed by a desire to keep us partially informed and partially in the dark.
BILL MOYERS: You've no doubt seen the stories this week that Senator Feingold and Representative McGovern are calling for a flexible timetable, reminiscent of Congressional proposals that eventually won support during the Vietnam War, to get our troops out of Afghanistan. Could this work there?
ANDREW BACEVICH: I don't think so. It's not going to work because the party leadership's not going to support them. I mean, I think it's a very admirable initiative on their part. But I would be surprised if either the majority leader or Speaker Pelosi climbed on board this bandwagon.
BILL MOYERS: Why?
ANDREW BACEVICH: Be because I mean, frankly, the answer goes back to the aftermath of the 2006 off-year elections. You'll remember that this was the election in which Democratic leaders in the Congress said, "give us the power and we will shut down the Iraq War." We gave them the power. They reneged on the promise. So the Democratic Party even when there was a Republican president was not willing to confront the president and to act in ways to limit the prerogatives of the commander-in-chief.
BILL MOYERS: But what do we make of that?
ANDREW BACEVICH: I think what we what we make of that is that the militarization of our political class is far more advanced or far deeper I think than most of us appreciate.
BILL MOYERS: Andrew Bacevich, thank you for being with me again on the Journal.
Bill Moyers: Kwak & Johnson P1
BILL MOYERS: Welcome to the JOURNAL. With all due respect, we can only wish those tea party activists who gathered this week were not so single-minded about just who's responsible for their troubles, real and imagined. They're up in arms, so to speak, against big government, especially the Obama administration.
But if they thought this through, they'd be joining forces with other grassroots Americans who will soon be demonstrating in Washington and elsewhere against high finance, taking on Wall Street and the country's biggest banks.
The original Tea Party, remember, wasn't directed just against the British redcoats. Colonial patriots also took aim at the East India Company. That was the joint-stock enterprise originally chartered by the first Queen Elizabeth. Over the years, the government granted them special rights and privileges, which the owners turned into a monopoly over trade, including tea.
It may seem a stretch from tea to credit default swaps, but the principle is the same: when enormous private wealth goes unchecked, regular folks get hurt - badly. That's what happened in 2008 when the monied interests led us up the garden path to the great collapse.
Suppose the Tea Party folk had dropped by those Senate hearings this week looking into the failure of Washington Mutual. That's the bank that went belly up during the meltdown in September 2008. It was the largest such failure in American history.
WaMu, as we were reminded this week, made sub-prime loans that its executives knew were rotten, then packaged them as mortgage securities, and pawned them off on unsuspecting investors.
SEN. CARL LEVIN: And that was your responsibility to make sure that the securities which went out to the investors were following notice to the investors of everything that they needed to know in order that the information be complete and truthful. That's what your testimony was, under oath.
DAVID BECK: It's a very real possibility that the loans that went out were better quality than Mr. Shaw laid out.
SEN. CARL LEVIN: And you don't -
DAVID BECK: A very real possibility.
SEN. CARL LEVIN: And there's a very good possibility that they were exactly the quality that he laid out, right? Is that right?
DAVID BECK: That's right.
SEN. CARL LEVIN: Okay. And you don't know, and apparently you don't care. And the trouble is, you should have cared.
BILL MOYERS: Then there's Lehman Brothers. During those black September days a year and a half ago, the Feds decided to let Lehman go. This led to America's biggest bankruptcy ever. In an admirable work of journalism this week, the New York Times reported that Lehman secretly controlled a company called Hudson Castle and used it to borrow money as well as to hide bad investments in commercial real estate and sub-prime mortgages.
But the week's award for sheer gall goes to a Chicago-area hedge fund called Magnetar, named after a kind of neutron star that spews deadly radiation across the galaxies. Thanks to the teamwork of the investigative reporting website "ProPublica," NPR's "Planet Money" project and "This American Life," we learned Magnetar worked with investment banks to create toxic CDO's - collateralized debt obligations - securities backed by sub-prime mortgages the management knew were bad. And then Magnetar took that knowledge and bet against the very same investments they had recommended to buyers. Selling short and making a fortune.
And late this week the Securities and Exchange Commission charged the godfather of Wall Street, Goldman Sachs, with fraud in earning a fifteen million dollar fee involving those complex CDO's, a hedge fund, and the housing market.
But, since we know all this, why is it so hard to hold Wall Street accountable? Even as we speak the banking industry and corporate America are fighting against financial reform with all the money and influence at their disposal Their effort is to preserve a system that would enable them to ransack the country once again.
So even if the Tea Party folks saw the light, what can ordinary Americans do?
That's the question I want to put to my guests, Simon Johnson and James Kwak. They have written this new book, 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. It's a must read - already a best seller -- and it couldn't have come at a better time. This book could change the debate over financial reform by tipping it in favor of the public.
Simon Johnson is a former chief economist at the International Monetary Fund. He now teaches at MIT's Sloan School of Management and is a Senior Fellow at the Peterson Institute for International Economics.
James Kwak is studying law at Yale Law School - a career he decided to pursue after working as a management consultant at McKinsey & Company and co-founding the successful software company, Guidewire. Together James Kwak and Simon Johnson run the indispensable economic website BaselineScenario.com
Welcome to you both.
Let me get to the blunt conclusion you reach in your book. You say that two years after the devastating financial crisis of '08 our country is still at the mercy of an oligarchy that is bigger, more profitable, and more resistant to regulation than ever. Correct?
SIMON JOHNSON: Absolutely correct, Bill. The big banks became stronger as a result of the bailout. That may seem extraordinary, but it's really true. They're turning that increased economic clout into more political power. And they're using that political power to go out and take the same sort of risks that got us into disaster in September 2008.
BILL MOYERS: And your definition of oligarchy is?
SIMON JOHNSON: Oligarchy is just- it's a very simple, straightforward idea from Aristotle. It's political power based on economic power. And it's the rise of the banks in economic terms, which we document at length, that it'd turn into political power. And they then feed that back into more deregulation, more opportunities to go out and take reckless risks and-- and capture huge amounts of money.
BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?
JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.
BILL MOYERS: And you write that they control 60 percent of our gross national product?
JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.
BILL MOYERS: And what's the threat from an oligarchy of this size and scale?
SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.
BILL MOYERS: So, you're not kidding when you say it's an oligarchy?
JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.
SIMON JOHNSON: I know people react a little negatively when you use this term for the United States. But it means political power derived from economic power. That's what we're looking at here. It's disproportionate, it's unfair, it is very unproductive, by the way. Undermines business in this society. And it's an oligarchy like we see in other countries.
BILL MOYERS: And you say they continue to hold the global economy hostage?
JAMES KWAK: Exactly. Because what's happened- what we learned in 2008 were certain institutions are so big and so interconnected that if they were to fail, they would cause systemic shocks throughout the economy. That's essentially what happened in September 2008 when Lehman Brothers collapsed. And what's remarkable, and I think what essentially proves the point of our book is that almost two years later, nothing has changed.
Or the only thing that has changed is that these banks have gotten larger, more powerful, both economically and politically. And they've been flexing their muscles in Washington for the last year and a half. So Neal Wolin, the Deputy Treasury Secretary gave a blistering speech to the U.S. Chamber of Commerce in which he said, look, the financial sector has been spending more than one million dollars per day lobbying against the reforms we need to fix the financial system. Now, Simon and I think those reforms that the Administration has proposed do not go far enough. But we think they're certainly better than nothing. What Wall Street wants is they want nothing. They want to stop this in its tracks and go back to where we were five years ago.
SIMON JOHNSON: It's amazing, Bill. But this is this is politics and this is money. And you know, there's a ground game, which is campaign contributions, which are surging in. I'm sure on both sides of the aisle. And there's also the ideological space. It's amazing. The Chamber of Commerce that claims to represent the broad cross section of American business is siding with six big banks, who favor policies that are directly contrary to the interests of most of the membership of the Chamber of Commerce. And that's just not just me saying that. That's Neal Wolin. That's Treasury. That's the White House saying that now. Calling fortunately, they've come to the point where they're willing to call the Chamber of Commerce on that. But I don't know if that message is getting through to people.
JAMES KWAK: You see what the bankers have done is they have taken a basic principle which is more or less true. Which is that free financial markets do enable money to go to the places where people need it. But on top of that, they've erected a system that is indescribably complex. And gives many opportunities to make money at the expense of their customers, at the expense of their counterparties. Even at the expense of their own employers. So, one of the things that has happened has been that Wall Street finance has become so complex and the internal systems of Wall Street banks has become so complex that if you are a smart banker, who is out to maximize your own income, you can find the loopholes in the system and you can exploit them, even if it means taking money from your own-- from your own company
BILL MOYERS: You've been writing this week on your website-- about this hedge fund in Chicago that's made a lot of money. In effect, betting against the American Dream. What was that?
JAMES KWAK: Magnetar is a hedge fund which means that other people gave them money to invest. And their job is to make as much money as possible. And these were the smart guys in the room. They saw that the system was broken. And they found a specific way to exploit it. And they knew that they could go for example, they could go to Wall Street banks and the banks would collaborate in making these extremely toxic securities. Because they knew what the bankers incentives were. They knew that the banker's incentives were to do the deal, to do the transaction, to get the fees up front. And they knew that there was nobody watching out for the investors. There was nobody watching out to make sure that securities they manufactured were actually good securities. But essentially what they were doing is they wanted to short the housing market. And they shorted the market in such a way that they actually made the problem worse, because what they did is they encouraged they tried to create these very toxic securities explicitly so that they could then short those securities. And that's why in a sense, they were they were shorting the American Dream. But what the real story of Magnetar, I think, is that they were exploiting a system that was deeply broken.
So, we like to think that the financial system we have in Wall Street are set up so that as people try to make lots of money they are they are indirectly helping the economy by making sure their capital goes where it's needed most. What the Magnetar story shows us that this is a casino, where you can make money you can make money exploiting the weaknesses in the casino. And it has nothing to do with the American Dream. It has nothing to do with making sure that capital goes to the places where it's needed most. I have to say that we owe a great to debt to "ProPublica" and "Planet Money" and "This American Life" for uncovering this story
BILL MOYERS: Public radio's excellent program, "This American Life", did a terrific broadcast on this subject, based upon the ProPublica investigation that you talked about. And there's a song in it that I have to play for the two of you and for my audience. Take a listen.
UNIDENTIFIED MAN: Step one. You write a check for 10 million dollars. Hand the check to a Wall Street bank, and ask them to make us a CDO. Step two: they create the CDO, using risky stuff, very risky stuff, extremely risky stuff. Step three: other investors commit hundreds of millions of dollars to the CDO. Step four: we bet against the CDO, using a credit default swap. Step five: the housing market crashes. The CDO's value goes to zero, our bet pays off and we make hundreds of millions of dollars and before you can say step six, we're rich! We're going to bet against the American Dream, we're going to be on the winning team, purchase risky debt on a massive scale. Then place a bet that the debt will fail. Hundreds of millions for Magnetar, the economy collapsing like a dying star. No one will know till it's on NPR, and who cares? It's time to hit the town, this sucker could go down. The housing market's losing steam. And all we got to do to make our dreams come true is bet against the American Dream!
BILL MOYERS: You're smiling, James, but is it really that funny?
JAMES KWAK: Well for decades, we've been told that Wall Street and financial innovation were promoting the American Dream. And what they've I think what the show and the song have really hit the hit the nail on is that in fact, you can make even more money betting against the American Dream. And that's the kind of system we have today.
SIMON JOHNSON: My bumper sticker from this and I hope it does become a bumper sticker is, "Trust me, I'm a banker."
I mean, you need to break through there's a level of progress here, Bill. Which is when people can laugh about it. When people can break it down into pieces. When you've got the 60-second version. And you can hammer that. And people understand it. Then you're starting to fight back. This is about ideology. This is about belief. This is about these guys are smart. These guys are well paid. So they must know what they're doing. And that's wrong.
BILL MOYERS: You wrote on your website this week about how JPMorgan Chase lost $880 million on one of these kind of whacky obscure deals? But the executives still paid themselves millions of dollars in up front fees. And you conclude that bankers placed a ticking bomb on their own bank balance sheet. It exploded and personally they still made money.
JAMES KWAK: Exactly. Because this is an example so, this is from the "ProPublica" investigation of Magnetar. essentially the bankers at JPMorgan Chase involved in the transaction created a new CDO. A new collateralized debt obligation. Which was very, very toxic. And either they knew at the time that it was toxic, or they should have known, I have no way of knowing. JPMorgan decided to hold onto most of this toxic product they-- they had built. A billion dollars worth of toxic product. And then when the market collapsed, it turned out they lost $880 million on that position.
So, if we think about it, there are really two possibilities here. The bankers involved in the transaction either really thought that this was a good product and a good investment, in which case they're incompetent. Or they had- they may have doubts, they may have thought it was toxic, but they knew that the way the internal systems at JPMorgan Chase worked, they could get the fees front, they could get bonuses based on those fees, and leave the bomb for later.
BILL MOYERS: Somebody wrote on your blog this week, "If I were to buy an old house. Make some cosmetic improvements that mask an underlying rot. Got my insurance company to write an exorbitant homeowners policy exceeding any leans against the property. Then burned it down, wouldn't that be fraud?" Did you answer this guy?
JAMES KWAK: I haven't. That would
BILL MOYERS: Would you?
JAMES KWAK: That would be fraud.
BILL MOYERS: That would be fraud. So, explain to me how you manage to lose $880 million on your own company's money to make a quick buck for yourself and you get away with it?
JAMES KWAK: Well, I think that there are laws in this area. So, for any securities, there has to be-- for this type of security, there has to be a document which explains those securities. And that's a document that you give to the investors who might buy them. And there are laws governing those. And if you put in facts in there that that are materially false. That you know to be true, that is fraud. But I think the problem is that in many of these cases, I don't think that many of these people are criminals. I get a lot of criticism for saying that I don't think these people are criminals. But I think it's relatively easy to write these documents in such a way that you're not saying anything you know to be false. And so, they pass through, they pass through any kind of you avoid any possible criminal liabilities there. But yet, they can be misleading in a way that encourages people to buy them.
SIMON JOHNSON: I think it's actually worse in some instance, Bill. Certainly for offshore activities. Goldman Sachs was involved in hiding a lot of Greek government debt. They then sold new Greek government obligations to people in the United States as far as far as we understand it. And didn't reveal that they'd hidden the levels of the true levels of government debt. Now, that is withholding material information. That's a violation of rule 10B-5. and where is the legal process, you should ask, that holds them accountable for that? I've talked to lots of very good lawyers about this. And there are many complicated stories about why Goldman Sachs won't face any civil action or criminal action. There are huge loopholes in our legal system with regard to financial services that need to be closed.
BILL MOYERS: There were some interesting hearings, as I know you saw, before the Financial Crisis Inquiry Commission. And some of the first, some of the most interesting testimony came from the former honchos at Citigroup. Mr. Prince and Mr. Rubin. Take a look.
CHARLES PRINCE: Let me start by saying I'm sorry. I'm sorry that our management team, starting with me, like so many others, could not see the unprecedented market collapse that lay before us.
ROBERT RUBIN: My role at Citi, defined at the outset, was to engage with clients across the bank's businesses, here and abroad. Having spent my career in positions with significant operational responsibility at Treasury and, prior to that, at Goldman Sachs, I no longer wanted such a role at this stage of my life, and my agreement with Citi provided that I would have no management of personnel or operations.
ROBERT RUBIN: But almost all of us, including me, who were involved in the financial system, missed the powerful combination of factors that led to this crisis and the serious possibility of a massive crisis. We all bear responsibility for not recognizing this, and I deeply regret that.
PHIL ANGELIDES: The two of you, in charge of this organization did not seem to have a grip on what was happening. I don't know that you can have it two ways. You were either were pulling the levers or asleep at the switch.
BILL MOYERS: How can it be that a Robert Rubin, former Secretary of the Treasury, pulls down $100 million as a senior advisor to Citigroup and claims he doesn't know the risk that was involved in what he was trying to sell to clients and foreign officials? How can that be?
JAMES KWAK: I think there are two things. There's a narrow and a broad view of this. The narrow view is I think Rubin is actually not lying. I think it is true that Rubin did not know what the risks were. Although he certainly should have known what the risks were. And that's because he was fully subscribed to this ideology that free markets are good. That the market will take care of itself. That, he also suffered from a lot of the blindness that corporate officers and directors have. Corporate officers and directors manage these enormous organizations with tens of hundreds of thousands of people. They have very little idea what's going on. They're getting their information from subordinates, who are giving them a filtered view of the world. On the other hand, when he says, no one could have foreseen this. This is what I call an intellectual cover up. And I say that because it's very disingenuous. Over the past 20 years, these banks used their economic power and their political power to engineer an unregulated financial environment in which precisely this sort of thing could happen. And in that sense, I think that this was not an accident. It was not a natural disaster. It was not unforeseeable. It was the product of the efforts by the sector over the past 20 years to reshape Washington and to engineer an environment that would allow them to make as much money as possible. Simon talked earlier about money. And we know that the financial sector, especially Wall Street, has been, has made enormous contributions to both campaign contributions and lobbying expenses. But I think there were, there were two more potent weapons in their arsenal. One is the revolving door. So, we've seen an enormous number of people passing back and forth between Washington and Wall Street over the past 20 years. This is not a new phenomenon. It happens in every industry. But there are certain things that make it especially pernicious when it comes to finance. One is that, one is a question of incentives. So, compared to other industries, Wall Street can simply offer enormous amounts of money. I'm not saying that everyone did that. I'm not saying that even the majority of people did that. But that is, that is very clear.
BILL MOYERS: The New York Times has a story this week saying that 125 former members of Congress and staffers are now working for the financial industry in Washington. One of them is Michael Oxley, whose name is on one of the most important pieces of business legislation in the last 20 years. The Sarbanes-Oxley bill, which was designed to impose some very strict accounting rules after Enron on all of this. And there he is now, he's a lobbyist for the securities industry.
SIMON JOHNSON: But Bill, it goes even further and deeper than that. Robert Rubin was Secretary of the Treasury in the 1990s. He oversaw the deregulation. He fought hard against Brooksley Born, the only regulator in living memory who tried to prevent derivatives from getting out of control. He then went to Citigroup. He presided over this nonsense and this mess. He's now and he was he's clearly éminence grise of this administration. Mr. Geithner and Mr. Summers are his protégés. But that's, that's not all. Next week, the Hamilton Project, a project of the Brookings Institution founded by Mr. Rubin, will have a big public event. Probably Mr. Rubin's most prominent Washington appearance since the crisis broke. The headline act at this event will be Vice President Joe Biden. Now, maybe Mr. Biden will be taking on the view of finance that we all should fear greatly. But I'm not so optimistic.
BILL MOYERS: You know, I don't get it. Recently when "Newsweek" wanted to give big space to somebody to explain how we get out of this, who wrote the piece? Robert Rubin. I mean, are they locked into this worldview so that they cannot see the consequences of their own actions?
JAMES KWAK: Well, I think there are a couple things going on. One of the things we talk about in the book is how the Democratic Party became taken over by this Wall Street friendly view in the 1990s, which is, you know, extremely important, because in the 1980s, we had a deregulatory administration that was largely opposed by a Democratic Congress. And it became very convenient for Democrats, because if you believed in the ideology of finance, you could sincerely think, I am a Democrat, I am a servant of the poor and the working class. And yet, I can take campaign contributions from Wall Street, because I sincerely believe that Wall Street is doing what's best, what's in the interest of the country.
I think it's been exposed in the last year and a half that a lot of what Wall Street did was not in the best interest of the country, not in the interest of the people getting these subprime loans, not in the interest of the taxpayer who was paying for the immense fiscal costs of the financial crisis and the recession. But it's, there's a curious time lag going on in the, in the Wall Street, intellectual and political establishment, where they think they're still in 2005.
SIMON JOHNSON: As I travel around the country, Bill, I'm really struck by the fact that while people in Washington talk about populist anger in the country, most of what I encounter is legitimate, sensible anger. People actually understand what happened. They understand what went wrong. And they want to stop it. And the banks don't get this. The belief system on Wall Street is the same. Jamie Dimon, head of JPMorgan Chase, one of the most powerful men in the country. If you don't know his name, you should look him up because this is a man to fear.
BILL MOYERS: Very close to the President. Has dinner- lunch with the President.
SIMON JOHNSON: The President called him a savvy businessman, recently. Jamie Dimon told his shareholders, we just had probably our best year ever. They didn't have their best year ever. They went through crisis. They were saved like the rest of the financial system by the government, by the taxpayers, but that's not how they see it. That's not what they believe. That's really important. That belief must be shaken if we're to make any progress at all.
BILL MOYERS: But we can't compete with those lobbying dollars. We can't compete with this interlocking oligarchy that you say. That's a fact.
SIMON JOHNSON: Bill, in 1902, when Theodore Roosevelt took on the industrial trusts, nobody knew what he was doing. Nobody thought he could win. The Senate was called the Millionaires Club for a reason. And it wasn't even any theory. The antitrust theory, everything we know and believe about monopoly, why monopoly is bad for society, didn't really exist, certainly not in the mainstream consensus, when Roosevelt decided to take on J.P. Morgan, okay?
Ten years later, the mainstream consensus has shifted completely. People understood from the debate and from the struggle, from the fact- from the way the trusts fought back and the way they spent their money, they began to understand this was profoundly dangerous, politically and socially. 1912, everyone agreed that breaking up Standard Oil was a good idea. Had to be done. They broke into 35 companies, most of them did well. The shareholders actually made money. It's a very American resolution, Bill. And it's very clear that we've had this confrontation before in American history: Andrew Jackson against the Second Bank of the United States in the 1830s, Jackson won, barely; Theodore Roosevelt, the beginning of the 20th Century; FDR in the 1930s.
The American democracy was not given to us on a platter. It is not ours for all time, irrespective of our efforts. Either people organize and they find political leadership to take this on, or we are going to be in big trouble, okay? Now, I agree, we don't have Theodore Roosevelt. I agree. The only Senator who speaks complete truth and clarity on this issue is Ted Kaufman from Delaware, who's an appointed Senator, he got- he was appointed to Joe Biden's seat, and he's not running for reelection. He therefore doesn't care about the money. I take that point. But there are others. There must be others. We must find them and we must fund them, individually, sufficiently, to fight against this nonsense from the corporate sector.
I would like to emphasize, Bill, I'm a professional entrepreneurship, James is a successful entrepreneur. We're not anti-finance. We have many people endorsing the book, backing us, and you know, they, we put their blurbs in the book for a reason, who are from finance. Who really appreciate and understand this key point. Which is the complexity has gone too far. It's become dangerous. And we need to return our financial system to a simpler, more direct, easier to manage way.
BILL MOYERS: You both paid attention last week, to the hearings in Washington, on the Financial Crisis Inquiry Commission. Was there a theme that you heard emerge there?
JAMES KWAK: I think the biggest theme that I heard emerge was that this was an innocent mistake. So, what I mean by that is-
BILL MOYERS: You mean the collapse of 2008? All of this? What- was-
JAMES KWAK: Exactly.
BILL MOYERS: An accident?
JAMES KWAK: Yes, an accident in the sense that-
BILL MOYERS: Natural disaster?
JAMES KWAK: As we heard Chuck Prince say and Robert Rubin say, we couldn't see it coming. These were, there were risks that build up in the system, and our models didn't account for it. We're sorry that it happened. Not even, we're sorry that we did it. We're sorry that it happened.
And I think that this is, I mean, it's unfortunate if they really believe this. Because again, if we just take a very small example, one of the things that clearly went wrong is these banks were not able to manage their own risk. They did not know what positions they had. They did not know what market forces they were exposed to. You would think that should be the first job of a bank. And I don't think this was an innocent mistake. And I say that for this reason. It was in the bank's short term financial interest to underestimate their risk. Because if they had estimated their risk accurately, they should have had to set more capital aside, they would have been less profitable.
So, yes, it's possible that the CEOs of these banks honestly did not understand their risk positions. But that mistake-- there was an incentive behind that mistake. You know, banks never overestimate their risk. These mistakes always only go in one direction. Because that's the direction they have an incentive to make the mistake in.
BILL MOYERS: What do you mean they have an incentive to make a mistake?
JAMES KWAK: So, in the short term, a bank's profitability is going to depend on how much capital it has to set aside. So, in banking, if I have a certain position, I have to set aside a certain amount of capital to protect myself from that position going bad. If I think the position is less risky than it actually is, I'm going to set aside less capital to cover that position, and that's going to give me a higher profit margin.
If I'm the head of this bank, that means that in the short term, I'm going to have higher profits, higher stock price, more money for me, but I'm underestimating the risk of something blowing up several years down the line. But we know that the, essentially, the incentive systems within these banks favor short term profits over long term solvency.
SIMON JOHNSON: The most profound thing, observation, on this structure, inadvertent, I would say, observation, was by Chuck Prince, the former head of Citigroup. In July 2007, right before the whole structure began to crumble. He said, "As long as the music is playing, you've got to get up and dance." And that's a statement about the incentive structure. Saying, well, everybody's doing it. That's how we all make money. We've got to do it, too. I'm just a bank doing what all the other banks are doing. That's absolutely the heart of the problem. I would also say and tell you, and emphasize, these people will not come out and debate with us. The heads of these companies or their representatives, they will not come out. They're afraid. They don't have the substance. They don't have the arguments. We have the evidence. They have the lobbyists. And that's all they have.
BILL MOYERS: They've got the power, the muscle, the money.
SIMON JOHNSON: They have money.
BILL MOYERS: You just have the arguments. You just have the facts. On your side.
SIMON JOHNSON: Absolutely. That's exactly what it comes down to.
But if they thought this through, they'd be joining forces with other grassroots Americans who will soon be demonstrating in Washington and elsewhere against high finance, taking on Wall Street and the country's biggest banks.
The original Tea Party, remember, wasn't directed just against the British redcoats. Colonial patriots also took aim at the East India Company. That was the joint-stock enterprise originally chartered by the first Queen Elizabeth. Over the years, the government granted them special rights and privileges, which the owners turned into a monopoly over trade, including tea.
It may seem a stretch from tea to credit default swaps, but the principle is the same: when enormous private wealth goes unchecked, regular folks get hurt - badly. That's what happened in 2008 when the monied interests led us up the garden path to the great collapse.
Suppose the Tea Party folk had dropped by those Senate hearings this week looking into the failure of Washington Mutual. That's the bank that went belly up during the meltdown in September 2008. It was the largest such failure in American history.
WaMu, as we were reminded this week, made sub-prime loans that its executives knew were rotten, then packaged them as mortgage securities, and pawned them off on unsuspecting investors.
SEN. CARL LEVIN: And that was your responsibility to make sure that the securities which went out to the investors were following notice to the investors of everything that they needed to know in order that the information be complete and truthful. That's what your testimony was, under oath.
DAVID BECK: It's a very real possibility that the loans that went out were better quality than Mr. Shaw laid out.
SEN. CARL LEVIN: And you don't -
DAVID BECK: A very real possibility.
SEN. CARL LEVIN: And there's a very good possibility that they were exactly the quality that he laid out, right? Is that right?
DAVID BECK: That's right.
SEN. CARL LEVIN: Okay. And you don't know, and apparently you don't care. And the trouble is, you should have cared.
BILL MOYERS: Then there's Lehman Brothers. During those black September days a year and a half ago, the Feds decided to let Lehman go. This led to America's biggest bankruptcy ever. In an admirable work of journalism this week, the New York Times reported that Lehman secretly controlled a company called Hudson Castle and used it to borrow money as well as to hide bad investments in commercial real estate and sub-prime mortgages.
But the week's award for sheer gall goes to a Chicago-area hedge fund called Magnetar, named after a kind of neutron star that spews deadly radiation across the galaxies. Thanks to the teamwork of the investigative reporting website "ProPublica," NPR's "Planet Money" project and "This American Life," we learned Magnetar worked with investment banks to create toxic CDO's - collateralized debt obligations - securities backed by sub-prime mortgages the management knew were bad. And then Magnetar took that knowledge and bet against the very same investments they had recommended to buyers. Selling short and making a fortune.
And late this week the Securities and Exchange Commission charged the godfather of Wall Street, Goldman Sachs, with fraud in earning a fifteen million dollar fee involving those complex CDO's, a hedge fund, and the housing market.
But, since we know all this, why is it so hard to hold Wall Street accountable? Even as we speak the banking industry and corporate America are fighting against financial reform with all the money and influence at their disposal Their effort is to preserve a system that would enable them to ransack the country once again.
So even if the Tea Party folks saw the light, what can ordinary Americans do?
That's the question I want to put to my guests, Simon Johnson and James Kwak. They have written this new book, 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. It's a must read - already a best seller -- and it couldn't have come at a better time. This book could change the debate over financial reform by tipping it in favor of the public.
Simon Johnson is a former chief economist at the International Monetary Fund. He now teaches at MIT's Sloan School of Management and is a Senior Fellow at the Peterson Institute for International Economics.
James Kwak is studying law at Yale Law School - a career he decided to pursue after working as a management consultant at McKinsey & Company and co-founding the successful software company, Guidewire. Together James Kwak and Simon Johnson run the indispensable economic website BaselineScenario.com
Welcome to you both.
Let me get to the blunt conclusion you reach in your book. You say that two years after the devastating financial crisis of '08 our country is still at the mercy of an oligarchy that is bigger, more profitable, and more resistant to regulation than ever. Correct?
SIMON JOHNSON: Absolutely correct, Bill. The big banks became stronger as a result of the bailout. That may seem extraordinary, but it's really true. They're turning that increased economic clout into more political power. And they're using that political power to go out and take the same sort of risks that got us into disaster in September 2008.
BILL MOYERS: And your definition of oligarchy is?
SIMON JOHNSON: Oligarchy is just- it's a very simple, straightforward idea from Aristotle. It's political power based on economic power. And it's the rise of the banks in economic terms, which we document at length, that it'd turn into political power. And they then feed that back into more deregulation, more opportunities to go out and take reckless risks and-- and capture huge amounts of money.
BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?
JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.
BILL MOYERS: And you write that they control 60 percent of our gross national product?
JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.
BILL MOYERS: And what's the threat from an oligarchy of this size and scale?
SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.
BILL MOYERS: So, you're not kidding when you say it's an oligarchy?
JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.
SIMON JOHNSON: I know people react a little negatively when you use this term for the United States. But it means political power derived from economic power. That's what we're looking at here. It's disproportionate, it's unfair, it is very unproductive, by the way. Undermines business in this society. And it's an oligarchy like we see in other countries.
BILL MOYERS: And you say they continue to hold the global economy hostage?
JAMES KWAK: Exactly. Because what's happened- what we learned in 2008 were certain institutions are so big and so interconnected that if they were to fail, they would cause systemic shocks throughout the economy. That's essentially what happened in September 2008 when Lehman Brothers collapsed. And what's remarkable, and I think what essentially proves the point of our book is that almost two years later, nothing has changed.
Or the only thing that has changed is that these banks have gotten larger, more powerful, both economically and politically. And they've been flexing their muscles in Washington for the last year and a half. So Neal Wolin, the Deputy Treasury Secretary gave a blistering speech to the U.S. Chamber of Commerce in which he said, look, the financial sector has been spending more than one million dollars per day lobbying against the reforms we need to fix the financial system. Now, Simon and I think those reforms that the Administration has proposed do not go far enough. But we think they're certainly better than nothing. What Wall Street wants is they want nothing. They want to stop this in its tracks and go back to where we were five years ago.
SIMON JOHNSON: It's amazing, Bill. But this is this is politics and this is money. And you know, there's a ground game, which is campaign contributions, which are surging in. I'm sure on both sides of the aisle. And there's also the ideological space. It's amazing. The Chamber of Commerce that claims to represent the broad cross section of American business is siding with six big banks, who favor policies that are directly contrary to the interests of most of the membership of the Chamber of Commerce. And that's just not just me saying that. That's Neal Wolin. That's Treasury. That's the White House saying that now. Calling fortunately, they've come to the point where they're willing to call the Chamber of Commerce on that. But I don't know if that message is getting through to people.
JAMES KWAK: You see what the bankers have done is they have taken a basic principle which is more or less true. Which is that free financial markets do enable money to go to the places where people need it. But on top of that, they've erected a system that is indescribably complex. And gives many opportunities to make money at the expense of their customers, at the expense of their counterparties. Even at the expense of their own employers. So, one of the things that has happened has been that Wall Street finance has become so complex and the internal systems of Wall Street banks has become so complex that if you are a smart banker, who is out to maximize your own income, you can find the loopholes in the system and you can exploit them, even if it means taking money from your own-- from your own company
BILL MOYERS: You've been writing this week on your website-- about this hedge fund in Chicago that's made a lot of money. In effect, betting against the American Dream. What was that?
JAMES KWAK: Magnetar is a hedge fund which means that other people gave them money to invest. And their job is to make as much money as possible. And these were the smart guys in the room. They saw that the system was broken. And they found a specific way to exploit it. And they knew that they could go for example, they could go to Wall Street banks and the banks would collaborate in making these extremely toxic securities. Because they knew what the bankers incentives were. They knew that the banker's incentives were to do the deal, to do the transaction, to get the fees up front. And they knew that there was nobody watching out for the investors. There was nobody watching out to make sure that securities they manufactured were actually good securities. But essentially what they were doing is they wanted to short the housing market. And they shorted the market in such a way that they actually made the problem worse, because what they did is they encouraged they tried to create these very toxic securities explicitly so that they could then short those securities. And that's why in a sense, they were they were shorting the American Dream. But what the real story of Magnetar, I think, is that they were exploiting a system that was deeply broken.
So, we like to think that the financial system we have in Wall Street are set up so that as people try to make lots of money they are they are indirectly helping the economy by making sure their capital goes where it's needed most. What the Magnetar story shows us that this is a casino, where you can make money you can make money exploiting the weaknesses in the casino. And it has nothing to do with the American Dream. It has nothing to do with making sure that capital goes to the places where it's needed most. I have to say that we owe a great to debt to "ProPublica" and "Planet Money" and "This American Life" for uncovering this story
BILL MOYERS: Public radio's excellent program, "This American Life", did a terrific broadcast on this subject, based upon the ProPublica investigation that you talked about. And there's a song in it that I have to play for the two of you and for my audience. Take a listen.
UNIDENTIFIED MAN: Step one. You write a check for 10 million dollars. Hand the check to a Wall Street bank, and ask them to make us a CDO. Step two: they create the CDO, using risky stuff, very risky stuff, extremely risky stuff. Step three: other investors commit hundreds of millions of dollars to the CDO. Step four: we bet against the CDO, using a credit default swap. Step five: the housing market crashes. The CDO's value goes to zero, our bet pays off and we make hundreds of millions of dollars and before you can say step six, we're rich! We're going to bet against the American Dream, we're going to be on the winning team, purchase risky debt on a massive scale. Then place a bet that the debt will fail. Hundreds of millions for Magnetar, the economy collapsing like a dying star. No one will know till it's on NPR, and who cares? It's time to hit the town, this sucker could go down. The housing market's losing steam. And all we got to do to make our dreams come true is bet against the American Dream!
BILL MOYERS: You're smiling, James, but is it really that funny?
JAMES KWAK: Well for decades, we've been told that Wall Street and financial innovation were promoting the American Dream. And what they've I think what the show and the song have really hit the hit the nail on is that in fact, you can make even more money betting against the American Dream. And that's the kind of system we have today.
SIMON JOHNSON: My bumper sticker from this and I hope it does become a bumper sticker is, "Trust me, I'm a banker."
I mean, you need to break through there's a level of progress here, Bill. Which is when people can laugh about it. When people can break it down into pieces. When you've got the 60-second version. And you can hammer that. And people understand it. Then you're starting to fight back. This is about ideology. This is about belief. This is about these guys are smart. These guys are well paid. So they must know what they're doing. And that's wrong.
BILL MOYERS: You wrote on your website this week about how JPMorgan Chase lost $880 million on one of these kind of whacky obscure deals? But the executives still paid themselves millions of dollars in up front fees. And you conclude that bankers placed a ticking bomb on their own bank balance sheet. It exploded and personally they still made money.
JAMES KWAK: Exactly. Because this is an example so, this is from the "ProPublica" investigation of Magnetar. essentially the bankers at JPMorgan Chase involved in the transaction created a new CDO. A new collateralized debt obligation. Which was very, very toxic. And either they knew at the time that it was toxic, or they should have known, I have no way of knowing. JPMorgan decided to hold onto most of this toxic product they-- they had built. A billion dollars worth of toxic product. And then when the market collapsed, it turned out they lost $880 million on that position.
So, if we think about it, there are really two possibilities here. The bankers involved in the transaction either really thought that this was a good product and a good investment, in which case they're incompetent. Or they had- they may have doubts, they may have thought it was toxic, but they knew that the way the internal systems at JPMorgan Chase worked, they could get the fees front, they could get bonuses based on those fees, and leave the bomb for later.
BILL MOYERS: Somebody wrote on your blog this week, "If I were to buy an old house. Make some cosmetic improvements that mask an underlying rot. Got my insurance company to write an exorbitant homeowners policy exceeding any leans against the property. Then burned it down, wouldn't that be fraud?" Did you answer this guy?
JAMES KWAK: I haven't. That would
BILL MOYERS: Would you?
JAMES KWAK: That would be fraud.
BILL MOYERS: That would be fraud. So, explain to me how you manage to lose $880 million on your own company's money to make a quick buck for yourself and you get away with it?
JAMES KWAK: Well, I think that there are laws in this area. So, for any securities, there has to be-- for this type of security, there has to be a document which explains those securities. And that's a document that you give to the investors who might buy them. And there are laws governing those. And if you put in facts in there that that are materially false. That you know to be true, that is fraud. But I think the problem is that in many of these cases, I don't think that many of these people are criminals. I get a lot of criticism for saying that I don't think these people are criminals. But I think it's relatively easy to write these documents in such a way that you're not saying anything you know to be false. And so, they pass through, they pass through any kind of you avoid any possible criminal liabilities there. But yet, they can be misleading in a way that encourages people to buy them.
SIMON JOHNSON: I think it's actually worse in some instance, Bill. Certainly for offshore activities. Goldman Sachs was involved in hiding a lot of Greek government debt. They then sold new Greek government obligations to people in the United States as far as far as we understand it. And didn't reveal that they'd hidden the levels of the true levels of government debt. Now, that is withholding material information. That's a violation of rule 10B-5. and where is the legal process, you should ask, that holds them accountable for that? I've talked to lots of very good lawyers about this. And there are many complicated stories about why Goldman Sachs won't face any civil action or criminal action. There are huge loopholes in our legal system with regard to financial services that need to be closed.
BILL MOYERS: There were some interesting hearings, as I know you saw, before the Financial Crisis Inquiry Commission. And some of the first, some of the most interesting testimony came from the former honchos at Citigroup. Mr. Prince and Mr. Rubin. Take a look.
CHARLES PRINCE: Let me start by saying I'm sorry. I'm sorry that our management team, starting with me, like so many others, could not see the unprecedented market collapse that lay before us.
ROBERT RUBIN: My role at Citi, defined at the outset, was to engage with clients across the bank's businesses, here and abroad. Having spent my career in positions with significant operational responsibility at Treasury and, prior to that, at Goldman Sachs, I no longer wanted such a role at this stage of my life, and my agreement with Citi provided that I would have no management of personnel or operations.
ROBERT RUBIN: But almost all of us, including me, who were involved in the financial system, missed the powerful combination of factors that led to this crisis and the serious possibility of a massive crisis. We all bear responsibility for not recognizing this, and I deeply regret that.
PHIL ANGELIDES: The two of you, in charge of this organization did not seem to have a grip on what was happening. I don't know that you can have it two ways. You were either were pulling the levers or asleep at the switch.
BILL MOYERS: How can it be that a Robert Rubin, former Secretary of the Treasury, pulls down $100 million as a senior advisor to Citigroup and claims he doesn't know the risk that was involved in what he was trying to sell to clients and foreign officials? How can that be?
JAMES KWAK: I think there are two things. There's a narrow and a broad view of this. The narrow view is I think Rubin is actually not lying. I think it is true that Rubin did not know what the risks were. Although he certainly should have known what the risks were. And that's because he was fully subscribed to this ideology that free markets are good. That the market will take care of itself. That, he also suffered from a lot of the blindness that corporate officers and directors have. Corporate officers and directors manage these enormous organizations with tens of hundreds of thousands of people. They have very little idea what's going on. They're getting their information from subordinates, who are giving them a filtered view of the world. On the other hand, when he says, no one could have foreseen this. This is what I call an intellectual cover up. And I say that because it's very disingenuous. Over the past 20 years, these banks used their economic power and their political power to engineer an unregulated financial environment in which precisely this sort of thing could happen. And in that sense, I think that this was not an accident. It was not a natural disaster. It was not unforeseeable. It was the product of the efforts by the sector over the past 20 years to reshape Washington and to engineer an environment that would allow them to make as much money as possible. Simon talked earlier about money. And we know that the financial sector, especially Wall Street, has been, has made enormous contributions to both campaign contributions and lobbying expenses. But I think there were, there were two more potent weapons in their arsenal. One is the revolving door. So, we've seen an enormous number of people passing back and forth between Washington and Wall Street over the past 20 years. This is not a new phenomenon. It happens in every industry. But there are certain things that make it especially pernicious when it comes to finance. One is that, one is a question of incentives. So, compared to other industries, Wall Street can simply offer enormous amounts of money. I'm not saying that everyone did that. I'm not saying that even the majority of people did that. But that is, that is very clear.
BILL MOYERS: The New York Times has a story this week saying that 125 former members of Congress and staffers are now working for the financial industry in Washington. One of them is Michael Oxley, whose name is on one of the most important pieces of business legislation in the last 20 years. The Sarbanes-Oxley bill, which was designed to impose some very strict accounting rules after Enron on all of this. And there he is now, he's a lobbyist for the securities industry.
SIMON JOHNSON: But Bill, it goes even further and deeper than that. Robert Rubin was Secretary of the Treasury in the 1990s. He oversaw the deregulation. He fought hard against Brooksley Born, the only regulator in living memory who tried to prevent derivatives from getting out of control. He then went to Citigroup. He presided over this nonsense and this mess. He's now and he was he's clearly éminence grise of this administration. Mr. Geithner and Mr. Summers are his protégés. But that's, that's not all. Next week, the Hamilton Project, a project of the Brookings Institution founded by Mr. Rubin, will have a big public event. Probably Mr. Rubin's most prominent Washington appearance since the crisis broke. The headline act at this event will be Vice President Joe Biden. Now, maybe Mr. Biden will be taking on the view of finance that we all should fear greatly. But I'm not so optimistic.
BILL MOYERS: You know, I don't get it. Recently when "Newsweek" wanted to give big space to somebody to explain how we get out of this, who wrote the piece? Robert Rubin. I mean, are they locked into this worldview so that they cannot see the consequences of their own actions?
JAMES KWAK: Well, I think there are a couple things going on. One of the things we talk about in the book is how the Democratic Party became taken over by this Wall Street friendly view in the 1990s, which is, you know, extremely important, because in the 1980s, we had a deregulatory administration that was largely opposed by a Democratic Congress. And it became very convenient for Democrats, because if you believed in the ideology of finance, you could sincerely think, I am a Democrat, I am a servant of the poor and the working class. And yet, I can take campaign contributions from Wall Street, because I sincerely believe that Wall Street is doing what's best, what's in the interest of the country.
I think it's been exposed in the last year and a half that a lot of what Wall Street did was not in the best interest of the country, not in the interest of the people getting these subprime loans, not in the interest of the taxpayer who was paying for the immense fiscal costs of the financial crisis and the recession. But it's, there's a curious time lag going on in the, in the Wall Street, intellectual and political establishment, where they think they're still in 2005.
SIMON JOHNSON: As I travel around the country, Bill, I'm really struck by the fact that while people in Washington talk about populist anger in the country, most of what I encounter is legitimate, sensible anger. People actually understand what happened. They understand what went wrong. And they want to stop it. And the banks don't get this. The belief system on Wall Street is the same. Jamie Dimon, head of JPMorgan Chase, one of the most powerful men in the country. If you don't know his name, you should look him up because this is a man to fear.
BILL MOYERS: Very close to the President. Has dinner- lunch with the President.
SIMON JOHNSON: The President called him a savvy businessman, recently. Jamie Dimon told his shareholders, we just had probably our best year ever. They didn't have their best year ever. They went through crisis. They were saved like the rest of the financial system by the government, by the taxpayers, but that's not how they see it. That's not what they believe. That's really important. That belief must be shaken if we're to make any progress at all.
BILL MOYERS: But we can't compete with those lobbying dollars. We can't compete with this interlocking oligarchy that you say. That's a fact.
SIMON JOHNSON: Bill, in 1902, when Theodore Roosevelt took on the industrial trusts, nobody knew what he was doing. Nobody thought he could win. The Senate was called the Millionaires Club for a reason. And it wasn't even any theory. The antitrust theory, everything we know and believe about monopoly, why monopoly is bad for society, didn't really exist, certainly not in the mainstream consensus, when Roosevelt decided to take on J.P. Morgan, okay?
Ten years later, the mainstream consensus has shifted completely. People understood from the debate and from the struggle, from the fact- from the way the trusts fought back and the way they spent their money, they began to understand this was profoundly dangerous, politically and socially. 1912, everyone agreed that breaking up Standard Oil was a good idea. Had to be done. They broke into 35 companies, most of them did well. The shareholders actually made money. It's a very American resolution, Bill. And it's very clear that we've had this confrontation before in American history: Andrew Jackson against the Second Bank of the United States in the 1830s, Jackson won, barely; Theodore Roosevelt, the beginning of the 20th Century; FDR in the 1930s.
The American democracy was not given to us on a platter. It is not ours for all time, irrespective of our efforts. Either people organize and they find political leadership to take this on, or we are going to be in big trouble, okay? Now, I agree, we don't have Theodore Roosevelt. I agree. The only Senator who speaks complete truth and clarity on this issue is Ted Kaufman from Delaware, who's an appointed Senator, he got- he was appointed to Joe Biden's seat, and he's not running for reelection. He therefore doesn't care about the money. I take that point. But there are others. There must be others. We must find them and we must fund them, individually, sufficiently, to fight against this nonsense from the corporate sector.
I would like to emphasize, Bill, I'm a professional entrepreneurship, James is a successful entrepreneur. We're not anti-finance. We have many people endorsing the book, backing us, and you know, they, we put their blurbs in the book for a reason, who are from finance. Who really appreciate and understand this key point. Which is the complexity has gone too far. It's become dangerous. And we need to return our financial system to a simpler, more direct, easier to manage way.
BILL MOYERS: You both paid attention last week, to the hearings in Washington, on the Financial Crisis Inquiry Commission. Was there a theme that you heard emerge there?
JAMES KWAK: I think the biggest theme that I heard emerge was that this was an innocent mistake. So, what I mean by that is-
BILL MOYERS: You mean the collapse of 2008? All of this? What- was-
JAMES KWAK: Exactly.
BILL MOYERS: An accident?
JAMES KWAK: Yes, an accident in the sense that-
BILL MOYERS: Natural disaster?
JAMES KWAK: As we heard Chuck Prince say and Robert Rubin say, we couldn't see it coming. These were, there were risks that build up in the system, and our models didn't account for it. We're sorry that it happened. Not even, we're sorry that we did it. We're sorry that it happened.
And I think that this is, I mean, it's unfortunate if they really believe this. Because again, if we just take a very small example, one of the things that clearly went wrong is these banks were not able to manage their own risk. They did not know what positions they had. They did not know what market forces they were exposed to. You would think that should be the first job of a bank. And I don't think this was an innocent mistake. And I say that for this reason. It was in the bank's short term financial interest to underestimate their risk. Because if they had estimated their risk accurately, they should have had to set more capital aside, they would have been less profitable.
So, yes, it's possible that the CEOs of these banks honestly did not understand their risk positions. But that mistake-- there was an incentive behind that mistake. You know, banks never overestimate their risk. These mistakes always only go in one direction. Because that's the direction they have an incentive to make the mistake in.
BILL MOYERS: What do you mean they have an incentive to make a mistake?
JAMES KWAK: So, in the short term, a bank's profitability is going to depend on how much capital it has to set aside. So, in banking, if I have a certain position, I have to set aside a certain amount of capital to protect myself from that position going bad. If I think the position is less risky than it actually is, I'm going to set aside less capital to cover that position, and that's going to give me a higher profit margin.
If I'm the head of this bank, that means that in the short term, I'm going to have higher profits, higher stock price, more money for me, but I'm underestimating the risk of something blowing up several years down the line. But we know that the, essentially, the incentive systems within these banks favor short term profits over long term solvency.
SIMON JOHNSON: The most profound thing, observation, on this structure, inadvertent, I would say, observation, was by Chuck Prince, the former head of Citigroup. In July 2007, right before the whole structure began to crumble. He said, "As long as the music is playing, you've got to get up and dance." And that's a statement about the incentive structure. Saying, well, everybody's doing it. That's how we all make money. We've got to do it, too. I'm just a bank doing what all the other banks are doing. That's absolutely the heart of the problem. I would also say and tell you, and emphasize, these people will not come out and debate with us. The heads of these companies or their representatives, they will not come out. They're afraid. They don't have the substance. They don't have the arguments. We have the evidence. They have the lobbyists. And that's all they have.
BILL MOYERS: They've got the power, the muscle, the money.
SIMON JOHNSON: They have money.
BILL MOYERS: You just have the arguments. You just have the facts. On your side.
SIMON JOHNSON: Absolutely. That's exactly what it comes down to.
Bill Moyers: Kwak & Johnson P2
BILL MOYERS: Let me show you one of my favorite moments of the week. The commission on the crisis is looking into two former executives of the big mortgage giants, Fannie Mae and Freddie Mac. And the Fannie Mae guy tries to say, what happened was Congress made us do it.
BILL THOMAS: Was there an opportunity, perhaps, to reprioritize your charter and focus on those things that were most relevant in the marketplace that would have made the institution more sound?
ROBERT J. LEVIN: That wasn't done at my pay grade.
BILL THOMAS: My understanding is, between 2000 and 2008, you made $45 million. So only people above 45 thousand-- 45, excuse me, million dollars, between two and 2008, could answer that question?
ROBERT J. LEVIN: What I meant by the, what I was addressing was the question of, could we have affected the charter act--
BILL THOMAS: Right. And it was above--
ROBERT J. LEVIN: Of the company--
BILL THOMAS: Your pay grade.
ROBERT J. LEVIN: Yes. And my language was sloppy, and--
BILL THOMAS: No, it wasn't sloppy.
ROBERT J. LEVIN: And what I meant by that--
BILL THOMAS: It was flippant, if you want that as a choice.
ROBERT J. LEVIN: What I meant by that, sir, was that that was in the purview of the Congress, not the company.
BILL MOYERS: You're laughing.
SIMON JOHNSON: So, look, what I say to my, to all my Republican friends: on Fannie Mae and Freddie Mac, you were right. They became too big to fail. They captured Congress. They were known as some of the most formidable financial lobbyists in the 1990s. They argued for the rights to take on these kinds of risks, okay?
And the Republicans were right. The Republicans called them on this. But now it's the big private banks that have the same incentive structure. That have bulked themselves up so big that you can't let them fail. That's what we saw in September 2008. Hank Paulson looked at his options. And they are all pretty awful. And I'm not a big fan of Hank Paulson, but I think the moment where he looked at it, he was right. That if you let JPMorgan Chase or Goldman Sachs fail, the consequences would have been devastating, because they're so big. It's a Fannie May and Freddie Mac structure come to Wall Street, come to the top guys on Wall Street. And our Republican colleagues and friends should recognize this, they should acknowledge it. And then we can all fix this together.
BILL MOYERS: Well then why is Mitch McConnell, the Senator from Kentucky, who is the Republican Leader in the Senate saying what he said this week? Let me show you from his statement.
SEN. MITCH MCCONNELL: If there's one thing Americans agree on when it comes to financial reform, it's that it's absolutely certain they agree on this: never again, never again should taxpayers be expected to bail out Wall Street from its own mistakes [...] This bill not only allows for taxpayer-funded bailouts of Wall Street banks, it institutionalizes them. The way to solve the problem is to let the people who made the mistakes pay for them. We won't solve this problem until the biggest banks are allowed to fail.
BILL MOYERS: He seems to be saying what you say, right?
SIMON JOHNSON: It's a clever piece of political manipulation. It's not at all what we say. What he says is dangerous and deliberately misleading.
BILL MOYERS: How so?
SIMON JOHNSON: He says let the biggest banks fail, go bankrupt, don't do anything, leave the situation as it is now and when they get in trouble, let them fail. If you do that, you'll have catastrophe. The bankruptcy system clearly and manifestly cannot deal with the failure of a complex, global, financial institution. And we have the evidence before us in what happened after Lehman Brothers failed. That was bankruptcy. It caused chaos around the world, Bill. That's what the Republicans are advocating. Is we just leave things as they are and next time we'll take that chaos and we'll get a second Great Depression. We're arguing for reform. We're arguing for change. We're arguing for ways to make those biggest banks smaller and safer. If they were small enough to fail, that's a very different story. And that's a much safer place to be.
BILL MOYERS: What do these big six banks think about what Senator McConnell is saying?
JAMES KWAK: Well, the big six banks don't want any reform at all, essentially. So, I think that they are, and there's some evidence that Senator McConnell has been talking to the big banks and to other people on Wall Street.
BILL MOYERS: There have been published reports that he attended a fundraiser with hedge funds and other Wall Street poobahs just last week, before he made this statement. And the reporters, knowing that he had been at this big fundraiser for hedge fund and Wall Street tycoons a week before, begin to press him in an unusual, and actually promising way. Take a look at this.
REPORTER: How do you push back against this perception that you're doing the bidding of the large banks? You know, there was a report that you guys met with hedge fund managers in New York. A lot of people are viewing this particular line of argument, this bailout argument as spin--
SEN. MITCH MCCONNELL: You could talk to the community bankers in Kentucky.
REPORTER: I'm not asking you about the community bankers--
SEN. MITCH MCCONNELL: But, I'm telling you about the community bankers in Kentucky. This is not, everybody--
REPORTER: Have you talked with other people other than community bankers?
SEN. MITCH MCCONNELL: Well, sure. We talk to people all the time. I'm not denying that. What's wrong with that? That's how we learn how people feel about legislation. But the community bankers in Kentucky, the little guys, the main street guys, are overwhelmingly opposed to this bill.
REPORTER: Well what would you say to folks who say that this is just spin to deflect attention from the fact that you're representing the large banks?
BILL MOYERS: So, he deflects their questions about being at this meeting with the large banks, the oligarchs, as you called them. And talks about community banks back in Kentucky. What do you make of that?
SIMON JOHNSON: Well, two things, Bill. First of all, he's embarrassed, as he should be, and that's good. I don't think they used to be embarrassed. I think-- I hope Vice President Biden is somewhat embarrassed by the event he's going to attend next week with Robert Rubin, unless he criticizes Rubin and goes after Rubin's view of the world. In which case, I'm okay with that.
JAMES KWAK: This other part of the problem which Simon and I talk about more in the book, and that we don't think is fully solved by the legislation in the Senate, is why do you have to have these too big to fail banks in the first place? So, we think that's the obvious and simplest and almost unarguable solution that you should simply not have banks that are too big and too interconnected to fail.
SIMON JOHNSON: There are no benefits to society, Bill, from having banks that are larger than $100 billion in total assets. This is a well-established fact. The evidence does-
BILL MOYERS: You make the case.
SIMON JOHNSON: There's nearly 100 pages of footnotes for a reason.
BILL MOYERS: But don't let the facts get in the way.
SIMON JOHNSON: I understand. But there's no evidence, okay? We've let our banks get to $2 trillion-- Citigroup when it almost failed or did fail in fall 2008 was a $2.5 trillion bank. Jamie Dimon runs a $2 trillion bank at JPMorgan Chase and says, if we're big, it's 'cause we're beautiful and efficient. And we should be allowed to get bigger. It's not true. They're big because of the government subsidy, right? That's what gives them the profits at this level. If they get bigger, they'll become more dangerous. That's, those are the costs. On the benefit side, there's no economy of scale or scope or anything else to support the case that banks bigger than $100 billion. That's on a pure cost/benefit basis.
JAMES KWAK: So, there's no way that Jamie Dimon, who according to many observers is perhaps the savviest bank CEO, the best one out there, there's no way that he can know what's going on within his organization. There's no way he can even have an information system that will let him know, efficiently, all the things that he needs to know. So, why is JPMorgan Chase so big? One reason is that it's in the interest of CEOs to have large banks. Because if you have, the larger your bank, the bigger your salary. But then at the same time, it creates this incentive among the traders, the people who really make the money or lose the money in these banks. It creates an incentive to the traders to essentially exploit the management failings of the company.
BILL MOYERS: The toughest hearing in Washington this week was conducted by Senator Carl Levin in the Senate, looking into Washington Mutual. That's the largest bank ever to go under in our history, and there are some friends of mine in Washington say there's some possible criminal indictments going to be coming out of this. Let me show you Senator Levin laying out some of the evidence.
SEN. CARL LEVIN: To keep that conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb...WaMu built its conveyor belt of toxic mortgages to feed Wall Street's appetite for mortgage-backed securities. Because volume and speed were king, loan quality fell by the wayside and WaMu churned out more and more loans that were high risk and poor quality.
Destructive compensation schemes played a role in the problems just described. These incentives contributed to shoddy lending practices in which credit evaluations took a back seat to approving as many loans as possible.
BILL MOYERS: He goes on, you know? There's evidence that WaMu knowingly sold fraudulent loans to investors in the form of securities. That loan offices were falsifying documentation in order to churn out as many lousy loans as they could. And that senior management was putting pressure on the loan officers to do just this. And he claims, what we were talking about, that destructive compensation schemes were part of the problem.
JAMES KWAK: I think that some people may go to jail. I think that falsifying loan documents, I think there's a good chance people could go to jail for that. I think that if there are- you know, when you get the emails of people at midlevel managers at these banks saying, you know, falsify the loan documents. They might go to jail as well. I don't think anyone who's high up in these banks is going to go to jail for this reason.
I think that, for example, these loans were eventually sold on to investment banks which used them to manufacture new securities. Those investment banks were getting documents from Washington Mutual. These are like representations and warranties. So Washington Mutual is saying, you know, these loans meet these criteria. And the investment bank is going to say, I got this document from Washington Mutual. They told me the loans were good. You can't send me to jail.
And he's absolutely right. So, you've got investment bankers who must have known. Who should have known that a lot of these loans are bad. But they've got a piece of paper from the person selling them the loan saying they meet these criteria. He's pretty much Scott free when it comes to criminal liability. So--
BILL MOYERS: Mistakes were made, but not by me, right?
JAMES KWAK: Exactly.
BILL MOYERS: I mean, that seems to be the mantra that came through all these hearings this week: mistakes were made but not by me.
SIMON JOHNSON: Or, no, I think they also say, Bill, well, everyone made mistakes, Bill. You know, we're just human. This was beyond our control. And that's not true, these are systems they controlled, they designed. Mr. Rubin designed this, right? And I want to point out there's something very interesting in this WaMu conversation.
It's only when a firm collapses that you get full discovery. Now, Senator Levin is a great voice on this. And I think he's absolutely nailing this. But he only has the ability to get at this level of detail and documentation from a company that failed like WaMu. For the people who were able to keep going. The Goldman Sachses of this world, you'll never know what they were really up to.
These are incredibly smart people. They're very well paid. They have ever incentive. The regulators are totally outgunned. It's not an accident that this complexity allows them to get away with it. It's by design. That's the system. Not a conspiracy, Bill. Don't say that.
BILL MOYERS: I wouldn't.
SIMON JOHNSON: It's a system of--
BILL MOYERS: A system.
SIMON JOHNSON: It's a system of beliefs and incentives, much more profoundly dangerous than a conspiracy.
BILL MOYERS: Why?
SIMON JOHNSON: Conspiracies you can unroot. Conspiracies you can have, you know, a couple of hearings. People can understand it on TV. You get the sound bite. This is very complex. This is about what many, many PhDs and specialists in finance have cooked up over 20 years with the active participation of the people who were supposed to oversee that in Washington.
BILL MOYERS: Is this what the blogger meant when he posted on "The Baseline Scenario" this week, "Unnecessary complexity just creates rich opportunities for systemic corruption"?
JAMES KWAK: That is certainly one of the things he meant.
BILL MOYERS: What should be the purpose of reform? Should it change the behavior of Wall Street, or should it change the regulation of Wall Street? And there is a difference, is there not?
SIMON JOHNSON: Absolutely. Look, I don't know if this will work or not. I don't know if at the end of the day, we will end up supporting the bill. I hope we will, okay? But whatever happens, this is one legislative cycle. Theodore Roosevelt did not change the mainstream consensus in this country with regard to power and monopoly and the dangerous side effects of big business overnight.
He didn't do it in one year or two years. It was a ten year process. The consensus has to change, Bill. And regulation, the role of regulation or understanding of regulation with regard to finance has to change. The regulation is there to limit the downside to society and to make sure that all of these activities have as much as possible of the positive effect on the economy without generating these massive negative shocks. And we're a long way from that point.
JAMES KWAK: I think the distinction you made is a very good one. Between changing the regulation of Wall Street and changing Wall Street itself. I think the bill does a lot of things that will improve the regulatory system.
I think it does not do a lot to change Wall Street. Certainly, better regulation will change Wall Street a little bit, but some of the basic fundamental issues, I think, for example, the fact that in many realms, Wall Street banks knowingly make money by finding, because they want to put on a trade, they find a sucker to take the other side of that trade.
They're making money directly off of their customers. You can't really have it any other way when you're engaged in proprietary trading. These, this is not going to change. The fact that we have these enormous banks that are too big to manage and that have a competitive advantage, because they're big. That's not going to change.
And that's one reason I think why it's not going to satisfy the many people in America right now who are upset and frustrated about what's happen. Because they're going to see that what we've done is we've made Washington a little bit better at regulating Wall Street. We haven't changed the fundamental causes.
BILL MOYERS: Well, I've seen one regulatory agency after another taken over by the very industries they were supposed to regulate.
SIMON JOHNSON: This is absolutely right, Bill. And, you know, the person who nailed this intellectually a long time ago was from the University of Chicago. George Stigler. Not a man of the left. He got a Nobel Prize for his observation. All regulated industries end up with the industry capturing the regulators.
And what's happened to us is a Stigler, exactly what Stigler warned against on a massive scale. And you have to think very hard about this. The Administration still argues that we should delegate responsibility, going forward, for lots of things around finance. Like how much capital you should have. Delegate that to the regulators.
Now, that's crazy. That's not acceptable. That is not what they should do. Particularly because, and any Democrat should say, well, wait a minute, next time a free market President who doesn't believe in regulation comes in will gut the system. And any person from the right who's read Stigler should say, Well, these regulators are just going to get captured. You've got to put it in legislation. You've got to design the legislation. You've got to go after the things that can be legislated. Congress must not abdicate this responsibility.
BILL MOYERS: So, you would break up the banks. That's what you would do, right?
SIMON JOHNSON: We would set a hard size cap on the banks. And the banks, in order to comply with that, would have to break themselves up. So, take a bank like Goldman Sachs, for example. It's about ten times bigger than what we would be comfortable with. And, you put that cap in-- they have to figure out how to do it. They have a fiduciary responsibility to their shareholders not to lose value as they comply with this law, not a regulation, law, right? Our book is called "13 Bankers" because it was 13 bankers who were pulled into the White House last March, and they were saved completely and unconditionally in the most amazing deal ever: their jobs, their pensions, their board of directors, their empires. But the title is also an echo of a remark made forcefully in 1998 by Larry Summers, who was then Deputy Treasury Secretary to Brooksley Born, who was trying to regulate over the counter derivatives.
And she was way ahead of her time, by the way. None of this nonsense existed. But she had- she saw this coming in a very profound sense. And she wanted to act in a preemptive and preventive way. Now, Larry Summers called her up. This is according to the public record and it's not been disputed by any of the protagonists here.
He called her up and he said, Brooksley, if you do what you want to do, which is regulate the derivatives. Over- regulate all this over the counter derivatives, you- I have 13 bankers in my office who say you will cause the greatest financial crisis since World War II., right? That was what he believed. That was the prevailing philosophy of the Rubin wing, the Wall Street wing of the Democratic Party.
That was Alan Greenspan's view. That is what brought us to this point. The idea that if you regulate, in any fashion, in any form, you will cause problems, you will prevent growth, you will cause crisis. That view is profoundly wrong. It has been manifestly and repeatedly demonstrated to be wrong. And the people who hold that view must change their minds or they should be voted out of office.
BILL MOYERS: If Wall Street's behavior doesn't change, can we have another financial catastrophe like the one in 2008?
JAMES KWAK: The definition of insanity is repeating the same thing over and over again and expecting a difficult result. And I think one of the core messages in our book is that the fundamental conditions of the financial system today are the same as the ones we had leading up to this crisis. And it would be folly to expect a different outcome.
Now, the legislation will help in certain ways. It will certainly, you know, it'll bolt the barn door after the horses have fled. The Consumer Financial Protection Agency will make it much harder to have a bubble built on subprime mortgages. But we'll have a bubble built on something else. And it may even be on a market or a product that doesn't even exist yet.
And that's why, again, legislation is helpful, but if you're going to have the same kind of incentive structures on Wall Street and the same degree of concentration, the same degree of political power, it's likely that we'll have another financial crisis.
The financial world has gotten much more dangerous in the last 30 years. We had this one. We had the stock market bubble of 2000. We had the long term capital management crisis. We had the S & L crisis. We had the Latin American debt crisis. And the question is, are these crises going to-- are we going to somehow figure out a way to have fewer of them, or a way to make them less damaging? And I'm not sure I've seen that.
SIMON JOHNSON: The structure of the system is such that people will take these egregious risks. That's what they're paid to do. They will mismanage their companies. That is absolutely in their incentive. And they get the upside, remember? Goldman Sachs just helped Geely Automotive, a Chinese car company, buy Volvo from Ford.
Now, that's an interesting investment. It's a very risky investment. If that goes well, Goldman will get tremendous upside. If it goes badly or if Goldman's other investments go badly, who gets the downside? Well, Goldman Sachs is a bank holding company now. They were allowed to become that in September 2008 as a way to rescue them. They have access to the Federal Reserve discount window. Okay? If Goldman Sachs gets into trouble, that's the responsibility of the Federal Reserve and the downside is for society. That is an untenable, unacceptable position in America today.
BILL MOYERS: We are moving now toward the decisive moment in this fight for reform, sometime in the next two or three weeks, we may well have a vote in the Senate. But what are you going to be looking for over the next two weeks that will convince you there is some possibility of true reform?
JAMES KWAK: Well, it's going to be a little bit difficult, because right now a lot of the action is in the fine print. As often happens in the last phase of bills. But I think there's going to be an attempt to weaken the Consumer Financial Protection Agency. Even more than it's been weakened already.
And essentially, what will happen is opponents will try to make the C.F.P.A. subordinate to some other regulators, who can veto it. I think that on derivatives, there's going to be a lot of action, essentially on this issue of exemptions.
So, the derivative legislation looks quite good if you read the first page and look at the headlines. But then there are exemptions inside it. And the question is how big are the exemptions. The thing that we care about most is on the too big to fail issue. So, are we going to have real constraints on the size and scope of these banks? Things that the Obama Administration unveiled in principle to great fanfare in January.
They had a press conference with Paul Volcker and said we're going to have these Volcker rules. Those rules have been considerably watered down in the legislation. And I think that, you know, what we would most like to see are serious constraints on the scope and the size of these banks. Those are the main issues that I'll be looking at.
SIMON JOHNSON: So, the second Volcker rule was proposed in January was to put a size cap on our largest banks at their current size. Now, that-
BILL MOYERS: $2 trillion?
SIMON JOHNSON: Yes.
BILL MOYERS: 2 trillion-
SIMON JOHNSON: Now, a size cap is a good idea. Obviously, the current size makes no sense at all, because that's how we got into this mess. There will be amendments brought forward to the floor of the Senate, if this process has any integrity at all. For example, Senator Sherrod Brown has a very good draft amendment.
BILL MOYERS: Ohio, right?
SIMON JOHNSON: Absolutely. And he will, in that amendment, press for a hard cap on the size. And I think also restrictions on the scope. And they'll give a lot more restrictions in legislation, which regulators will have a hard time getting out to, in terms of what can be allowed in our biggest financial institutions.
For me, at least Bill, that is going to be the critical moment. How many people support that amendment or that kind of amendment. Does the Democratic leadership come out in favor of it? Where does the White House stand on this? If the White House steps back and the White House says well, it's all up to the Senate, we're staying out of this. I think you know what's going to happen. You're going to get mush, right? Nothing really meaningful will come of it.
If the President takes the lead, the President takes this one, if the President takes this to the country, takes on the Chamber of Commerce, goes directly to people. And explains why you need to make our biggest banks smaller. As one way, that's not a sufficient condition for financial stability, but it's necessary and it gets at the heart of their political power. Take on the big banks. Take them on directly. That's what Jackson did. That's what Theodore Roosevelt did. That's what Franklin Roosevelt did, too.
BILL MOYERS: Simon Johnson, James Kwak, thank you for being with me. The book is 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. We will link this conversation with your website, BaselineScenario.com.
JAMES KWAK: Thank you.
ROBERT J. LEVIN: Few, if any, predicted the unusually rapid...
DANIEL H. MUDD: I did the best that I knew how...
ROBERT J. LEVIN: In hindsight, if we and the industry as a whole had been able to anticipate...
CHUCK PRINCE: Regrettably, we were not able to prevent the losses that occurred...
ROBERT RUBIN: I was not involved in the interactions between the company and the regulators...
DANIEL H. MUDD: Although I was not in the room -- it was executive session [...] I don't, but I just don't know what the number was.
BILL MOYERS: That's it for the JOURNAL, except for this postscript to last week's conversation with the historian and military analyst Andrew Bacevich, who had this to say about Afghanistan:
ANDREW BACEVICH: It is the longest war in American history, and it is a war for which there is no end in sight. And to my mind, it is a war that is utterly devoid of strategic purpose, and the fact that that gets so little attention, I think, is simply appalling especially when you consider the amount of money we're spending over there, and the lives that are being lost, whether American or Afghan.
BILL MOYERS: Hardly had we finished talking about the rising anger over Afghan civilians killed by American and allied troops, then news came of more death. American troops opened fire on a passenger bus near Kandahar. They thought the bus threatened a military convoy. At least five Afghan civilians were killed and 18 wounded. Soon a loud and angry crowd was demonstrating against the United States, followed by a suicide bombing at the Kandahar office of Afghan intelligence that killed four officials and another five civilians.
All of this as General David Petraeus, commander of our forces in the Middle East and Central Asia, told a Washington audience that the continued loss of innocent civilian lives undermines everything America is trying to do in Afghanistan. And all of this as Congress prepares to vote on spending another 33 billion dollars on that faraway war.
Mayor Matt Ryan of Binghamton, New York, can't take it anymore. He calculates that by September 30th of this year the citizens of Binghamton will have paid 138 million dollars in taxes toward the occupation of Iraq and Afghanistan, and more, if Congress passes the Obama request for supplemental funds.
Binghamton is a small city of 47,000 people with an annual budget of 81 million dollars. Facing a budget deficit, the mayor has to raise taxes or cut jobs. He says he is sick and tired of watching people in town "squabble over crumbs" while sending all that money to foreign wars. So next week, he will become the first mayor in the country to install on City Hall a large digital clock adding up minute-by-minute how much the people of Binghamton are paying for those two wars. You can find out more about the story and voice your opinion at our website on pbs.org.
On that point: as you know, the Journal will be coming to an end on April 30th, but not our website. We will stay in touch even after we're off the air. And you can check in with us at pbs.org/moyers and through our podcasts, Facebook, YouTube and, yes, Twitter. In turn, we can check in with you. Just remember, as the late novelist Saul Bellow once told me, no one will be heard in the future who does not speak in short bursts of truth. We're trying, Saul; we're trying.
I'm Bill Moyers, and I'll see you next time.
BILL THOMAS: Was there an opportunity, perhaps, to reprioritize your charter and focus on those things that were most relevant in the marketplace that would have made the institution more sound?
ROBERT J. LEVIN: That wasn't done at my pay grade.
BILL THOMAS: My understanding is, between 2000 and 2008, you made $45 million. So only people above 45 thousand-- 45, excuse me, million dollars, between two and 2008, could answer that question?
ROBERT J. LEVIN: What I meant by the, what I was addressing was the question of, could we have affected the charter act--
BILL THOMAS: Right. And it was above--
ROBERT J. LEVIN: Of the company--
BILL THOMAS: Your pay grade.
ROBERT J. LEVIN: Yes. And my language was sloppy, and--
BILL THOMAS: No, it wasn't sloppy.
ROBERT J. LEVIN: And what I meant by that--
BILL THOMAS: It was flippant, if you want that as a choice.
ROBERT J. LEVIN: What I meant by that, sir, was that that was in the purview of the Congress, not the company.
BILL MOYERS: You're laughing.
SIMON JOHNSON: So, look, what I say to my, to all my Republican friends: on Fannie Mae and Freddie Mac, you were right. They became too big to fail. They captured Congress. They were known as some of the most formidable financial lobbyists in the 1990s. They argued for the rights to take on these kinds of risks, okay?
And the Republicans were right. The Republicans called them on this. But now it's the big private banks that have the same incentive structure. That have bulked themselves up so big that you can't let them fail. That's what we saw in September 2008. Hank Paulson looked at his options. And they are all pretty awful. And I'm not a big fan of Hank Paulson, but I think the moment where he looked at it, he was right. That if you let JPMorgan Chase or Goldman Sachs fail, the consequences would have been devastating, because they're so big. It's a Fannie May and Freddie Mac structure come to Wall Street, come to the top guys on Wall Street. And our Republican colleagues and friends should recognize this, they should acknowledge it. And then we can all fix this together.
BILL MOYERS: Well then why is Mitch McConnell, the Senator from Kentucky, who is the Republican Leader in the Senate saying what he said this week? Let me show you from his statement.
SEN. MITCH MCCONNELL: If there's one thing Americans agree on when it comes to financial reform, it's that it's absolutely certain they agree on this: never again, never again should taxpayers be expected to bail out Wall Street from its own mistakes [...] This bill not only allows for taxpayer-funded bailouts of Wall Street banks, it institutionalizes them. The way to solve the problem is to let the people who made the mistakes pay for them. We won't solve this problem until the biggest banks are allowed to fail.
BILL MOYERS: He seems to be saying what you say, right?
SIMON JOHNSON: It's a clever piece of political manipulation. It's not at all what we say. What he says is dangerous and deliberately misleading.
BILL MOYERS: How so?
SIMON JOHNSON: He says let the biggest banks fail, go bankrupt, don't do anything, leave the situation as it is now and when they get in trouble, let them fail. If you do that, you'll have catastrophe. The bankruptcy system clearly and manifestly cannot deal with the failure of a complex, global, financial institution. And we have the evidence before us in what happened after Lehman Brothers failed. That was bankruptcy. It caused chaos around the world, Bill. That's what the Republicans are advocating. Is we just leave things as they are and next time we'll take that chaos and we'll get a second Great Depression. We're arguing for reform. We're arguing for change. We're arguing for ways to make those biggest banks smaller and safer. If they were small enough to fail, that's a very different story. And that's a much safer place to be.
BILL MOYERS: What do these big six banks think about what Senator McConnell is saying?
JAMES KWAK: Well, the big six banks don't want any reform at all, essentially. So, I think that they are, and there's some evidence that Senator McConnell has been talking to the big banks and to other people on Wall Street.
BILL MOYERS: There have been published reports that he attended a fundraiser with hedge funds and other Wall Street poobahs just last week, before he made this statement. And the reporters, knowing that he had been at this big fundraiser for hedge fund and Wall Street tycoons a week before, begin to press him in an unusual, and actually promising way. Take a look at this.
REPORTER: How do you push back against this perception that you're doing the bidding of the large banks? You know, there was a report that you guys met with hedge fund managers in New York. A lot of people are viewing this particular line of argument, this bailout argument as spin--
SEN. MITCH MCCONNELL: You could talk to the community bankers in Kentucky.
REPORTER: I'm not asking you about the community bankers--
SEN. MITCH MCCONNELL: But, I'm telling you about the community bankers in Kentucky. This is not, everybody--
REPORTER: Have you talked with other people other than community bankers?
SEN. MITCH MCCONNELL: Well, sure. We talk to people all the time. I'm not denying that. What's wrong with that? That's how we learn how people feel about legislation. But the community bankers in Kentucky, the little guys, the main street guys, are overwhelmingly opposed to this bill.
REPORTER: Well what would you say to folks who say that this is just spin to deflect attention from the fact that you're representing the large banks?
BILL MOYERS: So, he deflects their questions about being at this meeting with the large banks, the oligarchs, as you called them. And talks about community banks back in Kentucky. What do you make of that?
SIMON JOHNSON: Well, two things, Bill. First of all, he's embarrassed, as he should be, and that's good. I don't think they used to be embarrassed. I think-- I hope Vice President Biden is somewhat embarrassed by the event he's going to attend next week with Robert Rubin, unless he criticizes Rubin and goes after Rubin's view of the world. In which case, I'm okay with that.
JAMES KWAK: This other part of the problem which Simon and I talk about more in the book, and that we don't think is fully solved by the legislation in the Senate, is why do you have to have these too big to fail banks in the first place? So, we think that's the obvious and simplest and almost unarguable solution that you should simply not have banks that are too big and too interconnected to fail.
SIMON JOHNSON: There are no benefits to society, Bill, from having banks that are larger than $100 billion in total assets. This is a well-established fact. The evidence does-
BILL MOYERS: You make the case.
SIMON JOHNSON: There's nearly 100 pages of footnotes for a reason.
BILL MOYERS: But don't let the facts get in the way.
SIMON JOHNSON: I understand. But there's no evidence, okay? We've let our banks get to $2 trillion-- Citigroup when it almost failed or did fail in fall 2008 was a $2.5 trillion bank. Jamie Dimon runs a $2 trillion bank at JPMorgan Chase and says, if we're big, it's 'cause we're beautiful and efficient. And we should be allowed to get bigger. It's not true. They're big because of the government subsidy, right? That's what gives them the profits at this level. If they get bigger, they'll become more dangerous. That's, those are the costs. On the benefit side, there's no economy of scale or scope or anything else to support the case that banks bigger than $100 billion. That's on a pure cost/benefit basis.
JAMES KWAK: So, there's no way that Jamie Dimon, who according to many observers is perhaps the savviest bank CEO, the best one out there, there's no way that he can know what's going on within his organization. There's no way he can even have an information system that will let him know, efficiently, all the things that he needs to know. So, why is JPMorgan Chase so big? One reason is that it's in the interest of CEOs to have large banks. Because if you have, the larger your bank, the bigger your salary. But then at the same time, it creates this incentive among the traders, the people who really make the money or lose the money in these banks. It creates an incentive to the traders to essentially exploit the management failings of the company.
BILL MOYERS: The toughest hearing in Washington this week was conducted by Senator Carl Levin in the Senate, looking into Washington Mutual. That's the largest bank ever to go under in our history, and there are some friends of mine in Washington say there's some possible criminal indictments going to be coming out of this. Let me show you Senator Levin laying out some of the evidence.
SEN. CARL LEVIN: To keep that conveyor belt running and feed the securitization machine on Wall Street, Washington Mutual engaged in lending practices that created a mortgage time bomb...WaMu built its conveyor belt of toxic mortgages to feed Wall Street's appetite for mortgage-backed securities. Because volume and speed were king, loan quality fell by the wayside and WaMu churned out more and more loans that were high risk and poor quality.
Destructive compensation schemes played a role in the problems just described. These incentives contributed to shoddy lending practices in which credit evaluations took a back seat to approving as many loans as possible.
BILL MOYERS: He goes on, you know? There's evidence that WaMu knowingly sold fraudulent loans to investors in the form of securities. That loan offices were falsifying documentation in order to churn out as many lousy loans as they could. And that senior management was putting pressure on the loan officers to do just this. And he claims, what we were talking about, that destructive compensation schemes were part of the problem.
JAMES KWAK: I think that some people may go to jail. I think that falsifying loan documents, I think there's a good chance people could go to jail for that. I think that if there are- you know, when you get the emails of people at midlevel managers at these banks saying, you know, falsify the loan documents. They might go to jail as well. I don't think anyone who's high up in these banks is going to go to jail for this reason.
I think that, for example, these loans were eventually sold on to investment banks which used them to manufacture new securities. Those investment banks were getting documents from Washington Mutual. These are like representations and warranties. So Washington Mutual is saying, you know, these loans meet these criteria. And the investment bank is going to say, I got this document from Washington Mutual. They told me the loans were good. You can't send me to jail.
And he's absolutely right. So, you've got investment bankers who must have known. Who should have known that a lot of these loans are bad. But they've got a piece of paper from the person selling them the loan saying they meet these criteria. He's pretty much Scott free when it comes to criminal liability. So--
BILL MOYERS: Mistakes were made, but not by me, right?
JAMES KWAK: Exactly.
BILL MOYERS: I mean, that seems to be the mantra that came through all these hearings this week: mistakes were made but not by me.
SIMON JOHNSON: Or, no, I think they also say, Bill, well, everyone made mistakes, Bill. You know, we're just human. This was beyond our control. And that's not true, these are systems they controlled, they designed. Mr. Rubin designed this, right? And I want to point out there's something very interesting in this WaMu conversation.
It's only when a firm collapses that you get full discovery. Now, Senator Levin is a great voice on this. And I think he's absolutely nailing this. But he only has the ability to get at this level of detail and documentation from a company that failed like WaMu. For the people who were able to keep going. The Goldman Sachses of this world, you'll never know what they were really up to.
These are incredibly smart people. They're very well paid. They have ever incentive. The regulators are totally outgunned. It's not an accident that this complexity allows them to get away with it. It's by design. That's the system. Not a conspiracy, Bill. Don't say that.
BILL MOYERS: I wouldn't.
SIMON JOHNSON: It's a system of--
BILL MOYERS: A system.
SIMON JOHNSON: It's a system of beliefs and incentives, much more profoundly dangerous than a conspiracy.
BILL MOYERS: Why?
SIMON JOHNSON: Conspiracies you can unroot. Conspiracies you can have, you know, a couple of hearings. People can understand it on TV. You get the sound bite. This is very complex. This is about what many, many PhDs and specialists in finance have cooked up over 20 years with the active participation of the people who were supposed to oversee that in Washington.
BILL MOYERS: Is this what the blogger meant when he posted on "The Baseline Scenario" this week, "Unnecessary complexity just creates rich opportunities for systemic corruption"?
JAMES KWAK: That is certainly one of the things he meant.
BILL MOYERS: What should be the purpose of reform? Should it change the behavior of Wall Street, or should it change the regulation of Wall Street? And there is a difference, is there not?
SIMON JOHNSON: Absolutely. Look, I don't know if this will work or not. I don't know if at the end of the day, we will end up supporting the bill. I hope we will, okay? But whatever happens, this is one legislative cycle. Theodore Roosevelt did not change the mainstream consensus in this country with regard to power and monopoly and the dangerous side effects of big business overnight.
He didn't do it in one year or two years. It was a ten year process. The consensus has to change, Bill. And regulation, the role of regulation or understanding of regulation with regard to finance has to change. The regulation is there to limit the downside to society and to make sure that all of these activities have as much as possible of the positive effect on the economy without generating these massive negative shocks. And we're a long way from that point.
JAMES KWAK: I think the distinction you made is a very good one. Between changing the regulation of Wall Street and changing Wall Street itself. I think the bill does a lot of things that will improve the regulatory system.
I think it does not do a lot to change Wall Street. Certainly, better regulation will change Wall Street a little bit, but some of the basic fundamental issues, I think, for example, the fact that in many realms, Wall Street banks knowingly make money by finding, because they want to put on a trade, they find a sucker to take the other side of that trade.
They're making money directly off of their customers. You can't really have it any other way when you're engaged in proprietary trading. These, this is not going to change. The fact that we have these enormous banks that are too big to manage and that have a competitive advantage, because they're big. That's not going to change.
And that's one reason I think why it's not going to satisfy the many people in America right now who are upset and frustrated about what's happen. Because they're going to see that what we've done is we've made Washington a little bit better at regulating Wall Street. We haven't changed the fundamental causes.
BILL MOYERS: Well, I've seen one regulatory agency after another taken over by the very industries they were supposed to regulate.
SIMON JOHNSON: This is absolutely right, Bill. And, you know, the person who nailed this intellectually a long time ago was from the University of Chicago. George Stigler. Not a man of the left. He got a Nobel Prize for his observation. All regulated industries end up with the industry capturing the regulators.
And what's happened to us is a Stigler, exactly what Stigler warned against on a massive scale. And you have to think very hard about this. The Administration still argues that we should delegate responsibility, going forward, for lots of things around finance. Like how much capital you should have. Delegate that to the regulators.
Now, that's crazy. That's not acceptable. That is not what they should do. Particularly because, and any Democrat should say, well, wait a minute, next time a free market President who doesn't believe in regulation comes in will gut the system. And any person from the right who's read Stigler should say, Well, these regulators are just going to get captured. You've got to put it in legislation. You've got to design the legislation. You've got to go after the things that can be legislated. Congress must not abdicate this responsibility.
BILL MOYERS: So, you would break up the banks. That's what you would do, right?
SIMON JOHNSON: We would set a hard size cap on the banks. And the banks, in order to comply with that, would have to break themselves up. So, take a bank like Goldman Sachs, for example. It's about ten times bigger than what we would be comfortable with. And, you put that cap in-- they have to figure out how to do it. They have a fiduciary responsibility to their shareholders not to lose value as they comply with this law, not a regulation, law, right? Our book is called "13 Bankers" because it was 13 bankers who were pulled into the White House last March, and they were saved completely and unconditionally in the most amazing deal ever: their jobs, their pensions, their board of directors, their empires. But the title is also an echo of a remark made forcefully in 1998 by Larry Summers, who was then Deputy Treasury Secretary to Brooksley Born, who was trying to regulate over the counter derivatives.
And she was way ahead of her time, by the way. None of this nonsense existed. But she had- she saw this coming in a very profound sense. And she wanted to act in a preemptive and preventive way. Now, Larry Summers called her up. This is according to the public record and it's not been disputed by any of the protagonists here.
He called her up and he said, Brooksley, if you do what you want to do, which is regulate the derivatives. Over- regulate all this over the counter derivatives, you- I have 13 bankers in my office who say you will cause the greatest financial crisis since World War II., right? That was what he believed. That was the prevailing philosophy of the Rubin wing, the Wall Street wing of the Democratic Party.
That was Alan Greenspan's view. That is what brought us to this point. The idea that if you regulate, in any fashion, in any form, you will cause problems, you will prevent growth, you will cause crisis. That view is profoundly wrong. It has been manifestly and repeatedly demonstrated to be wrong. And the people who hold that view must change their minds or they should be voted out of office.
BILL MOYERS: If Wall Street's behavior doesn't change, can we have another financial catastrophe like the one in 2008?
JAMES KWAK: The definition of insanity is repeating the same thing over and over again and expecting a difficult result. And I think one of the core messages in our book is that the fundamental conditions of the financial system today are the same as the ones we had leading up to this crisis. And it would be folly to expect a different outcome.
Now, the legislation will help in certain ways. It will certainly, you know, it'll bolt the barn door after the horses have fled. The Consumer Financial Protection Agency will make it much harder to have a bubble built on subprime mortgages. But we'll have a bubble built on something else. And it may even be on a market or a product that doesn't even exist yet.
And that's why, again, legislation is helpful, but if you're going to have the same kind of incentive structures on Wall Street and the same degree of concentration, the same degree of political power, it's likely that we'll have another financial crisis.
The financial world has gotten much more dangerous in the last 30 years. We had this one. We had the stock market bubble of 2000. We had the long term capital management crisis. We had the S & L crisis. We had the Latin American debt crisis. And the question is, are these crises going to-- are we going to somehow figure out a way to have fewer of them, or a way to make them less damaging? And I'm not sure I've seen that.
SIMON JOHNSON: The structure of the system is such that people will take these egregious risks. That's what they're paid to do. They will mismanage their companies. That is absolutely in their incentive. And they get the upside, remember? Goldman Sachs just helped Geely Automotive, a Chinese car company, buy Volvo from Ford.
Now, that's an interesting investment. It's a very risky investment. If that goes well, Goldman will get tremendous upside. If it goes badly or if Goldman's other investments go badly, who gets the downside? Well, Goldman Sachs is a bank holding company now. They were allowed to become that in September 2008 as a way to rescue them. They have access to the Federal Reserve discount window. Okay? If Goldman Sachs gets into trouble, that's the responsibility of the Federal Reserve and the downside is for society. That is an untenable, unacceptable position in America today.
BILL MOYERS: We are moving now toward the decisive moment in this fight for reform, sometime in the next two or three weeks, we may well have a vote in the Senate. But what are you going to be looking for over the next two weeks that will convince you there is some possibility of true reform?
JAMES KWAK: Well, it's going to be a little bit difficult, because right now a lot of the action is in the fine print. As often happens in the last phase of bills. But I think there's going to be an attempt to weaken the Consumer Financial Protection Agency. Even more than it's been weakened already.
And essentially, what will happen is opponents will try to make the C.F.P.A. subordinate to some other regulators, who can veto it. I think that on derivatives, there's going to be a lot of action, essentially on this issue of exemptions.
So, the derivative legislation looks quite good if you read the first page and look at the headlines. But then there are exemptions inside it. And the question is how big are the exemptions. The thing that we care about most is on the too big to fail issue. So, are we going to have real constraints on the size and scope of these banks? Things that the Obama Administration unveiled in principle to great fanfare in January.
They had a press conference with Paul Volcker and said we're going to have these Volcker rules. Those rules have been considerably watered down in the legislation. And I think that, you know, what we would most like to see are serious constraints on the scope and the size of these banks. Those are the main issues that I'll be looking at.
SIMON JOHNSON: So, the second Volcker rule was proposed in January was to put a size cap on our largest banks at their current size. Now, that-
BILL MOYERS: $2 trillion?
SIMON JOHNSON: Yes.
BILL MOYERS: 2 trillion-
SIMON JOHNSON: Now, a size cap is a good idea. Obviously, the current size makes no sense at all, because that's how we got into this mess. There will be amendments brought forward to the floor of the Senate, if this process has any integrity at all. For example, Senator Sherrod Brown has a very good draft amendment.
BILL MOYERS: Ohio, right?
SIMON JOHNSON: Absolutely. And he will, in that amendment, press for a hard cap on the size. And I think also restrictions on the scope. And they'll give a lot more restrictions in legislation, which regulators will have a hard time getting out to, in terms of what can be allowed in our biggest financial institutions.
For me, at least Bill, that is going to be the critical moment. How many people support that amendment or that kind of amendment. Does the Democratic leadership come out in favor of it? Where does the White House stand on this? If the White House steps back and the White House says well, it's all up to the Senate, we're staying out of this. I think you know what's going to happen. You're going to get mush, right? Nothing really meaningful will come of it.
If the President takes the lead, the President takes this one, if the President takes this to the country, takes on the Chamber of Commerce, goes directly to people. And explains why you need to make our biggest banks smaller. As one way, that's not a sufficient condition for financial stability, but it's necessary and it gets at the heart of their political power. Take on the big banks. Take them on directly. That's what Jackson did. That's what Theodore Roosevelt did. That's what Franklin Roosevelt did, too.
BILL MOYERS: Simon Johnson, James Kwak, thank you for being with me. The book is 13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. We will link this conversation with your website, BaselineScenario.com.
JAMES KWAK: Thank you.
ROBERT J. LEVIN: Few, if any, predicted the unusually rapid...
DANIEL H. MUDD: I did the best that I knew how...
ROBERT J. LEVIN: In hindsight, if we and the industry as a whole had been able to anticipate...
CHUCK PRINCE: Regrettably, we were not able to prevent the losses that occurred...
ROBERT RUBIN: I was not involved in the interactions between the company and the regulators...
DANIEL H. MUDD: Although I was not in the room -- it was executive session [...] I don't, but I just don't know what the number was.
BILL MOYERS: That's it for the JOURNAL, except for this postscript to last week's conversation with the historian and military analyst Andrew Bacevich, who had this to say about Afghanistan:
ANDREW BACEVICH: It is the longest war in American history, and it is a war for which there is no end in sight. And to my mind, it is a war that is utterly devoid of strategic purpose, and the fact that that gets so little attention, I think, is simply appalling especially when you consider the amount of money we're spending over there, and the lives that are being lost, whether American or Afghan.
BILL MOYERS: Hardly had we finished talking about the rising anger over Afghan civilians killed by American and allied troops, then news came of more death. American troops opened fire on a passenger bus near Kandahar. They thought the bus threatened a military convoy. At least five Afghan civilians were killed and 18 wounded. Soon a loud and angry crowd was demonstrating against the United States, followed by a suicide bombing at the Kandahar office of Afghan intelligence that killed four officials and another five civilians.
All of this as General David Petraeus, commander of our forces in the Middle East and Central Asia, told a Washington audience that the continued loss of innocent civilian lives undermines everything America is trying to do in Afghanistan. And all of this as Congress prepares to vote on spending another 33 billion dollars on that faraway war.
Mayor Matt Ryan of Binghamton, New York, can't take it anymore. He calculates that by September 30th of this year the citizens of Binghamton will have paid 138 million dollars in taxes toward the occupation of Iraq and Afghanistan, and more, if Congress passes the Obama request for supplemental funds.
Binghamton is a small city of 47,000 people with an annual budget of 81 million dollars. Facing a budget deficit, the mayor has to raise taxes or cut jobs. He says he is sick and tired of watching people in town "squabble over crumbs" while sending all that money to foreign wars. So next week, he will become the first mayor in the country to install on City Hall a large digital clock adding up minute-by-minute how much the people of Binghamton are paying for those two wars. You can find out more about the story and voice your opinion at our website on pbs.org.
On that point: as you know, the Journal will be coming to an end on April 30th, but not our website. We will stay in touch even after we're off the air. And you can check in with us at pbs.org/moyers and through our podcasts, Facebook, YouTube and, yes, Twitter. In turn, we can check in with you. Just remember, as the late novelist Saul Bellow once told me, no one will be heard in the future who does not speak in short bursts of truth. We're trying, Saul; we're trying.
I'm Bill Moyers, and I'll see you next time.
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