The 200k Challenge Live Webcast
Story Transcript
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington. And I believe we are live. We are live. That’s good. So our guest coming up in just a minute or two is Bill Black. He’s the author of the book The Best Way to Rob a Bank Is to Own One. And, of course, we could write a sequel, which would be The Best Way to Fund a Television Network Is to Own a Bank, except we don’t. And because we don’t own a bank, we depend on you. And so this is a corny way to pitch. We’re aiming towards getting our $200,000 target by the end of December 9. We have a generous donor who’s matching dollar for dollar, so if you give us $10, you’re triggering another $10. If you’re giving us $100, you’re getting us $200. If you want to donate, the donate button is up here or down there, depending on what kind of browser you’re using. You could also phone if it’s easier or if you’re having any trouble. The phone number’s 888-499-6772. I’ll do that again: 888-499-6772. If you want to send a check, you can phone there and our colleagues answering the phone will tell you the address. And one more phone number. So if you got your pencils ready, one more number. If you want to ask Bill Black a question, you can either email us at questions (at) therealnews (dot) com, or you can phone this number, and that’s 888-816-8867. One more time: 888-816-8867. That’s for questions, and the other number’s for donations (although, again, just click donate). Okay, all that being said, now the reason you’re really here: Bill Black. Bill is a professor at the University–let me get my notes in front of me. Bill Black is an associate professor of economics and law at the University of Missouri – Kansas City. He teaches white-collar crime (I don’t think that teaches you how to do white-collar crime; I guess he teaches about white-collar crime), public finance, antitrust, law, and economics. He’s also the author, as I said, of the book The Best Way to Rob a Bank Is to Own One. Thanks for joining us, Bill.
WILLIAM K. BLACK, ASSOC. PROF. ECONOMICS & LAW, UNIV. MISSOURI-KANSAS CITY: Thank you.
JAY: Now, in one of our interviews, a series–we titled it The Best Way to Rob a Country Is to Own a Bank. So talk a little bit about what’s going on now. I guess there’s two parts to the breaking news, what’s most in the news now. One is the revelation of just how much money the Fed gave to or loaned to American banks, big american corporations, foreign banks–in the trillions, far more than anything that was just in TARP. So start with what you make of the significance of that.
BLACK: Well, that’s where the real bailout was, and that’s why the standard media presentation (and there were examples of it today, with the sale of stock in Citicorp) that TARP has supposedly resolved the entire financial crisis and only cost $35 billion is complete propaganda and nonsense. The losses are measured in the several trillions of dollars. Now, it’s preposterous to say that therefore it could have been–the problem could be resolved for $35 billion. We know that the losses are in fact being hidden and they’re being secretly subsidized. They’re being hidden in two primary ways. First, the banking industry used its political clout (working with the Chamber of Commerce, the great opponent of the Obama administration, but with no resistance from the Obama administration, and with a wink and a nod from Ben Bernanke, the Fed chairman) to gimmick the accounting rules so that the banks don’t have to recognize their losses. And the banks–.
JAY: Hang on for one second. Let’s just explain what that is. If I understand it correctly, they’re allowing their books to show assets at pre-crash value. Is that the issue? When in fact nobody even knows what the assets are really worth anymore.
BLACK: Well, they do, and they don’t like what they’re really worth, and therefore they’ve gimmicked the accounting rules so that they wouldn’t have to recognize the losses. And that means that their assets are enormously overstated, and that means that their net worth and profits are enormously overstated. And that’s the only reason (A) the banks have been able to get out of most of the restrictions under TARP, and (B) the only reason that they’ve been able to pay these massive executive compensation, because they’re really suffering losses, and under their compensation deals they couldn’t pay, and that’s why they’ve gimmicked the rules. So that’s the first big thing. The second big thing, as you say, we’ve just recently gotten details. And it’s important to know why we recently got the details. And it’s because we’ve created a coalition of progressives and, you know, libertarians in Congress to pass a provision that required the Fed to be audited and to release information, and the Fed has deliberately not complied with critical parts of that. But even its partial compliance shows that there are trillion-dollar exposures, trillion-dollar subsidies that went to the largest banks, not just US banks, but the largest foreign banks, and to hedge funds, and even to simply very wealthy people. So this was a massive hidden bailout.
JAY: And some private corporations, General Motors, but also companies that are not supposedly in bailout mode. But in a recent interview, I should say in a recent 60 Minutes report, Ben Bernanke was interviewed, and in the course of the report, 60 Minutes says: and most of these loans have been repaid. So, first of all, is that true? And then, what–repaid with what?
BLACK: Well, it’s nominally true, because the loans are rolled over, so the initial loans are in many cases repaid. We don’t truly know how much is still out there. But what we do know suggests that it’s absolutely the worst collateral taken in exchange. In other words, there are massive losses at the Federal Reserve. And one of the reasons we know that is that the Federal Reserve Bank of New York has taken to suing entities like Bank of America, saying, you provided us with a bunch of trash collateral, and there are enormous losses in it, and we want you to take those losses instead of us. But, of course, that’s only a tiny percentage of those massive losses that the Fed is likely to experience.
JAY: So what does this do to the US dollar? And I have to admit I’m not an economist, so I’m not–. Does this trillions of dollars, does it show up anywhere other than on the Fed’s books? In other words, when they look at the overall debt, does the fact that the Fed pumped out all this cash to banks here and abroad, does that increase the debt? Or is–the Fed has its own kind of accounting box over here?
BLACK: In a sense you ask if it has its own box. What you need to think of this as is a massive off-balance-sheet play, sort of like the private sector used the SIVs, the special investment vehicles, to keep debt off of their balance sheets. That’s been done. And, by the way, this has the effect of making it look again like the largest banks are far healthier than they really are.
JAY: Now, what does it do to the dollar, in the sense that if the Fed can just make all this money and put their finger in the hole in the dike, and it’s a global hole in a global dike, clearly, and the entire global finance system apparently depending on the Fed to hold this unraveling thing from unraveling–but what does it mean about the dollar that you can create trillions of dollars just on paper, plug this hole which–it would seem to me so much of this hole has to do with lack of real consumer demand. It’s like the real economy is sucked out. You’ve got all the speculative, parasitical capital essentially going wild over here, the two things meet, and the Fed just makes up money. What does it mean about the dollar after that?
BLACK: Well, to take it in segments, first what it means is we have the largest form of crony capitalism in the world. And we have a unique form of crony capitalism. In Indonesia you only bail out your direct friends. In the United States context, the Fed bails out the largest banks in Europe. Even when, say, Deutsche Bank–. You know, Germany’s a rather wealthy nation. Why were the American taxpayers put on the hook with no legislation, with no public disclosure, with no debate, to bail out Deutsche Bank? It’s an obscene public policy. So that’s the first stage. The second stage, actually how it affects the value of the dollar, is pretty complex. You get into sort of weird what-ifs. What the Fed is telling us was that the European Central Bank was not in a position where it could bail out the largest European banks and all the largest European banks were on the verge of failure.
JAY: And is it ’cause they needed dollars?
BLACK: If that had happened, there would have been a massive flight to quality and the dollar would have appreciated a great deal. I’m not sure you would have liked those results if you care about US exports. I don’t personally think that’s the most critical thing, but it would have been bad for jobs in the United States if the US dollar had appreciated enormously, and especially if it’s in the context of Germany, France, the rest of Europe going into a far deeper recession, where they couldn’t purchase goods from us. That wouldn’t have been good for much of anyone. There’s a competitive struggle going on among all the largest nations to devalue their currencies. The US complains constantly about China, and China does in fact manipulate the value of its currency to keep it very low, but, of course, we manipulate ours as well to keep it low. The Japanese have announced officially that they’re upset because they haven’t been manipulating it enough, the yen, downwards, so they’re going–they’ve pushed it down. And the European–the euro, of course, is sort of the loser in this in terms of having greater value, and the consequences of that are disastrous for the periphery of Europe.
JAY: Okay. Let’s just go back one sec. So Bernanke, in this 60 Minutes interview, he says people don’t realize even now just how serious the crisis was, that the entire global financial system was going to come apart and it would have been devastating. He said there would have likely been unemployment rates at 25 and 30 percent. So, first of all, was the moment as apocalyptic as he says? And number two, what was an alternative policy choice the US government and/or Fed could have done?
BLACK: Well, of course, the first answer, when Bernanke says people don’t know, well, there’s a good reason people don’t know, and that’s because Ben Bernanke and his counterparts kept the American people and the people of Germany etc. from knowing, as a very deliberate strategy. So he can hardly blame any failure to know.
JAY: Yeah, they’re not going to be happy if Julian Assange has the goods–he claims the next WikiLeaks is about the banking system. So they may not be very–they may hope he’s in jail in Sweden sooner than later.
BLACK: That’s certainly true. Here’s the types of things we do know. It is true that hundreds, maybe thousands of financial markets shut down. Now, they shut down for a really good reason, and that is, you know, we’ve all been to a picnic or a conference where they gave out bottles of water and, you know, everyone had it on their desk or on the table. How many people would drink that bottle of water if they knew that 1 in 100 bottles was contaminated? The answer is pretty much zero.
JAY: Yeah, nobody. Nobody would drink it.
BLACK: That’s right. So what bankers figured out was, oh my God, other bankers are lying about their asset values, and they’re lying not a little bit but massively. And, of course, the bankers figured that out because they knew they were lying themselves, and they rightly suspected that their counterparties were doing the same thing. And as soon as that happens, then the markets start freezing up. That really will cause very severe economic problems. The answer to that is either honesty or a bigger lie. So my policy would have been honesty. The central bank’s policy was a bigger lie, that they would hide the losses, secretly subsidize the richest people in the world, the absolute one thousandth of 1–top 1 percent. The wealthiest people in the world who had caused the crisis the Fed would bail out, and it would do so even if those people were in other countries, and even if, say, the Germans were late in bailing out their folks. So the alternative for insolvent places is to assure liquidity from the central banks by lending and by checking the asset quality to see whether they’re good assets. What we know is that the Fed stopped looking at asset quality and took, deliberately, junk and valued it as if it were good stuff. There was no reason to do that, and doing so exposed all of us to tremendous losses and, again, created this subsidy for the worst, most fraudulent institutions.
JAY: But how would you have ensured liquidity unless somehow either you say, okay, well, certain banks we will either nationalize or, if we bail you out, we’re going to by legislation force you to actually loan money, or create some kind of public utility of some sort to introduce liquidity? Otherwise you get the situation like there is now, even, when the Fed, you know, goes and picks up this ‘nother $600 billion of Treasury bills from these banks. There’s no reason the banks have to do anything. They can cart all the money to Brazil and make money on what they call the carry trade, the interest spread.
BLACK: Right. The Fed has the worst possible strategy now, as you say, that doesn’t make the banks an engine of economic growth. So what you should do is what’s been done in the past: you do a pass-through receivership. If the bank really is insolvent, it’s not some temporary liquidity problem that you can fix by making a loan. In a pass-through receivership, the place closes on a Friday; it reopens as scheduled on the Saturday or the Monday. The ATMs would–takes us about 20 seconds to convert them over. But other than that, you have full access to your ATMs. But you bring in new, competent banking officials with integrity, and they of course have a directive to start making productive loans. Instead, we left the people in charge who had destroyed the banks, either through fraud or gross incompetence, and we provided secret subsidies to them through the Federal Reserve, and we didn’t require them to make any loans. Instead, we set up a system, as you said, of carry trade, where it made sense for them, from their–purely their own profit perspective, to–simply the equivalent of clipping coupons: borrow money at virtually zero from the Fed, loan it at 5 percent to Brazil. That’s not bad for Brazil, but it’s terrible for the United States.
JAY: Even, apparently, Brazil doesn’t like it, ’cause that hot money’s creating an inflationary situation and devaluating Brazilian currency. So even Brazil’s not–I don’t–nobody seems to be very happy with it, except, I guess, the banks that are–and others who are in on the carry trade. But let’s back up a sec. So if you had followed this more transparent, honest policy, how do you–even then, do you not have to have some kind of mandated public interest objectives that this bank that’s now using public money to stay afloat, you have to actually say, okay, we’re on your board, or something else? Somehow, the public interest has to be asserted, no?
BLACK: Well, I mean, these–if you’re talking about taking over a number of the largest institutions in the world, it would have taken time to sell them, and you would have wanted to make them smaller. But, again, we have lots of experience with that. You put them in receivership. You don’t need some special mandate. You just hire competent bankers (typically who lost their job because they were honest, right?), and those people will make loans, because that’s what a competent, honest banker does. It doesn’t–you don’t have to put a gun to their heads. It’s only when you get these really perverse incentives from these secret subsidies and the weird executive compensation that we have in the private sector that you get these disasters.
JAY: Okay. Let me interrupt for just a second. I just want to go back to our viewers. If you want to ask a question of Bill, you email questions (at) therealnews (dot) com. If you want to actually ask the question on-air live, you either tell us that in an email and/or you phone this number, 1-888-816-8867, and you just let our colleague know what your question is, and they’ll arrange for you to get on air here. Bill, I know we get a lot of email about–with the following point of view, which is: why get involved at all? Why don’t you let the market correct itself? If all these banks gambled and lost, let them burn. Yes, maybe there’ll be, you know, a period of great dislocation, but out of it will emerge a healthier situation. What do you make of that whole point of view?
BLACK: Well, now, I think when you have thousands of markets collapsing, what you get is, the private sector answer is, we don’t trust anybody. And that’s not a good answer either. That means we start shutting down everything, whether it’s sensible not. And that has knock-on effects. As you lose your income, you cut back your spending. As I’m afraid, I see my neighbors losing their income, I stop spending wherever possible. Cumulatively, that leads to trillions of dollars of reduced demand, and it leads to really severe recessions or great depressions again. And great depressions do not sort themselves out, because the private sector gets stuck in this kind of liquidity trap and it can–you know, that kind of great depression could go on for decades.
JAY: Let’s talk a little bit historically. This is not the first time that we’ve had this sort of banking disaster. It’s–maybe has its own specificity. But you were directly involved in the savings and loan crisis, and during the whole period of the–what was called then the Keating Five that John McCain was involved with. Can you talk a little bit about what happened then and what we can learn from that period about now?
BLACK: Yes. I mean, the fundamental issue that needs to be discussed and almost completely is not discussed is: why do we have recurrent, intensifying financial crises? And that requires two different components. One, what’s causing them? But the second one is, why aren’t we learning from the past crises? Why do we actually adopt policies that make the next crisis worse?
JAY: I guess partly you have to define the “we”. I suppose some people are profiting from all this, so you could say maybe they have learnt a perverse sort of lesson.
BLACK: Well, that may be. But without, you know, even that, what you have is the triumph of dogma in economics that has responded to each crisis by saying, well, no, actually, regulation can never work, supervision can never work, markets cure themselves, they prevent all fraud; so if we can just stop regulating, all will be well. So in the savings and loan crisis there was a national commission to look into the causes, and it said at the typical large failure, fraud was invariably present–I’m quoting directly from them. So you might think that you would take fraud seriously. Well, go forward in time. You get Enron, WorldCom, that whole series of, again, what we call in criminology control frauds. This means the people who control seemingly legitimate entities use them as a weapon to defraud. And you get some reforms after that (Sarbanes-Oxley), but they’re not really addressed to fraud very much. So you go forward to the next crisis. I mean, who do you leave in charge? Alan Greenspan. And what did Alan Greenspan say? Well, Alan Greenspan said fraud cannot occur. Markets automatically–securities markets and other capital markets automatically prevent fraud. Well, you know, what happens, therefore, when the FBI says, actually, sir, in 2004, there’s an epidemic of fraud, and the Federal Reserve is the only agency that had the regulatory authority to regulate the otherwise unregulated mortgage bankers who were doing roughly two-thirds of the nonprime loans. Well, of course, they went to Greenspan, and he refused to use that authority. Bernanke refused to use that authority. They were so captured by this dogma of market perfection, and so identified with the class of the ultra-wealthy, that they just cannot conceive of people wearing nice suits being criminals.
JAY: If you look at what’s happening now in Washington, the Republicans are about to take control of the House. There’s talk about undoing or trying to amend parts of the finance reform bill, which a lot of people thought was pretty watered-down to begin with. Where do you think we’re headed now?
BLACK: Well, there’s not only that, but there is a major effort, for example, to gut the Foreign Corrupt Practices Act. I mean, they actually want to reduce restrictions on bribery. That’s how crazed the world has become in the United States. That’s how much we’ve embraced crony capitalism. So in the savings and loan crisis, which was a far, far smaller crisis, we got over 1,000 felony convictions of senior insiders and elites.
JAY: And you were involved in some of them.
BLACK: Yes, I mean, as many of us were. I mean, it takes–an effort like that takes hundreds of people working together successfully. It’s the greatest success against elite white-collar crime in history. Well, go forward in time to this crisis. How many senior officers of the firms that specialized in making the liars loans–we’re talking about millions of fraudulent loans per year causing hundreds of billions of dollars of losses–and there have been zero successful prosecutions. In fact, there have been zero prosecutions, and therefore, of course, zero convictions of those elites.
JAY: And in terms of this new consumer protection agency that’s going to be placed in the Fed, we hear that the House under the Republicans are going to start going after, to some extent, Elizabeth Warren, and there’s a lot of talk about how they’re going to be putting her on the spot and trying to weaken that agency. We have a question from someone who emailed a question, from Ken from Portage la Prairie in Canada, which is: what can the public do about affecting what’s going on in Congress and the Senate about finance reform?
BLACK: Well, it’s quite true that there are going to be substantial efforts to weaken that agency, and that agency is pretty much the only serious component. And, of course, it’s only going to be serious if it’s staffed by people who believe in actually regulating. So what people can do is write in to their members of Congress–and it doesn’t have to be your member; if you’re Canadian, you can write in to another member of Congress [sic]–and say that you want that agency to be made effective, not weakened.
JAY: Now, the issue of reform trying to get honest people into running banks, the thing is, unless medical science comes up with an honesty gene and they can test people’s DNA, as long as banks–. You get such concentration of wealth and power in so few hands, it’s got to be a bit of an aphrodisiac. It’s going to be the rare bird, the rare person who kind of is able to stand and ignore the potential wealth that is handed to you in these bonuses. So at a structural level, doesn’t there need to be–not just about breaking them up? Because unless you have extremely strong legislation to keep them broken up, don’t you have to deal with the issue of ownership? And what I’m getting at here: does there not need to be some parallel system of public ownership, public bank, a certain amount of banking that’s a public utility, so that when the system gets paralyzed, you can keep liquidity without having to throw money at the same people that caused the crisis?
BLACK: I don’t think that that’s a very safe area to rely on. The German publicly owned banks were as bad as most any bank in this system. So public ownership doesn’t do the trick. But you’re certainly correct that what you need to focus on is the perverse incentives. So here are the perverse incentives that in my view cause us to suffer recurrent, intensifying crises. First, executive compensation. Executive compensation has two enormous–three enormous problems. One, it’s way too large. Two, it’s far too much based on short-term reported accounting income, and that’s precisely what the frauds gimmick. And three, when they lose, they don’t really lose, because they gimmick the accounting or they gimmick the executive compensation to pay the people anyway. All three of those things should be forbidden; all three of those things are completely contrary to the theory of what makes good executive compensation. Second, professional compensation is broken. And professional compensation is how you suborn the outside auditors, the appraisers, and is done enormously successfully by these control frauds. The CEOs are virtually always successful in getting clean audit opinions from massively fraudulent statements, in getting ludicrously inflated appraisals, in getting absurdly inflated credit rating agencies and such. So you have to change the way–remove the ability to hire and fire those professionals. That should be closer to what you were talking about in terms of a public utility: you should be assigned who is going to be your outside auditor, and you should be stuck with the results so that they could actually be independent. Regulation needs to be fixed.
JAY: Okay, Bill, we have a question. On the line with us is Chris from /nju"kEr@l/. Chris, are you there? Hello, Chris.
CHRIS, CALLER: Yes, I’m here. Can you hear me?
JAY: Yes. Go ahead. Bill, can you hear Chris?
BLACK: I can.
JAY: Yeah, go ahead, Chris.
CHRIS: Yeah. Bill, I’ve been sitting here studying this economic system we have, the monetary system, and my question to you is a couple of prongs here. The whole system was built by the central bankers back in 1913–I believe it was the Glass-Owen Act–and passed on December 23, 1913. And ever since we’ve been on this Federal Reserve system, we have had nothing but trials and tribulations with recessions and depressions. And I think it’s because of this system was designed to be that way. But also, too, what do you think about us going back to the old system, where the Constitution once said that the government shall coin its own money and it should be only by gold and silver?
BLACK: The United States and other countries, when there was a gold and when there were silver standards, actually suffered much more frequent recessions, and typically more severe recessions. The Great Depression, of course, is the exception to some extent, but that was–the nations that were on the gold standard suffered the worst, often, during the Great Depression as well. So that isn’t a fix, going to the gold standard, though it is a good way of making people in South Africa and Russia particularly wealthy.
JAY: Also, I think people should have a look at the 19th century economy in the United States, with a massive recession in the early 1880s that I believe unemployment was up in 10, 15 percent areas, even higher. So I think the 19th-century, I think, is what you’re also talking about, Bill. There was a major crisis every–you know, about every four or five years. So–but what about this whole issue? There’s a lot of people talking about that the real problem is the monetary system, the lack of, if not gold, some kind of more objective standard. Caller, are you still on the line, Chris? No, I guess not. Sorry. So there’s a lot of people that think that there needs to be some kind of more objective standard of what a dollar is worth. What do you make of all that?
BLACK: The United States has never had a problem with hyperinflation, and the Fed hasn’t ever come close to–. So I don’t think protecting the value of the dollar really is the issue at all. There are lots of proposals, particularly from folks from the University of Chicago and from Austrian school, that are very hostile to a central bank within a discretionary power and they would like it essentially to be on a very mechanistic basis, where the money supply would increase, let’s say, 3 percent a year. Those arguments have also been largely discredited because what’s called velocity, the rate at which money turns over, turns out to be equally important, and you can try to restrict the growth of the money supply, and velocity can change, and it can undercut all of your effect. So it really isn’t the case that you can design a monetary system that will produce an end to a business cycle or clear stability.
JAY: Is Chris–can we get Chris back on the line? He might have wanted to ask a follow-up question. I’m asking my producers here. Producers, are you there? Yeah. Okay. We have another question we’re going to do first, or we are bringing Chris back? Which? Okay. Hang on everybody. What’s the other question? As you know–I mean, everyone knows I’m getting talked to in my ear here. So–. Okay, Claudia from San Francisco. Okay, we’ll have Claudia in just a few seconds. I mean, just to follow up on that line of questioning before Claudia gets in, unless–she’s about to be here, is she? Claudia’s here. Okay, Claudia from San Francisco–yes, we do. Go ahead, Claudia.
CLAUDIA, CALLER (SAN FRANCISCO): Well, thank you for taking my question. I’ve been, you know, enjoying the presentation here conversations and debates over the last couple of hours. I would like–and I appreciate enormously what you’re doing. I’d like the current speaker to expand a bit on what he means by the we, that he, you know, insists on we have to learn this, we did this, we did that, and things didn’t go well, and it looks like we haven’t learned. And I’m not an economist myself, and I think Paul hinted at that, who is the we, but I think the–I feel the question was left unanswered. Even if I’m not an economist, I know that all the things that the speaker listed are, you know, good ideas that whoever the we is should have learned. And we don’t debate those. It seems to me that what’s missing there is an acknowledgment that none of the listeners, or the speaker himself, or Paul Jay himself, that we do not have the money to challenge corporate power, who actually buys our politicians. They do not reply to our emails. They do not, you know, take very seriously the letters that we may send, or even the phone calls. So I would like to have, you know, a better sense of what’s the way to go to bring, you know, people power into action, to do all–implement all these changes that he is suggesting ought to be.
JAY: So what do you say, Bill?
CLAUDIA: So that’s basically my question. Thank you.
BLACK: Well, you’re both quite correct that the we that I’ve been using is ambiguous, and that’s my fault. A lot of us have learned the lesson, after all. The academic literature is often pretty good on this. If you talk to the person in the street, it’s often pretty good on this. So the we is pretty much the entire Republican Party and it’s the [Robert] Rubin wing of the Democratic Party. And the Rubin wing of the Democratic Party has been completely dominant under the Obama administration on economic issues. And, of course, the Republican wing was dominant under President Bush, and the Rubin wing got its name under President Clinton, and collectively that’s two decades. So it’s the people in power that determine our economic policies, whether they’re Republicans or Democrats, have shared a consensus view about market supremacy, and that consensus view was: it didn’t matter what all these perverse incentives I was talking about were, that the markets, those were really good things, and the markets automatically maximized wealth and prevented fraud. None of those things are true. We believe–now, this is a different we. This is economists who are heterodox; this is white-collar criminologists; these are former financial regulators who actually regulated. We all had a consensus that was exactly the opposite.
JAY: The–is Claudia still with us here? I guess not. And watching over the weekend the Sunday morning pundit shows, what we’re told is we have to learn how to sacrifice. Now that all this has happened, now that there’s such a big debt, of course they don’t want to talk about how much of this debt had to do with the financial sector triggering all this crisis. But now we have to sacrifice. What do you make of this austerity mania, and that unfortunately, when they say we have to sacrifice, they mean us or they mean you, not them? I don’t hear them talking all that much about the top-tier having to sacrifice.
BLACK: Yes, and I’ve just come back from Kilkenny, Ireland, at the Kilkenomics Festival, where a whole group of economists, internationally, came together to discuss the Irish crisis, and that’s exactly what the government was telling them. So the largest Irish Banks engaged in practices that certainly appear to make them control frauds. They suffered roughly 60 percent losses. And then the government of Ireland decided to give an unlimited governmental guarantee of all the debts of those banks, making the German creditors incredibly wealthy. And then the Irish Government said to the Irish people: you must now pull in your belts and have austerity and sacrifice, so that we can pay bankers in Germany who made terrible loans a hundred cents on the dollar. That’s completely insane, right? The very similar story was told by IMF to the Icelandic people over their three big banks. So this dogma about the market, wherever it spread–and it spread, largely, through US universities–has produced economic disaster, and the smaller people are being told that they need to bail out the wealthiest people in society, including foreigners.
JAY: Right. Okay, Bill, we’ve got Chris from /nju"kArltn/ back on the line. Chris, I wanted–are you with me, Chris?
CHRIS: Yes, I am.
JAY: Yeah, I wanted to ask you, you know, if you had a follow-up to your question for Bill, ’cause Bill, as you heard, said that he did not think that the issue of the gold standard was really the issue. So I want to know if you had a follow-up question for that?
CHRIS: Yeah. Another follow-up question is is I believe all these fiat currencies have a problem, ’cause I know they’re all based on trust. But I did hear in an article recently–I think it was in Bloomberg and The Financial Times–I got an e-mail that said that we had pumped $3.3 trillion into HS–or was it–HBC or these foreign banks in Europe to stave off collapse in those countries, when shouldn’t we be doing something to bring the dollar, which is still technically the reserve currency of the world, up and prop it back up? Because if we collapse, the world’s going to collapse with us.
JAY: Okay. Stay on the line, Chris, so that if you have any more follow-up, you can ask it. But go ahead, Bill.
BLACK: Okay. Well, it is true that if the US economy collapses, the US economy is bigger by far than any other economy, and the entire world will suffer greatly. You can see what US interest rates are, so you can see how international markets view the United States, and they obviously view the risk of, for example, hyperinflation, which is where usually people are going when they’re–talk about their fears of fiat currency, as a very, very low risk. The EU has a different problem. The EU gave up its sovereignty when it adopted the euro–the individual nations of the EU gave up their fiscal sovereignty. And so Greece cannot devalue. You know, with a strong euro, Germany can still export, France can still export, but Greece can’t export successfully, and that’s going cost them in terms of jobs, and the same thing is going to be true in Portugal, and it’s going to be true in Spain, and to a lesser extent it’s going to be true in Ireland. So it isn’t whether you have gold standard. For example, you know, what’s the most famous nation on the gold standard? Probably it’s Spain, which, after all, was one of the leading thieves of gold in the entire world. Spain still holds the record, and it’s from that era of sovereign defaults. So you can end up with defaults on gold standard as well, because, you know, whenever you’re on bullion, you still make–loan–you know, you still borrow money and such, and you end up not being able to pay back your loans. So there’s no guarantee against default from having a gold standard or a silver standard.
JAY: So what do you think, Kevin? Is your question answered?
CHRIS: Yeah, I think so. Think so. I was just talking to my dad the other day about it, ’cause we were trying to figure this out, discussing the same things you two are. And one thing I’ve come to find out, there’s not enough gold in the world to have a gold standard for everybody. So what if we were to base our currencies off of other commodities? Like, for example, Northern California, where I used to live, we produce 80 percent of the world’s rice. So if we use that as a commodity, or something of value for currency of some kind, what would you think that–would that help stave off some of this craziness?
JAY: Go ahead, Bill.
BLACK: No, because you can expand the supply of rice very considerably, and also because we don’t want people hoarding rice, we want them eating it. And in particular we want the poor Bangladeshis and Indians and Chinese eating rice and not, you know, having malnutrition
JAY: I mean, isn’t that part of the problem? Whatever you pick will become the subject of speculation, hoarding. It’s not like there’s some objective thing you’re going to pick that’s just going to sit there, you can measure money against. There’s going to be terrible manipulation of it. And, actually, we just had a bit of a Skype problem with Bill, so–but I–. Is Bill back? No. We’re reconnecting with Bill, Chris. But, Chris, thanks for joining us. And now joining us will be–Claudia’s coming back from San Francisco. So, Claudia, are you there? And maybe I can talk to Claudia for a second as we reconnect. Oh, we need thirty–. Oh, Bill’s back. There’s Bill. Oh, Bill’s back. Black is back. Alright, Black is back. That’s good. Okay, Bill, I was saying that, like, you know, whatever you pick, it doesn’t act as just some objective countermeasure to your currency, ’cause it itself becomes a subject of speculation. Is that part of the problem with this?
BLACK: Yeah, there is no silver bullet solution that comes from currency. And fiat currencies have weaknesses, no question about it. They just are the least bad solution.
JAY: Okay, Claudia is back from San Francisco. Go ahead, Claudia. You have to turn the sound off your computer, though, Claudia, ’cause we’re hearing an echo here.
CLAUDIA: Oh, oh, okay. I hope I don’t lose you. Okay.
JAY: Okay. Go ahead, Claudia.
CLAUDIA: I turned it down. Yes. I wanted to ask Bill Black, because I thought that often I couldn’t actually complete hearing his full replies what does he think about this alternative explanation, that whoever has the power [of] the people, politicians, policymakers, etc., to implement these policies that have had such disastrous consequences on ordinary people’s welfare know exactly what they’re doing. It’s not that they have the wrong beliefs about the goodness of the so-called free market, or they believe in the supremacy of the market. They do believe in the market as a machinery who can produce the goods for very specific sectors, and they really do not care about whatever consequences it has for others. It seems to me that there’s a little bit of second-guessing of what he calls [inaudible] they believe that the market is good. Good for what? So I would like to know what he thinks about this alternative explanation: they know exactly what they were doing, and that’s what they’re doing, and that’s precisely why they’re doing [inaudible]
JAY: What do you say, Bill, that this–yeah, that there’s quite deliberate intent here, it’s not just a philosophical problem?
BLACK: Well, there’s certainly deliberate intent and criminal CEOs, right? They deliberately inflate their accounting income, and this helps produce bubbles, and that brings these massive recessions. I don’t think they like the recessions–they’re not particularly good for them. So I don’t think that there’s some master plan to create the recessions. I think that’s the unintended consequences of their criminal actions. I do agree that they have enormous power, and that the Citizens United decision of the Supreme Court has greatly increased that power. And that’s why President Obama–.
JAY: Let me just quickly say, for our viewers that are not from the United States, or somehow if you’re in the United States and didn’t follow the story, the Citizens United decision was where the Supreme Court essentially said the right to free speech extends to corporations, and the right to finance and use money in elections is–corporations are and unions are as free to do it as an individual, which has meant millions of dollars into the election process directly from corporate backers of various politicians. Go ahead, Bill.
BLACK: Right. And for a fraud, what constitutes an enormous contribution for a politician is chump change for a corporation, a large corporation, and a large corporation that’s being run as a fraud is going to lose money anyway, so what do they care if the losses are $100 million greater? And $100 million, of course, would be an astonishing amount of money that would buy you tremendous political influence. So I’m not naive. I mean, I was the subject of a lot of these political attacks, and in all cases, political contributions drove the political attacks. So I recognize this problem. I recognize it’ll get worse. And, by the way, that’s actually why I am most upset by President Obama’s capitulation on the taxes for the top 1 percent. Income inequality in the United States has reached unprecedented levels in the modern era, and this will make it far, far worse. And that, especially when combined with Citizens United, will give just extraordinary political power to the tiniest, wealthiest sections of Americans, and they will do everything possible to enshrine that political and economic power. So I certainly agree with the caller that you have to watch out for people quite deliberately manipulating the economic system, and the only way to fight them is to, you know, actually turn out and vote, ultimately.
JAY: I would say turn out and run. I think we’re going to have to get some other candidates running so there’s actually some other choices to vote. That’s what I’ve been saying when people are asking me what to do: I think they should run. Ordinary people should just start taking over these parties. But did you watch the Bernanke interview on 60 Minutes? ‘Cause there was an interesting moment where the interviewer from 60 Minutes recited some of the statistics about income differential and how the concentration of wealth at the top income level is virtually unparalleled in the history of the United States. And he asked Bernanke, what do you think of this? What’s the significance of this? And Bernanke, in a very interesting moment, says, it’s created two societies. And I thought that was interesting coming from Bernanke, ’cause you get all this one nation rhetoric coming from all kinds of people, including the president, but the two Americas was actually Edwards’ campaign in the Democratic primaries. But Bernanke looked with great concern–two societies. Are these guys a little conflicted here that their friends are getting enormously wealthy; on the other hand, they know this is leading to–it’s got to lead to some of kind of disaster?
BLACK: Yeah, the threat to our democracy and our society is actually greater than the threat to our economy, and the threat to our economy is severe. And you’re quite right. Bernanke, he’s a conservative Republican, a very anti-governmental economist type. But things have gotten so out of kilter that he recognizes that this imperils the nation. You know, the Michael Moore film had that quotation in it from the insurance company or the investment banking firm that said the United States has become a plutocracy. They actually put that in writing.
JAY: Okay. We’re going to end it, we’re going to wrap up with one more call, and then we’re going to wrap up. Jerry from Riverside. Are you there, Jerry?
JERRY, CALLER (RIVERSIDE): Yeah. Hi, Paul.
JAY: Yeah. Go ahead.
JERRY: Yeah. My question has to do with the Bretton-Woods system and its dismantling. And can you talk about that? And, you know, I understand it had–it restricted certain capital flows. And if that were in place, would that have prevented anything that’s going on, in particular what this latest quantitative easing, where they pushed money overseas, investing over there? What–would that have any effect on that, and also relative to jobs moving overseas, industry moving overseas? If you could talk about that and explain it, that would be great.
JAY: Okay. So if Bretton-Woods hadn’t been undone, would we have had the current crisis?
BLACK: Bretton-Woods was a conference after World War II to create a comprehensive international financial system for the developed world. And the heart of it, what the caller is talking about, is a system of fixed exchange rates. Fixed versus variable or partially–and, you know, there are innumerable combinations in between–to me that falls in the same category of there’s no perfect solution here. Fixed exchange rates, while they work, are convenient, we know what the cost is going to be, and they are stable as long as they work. When they don’t work, it causes a complete collapse and it does invite speculative attack. So then, if you want to try to maintain that system, you have to prevent all forms of speculation. Well, for technical reasons and otherwise, you know, it’s really hard to prevent international speculation–as in essentially impossible to do so. You could try to restrict it, and that’s what various tax proposals–. Like, Tobin taxes have been suggested to do that. They would reduce speculation if you were to adopt those things. But no, in the end, whether you have an adjustable or a fixed exchange rate system, in the end you have to be able to adjust, because economies are not static. And as, you know, say, Japan grows, it simply could not keep the same exchange rate system. And who would want to do that? That really was a supreme economic miracle that took a nation that was–literally had people starving to death several years after World War II and produced what became the second wealthiest nation in the world. So some very good things can happen from adjustable exchange rates as well.
JAY: Alright. Thanks a lot. We’re going to wrap up. Thank you very much, Bill. And we’re going to do more sessions like this, where people get to call in and talk directly to our guests. And thank you again very much, Bill Black, for joining us. Now we’re on our way. We’re still–we’ve raised, I think, somewhere in the range of about $5,000, $6,000 since we started at about eight o’clock. We’re on our way towards the–past the $150,000 mark towards the $200,000, which is our target. So if you’re liking what The Real News does, we need you to (if you haven’t already) click the donate button. And as you may know, we’re doing a matching grant right now, and for every $1 you give, we get another $1 from our matching donor. If you give $100, which would be nice, you’ll trigger another $100. If you give more than $75, you get one of our premium gifts. I feel now like Goldie on PBS, we used to see Goldie on the PBS Buffalo station offering premiums. Well, we have some premiums, too, which are the various films we have. One’s called Machine Gun: History Down the Barrel of a Gun. Another film called Return to Kandahar, shot in Afghanistan. Another film called Hitman Hart: Wrestling with Shadows. And also the best of G-20 coverage from The Real News Network. If you donate $10 a month or $75 at one go, we will be happy to send you a film. And you can donate on the website or you can call 888-499-6772. That’s 888-499-6772. Or call that number and they’ll tell you where to send a cheque. We’re going to take a short break. And coming back to join us, I believe, is Danny Schechter, “the News Dissector”. And we’ll be back in just a few seconds.
End of Transcript
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