"Let the pitch forks do their job"
Andrew Cockburn, producer of American Casino Pt2: From Greenspan’s "faulty ideology" to today’s Fed
PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. We’re joined again by Andrew Cockburn. He’s the coproducer of the film The American Casino, which he made with his wife Leslie. Thanks for joining us again, Andrew.
ANDREW COCKBURN, AUTHOR AND FILMMAKER: Hey, good to be with you.
JAY: So there’s an interesting exchange in the film. It’s become quite famous now, with Alan Greenspan in front of a congressional committee. And we’ll play it now.
REP. HENRY WAXMAN (D-CA), CHAIR, COMMITTEE FOR OVERSIGHT/GOV’T REFORM: Dr. Greenspan, you had an ideology, you had a belief that free competitive—and this is your statement: "I do have an ideology. My judgment is that free competitive markets are by far the unrivaled way to organize economies. We’ve tried regulation. None meaningfully worked." That was your quote. You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now our whole economy is paying this price. Do you feel that your ideology pushed you to make decisions that you wish you had not made?
ALAN GREENSPAN, FEDERAL RESERVE CHAIRMAN, 1987-2006: Well, remember that what an ideology is is a conceptual framework with the way people deal with reality. Everyone has one. You have to. To exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact. But if I may, may I just finish an question to the question—?
WAXMAN: You found a flaw in the reality—.
GREENSPAN: A flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
WAXMAN: In other words, you found that your view of the world, your ideology, was not right. It was not working.
GREENSPAN: Precisely. No, that’s precisely the reason I was shocked, because I had been going for forty years or more with very considerable evidence that it was working exceptionally well.
JAY: So Greenspan says that it’d been working exceptionally well for 40 years. And when he says "it," what exactly does he mean by "it’s been working exceptionally well"?
COCKBURN: Well, it was his idea, his fundamental—the model he pursued, his view of how the economy should be administered, which is basically hands-off, that you have, as he would put it, as light a touch from the government, from regulation, from control from above as possible, and you leave the market to regulate itself, that the market will—you know, if some bank is behaving stupidly, the market will correct that. It’s this idea, this thing that he worshiped, which was the idea that the market, this impersonal thing, takes care of itself, and if you try and interfere with it, it only gums things up. Well, as it turned out, I mean, he admits in that exchange, this ludicrous figure, he says there was a flaw in the model. Well, the flaw in the model was the global economy pretty much collapsed.
JAY: And he felt terrible, which was very reassuring for all of us.
COCKBURN: Yeah, [inaudible] he didn’t even feel terrible. He felt kind of sort of—yeah, he felt a bit bad about it, but the impression he gives, he’s sort of mildly irritated. I didn’t hear the word "sorry". And the point is that what he’d been doing, you know, he basically—you know, he dedicated his career—remember, he was—for years he was the most powerful man in Washington. Everyone kowtowed to him. He was called the Maestro. There was a suck-up biography by Bob Woodward of The Washington Post.
JAY: Let’s jump forward to today. Has this underlying ideology, which is Greenspan’s term about all of this, that essentially speculation is good, that—you see it again in the defense of his megasalaries on Wall Street. Has anything really changed? And in terms of what’s on the table now at Congress and changing the regulatory environment, is there really anything on the table that would stop all this from happening again?
COCKBURN: Well, in theory, yes. I mean, there’s a bill making its way—there’s various bills in Congress, but, you know, Congress has said it’s going to, you know, police up, you know, re-regulate Wall Street. The trouble is, as Michael Greenberger, who you see in the film and you showed a clip of earlier, as he put it, told me the other day, he said there are five bank lobbyists for every member of Congress. So what you are seeing when you look at the actual bills that are coming out of Congress, are being voted on—not what they’re advertised as saying but what they actually say—you find that the banks have actually, you know, made an adjustment here, put in a paragraph there, and the net effect is that nothing’s changed.
JAY: Give us some examples.
COCKBURN: Well, for example, there’s the concept called the "dark market", where, for example, these credit default swaps that we talked about a little bit earlier, they’re not traded on an exchange. You can’t sort of switch—you know, go to your computer and look up and see, like you can with a stock—. You know, with Apple’s stock or something like that, you know, you can see the price; you always know what the price is. With a credit default swap, you don’t know what the price is. No one does. There’s no general price. It’s traded just between a dealer at, you know, JPMorgan Chase sort of selling them to—you know, working on the phone. So it means that they can charge a huge spread between me buying a default swap and you selling one, and they’ve got a huge gap in between. And this leads to all sorts of distortions in the market. That has a huge effect, and it enables the banks to make huge, huge profits when such profits as they’re making now are done that way. Well, Congress quite rightly thought this was a bad idea and thought these things should all be traded on a proper public exchange so we’d all know what was going on, and the banks have managed to smuggle in, to get their lobbyists to put in the legislation—I don’t think—you know, 99 percent of the congressman who’ve been voting on this have no idea it’s there—a paragraph saying, well, a public exchange can be two guys talking on a phone, so, you know, just nullifying the whole effect of the legislation. That’s one. I mean, I’m sure we don’t know, I don’t know, all the other sort of loopholes they’ve managed to craft for themselves in this legislation. I mean, there have been some good things that have happened.
JAY: Like what?
COCKBURN: They are setting up a consumer finance protection agency. And, hopefully, this excellent lady, Elizabeth Warren, who’s a Harvard Law School professor who really doesn’t like the banks and thinks they’re—acts on the presumption they’re up to no good. And so she’ll be running that, we hope. So there are a few good things that are happening, but basically, I’m afraid, despite this disaster, fundamentals haven’t changed.
JAY: So what should change? If you could write this legislation, what would you see in it?
COCKBURN: Well, it’s not just a question of legislation. But, I mean, what should happen is that we shouldn’t be—the focus of our economic policy shouldn’t be, as it is right now, to preserve these huge institutions, you know, these mega—they call them "primary dealers". I mean the megabanks—Citigroup, Goldman Sachs, Morgan Stanley. You know, they’re all basically—they should be insolvent. I mean, they’ve been kept—not so much Goldman Sachs now, but they are all getting rich or, you know, repairing their fortunes at our expense.
JAY: The argument is is that given the size of global trade and the amount of capital flows in the US and globally, you need institutions of this scale or you don’t have enough, you know, lubricant to keep the global economy going.
COCKBURN: Yeah, but that’s nonsense. I mean, they say that, but there are no economies of scale in banking. You know, what these banks—I mean, what are they saying? That someone financing something needs a huge loan to do it and you need a big bank to supply that loan? All banks, however big, they’ll always, you know, get the money from all sorts of different places. You don’t need, you know, a megabank. In fact, it’s very—as we found out, it’s very dangerous when these banks get so huge that when they get themselves into trouble (which they seem very proficient at doing), you know, that brings the whole—it puts the whole economy at risk. I mean, Lehman Brothers, for example—I’ll give you an example. Lehman Brothers bank, which we know famously went bankrupt over a year ago, September 2008, you know, that going bankrupt pulled apart the global economy. They should never have been in that position. How come we had this bank—which, you know, went bankrupt through their own stupidity, I mean, because they were buying—as the housing market was collapsing, they were buying more housing bonds. They were—I mean, you know, what they were doing a lot of the time was outright fraud, that they were overvaluing their real estate holdings by about $30 billion. I mean, they should’ve gone broke years ago. They should never have been allowed to get that big. And yet, you know, we’re being told that, oh, because Lehman Brothers, you know, they collapsed, and that was the—you know, nearly brought down the global financial system, we’ve got to stop it happening again. The way to stop it happening again is to make sure these guys don’t get that big.
JAY: But one of the arguments that’s been given is that if you do need something at that scale, because of the size and flow of the transactions, then there should be something public that does it. And given that so much public money saved this system anyway, some people have said either one of these things should have been nationalized, or something public should’ve been created to play this role. What do you make of that idea?
COCKBURN: Well, I don’t know [inaudible] they have been government-supported enterprises. I mean, in effect, you know, we own, we control Citigroup—I mean we the taxpayer, not that we seem to do much with our—not that our representatives, Mr. [Timothy] Geithner, seemed to do much with his power. But he’s very much on the side of Wall Street. No. What should have happened is we should have, you know, not just let it collapse in a heap like with Lehman Brothers, because, you know, they were—amazingly, that caught them by surprise. But we should—you know, there are efficient ways to collapse, you know, to let these things go bankrupt. I mean, that happens. That’s happening several times a week with smaller banks.
JAY: Yeah, three more just went this last week.
COCKBURN: Yeah, exactly, and we seem to be able to manage that. We should apply the same thing to these huge banks, as indeed Sheila Bair, the boss of the FDIC [Federal Deposit Insurance Corporation] that’s—you know, takes over these smaller bankrupt banks, that’s what she keeps trying to do. And it’s the power of Wall Street and the power of their representatives in this administration, particularly Mr. Geithner and Mr. [Lawrence] Summers, that prevents her doing that.
JAY: Your point is the institution shouldn’t be allowed to get so big. So how do you stop that from happening?
COCKBURN: Well, I mean, when they get too big that they’re insolvent, you should let them fail.
JAY: But by the time they get too big and then get insolvent and fail, there’s an enormous destruction that takes place, with all the pension funds and everything. You know, ordinary people’s lives also get destroyed, not just the institution. So do you not need some regulatory or antitrust environment, something that actually stops them from getting there?
COCKBURN: Absolutely. I mean, absolutely. I mean, they can only get there—I mean, when you have these megabank mergers, I mean, the mergers that create these megabanks, they all have to be approved by the Federal Reserve. I mean, they can—they don’t—you don’t always know—you don’t need legislation. You can just say, "No, you can’t do this."
JAY: Well, now, then you get back to Ron Paul and the Federal Reserve, because the Federal Reserve seems to be more an extension of the power of the banks than the power of any public interest over the bank.
COCKBURN: Yeah, that’s entirely true. But, I mean, we need, therefore, a banking—you know, a Federal Reserve that actually does its job.
JAY: What do you think of Ron Paul’s legislation that seems to be passing through Congress now to make the Fed more accountable?
COCKBURN: Oh, it’s great. It’s good for all sorts of reasons, in fact, including the fact that the Fed really hates it and you—whenever [inaudible] see Geithner questioned about it, he really squirms. I’m told, however—and, I mean, I should’ve looked at this and I haven’t, but if you look at the bill, you know, that had, you know, whatever it was, 300-and-something cosponsors in the Congress, the bank lobbyists, as you’d expect, have been at work. And, you know, if you take a close—if you lift the stern, you’ll find a lot of loopholes already that have been built into it. But, I mean, that’s what they don’t get is how angry people are about the way—you know, what they’ve done and their responsibility and their greed and their stupidity. There’s a lot of anger building up. And it’s a shame, really, that the administration, and also the Congress, through, you know, a certain amount of neglect, isn’t responding to people’s anger, is—you know, that—you know, the fact that President Obama said earlier this year, he told a group of the leading bankers, he said, "My administration—that’s all that’s standing between you and the pitchforks." Well, I mean, why? You know, get out of the way, Obama. Let the pitchforks to their job.
JAY: Thanks very much for joining us, Andrew.
COCKBURN: Hey, you’re welcome.
JAY: And you can find the film American Casino at—tell us, Andrew, where on the web people can [inaudible]
COCKBURN: Well, on the web at AmericanCasinoTheMovie.com. That’s AmericanCasinoTheMovie.com. And you can, you know, learn much more about the film, and you can also get the DVD.
JAY: Thanks very much for joining us. And thank you for joining us on The Real News Network.