Why Krugman’s Latest Attack on Sanders’ Economic Plans Is Wrong
Economists Bill Black and Michael Hudson respond to Paul Krugman’s latest New York Times column, “Sanders Over the Edge”
JAISAL NOOR, TRNN: Welcome to the Real News Network. I’m Jaisal Noor is Baltimore.
It’s been a tough week for Senator Bernie Sanders on the campaign trail, despite his big win in Wisconsin on Tuesday, because it’s been marked by fierce attacks on his economic plans. On Friday, New York Times’ Paul Krugman pinned a scathing critique of Sanders for his slogans of breaking up the banks because he says that won’t protect us from a future crisis and for Sanders failing to provide details about how he would go about this, when asked by the New York Daily News. Sanders met with the Daily News on April 1st for an in depth interview for a range of his policy positions. That interview’s been widely panned by the corporate media which is especially significant ahead of the April 19th New York primary.
Well now joining us to talk about this is Michael Hudson and Bill Black. Michael Hudson is a distinguished Research Professor of Economics in University of Missouri, Kansas City. His latest book is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. And joining us from Kansas City, Missouri is Bill Black. Bill is an Associate Professor of Economics and Law at the University of Missouri, Kansas City. He’s a white collar criminologist, financial regulator, and author of The Best Way to Rob a Bank is to Own One, as well as a regular contributor to the Real News.
So I want to thank you both for joining us and let’s start with you Michael. So the New York Daily News is not a small paper. It has the highest circulation out of any local daily in the country and there’s been all this fallout from their interview, including most recently Paul Krugman, who really went after Sanders for his policy positions on breaking up the big banks as well as other things as well. We want to get your response.
MICHAEL HUDSON: Well it’s obvious that supporters of Hillary are now getting very worried. Sanders was sandbagged at the Daily News. One of the reporters for the Daily News is also the co-host of Democracy Now.
NOOR: Juan Gonzales.
HUDSON: He said that the editorial page editor was giving him rapid fire questions, wanted short answers, then when Sanders gave the short answer, the newspaper later made up a whole attack that was unjustified, saying he didn’t give long answers when he wasn’t given a chance to. So it was really left to Paul Krugman to attack Sander’s policy on the bank. Now Krugman has always been a defender of the bank and always in denial that banks can be crooked. A few years ago in Iceland, Iceland had a problem. The banks were very crooked, they controlled the government that was about to give enormous amounts of money to the banks and I had gone over and met with the Prime Minister and former Prime Ministers and convinced them not to pay Britain and the sort of crooked depositors. They hired Krugman at a very high fee and gave him the handouts and he said no, the Icelandic banks are not crooked. Iceland should really bankrupt itself and pay for the Icesave and the British bank affiliates that went under even though these were not bank branches but bank affiliates.
The Icelanders were very disappointed because they thought that Krugman really was a liberal. But he’s not a liberal when it comes to banking. He’s very right-winger and the very day after Sanders gave the Daily News interview, the Wall Street Journal had a much better report explaining just what Sander’s position was with the banks. And said well he wanted to give the issue of closing the too big to fail banks to the Treasury, not to the Fed. When Krugman came out and said what Sanders is saying is inconceivable, it’s just really wrong and a personal attack. The fact is that FDIC had Sheila Bair had come out and in her memoirs that she wrote when she left, she said how she tried to close down Citibank because this was the crux of the junk mortgage boom. She wanted to close it down and she was opposed by the Obama Administration.
Krugman said that the frauds were not in the banks. They were in the none bank things. And yet the fact is that if the frauds weren’t in the bank then why did the Federal Reserve have to give 4.3 trillion dollars of quantitative easing and what Randy Ray has calculated as 17 trillion dollars’ worth of taking bad bank assets on. Everybody knew that the banks were crooked because they called these loans, liars loans, the liars were the banks not the mortgagees. And they talked about NINJAS, No Income No Job and no Assets. So the fact is everybody knew that these mortgages except Krugman.
Krugman has had a problem with Sanders advices all the way back. He’s written that it’s impossible for banks to create credit. That they can only act like savings banks and recycle money. He’s always accused the modern monetary system, which is part of the UMKC of being cranks and yet he’s never mentioned them in print. He thought he had a chance a few years ago to defend his right-wing views by having a debate with an Australian Economist, Steve Keen, and your viewers can google Krugman-Keen and see the result of it. But Krugman just showed that he really didn’t know what he was talking about when it comes to bank credit and to monetary theory. And that’s exactly why he’s been trotted forth as an opponent of Sanders in here. Because he has credibility but he doesn’t have any credibility in bank theory or finance.
It’s very much like when Sanders has accused Wall Street and other wealthy people of mind control of the political process. The same thing has happened in academia. They’ve bought control or they’ve subsidized economists who really give the Wall Street line. And Krugman right down the line supports the banks, supports Wall Street, and he’s to the right of Sheila Bair and other progressive Republicans who did try to stop what was happening. We’re advocating exactly what Bernie Sanders is advocating today; to break up the big banks and to treat them as what they are, engaging in massive fraud.
NOOR: Bill I wanted to bring you into this and your response to Krugman. In his piece, we writes, he attacks Sanders for his critique of Hillary Clinton for taking money from Wall Street. Earlier this week he said that made her unqualified because of all the corporate money that she’s taken. He’s backed away from that. But I want to read you a bit of what Krugman said. He said “it’s one thing for the Sanders campaign to point out Hillary Clinton’s Wall Street connections which are real. Although the questions are whether those have distorted her positions. A case the campaign has never even tried to make.” Can we get your response to that?
BILL BLACK: Well I’ve actually written 3 pieces this week that track each of these subjects. In your lead in you said despite his win in Wisconsin he’s had these attacks. I would change that, because of his win in Wisconsin that there’s a finally a note of desperation in the Sanders campaign.
NOOR: You mean the Clinton campaign.
BLACK: The Clinton campaign. So let me take it in pieces in what Krugman has said. As Michael Hudson was explaining, Krugman’s central point is, he says it wasn’t big banks that caused the problem, it was little banks. And then the examples he picked is Countrywide which is the largest home lender in the world, which is kind of hilarious. But I’ve also written a column this week on Citigroup which is by any measure a massive Wall Street financial institution. Which not only made predatory loans/fraudulent loans but purchased and we’re talking about hundreds of billions of dollars of loans that it knew to be fraudulent. How did it know? Because its’ own senior people put this in writing. And in particular to take on another [hat] that I have as one of the founding members of Bank Whistleblowers United.
One of my cofounders is Richard Bowen. Senior Vice President, Chief Risk Underwriter for Citi. Who put in writing to the absolute senior management in Citi including Robert Ruben, that 80% of the loans that Citi was selling on the secondary market, largely [inaud.]. It was selling roughly 60 billion dollars a year of this stuff. 80% of it was fraudulent. So Krugman is simply wrong. There was enormous criminal activity and even the Obama Justice Department which refuses to prosecute, consistently now uses the word fraud and toxic mortgages to describe what was done.
NOOR: For full disclosure you are an adviser to Sanders. So we wanted to get Michael Hudson back in this conversation.
HUDSON: Yea well Citigroup certainly is the bank that everybody had wanted to close down. Sheila Bair gives all the reasons for this. Of course my old boss at Chase Manhattan, Paul Volcker, was the person who was pushing the too big to fail. So the important thing to realize is that Sanders position is the normal position among people who know banking and who see the need to reform. He’s taking an extreme pro bank position that is even to the right to progressive Republicans in the attacks that he gives. The attacks basically are not warranted. That’s why I said he’s sort of the Alan Greenspan of the left-wing. The go to person when the banks want somebody with credibility on the left to support the bank position against the critics and essentially to do a hit job on the critics. That’s what basically he’s been trying to do. He’s trotted out to sort of confuse the left as if what Sanders is saying lacks the credibility and that’s simply not the case.
NOOR: And Bill, this isn’t Krugman’s first attack of course. You’ve been writing, you’ve been responding to attacks by the likes of Krugman for some time now. I’m sure we can expect more of it especially over the next week. Give us your thoughts on how Sanders and Clinton compare on this issue of big banks. I’ve been travelling around the country and interviewing perspective Democratic voters and this is one of the biggest issues that is affecting voters around the country is the economy and people feel the banks are responsible and they want to see the banks reigned in.
BLACK: Well Krugman is now basically serving as surrogate on this issue for Hillary Clinton. I’ve just written an article which I explain his over the top attack on Senator Sanders for how dare he complain about the Clinton campaign taking massive funds from Wall Street. And in particular the systemically dangerous banks that when, not if, the next one fails will cause a global systemic crisis. You’ve just heard Krugman doesn’t want anything done to these institutions. He wants them to be allowed to operate with massive federal subsidies.
But I point out in this column by quoting Krugman extensively from past pieces in which he says campaign contributions are the key corrupting influence and that we have to deal with it. Well that’s what he used to believe until he was supporting Hillary Clinton. Then apparently all of that stuff became inoperative. So fundamentally, notice that Hillary Clinton in the debates always answers, if the banks pose a system risk then I’ll deal with them.
By definition the only way you get to be too big to fail, by definition even the Federal Reserve says this, is if you pose a global systemic risk. So we already know they pose a global systemic risk. But by saying that you don’t necessarily pose any such risk, she has played into the hands, there was just a court decision in favor of, Metropolitan Life, saying that even though it was so large that it would cause a systemic crisis were it to fail that that’s not the standard. That unless you can prove that it’s actually about to fail that you can’t do anything about it.
Well at that point it’s too late. It’s absolutely useless. So Hillary together with Paul Krugman mean A) they’re not going to try to take on the systemically dangerous institutions. As you’ve noticed President Obama has refused to do for 7 years. And B) because of the position Krugman and Hillary are taking, they would lose the court cases because they’re constantly giving ammunition to the opponents.
NOOR: Well I want to thank you both for joining us.
BLACK: Thank you.
HUDSON: Good to be here.
NOOR: And thank you for joining us at the Real News Network.
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