Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, senior fellow at Demos, former investment banker, and author of the new novel Black Tuesday, Nomi Prins joined Matt Taibbi, contributing editor for Rolling Stone and author of Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, in a conversation about past economic crashes and the current protests.
True crime and 1929
Matt Taibbi has noticed some similarities between basic theft and the way major financial institutions operated leading up to the 2008 financial crisis. That's why he dubs his exposé Griftopia a "true crime" account, one that should perhaps share a shelf with In Cold Blood and Helter Skelter.
Crime, theft—was that really the business of lending institutions? Nomi Prins agreed with Taibbi: If you're going by the dictionary definition of "theft", that's what banks were doing, complete with motive, undue influence on the rules of the game, and an ultimate prerogative to pillage. Prins said it was identical to what was going on in the lead-up to the Great Depression.
[Banks are] continuing to overvalue awful assets that they created into the 2008 beginning of the current crash we have, and they're being given a free pass by the Federal Reserve, the government, and everything else, which is exactly what happened in 1929.
Mortgage securities: The "lemons" of the banking industry
How that's "theft" is still difficult for most people to accept or understand. One caller requested a more simple way to explain to his parents just what the banks did wrong, one that avoided the complicated jargon of securities and mortgage bundling, and got at the heart of why their practices constituted criminal actions. (Chalk it up to early prep work for the Thanksgiving table political argument.)
Nomi Prins told the caller to think of the banks as car dealers who built cars out of defective parts, waxed them, and sold them to customers with the admonishment not to look under the hood. That's what happened with bad mortgages made to people who probably weren't going to be able to pay them back; those defective parts were bundled together and made to look a lot more attractive to investors than they really were.
Matt Taibbi explained:
[Banks] were giving mortgages to anyone with a pulse because they knew they weren't going to hold those loans. They were going to put them into securities, bully rating agencies into giving them triple A ratings, then they were going to sell them off to trade unions in Holland or the pension fund of California as triple A rated securities.
But they were lemons, to continue the car analogy. A big reason banks were able to sell these securities, Taibbi said, was that they purposely excluded vital information about mortgage holders from investors.
[Banks] would only include in the prospectuses things like useless information: What state the application took place in, how old the people were. Whether or not person had a job, whether or not they were a citizen, their proof of employment—all these things were intentionally concealed from future investors in these securities...That's not just fancy economics, that's outright thievery and crime.
Sympathy for the occupied?
The conversation inevitably turned to the Occupy Wall Street protests; Brian Lehrer observed that Prins and Taibbi had been "occupying Wall Street before it was cool".
Lehrer asked if it was paradoxical for protesters to demand a healthier economy while at the same time hoping to topple the nation's largest financial institutions. Matt Taibbi said it wasn't paradoxical at all; that was evidenced by those who actually work on Wall Street but still want to see the biggest banks busted. According to Taibbi, such people do exist.
Occupy Wall Street has a lot of sympathizers on Wall Street who want to end corruption because they think it will increase their wealth. They want to get this commingling of government and Wall Street ended, and they want to break up the too-big-to-fail banks because they think it will help the economy.