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They're Bad

Monday, March 02, 2009

Planet Money’s Alex Blumberg of This American Life and NPR international business and economics correspondent Adam Davidson take another look at the financial crisis -- bad banks, toxic assets and taxpayer bailouts.

Guests:

Alex Blumberg and Adam Davidson
News, weather, Radiolab, Brian Lehrer and more.
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Comments [42]

Patrick McDonald from Los Angeles

Bob from Southern California, I'm also looking for Rob's contact information. I recently graduated from USC and am looking into this burgeoning business opportunity.

If you want you can email me at pmcdonal@usc.edu

Mar. 03 2009 02:08 PM
Patrick McDonald from Los Angeles

Amy,

The guy that said prevaricate was Simon Johnson, a former chief economist at the IMF and now professor at MIT. He used the word prevaricate instead of procrastinate because he was talking about the deceit of the banking industry in cahoots with the government. They aren't admitting that they are, in effect, insolvent. Therefore, they are prevaricating, or lying with ambiguous, equivocal language about their current state.

Someone else asked about why they were so mean to the girl for defaulting on her doll house payment. It's because she was characterizing a subprime mortgage borrower.

Mar. 03 2009 02:06 PM
smidely

JC/36 -- Is there really anything we can't really wait two years to buy? I mean besides BluRay, of course.

Boo Hoo for "The Economy" -- I ain't gettin' ripped off by overpaying suckers, their inflation (yes, inflation) stops with me. Time to DEFLATE.

Mar. 03 2009 08:55 AM
Bob Gallishaw from Southern CA

I am looking for the contact information for Albert and Rog at Mortgage Strategies in the piece by Susan Chow. I want to do the same thing on the West Coast and I hope to learn about who they are buying their loans from.

Thanks

Mar. 02 2009 08:08 PM
Gabrielle from NYC

i heard these guys on This American Life... it was absolutely amazing and i've been sharing with everyone I know. these guys are doing a great service... i cant thank them enough.

Mar. 02 2009 04:31 PM
eva

I forgot who asked about why Planet Money hasn't covered credit default swaps - Planet Money has covered this and a great many other topics extensively, but you have to listen to their podcasts, not just their occasional shows for This American Life. (Altho I think they ALSO did a show on CDS for TAL - just google "planet money + credit default swaps.")
You can podcast them through iTunes.
They have fantastic guests and a lot of divergent opinions.
Simon Johnson on "The Baseline Scenario" is also great.

Mar. 02 2009 01:35 PM
J.C. from Minneapolis

Re: George's comment (#2)

Deflation is dangerous because when prices fall, the reaction of consumers is to hold off buying anything because they know that the price will be lower if they wait. This becomes a vicious circle, though, with consumers not spending in hopes that prices will fall, followed by businesses cutting prices to get people to buy, followed by the consumers still not buying because they think prices will fall more, etc. Then, because businesses can't sell anything, they get rid of workers, so more people join the "I'm not spending anything" group, which reduces demand more, which causes businesses to cut prices more, which causes consumers to continue to stop buying because they think that the price will be lower tomorrow, etc.

Thus is the danger of deflation.

Mar. 02 2009 11:12 AM
Joanne from Westchester

I'm tired of hearing you and your guests speak of bank shareholders as though they are all the really rich pariahs who should lose it all because they took the risk. Yes, that may characterize some of the shareholders, but many of them are middle-class folks who did their best over the years to save for retirement and bought shares in banks because they were considered a safe but not particularly flashy way to go. I am 61 years old. I have worked for 40 years and have invested over that time. I have no pension and no 401K (I'm a freelancer now). But I have an annuity, Roth IRAs, and some stock investments, including one bank stock. All of it is pretty much in ruins now, and the hope to retire is squashed, work is difficult to find, and, after all these years of saving, I now worry that I, too, may lose all, including my house. I do not want the banks nationalized because that would mean an even bigger hit for me and others like me. I expect all the banks to pay back what the government lent them; but I want, at least, a chance to make something back for doing what everyone said we should do--save, save, save.

Mar. 02 2009 10:57 AM
jgarbuz from Queens

I lived in Israel during the 1980s in periods when there was nearly 1000% percent hyperinflation, a collapse of the banking system which was nationalized by the government (and later re-privatized), and when many homes went "underwater" as well. But the country survived. The US can and will survive, but only after a very rough ride. Not to panic but to preservere.

Mar. 02 2009 10:48 AM
SuzanneNYC from Upper West Side

One of the most interesting comments on the show was at the end. An economist had a graph of the percentage of consumer debt to GDP which was stable through the 80s and 90s and then ballooned starting in 2000 to reach 100% in 2008. They noted that the last time consumer debt was 100% of GDP was in 1929. So the problem is not just banks it's debt. So helping the consumer is equally important.

Mar. 02 2009 10:47 AM
Sainted_Mother from Harlem

I voted for Hillary. BUT ... I seriously doubt she would have been as bold as Barack ... OTOH, as Secretary of State, she CAN be bold.

OTOH, I pray every day that "this will work" ... and I'd really, really love for them to fix health care.

Mar. 02 2009 10:47 AM
Sainted_Mother from Harlem

I think President Obama has nothing to lose, and as much as he might like to be reelected, he doesn't care if he is ... he's not protecting any particular interests, except perhaps those of the middle class (where he is solidly from), and he's in it to REALLY play the game ...

We, collectively, have a hellof a lot to lose, and we cannot afford to be timid ... we can STILL have another "great depression" but why not make the bold moves first, rather than last.

Mar. 02 2009 10:45 AM
Haleh from Manhattan

I heard Simon Johnson on a number of programs recently including on the Bill Moyers Journal on PBS. He made the argument for takeover of the big banks differently on that show (and only on that show). He reframed it as "intervention" NOT "nationalization" -- a temporary takeover and a far less scary, radical move. Did this come up in your conversations with him? Can you speak about this? Or maybe Brian could ask him about this on Thursday.

Also, many shareholders in banks are not mega investors. Rather, middle class working people with modest portfolios that include stocks in the financial sector. Is there a way to protect the average investor as banks go through the transition (call it intervention or nationalization)?

Thanks for the great program.

Mar. 02 2009 10:38 AM
jgarbuz from Queens

Civilization (i.e., the ability of people to live together in relative peace) was created by the rise of trade. Anarchy, chaos and the various "dark ages" in history were the result of the collapse of civilizations due to disruption of trade. Trade requires three things (1) a surplus to sell; (2)the availability of money or credit; (3) a military to protect trade and societies from bandits of all kinds. Our present civilization, like all that preceded, can collapse into chaos, banditry, murder and mayhem if the availability of money, credit and security collapses. The last major example was the Great Depression which led to WWII which in turn led to commitment to a new international financial system which today is once again under threat. How much governments can and should do to prevent this, if at all possible, is what the debate is all about.

Mar. 02 2009 10:37 AM
Joanne from Westchester

I'm tired of hearing you and your guests speak of bank shareholders as though they are all the really rich pariahs who should lose it all because they took the risk. That may characterize some of the shareholders, but many more are middle-class folks like me who did their best over the years to save for retirement and bought shares in banks because they were considered a safe but not particularly flashy way to go. I am 61 years old and a single parent with one child still in college. I have worked for 40 years and have invested over that time. I have no pension and no 401K (I'm a freelancer now). But I have an annuity, Roth IRAs, and some stock investments, including one bank stock. All of it is pretty much in ruins now, and the hope to retire is squashed, work is difficult to find, and, after all these years of saving, I now worry that I, too, may lose all, including my house. I do not want the banks nationalized because that would mean an even bigger hit for me and others like me. I expect the banks to pay back what the government lent them--I'm furious about their irresponsibility, too; but I want, at least, a chance to make something back for doing what everyone said we should do--save, save, save.

Mar. 02 2009 10:37 AM
KC from NYC

Credit where it's due: good segment. It's pretty much dealing with reality (ie: we already bought these banks--now what are we going to do with them?) which I haven't heard much on public radio.

Mar. 02 2009 10:34 AM
Dubai-Boy from NYC

The USA doesn't need BANKS. Banks create a lazy, artificial, monetary Aristocracies. Lets see more online cash transfer conduits and Western Union type services wherein (consumers) can KEEP their own cash, and be forced to build real assets - eliminating "credit" and "loans" (which are immoral concepts anyway) and lets see how prestigious lumps like Goldman Sachs will be after the smoke clears ... u ain't seen nuthin yet.

Mar. 02 2009 10:31 AM
Amy from Manhattan

Who was that in the Planet Money clip who doesn't know "prevaricate" (lie) from "procrastinate" (put off)? Doesn't exactly inspire confidence in his opinion.

Mar. 02 2009 10:29 AM
Laura from NYC

1. Collateral?
"Adam's Bank" on "This American Life" -- the dollhouse loan was given without proper research of the collateral, the risk, the value.

And why did they keep trashing the woman who took the loan, making HER apologize?

2. Morality?
Did the banks break the law? You can't close a bank for immorality. Please do a segment on where morality fits in -- perhaps in how the laws are made. The moral issues of conflict-of-interest [Phil Gramm, for example].

Thanks.

Mar. 02 2009 10:29 AM
Smokey from LES

Please, more on why this is so hard politically!

Mar. 02 2009 10:29 AM
Cynthia from Brooklyn, NY

It does seem that a lot people who think it's okay to let the banks fail don't understand that that failure will dramatically and significantly affect their own finances. It's not just the shareholders and rich folks who will suffer the consequences.

Mar. 02 2009 10:29 AM
RJ from brooklyn

Whoa! Wasn't it the US and the IMF that was forcing countries in trouble, especially third world countries and "emerging" countries, to *denationalize* its industries, to privatize its banks and industries?

Mar. 02 2009 10:27 AM
Joe Corrao from Brooklyn

Obama's got buco bucks from banks...

Mar. 02 2009 10:27 AM
Jonathan Barth from Brooklyn, NY

Last year you guys at This American Life did a great job explaining credit default swaps. Last week you did a great job explaining the banking crisis caused by a collapse in home prices. How come your program last week didn't even bring up the subject of credit default swaps. Aren't these two tied together? How do the credit default swaps affect the banks and their bottom line, or did they only affect the institutions that had a piece of that game?

Mar. 02 2009 10:27 AM
snoop from brooklyn

So nationalization is utterly unprecedented. So what? Everyone of the "experts" I've heard talking about the banking crisis says that the crisis is "unprecedented." So unprecedented solutions are called for.

As for how to do it... buy stock. No need to check into sleazy hotels, no frantic weekend events, just use the tools of capitalism and buy stock on the market like any other white knight investor. Cut rate prices now too!

Mar. 02 2009 10:26 AM
Tony from San Jose, CA

Regarding the toxic assets, if the bankers think they are worth more that "market value", are they buying it?

Why not paying bonuses in toxic assets (at face, not market value).

Tony

Mar. 02 2009 10:24 AM
j from nyc

couldn't some of the most toxic assets, in terms of some of the housing, maybe be used to help some of the returning iraq war vets, given the urban location of much of the housing and some of it near VA health facilities.
it's not all of the housing of course, but maybe that's a way to solve 2 problems at once, and switch some of those toxic assets over to a VA/defense budget that would be spent on some of these war vets and their families, during and after immediate treatment anyway.
a small dent, but maybe a worthy one given all of the contributing factors.

Mar. 02 2009 10:22 AM
RJ from brooklyn

Re: nationalization: Can they discuss the NYTimes piece on Saturday, about the relatively healthy status of Canada's banks? http://www.nytimes.com/2009/02/28/opinion/28tedesco.html?_r=1&scp=1&sq=canada%27s%20bank&st=cse

Mar. 02 2009 10:21 AM
Joe Corrao from Brooklyn

Can u speak of the fdic obligations to peoples deposits...if a bank DOES collapse you don't get all your money back right off the bat...it is paid back in installments I believe.

Mar. 02 2009 10:21 AM
Joe Corrao from Brooklyn

I would take anything that Bernanke says with a grain of salt.

Mar. 02 2009 10:20 AM
Darren from Lefferts Gardens

Why save THIS world economy? Isn't it clear that THIS economy creates more uneven wealth, more resource wars, more toxic privatization, more political corruption, and more engineered shocks than many other models could?

Walk away from the irrational aversion to centrally managed economies. We need someone who is willing to set priorities, not a system which is wallowing in its own ineptitude and costing us tons of money while it strokes its wounded ego.

Mar. 02 2009 10:19 AM
marcus

more important is the often over looked fact that these banks cannot locate the underlying promisory notes that tie to the mortgage.

see the Feb. 28, NYT article.

this thing is gonna get a lot more messy than anyone can imagine.

Mar. 02 2009 10:18 AM
RCT, Chappaqua

I have listened to all three "Planet Money" shows on the recession, beginning with "Big Pot of Money," which first broadcast in May 2008. Anyone who wants to understand the financial crisis, and even laugh a little bit through the tears, should access these broadcasts on the "This American Life" website.

Thank you, Adam and Alex (and Kaitlin and her "dollhouse").

Mar. 02 2009 10:18 AM
superf88

"Robbery Note" -- this is STILL CAPITALISM, folks!

In fact for many institutions, thanks to the bailout, for the first time their CEOs actually generated huge revenues!

--$$ by whatever means

Mar. 02 2009 10:13 AM
superf88

"Robbery Note" -- this is STILL CAPITALISM, folks!

In fact for many institutions, thanks to the bailout, for the first time their CEOs actually generated huge revenues!

--$$ by whatever means

Mar. 02 2009 10:13 AM
superf88

(Obviously the debtors of influence are not you and I but corporations)

Mar. 02 2009 10:04 AM
superf88

George/2
a thought -- deflation is bad for debtors since their debt goes up in real $$. and of course, if something goes down (like food did in the 90s/00s) something else will tend to go up to take care of your paycheck (housing).

Mar. 02 2009 09:58 AM
RJ from brooklyn

I listened to most of the program, so perhaps I missed this part, but was there an explanation of why the young woman who bought the dollhouse lost her job? And what she did for health care, the major cause of personal bankruptcy that might have caused her to be unable to pay her mortgage? I appreciate the need to take apart these absurdly (dare I say deliberately?) complex issues, but it's difficult without these other basic concerns as well.

Mar. 02 2009 09:49 AM
superf88

So now the world's tidal pool of $$ is focused on buying company debt; banks are using their capital to build more branches and purchase their own stock.

Until the last dime investors need to buy growth.

So what's changed?

Mar. 02 2009 09:30 AM
sr from NJ

Although they haven't nationalized Citi yet, but they did turn the tax payers into common stock holder. If this mega-bank is not restructured, and ruthlessly revamped, we tax payers are the losers and These same bankers who got us into this mess will be sitting pretty with a job. why did we become common stock holders, why? can you explain?

Mar. 02 2009 08:21 AM
George

I've asked this before when anyone with some knowledge comes on, but could your guests explain why deflation is such a bad thing when a big part of the problem is that we can't afford to live, even with two family members working. Wouldn't a little deflation be good, and also, the natural reaction when demand goes down?

Mar. 02 2009 08:16 AM
eva

Have you guys at Planet Money won a Pulitzer yet?

At this time of general freakout, Planet Money should get the Presidential Medal of Honor for their shows. Great guests, great explanations. And a Nobel for lowering the blood pressure of however many Americans listen to your show - it's not as if the news is good, but at least there's some clarity of positions.

The only thing that troubled me about the last show was that you seemed to leave this major teaser about a potential nationalization of the banks - I heard something along the general lines of: "it's not as if the administration would give you advance notice, in fact, they might try to fake you out by insisting the extreme opposite. Then: announce it late on a Friday, and spend the weekend nationalizing the banks."

What are you suggesting? That we're close?

Mar. 02 2009 01:19 AM

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