Streams

The Looting of America

Tuesday, November 24, 2009

Les Leopold, director of the Labor Institute and the Public Health Institute, seeks to correct the myths that blame the financial meltdown on low-income home buyers who got in over their heads, people who ran up too much credit-card debt, and government interference with free markets. In The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It, he looks into how Wall Street undermined the economy by turning to highly lucrative but extremely risky financial approaches.

Guests:

Les Leopold,

Comments [13]

Mike F from new jersey

For Leopold to lay this crises at the feet of the "Free market" and "deregulation" is naieve. Securitized mortgages for instance were purchased by banks because they were rated as AAA by gov sanctioned rating agencies. They have a legal monopoly on the ratings. They were condiered as safe as a US treasury bond. So instead of keeping mortgages they originated on their own books and have very high lending standards, they originated any type of mortgage the law would allow and sold these to an agency like Fannie and freddie mac in return for an income stream. The whole process was enabled by the federal governments rules and regulations favoring the relaxing of lending standards to drive up home ownership. The banks thought they were getting AAA rated securities b/c the federal gov agency rated them. In case after case Mr. Leopold blames free markets but he is utterly mistaken. This current crises is the result of over 60 years of US federal government meddling in the finanical markets. The federal reserve's policy of below market interest rates and inflationary expansion of the money supply has driven these speculative booms. The widening income gap and the fall in real wages is at its root the fault of the federal gov, the federal reserve bank, deficit spending,lack of gold standard and "progressive" " welfare " oriented legislation. The REAL free market would drive up interest rates, and the fear of loss would deter people from taking these huge risks. But gov agencies with their ENORMOUS regulatory apparatus created a false sense of security and let all know that they would be bailed out if they failed.
READ
Ron Pauls' End the Fed or
Thomas Woods : Meltdown

Nov. 24 2009 01:13 PM
mozo from nyc

#9 Steven --

I think you got it backwards. The left usually wants more government oversight and protections(think civil rights, consumer safety and banking regulations). It is the right that wants less government in their lives.

Nov. 24 2009 12:43 PM
mozo from nyc

Matthew #5 --

Interesting argument, especially your example of the 80's. I don't see you mention the Savings and Loan scandal or Silverado. I think a lot of people lost on those deals.

As for "the consumers who gladly took on financial obligations they were in no position to handle", a lot of them were lied to by mortgage brokers and real estate agents. I used to be a residential real estate appraiser. I know what these crooks were saying to their clients.

Great show!

Nov. 24 2009 12:35 PM
Hugh Sansom from Brooklyn NY

Matthew from Manhattan is right that this is not a simple or one-sided matter. But he leaves out one thing.

Wall Street has lobbied hard for 3 decades and more to dilute oversight and regulation. As Les Leopold points out, Wall Street is now using the money WE gave them to lobby against us knowing what is being done with our money.

Moreover, the oversight agencies are thick with Wall Street cronies. Congress inhales millions in hush money from Wall Street. And Wall Street -- as we now know conclusively -- just plain lied when it served the purpose of lining Lloyd Blankfein's, Jamie Dimon's and others' pockets.

Too many extremely competent outsiders were warning of all this -- Brooksley Born, John Kenneth Galbraith, Nouriel Roubini, Michael Hudson, Elizabeth Warren, and on and on and on.

Nov. 24 2009 12:33 PM
Steven Rudin from Nassau County, Long Island, NY.

It's amazing to me that the left has traditionally blamed government for everything. Under Reagan, a conservative, they got their wish, in a way. He declared government to be the problem, deregulated everything he could, went after unions like the Air Traffic Control Union, and allowed all of this so called freedom. The results have been a disaster for the average person.

Nov. 24 2009 12:31 PM
Hugh Sansom from Brooklyn NY

In the 1950s, economists were wondering what people would do with all their free time when they could produce all that was needed in a 3-day week and could retire at 50.

But corporate money-grubbers thought, "Why produce 100 widgets in 3 days when we can do 200 in six and convince people to buy buy buy more more more."

That's why We the People don't reap the benefits of our labor. It goes into the pockets of murderously greedy Wall Street types. This is not just hyperbole. Consider the Health Insurers, which would rather see people die than lose money or just break even by providing care.

Nov. 24 2009 12:26 PM
Andrea from Westchester County, NY

It seems that this is as much about the distribution of "risk" as it is about the distribution of "income."

The risk of a drop in real estate prices could certainly have been calculated. That risk was passed along and passed along.

When no one assumes the risk, everyone assumes it. We, taxpayers, assumed this risk. We should be rewarded handsomely for having done so. Certainly, if Wall Street had to knowingly assume this risk, it would have charged and arm and a leg to do so.

Nov. 24 2009 12:26 PM
Betty Anne from UES

Are the numbers of people on unemployment skewed because of the extensions Obama has given? Was unemployment the same under Reagan?

Nov. 24 2009 12:26 PM
Matthew from Manhattan

Though I appreciate the need for the speaker's critical voice to be heard, his notion of "fantasy finance" and Wall St.'s "looting of America" is terribly one-sided and, as such, essentially wrong.

Mr. Leopold should consider that Wall St. banks were operating legally in packaging CDOs, and that much of our scrutiny and even anger should also be directed at the rating agencies and regulators. A great discussion has already emerged about these other players, and Mr. Leopold seems not to take note of it.

Furthermore, Wall St. was only taking the common practice of securitization to the next level. In the 1980s the federal government securitized farm loans much in the same way Wall St. did with subprime loans. The Agriculture Dept sold billions of dollars' worth of loans to investors, and the transactions were seen as win-win innovations: investors got returns, Wall St. got fees, and the government got much-needed cash out of the sales. The main difference? The borrowers kept paying their obligations, as should be reasonably expected.

The fact is, the subprime securitizations were based on the totally false assumption that residential real estate prices would continue to appreciate. Though there was certainly an element of greed, Wall St. was not alone in being a cause of this crisis. What about the consumers who gladly took on financial obligations they were in no position to handle?

This is not a simple nor a one-sided matter.

Nov. 24 2009 12:25 PM
Wm. Turbull from Midtown

Every time a fortune is made some poor fool is losing his wallet. For every dollar made someone is always losing one.

Nov. 24 2009 12:24 PM
Cathy

No one wanted to regulate these products effectively within the industry (forget the govt) because quite simply the banks were incentivised to churn out as many of these deals as possible. When structured finance heads at banks called up large loan companies to create more and more subprime debt in order to create more crappy debt vehicles, the banks earned more fees and then financed more debt to those loan companies. That's not just a vicious circle, it's a death spiral.

Nov. 24 2009 12:23 PM
Jack from Brooklyn

Speaking of the disparity between CEO and employee income, there has been a precipitous decline in taxation of the upper incomes since the mid 20th C. Can the U.S. function as it used to (decent schools, decent transportation infratstructure, etc.) without taxing the wealthiest 3% more? Do we have false expectations for a decent standard of living without increased taxation?

Nov. 24 2009 12:22 PM
Mike from Manhattan

These types of transactions are not supposed to be used by unsophisticated investors. They are very time dependent and must be hedged properly otherwise you will lose money. I am studying these types of transactions at Columbia U right now and while I am not defending or advocating them, when you understand their purpose they don't seem to be as evil as they do on face value and actually are an important factor in hedging risks in the financial system. I am in favor of an economy that puts social welfare first and financial efficiency second. In order to get the understanding to realize the value in this thou more attention has to be paid to distribution of wealth. (which is infinite by the way)ON a national and global scale finance does NOT work the same way it does for the household and if it did then we would all be in poverty.

Nov. 24 2009 12:16 PM

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