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How Big Banks Victimize Our Democracy
Posted By Barry Ritholtz On June 25, 2012 @ 9:30 pm In Bailouts,Video | Comments Disabled
BILL MOYERS: This week on Moyers & Company…
MATT TAIBBI: There’s vast criminality in Wall Street now. It’s bribery, theft, fraud, bid rigging, price fixing, gambling, loan sharking. All of these things, it’s all organized.
YVES SMITH: If you really believe that CEOs of businesses that are really fundamental to the economy are corrupt, you have to think of a very serious restructuring of the business and financial system.
BILL MOYERS: And…
PETER EDELMAN: You want to call this redistribution? That’s what you call it. I call it economic justice. I call it fairness. I call it being fair to the people in this country who are being absolutely screwed.
BILL MOYERS: Welcome. This past week, Jamie Dimon, CEO of JP Morgan Chase, was back on Capitol Hill, testifying before the House Financial Services Committee, as he had earlier done before the Senate Banking Committee. He was being questioned on how his bank had lost two billion dollars — or more — on risky trading. His reception in the House was less fawning than what he got from the senators. Although many of them also are beneficiaries of JP Morgan largesse, House members were more combative.
BARNEY FRANK: You said you have a fortress balance sheet. That assumes there’s something special about the way you are that made us have to worry less. But we can’t assume that’s going to be the case for every financial institution.
JAMIE DIMON: But I also said that we’d be solidly profitable this quarter. So relative to earnings–
BARNEY FRANK: That’s not the question. Mr. Dimon, please don’t filibuster.
SEAN DUFFY: You didn’t know about these trades. You didn’t know about these losses. How do you come forward today and say the regulators should have known that — what one of the best CEOs in the industry didn’t know and couldn’t have known?
MICHAEL CAPUANO: With the regulatory regime that we have today — we both agree that it’s not what we want, but it’s what we have. Do you really think it’s a smart idea to be cutting the legs out of one of those major regulators? Do you think that’s good for America?
JAMIE DIMON: I have enough problems. I’m going to leave that to you.
MICHAEL CAPUANO: Well, Mr. Dimon, the only reason I ask is because you have had no hesitancy whatsoever in expressing opinions on other matters. I thought you might want to take an opportunity to express one today.
BILL MOYERS: Coincidentally, just before Dimon’s House testimony, Bloomberg News published data indicating that JP Morgan Chase receives a government subsidy worth about 14 billion dollars a year in taxpayer money.
Money, said Bloomberg editors, that “helps the bank pay big salaries and bonuses, and more important, distorts markets, fueling crises such as the recent subprime-lending disaster and the sovereign-debt debacle that is now threatening to destroy the euro and sink the global economy.”
With me are two guests who can guide us through the thicket of testimony and beyond. Matt Taibbi, contributing editor at “Rolling Stone” magazine, has investigated the folly and corruption of banks and government with scathing, often profane wit and perception. His book, Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America, described the events leading up to the financial meltdown in 2008. His newest piece for Rolling Stone is a chilling expose called “The Scam Wall Street Learned From the Mafia.”
Yves Smith created and runs Naked Capitalism, the popular blog on finance and economics. She once worked for Goldman Sachs, McKinsey & Company, and Sumitomo Bank, and now heads a management consulting firm. You’ll want to read her book, ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.
Welcome to both of you.
YVES SMITH: Thanks so much.
MATT TAIBBI: Thank you.
BILL MOYERS: So in this particular case, what is JPMorgan’s sin? That’s the question Representative David Schweikert raised on the day of the hearing. He asked, “What sin has JPMorgan committed other than being big enough to lose billions of their own money in a quarter and still turn a $4 billion profit?” Want to take a stab at answering?
MATT TAIBBI: Yeah, sure. Their sin wasn’t the loss. The sin was in being a too-big-to-fail company where we can’t afford to have them go under. Why are we there in the first place? If this was a company that, if it went out of business, it wouldn’t affect our lives personally and wouldn’t have major ramification for the economy, we wouldn’t be holding hearings in the Senate and the Congress.
We would say, fine, they lost so much, a bunch of money. Too bad for them. But that’s not the case. As we saw in 2008, when these companies go down, we all end up paying for it. You know, we ended up financing of, what, five, six, seven trillion dollar bailout in 2008. And if a company like JPMorgan Chase goes under, there will certainly be some sort of federal action, which is why we have to know about it. We have to know what goes on when they have unexpected two, three billion dollar losses that affects all of us.
YVES SMITH: They were guilty of gaming the system. And the way that they’ve done it is this unit was using depositor money and yet taking very large bets.
And in this unit, all the other banks similarly have similar units in their treasury department, and the purpose of these portfolios is supposed to be to have liquid assets in case there’s a run on the bank.
And Bloomberg News had a story where they actually reported that all the other banks take less risk in these portfolios. And that’s before we get to the credit default– that’s before we get to the blow-up part, just in the, even the simpler part of the portfolios. They have, they keep more in treasuries. And they have less in corporate bonds. So Dimon is already taking more risk in this unit than he should have.
And this is something which is frustrating about the testimony. There’s a sort of, you know, one of the, again, stories that Dimon was promoting was, oh, well, we didn’t find out about it. And then when we found out about it, we jumped on it and now it’s all fine. And, therefore, the regulators shouldn’t have been able, you know, how could the regulators have found about it?
And, therefore, since the regulators couldn’t found out, you know, more regulation is futile. And, in fact, you could have found this information from the outside. You could have seen that prices were moving in this instrument in a really weird way.
BILL MOYERS: Was everybody looking the other way? Have we forgotten so quickly?
MATT TAIBBI: Well, the entire derivatives market is essentially a gigantic black box. It’s not like the regulators have access to all this information.
YVES SMITH: I think they’re not used to looking for the information.
MATT TAIBBI: Right.
YVES SMITH: I think it’s been acculturated that they’re used to having tea and cookies with the banks and reviewing their internal reports and not doing any type of external validation and this kind of basic external checking they could do that they’re not habituated to doing.
BILL MOYERS: A very curious thing happened when the House hearings opened. Some members of that committee felt that Dimon should be sworn in. But the chairman of the committee, a Republican from Alabama, Spencer Bachus, said, no, that wasn’t necessary. Am I making too much out of that?
MATT TAIBBI: I thought that was an incredible moment for a couple of reasons. Obviously, the reason there was a hullabaloo over that was because of what happened when Lloyd Blankfein, the CEO of Goldman Sachs, came and testified before the Senate a couple of years ago. There later was a controversy over whether or not he had perjured himself in those hearings.
So the question was if, you know, Jamie Dimon is going to be sworn in, whether he would have to tell the truth, would be obligated, or whether it would just be a friendly conversation. But what was amazing about that, was that it Spencer Bachus who came to Jamie Dimon’s defense. Spencer Bachus is the congressman for the Birmingham, Alabama, region which has been decimated by the Jefferson County swap disaster, which was caused by Chase, which was fined $700 million by the SEC.
So here’s a guy who represents the county that has been most affected by Chase’s bad behavior, and he comes to Chase’s defense in the hearing, which I thought was– it set the tone for the whole thing.
YVES SMITH: Matt mentioned the toxic swaps. Jefferson County isn’t the only example.
There have been a whole series of, you know, since Jefferson County and other municipalities blew up by deals they did before the crisis, there have been a series of swaps done after the crisis with transit authorities, where they are losing a tremendous amount of money. You can look at the way JPMorgan has serviced mortgage loans.
You know, they had to get up and admit that they had been basically breaking the law, and there were criminal penalties associated with this law, by foreclosing on servicemen in Iraq and not giving them rate breaks that they were entitled to. And there are some egregious cases.
MATT TAIBBI: There’s $228 million fine that they paid last year for municipal bond bid rigging. There was another $153 million fine that they paid for failure to, for fraud in CDO trades. I mean, there are case after case after case that involve these criminal charges. And what I thought was amazing about these hearings is that nobody brought any of those things up.
BILL MOYERS: Both of you have mentioned the Jefferson County story. Give me a quick summary of what JPMorgan did in Jefferson County, Alabama.
MATT TAIBBI: Well, Jefferson County had to build a new sewer system. And they had to borrow a bunch of money to do that. And it was originally a $300 million project. But they got into a series of swap deals with JPMorgan Chase to basically push their financing into the future. But the deals were heavily mispriced in Chase’s favor. And Chase actually bribed another bank to stay away from Chase because they wanted that business. They wanted to give the–
BILL MOYERS: Bribed them?
MATT TAIBBI: They bribed them.
BILL MOYERS: That’s against the law, isn’t it?
MATT TAIBBI: Yes, yes.
YVES SMITH: Yeah.
MATT TAIBBI: And they were caught for it. A couple of their executives were caught for it, and they were heavily fined by the SEC for doing it. And this resulted in this disaster where Jefferson County’s going to be bankrupt for a generation. It ended up costing them $3 billion out of what was originally, what, $300 million?
YVES SMITH: Million dollar, yeah, yeah, yeah. What got to be $2.9 billion deal in the end. And on top of that, my mother happens to live in Jefferson County.
BILL MOYERS: Oh, I didn’t know that.
YVES SMITH: You have the average person in– basically you cannot have access to the sewage system and not pay more than– and not pay less than 50 bucks a month. So there are people in the poor areas who are deciding what they’re going to have: electricity, water, or sewer. I mean, you can’t– they can’t afford all three.
BILL MOYERS: Why is that JPMorgan’s fault that they have to make that choice?
MATT TAIBBI: They basically got them into these onerous toxic swap deals that were poorly understood by the local politicians. And they bribed the local politicians to accept the swap deals. They did it through middleman companies that bribed the–
YVES SMITH: The consultant on the deal is in jail. The former mayor was involved in other improprieties, too. But the former mayor’s in prison. You know, this is–
MATT TAIBBI: For signing off on these deals.
BILL MOYERS: Is there a question you would have asked Dimon if you had been on either of those committees that was not asked?
MATT TAIBBI: The question I wanted to ask is, was, really more about the criminality. I mean, none of the members in either the House or the Senate really got into the issue of all the different offenses that these banks have committed in the last few years. You know, or, an ordinary person, if he commits welfare fraud, never gets a food stamp again in his life.
So given that these banks have systematically and repeatedly committed fraud, repeatedly been caught, you know, in situations like Jefferson County, municipal bid rigging, why should we still give them billions and billions of dollars in emergency lending from the Fed, bailouts, all of this aid from the government? How come there’s no consequences for them and there are consequences for ordinary people?
YVES SMITH: I would have asked questions more having to do with what’s the justification for complex banking at all? That why do we need, why shouldn’t banks be run on the utility basis? Why should we have people like Dimon and his, the members of the CIO unit, most of which he’s fired, what the justification for literally that hundreds of millions of bonuses were paid collectively to those people.
And now he says they didn’t know what they were doing. There’s no justification for this, the sort of level of compensation that we generally have on Wall Street. And I would like to see that myth starting to be punctured in more public places.
BILL MOYERS: What do you mean when you say banks should be more like a utility?
YVES SMITH: Banks, more than any other business, more than military contractors, live off the government. They depend on government backstopping. They exist only by way of government issued licenses, which if you had open entry you’d see much lower fees. And they get some confidence from the public from the fact that they are regulated. Oh, and the most important thing is they have access to–
MATT TAIBBI: The Federal Reserve.
YVES SMITH: –the Federal Reserve.
MATT TAIBBI: They’re getting huge amounts of free money.
YVES SMITH: Well, not just the free money. The Federal Reserve basically guarantees the payment system. You know, that’s the really critical architecture that banks control is that, you know, we write checks to each other. We have credit cards. They clear through banks.
But the fact that banks can exchange money with each other confidently is because the Fed stands behind that. So there’s a much– there’s another layer of Fed backstopping beyond what we think of the way they step in in a crisis or the way they’re now intervening to help the banks. So the fact that these institution really depend in a very fundamental way on government support means they don’t have any right to the upside.
I mean, they should really be paid like public servants. I mean, I’m not kidding. I mean, and if they had been, if the pay had been ratcheted down after the crisis, I would have had a lot more sympathy for them, even if they just behaved for a couple of years. You know, they were bailed out. And then in 2009 the industry went and paid itself record bonuses, higher than 2007 instead of rebuilding their balance sheets. I mean, this was just a slap in the face for the public.
BILL MOYERS: And there’s no shame.
YVES SMITH: No.
BILL MOYERS: You’re describing a corrupt financial and political system. And both of you in recent writings, your current article in “Rolling Stone,” which is devastating on the scam that the “Wall Street learned from the Mafia,” and a recent column you wrote about the mafia state, you’re both using that metaphor to apply to our financial and political system. When I read your pieces, you’re not playing with words there. You mean it.
YVES SMITH: Yeah.
BILL MOYERS: Why do you mean it?
YVES SMITH: Well, the mafia, when it gets to be big enough, first thing it has services that people feel they need if they’re in a difficult situation. So, for example, loan sharking. If you really need money, they do have the money. And people enter into these loan shark deals even though they know it’s going to be very difficult to pay 20 percent or more interest and they’ll have their legs broken if they don’t pay back.
And the banks actually behave very much in that manner when they find people who really need money. So you see this with credit cards, you know, that, or, and with mortgages. That if you hit– it’s not this if you hit any tripwire, that, you know, become in arrears, the banks basically act in this very extortionate manner and don’t cut any breaks.
MATT TAIBBI: And I think that there’s also this, they are the mafia because of their vast criminality in Wall Street now is that it’s bribery, theft, fraud, bid rigging, price fixing, gambling, loan sharking. All of these things, it’s all organized.
I mean, the story I just wrote about, which was about the systematic rigging of municipal bond auctions, which affected every community in every state in the country and all of the major banks were involved, including Chase.
They were rigging the auctions that were designed to create a fair rate of return on the investments that towns were getting on their– the money they borrowed for municipal bonds. And this is not like something that the mafia does. This is what the mafia does. The mafia has historically, it’s one of their staple businesses, is bid rigging for construction or garbage or, you know, street cleaning services, whatever it is.
They’re doing exactly the same thing. The only thing that’s different is there’s no violence involved. But what their method of control is that they’re ubiquitous. They have this incredible political power that the mafia never had.
YVES SMITH: And they also have what amounts to an oligopoly. I mean, for many of these services, you have a great deal of difficulty going beyond the five biggest banks, you know? This is– it’s the consequence of too big to fail is that when, you know, some of the smaller players, again, you know, like– JPMorgan buying Bear Stearns.
In the crisis, when the smaller players got sick, they were merged into the bigger players. So now if you want– for a lot of these services, there aren’t that many players for you to go to. You really have no choice in– other than to deal with the big banks.
BILL MOYERS: Congress is paid to be informed and to hold these guys accountable. Why don’t they ask the kind of questions you’re dealing with here?
MATT TAIBBI: People refuse to look at these banks and think of them as organized crime organizations.
They in their eyes, organized crime is always either the Italian mafia or the Irish mafia. This isn’t what it looks like. But that is who they are. And I think that they’re treated with a kind of deference and respect, because traditionally that’s not who they were. They were these icons of finance who helped build this country.
But that’s not who they are anymore. And I think, it’s hard for people to wrap their heads around that and treat them the way they should be treated.
YVES SMITH: Well, I think people don’t want to think that there’s something wrong with leaders. And CEOs are leaders of the business community. If you really believe that CEOs of businesses that are really fundamental to the economy are corrupt, you have to think of a very serious restructuring of the business and financial system.
And even if people kind of intellectually might be willing to contemplate that, they don’t really want to go to what the implications are. So it’s much easier for them to block out that thought.
BILL MOYERS: Both of you have been writing a great deal lately about the crisis in Europe. So explain to us simply what hand Wall Street has in what’s going on in Italy, Greece, and Spain today and why we should care.
YVES SMITH: Well, I almost want to go one step of abstraction higher because people tend to focus on the immediate ways Wall Street was involved like Goldman Sachs helped Greece cover up how serious its deficits were.
MATT TAIBBI: Which in the situation, it was very similar to Jefferson County, by the way.
YVES SMITH: Right. But the more important story is much higher, which is that the reason the big reason that all, you have basically a sovereign debt crisis, that the governments in Europe, many of them had to borrow a tremendous amount of money in the wake of the crisis. And the euro zone is not well set up to adapt to that. I could go into technical reasons why, but it’s not unlike a state.
You know, when a state has a budget problem that suddenly they have to think about, you know, cutting costs and doing all kinds of draconian measures. And while maybe a state or a city can do that, you can’t have the biggest economy in the world. I mean, Europe is the biggest economy in the world doing that and not have it basically turn into a down spiral, that you cut spending and then that leads to less income.
And your deficits get worse rather than better. So, but the reason they had that problem is, in fact, very directly the result of the financial crisis. That you had countries that weren’t running deficits, government deficits like Ireland and Spain, that were held up as poster children before the crisis of doing things right.
And that when the crisis hit, you both had a big drop in tax revenues. You had bank bailouts. And these countries had decent social safety nets so that, you know, things like, you know, unemployment insurance went up. And so the budget crisis they’re having is the direct result of the financial crisis. And yet it’s somehow being treated as if they’re separate events. Like somehow these governments were profligate and that borrowers were irresponsible –
MATT TAIBBI: Social safety net.
YVES SMITH: Safety net.
MATT TAIBBI: Exactly. Right. That’s clearly going to be the place that is going to take the brunt of the damage. I mean, I think the most direct example here in America was a lot of unions and state pension funds were primary victims of the sort of broad fraud scheme to sell fraudulent mortgage backed securities.
So they, a lot of these institutional investors were buying these bad mortgages, huge pools of mortgages from all these, the usual suspects, the big banks. And then when they decreased in value and suddenly there they don’t have, it’s harder for them to meet their obligation and suddenly the finger is pointed at them and everyone saying, “Oh, look at those pens, the state pensioners or look at those union employees, they’re they cost too much money. We have to cut their services. We have to cut pensions. We have to do all these things.”
Whereas, in fact, they were buying a fraudulent product from Wall Street and that’s why they’re in such bad shape now. And I think, but politically, the direction is always going to be let’s blame-
BILL MOYERS: The poor.
MATT TAIBBI: That person. The poor.
BILL MOYERS: The guy on the pension. The woman on the pension –
MATT TAIBBI: Right. And we’ll never point the finger in the other direction.
YVES SMITH: Well, in fact, the implications, that’s true. But the implications are actually quite grim, and they’re not being discussed honestly. We’re talking about old people dying faster. We’re talking about children being homeless and not getting education, and we’re talking about grim outcomes like that.
And they’re not even part of the discourse. I mean, you look, Greece is the extreme example. But in Greece, the hospitals are breaking down. Garbage is not being picked up. And if you look at the results of the last election, what you saw is even with the efforts to scare people into staying in the euro, you see this polarization where the Nazi Party got seven percent of the vote even after there was an incident in a TV station where there was literally an on-air fight where a Nazi Party member beat up on somebody basically I think it was on camera, you know?
So you’ve got a real social polarization with radicalization going on. And I’ve seen a number of reports out of Greece saying that it’s basically on knife edge of breakdown.
BILL MOYERS: Could it happen here?
YVES SMITH: If things, if we have another crisis and things aren’t addressed, I could see this definitely happening maybe not nationally but in significant regional pockets. I mean, you know, this is a country full of guns. And people don’t like to think about what happens when people are pushed, you know, I mean, the kind of random violence, the sort of, you know, going postal phenomena?
MATT TAIBBI: When I was in a foreclosure court last year. I spent a week in a foreclosure court in Jacksonville.
BILL MOYERS: Reporting on it.
MATT TAIBBI: Reporting on it. And the amount of raw anger that you see in these proceedings from people who have lost their homes, they have no illusions about who’s to blame for the situation. They know exactly, you know, where the problem is. And I–
BILL MOYERS: And it’s where?
MATT TAIBBI: It’s with these banks that sold them these mortgages. And I think there’s a growing awareness out there in the public, more and more people have had a personal problem on some front with Wall Street, whether it’s credit card debt or a mortgage debt or they’ve lost their jobs. And I think there’s anger and it’s starting to become more organized.
BILL MOYERS: Both of you trace this back to what you call fraudulent debt. Is that right?
MATT TAIBBI: In the case of the mortgage markets, absolutely. I think what a lot of these, this was a fraud scheme. It’s the same scam that you see here in the streets of New York when somebody’s selling a phony Prada bag or a phony Rolex watch in the street. These banks were selling phony mortgages that were, they were selling them as triple A rated instruments when, in fact, they were essentially worthless.
They were highly risky, toxic instruments. And they knew it. They were buying, they were in cahoots with companies like Countrywide and Long Beach, these sort of fly-by-night mortgage operations who went out and they gave mortgages to everybody and everybody who had a pulse. They took these mortgages. They bundled them. They waved a whole bunch of phony hocus-pocus math over them and reconfigured them into triple A rated investments.
Then they went out into the world and they sold them to every customer all over the world, pensions, unions, foreign trade unions, foreign governments. And they–
YVES SMITH: Trade councils in Australia. I mean, real know nothings.
MATT TAIBBI: Everybody. Everybody bought this stuff. It all blew up like, everybody who was in on it knew it eventually would because they were betting against the stuff as they were selling it. And, and the, and that’s why we have this, this situation that we’re in now.
YVES SMITH: Yeah, but even the most even if I’m giving Wall Street more credit than it deserves. But even if you take out the bad creation and selling of the product, you also have the fact that Wall Street basically demands an asymmetrical deal with contracts, that if you have a credit card deal or if you have a mortgage, if you make the tiniest, little violation, you know, we get to take our pound of flesh.
And yet if you’re a union member, it’s perfectly fine to break your contract. You know, our contracts count, but we can break all the other contracts in society to get our obligations honored. I mean, this is just crazy.
MATT TAIBBI: But they genuinely think that they earn their money. And I think that was one of the illuminating things not only about the Dimon hearings but also the Lloyd Blankfein, slash, Goldman Sachs hearings a couple of years ago. These guys really think that they’re, they have a unique and special genius that entitles them to earn the vast sums of money that they pay themselves, that somehow that they’re creating all this wealth for themselves.
And they really genuinely don’t think that they’re getting their money– from all of us. And to them it’s irrelevant that they’re getting all their money for free from the Fed and that they’re lending it all out to us at five percent, 10 percent, 20 percent, you know, 25 percent. They think they deserve the money. And I think that’s the scariest part.
BILL MOYERS: There’s a definition of a sociopath as being radically deprived of empathy. Do you see characteristics of sociopathic behavior on Wall Street?
MATT TAIBBI: Absolutely.
YVES SMITH: Yes.
MATT TAIBBI: I’m sorry, just what Yves was talking about with, you know, the old people who were dying earlier now, people who don’t have kids, who aren’t going to school, garbage that’s being left in the streets. That’s all because some guy was sitting up in a skyscraper in Wall Street and knowingly selling some communities, some municipality a fraudulent, toxic mortgage backed security.
I mean, he knows that that instrument is going to blow up in, you know, six months, a year. But he’s selling it to them anyway. But he doesn’t care, you know, because he can’t see it, you know? I think in the eyes of a lot of these guys if they can’t see the effect, it doesn’t really exist. And to me, that’s classic sociopathic behavior when you’re blind, you’re willingly blind to the consequences.
YVES SMITH: I mean, it’s really the growth of the trading culture. You know, in the old days, I worked on Wall Street when Wall Street really was only criminal around the margins. I mean, you really, Goldman Sachs in those days had the expression long-term greedy which meant you didn’t kill the–
BILL MOYERS: Long-term what?
YVES SMITH: Long-term greedy. That they were long-term greedy. And that meant you didn’t kill the goose that laid the golden egg. You know, you wouldn’t put your customer into egregiously bad deal. If you took a little extra, you only took it when the customer was making money, too, so if they ever figured it out they wouldn’t be really upset.
That attitude has changed completely. And I attribute it significantly to the growth of derivatives. Over-the-counter derivatives where you can’t see the price on an exchange. You can’t see the history.
And they’re much more complicated. And those started growing really in the early ’90s and became, and it becomes very interwoven in the practice of finance. Because the derivatives are so complicated, you can’t price compare. The risks are often bundled in within formulas that the buyers can’t understand. And so they can load all kinds of basically what’s equivalent to hidden fees in these things by the way they structure the risks in the terms.
So they’re the perfect vehicle for stealing because you’re selling, no, you’re selling somebody something they can’t evaluate.
BILL MOYERS: When you come back, I want you to take the whole hour and explain to me what a derivative is and how it works. Okay? Is that a promise?
MATT TAIBBI: Absolutely.
BILL MOYERS: Alright, Yves and Matt, thank you very much for joining us.
MATT TAIBBI: Thank you.
YVES SMITH: Thank you.
BILL MOYERS: During those hearings before the House and Senate, I kept my ears open, hoping someone might ask Jamie Dimon how he feels about his bank riding out the deep recession with $25 billion worth of taxpayer money while at the same time reaping profits from the poor and hungry.
That’s right: JPMorgan Chase processes food stamp benefits for the government in 24 states and makes a neat bundle doing so. As the number of people using food stamps goes up, so do the bank’s profits. Furthermore, to make even more money off the poor, JPMorgan Chase has been known to outsource food stamp debit card calls to India, whose workers can make three and a half bucks an hour answering questions from poor people in this country.
It’s all legal, it’s how the system works. But it says something, don’t you think, about the contradictions of modern state capitalism?
ERIC HOVDE: Hi, I’m Eric Hovde…
BILL MOYERS: And so does a comment made the other day by the Republican candidate for the Senate in Wisconsin, Eric Hovde.
After calling for a cut in the corporate tax rate even as he advocated austerity measures to reduce the deficit, he instructed the press to stop covering stories about low-income people who can’t get benefits and start writing instead about that deficit.
ERIC HOVDE: I see a reporter here. I just pray that you start writing about these issues. I just pray. You know, stop always writing about, oh, the person could get, you know, their food stamps or this or that. You know, I saw something the other day – it’s just like, another sob story, and I’m like, but what about what’s happening to the country and the country as a whole? That’s going to devastate everybody.
BILL MOYERS: A good thing Sister Simone Campbell wasn’t passing through town at that very minute, or Eric Hovde might have really had to pray – for his own soul. Sister Simone is leading a group of Roman Catholic nuns on a bus trip across nine states, trying to call attention to the poor and hungry. They’re challenging not only the Vatican, which has been critical of American nuns for their spirit of independence, but also Congressman Paul Ryan, another Wisconsin Republican. He’s invoked his own Catholic faith to justify his proposed federal budget that cuts help for working families and the poor.
PAUL RYAN: Our budget offers a better path, consistent with the timeless principles of our nation’s founding and, frankly, consistent with how I understand my Catholic faith.
BILL MOYERS: The nuns paid a call earlier this week on Ryan’s district office in Janesville, Wisconsin.
SISTER SIMONE CAMPBELL: We just had a very lovely conversation with Congressman Ryan’s staff. We gave her the faithful budget and we mentioned our concerns about the budget that Congressman Ryan proposed.
BILL MOYERS: Producer Andy Fredericks is traveling with the nuns on the bus and filing reports on our website, BillMoyers.com.
Meanwhile, for anyone who wants to understand why, in one of the richest nations in the world, millions of people, even those with jobs, are teetering just a medical bill or missed paycheck from disaster – here’s a book that’s must reading: So Rich, So Poor: Why It’s So Hard to End Poverty in America, by Peter Edelman.
For more than forty years, no one has fought harder or longer to keep poor people on the political agenda. Except, possibly, Peter’s wife, Marian Wright Edelman, head of the Children’s Defense Fund. They met when he worked for Senator Robert F. Kennedy and she guided them through the Mississippi Delta as they investigated first-hand the devastating conditions under which impoverished children and their families lived. Peter Edelman helped shape legislation to ease poverty around the country, and was a top official in President Bill Clinton’s Department of Health and Human Services. He famously resigned when Clinton signed the 1996 welfare reform legislation.
Peter Edelman teaches at Georgetown University and is faculty director there of the Center on Poverty, Inequality, and Public Policy.
PETER EDELMAN: Thank you. I’m so glad to be here.
BILL MOYERS: Let’s indulge in a little bit of nostalgia.
PETER EDELMAN: Sure.
BILL MOYERS: Because 50 years ago, you and I were part of the same era. I was a young White House assistant for Lyndon Johnson working on some poverty issues. And you were a young assistant to Senator Robert F. Kennedy when you made that celebrated tour through Mississippi.
You seemed absolutely shocked, you and Robert Kennedy, and the party that went with you, seemed absolutely shocked at what you found. What did you see?
PETER EDELMAN: We saw children with in the United States of America, with swollen bellies, with running sores that wouldn’t heal…
ROBERT F. KENNEDY: Have they had any lunch?
PETER EDELMAN: Who had something meager for breakfast if that, were not going to have any lunch, whose refrigerators were empty in their houses. They had been forced off the plantations as a political matter because of the fear of increasing black political power.
BILL MOYERS The governor of Mississippi then was pressuring the White House to cut off assistance to the children’s program that was going, because he feared the people working in it, the poverty, anti-poverty workers would encourage the civil rights movement. Do you remember that?
PETER EDELMAN: Absolutely. That’s why we went down there. This was in the spring of 1967. And the Mississippi political hierarchy saw the Head Start Program as a political threat. A group of doctors went down there a month or two later and examined hundreds of children. And found, not just pernicious anemia but rickets, and kwashiorkor and marasmus. Diseases that you only find in the most underdeveloped of countries were there in the United States.
BILL MOYERS: I remember so well when CBS sent cameras following you. Subsequently one of the CBS News reports showed a child dying from malnutrition on camera. And the racist chairman of a very powerful committee from–
PETER EDELMAN: Yeah. Jamie Whitten.
BILL MOYERS: Jamie Whitten from Mississippi was outraged about that. And he launched an investigation to see if he could find out if that scene had been staged.
PETER EDELMAN: Absolutely. Sent the F.B.I. to find out. It’s hard to know what was obviously in the head of Jamie Whitten and others. Because these things do have a serious political aspect to them but. BILL MOYERS: Were we naïve to think that we could make a lot of progress given the political opposition?
PETER EDELMAN: I don’t think we were naïve. I do think that the ’60s in retrospect were a very unusual decade in American history. We still had the optimism of having freed the world from fascism. And so there was a sense that America could accomplish anything. And then the civil rights movement came along particularly the men who had served in the war and came home to find the same segregated conditions.
And the young people who had the sense of that maybe from their parents who went out and were active. So I think that the combination of the civil rights movement pushing on President Kennedy and then on President Johnson, and the leadership that came particularly from President Johnson was a tremendous and unusual combination.
BILL MOYERS: You could not have imagined then, I suppose, that half a century later, you’d be writing a book with the title, “So Rich, So Poor: Why It’s So Hard to End Poverty in America.”
PETER EDELMAN: I could not have imagined it. I thought onward and upward and now there’s so many things that happened that we didn’t foresee. And it’s not just that there was the political change of Richard Nixon. The fact is that Richard Nixon was the first president who ever sent a message about hunger to Congress.
And many things that we had wanted actually happened under President Nixon. So we still looked like we were doing pretty well about these issues, housing vouchers, and the expansion of Medicare and Medicaid. Long list of things on into the ’70s. But the economy caught up with us.
BILL MOYERS: How so?
PETER EDELMAN: So the manufacturing jobs went away, the good paying jobs that had created much of the black and other middle class in this country, and started to be replaced, at least they were replaced, by this wave, this ocean of low-wage jobs that we have. So that’s really at the heart of the change.
And then of course the country went in a very different direction politically. The disillusionment of Vietnam, the disillusionment of Watergate, the loss of trust in government, all those things. And part of that was a kind of maybe unconscious or subconscious sense that people were in tougher, tougher economic straits. And I’m not just talking at the very bottom. I’m really talking about the whole lower middle. And they weren’t getting any help to see themselves moving forward.
BILL MOYERS: Well what about today? You’ve got Barack Obama and Mitt Romney who are going to, are facing off each other this election, and both of them seem to not know that the word “poor” is in their political vocabulary.
PETER EDELMAN: Well, we have to say about Barack Obama. He gets elected. And when they go for having health insurance for our whole country, they added 16 million people to Medicaid. That’s phenomenal.
BILL MOYERS: Under the Affordable–
PETER EDELMAN: Under the Affordable Care Act–
BILL MOYERS: Sixteen million–
PETER EDELMAN: Sixteen million people, 18 to 64 year olds who had been completely left out of Medicaid from the time it was enacted in 1965. And that had never been fixed. So if you look at the 45 to 50 million people who didn’t have healthcare, a big chunk of them were lower income adults. We added children up to the age of 18.
And then in the stimulus legislation, in the Recovery Act, the president put in there, probably 30 percent of the money was about low-income people, was helping low-income people. So, his record is good.
BILL MOYERS: So it’s not as if nothing has been done since you and I were in our early 30s, right?
PETER EDELMAN: That is absolutely correct–
BILL MOYERS: I mean, Medicaid, earned income tax credit, children’s tax–
PETER EDELMAN: Yes.
BILL MOYERS: –credit. A lot of programs have been inaugurated and funded.
PETER EDELMAN: And food stamps.
BILL MOYERS: Food stamps, right.
PETER EDELMAN: And so those programs added together are keeping 40 million people out of poverty. So somebody says, “Nothing works,” give me a break. These are successful policies. Now the next question then is okay, well 40 million people who would be in poverty, but why is the level of poverty prior to the recession about the same as it was during it’s the most success, 11.1 percent poverty in 1973, 11.3 percent when Bill Clinton leaves office.
We’re now up to 15.2 percent. So just take those two, 1973 and 2000 about the same, and there are all these programs that works. What’s with that? It’s about these changes that we’ve already talked about a little bit in the economy. Where there are all these low-wage jobs, and people can’t make it. And then the other things that changes in the composition of the family. And we have to put that on the table. There are so many more women who are raising children on their own. And lots to debate about, about why that is. It’s a worldwide phenomenon.
BILL MOYERS: Yes, you list country after country where whose rate of single motherhood or children born out of wedlock higher than here.
PETER EDELMAN: Yes. Yeah, I certainly want people to understand that. I certainly want people to understand that the rate in the United States in the white community, in the Hispanic community, it went up everywhere. It went up most in the African American community. Although it actually steadied off about the end of the 1970s and kept going up in the white and Hispanic communities.
But the economic point is all of those women trying to raise kids on their own, when the jobs that they can get are not enough for a single wage earner to feed a family fully. And so that’s what started to happen in the ’70s, and is essentially been happening ever since. The 40 million people who are being kept out of poverty, that’s great. But that just kept us even. And now we’ve been losing ground heavily, horribly over the last 11, 12 years.
BILL MOYERS: And then came of course the great crash in the fall of 2008, the recession that followed it. Is that why you conclude in the book that we’re actually heading in the wrong direction and you’re not optimistic at the moment?
PETER EDELMAN: It’s not just the recession, because the, presumably we come out of recessions. The central tenet of any anti-poverty strategy is work. Is having the job. You need to arrange the incentives and arrange the policies so that you clearly are favoring work. But everything that goes with it, having the child care making it possible to succeed. But what I’m worried about is the longer term continuance of this plethora of low-wage jobs. Of the inability of people at the bottom, and not just the poor, I’m talking about the whole lower half. The way the median wage absolutely stagnated beginning 1973. The economy grew over the last 40 years basically doubled in size. And the entire lower half got none of that. The median wage- went up 7 percent in 40 years. A fifth of a percent a year.
BILL MOYERS: And right now it’s what in this country?
PETER EDELMAN: $34,000 a year or less.
BILL MOYERS: And how many people are making $34,000 or less?
PETER EDELMAN: You’d be talking about 75 million, something like that.
BILL MOYERS: And a quarter of all jobs, I read in your book, pay less than the poverty line, which is what?
PETER EDELMAN: $22,000 for a family of four.
BILL MOYERS: So 25 percent of this country is living on that little money?
PETER EDELMAN: If they have only one wage-earner in the household.
BILL MOYERS: What does that say to you?
PETER EDELMAN: It says that there’s something wrong. It says that where there’s a really wealthy country, and we had growth from 1973 to now, and it all went to the people at the top. That’s why this book is “So Rich, So Poor.” Because you can’t look at the poor in isolation. You got to look at the inequality as well.
BILL MOYERS: I when I finished reading it, Peter, I had to ask myself if the word “democracy” still describes America, given what you underscore as the huge chasm between rich and poor. Do you think democracy still describes our political system?
PETER EDELMAN: I think we’re really at great risk particularly with Citizens United–
BILL MOYERS: The Supreme Court decision–
PETER EDELMAN: The Supreme Court decision that lets the corporate money flow in like water. But there’s increasing power of the wealthy and of special interests that particularly begins in 1973. That’s a real turning point year. And they figured out during Nixon that they needed to have much more of a play, much more sway in politics.
And they organized themselves to do that in a way that they hadn’t between World War II and then. And so they start winning politically and reinforcing themselves. And I think we’re been in a kind of vicious circle where they reinforce themselves, they’re in a stronger position, et cetera. And that’s the fundamental worry, is that our democracy is really at stake.
BILL MOYERS: So what’s your, what do you explain to yourself as you’re sitting there thinking about this, is the motive for continuing to accumulate such great wealth even though all around them, the society, the infrastructure, the school system, public parks, and the plight of the poor?
PETER EDELMAN: I think it’s the short-sidedness of the balance sheet. Now, that can’t be all of it. It’s, there’s also some kind of ideological thing, or attitudinal thing that goes with it. But everything in the corporate world is short term. How did you do in the last quarter? And if you thought about it in the longer term and said, “Over the longer period of time, we really will make more money if we have more people who are included in the economy,” they just don’t think that way.
BILL MOYERS: You say the challenge is to get people in the middle to understand which side of the line they are on.
PETER EDELMAN: Yes.
BILL MOYERS: What do you mean which side–
PETER EDELMAN: I mean that they are in the position of really holding the short end of the stick. And they don’t have any purchase, they don’t have any hand-hold to get onto the longer end of the stick. They’re stuck where they are. And I just don’t really foresee a major change. Well if that’s true, beyond raising the minimum wage, which we need to do, although that’ll only take us so far.
Because after a while, it does have a negative effect on jobs. Really investing in the kind of work supports that a socially responsible country does, the healthcare, the childcare, the help with housing, the help with the secondary education. Those things are all income equivalents. Those all effectively add to income.
And then we have the Earned Income Tax Credit for low-income families that have children. It’s that area where we need a public discussion. We have to be talking, I think, as these years unfold here about wage supplements. If we’re going to have a fairness in this country that doesn’t just leave half the country to sit in a stagnated place, we’re going to have to talk about how do we raise their income so they can make ends meet? It’s not just poverty. It’s all the way up to the middle.
BILL MOYERS When you talk about a wage supplement, income supplement for people who are making so little money even though they’re working that they can’t live a decent life, you’re running right into that buzz-saw of a word “redistribution.” And you know, you hear Mitt Romney and others saying today.
MITT ROMNEY: In a merit-based society, people achieve their dreams through hard work and education, risk-taking, and even a little luck […] In an entitlement society, everyone receives the same or similar rewards, regardless of education, effort, and willingness to take risk. That which is earned by some is redistributed to the others. And the only people who truly enjoy real rewards are those who get to do the redistributing, government. The truth is that everyone may get the same rewards under that kind of system, but virtually everyone will be worse off.
BILL MOYERS: And that’s a real force in the minds of many ordinary people around this country. They just don’t believe in “my working hard to make money and paying taxes to provide somebody else with money who isn’t working hard.”
PETER EDELMAN: Uh-huh.
BILL MOYERS: That’s a reality. You understand that–
PETER EDELMAN: Oh, I certainly do.
BILL MOYERS: How do you overcome these built-in deep concerns about people that “Others are getting away with something I’m not?
PETER EDELMAN: We need more people who will stand up in one way or another. We, I don’t mean to say that I have a formula for a public education curriculum a massive expression by public intellectuals, a clear mobilization of individual people being organized at the local level.
I just know that what we need to do is to have other people who stand up and say, “You want to call this redistribution? That’s what you call it. I call it economic justice. I call it fairness. I call it being fair to the people in this country who are being absolutely screwed by the way things are set up. And you ought to think about the fact of why it is that we have half the people who have jobs where their wages have barely moved the needle over a 40 year period.” We need people to talk back to that.
BILL MOYERS: You resigned, as famously known, from the government, in protest over President Clinton signing the new welfare law, Welfare Reform, ending welfare as we know it, as he said, in his political speech in New Hampshire–
PETER EDELMAN: Yes.
BILL MOYERS: –in the year he was running. And you say there was something wrong with welfare when Bill Clinton became president.
PETER EDELMAN: Yes.
BILL MOYERS: What was wrong with it?
PETER EDELMAN: What was wrong with it is that it did not, it had not ever said to people “We really need for you to get out and get a job and earn money. And we will do that in have a policy in a way that we will help you do that. But we’re not going to just let you sit there and stay for your whole life on welfare.” If you look at the some of the families, particularly at that period of time, they had essentially gotten too used to having that check.
And 14 million people, which is the number that were on welfare when Bill Clinton took office, that was too many. We didn’t have sufficient economic crisis on our hands that there were people lined up because it was a recession, it was just because we had gotten soft about it.
BILL MOYERS: Culture of dependency?
PETER EDELMAN: Well, I don’t like the terminology, but I’m afraid that’s, find the right words, and that’s what we’re talking about, yes.
BILL MOYERS: Why did you write that article in Atlantic saying the worse thing Bill Clinton has done because–
PETER EDELMAN: Because they–
BILL MOYERS: –it had its problems.
PETER EDELMAN: They did exactly the wrong thing. I said in that article that welfare needed to be fixed. But what they did is they said one size fits all. Everybody just go look for a job. They said it’s a block grant to the state. What that means is the state can, doesn’t have to help anybody. Which proved itself in the recession, you know, food stamps up to 46 million, welfare 3.9 million to 4.4 million.
Why? Because you go to a welfare office and they say, “You look healthy, go look for a job.” “What job?” “Oh, we’re not interested in hearing about that.” So they took away the legal right to help, they said the states could, with that block grant, do what they want. And they put in a time limit. Didn’t matter what these circumstances of the family were. It was all a basically punitive approach. And it did not more in the direction of really helping people to get the skills and the supports that they needed to succeed in the workplace.
BILL MOYERS: So the conservative who fought for ending welfare as we know it would say of Bill Clinton signing that legislation, “It worked.” We went from 14 million to four million. And when the recession came, people got food stamp help.
PETER EDELMAN: And six million of them got only food stamp help and that income is one-third of the poverty line. That’s a pretty blindfolded, myopic way of looking at it, to say that that means that it worked. What that means is that it did not work. And that in the time when you really, really you know, incontrovertibly ought to help people, because you have 9 percent, 10 percent unemployment in the country, there’s no such thing as welfare.
BILL MOYERS: And what’s the consequence of that? What’s the practical therefore?
PETER EDELMAN: The practical therefore is that we have 20 million people who are in deep poverty who have incomes below half the poverty line, below $9,000 for a family of three, and we have ripped the safety net down to having only the food stamp to it, at the very bottom. And that it means that you, in all of these states that for so many of them where it basically doesn’t exist anymore it leaves people in this incredibly destitute position. That’s what it means.
BILL MOYERS: The book is “So Rich, So Poor: Why It’s So Hard to End Poverty in America” and I think it’s must reading. Peter Edelman, thank you for being with me.
PETER EDELMAN: Thank you, Bill
BILL MOYERS: At our website, BillMoyers.com, there’s more about poverty in America and the nuns on the bus – including an interactive map of their road trip.
That’s all at BillMoyers.com. See you there and see you here, next time.
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