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PRES. BARACK OBAMA: This is a common sense bill. It doesn't do everything that everybody wants. But it moves us in the direction of universal health care coverage in this country, and that's why everybody here fought so hard for it.

BILL MOYERS: Two years ago this month the financial giant Bear Sterns collapsed and Wall Street began to unravel, wiping out millions of jobs, driving millions of people from their homes, and plundering once healthy pension plans. All this time later there is still no reform from Congress. A crippled little bill seems to be hobbling out of the wreckage but still faces an array of well-armed forces gunning for it.

And that's no surprise. In the two recent election cycles, members of the Senate Banking Committee received more than $39 million from Wall Street and the banks; Members of the House Financial Services Committee raked in more than 21 million -so far. So just how serious do you think they're going to be about true reform?

I've invited Gretchen Morgenson back to the Journal to tell me if she thinks there's any chance for real change. She's one of our premier financial journalists -- an assistant editor at The New York Times who also writes the Market Watch column for the paper's sunday edition. Gretchen Morgenson won the Pulitzer Prize in 2002 for her, "trenchant and incisive" coverage of Wall Street. Welcome back to the Journal.

GRETCHEN MORGENSON: Thank you, Bill.

BILL MOYERS: There's a lot of buzz in Washington that President Obama's and the Democratic Party's victory in health care reform has given new momentum to the possibility of financial reform. Do you think we're any closer to real, serious reform?

GRETCHEN MORGENSON: Well, I think that there is this momentum this feeling that they will have the ability to push harder on it. You're so right. It's been this sort of orphan. It's been treated as something that really doesn't look like it's on the front burner at all. And so from that standpoint, I'm glad if we do get momentum. At least to talk about it. But I think that the bills that we have seen have been so half-baked and really do not address some of the crucial elements of reform that are needed if we want to prevent this kind of crisis from happening again.

BILL MOYERS: Do you think it could happen again? The very same thing?

GRETCHEN MORGENSON: Definitely. Absolutely. And will happen again.

GRETCHEN MORGENSON: For instance, the too big to fail problem, the too, the companies that grow to be so interconnected with the financial system and so politically powerful that they cannot be allowed to fail. Which we saw in the crisis with Citigroup, with American International Group, the big insurer and with Bear Stearns which of course was merged into JP Morgan to avoid that failure.

We saw these companies that had been allowed to grow into sizeable, into monsters. And take enormous risks all the while that then the taxpayer had to cover, had to backstop. We are nowhere closer to any kind of technique, strategy to prevent that kind of behemoth from growing again.

BILL MOYERS: What's your explanation for the delay? Why has it taken so long?

GRETCHEN MORGENSON: I think you pointed to it earlier, the money. There is just enormous amounts of money being poured into lobbying in Washington on behalf of the financial services company. $150 million in 2009 went into lobbying from the commercial banks and the investment banks. Now, that doesn't talk about real estate, that doesn't talk about the insurance companies, it doesn't talk about mutual funds. That's just commercial banks and investment banks. $150 million spent lobbying. That is a powerful force. We know that Washington is crawling with lobbyists who are operating on behalf of these companies to make sure that reform does not seriously threaten their profitability.

BILL MOYERS: And but it, the lobbyists are doing, you know, they are the mules in our addicted political culture. They bring the drugs to the users. The users are members of Congress who are politicians. They, you can't have a legal bribe unless there's somebody willing to be bribed. How do you how do they get away with it?

GRETCHEN MORGENSON: Isn't it amazing? And isn't it amazing that these bankers have the temerity to come out of their holes, right, after driving the nation into the drink? I mean, I'm myself have been stunned watching the brazenness with which they are willing to operate now. Just, you know swaggering about town, throwing money at their problems, throwing money at legislators to make sure that they don't have to face a formidable regulatory framework.

BILL MOYERS: What is the psychology of those fellows, who just make that presumption about what they can get away with?

GRETCHEN MORGENSON: I think a lot of it is this culture that we have in this country of idolizing people in positions of power; idolizing chief executive officers, who make enormous amounts of money, try to justify that. Really there's very few people willing to speak truth to power in these kinds of situations. They are surrounded by yes people. They are kowtowed to like rock stars. It's, I think it gets to your head. I think it takes a very unusual person to be able to step away from that and say, "I have to do the right thing, not just for me, but for all the stakeholders in America."

Whether it's the unemployed. Whether it's the shareholders. Whether it's, you know, the consumer. There is a sense that it's no longer, that these people no longer think about the full array of people who, you know, they do have a duty to. They are thinking really only of themselves. And they've been, unfortunately, Bill, rewarded in this episode by being bailed out.

BILL MOYERS: Could their bailouts have been denied without their taking everybody down with them?

GRETCHEN MORGENSON: This is what they argue. This is what the government officials who were overseeing all of these bailouts make that argument. That may, in fact, have been the case. But you see, it is a dysfunctional arrangement that rewards bad behavior, because you're allowing them to privatize their gains. They take the gains when their stock is rising, when their companies are profitable. And, but when they get into trouble, you socialize the losses. The taxpayer has to pay them. So, we have rewarded this kind of dysfunctional behavior. And so, why am I surprised that they swagger into Washington to make sure that nothing changes?

BILL MOYERS: So, what would it take, from your experience, what would it take, to prevent them from doing it again? What should a good reform look like?

GRETCHEN MORGENSON: I think first of all, you have to ensure that companies cannot become too big and interconnected to fail. That has to be primary. Because that is what this entire episode has been about. You have to make it expensive for companies to grow in size and to be in a position to take on very large risks that threaten the entire financial system. You have to increase capital requirements. You have to increase the amount that a bank would pay it if it gets over and above a certain level, a certain size in assets or in some measure. You have to increase the cost of doing business for these entities if they grow too big.

BILL MOYERS: Any evidence that this legislation being discussed this week in Washington contains that kind of reform?

GRETCHEN MORGENSON: Well, it doesn't really contain, my bone to pick, major bone to pick with it is that it does not address too big to fail before it happens. There is some language about how we would unwind these entities. How we would pre-- be better prepared. If they get too big, how we would be vigilant to watch for trouble on the horizon. But there isn't a lot of talk about, "Let's just not get in this position again. Let's just never let these banks, these institutions get to be at the position or point where they can threaten the entire financial system." It's more remedial than prevention. And that, I think, is a mistake.

BILL MOYERS: When you were here in 2007, three years ago, before the big crash, we talked about what Warren Buffett would ultimately call financial weapons of mass destruction. Credit default swaps, other complex derivatives. What's been done to disarm those threats?

GRETCHEN MORGENSON: Nothing. Very little. As you know, credit default swaps were central to the failure of AIG, central to the now $180 billion taxpayer backstop of that insurance company. This was a company that essentially sold insurance policies to banks that if mortgages, mortgage securities failed, they would have to pay.

AIG received premiums from those banks, very small premiums. And were essentially betting that the mortgages would not fail. Well, that was the wrong bet to make, as we now know. And then the taxpayer had to step in and unwind all of those very complex transactions. You would think that after that incident, and who knows where we're going to end up with AIG, what the total bill will be for the taxpayer.

You would think that people might want to say, "Hey, wait a minute, let's make it, let's make sure that that doesn't happen again. That these credit default swaps can't just be bought and sold in, you know, in the dark, which is what they still are. Between two parties. Let's make sure they're at least traded on an exchange, where people can see them. Where their prices can be tracked. Where you can assess the risk. If one company is doing too much of that business, the exchange could, you know, it indicates that. Investors would see that."

This was just a total shock. The extent to which AIG had gotten into this business was a total shock to even the highest level of federal regulators in Washington. So, why are we not talking about putting these things on an exchange?

BILL MOYERS: Yeah, why are we not talking about it?

GRETCHEN MORGENSON: We're not talking about it, because these banks make enormous amounts of money facilitating those trades, creating these swaps for their customers, allowing them to trade, being the middle man. They don't want, they don't want transparency. They want opacity. They don't want people to be able to see what these things are trading at, because at the moment they do then the spreads narrow, the profits come right out of that business. And this is an enormously profitable business for them.

BILL MOYERS: And could this business, unregulated, un-- without transparency bring us down again?

GRETCHEN MORGENSON: Yes. Absolutely. Now, what they have decided to do, what has been proposed is to put them on clearing houses, to make these things trade through a clearing house of some kind, but not all of them, only the most simple. Now, none of these things is simple. But the most kind of what they call plain vanilla. And so, the more exotic things where I make an agreement with you to buy or sell something, some stream of income, those would not ever be done on a clearing house. So, you're still going to have an enormous amount of this stuff trading really behind the curtain. And without the knowledge of very you know, any regulatory organization.

BILL MOYERS: What about the proposed legislation for a Consumer Financial Protection Agency that would monitor the banks and the lenders to see that the ordinary person is protected, the ordinary consumer is protected? Are you for that?

GRETCHEN MORGENSON: Well, I think it could help. I felt all along, Bill, that it wasn't that we needed more regulation. We needed regulators with an appetite to regulate. We had plenty of regulations on the books about mortgages, about products, practices, no one was enforcing it.

I mean, you have to have the DNA of this agency, of the people running it, from the very top on down, has to be a pro-consumer, an unwillingness to be captured by the industry they're overseeing, which completely occurred at the Fed, at the Office of Thrift Supervision, the controller of the currency. All of these entities that were supposed to be monitoring the banking system for this kind of thing, for these kinds of problems were enthrall to the banking system. So, I would hope that if we are going to institute one such an agency, that you would staff it with people who actually want to do that. But we have such a dismal, woeful record on this that it's hard to imagine.

BILL MOYERS: What about the proposal that some people are making to put it with the Fed, with the Federal Reserve? Isn't that a contradiction? Because the bank Fed is concerned with banks, not with consumers, right?

GRETCHEN MORGENSON: Exactly. And the Fed, honestly, hasn't had any pro-consumer DNA in its system since the early 1990s. It's really not in that game at all. And so, to house an agency at-- in the Fed, which was you know, the entity that was pushing for relaxing capital requirements at the banks. That did nothing to prevent these exotic mortgages from being made and dispensed, you know, in the billions and billions. So you know, I would be hard pressed to understand how that particular entity is really going to get religion, shall we say, on the consumer, you know, protection world.

BILL MOYERS: Let me show you an ad that the Chamber of Commerce ran aimed at the Consumer Financial Protection Agency. Watch this.

WOMAN: Americans are losing sleep over this economy. Especially small business owners, worrying about payroll and mounting bills. Now Washington wants to make it worse, with the CFPA, a massive new federal agency that will create more layers of regulation and bureaucracy. The CFPA will make it harder for small businesses to access credit. Small businesses work too hard to suffer further. Urge congress to stop the CFPA. Go to StopTheCFPA.com.

BILL MOYERS: What do you think about that?

GRETCHEN MORGENSON: What's interesting about that ad, Bill, is that it takes two completely separate things and melds them together. There is a problem for small businesses right now. They can't get money from the banks who will not lend to them, okay? So, I have sympathy for the small business owner. And small business drives America and drives employment in this country. So, yes, they are beleaguered. But they are not beleaguered because of a consumer protection finance agency. They are beleaguered because the banks took too many risks and are now withdrawing from the market and will not lend to them. So, it's very clever. It's very sophisticated. It's cynical. To talk about the poor beleaguered small business owner who exists and then to make them feel like this thing, this consumer finance agency is going to add to their burden. It's ludicrous. But it taps into a very real problem in this country, which is that small businesses cannot get money from the banks.

BILL MOYERS: And why can't they?

GRETCHEN MORGENSON: Well, they're too busy well, you know what happens. Whenever you have a problem, whenever you have a credit crisis, the banker who was so willing to lend to a person who didn't even have a pulse to buy a mortg-- to buy a home, now will not lend to somebody who, you know, has a very good business and simply needs money to, you know, make payments for inventory, for example.

It-- the banker lends you the umbrella and then asks for it back when it rains. So, it's raining, they're asking for the umbrella back. So, yes, there are small business people who are in terrible condition. And my heart goes out to them. Because they do really, it's America is very dependent on these people to create jobs. And to, you know, provide tax receipts. But they can't get money from JP Morgan, from Citibank, from all of these banks that made all these mistakes. That's the problem they're having.

BILL MOYERS: You mean the taxpayers cannot get their money back, because the taxpayers put up the money to bail out these companies?

GRETCHEN MORGENSON: Right. There are so many paradoxes--

BILL MOYERS: Yeah.

GRETCHEN MORGENSON: --in this mess.

BILL MOYERS: For example, that propaganda by the Chamber of Commerce, and it is propaganda. How do these reform groups counter that? How do they reach the ordinary citizens? With that kind of distinction you just made?

GRETCHEN MORGENSON: It's a very big problem, Bill. We don't, you know, many people don't have a voice. I think that the frustration that you sense, that I sense, that a lot of people feel out there about this lack of reform and about the banks being in control and sort of, you know, lording it over Washington, really comes from a sense that there's no outlet for their rage and their anger. They don't have a lobbying organization to go to Congress and say, "What about these millions of people over here? This one who just lost their job. This one who just lost their house. This one who has a credit card bill that you know, at a 28 percent interest rate." They're voiceless and they feel powerless. And it's frustrating and it makes them angry. And I don't blame them.

BILL MOYERS: Senator Chris Dodd who chairs the key Senate Committee on Banking has taken so long to move any legislation toward reform that Jon Stewart's been having some fun with it. Take a look.

SEN. CHRIS DODD: First the legislation will end too big to fail bailouts.

JON STEWART: Wait, we hadn't done that already?

SEN. CHRIS DODD: This legislation will create an early warning system.

JON STEWART: We don't have an early warning system? It's taken you idiots two years during the worst financial collapse since the Great Depression to compile a list of regulations we should have put into place the next day? Well, better late than never, I guess. At least now we can have the legislation that would stop the next crisis from occurring.

SEN. CHRIS DODD: This legislation will not stop the next crisis from coming.

BILL MOYERS: He's saying what you're saying.

GRETCHEN MORGENSON: Yeah, well.

BILL MOYERS: What about Senator Dodd and his Committee. Senator Dodd for years was a big recipient of Wall Street money. He was very close to them. What do you think about him and that committee? Can we rely on them to do the right thing?

GRETCHEN MORGENSON: No. In a word. I think one thing that goes back into a little bit of ancient history which tells us what we need to know about Senator Dodd is that in 1991, when the government was creating new legislation to make it easier for the Federal Deposit Insurance Corporation to unwind failed banks, this was right after the savings and loan crisis, there were a lot of failed banks. This was a way to make sure the FDIC would unwind these institutions at the lowest cost to the taxpayer. It was a good legislation in many ways. But there was an amendment that Senator Dodd introduced that was attached to this legislation that expanded the cast of institutions that could call on the Federal Reserve's emergency backstop powers. If they were ever to get into trouble.

BILL MOYERS: And what did that mean, practically?

GRETCHEN MORGENSON: It meant that no longer would it just be limited to commercial banks, that the Fed could backstop commercial banks if they got into trouble, with its emergency powers. Now it could be extended to noncommercial banks. That could include insurance companies. That could include investment banks. So, this is a guy who was instrumental in a very quiet way, nobody really paid attention at the time, a couple of academics did, expanded the too big to fail crowd. Now, I don't pretend to think that he knew this was coming.

BILL MOYERS: No, no.

GRETCHEN MORGENSON: Nobody knew it was coming. But it is an interesting fact that his-- this was his amendment.

BILL MOYERS: He's in charge now of reform.

GRETCHEN MORGENSON: Right. Now, maybe he, you know, regrets that. I don't know. Maybe he didn't understand the meaning of what it would do or whatever. But now we have lived with the consequences of the expansion of the safety net for the too big to fail institutions. It was an unpleasant, unsavory, costly episode we would like to not have to live through again. But I think that, you know, you look at what a person does over their career. And, you know, more than what they say.

BILL MOYERS: Isn't the problem also not only that members of Congress get big contributions from the industry, but that the administration is now populated by people who were in private on Wall Street at the time all of this happened? And now they've been put in charge of policing it. It's almost like putting the arsonist in charge of the-- making him your fire chief, right?

GRETCHEN MORGENSON: Don't get me started on that.

BILL MOYERS: Why?

GRETCHEN MORGENSON: It's so true. I mean, you all of the people who did not want to regulate derivatives are in positions of power. Larry Summers. You know, now Gary Gensler who is the head of the Commodities Futures Trading. I think he's had a change of mind. And wants to really let you know, regulate these things. But, Timothy Geithner, our Treasury Secretary, was on the scene of all of this extreme growth and risk taking. Was running the New York Fed. Countenancing all kinds of risks that were taken at Citigroup, which was under his purview. You know, it's troubling that we have the very same people who were really on the scene of this disaster. You just don't get a sense that they are really and truly reformers in, you know, the true sense of the word.

BILL MOYERS: Well we will be watching what happens and reading what you write about it. Thank you very much Gretchen Morgenson for being with me again on the Journal.

GRETCHEN MORGENSON: My pleasure.

BILL MOYERS: Listening to a seasoned reporter like Gretchen Morgenson talk about how money overrides reform calls to mind that wicked old curmudgeon and satirist from the last century, Ambrose Bierce, who described politics as "the conduct of public affairs for private advantage." That was long ago but in an eerie way he was forecasting America's perverse political culture today. It seems like every effort to reform a system that's gone awry ends up benefiting the very people who wrecked it in the first place, which is why in his classic little book The Devil's Dictionary, Ambrose defined reform as "a thing that mostly satisfies reformers opposed to reformation."

So as we heard earlier, the new health care reform bill will hand the insurance industry up to 32 million new paying customers in the years to come, protecting their profits, feeding the insatiable greed of their C.E.O.'s and filling the campaign coffers of the politicians they wine and dine. The drug companies bought their protection before the fight even began, when the White House agreed that if they supported reform - reform, not reformation - they could hold on to their monopoly...no imports of cheaper drugs from abroad, no prescriptions filled at a lower price by our Canadian neighbors to the north.

As for financial reform, well as you heard Gretchen Morgenson say, a year and a half after Wall Street brought us so close to fiscal hell we could smell the brimstone, we still don't have reform. Senator Chris Dodd has sounded like a champion of reform ever since he announced he will not run for reelection. About time. Since 2005, his top ten campaign contributors have included Citigroup, A.I.G., Merrill Lynch and the now deceased Bear Stearns, all front-line players in bringing on the financial calamity.

Then there are the Republicans, shamelessly hawking their favors en masse to the highest bidder. The website Politico.com reports that the re-election campaign of Tennessee Senator Bob Corker - who's one of the key negotiators on financial reform -- sent an e-mail to Wall Street lobbyists soliciting contributions of up to $10,000 for a chance to meet or even grab a meal with the senator. Informed of the e-mail, Corker was shocked, shocked, saying it was, quote, "grotesque and inappropriate."

But did House Republican leader John Boehner think it was inappropriate last week when he advised the American Bankers Association to fight back against new rules and regulations?

This is of course the same John Boehner who in the summer of 1995 walked around the floor of the House of Representatives handing out checks to his fellow Republicans - checks from a tobacco company mind you. I'm not making this up.

So wouldn't we like to have been a fly on the wall earlier this year, when John Boehner sat down for drinks with Jamie Dimon, the C.E.O. of JP Morgan Chase. Reportedly he invited the financial community to pony up the cash and see what good things follow. It's the political version of loading the dice to make sure you win in the game of reform.

I'm not sure what Ambrose Bierce would say about the scam but I think he might agree that the only answer to organized money is organized people.

That's it for the Journal but the debate goes on at our website on pbs.org. Just click on Bill Moyers Journal. You'll find there just who's fighting financial reform - and how much cash they're spreading around to do it. That's all at pbs.org.

I'm Bill Moyers and I'll see you next time.

Financial Journalist Gretchen Morgenson

March 26, 2010

Even as the ink dries on health care reform, President Obama has turned his attention to another major legislative push — regulating the financial industry. Eighteen months after the most recent financial crisis, reform is finally moving as the Senate prepares to debate Senator Chris Dodd’s bill in the coming weeks.

But will the bill actually do any good? To understand whether Senator Dodd’s bill will do enough to prevent another meltdown, and to find out how ordinary people can follow the debate, Bill Moyers talks to Gretchen Morgenson, a financial journalist and assistant editor at the New York Times. Morgenson, who first began writing about Wall Street’s excessive risk taking well before the last crisis, doesn’t believe the major bills currently before Congress do enough to regulate Wall Street. As she tells Bill Moyers, “I think that the bills that we have seen have been so half-baked, and really do not address some of the crucial elements of reform that are needed if we want to prevent this kind of crisis from happening again.”

At issue for her is allowing banks to grow “too big to fail,” a size so big that they can present a risk to the whole economy. To reduce the size of banks, Morgenson argues, “You have to increase capital requirements. You have to increase the amount that a bank would pay if it gets over and above a certain level, a certain size in assets or in some measure. You have to increase the cost of doing business for these entities if they grow too big. Put the money that they pay into an FDIC type of an insurance fund. But you do have to make it costly. That’s something these people understand.”

Lobbying the Bill

Getting meaningful reform is often easier said than done in Washington, where lobbyists far outnumber legislators, and many legislators rely on wealthy industries to fund their campaigns.

Last November, the Center for Responsive Politics (CRP) published a seven-part series on the power of the financial services lobby, Crossing Wall Street. Since 1989, they report, the finance, insurance and real estate sector has been the largest single contributing sector to Congressional campaigns — contributing $2.3 billion in that period.

And the flow of money isn’t stopping. As the report notes, “Despite a moribund economy, the financial industries that have enjoyed relatively little regulation over the years continue pouring big money into ensuring the government’s control over them remains limited.” In fact, they seem to have increased their spending. Since the beginning of 2009, the finance, insurance and real estate sector has spent more than $500 million on lobbying and campaign contributions.

As you follow the debate over reform, you can continue to track the financial industry’s lobbying and campaign donations on the Center for Responsive Politics’ Web site, OpenSecrets.org.

About Gretchen Morgenson

Gretchen Morgenson is assistant business and financial editor and a columnist at The New York Times. She has covered the world financial markets for the Times since May 1998 and won the Pulitzer Prize in 2002 for her “trenchant and incisive” coverage of Wall Street.

Morgenson joined the Times as assistant business and financial editor in May 1998. Previously, she was assistant managing editor at Forbes magazine since rejoining the magazine in March 1996. Before that, she was the press secretary for the Forbes for President campaign from September 1995 to March 1996.

From August 1993 to August 1995, Ms. Morgenson was the executive editor at Worth magazine. As the number two editor, she oversaw all financial coverage. She also wrote an investigative “Full Disclosure” column monthly.

From November 1986 to August 1993, she was an investigative business writer and editor at Forbes magazine. She broke the story of anti-investor practices on the Nasdaq stock market that was followed by Justice Department and SEC investigations. Earlier, she oversaw several Forbes investing sections and their Washington bureau. From January 1984 to November 1986, she was a staff writer at Money magazine.

Morgenson was a stockbroker for Dean Witter Reynolds in New York from September 1981 to January 1984. She began her career at Vogue magazine as an assistant editor in August 1976. By the time she left the magazine in July 1981, she was a writer and financial columnist. She is the author of Forbes Great Minds Of Business, and co-author of The Woman’s Guide To The Stock Market.

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