BILL MOYERS: This week on Moyers & Company, banks and regulators: are they up to their old tricks?

ANAT ADMATI: We are encouraging them to live more and more dangerously. And they tell us it's for our benefit. But we are the ones paying.

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BILL MOYERS: Welcome. It's been six years this summer, believe it or not, but I’ll bet you remember how disastrous the financial meltdown was in 2008, how scared we were -- and angry -- at the banking industry’s blatant negligence, arrogance, and greed. And remember all the guilty CEOs who went to jail for their wrongdoing? Yeah, neither do I.

But maybe you do remember our broadcast last week on which the Nobel prize-winning economist Joseph Stiglitz compared how the government responded during the financial crash to the police mollycoddling a drunk driver:

JOSEPH STIGLITZ: What we did was analogous to we take the perpetrator, the guy who was the drunk driver to the hospital, but we leave the guy that has been hit on the street.

And then we say, oh, by the way, you don't have to pay for any damage that you've done. So even after they paid back the government the real question is who's responsible for all the damage that's been done to our economy? The people have lost their job, that lost their home? The banks haven't paid back a cent of that liability. And that's a real corporate responsibility.

BILL MOYERS: My guest this week is just as outraged as Joe Stiglitz and just as great an advocate for reform – banking reform. Anat Admati teaches finance and economics at Stanford University’s Graduate School of Business and has been at the forefront of the debate on how best to regulate our banks to make them more responsible to the public interest. “Time” magazine named her one of the most influential people for 2014, in part because of this book,“The Bankers’ New Clothes.” Co-authored with Martin Hellwig, reviews have described it as “powerful,” “crucial,” “a call to arms” and “the most important [book] to emerge from the crisis.” Anat Admati, welcome.

ANAT ADMATI: Thank you.

BILL MOYERS: Can what happened six years ago happen again?

ANAT ADMATI: Yes. Because the banks continue, the financial system continues to be fragile and the banks continue to live dangerously. And when you speed at 100 miles an hour, you might explode and harm other people.

BILL MOYERS: And that's what they're doing, 100 miles an hour, despite the fact that we thought after the crash that we had learned some lessons; we were going to have a discussion and institute some reforms that would prevent it from happening again?

ANAT ADMATI: We have a tweak, is what we have. We have some tweaks. We have messy, unfocused efforts. But we haven't really gotten to the heart of the matter and really managed to control this system effectively.

BILL MOYERS: But as you surely know, the bankers tell us, not only do we have a safer system, but it's getting even better as reforms are put into place. You look skeptical.

ANAT ADMATI: Well, they are truly trying to confuse people with their narratives. They just-- either speaking a language that nobody can understand, or they say things, sometimes, that are completely wrong. And sometimes they're just misleading.

But if you step back and look at the system, it's very fragile. It's one of those systems that's like a big house of cards. You touch it, stuff can happen fast. And it's far from any system that we would think of as reasonably stable, able to support the economy, all of that.

BILL MOYERS: You made that point in your TEDx talk. That the average US corporation relies on 70 percent equity and earnings. A company like Google, however, maintains 94 percent equity and borrows little. Banks, on the other hand, live on borrowed money and maintain very little equity— five percent. So when banks are over leveraged, and interconnected, and loans go bad, everything can topple, and there is poor old Uncle Sam trying to keep whole system from collapsing. And are they still taking these risks?

ANAT ADMATI: Oh, enormous. And by any measure of exposures to derivatives and the amount of debt versus their own money that they have, by most of these measures, it's incredibly distorted and dangerous.

BILL MOYERS: I learned from you that two years before the financial crisis, the average size of the top 28 banks was $1.35 trillion five years ago. The average size last year, $1.7 trillion. And you say these too big to fail banks are particularly reckless and dangerous.

ANAT ADMATI: Look at them. They've basically become above the law. The people in them are able to do things that most other corporations would worry more about them doing because they can benefit from upsides all through the chain. And their creditors don't worry enough, as much as other creditors would worry. And the downside eventually is everybody. So, by just taking the risk, they're able to pass on some of their costs to other people. That's kind of how it works for them.

BILL MOYERS: Paul Krugman writes that our economic policy has been “governed by the implicit slogan, 'Save the bankers, save the world.'" That's the argument that banks have been making. Meaning that if we restore confidence in the financial system, prosperity will follow. And you're skeptical?

ANAT ADMATI: I'm very skeptical because there are very unhealthy corporations. The notion that what happens to them, all the Geithner spin, you know, we were just here to save them so that they'll save you, yes. So most people, including myself, don't argue with the fact that you don't want the system to implode because it'll be very disruptive, the way it was in the Depression. But it does not mean that you get back in the car and drive it 100 miles an hour. And right now, as we speak, the regulators are making the same mistakes they made right before the crisis.

BILL MOYERS: What do you mean?

ANAT ADMATI: They're allowing the banks to remain incredibly opaque and-- indebted and interconnected so that they can harm us again.

BILL MOYERS: You mentioned Tim Geithner a moment ago. Jon Stewart interviewed the former Treasury Secretary last month, and Tim Geithner tells Stewart that the mistake that led to the economic crisis wasn't in the toxic mortgages and the sub-prime loans the banks were hustling. Here's what he says.

TIM GEITHNER in The Daily Show with Jon Stewart: There was a lot of fancy stuff that people didn't understand […]Yeah, sure, at the margin it made things a little worse. But it wasn't central to it. The central was the core--

JON STEWART in The Daily Show with Jon Stewart: I would suggest that that drove the entire boom--

TIM GEITHNER in The Daily Show with Jon Stewart: No. It's not-- it's not true--

JON STEWART in The Daily Show with Jon Stewart: When guys start bundling this and making the money, so the subprime loans, there's a rush to get in on that business.

TIM GEITHNER in The Daily Show with Jon Stewart: Look--

JON STEWART in The Daily Show with Jon Stewart: You don't believe the money people were making in derivatives and securities drove people to make more of these subprime loans, bundle more of them into derivatives and securities, collateralize it, and continue and start to swell this thing out. That was the bubble.

TIM GEITHNER in The Daily Show with Jon Stewart: That happened. A lot of premature lending happened, a lot of bad stuff happened. And--

JON STEWART in The Daily Show with Jon Stewart: Yes.

TIM GEITHNER in The Daily Show with Jon Stewart: --that was, I mean, sure, making it worse, but it wasn't the core cause. The core cause of this was a much more simple thing.

JON STEWART in The Daily Show with Jon Stewart: Which is?

TIM GEITHNER in The Daily Show with Jon Stewart: Which is that a level of confidence that it's safe to take on this risk and leverage because people did not assume it was possible for this country to face the risk of a great collapse and recession and panic. People didn't think house prices would fall. ANAT ADMATI: He's wanting to blame some confidence and all of that. In fact, a lot of risk was taken. Bad decisions were made. And he allowed that. Should've watched this system, where the risks were so obvious, so obvious to so many people, except for these blind regulators. And to just say, oh, it was just panic, just panic. Well, the panic was for a reason.

BILL MOYERS: He seems to be saying, well ordinary people took part in this bubble. They had confidence that the loans they were taking out, they'd be able to repay. And they're partly to blame.

ANAT ADMATI: Well, for every borrower, there's a lender. And in the case of the homeowners, you have to ask, why did the banks lend them so much, and with what money did they lend them? As it turns out, they lent on mountains of borrowed money themselves. And they, themselves, as borrowers, we didn't have anybody watching over them, as they're all watching, supposedly watching, over the other borrowers. So standing in the middle of this system, they-- if they want to, they can be tough lenders. But, as borrowers, they're completely reckless and nobody does anything about it.

BILL MOYERS: In another part of that interview Jon Stewart reminded him, as you have said, that the bankers haven't really been penalized for their sins. Here's the exchange.

JON STEWART in The Daily Show with Jon Stewart: They have yet to pay any price for it. Forget about Old Testament justice, they haven't paid new age justice for it yet.

TIM GEITHNER in The Daily Show with Jon Stewart: I'm agreeing with you, it's unfair. I'm agreeing we didn't give the measure of justice against that. But I am--

JON STEWART in The Daily Show with Jon Stewart: Complete fairness--

TIM GEITHNER in The Daily Show with Jon Stewart: --I am completely confident, I'm completely confident that the alternative strategy that would've been more comfortable to you at the beginning, you would've cheered us for, you would've loved us for, would've been devastating to the people you're most worried about.

ANAT ADMATI: I'm going to agree with both of them. I'm going to agree with both of them. That's not the right question. So what was the alternative? That's the problem. That's a hostage situation. What are you going to do at the moment? The problem then is, okay, you let the trucks drive at 100 miles an hour and they imploded. And now, you know, there's collateral damage.

The point is, why not a speed limit? Why are we here? Why did we let-- what Geithner is ignoring is that he, as a regulator and as a policy maker, allowed this under his nose, and then didn't do anything about it afterwards. That's the bigger problem there, is that's the people I blame. I watched Occupy Wall Street. And I thought to myself, they don't know where to put their tent. Put your tent in front of the New York Fed. They failed.

BILL MOYERS: How do you get justice when it was a mistake and not a crime?

ANAT ADMATI: Well, there's no-- you can't always get justice. That's the problem. What you need to do is try to prevent the harm. That's my focus. And you can. What's maddening about this situation is how we're accepting this as if it’s some kind of natural disasters have happened to us and we have to live with them. And that's the image they try to portray, that the earth just opened and we were-- we had to send the ambulances. That's the way they tell is. That's the wrong way to view it.

BILL MOYERS: When, in fact, preventative medicine, if the regulators had been doing their jobs--


BILL MOYERS: --would have avoided this calamity.

ANAT ADMATI: They divert attention from their own failure before incidents. That's what's so outrageous about this, is that you can make mistakes, but you must learn. And they did not. And they're still failing.

BILL MOYERS: I'm persuaded by your book, you and Martin Hellwig argue that banks should risk more of their own money and less of everyone else's. Why would they want to do that?

ANAT ADMATI: They wouldn't want to. This is not going to happen voluntarily. This requires regulation. What you have is, for other industries, if you look around, without any regulation and despite the tax code rewards debt over equity for corporations and for buying homes too.

Despite that, no corporation and no regulation gets anywhere near the kind of indebtedness that the banks do. And the banks don't have to be so indebted. Yeah, some of their business is in taking deposits, which is debt. But to get to have 90 percent or 95 percent of the money you're spending be money you made promises on to live on like a tiny equity margin, no corporations live like that without regulation.

In my part of the world, Silicon Valley, a lot of risk is taken. More risk than making loans. Risk in innovation. Risk is taken by manufacturers of all kinds of new industries. And they may have total losses with them. But they don't fund it with so much borrowed money. And so, the banks should if they were just more like normal corporations, they might begin to even make more reasonable decisions. Right now, they live entirely on the edge and are all distorted and inefficient. And somehow, for them, it still works.

BILL MOYERS: They live entirely on the edge, you just said.


BILL MOYERS: But we're there with them.

ANAT ADMATI: We are there with them. They take us all down. But they--as they drive through the edge or they live on the edge, it works for them--

BILL MOYERS: Yeah, they--

ANAT ADMATI: --to live on the edge.

BILL MOYERS: Because they know the government is their backstop?

ANAT ADMATI: Exactly. And--

BILL MOYERS: The taxpayer?

ANAT ADMATI: --their creditors know. And so, they're able to get people to let them use money that, if they were anybody else, they couldn't. If you just kind of erased all the labels and you just presented their balance sheets or their disclosures to a prudent investor, they couldn't borrow a penny. Given how opaque their disclosures are and given how much risk is in there all over the place, nobody would bother. But they get away with it.

BILL MOYERS: And you’re saying if we require banks to increase their equity to a third or--

ANAT ADMATI: Yup. Twenty percent, thirty percent, yeah.

BILL MOYERS: --that will make them safer?

ANAT ADMATI: It would make them safer. And everything you can think about is going to be better. So I'm not saying it's the silver bullet and the only thing. But it's the most no-brainer thing to do, because it would only reduce all the distortion and would correct what's wrong now. And almost everything that's wrong basically comes down to too much bank borrowing and bad regulation.

BILL MOYERS: So how do we get them to use more of their own money for the great risk they take?

ANAT ADMATI: There is nothing except make them stronger and get rid of the ones that are not viable. In the crisis, quite clearly, many claims, anyway, and it's quite reasonable to think, that Citigroup and Bank of America too, became insolvent. If you were to try to liquidate them on that minute, they wouldn't. They just had negative equity, call it, okay? They're under water. Which, for a corporation, usually forces a bankruptcy or restructuring.

Instead, they were nursed back to life from zombies, as you call it. And so, the thing to do is any corporation, normal corporation, that becomes, that lives on the edge and has creditors breathing down their neck, is going to be forced to go to ask shareholders for money and show them what their business is. I want the banks to go to shareholders, to investors, to equity investors.

First of all, retain all their earnings. They should back up their liabilities and their deposits and everybody else that they're harming. They should use them for lending. Should use them for anything but to pay them out so they can keep borrowing.

And then my stress test is a very simple market test, that all even, you know-- all in this country, all the capitalists should like. Go sell your investments to some shareholder that bears the downside and see what they'll give you for your investment. If your stock price goes down, well, then it may be corrected to the right price. Maybe it's too high right now because of the subsidies that you're-- And let's see. If you cannot raise equity at any price, that might mean you can't live without subsidies.

BILL MOYERS: So you're saying, raise more capital, more equity—

ANAT ADMATI: More equity.

BILL MOYERS: --of your own, and take your risks with--

ANAT ADMATI: With that.

BILL MOYERS: With it. Was there a positive step in that regard in April? Regulators issued a new rule that required the big banks to maintain overall equity of five percent, up roughly from three percent, and six percent for federally insured subsidiaries. Is that a significant improvement?

ANAT ADMATI: Five percent? Who lives like that? That's ridiculous.

BILL MOYERS: What do you mean?

ANAT ADMATI: No corporation lives on five percent equity on a regular basis. Certainly not corporations that can harm other people when they go down. Even into distress that everybody starts getting nervous. The more credible they're going to make the notion of letting them fail, the more everybody's going to scare you before that. And you're going to get all these runs and instabilities just at the thought of it.

That's what we saw with Bear Stearns, with Lehman Brothers. That's what you could read in the financial crisis inquiry commission. That the instability started before Bear Stearns went under, before Lehman Brothers went under. That's the problem is you want to keep them way in a different range. And there's no science, I assert to you, no science behind any of these numbers. None.

It's just that we got here and the banks hate to move from here. But it’s nothing about what we can do and should do and should focus on because, if you did that, then you might have to do less of some of the other stuff. And the rest of the regulation is very technical, with all these very complex risk measures. It goes thousands of pages that nobody can decipher.

And so, a lot of the regulations just got so complicated, instead of focusing on basically, sort of your basic speed limits, being able to measure things and see things more clearly, so that you can maintain this system-- it can do for the economy on good times and bad times much more consistently. And much-- without fear of distortions.

BILL MOYERS: So the takeaway is that as long as we are subsidizing these banks, as long as we guarantee them that they are too big to fail, we're not safe?

ANAT ADMATI: That's right. And we're subsidizing perversely, the harm. Because we are encouraging them to live more and more dangerously. And they tell us it's for our benefit. But we are the ones paying. So it's as if you subsidized somebody to pollute the river when they have a cleaner alternative.

I mean, I'd subsidize their equity if I had to subsidize anything. But we're subsidizing them only through debt. They only get the subsidies when they use debt. And so because when they use debt, their creditors give them very easy terms, depositors and other people who believe they'll be paid. And so they are able to, if they went to equity markets, they would be facing the same investors that everybody else faces. And so they have good investments to make, they should make them.

BILL MOYERS: But they don't want to do that?

ANAT ADMATI: Exactly. They just don't want to. So the point is--

BILL MOYERS: They've got a good deal.

ANAT ADMATI: They got a great deal. And so what they're going to do is, if they make profit, they want to pay them out and keep borrowing. And so there's nothing essential about that, or nothing good about that, except for a few people. And then who exactly wins and loses? They might tell-- pacify the shareholders by saying, here, we'll give you dividends, we'll give you dividends in good times.

And then when the bad time come, or when they have fines or anything else happens, the shareholders pay. And who are the shareholders? That's also all of us through our pension funds. And how did we do on the S&P 500? Very poorly. So the notion that these institutions by living dangerously somehow help us, that's completely nonsense. And so what we have is a really unhealthy system that we perversely get talked into subsidizing and supporting.

BILL MOYERS: This is, as so many people have said, a very important book. “The Bankers' New Clothes: What's Wrong with Banking and What to Do about It.” Anat Admati, thank you very much for joining us.

ANAT ADMATI: Thank you. Thanks for having me.

BILL MOYERS: A post script. "The Washington Post" reports that Bank of America is negotiating to pay at least $12 billion to settle several federal and state investigations into the housing mess that led to the 2008 crash. Around $5 billion of the fine would go toward mortgage relief or helping communities that were devastated by the banks’ reckless and immoral practices.

Here’s the paragraph in the Post story that blazons like a neon sign outside a sleazy motel thriving on one-hour rates:

“Bank of America, JPMorgan and others are accused of selling shoddy home loans to unqualified consumers, packaging those mortgages into securities — allegedly knowing they would eventually go sour — and selling them to investors around the world.”

A puzzled reader wrote to the Post: “Isn't this what a Ponzi scheme does?”

Last month, the managing director of the International Monetary Fund, Christine Lagarde, spoke bluntly about “scandals that violate the most basic ethical norms,” about how banks and other financial institutions had engaged in "risk-taking, leverage, opacity, complexity, and compensation,” including illegal foreclosures, money laundering, and the fixing of interest rate benchmarks. Quote, “While some changes in behavior are taking place,” Ms. Lagarde said, “these are not deep or broad enough.”

That’s putting it mildly. Name one big-time banker who’s been held responsible for his – yes, they’re all male – his role on wrecking crew. To the contrary, the banks that brought us down are riding higher than ever. Sure, some are paying fines, but even $12 billion is mere piggy bank change for Bank of America.

And those CEOs? Still shamelessly gorging on the spoils that flow from being too-big-to-fail-or-jail. The "Financial Times" reports that banking chief executives got an average pay increase of 10 percent last year and took home, on average, $13 million, compliments of benign and compliant boards of directors who are in on the racket. These “gentlemen” are among the leaders of the industry’s efforts to repeal, or water down, some of the tougher rules and regulations enacted in the Dodd-Frank legislation that was passed to prevent another crash. As usual, they’re swelling their ranks with the very people who helped to write that bill. More than two dozen federal officials have pushed through the revolving door to the private sector they once sought to regulate.

And then there are the lapdogs in Congress willfully collaborating with the financial industry. As the Center for Public Integrity put it recently, they are “Wall Street’s secret weapon,” a handful of representatives at the beck and call of the banks, eager to do their bidding. Jeb Hensarling is their head honcho. The Republican from Texas chairs the House Financial Services Committee, which functions for Wall Street like one of those no-tell motels with the neon sign. Hensarling makes no bones as to where his loyalties lie. “Occasionally we have been accused of trying to undermine aspects of Dodd-Frank,” he said recently, adding, with a chuckle, “I hope we’re guilty of it.” Guilty as charged, Congressman. And it tells us all we need to know about our bought and paid for government that you think it’s funny.

At our website, find out more about banks and reform. And share your thoughts about this and other recent Moyers & Company interviews.

That’s all at I’ll see you there and I’ll see you here, next time.

Too Big to Fail and Getting Bigger

June 13, 2014

In Washington, DC, a bipartisan effort is underway to chip away at the 2010 Dodd-Frank financial reform law, which is supposed to prevent the type of economic meltdown that brought the world to the brink in 2008.

Wall Street banks are lobbying to defang sections of the law related to derivatives — the complex financial contracts at the core of the meltdown. One deregulation bill, the “London Whale Loophole Act,” would allow American banks to skip Dodd-Frank’s trading rules on derivatives if they are traded in countries that have similar regulatory structures.

“It keeps being weakened and weakened,” economist Anat Admati, co-author of the book, The Bankers’ New Clothes, says of the Dodd-Frank legislation. “We have some tweaks. We have messy, unfocused efforts. But we haven’t really gotten to the heart of the matter and really managed to control this system effectively,” she tells Bill.

Banks are indulging in the same behaviors, such as having too much debt, that got us into serious trouble in 2008. According to Admati, “…the financial system continues to be fragile and the banks continue to live dangerously. And when you speed at 100 miles an hour, you might explode and harm other people.”

While Americans get talked into subsidizing and supporting the banking sector, Admati says, real reform is the only answer or the next meltdown could be fatal. She believes banks should be forced to use more equity funding — the unborrowed money to which shareholders and owners are entitled.

“No healthy company, unless it’s on its way to bankruptcy, maintains on a regular basis less than 30 percent equity,” Admati tells Moyers. But in banking, the amount is closer to five percent, Admati says.

“I’m not saying it’s the silver bullet and the only thing. But it’s the no-brainer thing to do.”

Producer: Gail Ablow. Segment Producer: Lena Shemel. Editor: Rob Kuhns. Outro Producer: Robert Booth. Outro Editor: Sikay Tang.

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  • Anonymous


    The state stands proud; formed for liberty, diabolically, On promised purpose, anathema to anodyne deeds; As a quench to sight by candle’s light, it shines as a lie To choke sweet fruits of truth with legalese like weeds.

    Wrought by devils of sophism or thieves for plutonomy, Their bent renders “due process,” “to serve the individual” But piecemeal, ordered for rarefied cannibal gastronomy; Ravenous to relish every naïvely tendered morsel.

    So, come; everyone who’ll work diligently by their rules, Trust you’ll all be treated equally under their laws; Especially you who, by debt, earn advanced degrees at schools And exchange your lives to feed their ever-greedy jaws.

    This is a dream come true for the Machiavellian few; Who believe liberty taboo to the many
    is a feast Übermensch Elites are due. ©Copyright George Thompson, Sr. 2014

  • Anonymous

    Admati is right. The lenders create the money out of thin air to create bubbles. Follow the Krugman-Keen Debate to uncover the coverup. Banks create money out of thin air and therefore create the bubbles. They create the psychology and they live off it. Then they pay someone like Geithner to blame it on the people. This pattern repeats itself over and over again. The money system itself needs changing. We have to take banks out of the business of creating the money. It it true, we don’t know where to put out tents. The problem is the very mechanisms of this money system we inherited from England. The NY Fed is only the frontispiece. The private bank money creation system is our problem!

  • nick quinlan

    We didn’t inherit the Federal Reserve money system from England, the United States was set up December 13th, 1913 by the founders of the Fed system.

  • Barry N Robin Schultz Sr.

    As sad as it is to say, The banks and our government have turned into traitors to the people of the U.S. Not holding the banks accountable and for the government to look the other way is a corrupt way of doing business as usual. Enough talk, Its about time We The People say enough is enough before it happens again.

  • schticknic

    uh … i love Bill, but the question about what to do when it’s a “mistake” and not a “crime” really bothered me. Taibbi and Nomi Prins know and have been telling everyone. It was FRAUD in no uncertain terms. These guys sold those fake Triple A credit swaps just like you’d sell a fake Prada bag, as Taibbi would put it. And a lot of people should be in jail for it …

  • HopeWFaith

    I think he just meant that the current DOJ considers it in that light, and not that the term “mistake” is in any way a reality, when one is looking at all the facts.

  • HopeWFaith

    Voice after voice needs to call out and not let up calling out to Congress and the President to reinstate Glass-Steagall like rules, and to do it now.

  • Mary Wehrheim

    This is like that scene from the movie “Hud” where the family herd has hoof and mouth disease. Homer protests to Hud, “That’s your solution for getting out of a tight? To pass bad beef on to my neighbors who wouldn’t know what they was getting? Or maybe risk starting an epidemic in the entire country? Your’re an unprincipled man Hud.” Too bad Homer Bannon wasn’t a bank regulator when the banks bundled up toxic loans into securities and dumped them on the market.

  • Anonymous

    What Ms. Admati fails to consider is that, good or bad, for the vast majority of responsible Americans, these banks are enabling us to buy cars at zero-4% interest rates, and buy homes at 3-4% interest rates. This only happens in this country, and only because the banks can borrow cheaply.

    What Ms. Admati is proposing, increasing bank equity by 500% (from 5% to 30%) is ludicrous. It would make interest rates soar for average Americans and businesses on everything. It would hugely slow down the economy. It would cause massive unemployment.

    Like it or not, the American economy runs on cheap debt. There is nothing you can do to increase bank equity by 500% without cratering the economy.

    It is another few good proposal done by an academic, without understanding the implications.

    Just ask yourself a couple of simple questions. How amy of us would be able to buy cars, if you had to put 500% more money down? How many would be able to buy a home, if you had to put 500% more money down? How many would be able to open a business or send a kid to college if you had to come up with 500% more money upfront instead of borrowing?

    As usual, Bill Moyers only presents one side of the story, therefore it will forever mislead its viewers and readers by failing to hear the other side. There are very few issues in modern life that has a simple solution. Least of which is our banking system.

  • Anonymous

    Giving a bank more “equity” is like Daddy giving Sonny more cash to buy Heroin.
    Heroin? Please explain.
    The more “equity” banks have the more loans they
    are capable to make (assuming STABLE Federal Reserve Bank policy). The more loans banks make (coming from increased “equity”), the DEEPER IN DEBT the ECONOMY becomes. Given a U.S. ECONOMY carrying a +380% DEBT/GDP Ratio right now (vs. a +1.50% historic average from 1870! yes 1870), getting more into debt will not solve the problem.
    “Problem”, you say? What then is the “problem”?
    The problem emanates from the EXPORTATION of manufacturing capital (hence labor) from the U.S. dating back to 1980, START date of today’s “neo-liberal”, “deregulated” “free-market” economics, which F.D.R. had previously regulated/exterminated
    in 1936 after causing the GREAT DEPRESSION. THAT is the problem.

  • Jessalyn Wise

    Are you effing KIDDING ME? That sucker should be strengthened, then bolted down inside a nuclear-bomb-proof safe. NO CHIPPING!

  • Anonymous

    Well said, Bill Moyers.
    Thank you.
    (The Netherlands)

  • Charles Shaver

    Thanks, Bill, for keeping the ball rolling. Ms. Admati seems to be well versed on the subject but not at all on target when asked about ‘justice’ for ‘mistakes.’ In addition to being informed by you in January of 2012 that the passage of the Gramm-Leach-Bliley Act in 1999 helped to precipitate (if not cause) the economic collapse of 2008, I have determined it was passed ex post facto (U.S. Constitution, Article I, Section 9, Clause 3) to the mergers of at least two of those big banks and investment companies.

    In consideration of the fact the U.S. Constitution is still the ‘supreme Law of the Land’ (Article VI, Clause 2) I find too I am in agreement with a couple of other’s comments that those people in Congress are traitors and justice should be served. How? ‘Throw the bums out,’ every election day, preferably before they illegally pass a ‘Statute of Limitations’ on treason, ex post facto, too.

  • Anonymous

    The system is modeled on the privatized bank of issue setup in England in 1694. The Federal model is the Prussian model. Article 1 Section 10 was written into the constitution precisely to ensure the same thing the Bank of England Act ensured in 1694 when William of Orange was put on that throne. The goal was to ensure that the state would be in debt and controlled by the merchant elite, by setting up dependence on their gold for the money supply. That is what we got in 1787, enabling the step by step inch by inch to 1913. That condition is what those merchant “patriots” wanted to setup here after that Revolution. And, they got it to this day.

  • JonThomas

    Your points are well taken, but keep in mind that the money is not “created out of thin air.”

    People need to understand the system without notions of mysticism.

    The money eventually put into circulation is available to the U.S. Treasury as a loan through an almost indecipherable system of Treasury securities by the Federal Reserve Banks against future tax collections (I dare any reader to research it and quickly understand how it works. Finding any clear. reliable description is extremely difficult.)

    The fact that there is no present tax equity (surplus) does not negate the dynamics present in the system. The loans and Treasury Securities are against the future promise of tax collections, and actually, since a citizen is not a multi-national corporation able to legally hide capital over-seas, against the equity of the American citizenry.

    Based on your comment though, the problem is indeed intensified by efforts to reduce taxes on those most able to pay. Untaxed offshore corporate profits also add to the problem.

    The entire Federal Reserve System is basically a scam (yes a ponzi scheme of sorts) perpetuated upon the tax payer. For every dollar brought into existence, it does not only cost the tax payer the reasonable cost of printing and coining the money, but on every dollar, every cent, there is interest paid to private banks and concerns for the loans on those promises of future tax collections.

    There are ways that the Fed can turn a profit, but as is evidenced by the current U.S. Treasury debt, it won’t be doing so any time soon.

    Worse, we now know that the money being loaned the Treasury is also not totally from equity. The capital the Federal Banks are loaning to the Treasury comes from lower cost loans and high risk investments by the banks. What good is a risky investment security as equity? Scandalous!

    As Mrs. Admati so exquisitely summarized, the practice of most, if not all banks, including the quasi-private nature of the Federal Reserve (based not upon equity, or a surplus of the U.S. Treasury,) but as the system works in practice, upon high risk lending and borrowing. As it currently functions, it is a dangerous practice that undermines the future security of everyone… arguably, in this case, the entire world.

    This system, allowing the borrowing against future tax collections when the Treasury is already facing HUGE deficits and entrenched ‘over-spending’, is what gives the Banking Sector the leverage to expect… nay…demand bailouts.

    The existing risks, dangers, and threats – under the confidence of future bailouts – further props-up and incentivizes the risky business practices Mrs. Admati discussed.

    If I am misunderstanding, I ask someone to please explain it better.

  • JonThomas

    I have a question for consideration…

    If people, often those from a conservative viewpoint, are against the notion of the U.S. Government acting in the private market place (such as offering Universal Heathcare, or operating as a Single Payer insurer,) why then do they not rail against the FDIC?

    I’m not saying the FIDC is good or bad, right or wrong, but it seems a bit hypocritical does it not?

    What’s good for the gander is not so good for the ugly ducklings?

  • JonThomas

    Please elaborate. If at all possible, include details along with qualified, verifiable references.

  • Anonymous

    That is why all this inciting anger in the US using the privately owned media and the paid politicians is so scary. Perfidious Albion has incited violence and war in many countries around the world to protect their financial empire. It has been 30 yrs of building up controversy over race, guns, abortion, immigration, gay rights, Islamophobia, etc. Now the economic capital flight cash drain is really throwing average Americans into a fearful state with rising permanent unemployment and diminishing living standards, so our minds are prime for manipulation. These types in charge of money know this. If we know history, we can see the seeds here. And, the money supply remains the key trigger.

  • Anonymous

    The media decide what people will get riled up over. They are the ones who selectively report on what issues and they also amplify what politicians are paid to say. Politicians are not paid to denounce the FDIC because that would be biting the hand that feeds them. Wall St and the controlling stake shareholders of banks own both parties in this country. Universal healthcare is fair game to play the divide et impera game. But, notice. The owners of Unitedhealthcare and all the other healthcare corporations got their subsidy. They just pay Pols to beat up on it to keep the public at each others’ throats while we are all fleeced and taken to the cleaners together. This healthcare bill was authored by the UnitedHealthcare lobby and it was first engineered by American Enterprise Institute before being implemented in MA by Romney. They are all getting the free money from us while they bait a nice civil war.

  • Anonymous

    Nothing bad ever happens to them. If anything bad happens, it happens to the people. The prophets say what the little people have always needed to hear.

  • Leonard A. Lucenti

    Thank God for Bill Moyers. Not many want to discuss yesterday which became the nightmare we live with today. Instead, just keep the government rolling and issue more debt. What I thought was outrageous at seven trillion dollars, we’re now approaching eighteen trillion. It means nothing. It’s just illusion. Not to worry. We are riding the cusp, and the world hinges on America. It doesn’t matter that we’ve become a nation of job seekers with no real jobs to be had, or a nation of gluttons, devouring up all the ++++ being made elsewhere. Relax and enjoy.

    …but if you really want a good discussion as to what got us here, let’s start with the supreme desire during the middle 1970’s, to “Whip Inflation Now.”. ( Don’t you just love political catch-all phrases). To translate what we desired back then, let’s get rid of all extra over-paid workers, from the telephone operators to the milk drivers, and let’s just have a world full of technological gadgets. Let’s reward the nerds.

    Fast forward, and now everybody lives off credit cards, and nobody can afford homes that are priced too high. The derivatives came along, and nobody dare question what they were or be judged to be a dummy. Rather, just go with it. One investment banker copied the other, and what it turned out to be was one ugly bag full of (fill in the appropriate short word for it), that nobody wanted to own up to.

    Jail the bankers! Why? Nobody is to blame for any of it. Because everybody followed everybody else. The American consumer was judged to be flush full of cash, and all those half million dollar homes were gobbled up like there’s no tomorrow.

    And now, which is the tomorrow nobody wanted to see, will go on and on with hopes of jobs coming back that never will, but let’s all have a discussion…because at least we can kill some time.

    Leonard A. Lucenti

    (How do I know all this? I worked for Citi for twenty years, and got lucky and found a real job thereafter).

  • JonThomas

    Dear planckbrandt,

    Once again your points are well made, and well presented. I’ve enjoyed your comments and would agree with your assessments to very a large extent.

    In an effort to find common ground, it might be good to expound on this oft-repeated concept of ‘out of thin air.’

    Please keep in mind that I do not wish to deny your points, as much as I hope to describe the process which is often referred to as ‘out of thin air.’

    As explanation of my limited understanding, I would offer the following examples…

    Let’s say I wanted to plant a garden, but I needed land, seeds, and the various necessary paraphernalia.

    Let us stipulate, that predicated upon my character, and previous record of diligence, that someone was willing to front me the capital (at interest) that I needed to pursue my endeavor based upon the promise of future results.

    Toil I do, and lo, a few months later my garden and efforts produce more crops than I can personally use. I go down to my local farmer’s market, and if applicable, after paying the requisite licencing fees (producing financing for the government, which if desired, could be loaned out at interest as a bond backed with the promise of more people following the same course of action as myself) I sell my extra produce.

    From my efforts, and based upon the principles of existence, I was able to pay back my loans, with interest (even if the interest was paid in produce and thus saving the loan-giver the cost of trading away his symbolic currency,) thus profiting his service by not having to buy from the local market.

    The loan-giver could then loan out that capital (or exchange it for currency) to put it to work again.

    Regardless of whether I used barter, or currency, it seems difficult to describe the value produced at any step as coming ‘out of thin air.’

    Another example, this time using the popular cry for a standardized system (like the Gold Standard.)

    Gold is a commodity usually in high demand. In fact, for a very long time, because of it’s rarity it served (and still does) as a world standard of value.

    Let’s say I went prospecting and discovered a new source of Gold. Does the value of this new supply arise ‘out of thin air’? I would say no. The worth of my gold is based upon the value placed by another person’s demand.

    Next, what if someone worked that gold into an even more desirable piece of art?

    Further, what if I found an alchemist, who (much like that artist) could take one commodity and rework it into an even more valuable substance than gold?

    What if a person took $30 dollars worth of iron and turned it into a commodity whose demand was valued at $300?

    My point is that services, like making loans and providing securities, can be just as valuable a product as physical commodities. When exercised properly, it’s value is based upon demand and the workings of the universe.

    However, even when misused, or abused, money is not really ‘created out of thin air.’ Unless, of course, I find a way to transfer the electric current from lightning or static electricity into a commodity for public consumption (even then, it does not actually come ‘out of thin air.’)

    Thank you for your patience.

  • Anonymous

    I’m all for public and decentralized banking even if it is but a pipe dream. Yet, much of the Bank of N. Dakotas’ success is not due to it being ‘private’ but because of the fracking and oil boom in the state & Agrabusiness – those booms are largely responsible for low foreclosure rates and high returns on equity (ND state assets capitalize the bank)- erstwhile housing prices, rental prices have many non-oil people in N.D. worried as the continue to escalate. Public banks, absent strict regulation and oversight, are not a panacea but certainly they’re better than what we have now.

  • Anonymous

    Well, that’s simply untrue. To be honest, i’m quite confused as to how you even came about that belief.

  • JonThomas

    Although interesting, It may not be beneficial to keep going with this exchange as I still do not understand your assessment of ‘out of thin air,’ and I can be long winded… perhaps even a bit bombastic.

    I know that it goes without saying, but I would only add that money is simply a symbolic representation of value towards commodities and effort.

    I would continue to say that it does not come out of thin air.

    It emanates from such agreements as… the ‘Social Contract’… and legal tender for fair, and consistent rates of exchange.

    Whether you agree with the present structure or not, to deny the Government the legitimacy and mechanism to create money is to ignore the entire history of mankind (I’m not however saying that this is your position.)

    From the time that someone first traded a fur for a few wild onions, money and banking began.

    Is it a hopefully someday-to-be-antiquated form of power and domination spawned from one person holding wealth, property and the means of existence needed by other people? Perhaps, but when a bank loans money, the creation of capital is a complex system based on the past, present, and future efforts of nature, individuals, and societies.

    If one person did not have more stored wealth at their disposal than others, there would not even be the possibility of a central bank…that is, without the coming together of many.

    Just because a bank doesn’t have money on hand does not mean it lacks the security to offer a loan.

    Another few examples to make the points… after I repeatedly prospered from my garden, perhaps I loaned another person the seed money to get started. Eventually, I may garner the security to become a bank. Did I create wealth from thin air? Or did my past efforts total a record of wealth and security?

    Let’s say all of my liquid money at a given moment is out in loans. Can I still make another loan based on the promises of the future payments of other customers? Of course! I may be extended, but the principle owed me, plus the addition of added interest, can be the basis for security on an extended loan.

    This is not to say that I don’t face the possibility of ‘over-extending’ myself, but the money still doesn’t ‘come from thin air.’ It comes from the promise of future earnings on past services. In the example…I borrow from the future efforts of others who are indebted to my past services.

    Their future is my equity. Thus the need for insurance, and as Mrs. Admati and many of us hope for… regulation to ensure the health of such securities.

    In the case of the Federal Reserve, and the banks operating under its ‘graces’ (forgive my lack of proper phraseology,) money is created through a complex system of securities, future tax collections, bonds, and among other instruments and services, the deposited equity of the Federal Reserve Banks.

    I realize you mentioned learning about the banking practices of the UK, but honestly it’s a bit out of my personal relevance.

    It’s difficult enough trying to grasp the U.S. system under which I live.

    Perhaps in the UK the Government simply appointed a person and said… “Hey Joe, regardless of you being completely devoid of wealth and power, you alone have the power to declare… ‘this is now money.'” Honestly, I don’t know. That indeed would be a problem built upon magical conjuring.

    But I do know that money is not being created out of thin air. In my previous comment, perhaps I took the liberty to presume that it was understood that the person from whom I got the money, had the wealth or security to make the loan. I apologize if this was the case.

    Without understanding that all money created in the U.S. by the Federal Reserve System is backed by the combined past, present, and future efforts of the American people, their interests, and their equity… because it is such a complicated system, it may seem as though money is created ‘out of thin air,’ but this is not really the case.

    Whether the system is perfect, or needs improvement… Whether we agree with, or dislike how it works… Simply the fact that someone might wake up tomorrow, dig a hole in the ground to drop in some seeds, tend a few plants, gather a few nuts from a tree, or use their imagination to create a new commodity… assures that banking, and the creation of money is possible. It is not based upon magical conjuring, but upon reality. Such efforts are the ‘thin air’ as described by some commentators. I would say that ‘thin air’ is not a good explanation at all. It denies history and reality.

    The creation of money is the promise of tomorrow upon which all effort is based.

    However, as you, Mrs. Admati, and others have commented, none of this is to say that the Banking System is in any way healthy.

    Regardless, you and I may never come to terms with each other’s descriptions, but I do enjoy the discussion. A bit esoteric at times, but definitely interesting!

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  • Anonymous

    The Federal reserve does not create the money. The banking system creates the money. Commercial banks create the money for the people. The Fed creates money for member banks. The government does not create the money. That function has been privatized so that the government itself is in debt to the proverbial merchant-bankers, and all the profits for it have been privatized thus depriving the society of the true value it creates.

    I can suggest Bernard Lietaer’s book “Rethinking Money”. He explains the ex nihilo creation of money in these money systems today. Michael Rowbotham’s book “Grip of Death” is also a very good one at explaining the mechanisms, and the implications for human relationships and the planet.

    Good luck! We’ll all need it as long as this system remains so out of sight and out of mind by the majority of us. We must survive at the whims of those who create and direct the money supply to serve their own private interests.

  • George Ward

    How about the next time a bank crashes require the top paying official to be in jail or the top 10

  • fedupwithpoliticians

    There is nothing new about this. It was seen in 1913 in the Pujo hearings. The government then allowed “the abuse of the public trust” resulting in a concentration of wealth as we see now.

    “The main belief behind the concept of a money trust is that the majority of the world’s financial wealth and political power could be controlled by a powerful few”.

    “This idea was validated in the United States by the Pujo Committee in 1913 which unanimously determined that a small cabal of financiers had gained consolidated control of
    numerous industries through the abuse of the public trust. ”

    Attorney Samuel Untermyer defined a money trust during the Pujo hearings; “We define a money trust as an established identity and community of interest between a few leaders of finance, which has been created and is held together through stock-holding, interlocking directorates, and other forms of domination over
    banks, trust companies, railroads, public service and industrial corporations, and which has resulted in vast and growing concentration and control of money and credits in the hands of a few men”.

  • JC

    I don’t know that much about the Tea Party, but what I do know is that they espouse lassez fair

  • Internet 4 President

    I am a banker, I am a person, and I want to fix this. The concept of the corruption is simple but recognizing that we are all at fault is challenging. These rules and regulations we all unconsciously obey are not by any means laws of nature and we can start over if we choose. I need help.

  • JC

    Yours is an idea worth exploring…….

  • JC

    Correct. The vote is a very effective way of bringing about change. Educate ourselves as to the history of those in Congress and, learn who’s “on the take” in terms of supporting legislation that favors these “too big to fail” institutions. Keep voting them out of office until somebody gets in that “serves the people” as is mandated in our Constitution and Declaration of Independence. Politicians often forget who pays their salaries…..”we the people….”

  • JC

    Someone once said, ” Absolute power corrupts……too much power and control corrupts absolutely.” So, the laws need to be strengthened AND enforced to where people in high places will think not twice but forever shake in their boots (high heels) when they think about risking 40 years or so in prison for trying to fleece the rest of us. On top of that, they should have to forfeit all their wealth, possessions, and acquisitions (mansions, villas, yachts, land, stocks, bonds, etc.) as part of the conviction process.

  • Robert Bostick

    That’s a recent development. The Bank of ND was chartered in 1918. It has survived the good and bad times experienced by the rest of the nation better than any bank.

  • Anonymous

    The parties have Gerrymandered their districts in their favor so it is very difficult today to vote them out. The last election there were just a few districts in swing states that concerned the canidates . Sad but true.

  • Anonymous

    The CEO of Countrywide Mortgage has not even been brought to trial.. His company wrote the most sub prime mortgages & with Johnson at Fannie & the S&P credit rating agency had allot to do with the housing financial bubble Has Jon Corzine been in front of the grand jury??? OPS He bundled 800,000 dollars plus for Obama’s reelection… must have been enough for a “get out of jail” card.. My, My. what a country.

  • Anonymous

    Very good post..As an economist Krugman makes a good political hack…hiding behind a flawed Keynesian theory.

  • Anonymous

    Excellent explanation of our money & banking system.

  • Anonymous

    Your grasp of our economic & banking system is refreshing. Thank you.

  • Charles Shaver

    Thanks, JC (and, 34nelson), for your input. Trying to keep it simple, only two major parties have been in charge since the end of WWII. The Founders gave us what is right and the Republicans and Democrats, both old and new, have given us what is now wrong. There are other parties on the ballot in most, if not all, federal elections. It is possible to download all the names of those who apparently sold out to Wall Street in recent years and voted wrong on important issues but why bother? Since Gramm-Leach-Bliley in 1999 (about 85% bipartisan and Clinton), at least, despite appearances, it’s been a majority of both major parties; vote for some other or cast a blank ballot. Easy enough to try something new, as Eric Cantor recently learned. The real problem, still, is getting enough typically habitual and traditional two-party system voters on-board.

  • Anonymous

    How to get the knowledge out there? Before the controllers of the money supply play another play on us? The plays are getting worse and worse while people are baited by pundits like Krugman to argue about re-regulating a devious and dangerous system without calling out for all to see its truly duplicitous and deadly qualities! The next plays will be the real death knell as they move the RMB into position to be a reserve currency and create new debt products denominated in RMB to replace USD debt. Then they can really pull the plug…RMB Ts in new debt instruments are being created in China now to build public infrastructure and provide the rents to the global elite for generations to come. They won’t need us anymore…except as low wage unprotected destitute wage workers…

  • JC

    True….but then there’s Virginia….

  • JC

    If we don’t vote, then we get the government we deserve. Voting in still one way of making our voices heard.
    The other way is to run for office or get involved with government in a position that directly affects procedure, policy, laws, and how this government operates.
    It’s still a free country and “representative” government still means something.

  • Andrew Schneider

    Secretary, Tim Geithner, and Federal Reserve Chairman, Ben Bernanke, are inversely
    correct in their pursuit of market calming. John Coates in the New York Times “The
    Biology of Risk” demonstrates how the stress/challenge response controls
    risk-taking. Confidence not uncertainty causes
    market bubbles.

  • Charles Shaver

    Good points, JC, but times and loyalties have changed. I still think enough informed voters could rescue our Constitution and way of life from the money addicts but only if they learn to think and vote responsibly and wisely soon, very soon. Reviewing the Preamble before voting might help.

  • Adolf Hochhaltinger

    Once there were anti trust laws in this country to avoid any corporation to grow »too big to fail« — where are they gone?

  • devans00

    Bought and paid for not to represent regular humans.

  • Vera Gottlieb

    By no means defending ANY bankster but…in my opinion, corrupt politicians enabled all this and carry just as much responsibility for all the ongoing misery. Banksters and politicians should keep each other company while behind bars.

  • Vera Gottlieb

    Look at Switzerland: the central government in Bern together with the Central Bank require that banks put aside a given amount as protection in case of crisis. This prevents the burden of bail out from being placed on the average person on the street.

  • Devonee Trivett

    Exactly. We are making the average person pay for the bankers mistakes here in America.

  • Vera Gottlieb

    Switzerland’s actions do not apply to the European Union, of which it isn’t a member.

  • a man

    so, the “fed” considers-” money” interests;i.e. answers to no-one not even the president! the federal prosecution[failed] of goldman- sachs and litany of banks i, e, chase[ dimon] who, drew record salaries- while the treasury[bond] went “south”! the world, did see the weapon of choice, that was used against the” few” savers;-and multiply its worthless[ no backing] value– who’s money is “doled “out on daily basis! it was, like print from memograft! the’ wicked “do sup of the bones of those [nixon] who, were acronyms for goverenance hmmm!

  • Jason

    She was far too polite about the regulators. I don’t think for one second they didn’t know what was happening and is still happening… they are corrupt. the bankers have and are rewarding them for looking the other way and still are…. no one can be as big an idiot as the regulators were before 2008 without being part of the con…. it is just not possible. But i think the real point here and what is amazing about America is contained within this mess you have the brilliance to get yourself out- this woman should be the head of the fed government regulator – it is not for lack of talent or insight America is in the mess it is, the dark aspects of our souls have manifested in a group of people and they have the power, money and influence right now and are going to be hard to dislodge… but the Progressive movement needs to get some harder heads at the top form a plan and enact it without prejudice for it really matters… the bankers are running crazy with your democracy, the religious wing nuts are in control of the house of rep’s technology and science panel and the tea party is just bat crazy flinging guano over everything!!