BILL MOYERS: This week on Moyers & Company…

SHEILA BAIR: They confuse bank profitability with bank safety and soundness, they are not the same thing. There is the right way and there is the wrong way.

BILL MOYERS: And your questions for Richard Wolff.

RICHARD WOLFF: Well that’s an immense question.

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[SEGMENT 1 BEGINS]

BILL MOYERS: Welcome to the question of the week: are the banks – banks too big to fail and too big to jail – are these monsters courting another disaster?

That's what it looks like. As you no doubt heard, last week, the Senate Permanent Subcommittee on Investigations issued a report and hauled in key executives from JP Morgan Chase -- the world's biggest derivatives trader -- demanding to know how the bank blew 6.2 billion dollars in funny money -- I mean, derivatives – and hid the losses with some fancy accounting tricks aimed at fooling both regulators and the public.

Senator Carl Levin, the Chairman, bluntly summed up what they found out: “It exposes a derivatives trading culture at JP Morgan that piled on risk, hid losses, disregarded risk limits, manipulated risk models, dodged oversight, and misinformed the public.”

The trail led directly to JP Morgan’s celebrated silver-haired Chairman and CEO, Jamie Dimon, said to be Barack Obama’s favorite banker. An e-mail requesting an increase in the bank's "risk-taking" received a two-word reply from Dimon: "I approve."

But the well-connected Dimon - whose bank was being bailed out by almost $25 billion from taxpayers even as he was making $35 million a year -- was spared from testifying personally and having to disclose exactly what he knew about the shenanigans of his lieutenants -- and when he knew it.

Among the many of us who will be anxiously awaiting those revelations, should they come, is my guest, Sheila Bair. A long-time Republican, she was appointed by President George W. Bush in 2006 to head the FDIC, the Federal Deposit Insurance Corporation. During the financial collapse, she oversaw the takeover of more than 300 banks that went belly up and was an outspoken opponent of the taxpayer bailouts. As one influential observer wrote during that time, Sheila Bair never forgot that her most important constituency isn’t the thousands of banks she regulates, but the millions of Americans who use them.

She now heads the Systemic Risk Council. That’s an independent committee formed by the Pew Charitable Trusts to monitor what’s being done to prevent another financial collapse. She was at this table a few months ago to talk about her book, Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself.

And I’m pleased to welcome you back.

SHEILA BAIR: Thank you. Thanks for having me.

BILL MOYERS: I felt perhaps we were getting the bull by the horns until I saw those hearings last week.

SHEILA BAIR: Yeah, it really was amazing. I mean, a lot of that we knew already. But it was really laid out in gruesome detail in that report. It was quite shocking. You know, I don't think-- I think the system's got incrementally safer, a little bit safer but nothing like the dramatic reforms that we really need to see to tame these large banks and to give us a stable financial system that supports the real economy, not just trading profits of large financial institutions.

BILL MOYERS: Were you surprised by anything that you heard at those hearings?

SHEILA BAIR: Well, I was, you know? I viewed, like a lot of people viewed JPMorgan Chase as a pretty well-managed bank. And so yes, I was surprised at the ability of this trader in London to build these huge positions. And even when he started calling foul the senior, the next level of management above him really didn't get on top of it. I was not surprised but appalled by the way they were manipulating their models that are supposed to be able to determine how much risk is involved in various trading positions.

BILL MOYERS: And what advantage did they gain from manipulating those--

SHEILA BAIR: Well, there were--

BILL MOYERS: --models?

SHEILA BAIR: There were a couple things going on. One was it's clear that they were trying to boost their regulatory capital ratios in anticipation of some new capital rules coming into effect. This is a key defect with the way regulators, bank regulators view capital adequacy at these large banks. They let those capital ratios to be determined in part by the risk models of the banks. So if the banks produce models that say, "These assets are safer," it means they can report a higher capital ratio. So it really gives them upside down incentives to manipulate their models.

BILL MOYERS: So for the layman, what is the capital ratio? And why is it so important?

SHEILA BAIR: A capital ratio is simply the percentage of your assets, what's on your balance sheet, the percentage of that that is funded with common equity.

So when banks have a low capital level, that means that they're borrowing a lot to support themselves. Whether it's a household or a big bank, you borrow too much and you don't have enough common equity to absorb losses you-- that's what it means to fail. You start having losses. You don't expect them. You have a very thin capital base. You can't make good on your debt obligations. You fail.

BILL MOYERS: And this is what--

SHEILA BAIR: We fail.

BILL MOYERS: --happened in the buildup to the big crash?

SHEILA BAIR: Yeah, exactly.

BILL MOYERS: What surprised me and others that they could hide these hundreds of millions of dollars in losses, as you say, and survive even internal scrutiny.

SHEILA BAIR: Yes, and even after it was in the Wall Street Journal, you know it--

BILL MOYERS: Hiding in plain site.

SHEILA BAIR: Yeah I think it, what was going on was they were in this big power game with a bunch of hedge funds who were trying to, who realized that this London Whale trader was building up huge positions in a fairly narrowly traded product called tranche CDS. And so they outed them. You know, they were trying to squeeze them. They let the public know, "Hey, you know, JPMorgan Chase is exposed here." And then the losses really started to mount. And it's amazing that the papers picked up on it before the senior managers or the regulators, for that matter.

BILL MOYERS: Yeah, where were the regulators?

SHEILA BAIR: I don't know. You know, I think we need a culture change with the regulators. I think and I talk about this a lot in my book. You've got a lot of good, well-intentioned people. But they confuse bank profitability with bank safety and soundness. They are not the same things.

There's the right way and there's the wrong way to make money. They're almost aligned themselves to some extent with bank managers and wanting to have the appearance of profitability, because they think that makes a sound banking system. And it's really upside down. You can't ignore the problems here. And some of that is overlooked. It’s overlooked a lot.

BILL MOYERS: We thought we were going to get a culture change after the big crash.

SHEILA BAIR: Yeah, well, I think it's coming slowly. But not fast enough. It's, you know, it's amazing that, you know, so many years after the crisis hardly, you know, less than half of the Dodd-Frank rules have been completed. The ones that have been completed, a lot of them are watered down.

BILL MOYERS: By? By?

SHEILA BAIR: It really needs to, well, the regulators succumbed to industry pressure to do this. And even some of the statutory provisions in Dodd-Frank had too many exceptions. But then we get even more exceptions since these proposed rules come out, things like the Volker Rule. You know, it should be just a simple ban on proprietary trading, but we get these very complicated rules that are very hard to enforce and easy to game.

BILL MOYERS: When Dodd-Frank and the Volker Rule managed to get through a recalcitrant Congress, many of us were hopeful. Would you tell us briefly what Dodd-Frank was supposed to do and what's happened to it and what the Volker Rule was supposed to do and what's happened to it?

SHEILA BAIR: Right. So Dodd-Frank was, is a very large, a very, it is a complicated law. Probably more complicated than I would have preferred. But it is what it is. But at the heart of it is ending "too big to fail." Giving the government new tools to resolve large financial institutions when they fail in a way that will not hurt taxpayers, not subject taxpayers to risk.

Well, it forced the losses on the shareholders and creditors of those large financial institutions, which is where they belong. It also requires the Federal Reserve Board to have much tougher what we call prudential standards. So higher capital more stable liquidity, more stable funding sources, less reliance on short-term debt.

Those are the types of things that were problems during the crisis. And the Fed has been mandated. And they haven't finished those rules yet to have better regulation to prevent these banks from getting in trouble to begin with.

And the Volker Rule, too, a key part was designed to prohibit prop trading by those institutions that are in the government safety net. So if you're a bank holding company that has an insured bank that has FDIC backed deposits or access to the Federal Reserve's discount window, you know, you have a lot of government support, as is provided to traditional banks.

So Volcker’s really about customer service. And your banking model should be you serving customers, making loans or, you know, if you're facilitating trading, you make your money off of a commission, not by by trying to make a profit off the spread.

And that's really what Volker was about. And it turned into a lot more complicated thing than it should have been.

So I do think, you know, I talk a little bit about structural changes, too, that I think could make, give us a more robust regulatory system, because now I think we have cognitive capture, which means basically--

BILL MOYERS: Wait a minute, what does that mean?

SHEILA BAIR: It means the regulators tend to look at the world through the eyes of the banks. So they don't look at themselves as independent of the banks. They view themselves as aligned with the banks, that their charter is not to protect the public, but to protect the banks. And this is the premise of the bailouts, that somehow if you take care of the banks, you're going to take care of the broader economy. And it just didn't turn out that way. They're two very different things.

BILL MOYERS: As coincidence would have it, I took your book with me on a trip last week. And I was actually reading the last chapter again, in anticipation of your coming, before I actually looked at some of the hearings. You say, "When you read about problems like the Libor or Whale scandal or the JPMorgan Chase trading losses, don't accept gobbledygook about regulators needing more information or needing more power." Then the next day I look at the hearings and--

BILL MOYERS: --more gobbledygook, right.

SHEILA BAIR: Well, you know, they had the information.

I mean, there were plenty of warning flags. Those examiners should have been all over this. Senior managers at JPMorgan Chase should have been all over this. It really was remarkable how kind of lackadaisical things were until the losses were right there in front of them. And then it was, you know, all hands on deck. But that was too late, at that point.

BILL MOYERS: This is what is actually scary to me. The Senate found that not only did the regulators fail to act aggressively in uncovering the risk, but that Dimon on his own for a period of time decided not to comply with federal regulations and flatly denied the regulators crucial data. Does that scare you?

SHEILA BAIR: Right. Right. Right. Well, that was amazing. And what’s troubling in that, you know, to the extent it reflects how he views examines and their role.

He was apparently worried about leaks. But I, you know, I think that most examiners are quite, you know, confidentiality is sacred with examiners. So I wouldn't, giving examiners information, I wouldn't worry about leaks. I don't think that was a legitimate concern. And one that couldn't justify denial in any event.

BILL MOYERS: Could reckless behavior like this bring the system down again?

SHEILA BAIR: It was a very big loss. But, you know, I think it underscores how even in banks that are viewed as very well-managed, how there can be major management breakdowns.

And how these derivatives, these actively-traded derivatives can generate very, very large losses in a very short period of time, how volatile they are. So, you know, I think this is all problematic and should inform some future regulatory choices. One is on the Volker Rule. Another is on bank capital. Because we don't know the next time that six billion could be $16 billion, so the capital rules are all upside-down, they need to be fixed, and the Volcker Rule needs to be fixed.

BILL MOYERS: Do they need to be fixed? Or do they just need to be used? I thought both Dodd-Frank and Volker had pretty well put into place the tools that regulators need.

SHEILA BAIR: Well, I think they do, too. You know, the statute could have been more prescriptive. Instead, it delegated authority to the regulators to fix it. And the regulators wanted it that way. The Fed and the Treasury wanted-- they didn't want a lot of prescriptive rules in the statute itself. They wanted the authority to do it themselves.

And so they got what they wanted. But the record has not been as good as it should be. You know, the Volker Rule is still not finalized.

And what's been proposed is very weak. It needs to be strengthened. The bank capital rules still haven't been changed. It's, and again, what's been put out there is pretty weak. It needs to be strengthened dramatically.

BILL MOYERS: So for the stranger who came up to me in the Dallas Airport, where I was reading this book, looked at it, and said, "You know, I don't understand it. I don't even know why I should care."

SHEILA BAIR: Yeah, he should care. Or she.

BILL MOYERS: Why should he care? Why should he care?

SHEILA BAIR: Well, because look, when this crisis hit, first of all, there were a lot of bad loans were made by large institutions that should have known better. And were there borrowers that took advantage of it? Yeah. But there were a lot of innocent victims, as well. But it wasn't just the mortgages. When all those losses came home to roost with financial institutions that did not have enough capital to absorb those losses, what did they have to do?

They had to pull back on their credit lines. They had to pull back on their lending. And people, small businesses couldn't get their credit lines renewed or they couldn't get their -- a lot of homeowners couldn't get their mortgages refinanced. You know, people who were in the middle of development projects had had their money pulled.

There was this huge pullback in credit, because these large financial institutions had too much leverage. And they had to pull in their horns and nurse their balance sheet.

So you have these large financial institutions with these huge trading operations that can be subject to very sudden, volatile losses, not enough capital to absorb them. You get into another recession.

BILL MOYERS: Is the banking system safer today?

SHEILA BAIR: Yes, it is. There is more capital in the system now. That's been done through the stress testing process that the Federal Reserve Board has led. And that has helped. That has helped a lot. We do have more capital, more of these banks balance sheets being funded with common equity and less with debt. But the ratios are still far too low.

I think people can understand that basic notion. And if you get capital levels up, you reduce the leverage. And that makes the system much, much more resilient. You know, it also-- they're better than prescriptive rules, too. Because we never know what the next stupid thing is going to be that's going to get a bank into trouble, but if you make--

BILL MOYERS: We human beings are brilliant at figuring out the next stupid thing.

SHEILA BAIR: Yeah, so exactly. But if they have a nice thick cushion of capital, whatever that next stupid thing is, they're going to have a much better chance of surviving it and continuing to lend to the economy than if they have very thin capital levels, which means they have a lot of leverage, a lot of borrowed money there.

BILL MOYERS: Are these big banks still too big?

SHEILA BAIR: Well, I think they are. I think it's more complexity than size. You know, most of the, all the London Whale, Libor even most of the losses during the crisis, those were occurring in the trading operations, not the lending parts of these banks. The loans, they made some bad loans, but we probably could have handled the losses on the loans.

A bank, even a very big bank, if it takes deposits and makes loans, I think we can deal with that. The FDIC's been dealing with that kind of business model for a long time. When loans get into trouble, generally, it's a slower process. You have time to work with the borrower, try to mitigate losses. But with a trading loss, it's immediate and you're really in the soup if it's unexpected.

BILL MOYERS: Give me a quick definition of the Libor scandal?

SHEILA BAIR: The Libor, the London Inter-Bank Offered Rate, was a process that was easy to game. It was basically a survey to a bunch of large banks that said, "If you had to borrow today, what do you think the interest rate would be that you'd have to pay?"

And so they were allowed to guess, right? They didn't have to base it on actual transactions. And so the Libor, the traders at these large institutions figured out that if they could manipulate the rate, if they colluded and gave information together that would raise or lower the rate, that they could make money. So it was just good old-fashioned manipulation of an interest rate that's very important to a lot of municipalities and corporations that use interest rate swaps to manage interest rate risk, as well as people who have mortgages and credit cards.

BILL MOYERS: So it could impact all of us?

SHEILA BAIR: It absolutely could. I think, you know, there's nothing more sacred than an interest rate to the financial system. I mean, the interest rate is the primary cost of credit products. And so if you're manipulating that rate you've got a problem with your financial system. And the thing that frustrates me about Libor is that this is criminal manipulation. There's no doubt about it.

You read their e-mails that show these guys colluding with one another. And I think only two traders at UBS have been charged with criminal charges. Nobody's gone to jail yet on it. The settlements that have occurred there again are forcing the corporations, the corporate entities at the banks to pay these huge fines. But individuals aren't being prosecuted or brought to justice. --I don't understand that.

BILL MOYERS: Our attorney general, as well as other Washington officials say, "Well, we can't really prosecute them, because they're too big they would hurt related companies."

SHEILA BAIR: I mean, honestly, I just look, if prosecuting the individual is going to -- I mean, even if you accept the premise of too big to fail, which I don't accept, you can still sue the individuals. That's not going to bring the system down.

BILL MOYERS: So what's going on?

SHEILA BAIR: The financial regulatory enforcement system. It's basically become a cost of doing business, right? So you bring these cases. You settle them. It's paid out of the corporate pocketbook. Individuals aren't held accountable. Very few people have gone to jail. And you don't change behavior.

You know, the whole point of this is to change behavior. We're just not doing it.

BILL MOYERS: I read the other day that between 2009 and 2012, JPMorgan Chase, Jamie Dimon's bank, paid $16 billion for legal defense fees and eight billion dollars in settlement for cases involving regulatory avoidance. I mean, that's almost a third, this estimate was, of their profits. If I was a shareholder, I'd say, "Why are you spending all that money on that?"

SHEILA BAIR: It's amazing that the easiest way to avoid all this is to stop doing these, you know, change these behaviors.

Yeah. Well, they do. And, you know, I'm hoping Mary Jo White is going to be the new SEC chairman. She's got a long history in law enforcement. She was obviously in the private sector for many years and that's created some controversy. But--

BILL MOYERS: Defending big banks.

SHEILA BAIR: Yeah, but I'm going to hope with her because I think, yeah, and I think she's at the end of her career. Her legacy's going to be how well she does at the SEC. She's not actually someone like her could be the very best regulator. Because they've been they know where all the bodies are buried.

She's not trying to cultivate a client list to go back into practice. She, this is the last thing she's going to be doing. But I hope she looks at the SEC enforcement strategy and starts suing individuals and looks at it as a way to change behavior, just not to rack up a bunch of press releases. And, I, you know, I think that fresh look is going to be helpful, so let’s all wish her luck.

BILL MOYERS: There are some proposals floating around Congress to break up these last remaining big banks. Are you sympathetic toward them?

SHEILA BAIR: Well, I am, though I think, you know, government's not doing much of anything these days. You know, and I never know, these large financial institutions still have a lot of clout on the hill. So reopening Dodd-Frank and trying to get Congress to do something on this, I think it's a very healthy discussion. But it, you know, at the end of the day, I'm not sure where it'll take us. And so my focus has been and the focus of the Systemic Risk Council, which I chair, has really been on the regulatory tools that are already available under Dodd-Frank to deal with this problem.

The Fed and the FDIC have the authority to order a restructuring of these large banks or divestiture if they cannot show that they can be resolved in a way that doesn't hurt the rest of the system. If they fail, they can go into a government controlled bankruptcy or a traditional bankruptcy and not impose losses on anybody else. So that's an important showing that they have to make. And if they can't make it, the Fed and the FDIC now have joint authority to go in there and say, "Well, you need to get smaller. You need to restructure, so we can resolve you in a way that won't hurt the rest of the system."

BILL MOYERS: But they also--

SHEILA BAIR: Those both need to be used.

BILL MOYERS: They also have armies of lobbyists, these big banks, that--

SHEILA BAIR: Well, they do.

BILL MOYERS: --came after you, when you were at FDIC.

SHEILA BAIR: They, well, they still do.

BILL MOYERS: Now that you're running the Systemic Risk Council. Describe how that lobbying and the pressure works--

SHEILA BAIR: Yeah, well, it's--

BILL MOYERS: That culture of Washington.

SHEILA BAIR: It is not good. It's, you know, I think the lobbyists view their success rate by how much good stuff they can get for their clients, right? And their clients want to make money. So their focus is regulatory changes that will make money for their clients, not that will promote system stability.

And I'm not saying, you know, "Listen to everybody." Sure, but, you know, understand that when those lobbyists come in, whether you're a regulator or a member of Congress, they're arguing their own bottom line. They're advancing positions that are going to make them more profitable. And making them more profitable is not members of Congress' job and it is not a regulator's job.

So there needs to be more separation. And people need to rise up and say, "I'm sick of this, you know? And I'm going to start voting-- about my vote about you is going to, you know, determine whether I think you're on top of financial reform and whether you're standing up to these big banks, not whether you're coddling them or your staff's getting jobs with them or what have you."

BILL MOYERS: You know, as I say, I was reading this the day before the hearings. And I went back to your final chapter, where you said, "We need to reclaim our government and demand that public officials, be they in Congress, the administration, or the regulatory community, act in the public interest, even if reforms mean lost profits for financial players who write big campaign checks." I mean, that's a marvelous aspiration, but in practice?

SHEILA BAIR: Well, you know, I think members of Congress need to rise above, look, I know they're under tremendous pressure to raise money to get reelected. But why are they there to begin with if they don't want to do the public service? And, you know, my sense is do what's right. And let the chips fall where they may. But, you know, you and I have talked nostalgically about the 1980s when we had the World War II generation in leadership ranks in Congress, and especially in the Senate. And they did rise above a lot of the special interests with tax reform and fixing the Social Security system.

You know what? They managed to survive reelection. I think really if you take principled positions, stand up for them, explain them to your constituents, you know, it may be that they'll raise more money by refusing the Wall Street guys and going to the Main Street constituents who vote for them. And I think, at the end of the day, they'll sleep better at night, too.

BILL MOYERS: And that's all the more reason to read Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself. Sheila Bair, thank you very much for what you're doing and for being with me today.

SHEILA BAIR: Thanks for having me.

BILL MOYERS: It’s not only our banking system that remains questionable and shaky – it’s the whole of our economy – that complex mix master of capital and labor, prices and production, goods and services, rewards and punishments, largely driven by private decisions in what has been defined, mythologically, as “the free market.” Which brings us back to Richard Wolff. I say “back” because as many of you will recall, this provocative and imaginative economist was here just about a month ago to lay out, in his words, how “capitalism has hit the fan.” Here’s the centerpiece of his argument:

RICHARD WOLFF on Moyers & Company: For the majority of people, capitalism is not delivering the goods. It is delivering, arguably, the bads. And so we have this disparity getting wider and wider between those for whom capitalism continues to deliver the goods by all means, but a growing majority in this society which isn't getting the benefit, is in fact, facing harder and harder times. And that’s what provokes some of us to begin to say it’s a systemic problem.

BILL MOYERS: My conversation with Richard Wolff opened such a world of ideas that on the spot I asked him to return – and I asked you to send us the questions you’d like to put to him. Your response was as overwhelming as it was smart and informed. Just take a look at some of the letters we printed out from our website, billmoyers.com. Thanks to everyone who wrote. We’ll get to some of these in just a minute – and to even more of them with Richard Wolff in a live chat next Tuesday at our website, billmoyers.com.

Richard Wolff taught economics for 35 years at the University of Massachusetts and is now a visiting professor at the New School University here in New York City teaching a special course on the economic meltdown. His books include Democracy at Work: A Cure for Capitalism and Capitalism Hits the Fan: The Global Economic Meltdown and What to Do About It. Welcome back, Richard.

RICHARD WOLFF: Thank you Bill.

BILL MOYERS: Let's move on to questions from the viewers who tuned into our conversation three weeks ago, hundreds of them responded.

Here’s Michael from Tulsa, Oklahoma.

MICHAEL: Professor Wolff, what can we as individuals in communities do to regain control of our economic destiny?

RICHARD WOLFF: We have an old tradition in the United States of doing things in a cooperative way. We celebrate it with phrases like team spirit or team effort. It's the idea that a project will be better done if everybody has an equal stake and an equal say in the decisions that will determine the outcome. I like that idea, I believe it has a lot to do with our commitment to democracy.

So my answer to the question is we ought to have much more democratic enterprise. We ought to have stores, factories and offices in which all the people who have to live with the results of what happens to that enterprise participate in deciding how it works.

BILL MOYERS: That's the subject of your book, “Democracy At Work: A Cure for Capitalism.” And we will come back to it in a few minutes. Here is Jose from Naples, Florida and Kristin from Joplin, Missouri.

JOSE: Professor Wolff. On the last show you mentioned how you were against regulation. I agree with you on the most part that regulation has been a failure. What would be your alternative to regulation?

KRISTIN: Without regulation how do we respond to widening economic disparity in our society?

BILL MOYERS: You said last time you were skeptical about regulation because the regulated found ways to evade, overcome or negate it.

RICHARD WOLFF: Yes, skepticism is the politest way I know how to say this. I think that we have now learned in our society that regulating big corporations and regulating wealthy folks is an exercise in futility. It'll work for a while, but those folks have the incentive and the resources to work around it, to evade them.

BILL MOYERS: The hearings last week. JPMorgan--

RICHARD WOLFF: Morgan, yeah.

BILL MOYERS: --Chase continuing to--

RICHARD WOLFF: Stunning.

BILL MOYERS: --take these risks.

RICHARD WOLFF: Stunning. It's as if the whole meltdown of 2008 and '09 hadn't happened, as if all the risk-taking can continue and all the massaging of the internal rules of the banks can be manipulated, all of that. It seems to me we've learned the lesson that regulation is usually coming too late after, in a sense, the disaster has happened. And then it is evaded and avoided and watered down. It doesn't work. And we have to learn the lesson.

So I would respond by saying, we have to make a more basic change. Instead of constantly coming too late to the regulation activity let's change the way decisions are made so we don't have to be constantly after people regulating them in this kind of sad effort that never quite succeeds. Let's change the basic decisions.

BILL MOYERS: I thought Glass-Steagall worked fairly well from the time it was enacted in the depression with Roosevelt to 1999 when Bill Clinton and Congress repealed it.

RICHARD WOLFF: Well, I don't want to get into a dispute with you, Bill. I think--

BILL MOYERS: Go right ahead, everybody else does.

RICHARD WOLFF: I think there was a long history of evasion. In other words ways were found in the '60s and '70s long before the repeal, ways were found by banks setting up investment banks, setting up new financial institutions to get around if not the letter then certainly the intent of that kind of regulation.

When it was found possible politically first to weaken Glass-Steagall and then eventually to repeal it, well, that was even better. But basically the minute the regulation was set the regulated industries took it as a problem to be solved. Then they hired the economists like me, the accountants, the lawyers and all the other specialists to figure out how to get around it.

BILL MOYERS: And armies of lobbyists, let's face it.

RICHARD WOLFF: Armies of lobbyists to make sure that the laws get massaged and the rules get adjusted so that they can get around it. That's why we keep having financial scandal after financial scandal, hearings after hearings. After a while when you keep doing this you realize that even if you get some benefit (and I see your point), from a regulation for a while, it's only a matter of time. And now that the corporations have gotten really good at getting around it the time for them has been reduced and so we're back to the question isn't there a better way than letting them do their thing and coming late to the table with another regulation?

BILL MOYERS: Okay, here's Martha from Natick, Massachusetts.

MARTHA: I see a perfect storm coming. Capitalism is predicated on unlimited growth, but we live in a finite environment and we seem to have a dysfunctional democracy unable to resolve that contradiction. How do you see climate change and our diminishing natural resources such as fossil fuels and water impacting this crisis in capitalism?

RICHARD WOLFF: Capitalism is a system geared up to doing three things on the part of business: get more profits, grow your company and get a larger market share. Those are the driving bottom line issues. Corporations are successful or not if they succeed in getting these objectives met. That's what their boards of directors are chosen to do, that's what their shareholders expect. That's the way the system works.

If along the way they have to sacrifice either the well-being of their workers or the well-being of the planet or the environmental conditions, they may feel very bad about it, and I know plenty of them who do. But they have no choice. And they will explain if they're honest that that's the way this system works. So we have despoiled our environment in a classic way. That's why we have huge cleanup funds, that why we have so many problems. That's why we have to impose all kinds of costs on companies now to deal with this problem.

So I'm not very hopeful. I don't think this is a system that has a place in it for us to seriously deal with the limits to growth, with the need to preserve our environment, to take care of our health as a people because we have a system that pushes forward with a kind of intensity that pushes those issues to the side.

BILL MOYERS: Janet from Woolwich, Maine.

JANET: If you could be president with a cooperative Congress, what are the three most critical things you would do to ensure that we have a healthy economy that is sustainable, particularly in light of a growing aging population? Thank you.

RICHARD WOLFF: I would pick the following three. Number one, solve the unemployment problem. In a sense it's the most urgent one we have. If the private sector-- and here I'm paraphrasing Franklin Roosevelt in the '30s.

If the private sector either cannot or will not provide the work for millions of Americans who want the work, then it's the job of the government to do it because no one else is. And if I were president, I would follow Roosevelt and immediately create and fill millions, millions-- I'm talking 15 to 20 million jobs in the United States right away.

Number two, I would make it would some have called a “green New Deal,” that is the major thing these people would be doing would be to deal with the environmental crisis that we have, to change the way we use energy. For example (just to give one), to give us the proper mass transportation system that advanced countries in other parts of the world already have that we ought to have.

Millions of people could go to work producing that system and give us a way to move our goods and move our people around the society using less oil and gas with less damage of injury and death the way our car-driven system has, with less pollution of our environment. Here's a way to benefit people on many scales while we put to work those who want to work with the raw materials and tools that are available.

And the third thing I would do is take a page from Italy, yes, Italy who passed a law in 1985 called the Marcora Law which said the following wonderful thing. If you want employment you have a choice in Italy. You don't just have to collect your weekly unemployment check the way we do here in the United States, you have an option.

If you get together with ten other unemployed workers and you agree to do the following thing, the government will give you three years of your unemployment payments upfront, right now, in a lump sum. What you have to agree to is that together with at least ten other people you're going to start your own cooperative business which you all together work.

The feeling in Italy was if you give people a chance to own and operate their own business collectively they'll be more committed to it, more invested in it, more likely to make a go of it than simply collecting a check. And meanwhile they'll be producing things and they'll feel better about themselves. And they'll have a more productive role in the community. If you give everybody a vested interest in their enterprise, they work harder, they work better, because it’s theirs. They’re not just working for the man, they’re working for themselves, which is a dream Americans have had, way back from the beginning.

Sixty years ago the United States was less unequal than the capitalisms in Europe. Now we are more unequal. So yes, it is possible to have capitalism with a much more human face than the ones we have here in the United States and in Britain particularly where we have allowed things to go in a very different direction.

BILL MOYERS: But isn't Italy in a mess today? We all know about the euro crisis. Those governments are in trouble, austerity's being imposed throughout the Mediterranean area. We had this explosion with Cyprus-- explosion of fear with Cyprus being bailed out and the depositors in the banks having to contribute to the cost of bailing out. A tiny island threatens to bring the euro system down again.

RICHARD WOLFF: Absolutely, and that Cyprus story is extremely important. Even though it's a very small country and people might not pay attention because it is small. Here is the austerity program of raising taxes and cutting government spending, taking a qualitative new step to help bail out a capitalism that hasn't worked in Europe and that has crippled this little country of Cyprus.

The step taken to try to fix the problem is to literally reach into the private, insured bank accounts of people in the local banks in Cyprus and take money out of it to pay for fixing this broken system. For all working people, and not just in Europe, here in the United States, too, this should be a wakeup call if you still need one that we're in a situation where the most dire, unexpected, unimaginable steps are being taken to fix a system that keeps resisting being fixed so that we are required now to dip into people's checking accounts and literally take the money away.

BILL MOYERS: Richard, one of our viewers, Antonia Murrero asks, "Student loan debts are overwhelming me and many others. What does Professor Wolff think would happen to the economy if those debts could be forgiven in personal bankruptcy? Is that even possible?" he asks.

RICHARD WOLFF: Well, the law in the United States specifically prevents you from using bankruptcy to erase your student loans. Bankruptcy does allow you to erase other kinds of debts if you can't pay them. But the student loan system was set up to prevent that. So students are in a very specially bad place by virtue of this.

We've never before done this. In our history as a nation we've never before required college students to take anything remotely like this level of debt. We're still-- we're requiring students to accumulate huge amounts of debt to get bachelor’s degree, let alone more advanced degrees, at the same time that we offer the graduates the poorest job market and prospects in a generation. That's a one-two punch.

You have to borrow more than you can afford to face a job which will not allow you to ever pay it off, hence this person's very intelligent question. How is this going to work? We've solved a problem in our society, how to educate the next generation. And let me tell you, this is an important matter. We economists believe that the single most important factor shaping the future of any economy in the world including the United States is the quality and the quantity of the educated trained labor force it produces.

College and universities are where we do that. If we're crippling an entire generation with debts they cannot support and jobs that will not encourage them to continue in their studies we are as a nation shooting ourselves in the foot going forward. It's a demonstration of the dysfunctionality of our system.

And then the question comes could we forgive the students' debts? Well, it's an interesting idea. But how then do you go to the people who can't afford their credit card debts or their home debts or their mortgage debts-- they're all hurting. And the students have a special claim, I give them that. And we need those students, I understand it.

But we have to go at the root of a society which allows unspeakable wealth to accumulate in the hands of a tiny minority while condemning an entire generation of students to a set of burdens. We don't want them to have those burdens. We need what they can produce for us as a society.

BILL MOYERS: But what does this young woman do who says she's overwhelmed by her debt?

RICHARD WOLFF: Many students are not aware that they actually have some ways to help them. But the more broad answer I would give you is you need a social movement. If there were masses of students saying, "This is intolerable," and saying it loudly and saying it publicly, peacefully for sure, but making it clear, then the powers that be would begin to realize that there are millions of students, upward of 15, 16 million people go to colleges and universities in the United States. You're talking about a very well educated constituency. If they were organized and mobilized you would begin to get the response of dealing with their crises much more effectively than what we have now.

BILL MOYERS: Here's a synopsis, Richard, of a lot of similar questions that bring us to your book, Democracy at Work: A Cure for Capitalism. A viewer who identifies himself as a longtime fan of Dr. Wolff writes, "You're passionate about workers’ self-directed enterprises. Can you explain briefly why you think these are the way to save capitalism? Critics say your alternative may work in theory but not in practice."

RICHARD WOLFF: My point is that workers ought to be-- all of us who work in an office, a factory or a store—ought to be in the position of participating in the decisions governing that enterprise. And I do that not only because I believe in democracy. And let me say that if you do believe in democracy, it's always been a mystery to me why that democracy that you believe in doesn't apply to the place where you work. After all, five out of seven days of every week, most of your adult life, you're at work.

So if democracy's an important value it ought to be at your job because that's where you are most of the time. And democracy at the job means the following. If you have to live with the decisions that are made in a job, what you're producing, what technology's being used, what the health conditions of your workplace are, what's done with the fruits of your labor, literally whether your factor or your office continues, since you have to live with those decisions you ought to participate, the basic idea of democracy.

So I like the idea of cooperative enterprises because it fulfills my value commitment to democracy. Whereas a capitalist enterprise doesn't because it keeps all the decision making in a tiny minority. We all who go to work have to live with their decisions, but we don't participate in them, not even to speak of the community that has to live with the decisions.

But the second reason is I see concrete results coming from an enterprise that was run by the workers collectively, and let me give you a few examples. First, most of us believe that if the workers themselves made a decision that they would close the enterprise and move it to China, I don't think so.

I think that the whole running away of enterprises out of the United States was made possible because the decisions to close enterprises here and to open them in another part of the world where you could get away with paying workers much less was a decision that was very good for the folks who make the decisions, but not for the average workers there.

So if we had decision making made by the workers in place they wouldn't undo their own jobs and they wouldn't move. And that would make a very different economic system from the one we have today. Second example, suppose a technology was being considered by the corporate heads who make the decision, the board of directors, and it was one that wasn't safe, it created too much noise, too much air pollution, despoiled the water, whatever. If it's a bottom line decision of the typical sort the board of directors and the shareholders seeing profit using that technology might go ahead and use it because it's profitable and that's what they're called upon to do, make profits.

If the workers collectively made the decision knowing that they had to breathe that air, they had to hear that noise, they had to live with that water and so did their spouses and their children and their neighbors, I bet you you'd get a different decision because they would weigh the costs and benefits of that decision differently. And my third example, although I could give you many, Bill, if you want them.

The third example, when it comes to deciding what to do with the profits, suppose instead the workers themselves made that decision democratically, how do we divide the profits?

You think they would give a handful of top officials wild sums of money to buy $40 million apartments on Fifth Avenue while everybody else was having to borrow money to get their kids through school? I don't think so. I think that people collectively would distribute the wealth more to some than others for all kinds of reasons, but they would do it in a much less unequal way than we have in a capitalist system.

So I challenge all of those who are concerned with a more equal system, with less inequality, to come up with a better way of achieving it than having workers be in a position to make the decisions as to how we divide the profits because that is the single most important determinant of the inequality of income in our society.

BILL MOYERS: But how do you answer this viewer? "In 1994 when United Airlines was on the brink of financial collapse a deal was made creating the biggest employee-owned company in the US. In 2002 the airline filed for bankruptcy."

RICHARD WOLFF: My answer is the following and it's very important. For workers to own something is one thing. For workers to become the directors of their own enterprise is something else. Worker ownership means for example, and we have lots of examples both in the United States and around the world, that the workers become in a sense shareholders. They are the technical owners.

But if the workers who become owners, and I'm not against that, but if the workers who become owners don't change the way the enterprise is operated it remains a capitalist enterprise. It still has a board of directors, a handful of people who make all the decisions. It's true that the workers may vote for who those people are, but they've left the structure of the enterprise in the old form, hierarchical, top-down. That's what was done in United Airlines. I was involved in that. I actually know.

BILL MOYERS: How so?

RICHARD WOLFF: They called me in at a couple points to participate in some of the discussions, the International Association of Machinists, which was the union that was part of that. So they left the old capitalist structure, they weren't willing to go beyond saying, "We, the workers, become owners, but we leave the running of the enterprise, the directing of it, the day to day decisions in the old form made by the old experts." Part of a movement away from capitalism to a cooperative enterprise requires that the people of the United States stop believing that the folks at the top have some magical entitlement to give them that position.

BILL MOYERS: I think most of them have, if journalism and the social science surveys are reporting what's actually going on out there.

RICHARD WOLFF: Yeah, and I think that there has to be a change. I think most Americans have to recognize that the folks who run our enterprises, they had to learn how to do that. And we can all learn how to do that. It's the old argument in a sense that comes out of our history.

BILL MOYERS: Here's a viewer named Jeff chiming in. "Dr. Wolff, can you please give a concrete, not academic or theoretical explanation, of how you would apply your employee-run business model to a McDonald's, Wal-Mart, a hospital or JPMorgan Chase?"

RICHARD WOLFF: Well, the answer is best given not as a hypothetical but to describe an enterprise which is large like all of those are, which has done this.

BILL MOYERS: There's a film called Shift Change, about the cooperative efforts. And we'll provide a link to that.

RICHARD WOLFF: Well, the example I'm going to give is a company in Spain. It's called Mondragon, the Mondragon Cooperative Corporation. And a little history may interest folks. It was started in the middle of the 1950s by a Catholic priest in the north of Spain in the Basque area just south of the Pyrenees Mountains.

It was a time of terrible privation in Spain after the World War II and the Spanish Civil War. There was terrible unemployment in this area and the Catholic priest decided that one way to deal with unemployment was not to wait for a capitalist employer to come in and hire people but to set up cooperatives. And he began with six parishioners in his Roman Catholic church to start a co-op.

Okay, this is 1956. Let's fast forward to 2013. That corporation now has over 100,000 employees. It has been a success story of gargantuan proportions. It is a family of co-ops, within this large corporation. In most of these co-ops the workers make the decisions of how this cooperative works.

So let me give you an idea of how successful they've been. They partner with Microsoft and General Motors in their research labs because Microsoft and General Motors want to tap into their creative way of running a business. They have a rule that nobody can get more than six times what the lowest paid worker in an enterprise gets.

The typical situation in a major American corporation is that the top executives gets 300 or 400 times what their lowest paid worker does. So they have solved the equality problem in a dramatic way for 120, roughly, thousand people. There's a concrete example of how you can make a cooperative democratically run enterprise successful, growing and becoming a powerful community force.

There is Arizmendi, the name of that priest in Spain, there's the Arizmendi Bakeries, six of them in the Bay Area that are all run as cooperatives. And they run it as a worker-directed enterprise. They've been very successful. Their commitment, number one, is not profit. Their commitment, number one, is not growth. Their commitment, number one, is to their people.

BILL MOYERS: Which brings me to a question from another viewer. "How do you move to this alternative you're talking about and writing about without strong unions? Union membership is down to its lowest level since 1936 when Franklin Roosevelt was president. And can you do this without increased strength among unions?"

RICHARD WOLFF: A union in its negotiations with an employer currently is limited in most cases to asking for better wages, better working conditions. Imagine with me for a moment what it would mean if the unions developed a new strategy. Let's call it a two-track strategy.

On the one hand you continue bargaining with your workers for better conditions from your employer. But on the other hand you do something else. You begin to train workers to become able to run their own enterprises and to have a whole new bargaining chip when you confront an employer. Many unions over the last 30 years have been confronted by a company that basically comes and says the following. "We're thinking of leaving Cincinnati, Sheboygan, Detroit, whatever. We need to get some concessions from you.

"We won't leave if you give us wage give backs, lower benefits, all the usual things, or else we'll leave." The union doesn't know what to do, is terrified, doesn't want to call the bluff because not sure it is a bluff, et cetera, et cetera, so eventually the union caves. That has been the history over and over again.

Imagine a union that had been able to say to these folks, "Okay, if you leave rather than coming to a reasonable accommodation with us, we are going to set up an enterprise right here. The factory you leave we will occupy. The jobs you don't pay us to do we will do for ourselves. And you will be located in China bringing goods back here, but we'll continue to produce goods here and let's see which goods the American working people will buy."

BILL MOYERS: But they will need capital to do that.

RICHARD WOLFF: Yes. And the question is where would the capital come from?

BILL MOYERS: The question is where will the capital come from?

RICHARD WOLFF: Good. The answer is, where the capital come from, there are several possibilities. The first possibility is the United States government. The United States government has the money, needs to do something for our unemployment problem and here's a way to do it because as the Marcora Law in Italy that I mentioned earlier illustrates there's a governmental and a social interest in doing this. This is a better way to solve the unemployment problem than giving people a dole for months or years at a time during which time they lose their job connections, they often lose their skills.

This is a much better solution, giving them the startup money to begin small, medium size enterprises that they will have a great interest in making successful because it's their future, it's their wellbeing that's at stake and it's their collectively owned and operated enterprise.

Well, why in the world don't we have a cooperative business administration providing startup money and technical help so that these kinds of enterprise, particularly helping unemployed people, could begin not only to help them and to help our economy but again to provide that freedom of choice for Americans so we can all see how these enterprises work and make a collective decision whether we'd rather have an economy more of them than of the old capitalist type. And again I think that the capitalists would be surprised by how many of us would choose that other route. And that would be a way to get it going.

BILL MOYERS: This is all very provocative and very controversial. And very imaginative. We'll have you back at this table before the season is over. But in the meantime I look forward to our live chat on BillMoyers.com this coming Tuesday at 1:00pm Eastern Time.

RICHARD WOLFF: Good. I look forward to it as well.

BILL MOYERS: So make a note, Richard Wolff will be responding to you directly, without the middleman, in a live chat at our website, billmoyers.com. You can start submitting your questions now at the website or on our Facebook page. Again, Tuesday, March 26th, 1 pm, eastern time. Meanwhile, to mark the 10th anniversary of the U.S. invasion of Iraq – fought at a cost that continues to mount – you can go to our website for a link to our much-discussed documentary, buying the war. That’s at billmoyers.com. I’ll see you there and I’ll see you here, next time.

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