Liveblogging David Cay Johnston on WXXI
This is rough, I’ll try to clean up later. But DCJ’s suggestion on the next step is to call Congress and say “We want options. We want the least expensive solution.”
—–
David Cay Johnston: calls are running 300-1 against.
People are saying, I call my banker, there’s no problem. My bank keeps calling me and offering me loans. A number of bizmen tell me that there’s no problem with their biz.
One proposal is to sell preferred assets.
My thoughts: temporary moratorium on bankruptcy laws.
Other plans aren’t being discussed.
This is the plan: Paulson could buy whatever assets he wants, at whatever price he wants. No requirement that he look for best price for taxpayers. Oversight board would include Paulson and Bernake. [i.e. Fox & henhouse].
Couldn’t afford 7B/year for schip, providing healthcare to kids, but can afford this?
Bob Smith: question of priorities,then.
DCJ: Congress should hold hearings, bring in folks with different plans.
Backstory: Lehman bros collapse triggered this. Paulson decided not to help Lehman. Why? Goldman Sachs (Paulson’s company before he became Treasury Sec) is competitor to Lehman. Only non-gov’t person in room when deciding to not help Lehman Bros was the CURRENT head of Goldman Sachs.
Congress needs to bring in Goldman Sachs execs under oath. How much of this bailout is to protect Goldman Sachs?
Gareth in Rochester: POV of people in street. Old retired school teacher. Unfair for me to pay off mortgage offered by a bank or who overshot price of house. What about huge Wall St. CEO Salaries?
DCJ: Understanding of both issues is not correct. Gov’t is not bailing out homeowners. Homeowners were lured into mort where docs were changed. People still have to pay mortgage, even if gov’t is now holding loan.
Bill appears to have caps on exec. But no teeth in rules. Execs will say: I’ll gladly wait 5 years for my 100B bonus, if you bail me out for my bad decisions today.
BS: what about ways comps get around salary?
DCJ: they are very good at getting around these things. If we had a tax on really high wages, like >$10M, it would have an enormous effect.
BS: So we’d have a more progressive system, and in effect a salary cap.
DCJ: People who make 100-200k, you pay a higher share in taxes than those >10M.
BS: Tax rate is progressive until you get to top 99.9%. Then you get the Bush tax cuts.
Andrew in Irond: 2 questions. 1) Did the gov’t get us into this mess by getting poor people into houses?
DCJ: Not true. Fannie Mae and Freddie Mac operated just fine for 60+ years. Then decided we needed to deregulate banks and the shadow financial markets during Reagan years.
Andrew: Why didn’t Barney Frank reform it in 2003?
DCJ: He was in the minority then, plus Bush promised to veto any re-regulation.
Call congress: We want options. We want least expensive solution.
Bush/Paulson proposal gave Paulson unconstitutional powers.
Andrew: Have they done anything about sound regulation?
DCJ: Not yet.
Andrew: They can keep doing the crazy stuff they’re doing?
DCJ: Absolutely! You can go on internet and still find ads for low interest loans.
Andrew: They won’t even stop this stuff??
DCJ: Congress doesn’t respond to the voters. Gerrymandering has made most districts either safe Dem or safe GOP. Congress responds to the political donor class. Americans hopefully are realizing that our country has outsourced itself to people that make money off bad business decisions that are bad for America.
More below.
BS: Shoul this teach us to be less dependent on wall st?
DCJ: We need econ with broader base than we have. Be prudent. Have positive savings rate. Declining rate is largely due to declining SS benefits. Congress spent that on tax cuts for the rich. Fancy SUV=15 year car loan. Folly.
I was just in Europe interviewing people for new book, on finances. In Stockholm, a group of bus drivers owned two homes (city and country), free and clear. what are the chances of that in the US? They pay the highest taxes in the world. it all depends on what you spend those taxes on. Most swedes have higher standard of living than we do. Why? Their taxes go to oil the wheels of commerce, alt energy, mass transit, health care, etc.
[This is an amazing interview, I can't keep up with all the good stuff]
A study of bailouts show that bailouts don’t work. They reward the bad decsions. They keep in practice the same things that got in the mess. They’re a transfer of wealth from poor to rich.
John in Rochester: Economies of scale means that you should cut taxes on rich.
DCJ: The reason that we have democracy is: no wealth without civilization. greater the wealth of civilization has helped you, greater your moral burden to help civilization survive.
John: System would be more efficient with tax cuts for rich. High income people create jobs.
DCJ: Some, but a lot of high income people do nothing. High income people destroy jobs. We live in a different economy today. No serious economist would agree with that.
John: I’m against bailout way it was proposed. We have strong corporations in the US. They need to take the hit here. The market is up, so we’re strong.
DCJ: The stock market goes up and down. The national Chamber of Commerce and other major lobby groups are in favor of the bailout, b/c they believe we aren’t strong.
Cathy in Rochester: greater speculation ???
DCJ: My book Free Lunch is all about how with the taxes you pay, a lot gets diverted to wealthy Americans.
Cathy: What about Visa, MasterCard, and credit companies? Are they gonna need a bailout?
DCJ: Not Visa and MasterCard, they just collect processing fees. There’s a fundamental thing going on: through government action and inaction, Wall St. has inflated all kinds of assets. They have to come back down. There’s no escaping that pain. And Wall St. wants YOU to absorb the pain.
… lost connection
BS: Car companies got 25B in loans from the government. Because they’re too big to fail?
DCJ: Too big to fail? That’s not capitalism. Why are we getting more consolidation? We need more competition, not more consolidation.
Canada has only 6 banks, and that’s a problem.
Barbara: What has the tax cuts for the rich, cost taxpayers?
DCS: Since 2001, about 70B. Of the increase in income since then, 47% went to top 100 people.
Barbara: Can you give me one quote to change the minds of people that want to vote for continuing Republican policies in November?
DCS: One thing I don’t do is deal with political campaigns. I write about what the government is doing and has done. Not about statements from candidates.
Most Americans think of Bush as tax cutter. Clinton cut taxes for richest 1100 which was 60% bigger than Bush’s.
Roy in Rochester: People at the table don’t consider what Federalists said. Doesn’t this bailout thinking come out of Harvard Business School MBAs?
DCJ: I’m not an economist.
Roy: We need more “Maslow”s, less “Freidman”s.
DCJ: A lot of this has come out of the Chicago school. Some things coming out of it are better, some things worse. The bailout happened because banks came to lawmakers and said: get rid of government regulations, we know how to manage money.
Compare that to if you went to state government, and say “Most drivers are responsible, let’s get rid of speed limits, DWI laws, etc.” Regulation is not for the responsible, but when people make bad choices.
BS: what can we do short term?
DCJ: Market is not problem. The problem is, who holds these illiquid assets? If they’re highly concentrated in few banks, let them fail.
BS: And eliminate the bad debt.
DCJ: Right. If they’re spread around, it’s a bigger problem. We need to find out where these assets are, and strategically apply the least expensive solution. Know first, then act.
Related posts:
[...] insult the intelligence. I’ve put them below in case you didn’t want to read my transcript of (most of) the show. (I welcome any [...]