For a fake news show, anchored by a comedian, Jon Stewart does a creditable job of covering the news, and nowhere is that more true than in his interviews. Of course, The Daily Show does its share of ‘movie stars promoting their latest superhero movie’ nonsense. But he interviews the authors of books he loves (and in every instance, he’s clearly read the book), and he loves in-depth (yes, actually in-depth) interviews with policy-makers. And nowhere was that more evident than this extended interview with Timothy Geithner.
Geithner was, of course, President Obama’s Secretary of the Treasury when he first took office, the man principally responsible for the administration’s response to the financial crisis. He has new book out, Stress Test, which I have not read yet, but will. It’s essentially a defense of the Obama administration’s actions following that crisis. And to some extent, the policies he advised the President to support and adopt did succeed. Let’s be clear about that. The financial crisis was world-wide, affecting many nations. Of all the countries afflicted by it, the US came out of it better than most. We did succumb to austerity mania, but less so than, say, Britain. The combination of bank bailouts and economic stimulus did some good, managed to fend off complete disaster. Let’s be fair. The economy still struggles. But it could be worse.
But in this interview, Jon Stewart is relentless in insisting that the priorities of the administration were misplaced, that prioritizing saving the banks ignored the first victims of the crisis; hundreds of thousands of homeowners who remain underwater today. And Geithner is less convincing in his insistence that he (and the President) were progressives too, that they wanted to provide relief to homeowners, that they wanted to save the housing markets, but that they just couldn’t pull it off. That they were defeated by the political realities of the moment.
And I don’t question that they faced serious, and completely irresponsible political opposition. Stewart makes a salient point about the idea of ‘moral hazard.’ One argument against bailing out homeowners is the moral hazard argument; that a bailout would have rewarded irresponsible behavior by people who bought houses they couldn’t possibly afford. Financial markets were able to speculate on bundled and securitized sub-prime mortgages because a ton of people signed mortgage documents committing them to payments they couldn’t afford. So why should taxpayers who managed their finances prudently bail out people who did nothing of the kind? And by rewarding irresponsible behavior, aren’t we incentivizing it? Fine, I get all that. But where’s the moral hazard argument when it comes to banks? Why selectively argue moral hazard, to apply it to the middle class, but not to rich people?
Okay, so, go back to 2007. Personal story: our home mortgage was owned by Washington Mutual, which later changed its name to WaMu, I guess because some consultant told them it sounded cooler. WaMu: shudder. Worst bank in America. Which I didn’t know.
So I’m at work, sometime in the spring of 2007, and I get a call from a woman at WaMu, asking me if I was interested in refinancing my loan. I told her that my wife and had been thinking about it, about a debt consolidation re-fi. She told me about all the advantages of it, and pushed me to commit to it on the phone, that second. I said no, and went home and mentioned it to my wife. We talked about it, and decided not to do it.
That same WaMu saleswoman called me back at least seventy-five times. She called four or five times a week, for months. She got pushier and pushier. She kept increasing the amounts I could borrow. And I told her repeatedly that I wasn’t interested, and to please stop calling. I finally had to threaten legal action if she ever called again.
All right. WaMu, it turns out, was one of the worst offenders when it came to sub-prime. (The loans she was pressing me to buy wouldn’t have been sub-prime–I’ve got good credit. But that re-fi would have been bundled with a whole lot of toxic loans; I could have been a spritz of perfume sweetening a real turd of a CDO). (CDO=collateralized debt obligation–the prime driver of the financial crisis).
All right; that’s how hard WaMu was pushing this saleswoman to push me to re-fi. That was her job, presumably, to approve loans, as many as she could. Her job depended on it, as did her pay and chances for promotion. And we know details about many of the loans approved by banks like WaMu, or like Long Beach (which WaMu purchased), or all the rest of them. People with minimum wage hourly jobs and poor English language skills pressured to buy half-million dollar homes. That happened. It happened a lot.
So what would have been fair? What would have been equitable, what would have been just? And let’s grant Geithner’s premise; letting WaMu go under would have been immensely damaging to the economy. So the federal government took WaMu into receivership, then arranged a sale to JPMorgan Chase. And the whole sale is still being litigated and it’s all a big mess.
But here’s what did not happen; people who were pressured to take on mortgages they couldn’t pay for (many of whom had no idea what the papers they were signing even meant), got no relief. And that pressure came from above, from WaMu executives, who pressured loan officers to approve basically every application, often apps with no documentation, no collateral, no paperwork even.
I understand Geithner saying that banks had to be rescued, that the Obama administration had to hold their noses and save companies that had behaved irresponsibly, and that it was also all okay because their bailouts have been repaid, with interest. I get that. But the world wide financial crisis was not just a failure of risk management and it wasn’t just a bubble, and it wasn’t just a bubble. It was an enormous Ponzi scheme. Laws were broken. Fraud was committed. And nobody yet has gone to jail.
So, okay, I get that you didn’t particularly want to bail out AIG and Goldman Sachs, and that you were offended, even, that your job required that you advise the President to do so. But why aren’t the CEOs of both those companies in jail?
I understand that at least some of the actions taken by big companies weren’t actually illegal. Creating a CDO isn’t illegal. Credit Default Swaps aren’t illegal. So you can’t throw someone in jail for trading CDOs. But you can tighten up financial regulations. You can make default swaps illegal.
Banks are pretty heavily regulated. But large institutions that behave in most respects like banks aren’t regulated at all. The stock market is supervised (badly) by the Securities Exchange Commission. But the SEC has no jurisdiction over bonds. Why not? Why not at least push for it? I really rather think that bank regulation would be a political winner, don’t you?
Conservatives call Barack Obama a ‘socialist’ and insist that debt is THE big national problem. They’re wrong. He’s not a socialist at all. He’s a pro-business moderate, vaguely progressive, but timid in defending his convictions. There was a better deal that could have been made.