It was no surprise that the economy dominated last night’s presidential debate. We play excerpts and get reaction from Pulitzer-winning journalist David Cay Johnston, author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: It was no surprise that the economy dominated last night’s presidential debate, held in a town-hall format in Nashville, Tennessee. Both Senators Obama and McCain described the current state of the economy in dire terms: the worst financial crisis since the Great Depression, the biggest financial crisis and challenge of our time. But they repeatedly clashed on taxes, spending and the root causes of the present crisis.
This is an excerpt of one of the many questions on the economy, beginning with a question from a man named Oliver Clark.
OLIVER CLARK: Well, Senators, through this economic crisis, most of the people that I know have had a difficult time. And through this bailout package, I was wondering what it is that’s going to actually help those people out.
SEN. JOHN McCAIN: Well, thank you, Oliver, and that’s an excellent question, because, as you just described it, bailout, when I believe that it’s rescue, because — because of the greed and excess in Washington and Wall Street, Main Street was paying a very heavy price, and we know that.
I left my campaign and suspended it to go back to Washington to make sure that there were additional protections for the taxpayer in the form of good oversight, in the form of taxpayers being the first to be paid back when our economy recovers — and it will recover — and a number of other measures.
But you know, one of the real catalysts, really the match that lit this fire, was Fannie Mae and Freddie Mac. I’ll bet you, you may never even have heard of them before this crisis. But, you know, they’re the ones that, with the encouragement of Senator Obama and his cronies and his friends in Washington, that went out and made all these risky loans, gave them to people that could never afford to pay back.
And you know, there were some of us that stood up two years ago and said we’ve got to enact legislation to fix this. We’ve got to stop this greed and excess. Meanwhile, the Democrats in the Senate and some — and some members of Congress defended what Fannie and Freddie were doing. They resisted any change. Meanwhile, they were getting all kinds of money in campaign contributions. Senator Obama was the second-highest recipient of Fannie Mae and Freddie Mac money in history — in history.
So this rescue package means that we will stabilize markets, we will buy — we will shore up these institutions. But it’s not enough. That’s why we’re going to have to go out into the housing market, and we’re going to have to buy up these bad loans, and we’re going to have to stabilize house — home values. And that way, Americans can — like Alan, can realize the American dream and stay in their home.
But Fannie and Freddie were the catalysts, the match that started this forest fire. There were some of us — there were some of us that stood up against it. There was others who took a hike.
TOM BROKAW: Senator Obama?
SEN. BARACK OBAMA: Well, Oliver, first, let me tell you what’s in the rescue package for you. Right now, the credit markets are frozen up, and what that means, as a practical matter, is that small businesses and some large businesses just can’t get loans. If they can’t get a loan, that means that they can’t make payroll. If they can’t make payroll, then they may end up having to shut their doors and lay people off.
And if you imagine just one company trying to deal with that, now imagine a million companies all across the country. So it could end up having an adverse effect on everybody, and that’s why we had to take action. But we shouldn’t have been there in the first place.
Now, I’ve got to correct a little bit of Senator McCain’s history, not surprisingly. Let’s, first of all, understand that the biggest problem in this whole process was the deregulation of the financial system. Senator McCain, as recently as March, bragged about the fact that he is a deregulator. On the other hand, two years ago, I said that we’ve got a subprime lending crisis that has to be dealt with. I wrote to Secretary Paulson, I wrote to Federal Reserve Chairman Bernanke, and told them this is something we have to deal with, and nobody did anything about it. A year ago, I went to Wall Street and said we’ve got to re-regulate, and nothing happened. And Senator McCain, during that period, said that we should keep on deregulating because that’s how the free enterprise system works.
Now, with respect to Fannie Mae, what Senator McCain didn’t mention is the fact that this bill that he talked about wasn’t his own bill. He jumped on it a year after it had been introduced, and it never got passed. And I never promoted Fannie Mae. In fact, Senator McCain’s campaign chairman’s firm was a lobbyist on behalf of Fannie Mae, not me.
AMY GOODMAN: My next guest is a former investigative journalist for the New York Times, won a Pulitzer in 2001 for his investigation of the tax system. His latest book is Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).
Very relevant, David Cay Johnston, in 2008.
DAVID CAY JOHNSTON: Indeed. This is a bigger free lunch than even I imagined.
AMY GOODMAN: David Cay Johnston is joining us from the PBS station in Rochester, WXXI. We welcome you. Well, why don’t you respond first to the comments you just heard from Obama and McCain?
DAVID CAY JOHNSTON: Well, the senator from Arizona’s description of the facts is just extraordinary for being a fact-free zone. Fannie Mae and Freddie Mac never originated a single loan. They certainly are participants in what went on here, but the problem was caused by this notion of, quote, "deregulation."
And, of course, there is no such thing as deregulation. Everything has rules. Think about baseball, which is a trivial, a fun activity. Baseball regulates how many stitches are on the baseball. And all deregulation has meant for the last thirty years is new rules that favor those with the most money.
Well, the rules that were set up encouraged bad lending practices, and, most importantly, they separated risk from responsibility. You’re always hearing about risk and reward being tied together, but they separated risk from responsibility, because if you’re a bank and you make a loan and you have to hold that loan or some of your loans in your portfolio, you’re going to be very careful about vetting the borrower to make sure you’ll get back the principal and the interest. But if you can package a loan, securitize it and then sell it to places like the pension funds that you and I support with our tax dollars for public employees, then what do you care if the loan goes bad, especially if you get big fees and especially if the more toxic the loan is, the less likely it is to be repaid, the bigger your fees? That’s what deregulation has meant, and that’s what’s brought us to this pass.
AMY GOODMAN: I wanted to ask you about a comment of McCain’s in the debate. He, last night, unveiled what he called a new plan for the Treasury to buy up distressed mortgages to help struggling homeowners.
SEN. JOHN McCAIN: As president of the United States, Alan, I would order the secretary of the Treasury to immediately buy up the bad home loan mortgages in America and renegotiate at the new value of those homes — at the diminished value of those homes and let people make those — be able to make those payments and stay in their homes. Is it expensive? Yes.
AMY GOODMAN: That was the Arizona senator, John McCain, talking about his proposal. Now, the Obama campaign later said McCain’s plan is already in the bailout approved by Congress and that Obama has already proposed it. He said McCain’s credibility on addressing the economy is undermined by his endorsement of Bush administration tax cuts. David Cay Johnston, your response?
DAVID CAY JOHNSTON: Well, first of all, we have an enormous problem that is not going to be solved by the government. What you’re seeing right now is politicians taking your money and redistributing it upward. And our whole national myth is that we take from those with a lot and give to those down below. That’s not what goes on. That’s what my books have shown, from the official government data. This is a transfer of wealth and income: five percent of the year’s economy to essentially wealthy bankers and, to some degree, customers of theirs.
Studies done — a study done just recently of thirty-seven — forty-two banking crises around the world over the last thirty-seven years show that these things don’t work. And the government is not big enough to solve this problem.
These assets that were artificially inflated — the selling of mortgages for 125 percent of the value of a house; the issuing of car loans, where someone walks in and wants to buy a $40,000 SUV, and they walk out with $25,000 in their pocket because they got a $65,000 loan — is at the core of this problem. We are going to have to sustain these losses. These assets are going to have to fall back down in price. It’s going to be an awful, painful process.
The senators’ idea here, by the way, is striking, because — both senators — because while they both talk about market capitalism, what they are describing is corporate socialism.
AMY GOODMAN: Did you oppose the bailout, David Cay Johnston?
DAVID CAY JOHNSTON: I’m not opposed to the bailout, per se. I’m not saying government shouldn’t do anything. But here’s the thing to ask yourself. We were told the problem is the credit markets are freezing up because those who have cash to place are not at all confident they will get their money back, even if it’s only loaned out for one night, so we approved this $700 billion bailout package. When are they going to start spending the money? After the elections. Now, what does that do about overnight lending and short-term lending? Absolutely nothing. That’s not what this was about. This was a Goldman Sachs plan by the former head of Goldman Sachs to, first and foremost, take care of the people on Wall Street.
There are other solutions. There’s a whole slew of economists who have proposed different solutions out there. One of them is we can create a temporary new section of the bankruptcy code. People can go into the bankruptcy court — bankruptcy courts are practical courts; they are interested in clearing the decks and moving people forward — and get a ruling. We’re going to rewrite your mortgage, or, too bad, you’re going to be foreclosed on. There’s no consideration, by the way, being given here to small landlords. A lot of mom-and-pop landlords got sucked into these loans. And if they are kept out of the process, it means renters are going to be evicted, renters who had nothing to do with this. We can inject liquidity into the system, what you’re seeing the government doing, and the implication of that is inflation.
So, I — we didn’t discuss options. That’s what troubles me, is Congress only heard from the advocates of this plan. They took no testimony from anybody else, only from the two principal advocates of this plan.
AMY GOODMAN: What did you think of the media coverage of all of this, David Cay Johnston?
DAVID CAY JOHNSTON: Awful, absolutely awful. And I have been at sites for journalists citing this. You had flat-out falsehoods open the CBS Evening News with Katie Couric and the Nightly News on NBC with Brian Williams Monday, a week ago, when the stock market fell. Both of them said it was the one — the biggest one-day decline ever in the stock market. It isn’t even the biggest in the last twenty-one years. It was the third. Now, it’s a big story, it’s important, but why would you not tell the truth about that? And it’s because they’ve bought into the hype.
The administration, just as it came up with a plan, to focus on using the herd mentality, the gullibility, the lack of skepticism among the Washington press corps and the way that most people there operate, which is on access to sources while ignoring a vibrant, rich public record of documents that will tell you what’s going on, have understood how to play this to a fairly well. And it’s just astonishing to see that — having been so badly burned and embarrassed on the run-up to the war in Iraq to the point where we now know that the government knew there were no weapons of mass destruction, you would have expected skepticism. After all, the first rule of journalism is check it out. And there was not checking here. There was advertising posing as news.
AMY GOODMAN: We’re talking to David Cay Johnston. David, before I got to the next excerpt of the debates last night, I wanted to ask you about this global recession. We were just speaking to the Italian economist Loretta Napoleoni. Can you just quickly talk about the connection? Was the subprime mortgage crisis here the root of the entire global meltdown that we’re seeing?
DAVID CAY JOHNSTON: Well, it’s fundamental — the professor gave, I thought, a very masterly account of this. It was fundamental to it, but I think the root is something deeper. It is the artificial inflating of assets, driven by Wall Street, that is at the real core of this problem. What appears to have tipped the crisis was the decision by Secretary Paulson to let Lehman Brothers collapse, and that panicked everyone. But if we’re going to live in an interconnected global economy and everyone is going to follow the same bad practices, you’re going to get the same bad results. And the focus of our attention ought to be on sound banking practices, on sound economics.
AMY GOODMAN: The issue of the candidates’ positions on cutting and raising taxes has come up repeatedly in the debates. Let me play an excerpt of Senator Obama and Senator McCain sparring over this question last night.
SEN. JOHN McCAIN: Well, you know, nailing down Senator Obama’s various tax proposals is like nailing Jell-O to the wall. There has been five or six of them, and if you wait long enough, there will probably be another one. But he wants to raise taxes. My friends, the last president to raise taxes during tough economic times was Herbert Hoover, and he practiced protectionism as well, which I’m sure we’ll get to at some point.
You know, last year, up to this time, we’ve lost 700,000 jobs in America. The only bright spot is that 300 — over 300,000 jobs have been created by small businesses. Senator Obama’s secret that you don’t know is that his tax increases will increase taxes on 50 percent of small business revenue. Small businesses across America will have to cut jobs and will have their taxes increase and won’t be able to hire because of Senator Obama’s tax policies.
You know, he said some time ago — he said he would forgo his tax increases if the economy was bad. I’ve got some news, Senator Obama: the news is bad. So let’s not raise anybody’s taxes, my friends, and make it be very clear to you I am not in favor of tax cuts for the wealthy. I am in favor of leaving the tax rates alone and reducing the tax burden on middle-income Americans by doubling your tax exemption for every child from $3,500 to $7,000, to giving every American a $5,000 refundable tax credit and go out and get the health insurance you want, rather than mandates and fines for small businesses, as Senator Obama’s plan calls for. And let’s create jobs, and let’s get our economy going again. And let’s not raise anybody’s taxes.
SEN. BARACK OBAMA: I want to provide a tax cut for 95 percent of Americans, 95 percent. If you make less than a quarter-million dollars a year, you will not see a single dime of your taxes go up. If you make $200,000 a year or less, your taxes will go down.
Now, Senator McCain talks about small businesses. Only a few percent of small businesses make more than $250,000 a year. So the vast majority of small businesses would get a tax cut under my plan. And we provide a 50 percent tax credit so that they can buy health insurance for their workers, because there are an awful lot of small businesses that I meet across America that want to do right by their workers, but they just can’t afford it. Some small business owners, a lot of them, can’t even afford health insurance for themselves.
Now, in contrast, Senator McCain wants to give a $300 billion tax cut to — $200 [billion] of it to the largest corporations and $100,000 of it — $100 billion of it going to people like CEOs on Wall Street. He wants to give the average Fortune 500 CEO an additional $700,000 in tax cuts. That is not fair, and it doesn’t work.
AMY GOODMAN: Senators Obama and McCain, debating last night in Nashville. We’ll go to break and get Pulitzer Prize-winning journalist David Cay Johnston’s response after. Stay with us.
AMY GOODMAN: David Cay Johnston, our guest, commenting on the — well, did he call it a “fact-free zone” last night in the debate in Nashville, Tennessee? Former investigative journalist for the Times, won a Pulitzer Prize for his coverage of the tax system.
Your response to their analysis and their positions?
DAVID CAY JOHNSTON: Meaningless marginalism and economic fantasy that Lewis Carroll, had he been an economist, could have written. The fact is that we have a government — we were promised in 1980 by Ronald Reagan: “Elect me, and I’ll get you very quickly to balanced budgets.” Instead, we have four times the amount of government debt that we had back in 1980.
The taxes that Americans have paid in advance for Social Security benefits in the future were spent, principally to finance tax cuts for the wealthiest Americans. Right now, with the bailout in effect next year, all of the tax — the equivalent of all the income taxes that you pay in January, February, March, April and a good chunk of May just go to pay interest on the national debt, you know, and that money goes to China, foreign sovereign funds, wealthy individuals, insurance companies. It is a transfer from working people to those who are already wealthy.
The idea that we can cut our way out of this is just absurd. And let me give you a little example of this, Amy. I spent six weeks in Europe this year talking to ordinary people in twelve countries — rural Slovakia, Scandinavia, elsewhere — and about their economics and their finances. In Sweden, you are three times more likely to own a boat than you are in America. You’re much more likely to own a home free and clear. In fact, I walked up to a gaggle of bus drivers in Stockholm, and it turned out every one of them owned two houses — a city house or apartment and a country home — and every one of them owned them free and clear. What are the odds in the American economy that you could find a dozen bus drivers anywhere who owned one house free and clear?
There is a fundamental flaw in the economic theory that we have been operating on for years. And that theory doesn’t address the matters, what you spend your tax dollars on. We are not spending our tax dollars on greasing the wheels of commerce, building a stable society, educating people and removing the shocks from things like accidents and disease. We are spending it on income transfers to the rich, on war, on interest on the national debt. And it’s impoverishing us steadily. Neither one of these presidential candidates is addressing the need for fundamental reform to build a sound economy that will take us into the future.
AMY GOODMAN: Here’s a question from last night’s moderator, Tom Brokaw of NBC.
TOM BROKAW: Quick discussion: is healthcare in America a privilege, a right or a responsibility? Senator McCain?
SEN. JOHN McCAIN: I think it’s a responsibility, in this respect, in that we should have available and affordable healthcare to every American citizen, to every family member. And with the plan that — that I have, that will do that.
But government mandates I — I’m always a little nervous about. But it is certainly my responsibility. It is certainly small business people and others, and they understand that responsibility. American citizens understand that. Employers understand that. But they certainly are a little nervous when Senator Obama says, if you don’t get the healthcare policy that I think you should have, that you’re going to get fined. And, by the way, Senator Obama has never mentioned how much that fine might be. Perhaps we might find that out tonight.
SEN. BARACK OBAMA: Well, why don’t — why don’t — let’s talk about this, Tom, because there was just a lot of stuff out there.
TOM BROKAW: Privilege, right or responsibility? Start with that.
SEN. BARACK OBAMA: I think it should be a right for every American. In a country as wealthy as ours, for us to have people who are going bankrupt because they can’t pay their medical bills — for my mother to die of cancer at the age of fifty-three and have to spend the last months of her life in a hospital room arguing with insurance companies because they’re saying that this may be a preexisting condition and they don’t have to pay her treatment, there’s something fundamentally wrong about that.
So, let me — let me just talk about this fundamental difference. And, Tom, I know that we’re under time constraints, but Senator McCain threw a lot of stuff out there.
Number one, let me just repeat, if you’ve got a healthcare plan that you like, you can keep it. All I’m going to do is help you to lower the premiums on it. You’ll still have choice of doctor. There’s no mandate involved. Small businesses are not going to have a mandate. What we’re going to give you is a 50 percent tax credit to help provide healthcare for those that you need.
Now, it’s true that I say that you are going to have to make sure that your child has healthcare, because children are relatively cheap to insure, and we don’t want them going to the emergency room for treatable illnesses like asthma. And when Senator McCain says that he wants to provide children healthcare, what he doesn’t mention is he voted against the expansion of the Children’s Health Insurance Program that is responsible for making sure that so many children who didn’t have previously health insurance have it now.
Now, the final point I’ll make on this whole issue of government intrusion and mandates — it is absolutely true that I think it is important for government to crack down on insurance companies that are cheating their customers, that don’t give you the fine print, so you end up thinking that you’re paying for something, and when you finally get sick and you need it, you’re not getting it.
And the reason that it’s a problem to go shopping state by state, you know what insurance companies will do? They will find a state — maybe Arizona, maybe another state — where there are no requirements for you to get cancer screenings, where there are no requirements for you to have to get preexisting conditions, and they will all set up shop there. That’s how in banking it works. Everybody goes to Delaware, because they’ve got very —- pretty loose laws when it comes to things like credit cards. And -—
TOM BROKAW: Senator —-
SEN. BARACK OBAMA: —- in that situation, what happens is, is that the protections you have, the consumer protections that you need, you’re not going to have available to you. That is a fundamental difference that I have with Senator McCain. He believes in deregulation in every circumstance. That’s what we’ve been going through for the last eight years. It hasn’t worked.
AMY GOODMAN: David Cay Johnston, Senator Obama says healthcare is a right, Senator McCain says it’s a responsibility. This is our last question to you: your assessment of their responses?
DAVID CAY JOHNSTON: Wrong issue. The question should be, how do we get the most effective, least expensive healthcare system? And running healthcare as a profit-making business is not the way to do that. The rest of the modern world has figured out that there are more efficient, more effective ways to do this. Look at our auto industry. It’s moving from Michigan to Ontario. Healthcare — it is damaging our economy to treat this as a business. We need —- you know, what if somebody proposed kindergarten insurance? Just examine the whole debate about healthcare and imagine that we were talking about kindergarten insurance.
AMY GOODMAN: So you’re saying single-payer is the only answer?
DAVID CAY JOHNSTON: Well, I don’t know that single-payer is the only answer. There are other systems in other countries. You can have a competitive system, but you don’t want to treat it as a profit— making business. You want to treat it as a public service, just as we do law enforcement, education and public health, rather than individual health.
AMY GOODMAN: David Cay Johnston, we’ll leave it there. Thank you so much. Investigative Pulitzer Prize-winning journalist, his latest book, Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).