On Monday, the House voted 228-to-205 against authorizing the largest government intervention in the financial market in US history. The measure would have granted the Treasury unprecedented authority and up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates. As the economic crisis worsens and spreads across the globe, we speak with Robert Johnson, former chief economist of the Senate Banking Committee, and Bruce Marks, the founder and CEO of NACA, the Neighborhood Assistance Corporation of America. [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: In a major rebuke to the White House and congressional leaders, a bipartisan House majority has rejected the taxpayer-funded bailout of Wall Street. On Monday, the House voted 228-to-205 against authorizing the largest government intervention in the financial market in US history. The measure would have granted the Treasury unprecedented authority and up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates.
Shortly after the vote, Treasury Secretary Henry Paulson said the bailout talks will continue.
HENRY PAULSON: Our banking system has been holding up very well, considering all of the pressures. And there’s been a lot of work that’s been done, and you’ve seen us now for a period of months and weeks taking strong actions and actions that are essential in order to protect the banking system and the economy. And as I’ve said to you, we have significant tools in our toolkit, but they’re not sufficient. And so, we’re going to continue to work with what we have until we get from Congress what we need.
AMY GOODMAN: The vote had immediate repercussions on Wall Street. The Dow Jones Industrial Average fell nearly seven percent, or 778 points, its largest one-day point drop ever and its worst closing decline since the 9/11 attacks. On paper, shareholders on the Dow Jones Wilshire 5000 index lost a collective $1.2 trillion. The NASDAQ also declined, dropping 9.1 percent.
Most Republican lawmakers voted against the bill. Despite support from President Bush, presidential candidate Senator John McCain and Republican congressional leaders, 133 Republican Congress members voted no, doubling the sixty-five Republicans voting in favor. Across the aisle, 140 Democrats voted for the bill, with ninety-five opposed.
It’s widely believed the upcoming elections influenced members on both sides of the aisle. With congressional elections just a month away, incumbents were said to be particularly wary of growing public opposition. Of eighteen Democratic and Republican lawmakers in tight races for their seats, just three voted for the bill. House Republican leader John Boehner urged lawmakers to reconvene and pass new legislation.
REP. JOHN BOEHNER: At the end of the day, this is not about the Democrats or Republicans; it’s about our economy and what’s best for the American people. And regardless of what happened today, we’ve got — we have no choice, in my view, but to work together to try to find a solution to make sure that we save our economy and we save our constituents.
AMY GOODMAN: Many lawmakers were quick to assign blame across the aisle. Democrats said Republicans had succumbed to election-year politics. Several Republicans cited a speech by House Speaker Nancy Pelosi shortly before the vote in which she criticized Republican economic policies.
REP. NANCY PELOSI: $700 billion. A staggering number, but only a part of the cost of the failed Bush economic policies to our country, policies that were built on budget recklessness. When President Bush took office, he inherited President Clinton’s surpluses — four years in a row, budget surpluses, on a trajectory of $5.6 trillion in surplus. And with his reckless economic policies, within two years, he had turned that around. And now, eight years later, the foundation of that fiscal irresponsibility, combined with an anything-goes economic policy, has taken us to where we are today.
They claim to be free market advocates when it’s really an anything-goes mentality. No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute, and the taxpayer will bail you out. Those days are over. The party is over, in that respect. Democrats believe in a free market. We know that it can create jobs, it can create wealth, it can create many good things in our economy. But in this case, in its unbridled form, as encouraged, supported by the Republicans — some in the Republican Party, not all — it has created not jobs, not capital; it has created chaos.
AMY GOODMAN: House Speaker Nancy Pelosi, speaking before Monday’s House defeat of the $700 billion bailout of Wall Street. Lawmakers say they’ll continue talks toward reaching an agreement. The House isn’t expected to reconvene until Thursday. It’s Rosh Hashanah today, Jewish holiday.
I’m joined now by two guests: here in the firehouse, Robert Johnson, former chief economist of the Senate Banking Committee, he consulted with lawmakers on Capitol Hill during the negotiations over the $700 billion bailout. His latest piece, “Bridge Loan to Nowhere,” in online at nation.com. In Boston, we’re joined by Bruce Marks, founder and CEO of NACA, the Neighborhood Assistance Corporation of America.
We welcome you both. You’ve been down there, Rob Johnson, in Washington as a former chief economist. You know people on both sides of the aisle. You started with the Republican, you went on to the Democrats. What happened?
ROBERT JOHNSON: Well, first of all, Secretary Paulson put a dreadful plan forward, and it was as if he dropped a vacuum into the process. And Congress had to make a decision whether to adopt his simple and dreadful plan or put forward something of their own, but they had essentially one week’s time, with an anxious market, to put something together, so it was a very hurried process.
When they had made enough modifications, but essentially has adopted Paulson’s frame, you could feel the markets weren’t confident that it was going to work. The population, rightfully, didn’t feel like it represented them very well, and it was very unpopular. Republicans are very far out of power right now and losing power and afraid of losing their job. And some of the Republican congressmen thought they got a get-out-of-jail-free card. If they rebelled against this and actually represented the population, they could go forward claiming that they were on the side of the people. Democrats couldn’t afford to let them do that. And yesterday, Nancy Pelosi called the vote that she — how would I say? — I think understood would lose and send us all back to the drawing board.
AMY GOODMAN: You think she wanted it to lose?
ROBERT JOHNSON: I think it — I would say, probably, yes.
AMY GOODMAN: Why?
ROBERT JOHNSON: Number one, the Democrats can’t pass a bad bill and let the Republicans rebel against them. They’ll lose seats in the House. Number two, there’s now an opportunity to actually do something that’s much better vis-a-vis mortgage relief, a proper representation of the stockholders. You know, it’s as if we could have nominated Warren Buffett to represent the taxpayer. He would have structured the deal very differently. The deal we should get is the same deal Berkshire Hathaway stockholders get when he buys into Goldman Sachs.
AMY GOODMAN: Explain. What would Warren Buffett do now, if it was — if he was representing the taxpayers, and they were shaping this bill?
ROBERT JOHNSON: Well, the taxpayers have the strong hand. They’ve got the money. The Wall Street firms are weak. So he would go in. He would take control of the company, basically diminishing or wiping out the equity. He would probably ask for the resignation of top officials. He might not accept every resignation letter. He would restructure the company. He would sell off some assets. And then, when the company regained its health a few years down the road, he could sell those preferred stock shares back into the market and recoup the money for his investors, meaning, in this case, the US taxpayer.
AMY GOODMAN: In other words, he would restructure Wall Street.
ROBERT JOHNSON: That’s correct.
AMY GOODMAN: And what would happen, for example, with CEO pay? Do you think this is relevant here? It’s certainly a populist, popular issue.
ROBERT JOHNSON: CEO pay would probably reflect the quality of performance that we’ve seen in recent months.
AMY GOODMAN: Meaning?
ROBERT JOHNSON: So, diminished violently and appropriately.
AMY GOODMAN: We’re going to go to break, then we’ll come back. Our guest is the former chief economist for the Senate Banking Committee, Robert Johnson, and we are also joined in Boston by Bruce Marks, who is founder and CEO of the Neighborhood Assistance Corporation of America. This is Democracy Now! Back in a minute.
AMY GOODMAN: We’re talking about the bailout that did not pass yesterday. Our guests are Robert Johnson, former chief economist of the Senate Banking Committee — his latest piece is "Bridge Loan to Nowhere," online at nation.com. We’re also joined in Boston by Bruce Marks, founder and CEO of NACA, the Neighborhood Assistance Corporation of America.
Bruce Marks, let’s talk about what needs to be done. The last time I saw you, you were here in New York, headed off to a protest, what, at Citigroup? Citibank?
BRUCE MARKS: Yes, yes. And then, you know — and we’ve been doing a lot more protests since then. And we were just in Senator Reid’s office with over 150 people saying that this bailout should not happen. We should not be talking about nibbling around the edges, making it a little bit better. I mean, CEO pay, that’s a red herring. That’s not a relevant issue here.
The fact of the matter is, this thing should be killed. It should not happen at all. It does nothing, Amy, for the homeowners. And what we have to say to Congress, Amy, is we have to say, “It’s the foreclosures, stupid,” just like Bill Clinton said to the first George Bush, “It’s the economy, stupid.” We have to say to this Congress, “It’s the foreclosures, stupid.”
And they have to do three things: do a moratorium on foreclosures, stop the interest-rate increases, and restructure loans to make them affordable. That’s it, without one dollar of taxpayer money.
AMY GOODMAN: Do you agree with that, Rob Johnson?
ROBERT JOHNSON: I think that we should do those things. A Home Owner Loan Corporation, which the Roosevelt administration initiated, would be — how we say — the vehicle to answer many of the things that Bruce is asking for. But I think, in addition, we do have to restructure Wall Street. I think the plumbing of our society — well, to use the analogy of medicine, it’s like the blood has stopped flowing, and we need to clean up the banking sector so the blood can resume flowing and nourish the organs. But clearly, a necessary dimension of that is the foreclosure relief and the rescheduling of loans and reduction of the burden on the population, absolutely.
AMY GOODMAN: What else do you think needs to be done, Rob Johnson?
ROBERT JOHNSON: I think, at this point, we have to structure the support in a way that brings money back to the taxpayers when the financial sector is healthy. I referred to the Buffett analogy before, and I think that’s very important. Third thing, I think, is we need regulatory reform of the first order. And generally, that’s kind of hard to get after you’ve given people the money. So I might traunch the money. First part goes out, second part goes out contingent upon regulatory reform. Put a little pressure on it.
BRUCE MARKS: But —-
AMY GOODMAN: Bruce Marks?
BRUCE MARKS: But Rob, I mean -— but Rob, but that is, you’re saying to the American taxpayer, who are stressed now, who are — have tight budgets, you’re saying to them: $700 billion. If we give Wall Street $700 billion, how can you conceivably encourage working people to give that money, one dollar of that money, when people are so tight. And these are the very institutions — how are you going to stand up and say we justify giving Goldman Sachs billions of dollars, when, two years ago, they paid $16 billion in bonuses to their executives? How can you say that to the American people?
The fact of the matter is, we should kill this bill. It should not happen at all. That, you know, you’ve got to focus — if you focus on the foreclosures, if you focus on that, what does that do? That’s good for the homeowners. That’s good for — that’s good for the community. That’s good for the investors. It’s good for the servicers, because some return is better than no return.
And Paulson — let’s go back in history a little bit. Paulson says the sky is falling, we have to bail out Bear Stearns, $30 billion; the sky is falling, we have to bail out Fannie and Freddie, $200 billion; the sky is falling, we have to bail out AIG, $85 billion. Well, at some point, we’ve got to say, when you have a track record of failure, well, then we’ve got to say, maybe the sky is not falling. Maybe we need to let things play itself out out there. And that’s what we have to do.
And you know what, Rob? And you know what, Amy? When you have out there — he owns Fannie Mae. He owns Freddie Mac. And if you say out there to Fannie and Freddie, “We want you to set the standard in helping homeowners. We want you to do the Sheila Bair standard” — head of the FDIC. When she took over IndyMac, what did she do? Moratorium on foreclosures, restructuring mortgages. That has worked. When Paulson took over Fannie and Freddie, what did he do? Absolutely nothing. He did not stop the foreclosures. He did not force the restructuring of mortgages.
And we know it works, because at NACA, we’re a nonprofit, but we have over forty offices out there. We are restructuring mortgages to make them affordable. We’re reducing interest rate to five percent and less. We know that works. Obviously, we’ve got — it has to be done on a much, much larger scale.
Paulson can do that. Why should we trust him with $700 billion of our money? There’s nothing you can do to this bill to make it palatable to the American people. And that’s why all the establishment and the economists have said we should do it. But you know what? The American people are smarter than that, and they’re saying, “Hell no! We’re going to stop this thing,” because if I was a congressman, if I was a senator, I’d be scared to death to go to my district and say I supported this corporate bailout. It’s an outrage, and we’ve got to call it for what it is.
AMY GOODMAN: Rob Johnson?
ROBERT JOHNSON: Many different thoughts in your statement. Number one, I think the American people should be despondent. They should be angry. They should feel abused, and they should feel offended.
Number two, I don’t trust Hank Paulson with $700 billion, and I think it’s right not to. And I think the bill is very weak. As Dennis Kucinich said yesterday, there’s too many “may”s and not enough “shall”s.
Thirdly, I think that the credit system is much better — how do we say — the resolutions have been much better handled by Sheila Bair in the FDIC thus far than by Hank Paulson in the Treasury and the GSE.
But I do believe that this avalanche of leverage, which is an outgrowth of the history that we’ve had really going back to Ronald Reagan and the unbuckling of regulations and other things, is a calamity that can take the population down with it. And that’s the only reason I would say some form of restructuring that penalizes Wall Street executives is necessary at this time. I do not think this is a synthetic crisis; I believe this is a real crisis.
BRUCE MARKS: But let’s not talk about CEO pay, because, remember, all those CEOs, who have ripped off the American people and the stockholders, as well, of their companies, are gone. I mean, they’re gone. They’ve already walked with their hundreds of millions of dollars. They’re gone.
But how can we be out there — we gave a blank check to this administration five years ago, and we’re still in Iraq. And then, people want to say let’s give another blank check. And American people are much smarter than that. I mean, we need everybody — everybody — to call their congressmen. If people continue to call their congressmen, because over 90 percent of the phone calls out there are saying, “Don’t do it. Don’t do it.”
AMY GOODMAN: So, Bruce Marks, you’re saying don’t do anything. What would that mean?
BRUCE MARKS: Don’t do anything. That means that if you — focus on the foreclosures. Stop the hemorrhaging out there. Let the markets play it out, because of course the markets are going to go down. They’re going to go down today, because when you say this to the markets, “We’re going to give you $700 billion of American taxpayer money,” it’s like giving a child, you know, who’s sixteen, a brand new BMW and say, “This is great,” and then you take it away from them. Of course, the markets get pissed. And they’ll pout for a while. And they’ll go down for a while. But they’ll adjust, and they’ll deal with it. So, the fact of the matter is, let them deal with it.
AMY GOODMAN: Well, what about the fact that a number of economists say that if you did this, if you didn’t have a bailout, that would cause mass bank failures that would devastate the economy, the global economy?
BRUCE MARKS: Well, the problem is, with all due respect to the economists, the economists have been saying this is a cycle. Well, for people — eight years ago, I testified in Congress, and I said that if you allow Fannie or Freddie and the industry to get into subprime lending, it will be an economic catastrophe, and the taxpayer will be forced to bail them out. Well, eight years ago, if I knew that, the industry knew that. The problem, when you deal with economists, is they don’t know the mortgage business out there. And so, they’re thinking about this as a cycle. This is not a cycle. You have to focus on the mortgage business, because that’s the fundamental problem out there. And if you deal with the mortgages, you stop the foreclosures, you help the ten million people and more who are at risk of foreclosures. That’s dealing with the underlying issue, and that’s what we have to do. Let’s not deal with the symptoms; let’s deal with the underlying issue.
AMY GOODMAN: Rob Johnson, what about that? Would that solve it?
ROBERT JOHNSON: Well, I think there are a number of things that are necessary to solve. First of all, the structure of our representation in Washington is far too dependent on money and not dependent enough on people. So, someone with good ideas like Bruce doesn’t get enough traction, because the Wall Street guys can buy things out from under. And so, there are many structural reforms that are necessary here. Clearly, the foreclosure relief, restructuring, and refinancing the loans on the model of the Home Owners’ Loan Corporation is a necessary dimension.
And I think right now, with Pelosi’s letting this vote go down, is an opportunity for people to rise up all over this country, when they have this gift, which is in five weeks. Votes count more than money. And they can step forward right now and force a change in this bill and, in some sense, force the Democrats to change what they offer to the American people and maybe constituted what you might call a changing of the guard and a turning point in the way our society sets its priorities.
AMY GOODMAN: I want to play for you —-
BRUCE MARKS: But -—
AMY GOODMAN: Bruce, just one second. I want to play a clip of Dennis Kucinich — we spoke to him yesterday — right, the former Democratic presidential candidate, the Ohio congressman, who was voting no on the bailout.
REP. DENNIS KUCINICH: I’ll tell you something that we were told in our caucus. We were told that our presidential candidate, when the negotiations started at the White House, said that he didn’t want this in this bill. Now, that’s what we were told.
AMY GOODMAN: You were told that Barack Obama did not want this in the bill?
REP. DENNIS KUCINICH: That he didn’t want the bankruptcy provisions in the bill. Now, you know, that’s what we were told. And I don’t understand why he would say that, if he did say that. And I think that there is a — the fact that we didn’t put bankruptcy provisions in, that actually we removed any hope for judges to do any loan modifications or any forbearance. There’s no moratorium on mortgage foreclosures in here. So, who’s getting — who’s really getting helped by this bill? This is a bailout, pure and simple, of Wall Street interests who have been involved in speculation.
And I don’t, for the life of me, understand why this is going to do anything to address the underlying problems in the economy, which actually had to do with the recklessness. This is what the president of the Federal Reserve Bank in Dallas said, that — and, you know, I might have the actual quote here. Listen to this quote: he said, “The seizures and convulsions we’ve experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too tight monetary policy.” This is the Dallas Federal Reserve Bank president, Richard Fisher.
So, you know, we’re getting stampeded here to vote for something that doesn’t help homeowners, that doesn’t do anything about foreclosures, that doesn’t help those people who have been in bankruptcy and are looking for a way out. As a matter of fact, it made sure they can’t get out.
AMY GOODMAN: That is Dennis Kucinich. I was speaking to him yesterday. Rob Johnson, your response on Barack Obama’s leadership here, what he said was the message in the caucus?
ROBERT JOHNSON: I had read on the Huffington Post that Obama wanted to curtail the bankruptcy —- mortgage bankruptcy reform, what have you.
AMY GOODMAN: Why? What would that mean?
ROBERT JOHNSON: He thought, I think, that it’s streamlining the bill and hopes that somehow he can come into power and then work on that in the future. That’s how he expressed it. That’s the charitable interpretation. The other interpretation is that the banking lobbies are trying to stop it.
AMY GOODMAN: Why?
ROBERT JOHNSON: Because they don’t want somebody to tell them they have to reschedule mortgages and give relief. Bankers are always resistant to anybody that’s trying to change their control over their resources.
BRUCE MARKS: I -—
AMY GOODMAN: Bruce Marks?
BRUCE MARKS: I mean — yeah, when you look at it, I mean, look — let’s call it for what it is. The Democratic leadership — I mean, you’ve got out there — where’s Schumer? He’s supporting this. Where is Dodd? He’s supporting this. Where is Frank? He’s supporting this. I mean, where is Pelosi? She’s supporting this. The Democratic leadership has to get back to its Democratic principles. And we say to the Republicans, get back to your Republican principles. The Republican principles are free market, not corporate socialism. Get back to that. The Democrats are representing the homeownership opportunities, making these mortgages affordable. Get back to that.
Let’s not carry on — let’s not do the advocacy for the Bush administration. That’s what they’re doing. They’re carrying the water for the Bush administration and for the players that pay their bills, you know, the lenders. You know, at some point, you’ve got to say to the hand that feeds you, “You know, I’m going to stop taking you. I’m going to bite the hand that feeds me.” And that’s what we’ve got to say to Schumer, to Dodd, to Pelosi, to Frank: “Bite the hand that feeds you.” And then we’ve got to say to the Republicans out there, “Keep to your principles. Don’t agree to corporate socialism.” And then, if we can get to that, then we’ll have a bill out there that’s going to be focused on the homeowners. And that’s what we have to do. Let’s keep the focus on where it has to be.
We have the tools. Paulson has the tools. And I think Rob would agree with me with this: when you look at the mortgage-backed security industry, in every contract there is between a servicer and the investor, there is wording in there that says one of two things: you adhere to the Fannie Mae standard for default mitigation or the industry standard. Paulson has in his power today to change the industry standard for every person at risk of foreclosure. That means, if he said moratorium on foreclosure, restructuring the mortgages by reducing the interest rate, often to five percent or less to make it affordable, he could do that today, and he could do that for every homeowner out there who’s at risk of foreclosure.
Let’s call his bluff. Let’s say no to a taxpayer bailout. And let’s make sure that the homeowners are protected. And that’s the long-term solution. Yes, there will be short-term interruptions, but that’s what the bankruptcy procedures are in this country for both individuals and corporate bankruptcy. Let’s do it that way, without the taxpayer bailout.
AMY GOODMAN: Rob Johnson, what would that mean?
ROBERT JOHNSON: Well, what it would mean was you would relieve this overhang for many people who have what they call negative equity. Their mortgage debt is higher than the value of their house. Secondly, it would relieve the cash flow burden of the monthly payment, because, as Bruce said, the interest rate on that mortgage would come down. That would give breathing space to those people, allow them to afford other aspects of their — how do we say — of their life: you know, food, basic things. I’m not talking about running right to luxuries, because people are under a lot of stress.
The concentration of wealth and income in this country has been dreadful for the last twenty years, thirty years. And so, there are a lot of people that have an economic knife at their throat. And some relief on that margin would be very helpful for the macroeconomy, be very helpful for the, what you might call, instability of these mortgage-backed securities. And I think it might make people feel a little bit better about America, as well, that we might be doing something for the people that we say we represent.
AMY GOODMAN: We’re going to break, then come back to this discussion. Our guests are Robert Johnson, former chief economist of the Senate Banking Committee — he’s been down in Washington, he’s been behind the scenes in these negotiations — Bruce Marks, with us in Boston, founder and CEO of NACA, the Neighborhood Assistance Corporation of America. This is Democracy Now! Back in a minute.
AMY GOODMAN: Our guests, Robert Johnson, former chief economist of the Senate Banking Committee, Bruce Marks, founder and CEO of NACA — he’s in Boston — the Neighborhood Assistance Corporation of America. We want to go for a minute to the response of the two major party candidates to the failure of — or some might say the success of — the vote yesterday, but not voting for the bailout. We’re going to begin with Senator McCain.
SEN. JOHN McCAIN: I call on Congress to get back, obviously, immediately to address this crisis. Our leaders are expected to leave partisanship at the door and come to the table to solve our problems. Senator Obama and his allies in Congress infused unnecessary partner — partisanship into the process. Now is not the time to fix the blame; it’s time to fix the problem.
AMY GOODMAN: That’s Senator McCain. Now let’s go to Senator Obama.
SEN. BARACK OBAMA: A package has not yet passed, and so one of the messages that I have to Congress is: get this done. Democrats, Republicans, step up to the plate, get it done, and understand that even as you get it done to stabilize the markets, we have more work to do to make sure that Main Street is getting the same kind of help that Wall Street’s getting. We cannot forget who this is for. This is for the American people. This shouldn’t be for a few insiders.
AMY GOODMAN: And yet, Barack Obama, at least according to Congressman Kucinich, Rob Johnson, was against any bankruptcy reform, when he says let’s make sure Main Street gets what Wall Street gets.
ROBERT JOHNSON: I think that that is what’s on the record, unfortunately. But perhaps Barack Obama, who I think is a young and bright person, will read the shifting sands and, the end of the next five weeks, we may see a much more progressive response from him. And that — maybe I’m being a little bit hopeful there, but that’s what — there is that potential.
AMY GOODMAN: Bruce Marks, you’re laughing.
BRUCE MARKS: Yeah. I mean, the fact of the matter is, that’s the most fundamental issue. I think what Rob and I would agree on is that, you know, the bankruptcy — just the ability for working people to use the bankruptcy system, like corporations and like wealthy people can do, is fundamental. And that was the one thing where the lenders pushed back the hardest, and he backed off. And that’s really disappointing, like what the leadership is doing out there.
But also, it’s really important to say that it’s the people. And that’s what — you know, everything has been put in line. I mean, the leadership of the Democratic Party, the Republican Party and the administration and in Congress has lined up, and they had one problem: the American people. And they haven’t been able to get past the American people.
So, what’s really important, Amy, is everybody who’s listening and watching you today, call up their congressmen, call them up today and saying, “Hell no, do not vote for this bill. Do not vote for this Wall Street bailout.” And we’re winning. We’re winning. And we just have to kill this thing on Thursday, and then we can really focus on the homeownership.
Please, let’s not talk about CEO pay. That is a red herring. That is — that’s a diversion from the fundamental issue, because, yes, it’s outrageous that they get their money, but they’ve gotten their money. We should prosecute them and throw them in jail. That’s where they belong.
AMY GOODMAN: For what?
BRUCE MARKS: Because it’s fraud, it’s deception, it’s exploitation, it’s discrimination. It’s all those things. And they made hundreds of millions of dollars, and they should be in jail. They should be prosecuted.
But let’s focus on the issue right now, which is, kill this bill. There is now making it better at this point. We’ve got to give ourselves some breathing room to do that. So, people can go to our website at naca.com, or they can go to other places out there, but call your congressmen and stop it.
AMY GOODMAN: Let me ask you something. The vice-presidential debate is Thursday night between Palin and Biden. And, you know, a lot is being said about whether Palin can, you know, handle the economy issues, handle the foreign policy issues. But Biden was behind the push for bankruptcy bill.
BRUCE MARKS: Right.
AMY GOODMAN: Explain what that bankruptcy bill did, Bruce Marks.
BRUCE MARKS: Sure. I mean, what it does, it — and what it does — and it’s really — it’s really crucial, because it says that if you are a homeowner at risk of foreclosure and you file bankruptcy, you can have the bankruptcy judges, which are not the liberal activist judges out there, have the authority to say that they’ll cram down the mortgage or reduce the interest payments on that, which means that if you cannot afford — because if the judge looks at that and says, “This is, by definition, an affordable mortgage and should never have happened,” that they can reduce that mortgage amount from maybe $500,000 to $400,000 to keep that homeowner in their home, to do that. They can cram it down, what it’s called.
So, but now they don’t have the authority to do that. They’re prevented from doing that. Now, if you have a second home and that second home is at risk of foreclosure, they can do it on that. They can do it on every other type of mortgage out there, but they can’t do it on someone’s primary residence, where they live. It’s an outrage. And the point is that they say, well — you hear the criticism, “Well, we don’t want that the bankruptcy judges — they’ll be overwhelmed.” The fact of the matter is, if the homeowners threaten to go into bankruptcy, that forces the servicers and the investors to negotiate on a level playing field and gives the homeowner more rights and a little bit more influence to make that mortgage affordable.
AMY GOODMAN: But the bankruptcy bill made it much harder for people to declare bankruptcy, made it much easier for the credit card companies. I mean, this was a gift to the credit card companies to squeeze people. This was Biden’s bill. He was a major force behind it, the Delaware senator.
BRUCE MARKS: Absolutely. And it’s a pox on everybody. What they have been doing, the bidding for Wall Street, both parties, and now they have to be held accountable. We’re not standing up here and saying that Biden or Obama or McCain, that any one has been that much more aggressive out there in representing homeowners who are at risk of foreclosure. We’ve got to focus on keeping people in their homes right now.
AMY GOODMAN: By the way, I said that we were going to talk about the US attorneys scandal report that came out of the Justice Department with Murray Waas. We’re going to save that for tomorrow. This discussion is too important. Rob Johnson?
ROBERT JOHNSON: You mentioned the debate between Biden and Palin. And one could feel sad for the American people right now. They’re seeming to have to choose between someone who may not be expert on the issues but seems to have the heart of rebellion in her appearance and in her style, versus a man who’s been Mr. Inside and has the expertise. The problem is, when you defer to experts, you’ve got to ask, as the old government song was, who’s going to watch the man that watches the man that watches me? And who’s watching Joe Biden? Who’s watching these experts? Who are they working for? Are they working for rewards from the wealthy and powerful, or are they working to represent the people?
AMY GOODMAN: Rob Johnson, what do you think has to be done now? And what about Nancy Pelosi? Where does she fit in here?
ROBERT JOHNSON: Nancy Pelosi created an opportunity by not pushing the Democrats to support this bad bill, which could have been suicidal for many House members. What she needs to do now is to step away from the financial committees and understand that the emerging reputation for the Democratic Party is not about the inside baseball that Barney Frank and Chris Dodd are forced to play with the money politics and the whole history of those committees. They have to have a larger vision of what Democrats represent to the people, and they have to throw away the Paulson bill.
AMY GOODMAN: Are they going to do this, given you’re talking about now, you know, maybe the most important race in US history, the 2008 presidential race, and the most expensive presidential race in US history, the level of reliance on these very same corporations that you’re talking about penalizing, that these parties, that the Democratic and Republican Party, feed off of?
ROBERT JOHNSON: Yes. Probabilistically, I’m pessimistic, but I think —-
AMY GOODMAN: But keep going.
ROBERT JOHNSON: —- our job now is to develop a vision and an alternative that people can seize on that is good policy. I think there’s going to be a great temptation, particularly among the leaders of the financial committees, to make a deal to get twelve more Republican votes and try to pass this lousy bill. I don’t think that’s serving a population. I actually don’t even think it’s serving the financial system. I think you get a lousy financial structuring, kind of behind-the-table, smoky deal. We need confidence in our financial system. We need — we borrow so much money abroad, we need everyone to be confident. We’ve got to reboot trust in our society. This is a civic crisis.
AMY GOODMAN: So, how do you do it?
ROBERT JOHNSON: How do you do it? The first thing you do is like I said. I used the metaphor of Warren Buffett. You do a very severe restructuring. Bruce is exactly right. The executive pay issue is a red herring. It’s a symptom. It’s like a smoke signal of what’s going on here.
AMY GOODMAN: People certainly latch onto it. They understand 344 times more than what they’re getting.
ROBERT JOHNSON: Right, but it’s small potatoes compared to $700 billion. You’ve got to go out and say, how do you protect the population with a $700 billion, with capital restructuring? How do you re-regulate so that the financial system serves the economy? You know, when I was a student, they used to say, there’s society, and it uses an economy to meet its social goals, and finance facilitates the economy. Well, what’s happened was the servants’ servants become the masters’ master. And I think we’ve got to — how do we say — re-invert that and put things back into place.
AMY GOODMAN: So, lay it out. Lay it out, the bill that Rob Johnson would write. You’re former chief economist of the Senate Banking Committee?
ROBERT JOHNSON: Right, right. $500 billion would be used to go into preferred stock injections run by bank examiners. $200 billion would go into recapitalization of the FDIC. $200 billion would be put towards mortgage relief. Many legal changes, some of which Bruce is more expert than I am, regarding the GSEs and changing the nature of the bankruptcy code. So, you’re essentially restructuring there. You’re re-regulating Wall Street. You’re penalizing Wall Street. And you’re giving the American people ownership of the stock in the financial system, which can be sold on the market over ten or fifteen years.
AMY GOODMAN: Under Bill Clinton and Treasury Secretary Robert Rubin, Glass-Steagall was done away with. I mean, ultimately, Rubin had already left by then, but he was pushing hard for it. And Phil Gramm, the close adviser to McCain, he pushed it through. Rubin now, of course, the close adviser to Barack Obama.
ROBERT JOHNSON: Yes.
AMY GOODMAN: Glass-Steagall, that separated — Glass-Steagall being thrown out meant that there was not that line then between the investment banks and the commercial banks.
ROBERT JOHNSON: Right.
AMY GOODMAN: Do you think it should be reinstated?
ROBERT JOHNSON: Not per se, but what I would say is the repeal of Glass-Steagall was a symptom of the tide since Ronald Reagan of market fundamentalism. I don’t necessarily think it should be repealed. It does allow all kinds of conflicts of interest between different aspects of these mega-financial institutions to be perpetrated on our society. But I would say there are more important fish to fry right now in getting things straight.
AMY GOODMAN: Bruce Marks, you’re writing the bill; what is the bill that you’re going to put forward?
BRUCE MARKS: The bill will be, in fact, focused solely on the foreclosures. Stop the foreclosures. It would be, as we’ve been saying, you know, moratorium on foreclosures. It would be stop the interest-rate increases. It would be, force these lenders and servicers to restructure the mortgages, meaning to say, based on someone’s existing budget, their net income, minus their liabilities, minus their expenses, what’s available for a mortgage payment and reduce the interest rates to get to that payment. And we’re doing that for thousands of people. It can be done on a massive scale.
And then, I would say out there, don’t do anything else, because the fact of the matter is, if we provide $700 billion to bail out Wall Street, even in the constructive way that Rob is saying out there, what happens is there’s no guarantee that this is going to work. And then that means that if the economy goes into a severe recession, there’s no money left. So what happens with the next administration out there is that you have — if it is McCain, there’s no money for tax cuts; if it is Barack Obama, there’s no more money for healthcare or any of the other initiatives he wants to do. The fact of the matter is, we can’t allow this administration to bankrupt this country, in the sense that there’s no money left out there to do — either it’s raise social programs, or it’s a jobs program.
AMY GOODMAN: But would no bailout affect the very people you’re most concerned about, for example, the people who are being foreclosed on? Would the poor, would the middle class suffer the most from an economic bailout, or not — suffer the most from an economic collapse, or not?
BRUCE MARKS: Well, the fact of the matter is, let the — let our system work. If we’re a free enterprise system, which we’re supposed to be, let it play out a little bit. You know, if we need to hold money in reserve to deal with the crisis, then let’s do that. But we can’t throw everything at this when it’s a crapshoot. And that’s what you’re saying, because is there money left after really a trillion dollars of taxpayer money? Where does the next trillion dollars come from? Where do we get that money? Then, we’re dependent upon every foreign country, you know, the foreign markets in the world, to buy our bill, by our debt.
AMY GOODMAN: Rob Johnson?
BRUCE MARKS: And they’re going to be able to put the demand on us and the arm on us.
ROBERT JOHNSON: What I feel right now is that the people who are the weakest economically are the people who will be on the end of the whip. And we do have to spend that money now and not keep in reserve for the future, because their circumstances are very dire.
I believe it’s a fascinating time. We’ve talked about the disarray in the parties today, but Bruce sounds not that much different than lots of very ethical people on the right. The American Enterprise Institute and George Soros are writing the same op-ed piece. Economists on all sides and community activists — Alan Blinder, Martin Feldstein and Larry Lindsey, who worked in the Bush White House — are all talking about market mortgage relief. There is a consensus among people about how to do this, and they can’t break through what you might call the money politics system to get it done. But it’s not left or right, and that’s quite extraordinary. At some level, the crisis is so severe that ideology is being thrown out the window, and practicality is coming back.
AMY GOODMAN: John Kenneth Galbraith said the only respectable form of socialism is socialism for the rich in America, in America.
ROBERT JOHNSON: That’s sad that I even laugh at that, yes.
AMY GOODMAN: What about the concentration of these banks now? Reading in the headlines today, with the nation’s fourth largest bank, Wachovia, being acquired by Citigroup —
BRUCE MARKS: Right.
AMY GOODMAN: What we have now is Washington Mutual seized by regulators before its assets were sold to JPMorgan. Now, the nation has three superbanks: Bank of America, Citigroup, JPMorgan Chase.
ROBERT JOHNSON: You say, too big to fail. Well, if you’re too big to fail, you’re too big to be let loose to do whatever you want to do, because, in essence, you’re awarded the state. You’re like a public utility that we all depend on. And what they’ve tried to do is be too big to fail, but, on the upside, play whatever gambling games they want to do. That’s got to change.
AMY GOODMAN: Ten seconds, Bruce Marks, final words?
BRUCE MARKS: It is a real problem out there that these are so big they can’t even move to readdress what’s going on in the market. But again, the last words are: please, to all your viewers, call your congressmen, call your congresswomen. Tell them, don’t do the bailout. It’s working; we’re winning. The left and the right are coming together to stop this theft of the American taxpayer dollar. It’s a theft. Let’s stop it. We’re winning. We can kill this thing.
AMY GOODMAN: Bruce Marks, founder and CEO of NACA, the Neighborhood Assistance Corporation of America, speaking to us from Boston, and Rob Johnson, former chief economist of the Senate Banking Committee, his latest piece, "Bridge Loan to Nowhere," online at thenation.com.