In an extended interview, we speak with former New York governor Eliot Spitzer about the financial crisis and how it was handled by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner. Bernanke and Geithner "actually built and participated in creating the structure that now has collapsed," Spitzer says and calls on them to be replaced. Spitzer also talks about the scandal that erupted last year that forced him to resign as governor. "I have no doubt that there were many people who were opposed to me, very powerful forces, who were happy to see me go," Spitzer says. "Whether they participated, I’ll let others figure that out. I resigned because of what I did." [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
JUAN GONZALEZ: President Obama kicked off a White House jobs summit on Thursday aimed at developing a plan to combat the nation’s highest unemployment rate in twenty-six years. Speaking to 130 business leaders, union chiefs and economists, the President defended his policies, saying they slowed the pace of job losses and helped create economic growth. Obama will deliver a major speech on the economy at the Brookings Institution next week.
Meanwhile, on Capitol Hill, Ben Bernanke defended his record as chairman of the Federal Reserve at a Senate hearing on his nomination for a second term. While Bernanke conceded that some of the Fed’s lapses contributed to the financial crisis, he said the central bank’s actions ultimately helped save the economy.
BEN BERNANKE: Taken together, the Federal Reserve’s actions have contributed substantially to the significant improvement in financial conditions and to what now appear to be the beginnings of a turnaround in both the US and foreign economies. Today, most indicators suggest the financial markets are stabilizing and that the economy is emerging from the recession, yet our task is far from complete. Far too many Americans are without jobs, and unemployment could remain high for some time, even if, as we anticipate, moderate economic growth continues.
JUAN GONZALEZ: Bernanke and the Fed came under heavy criticism for failing to recognize the financial crisis until it was too late and then using taxpayer dollars to bail out financial giants like AIG and Citigroup. The New York Times reports the hearing provided new evidence of doubt among lawmakers about the Fed’s role as the nation’s guardian of the financial system.
On Tuesday, Independent Senator Bernie Sanders of Vermont declared that he would try to block Bernanke’s approval on the Senate floor by placing a hold on his nomination.
SEN. BERNIE SANDERS: So the very simple question that the American people are asking is, where was the Fed, where was the chairman of the Fed, in terms of observing the recklessness, the speculation, the casino-type activities that were taking place on Wall Street, which precipitated this major economic decline? And the answer is, the Fed was asleep at the wheel. Bernanke did not do the job that he was supposed to have done. So, for that reason alone, Mr. Bernanke should not be reappointed.
JUAN GONZALEZ: At yesterday’s hearing, Bernanke defended his record and highlighted the Fed’s efforts to tighten financial regulation, like stricter rules on subprime mortgages, tougher capital requirements and new proposals to regulate executive compensation at banks.
AMY GOODMAN: For more on the financial industry and the economy, we’re joined at the Democracy Now! studios by former New York governor Eliot Spitzer. He also served as New York State Attorney General, where he was known as the “Sheriff of Wall Street.”
We welcome you to Democracy Now!, Governor Spitzer.
ELIOT SPITZER: Thank you. Pleasure to be here.
AMY GOODMAN: Well, why don’t you start off by talking about how you think President Obama has handled the economy, the bailout? And you can’t speak in sound bites.
ELIOT SPITZER: Alright, no sound bites on this show, which is good news. And thank you for inviting me.
Let me begin by saying that I think Senator Sanders was wrong in only one respect: it wasn’t that the Fed was asleep at the switch; they were actually complicit. And by that, what I mean is that the Chairman, Ben Bernanke, and Tim Geithner, when he was the president of the New York Fed, actually built and participated in creating the structure that now has collapsed. And that, I think, is what is so problematic to so many of us. They are now claiming credit for having taken trillions of our tax dollars and given those dollars back to the banks to return them to solvency, when the initial bankruptcy and the initial illiquidity and the initial crisis was very much a consequence of the very policies they put in place.
Stepping back for a moment, we have a major crisis in this nation, and that crisis is jobs. That crisis is that we are seeing the elimination of the middle-class job foundation that permits most Americans to do better year after year after year. The reality is median family income has been stagnant for forty years, and the policies of what I call financialization, which is major banks trading assets back and forth, the Wall Street banks, such as Goldman, which is rightly a lightning rod right now for much of what’s going on, buying and selling, playing with tax dollars in proprietary trading — they make huge money, nothing is added to the economy, jobs are sent overseas. All of this going on simultaneously. That is what our economy has become.
And Ben Bernanke and Tim Geithner were the architects of this. And now they are saying, “Didn’t we do a good job six months ago giving money to the banks?” No. Go back two, three, five years. Where were they? Tim Geithner, over and over, bailed out the banks. He was, as president of the New York Fed, the overseer of the institution that collapsed. And so, it’s akin to going to a doctor who has said, “I have a great technique for you: I’m going to bleed you,” and he bleeds you, and he gets you more and more sick and sick and sick. Then when you’re about to die, he puts a tourniquet on you and says, “Gee, I’m good.” No, your prescriptions have been wrong since the beginning.
JUAN GONZALEZ: And you have been repeatedly critical of especially the portion of the bailout where AIG, a firm that you’re very familiar with, that you went after when you were attorney general for many of its many problems — the counterparties, the payments to Goldman Sachs and other institutions that AIG owed money to, could you talk about that?
ELIOT SPITZER: Sure. And that — the numbers on that one transaction, about $80 billion, are huge: $180 billion total to AIG. But the counterparty transactions, too technical to get into in too much detail, but are symptomatic of the mindset of the Fed. In a sentence, the counterparties — Goldman Sachs, other major banks — were paid 100 cents on the dollar for contracts that AIG had with them, using tax dollars. Goldman Sachs got a check for $12.9 billion tax money because AIG supposedly owed it to them when the Fed took over AIG. And nobody said, “Maybe Goldman doesn’t deserve any money. Maybe they don’t deserve 50 cents. Maybe — certainly they don’t deserve 100 cents on the dollar.”
What does this say? It says that when the Fed took over AIG, all they were thinking about doing was protecting the banks. They didn’t ask the question. There was — I started writing about this. And you’re right. AIG and I had a rather tense relationship. We found the accounting fraud there years ago, said that this is a company that is really in bad shape.
AMY GOODMAN: Well, you sued AIG.
ELIOT SPITZER: Oh, yes. And we got them to confess that they — and that’s when they removed Hank Greenberg as the CEO. Federal criminal charges were brought. Hank Greenberg was called an unindicted co-conspirator. And now he’s back in the good graces of Wall Street again, of course, because that’s how they handle these issues.
AIG was, to a great extent — their financial products division — a Ponzi scheme supposedly guaranteeing hundreds of billions of dollars of CDS collateral, credit default swaps, with no collateral behind it. That is part of what brought us down.
But that is the system that the Fed was overseeing. They specifically rejected the effort back in ’94, ’95 to regulate this swamp. The derivatives, that are a quintessential Wall Street creation, have some small utility at an economic level, but became an enormous revenue stream for banks, and they were unregulated. People made a fortune. We taxpayers hold the bag.
Now, the money, put in perspective, the $12.9 billion, a small piece of the whole bailout — Arne Duncan, our Secretary of Education, has $4 billion to redo all of K-through-12, and everybody’s saying, “Isn’t this great? Four billion dollars.” Goldman Sachs got $12.9 [billion]. Eight billion dollars for high-speed rail. Entire high-speed rail stimulus effort, $8 billion. Goldman Sachs got $12.9 [billion]. So what are the priorities, in terms of infrastructure investment, job creation, building the foundation of an economy that will permit us to be competitive so that real Americans can get jobs, not just investment bankers and lawyers?
JUAN GONZALEZ: Let me ask you, the American people are astounded that, a year later, many of these banks now, especially the biggest ones, have not only recovered, but are reporting record profits, while our — the unemployment rate of the people continues to increase.
ELIOT SPITZER: Right.
JUAN GONZALEZ: And President Obama has this summit now —-
ELIOT SPITZER: Right.
JUAN GONZALEZ: —- to try to deal with the jobs situation. What should the Obama administration do now to begin having an impact on this escalating unemployment rate?
ELIOT SPITZER: Look, the reality is the unemployment problem is structural. And I think what happened, unfortunately, is that the collapse of the last year metastasized a much longer, dangerous structural transformation of our economy, where the manufacturing base of our economy has disappeared over a period of thirty years. I think we all know that story.
What we need to do is invest in technology, biotech, nanotech; invest in education in a very significant way, K-through-12 and higher ed, to create the skills sets, create the ingenuity. The one competitive advantage we have always had, we always will have, is creativity. That’s what we have to invest in. It doesn’t generate overnight jobs.
Having said that, giving all the money to investment banks isn’t how you generate those jobs. You should — and the irony, if you — you see it in the commentary or what Chairman Bernanke said yesterday; he said, the problem is the banks aren’t lending. Wait a minute. He’s the one who gave the banks all the money. And I kept saying to Geithner and Bernanke, “Negotiate.”
They don’t know how to ask anything back in return for giving the banks all this liquidity. Why was it not a precondition of their being bailed out that they lend? Why was it not a precondition that they reform mortgages? In other words, so many consumers are still underwater, their houses worth less than the mortgage. Why not go to the banks and say, “You must reduce the face value of mortgages by x percent. We’re giving you trillions of dollars, not only cash, but the hidden subsidy that people don’t focus on”?
When credit is at zero percent, banks borrow at zero. They can buy T-bills at three percent and make a huge sum of money. And they’re doing it with our money. In other words, we have created this money machine for those who control capital, which is OK if we then, on the other side of the equation, say, “Use it for a good purpose, not for bonuses, but to invest in our economy.” And that is not what’s happening. They don’t know how to negotiate for us. And that was what was so infuriating about the IG report, which verified what so many of us had been saying, and I wrote in one of my Slate columns, “AIG, Again and Again” — or I think it was actually called “Geithner’s Disgrace.” He doesn’t know how to negotiate for us.
AMY GOODMAN: We’re going to come back to this conversation. We’re speaking with the former governor of New York, Eliot Spitzer, now a Slate columnist. Stay with us.
AMY GOODMAN: We are with Eliot Spitzer, the former governor of New York, former New York state attorney general. He sued AIG, among other entities. He is now a Slate columnist. And we’re talking about the state of the economy.
Do you think that Timothy Geithner should remain Treasury Secretary, Governor Spitzer?
ELIOT SPITZER: Well, let me say this: I would not have appointed him, and I think it’s because he came from a New York Fed that had been the architect and overseer of so much of what has gotten us into trouble.
I’ll give you one small example. Everybody says now we need a systemic risk regulator, somebody to look at sort of the aggregate risk, the excess leverage in our economy. And just so people understand this notion, the way I analogize it, CO2 is to global warming what debt is to systemic risk. Debt in individual transactions may look OK, just like one cow emitting, you know, methane may look OK. You put it all together, you have a crisis.
Now, why is that relevant? Tim Geithner, as president of the Fed, was the overseer of that structure. He was the one whose very mandate was to look at this. So, would I have appointed him? No. Would I now remove him? Look, I have fundamental policy disagreements with him. I guess the answer is yes, because I don’t think he should have been there initially, and I think that we are going down a very dangerous path.
And in just a few minutes, we will get job data that, if the sort of early data signs are correct, will once again show job losses in the 150 to 200,000 dollars — 200,000 range last month, bouncing around 10.2 stated unemployment, really closer to 17.5 to 20 when you look at total unemployment. We’ve got a crisis there. And this — the architect of the former system shouldn’t be there. We need a Joe Stiglitz or Rob Johnson, people who think in a very different way about creating jobs through small business and getting capital to small business, which is not what these major banks do anymore.
AMY GOODMAN: Should Ben Bernanke serve a new term?
ELIOT SPITZER: You know, look, these are extremely smart, capable people. I just disagree with them. So when I say the answer is no, it’s not because I think they’re bad people, but I just don’t think that as somebody who was there who permitted over and over these bubbles to be inflated and then said, “We’ll deal with it when it collapses,” without understanding — he had no conception of the subprime impact across our economy.
We began doing subprime cases when I was AG in ’99. In 2004, I wrote an article where I said a lot of this debt is going to explode. This isn’t good debt. Where was the Fed? The Fed believed this crazy system of securitization, where they believed that somehow they turned it into triple-A quality debt, when anybody who looked at it knew that these ninja loans and all the other games that we now fully understand were a facade. It was dangerous stuff. So, no, I would bring somebody in with a different perspective.
JUAN GONZALEZ: And of the proposals being considered now in the House and the Senate for new financial regulation of the system, what do you think is the most critical thing that the Congress needs to do?
ELIOT SPITZER: Well, look, I’m a big fan of Liz Warren, and so I’m excited at the notion that we get a Consumer Protection Agency with Liz at — hopefully somebody —-
AMY GOODMAN: Explain who Elizabeth Warren is.
ELIOT SPITZER: Elizabeth Warren has been put in charge of the oversight panel to actually look at how the moneys are being spent, through TARP and the others. And she’s done a great job. She’s a professor at Harvard Law School, written extensively about bankruptcy, the concerns of the middle class, had a good post on Huffington Post yesterday about -— detailing the plight of the middle class in America. So, that is good.
But I also wrote something called “The Regulatory Charade.” We don’t really need new rules. The rules are there. What we need are regulators willing to use them. The Fed has all the power it needs. And the very fact that Chairman Bernanke yesterday was listing all the good things they had done proves that they had the power under existing laws. He just didn’t want to use them. Tim Geithner, as head of the New York Fed, could have done whatever needed to be done, but they didn’t do it.
So, much more important — and the reason I call it “the regulatory charade,” businessmen and women don’t want us to examine their decisions, so they point the finger at regulators. Regulators don’t want us to ask the hard question, “Why didn’t you use your existing power?” so they say, “We didn’t have enough power.” Writing a new law to give them more power gives Congress something to do. So everybody’s happy. So we write a new law. There’s a big ceremony in the rose garden signing it, and we pretend that solves the problem. The real problem was we didn’t have regulators willing to do what they should have done. Who was it? Geithner, Bernanke. And that’s the fundamental problem. You need people there willing to challenge a capital structure that is not working.
JUAN GONZALEZ: Governor, we’d be remiss if we didn’t ask, now that you have your new life as a columnist, about your old life as governor of New York and the transition, the scandal that erupted more than a year ago, forced you to resign. Your thoughts and summation of that crisis and how you’ve come through it?
ELIOT SPITZER: Well, look, I — to use words that are all too frequently heard, I suppose, these days, I made egregious errors in my personal life. And some will say it wasn’t my personal life, and that’s fine. I understand that. I resigned. I did what I thought was appropriate. I’m not going to try to apply double set of standards and say, “Well, exempt me.” I resigned. I’ve paid a price for it. I’m trying to move on. I deeply regret it, obviously. My family has paid a huge price. I have a loving wife and a forgiving wife and three great kids. And so, we are moving forward. And I have lost the opportunity to do what I loved to do, which was, as attorney general and then as governor, to help rebuild an economy and a system that would benefit those in the society who need the help.
AMY GOODMAN: There has been some whispering of you going back into public life. Do you see that for yourself?
ELIOT SPITZER: What I have tried to do, and the only thing I can say is I’ve tried to do, is through writing, through participating in the conversation to the extent that I’ve been asked to do so and been honored to be asked, to try to lend my thinking. And the only reason I’ve done that, quite frankly, is that for the years I was attorney general, I think we were very often the lone voice out there saying we’ve got major crises, whether it was the environmental issues or the low-wage issues, where we had — you know, did a great deal. And those are the cases I was most proud of, or financial structure, where we said for years, “This system is not working.” And so, I’ve been happy to participate in that way. And if I can do so, I will do so, but that’s it.
JUAN GONZALEZ: And how do you think your successor, your former lieutenant governor, David Paterson, is doing these days? There’s all this talk about the Obama administration trying to get them not to run for governor next year.
ELIOT SPITZER: First, let me be very clear. I think that the Obama administration was ham-handed and fundamentally wrong in what they did. That was just an amateurish game being played by some people in the White House, and whoever it was responsible for that, the President should say, “Hey, get a new job.”
David, as any governor right now, has a very difficult job. Revenues are down 20 percent. The demand, in terms of support for education, healthcare, infrastructure, whether it’s the MTA or anything else, is going up, because it’s countercyclical. Whether it’s Arnold Schwarzenegger, Deval Patrick or any governor, they’re all unpopular. So David has had a rough go. He’s mishandled some things. I think he would acknowledge that. But I think right now, in the face of a very difficult budget crisis, he’s trying to force the legislature, which can be a cantankerous body sometimes, to make some tough decisions. And that’s not easy. He’s had a tough go of it.
AMY GOODMAN: Governor Spitzer, do you have any comment on the swiftness with which politicians are forced out of office because of personal failure and personal scandal as opposed to professional failures?
ELIOT SPITZER: Look, I’ll say only this, because I have tried not to say anything that seems either self-justifying or anything other than purely apologetic, which is what I can and must be. I suppose I just wish we had greater accountability on the substantive side. In other words, politicians, whether it’s Tim Geithner or Ben Bernanke, who have fundamentally been wrong, should be held accountable. I’m also in favor of accountability on the private side. I, you know —- and I try to act that way, but I think -—
JUAN GONZALEZ: Or some would say Dick Cheney, who should have been held —-
ELIOT SPITZER: Well, look -—
JUAN GONZALEZ: — who should be held accountable.
ELIOT SPITZER: No question about that. I think now the public understands that, and I think it is sometimes hard to mobilize the public to understand where the accountability should — who should be held accountable. One of the great concerns I have right now is that Sarah Palin’s apparent popularity, or if it only reaches maybe 25, 30 percent of the public, her capacity to touch a nerve reflects the fact that those of us who have a very different worldview, a more progressive worldview, have not yet articulated a vision that has drawn the public’s attention, and that worries me.
AMY GOODMAN: Do you think you were partly taken down by the very entities you were going after?
ELIOT SPITZER: I have been very careful in saying that I resigned because of what I did. And I have no doubt that there were many people whom I had — was on the — were opposed to me, very powerful forces, who were happy to see me go. Whether they participated, I’ll let others figure that out. I resigned because of what I did. And whatever they’re involved in doesn’t excuse what I did.
AMY GOODMAN: Back into our discussion of the economy, during the week of September 15, 2008, the week of the federal government deciding to bail out AIG, the company you sued, Treasury Secretary Henry Paulson spoke to the CEO of his former firm Goldman Sachs, Lloyd Blankfein, more than twenty-four times. This is in a New York Times exposé. What is your assessment of this?
ELIOT SPITZER: Well, on the fact that they were talking at that moment, I have a difficult time criticizing. At that moment, the world was collapsing, so they needed to know what was going on. I fault them for the substantive outcome, which led to that massive transfer of cash to Goldman, where even Goldman was saying, “We don’t have any exposure. We are fully hedged.” Now, there have been completely contradictory stories emerging, Goldman wanting to pretend “Our hedges gave us all the security, we didn’t need the money,” in which case, why did we give it to them? Either Goldman was misrepresenting its exposure, or they didn’t need the money. But they can’t both get the money and have no exposure.
And so, that’s why there’s — and again, this is merely emblematic of the much larger willingness on the part of the government to bail out Wall Street, because the government was dominated by a Wall Street perspective. Wall Street is not our economy, and we’re seeing that very powerfully right now with Wall Street bonuses going through the roof, but unemployment still going up.
JUAN GONZALEZ: I’d like to ask you about one other issue while you were governor that drew enormous controversy and fire on you: your stand on immigration and the attempt to provide driver’s licenses for people in New York state who were undocumented.
ELIOT SPITZER: Right.
JUAN GONZALEZ: That became a subject of the presidential debate.
ELIOT SPITZER: It sure did. And let me tell you, it was a policy that was being pursued in five other states, very conservative states, because it worked. It was a pro-law enforcement policy, pro-safety policy, supported by police chiefs, supported by Bill Bratton, head of — President Clinton’s security advisers supported it. But, of course, when you get Lou Dobbs up there with his megaphone screaming about “you’re giving something to illegal immigrants,” the substance got washed away.
JUAN GONZALEZ: Who now has had a change of heart and now wants —-
ELIOT SPITZER: Apparently, now that he wants to be president, he’s being nice to everybody. So, yes, we put out a policy that had bipartisan support. It got screamed down by a very powerful and angry perspective that unfortunately -— and we did not get the support we needed from a lot of folks who I think appreciated we were right, but it was a politically costly mistake for me. I still believe we were right. But other folks in the world of government did not want to stand there and take the incoming missiles.
AMY GOODMAN: Talking about professional and policy scandals, 45,000 people die a year as a result of lack of adequate healthcare. How does healthcare reform fit into this story of Wall Street, the stimulus?
ELIOT SPITZER: Well, again, it shows where resources are going. In other words, why is it — and, yes, we have a deficit problem that is very real, but why does the President say we have to make healthcare reform budget neutral, but then we spend $30 billion sending troops to Afghanistan. And obviously people say, well, security, you can’t — you have to take that outside the budget constraints. Look, I happen to disagree with the President on his decision to send the troops to Afghanistan. I’m with Tom Friedman and many others on this, for a long time have been saying, “Why? Explain it.” We need to give insurance to every citizen of the United States, every person who’s here.
AMY GOODMAN: Governor Spitzer, we want to thank you very much for joining us today, former Governor Spitzer, Eliot Spitzer, now a Slate</ i> columnist.