As 2009 comes to a close, we take a look at the state of the US economy with economist Dean Baker and the Reverend Jesse Jackson. "After throwing the economy into the worst downturn since the Great Depression and bringing the whole sector to the edge of collapse, the financial industry has used its political power to succor itself back to life," Baker writes. "It is now stronger than ever." [includes rush transcript]
AMY GOODMAN: We end today’s show with a look at the state of our economy here in the United States. On Christmas Eve, the Obama administration announced it was removing the $400 billion cap on Fannie Mae and Freddie Mac’s access to the US Treasury. The two bankrupt mortgage giants now get an unlimited draw on taxpayer dollars. The administration also announced that the chief executives of Fannie Mae and Freddie Mac would get compensation packages of $6 million a year. Meanwhile, on Main Street, unemployment is in double digits, and foreclosures are at 200,000 a month.
I’m joined now by two guests.
Dean Baker is an economist and co-director of the Washington, DC-based Center for Economic and Policy Research. He’s a frequent columnist and the author of several books, including Plunder and Blunder: The Rise and Fall of the Bubble Economy. His latest column for The Guardian newspaper is "Christmas Presents for Bankers." He’s in Washington, DC.
And here in New York, I’m joined by Reverend Jesse Jackson. His latest article for the Chicago Sun-Times is called "We Need Initiative to Rebuild America."
Let’s begin with you, Dean Baker. What is the Christmas gift for the bankers?
DEAN BAKER: Well, you had this restriction previously of $400 billion on Fannie and Freddie, their losses. That’s how much they could draw on the government. And you just remove that. Now, it’s very hard to understand how they could incur losses of more than $400 billion. And this raises the question, what exactly are Fannie and Freddie doing? And what I suggest in that piece is that this might be a backdoor TARP. In effect, what Fannie and Freddie could be doing is buying the bad assets — that’s what TARP was supposed to do — of banks and paying too much money for them, in which case you will incur lots of losses. So this could be yet another big gift to the banks.
The other part of the story — again, you had mentioned the salaries, the pay of these people. Originally, the top executives of Fannie and Freddie took big pay cuts. They’re government companies. And this is reversed now. They’re getting $6 million apiece. And they’re saying, “Well, we need that to get good people,” which, you know, sort of raises the question then: Timothy Geithner, the Treasury Secretary, gets $193,000; should we infer from that he’s not a very good Treasury Secretary?
AMY GOODMAN: Who are Fannie and Freddie? Explain.
DEAN BAKER: Well, these were both corporations started by the government. Fannie dates back to 1937. Freddie, I think it was 1972 when it was started. Originally, Fannie Mae was simply a public company. It was converted to sort of a public-private company. They sold stock into it back in the ’60s. The popular wisdom — and I don’t know any reason to challenge this — is simply that Johnson wanted them off the government’s books so that their debts would not be attributed to the government.
But essentially what they did was create the secondary market in mortgages so that — previously, before you had Fannie out there, if a bank issued a mortgage, well, they would hold it for its duration, ‘til you sold the house or paid off the mortgage. What that meant was that it was often difficult for them to — they’d run short of money. They’d issue mortgages. They couldn’t issue more mortgages. Fannie bought up these mortgages, gave banks the — you know, repaid the banks for the mortgage, and gave them the money, in effect, to lend again. So this created a national market in mortgages.
And this turned into securitization back in the ’80s, when first Freddie and then Fannie got into that in a big way, when instead of just holding the mortgages, they began to securitize them. They would guarantee the mortgage pool, but they would sell off interest in that pool to whoever, really all over the world. So they were the ones who got securitization off the ground.
AMY GOODMAN: You also write about, well, the man that Time magazine has named Man of the Year, Ben Bernanke. But you’re not as favorable towards him, saying that “while millions of Americans have lost their jobs, Washington allows the Federal Reserve [chair] Ben Bernanke to keep his.” Why are they “rewarding failure at the Fed”? you ask.
DEAN BAKER: Yeah, well, I think that’s a really good question. I mean, Ben Bernanke, with the exception of Alan Greenspan, is more responsible for this disaster than anyone. And it’s kind of bizarre. I mean, he was the one who went to Congress last year and said, “If you don’t give us $700 billion for the TARP, the economy is going to collapse.” So he’s saying his policies, along with Greenspan, brought the economy to the brink of collapse, and somehow we’re rewarding this guy, patting him on the back, and saying, “Good job.” I mean, it’s a — you sort of — I mean, I ask the question, how could he have done worse? I mean, by his own admission, we brought the economy to brink of collapse. If that’s not failure, what is?
AMY GOODMAN: Reverend Jesse Jackson, do you agree?
REV. JESSE JACKSON: Well, basically, we did not restructure banks, their board of directors, of their priorities; we bailed them out, without any linkage to reinvestment, without any linkage to restructuring loans, not repossessing homes, churches, and student loans. So, for example, they made money on the origination of the loan, they made money on the bundling, they made money on the bailout, they made money on the private mortgage insurance. I wonder why, for a long time, they would not just restructure loans and not repossess so many homes. Well, they make money off of the foreclosure. With private mortgage insurance, they are insured 85 percent against a foreclosure, so that they — as the home goes, they keep that level, and the borrower is paying the lender’s insurance. It’s utterly corrupt.
So while we are restructuring, not bailing out Wall Street, at the bottom, the hemorrhaging of churches and jobs and student loans is unacceptable, and therefore we need a big idea. TVA electrified the rural areas. The New Deal dealt with banks, or even Great Society. And we need a big idea, not just a trickle-down for those at the bottom. We need to restructure our economy bottom up: urban, rural policy, maybe reconstruction banks, banks that are manageable and within the law, not banks unmanageable and operate outside the law.
AMY GOODMAN: Do you see your fellow Chicagoan, President Obama, going in that direction? Many say he’s surrounded himself by the very people who created the problem, from Timothy Geithner moving on to Ben Bernanke and others.
REV. JESSE JACKSON: Well, New York has shifted down to Washington. It had Wall Street; now it has the government. Now we must use our street power to change it to America bringing about the change. You know, change always, basically, Amy, comes bottom up. You know, Roosevelt was not who he was until those people hit the streets. It changed. President Kennedy was against a march on Washington, not hostile, but against it, and so Dr. King was for Kennedy over Nixon, but we still had to march for a public accommodations bill. He was for Johnson over Goldwater, but we still had to march for the right to vote. So the people still yet have power to [inaudible] and fight priorities.
We are going to meet with — at the Wall Street Project this January 13th through 15th, confronting banksters who — they either lend the money or they lose the money.
AMY GOODMAN: You call them “banksters”?
REV. JESSE JACKSON: Well, that’s what Roosevelt called them, a combination of banks and gangsters. They’re a bank — they use their power to do what? To disallow the Senate from — lend judges mighty fine loans. They used their power to neutralize the Congress, which was the overseers. And then they circumvented fair housing laws and fair lending laws and CRA. And then they got stimulus money.
Well, we made Bob Jones University under Title VI. Wherever there are federal monies, there are federal laws. They were able to circumvent those laws that Bob Jones got enforced on. So, EEOC, contract compliance, all the — affirmative action, those basic laws, they were able to operate outside the law. The result is now you have fewer and fewer getting more and more, middle class sinking, the poverty base is expanding.
So we want the — A, want the attorney general more actively involved in making them adhere to the law; two, we really want a new — we need to have some reconstruction banks that are manageable, bottom up, and need to have some direct investment in the cities and in rural America.
AMY GOODMAN: What are the unemployment figures? People gasp when they hear ten percent. But I mean, in the black community, for young black men, we’re talking — aren’t we talking somewhere near 50 percent?
REV. JESSE JACKSON: Well, in the Chicago area where the President was an organizer, in the Englewood area, now it’s around 30 percent. Our youth is more than 50 percent. In New York, it’s more than 50 percent. So these have been Depression-level numbers for a long time, and you need some direct intervention. Forty-nine million Americans, 49 million, are food-insecure; that is that they cannot eat predictably three meals a day. And, of course, for many of them, jail becomes a hotel. At least in jails it’s warm in the wintertime, cool in the summertime, organized recreation. They jump up and touch the bottom. There must be some direct intercession.
I think about the solution about Afghanistan. We say Afghanistan is urgent. Timetable is a priority, you know, the budget, economic reconstruction and security. We need that for our American cities: a budget, a sense of urgency, timetable, reconstruction, and security. We need that type vision at home.
AMY GOODMAN: It may be that a lot of people thought that’s what they were voting for: getting away from war, bringing those resources back home, from healthcare to issues of global warming and the global economic meltdown, jobs at home. What is your assessment in this first year of President Obama?
REV. JESSE JACKSON: Well, our plan for Afghanistan is clearer than it is for urban and rural America at this point. And I am convinced that we, as a people, in fighting to get a broader healthcare coverage, wants the right fight to fight. That fight is not yet over. Going into Afghanistan, expanding to Afghanistan is — has reasonable doubts, more doubts than reason, in my judgment.
But more than that, basic urban America has felt now the impact of a sinking middle class, people who’ve lost their homes. I was yesterday in Prince George’s County — churches in foreclosure, record-breaking numbers. Those churches that had to build affordable housing because [inaudible] stopped building houses, those churches that built the Life Center [inaudible] and those communities, those churches are now facing foreclosure. And so, if we can figure out a toxic plan to bail out the banks, who were the predators, there must be some reconstruction plan to restructure our economy bottom up. And there is more to be gained by restructuring it than allowing it to worsen.
AMY GOODMAN: Dean Baker, what do you think needs to be done right now?
DEAN BAKER: Well, I certainly strongly agree with Reverend Jackson. We have to put a focus on getting people back to work. And, you know, we see a situation where the banks are better than ever. Their profits are record high, their bonuses are record high. They’re doing great. But we have ten percent unemployment overall, and as Reverend Jackson said, much higher in the cities among minority young people. We have to focus on getting jobs. And unfortunately, I think the administration, certainly Congress, has this idea that things are just fine, the stock market’s up. And, you know, they’re not. I mean, that’s a very small segment of the population that can sit back and go, “Things are OK.” For the vast majority of people in the country, things are very bad.
REV. JESSE JACKSON: The reason why I weigh my structure so much on the housing, if my house is in foreclosure, I can’t pay taxes. Your house is under water, and your house is not as worth much as you’re paying for it, and then neither of us are paying taxes. Therefore we lose policemen, teachers, firemen, service. And so, the housing crisis is driving unemployment, much like the health cost is, in fact, driving foreclosures. So that’s why you have to look at the health crisis and student loan debt and loss of jobs and housing in same bracket, and that requires a New Deal-type deal, not just kind of a piecemealing it one bill at a time.
AMY GOODMAN: And how do you see this being put in place?
REV. JESSE JACKSON: Well, it’s like we had a plan to — not to restructure top — to bail it out. There must be a bailout plan. We must trust the need of people, jobs, education, houses, and secure churches, bottom up.
AMY GOODMAN: Are you hopeful at the end of this year?
REV. JESSE JACKSON: Well, I’m determined. I think that we made the right decision in choosing the president we chose. I think we must apply the pressure to change the alternatives of the administration. That becomes our basic mission. And whenever we have made progress, I say we’ve never lost a battle before — never won unless we fought the battle. So now it’s time to put the issue on restructuring. I call it the big idea. I mean, the TVA, big idea, it lit up rural America. I mean, the New Deal, it restructured banks, put people back to work. Even Great Society. We need a big idea, not just a kind of piecemeal kind of — we cannot accept the kind of trickle-down economic recovery at the bottom. It’s simply —- because every category is getting worse. We’re losing more houses, more jobs, more student lending, more poverty. All those indicators are simply getting worse.
AMY GOODMAN: And do you think people will organize against the man they elected? We have five seconds.
REV. JESSE JACKSON: It’s not against him; it’s for the prop -— we didn’t march against Kennedy; we marched on Washington for the proposition. I say, when we march in great numbers, the president’s alternatives change. That becomes, it seems to me, our strategic mission.
AMY GOODMAN: Reverend Jackson, thank you very much for being with us. And Dean Baker of the Center for Economic and Policy Research, thanks, as well. And Happy New Year to you both.