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To anyone paying attention, the American economy sure feels a lot like a casino. The stock market has become increasingly gamified, and the consequences are felt by all of us, every day—even those of us who aren’t even invited to play. There’s actually a term for our financial system that uses these words: casino capitalism. What many don’t know, however, is that behind this new form of capitalism is a flesh-and-bones man with a certain sort of gambling addiction. His name is Bill Gross, and his is the story that Mary Childs, co-host of NPR’s “Planet Money” podcast, tells so compellingly in her book, “The Bond King.” Titled after the investment banker’s moniker, Childs’ book explains how Gross remade the bond market into a gambler’s paradise, and went on not only to found the investment firm Pimco, but to rig the entire U.S. economy in his favor.
On this week’s “Scheer Intelligence,” the author of “The Bond King” joins host Robert Scheer to discuss her book, Bill Gross, and the slew of antiheroes behind the 2008 financial crisis. In a gripping conversation, Childs and Scheer approach the crisis that destroyed the lives of thousands—disproportionately Black and brown Americans—and had devastating ripple effects around the world from different vantage points. Childs discusses her in-depth reporting and analysis of the role Gross and his banking buds played in the 2008 catastrophe. Scheer, who wrote “The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street,” points to all of the veritable heroes like Brooksley Born, former chair of the Commodity Futures Trading Commission (CFTC), who tried to keep men like Gross, Ben Bernanke, and others from creating the conditions for so many people to lose their homes and life savings.
Childs’ and Scheer’s perspectives make for an unmissable meeting of minds that will lead listeners one step closer to understanding how the U.S. economy works against 99 percent of us. The “Bond King” author, who has worked for Barron’s magazine as well as the Financial Times and Bloomberg News, also comes to an eye-opening conclusion about American capitalism by the end of the conversation with Scheer, to which you can listen in full in the audio player.
RS: Hi, this is Robert Scheer with another edition of Scheer Intelligence, where the intelligence comes from my guests. And in this case, Mary Childs, well known as the host of Planet Money on NPR. And she has spent the last seven years, I gather, writing a book about “the Bond King,” a guy named Bill Gross who ran PIMCO, or co-founded PIMCO, and was very central to the whole housing meltdown, the change in the nature of bonds and so forth. And I just want to start with a somewhat provocative question—
RS: Well, not that provocative. [Laughter] Sorry. But in the description of the book—I don’t know if it came from your publisher or where—but he’s described as a visionary who changed the world of bonds forever. It had been a sleepy world; you could count on bonds, you knew what they represented.
And then—and I don’t think it’s all his doing—but bonds became these flashy things that you could sell, package; collateralized debt obligations, credit-default swaps. No one, as was established by Congressional testimony—very few people, even those who are supposed to be expert, really understood how these things work. He made a lot of money; then he and his company bet against this thing, and as a result, they made a lot more money and yet millions of people, tens and tens of millions of people around the world, lost everything.
And so why call this guy a visionary rather than a pirate? Or should he have been a felon? What, just because he does yoga once a day and has some style?
MC: Yes. No, that’s right, it’s all the yoga that I think forgives everything. [Laughter] No, I think it’s certainly a matter of perspective, but I think that’s a very fair question. You know, in our society, what he did was absolutely legal. And there’s really no question that it was legal. You know, it’s not even close to being outside the bounds of acceptable. You know, he had a money management company; he managed money in the best interest of those clients. Those clients were not the universal people of America, or the—you know, there’s a big difference between who a client of PIMCO’s funds is, and who owns a home or is trying to own a home, or who lives in this country, right?
So I think that you’ve identified a really important disparity and gap between the experiences of someone who’s just existing in this society, and someone who is managing to profit from the structure of this society, right? And we bring a lot of kind of pathos to our understanding of our, you know, billionaire founders, right, across the business landscape. I think that we, a lot of times, we kind of deify them; we admire them, we write up all kinds of pieces about how amazing they were, they were a visionary. But I don’t think there’s really a moral judgment, or at least I’m not bringing a moral judgment, to him being a visionary. I don’t think that this is—this is not some, you know, cancer cure, or some miracle that has saved billions of people.
I do think that there are arguments—people in asset management always put forward the argument that they’re helping widowers and children and pensioners, people who have retired who need this money, and by virtue of delivering this outperformance, they are providing those retirements. And I think there’s some validity to that, for sure, but at the same time I think you’ve identified a really important and kind of critical gap in what our society has chosen to do. And, like, maybe that’s something that we should examine further.
RS: Well, one thing we can examine is this word “legal.”
RS: When you have an industry like our financial community, that gets to basically write the laws—I mean, what made a lot of this stuff legal was stuff that Bill Clinton signed into law with a great deal of Republican support, called the Financial Services Modernization Act, and the Commodity Futures Modernization Act, the latter being specifically designed to punish, or drive out of her administrator position, Brooksley Born, a former lawyer for banks and so forth who understood what a scam this was.
And the fact is, the laws were—you know, you have Alan Greenspan, who was head of the Federal Reserve—he shows up as a buddy of this Bill Gross. And then after they’ve created this mess, and certainly Greenspan presided over it—oh, we’ll have deregulation, get rid of all the New Deal regulation and everything since, allow these people to market these things that nobody can understand, these tranches and so forth. And then how will we solve the problem? Oh, Paulson, the secretary of the treasury—and I’m talking about what’s in your book.
I want people to read this book, because you may not be shocked by what you’ve written, but I thought I knew quite a bit about this, and I wrote a book of my own on this—but my goodness, you get into the texture of it and how it really plays out. You know, Timothy Geithner is on the phone; this guy’s wife tells him, oh, who’s he? Oh, the head of the Federal Reserve in New York who presided over a lot of this and gets to be made treasury secretary under Barack Obama. Well, before that, Paulson, who was treasury secretary under Bush.
And you get this idea, not only was he central to changing what bonds were all about—from these very trustworthy, if boring, things to a means of hustle—but then when the whole thing goes kaput—and there are real consequences. The Federal Reserve of St. Louis did a study on the social consequences, and they found that Black college graduates lost 70% of their worth, their whole families’ worth, in this scandal, in the crash of ’08-’09. And brown people lost 60%, Latinos and so forth. So this is not kidding around. What is the pose he does in yoga?
MC: Feathered peacock? That one?
RS: Oh, yeah, the peacock. [Laughter] So he’s there at 10 o’clock doing his wonderful peacock pose, and meanwhile people are losing their homes and everything they’re worth. And then what I found amazing in the discussion in your book—by the way, it’s a Macmillan book; it’s out I think, what, March 22—
MC: Yeah, end of March.
RS: Yeah, so I think people should definitely read it, if you want to know how it really works. And here’s this guy—you know, after helping crash the system, oh, what are we going to do now? We’re not sending anyone to jail. And you know what, all these poor people have lost their life savings, but you know what, we’re going to bail out the very banks, the very financial institutions—and you know what? We’re going to take four companies that are now profiting from the downfall—Blackstone, PIMCO, the company that we’re here to talk about—and we’re going to put them in charge of how we save the economy.
And that continues from Bush to Obama. Whatever party is in power, they somehow turn to the same, I would call them charlatans, who got us into this mess, and then—oh, they’re going to save us. And they don’t save anybody; they save themselves, and they save their buddies. I mean, that’s what I took away from your book. Now, admittedly, maybe I’m prejudiced; I don’t like these folks, I don’t like the banks and so forth, but I thought you provided a case study, a detailed case study of how inside this group is. And law doesn’t mean anything; if they don’t like the law, they just get it rewritten, you know.
MC: Yeah, I think—I mean, you’ve put it in very colorful terms. But I do think that you’ve hit on something here that’s really important. There is this very close relationship between PIMCO and the government, and between a lot of investment management firms and the government. And you know, in a lot of ways they say they rely on the private practitioners’ expertise of how markets work; the government kind of got itself into a situation where it had all these securities that it had to trade and sell. So that—you kind of don’t want to be going in there blind, I guess; that’s the rationale.
But like you’re saying, there’s a huge disparity in experience. And that is, to some extent, to a large extent, a failure of our collective imagination, and arguably we have failed our responsibility where we allowed this to happen, and we didn’t really do that much about it. You know, I don’t know that we’ve overhauled our systems in such a way that were it to happen again it wouldn’t happen the exact same way.
So there’s a scene in the book where Bill Gross and Larry Fink are giving a talk for UCLA in Beverly Hills, and these protestors show up, trying to argue for this case, this unique situation that was going on in Richmond, California. And basically they were saying: help us stand up for homeowners. Help us help these underwater homeowners whose homes were—they bought them at X, and now they’re worth, you know, 60% X. And they had this radical proposal, the city of Richmond had a radical proposal to revalue those homes; I won’t get into the details, but basically trying to point this out to Bill Gross and to Larry Fink.
And it’s sort of interesting. You know, not only did you not hear that much about that side of it at the time—I think we were culturally differently attuned, we were listening to different people at the time. But I think also the protestors in the room were booed and escorted out. You know, was this the most—it’s, arguably, it’s not the most civil way—that’s not fair, actually, strike that. But, like, there’s something fundamental—the moderator of the conversation, Brian Sullivan from CNBC, actually paused the conversation and was like, actually, I want to address what the protestors were saying, because it’s valid, there is a lot of anger and hurt out there, and rightly so; you know, what should we do to fix this?
And I think the answers were kind of, in my view, insufficient. They were just—oh, you know, we’re helping pensioners, we’re helping the widows and the firefighters, and yada yada. And I think that there’s—everyone has cleanly identified the problem, but we have yet to figure out what to do about it.
RS: Well, with all due respect—[Laughter]
MC: Uh-oh! [Laughter] I’m scared.
RS: No, I mean look, first of all, the main criticism of this show that I’ve been doing for over five years—also for an NPR station, KCRW—is I talk too much, I interrupt too much, I’m really—so I’m biting my tongue. Because I like the book—
MC: Don’t bite your tongue, let’s do this! [Laughs]
RS: OK. But the book succeeds in a very important way, describing what really goes on, in terms of the economy. And you make it interesting; they have made it deliberately obtuse and boring and everything.
MC: Yes, agreed.
RS: Yeah. And by the way, somebody I have a lot of respect for, I’m not quite sure why she isn’t at the New York Times anymore, Gretchen Morgenson, she has covered the same industry—
MC: Yeah, incredible.
RS: And did really the singularly best job. Yet, when you talk about this collective imagination, there were people who saw through it.
MC: Yeah, fair, yeah.
RS: Brooksley Born is one who definitely saw through it, Gretchen Morgenson saw through it, there were others. Even—I shouldn’t say “even,” he’s a terrific journalist, Matt Taibbi wrote a very good book about Goldman Sachs and what did he call it, the leech on the face of the—
MC: Blood-sucking squid, is that right?
RS: Yeah, that’s right, sucking squid and everything. And when I went back I happened—here I’m going to be talking too much again, but I happened to cover in the nineties when this was all being discussed, the two major deregulations—I was working at the L.A. Times. And I remember I went into Barney Frank’s office, I think he was head of one of the big banking committees or something. And I said, I don’t know what you’re doing—I knew him personally, I liked him—I said, what are you guys doing here? You’re unraveling the last surviving elements of the New Deal.
And it goes to a question you raise. They’re not just playing with the money of rich people; that was a defense; they know what they’re doing, right, that’s what Lawrence Summers had said—no! It ends up they’re hurting people who have put everything in their life into a home, and lose the home. And their kids have to leave, they have to move to another neighborhood, change schools, get divorced, all kinds of terrible things happen; one could even blame Donald Trump and his rise of a certain kind of populism mostly on what happened through the banking meltdown, and the alienation from it.
So it’s not a question of imagination. It’s an imagination that was script-written for these politicians by lobbyists. I’ll never forget it: Barney Frank said to me, look, I’ve got to go to a meeting—it was a fundraiser—he said, but here: he brings in his chief of staff, says he’ll explain it all to you, Bob, it’s very complicated.
MC: Oh, it’s complicated. [Laughs]
RS: That’s why I’m recommending your book. Your book makes it very clear how it works.
MC: Thank you.
RS: And so finally in desperation, the guy says to me, look, I know he’s a lobbyist, but I’m going to give you the name of a guy who really knows how to make it work. And he was a lobbyist for one of the banks that were getting the law rechanged so that financial solutions and insurance companies and banks could all do this swindle stuff. And the fact of the matter is—and what I really found intriguing, the price of admission to your book alone is the chapter—I had to read it, it’s only coming out now, I read it in a PDF form so I don’t have a page number for it. But the chapter where you deal with the government bringing in Blackstone and PIMCO and this guy to tell us how to solve this problem.
They don’t bring in Ralph Nader types. They don’t bring in people who care about consumers. They bring the swindlers in, who are already—I think what you’re describing there, many readers would consider a crime; that you bring in people who have helped engineer this thing, who are at that very moment buying up stuff that other people had to sell, and they’re going to devise—they lobbied the government, now they’re going to devise the strategy for how do we get out of it. And the main point is, the government has to buy the stuff that they’ve been buying from distressed owners. And I would think that chapter alone is a crime story.
RS: What chapter is it? Tell us.
MC: Oh lord. You’re making me reference my own PDF as well. Let me pull it up here.
RS: People should buy the book and actually read a real book. You can go to the index. No, there’s a lot that’s good about an ordinary book. But the fact of the matter is, that chapter is devastating! This is after Geithner calls—he’s still at the Federal Reserve, and oh, who is Geithner? This guy doesn’t even know—well, the Federal Reserve in New York is the one that’s supposed to be policing these guys. That’s where most of the banks are, and they’re complicit.
And then they engineer a deal to save AIG—why? And allow Goldman Sachs to go from being an investor to a commercial bank so it can get bailouts, and they save AIG so it can be a funnel for all of this money going to these people. And you describe a situation where this guy PIMCO that your whole book’s about—he has bought up properties already, he’s bought up bonds, and now he’s going to advise the government to do more of this so he can get even wealthier.
MC: Yeah. Shake hands with the government. Do what the government’s going to do, only get there first.
RS: Yeah. Shake hands with the government is also manipulating the government, buying the government, destroying democracy. Come on! That’s why we’ve got so many angry people in this country. They don’t think government works for them. You can blame it on Trump or somebody, but clearly the underlying economic issues and the income disparity, these are real things. You know, and I was surprised, by the way—again, I want to praise Gretchen Morgenson—
MC: No, she’s amazing.
RS: –I followed her very closely, but the New York Times, the L.A. Times where I worked, the Washington Post—they all editorialized in favor of the radical deregulation of Wall Street which permitted all this. They all did. You know, and they said, why? Because it was that word “modernization.” It was called the Financial Services Modernization Act, the Commodity Futures Modernization Act. And Lawrence Summers, who then became secretary of the treasury under Clinton after Robert Rubin, went to work for Citigroup, which was made legal by this—Lawrence Summers said, you know, these people, it’s their skin in the game, not ordinary people, and they know what they’re doing. It was a lie on both counts. By “knowing what they were doing,” that they were selling meaningful things—they knew what they were doing, they were enriching themselves, and it wasn’t their skin in the game, it was the skin of ordinary people.
MC: Mm-hmm. No, I think that’s very fair. There’s absolutely this—you can see the seeds of all the unrest that we’ve been experiencing now, absolutely, in the financial crisis and in how we allowed things to play out. And I think you’re right; like, there was so much conversation at the time, you’re completely right. But I think we, by having the private practitioners, having people like PIMCO and like Blackrock and others, come in and advise the government, and the person in Barney Frank’s office giving you the number of a bank lobbyist—that is indicative that we to some extent, we as a society accepted the framing of the people who ran the financial system, who operate in it, who understand it, and were like oh, I want to borrow your expertise. But to me, that’s a lack of creativity, to an extent, right? Like, that’s saying—that’s accepting how they see the world, and that can kind of prohibit you, or at least make it more difficult to ask the right questions. To ask, OK, is this actually the whole picture? Am I getting the full story here?
And for me, it took me a very long time to kind of gain enough expertise and ability to understand what everyone is saying, to get that full context, and say I think you’re missing something here. I think this isn’t the—you know, you’re painting this world—you know, my sources are painting this great picture of how the world works, and this is capitalism and this is the market that we have, and blah blah blah. And you know, they may believe that with their whole heart—and some of them transcend this, of course; some are more self-aware than others. But I do think there’s a moment where you kind of have to put all the puzzle pieces together and say, I think there’s something missing. And I think you’re right that we didn’t adequately do that in the aftermath, or during and in the aftermath of the financial crisis.
RS: So let me—you’ve been, I mean, these people try to intimidate you and get lawyers after you and challenge you, and manage to get a copy of the [unclear]. But what I love about your writing and about this book is—I have to watch my language here, NPR and all—you have a great bull detector, OK.
MC: Thank you.
RS: Even though you use some words in this book that I can’t use now—
MC: Colorful words, yes. That has been cited in some reviews, yes. [Laughter]
RS: I think they’re very accurate. Nonetheless, you have a great bull detector. And I must say, this person who you’ve done this profile and devoted all these years to—I hate to condemn people in this way and be so judgmental, but isn’t this guy without a soul?
MC: [Laughs] What a question!
RS: Really, I mean, what—there is not one human moment, not one contrite, decent—the only time he gets upset is when his neighbor in Newport Beach is upset about the sound of the tune on his garden system or something. I mean, there’s—look. Adam Smith favored the invisible hand in the free market for a reason. You didn’t want to have to trust the conscience of the money-makers and the businesspeople and so forth to be objective. So you hoped that it would be kept a free market, meaning invisible hand, meaning no one can manipulate it, so you don’t have to rely on their having a soul. They’re going to do what they’re going to do, and it’s going to have a good outcome. And it was Adam Smith who warned us it probably won’t work that way, and even then there were cartels emerging, and manipulation.
And your book is really—the answer, who was this guy—he was a hustler. And he was effective in one period of time. He wasn’t as effective when the game changed, and people started to question and challenge and put some regulations in, and Elizabeth Warren is talking, and even Bernie Sanders and so forth. Then in that environment, he doesn’t do as well. But he was given a blank check, and he was given a blank check by people who used the language of the free market when they were describing a totally controlled, manipulated market in which business and government were in as tight a partnership as they are in China today. People can’t describe—what is this thing called China? It’s got a communist leadership, it’s got more billionaires than we do, it’s got a private sector—oh, no, it’s not really one. Well, maybe it is really one. And you go with the high rollers. This is what happened—look at Russia now. It wasn’t torn apart by communism most recently, it was torn apart by cartel billionaires and manipulators and so forth.
So, I mean, I think there’s a larger truth that you reveal in this book. But I want to make sure I’ve got it right. But it seems to me you’re describing the modern economy, at least the financial sector, as a cesspool of corruption in which different diseases develop. And then before we can put one out, another one pops up. And let me ask you one little question about that. It wasn’t until I reread some chapters I realized, PIMCO wasn’t even owned by PIMCO at the key point; it was owned by some mysterious German company, and who was holding them accountable?
MC: Well, they’re publicly traded, so there’s arguably a clean answer to that. But I want to kind of address—you did say that—you know, I think, again, you’ve put this in colorful terms, but I don’t have a lot of fundamental argument with a lot of the things that you’ve said. Like, yes, I do think that there’s something sort of fundamentally broken in the way that we’re putting out fire after fire. And, you know, maybe the idea of the free markets is a myth; maybe that’s not a real thing that can happen in the real world. Like, I increasingly am coming to that view, because I think you’re right that there are so many different factors that interfere with it, that perhaps it’s just an abstract kind of fun theory and thing to talk about.
But you know, you put forward a question that I want to answer: you asked if Bill Gross has a soul. And certainly it’s impossible to truly know another person, but I think there were moments of contrition. He did have moments where he stopped and said—and you know, one followed that protest that I just talked about. You know, a couple days later he released an investment outlook that talked about the plight of labor and maybe we’re doing this wrong, maybe there’s something to address here. And I think he did—you know, he said that there—I think at one point he did an investment outlook that said that “This is not God’s work – it has the unmistakable odor of Mammon.” And that was about, he compared Ben Bernanke to the devil.
So I think there’s a—he didn’t not share your views at times, do you know what I mean. So there’s certainly overlap. Now, that’s not to say he stopped what he was doing, or helped to effectuate a different system, right. So maybe that’s where it comes down, where if you’re the individual who is profiting from it, but you’re like, ugh, seems wrong—you know, where does your responsibility start and stop. I think he fell short in your estimation of what should have—I mean, what would you have had him do? Like, what should Bill Gross have done in this situation? I think that’s a really interesting question.
RS: Well, maybe he could have been an honest witness in this democratic society, and when he realized the housing market was ridiculous and was a contrivance of lobbying and was going to hurt a lot of people, he should have warned us, warned those people, and tried to get government to act to make it better. There were a few who did that. Instead, he figured out new ways to profit from it. You know, that’s what I’m so upset about Blackstone and the others. OK, they knew what was going on, and instead of stepping up and saying, hey, Brooksley Born is right, you know, and should be the great hero of this piece—she’s a forgotten person, she was a very competent business lawyer, and one of the few people who really understood it—you know what they did, it’s in your book. They set about to say, OK, how do we profit from the misery, and how do we become big consultants to the government.
That’s what I find appalling. Look, Fannie Mae and Freddie Mac were companies that had an aura of civic responsibility. You know, they were going to help poor people and minorities get housing; that was the excuse for all this, they were going to prevent redlining, they were going to—even Jesse Jackson backed the Financial Services Modernization Act. I mean, these people talked a good liberal game, but what did this guy do, and what did Lawrence Summers do? They profited personally. And so when he saw the whole thing was going to explode, and figured out there was no there there, and these tranches were ridiculous and the money wouldn’t even protect the better ones, what did he do? He went buying up all this stuff, and then gets the government to commit. That’s the part in your book that I think, if that’s not a crime—you know, we send people to jail for lying on their application—
MC: For much less. Yeah, absolutely true.
RS: —for a $70,000 home. You know, oh, you didn’t have that income or you didn’t have that job. And here are these people, they see this housing market’s going to collapse, lots of people are going to have their lives destroyed—they buy up the properties like Blackstone did. And then in your book you detail how they get this influence in government, and they get the government to turn to them to figure out a way to save it. And how do you save it? Oh, you give us even more money for the junk that we bought at junk prices; now we’re going to make 40% on it, or 50% on it. You know, and why isn’t that double-dealing? Why isn’t that insider trading? Why isn’t that a crime that you’re describing in your book?
MC: I mean, you make a compelling case. When you put it that way, it does sound—no, I think you’re right that there’s a lot that feels very wrong, and feels very broken. And I think that you’re right; like, not to say—OK, I think this to me is why we need to kind of think more and engage more with the financial system. I think a lot of people, especially people who are not able to participate in it because they don’t have a 401(k) or don’t have a retirement account, don’t have enough money to invest. You know, we don’t tend to—we are kind of put off by the jargon and the complexity, and we’re like oh, this isn’t my job, it’s really hard to understand what’s going on, that guy seems really smart, I’ll just pay him a little fee to manage my money or whatever.
That is—I think that’s really dangerous. It allows so much room for what you’re talking about, for structures and for these kind of—you’re using the word “hustle,” and I think that’s a pretty good word. But by not understanding, we’re allowing people to get away with a lot. And we’re not able to check them on it, because we don’t have the tools and the knowledge and the context to say, “Hey, wait a second, I think you’re doing something wrong” at the right moment. Do you know what I’m saying? So looking back on the crisis, we can say, and people certainly said at the time too, hey, I think this is wrong. But the kind of mainstream engagement—you know, we had Occupy Wall Street, and I do think that Occupy had an enormous kind of social effect, cultural effect. And it’s widened kind of the window of what we talk about and what we think is possible, but it’s taken so long. Because I do think the education about what’s actually happening is so, so difficult.
So, you know, not that my book is going to save democracy or anything, but I do think that crossing that bridge and saying, OK, it’s not my job to understand this stuff, but I need to; I need to know what everybody’s talking about. You know, I need to understand who this guy Bill Gross is, when he’s saying that the government should backstop Fannie-Freddie. I need to understand what’s going on. And, you know, however—I mean, maybe we come up with better mechanisms to kind of have people’s voices heard, because that’s also something that seems to be not super effective in our society at the moment. But that, to me—I don’t think it’s always fundamentally a question, or not solely a question, of education. But I think the first step is understanding what even is going on, and being able to participate in the conversation.
RS: Well, with all due respect again to you—
RS: No, I do, I do. And what you try to do on NPR, and what you do very effectively on NPR—this is all god’s work, I’m not here to nitpick at all. My concern is not with—I don’t find any failings in your book. What I’m talking about are failings in our democracy. And I don’t think—you know, one of the good things I had in my own life is—because I had learning problems, so I studied engineering rather than social science. And I’m not intimidated by numbers and so forth.
MC: Exactly. That’s so important.
RS: And so when I was in those Congressional offices, I kept saying wait a minute, wait a minute—and it wasn’t a lack of knowledge. The fact is, Harvard, the Harvard Business School, is probably as complicit as any institution in this country, and what I consider a social crime, certainly, if it’s not a legal crime. And I remember talking at the Kennedy Center when this was happening, and I said, how did you guys get to be such a den of inequity? How can there be so many people graduating this institution of Harvard, and go off to Wall Street and swindle all these people? They knew there was no there there.
And this is something that I remember the editor of the L.A. Times went, “Too good to check.” They didn’t check it because the money was pouring in, and they didn’t ask about consequence, you know. And following the money—they all made out, the people running Fannie Mae and Freddie Mac, they weren’t civil servants in the traditional sense. They got paid millions and millions. It was tied to their stock prices and all that, you know. And even though one of them had, was named after Franklin Delano Roosevelt, you know, and that was supposed to be his ideal, he betrayed Franklin Delano Roosevelt.
You know, and I do think something happened to American capitalism. I don’t want to glorify the old days, but I did spend time with Nelson Rockefeller. [Laughs] And you know, at least concerned about what are you leaving to your grandchildren, at least some sense—and I wanted to mention, this guy Gross, he went to work for Pacific Mutual. And I can’t remember the name of one of the founders, he was a very progressive businessman with a great social conscience; it’ll come to me after. But it was an old-fashioned company that actually thought if you’re going to sell insurance there ought to be money in the vault to pay people off if they needed it, and didn’t back it up with phony credit-default swaps that there was no there there, they just sounded like insurance, and you didn’t talk about tranches. And these people were all smart enough that if they didn’t know it was crooked, it’s they didn’t want to look—too good to check.
MC: Too good to check, yeah.
RS: You spent a lot of time trying to figure these people out. No, and I think it’s key to the culture, because these people are very good careerists. Some of them, like Lloyd Blankfein, his father worked in the Post Office, I believe, when I was also in the New York Post Office as an undergraduate. You know, some of them like Robert Rubin are supposed to have a social conscience and so forth. The real issue is not the failure of the ordinary person to understand complexity. It’s a complexity that was fake.
RS: They made it complex—intentional, so we wouldn’t understand it. If you ever got someone to actually explain what these tranches were and what they were putting in this package, you’d know it’s a hoax. So I want you—and I’m willing to even go longer, you can end it now or you can take six minutes if you want. Tell me what you’ve really learned about these people. It’s not enough to say, yeah, they’re complex, that they also do yoga or something. These are smart people, and they’re also married to smart people, and they have smart children. So what is the value of being smart? What is the value of education if, in fact, our most educated people turn out to be our most effective swindlers of ordinary people who didn’t get the privilege to go to those fancy schools?
MC: That’s such a depressing question. What is the value of smart—maybe there’s not much value. [Laughs] I don’t know, I feel like the way you framed that, I just—yeah, I think you’re right. Like, that’s very depressing that our greatest minds are going to financial engineering in a way that’s not societally productive. I completely agree with that. I wish that we could reallocate a lot of those resources and, you know, cure cancer, or come up with better solutions for homeownership and wealth creation and more equitable solutions.
I too don’t really have a better suggestion. I do think that there are a lot of people who very much believe in the system that we think we have, at least, and I think a lot of people willingly or subconsciously look away from the fundamental truths of this and how broken it is. Because, you know, you need to sleep at night, and you want to feed your kids, and you don’t want to feel bad about participating in this massive system that does not serve everybody in the way that it should.
But you make a really interesting—you know, I remember when I graduated from college, a really dear friend of mine got a job at a bank, a major—one of the big banks. And she was on the desk and she was really confused about something, and she went to her boss and she was like, why is LIBOR so low? Like, I just don’t get it; we just had this whole crisis—this was 2008, 2009—she’s like, why is it so low? This seems wrong, shouldn’t it be higher? Interbank offered rate? Like, this rate that we’re charging each other—it’s a very tumultuous time, this should be higher. And her boss was like—oh, don’t worry about it. You don’t get it, it’s a whole thing, don’t worry about it.
In retrospect, we now know that LIBOR was rigged, and that it was obviously not supposed to be that low. Now, my friend was 22, I think, and going to her boss—like, who has the bravery and the courage to admit that you don’t understand something so fundamental, right? Like, there is something—she’s obviously brave, and she’s maybe a little cavalier, and I love that about her. But there aren’t that many people who are going to stride up to their bosses at a major bank and be like, this thing’s broken, I don’t understand what’s going on here. And it’s what you say. It’s, the individual responsibility just kind of falls to the wayside, because you’re in this system and you’re like, I don’t want to look stupid, I don’t want to ask questions, I don’t want to point out that glaring immorality—you know.
So I think the individual burden seems to be just not felt, or maybe people feel that there’s nothing they can do about it, like it’s this massive system and they’re just but a cog in that system. I’m not sure. I don’t have a really good diagnosis on that, but I do know people who think that, you know—especially people who came from nothing, or came from another place where things aren’t as, countries not as wealthy as the United States. And they—I have listened to a lot of people over many, many years make the case for the system that we do have. And maybe it’s changed since those people kind of did their analysis. But I think, you know, I can’t totally count it out, because they do make that case so strongly, and say you know, there is a way to correctly or optimally—or at least as close as we can get in the real world—allocate resources, and this is the best we’ve got so far. Can it be better? Absolutely—let’s work to make it better. How do we do that? I have no idea. But I think that’s where the work is, right? That’s where we can push forward and come up with better solutions and come up with better ideas, and fix what you’re pointing out here.
RS: Yeah. Well, I don’t want to editorialize here. And I do—I am pushing this book, MacMillan. Because really, at the end of the day, we want to know what the facts are: how does it really work, how does the culture work. And that’s what your book does an incredible job of describing.
MC: Thank you so much.
RS: And as a tribute to you as a writer, you show it isn’t really complex; it’s quite simple, in fact it’s depressingly simple. But I also want to say, I think this is an indictment of the meritocracy.
MC: Oh, yeah.
RS: It is not a moral meritocracy; it’s not socially responsible. It’s show you are the best and the brightest, and that could be true in foreign policy, give us all wars that we don’t need, or it could be true in the economy. And I do want to single out—you’re a bit of a hero now to me, having read your book—
MC: Oh my god, thank you! Wow.
RS: [Laughs] I had a big hero in this whole banking thing, in fact I wrote a piece—actually my wife wrote it, she was a big editor at the L.A. Times, on Brooksley Born, for Ms. Magazine. And in all my reading about this whole thing, I just want to leave people—find out who Brooksley Born was, what she did, and live like her. You know, we need role models.
And if you read—I think you should read this book—and you want to know how these charlatans got so much power and got to run wild, it was because people like Brooksley Born, who was head of the Commodity Futures Trading Commission, saw right through it. She had been head of her class in Stanford Law School, head of the Stanford Law Review, she was a prize legal talent for the big banks, but she was honest—that rare example of where meritocracy can actually be about moral values as well. And Bill Clinton pushed her out, at the request of Alan Greenspan and others who are mentioned in your book in less flattering ways.
Well, that’s all the time we’ve got to be less flattering here. I want to thank—
MC: My goodness. [Laughter]
RS: You’re a lot of fun to interview, I must say. It’s a lot of fun to read, by the way; I really enjoyed this book.
MC: Thank you so much. That means so much to me. Thank you.
RS: And I want to thank Christopher Ho at KCRW for getting these shows up, and the staff there, I can’t give all their names. Joshua Scheer, who is the executive producer of Scheer Intelligence. Natasha Hakimi Zapata, who writes the introduction. Lucy Berbeo, who does the transcription. And the JWK Foundation, in the memory of Jean Stein, a terrific writer and citizen, for helping fund these shows. See you next week with another edition of Scheer Intelligence.