In case you are not aware, Bill Moyers is back and he doing his best work to date concentrating on our the changing of the rules regarding the economy. This episode where he interviews John Reed, former Citi Bank CEO and current MIT chair is most telling as it relates to the issue of why we as a nation need to do what is required by law: investigate and prosecute as the investigations dictate.
First, let me just say, you need to watch the interview. What is most telling for me is the denial that still exists in Mr. Reed. Sure, he acknowledges that it all went wrong, but it is done in the temperance of “mistake”:
1. an error in action, calculation, opinion, or judgment caused by poor reasoning, carelessness, insufficient knowledge, etc.
2. a misunderstanding or misconception.
Here, in the interview is what puts the delusion of self preservation in applying the word “mistake” to the decisions that lead to what we have today, and I’m not just talking recession:
Setting up the question to Mr. Reed by showing a video clip, SENATOR BYRON DORGAN: (Speaking on Senate Floor) What does it mean if we have all this concentration and merger activity? Well, the bigger they are, the less likely this government can allow them to fail.
BILL MOYERS: Were you aware of the few senators who raised real concerns about removing Glass-Steagall, about what would happen?
JOHN REED: No one that I’m aware of it saw it clearly. You point out to some Senators and Congressmen who did, but somehow we described them peripheral. And I simply said, “They’re wrong.” Turned out they weren’t.
SENATOR BYRON DORGAN: (Speaking on Senate Floor) I think we will in ten years’ time look back and say, “We should not have done that, because we forgot the lessons of the past.”
The issue of calling it a “mistake” becomes even clearer when you watch the interview of Senator Dorgan which follows Mr. Reed. This is why you need to watch it. Mr Reed knows what happened. He knows why it happened. I am certain he knows where the culpability lays. But, as they say in our neck of the woods: He wouldn’t say “shit” even if he had a mouthful.
What happened and what these people did was not a benign experience as the word “mistake” implies and as Mr. Reed is using it. It was intentional and wanton action taken on behalf of money. (See below: Where their heads were at)
Explaining Glass Steagall’s importance beyond not letting commercial banking marry investment banking.
JOHN REED: Well, that and even more importantly, or equally importantly, since the FDIC came into existence at approximately a similar time where the government was guaranteeing deposits so that people didn’t lose if a bank got into trouble.
But not only did they want to keep the banks from the business for reasons of not risking the money. They didn’t want them to use the guarantee that the government provided for those deposits to leverage their position. Because, you know, if you have a deposit base that’s guaranteed by the government, it sure puts you at a great advantage in terms of going into the market and playing around.
Regarding the take down of Glass Steagall
JOHN REED: When Sandy approached me on the merger [Travelers/Citi] I knew that it was right on the forefront of the legal thing. … And what we basically were told was, “If you all want to do this within the two years we’ll get the law changed.”
BILL MOYERS: But you got the blessing in this two-year period of President Clinton, of the Fed, of–
JOHN REED: We had that blessing prior to.
JOHN REED: Yes. In other words, I went with Sandy to call on Chairman Greenspan. We told him we were contemplating this merger. But that it would required that the Fed would be prepared to grant us permission. And we were assured that they would.
We went and saw the Chairman of the House Banking Committee, the Chairman of the Senate Banking Committee. And we said we’re talking about this merger but it could not take place if we were not assured that it would be approved at the Congressional level. We talked to the Secretary of the Treasury, I don’t recall–
BILL MOYERS: Robert Rubin? He was the Secretary of the Treasury at the time.
JOHN REED: Yeah, we would’ve spoken to him, I’m sure. And had Bob Rubin said, “No, the Treasury feels this is wrong,” we would’ve been careful. Because obviously, the Treasury recommends to the President on an issue of this sort. And there was no argument. No one said, “We’ll have to think about it.” And so a consensus built up. I don’t think it started in the Fed. I would guess it started in the industry, it certainly got into the Congress.
Regarding where their heads were at
JOHN REED: Which happened, yeah. I mean if you had asked me under oath, what probability I would have given that you would have gotten the whole group of Wall Street participants to get it wrong so to speak, I would have said zero.
BILL MOYERS: What do you think they saw that Wall Street didn’t see?
JOHN REED: They simply didn’t participate in the exuberance.
But I do think that, you know, this setting up the deck of cards so that we could produce what we currently are trying to withdraw from. Turns out to have been something that the word disaster is maybe not strong enough. (“Criminal” is the word we all know he is resisting.)
JOHN REED: We were carried away by the enthusiasm. And like everything else, you know, once you start you probably go a little further than you should have.
JOHN REED: Sandy Weil. I mean, his whole life was to accumulate money. And he said, “John, we could be so rich.” Being rich never crossed my mind as an objective value. I almost was embarrassed that somebody would say out loud. It might be happening but you wouldn’t want to say it.
JOHN REED: Yeah, Sandy Weil. And I sort of say, “Sandy, you know, we didn’t do very well.” And he’s not comfortable with that conversation at all. I think he would still defend that it was a good merger, it just went off the tracks afterwards. I —
Regarding the economics of it
JOHN REED:No, no. It’s not something you’d like to end your career with. That is for sure. No, look. We got carried away.It wasn’t any small group, it was a consensus that reached the press, it reached the political world. It certainly had reached the intellectual world. I’m now, as you know, at MIT,and I say to some of my academic friends that the intellectual underpinnings of this was created at MIT and places like that, I mean—
BILL MOYERS: With the technology of the computers?
JOHN REED: Well, no. It’s all of this mathematics of finance and the presumption in much of this mathematics that you can capture risk by looking at historical volatility and so forth and so on.
BILL MOYERS: Are you saying, suggesting that — the chairman of the board of MIT’s suggesting –that human intelligence no longer runs our financial system?
JOHN REED: Well, it’s a little wisdom balance that judgment wouldn’t hurt.
The Criminality of it (at least as I see it): See: Regarding the take down of Glass Steagall above
Showing an historical video clip, Mr. Reed speaking with Sandy Wiel
JOHN REED: Sandy called his friend the President last night and invited me to join in on the conversation and we had a good talk. So the President was in fact told last evening about what was going to happen.
JOHN REED: Well, they originated and sold into the marketplace things that should never have been originated.
BILL MOYERS: Derivatives, unregulated derivatives?
JOHN REED: Well, it was the excess mortgages, the no-doc, low-doc mortgages. And then the derivatives were a byproduct. Once you had those, then you could chop ’em up and so forth. And of course they had changed their mindset. They were in the business to make money, period.
The psyche that is protecting the conscience: Note his choice of words
JOHN REED: You’re– I mean, a consensusdeveloped. The fact that we took it [regulation, Glass Steagall] out was a byproduct of this mistaken beliefin this modern financial system that was, quote, “more efficient,” was very lucrative for the United States and the U.S. economy in global terms.
And which was supposed to handle risk better. In fact, it handled risk worse. I mean, this is what the facts are because there was a much greater concentration of risk created. And so we got it wrong.
But the restraint of the government and it’s agencies disappeared in the enthusiasm. (Yeah, just a “byproduct”)
And so it was this combination of the participants getting carried away, the normal checks and balances that should exist against participants.
And the thing that is astounding, frankly, and there’s a lesson here that we probably haven’t yet learned, is that the system can get it so wrong. It wasn’t–
BILL MOYERS: So wrong?
JOHN REED: It wasn’t that there was one or two or institutions that, you know, got carried away and did stupid things. It was, we all did. And then the whole system came down. You know, it became illiquid, the government stepped in. Had the government not stepped in, it really would have come to an end.
BILL MOYERS: But they left in place the very people who had driven the ship into the iceberg.
JOHN REED: I’m quite surprised at that. It clearly has not been a clean sweep. In other words, those of us who made mistakes, and so forth and so on, are still floating around the system. And–
BILL MOYERS: Floating it? You’re running it.
JOHN REED: Well, I am not, but —
BILL MOYERS: You’re not running it, they’re running it.
JOHN REED: But there are many who are. I wasn’t involved, obviously. I had retired in the year 2000. We’re now talking 2008. So I was a knowledgeable spectator, but certainly not a participant. I was quite surprised because, frankly, the worst thing that can happen to a businessman is to go bankrupt. (Shades of Greenspan confessions?) That’s the sign of ultimate failure. You ran a business and it was unable to succeed under the terms and conditions of private capital. Namely, you went bankrupt.
It’s not a crime. But it certainly is a mistake. And these companies, even though they didn’t have to file for bankruptcy, de facto went bankrupt. And so the managements and the boards and the regulators should have, in my mind stepped aside.
BILL MOYERS: Sounds to me like you’re calling the Glass-Steagall Act back from the grave.
JOHN REED: I think I am. (At this point, he still could not say it “shit”.)
There is more in the interview. You need to see and hear it to understand. I think Mr. Reed is struggling with his conscience and wanting to clear it versus what I believe he feels is a real risk of getting tied up with the Justice Department. It has to be working on him. Though I interpret an air of feeling protected in Mr Reed do to his own wealth. As much as he knows wrong and not a mistake was done, he has no experience of the anxiety as what those in the labor economy are experiencing. He is still in denial to an extent which stops him from using his position to truly work to correct this wrong. Or maybe he just is not of the character to participate on the just side of the fight.
Mr. Reed does get one thing correct:
BILL MOYERS But when the financial community can buy the rules they want —
JOHN REED: Then you’ve got an unstable situation. That’s an intolerable situation. I mean, obviously.
He knows. He knows that regulation is a necessity. As the head of MIT, he could be doing so much more.
Come-on Mr. Reed, destiny is calling you.