Monday, October 12, 2009

simon johnson and rep. marcy kaptur


PBS | One year after the near-collapse of the U.S. financial system, the crisis seems to be over for the banks. No one expects any of the remaining huge banks to collapse, and a few large firms — JPMorgan Chase & Co., Goldman Sachs Group and Wells Fargo — are expected to post another quarter of billion dollar profits.

But according to guests on BILL MOYERS JOURNAL, ordinary Americans have little reason to celebrate the better fortunes on Wall Street. Simon Johnson, professor of Global Economics and Management at MIT's Sloan School of Management, and Representative Marcy Kaptur (D-OH), explain to Bill Moyers that the outlook for the rest of America isn't so rosy. Not only are many Americans still suffering the collapse of the housing market, they say, but Congress and the president haven't made the changes needed to prevent a much worse catastrophe sometime in the future.

To highlight the disparity between bailing out the banks and helping homeowners, Rep. Kaptur points to her district, where she sees one of the now-profitable banks not doing enough to help struggling borrowers:
Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, "What should I know?" They said, "Well, first of all, you should know the worst companies that are doing this to us." "Well, give me the top one." They said, "JPMorgan Chase."
Johnson adds that even bailed-out banks have little incentive to help homeowners:
I'm afraid that it's pretty obvious, and it's very tragic, that they have no interest in helping the homeowners. They make money with what they're doing. They expected a lot of these mortgages they made to default, okay? It was in their models. A high default rate. Now, they didn't expect house prices to come down so much. That's where they got their losses. But they absolutely made these loans expecting they would have to foreclose on people. And figuring they would make money on that.
Too late to reign in the banks?
The problem, Rep. Kaptur and Johnson agree, is that Congress and the Executive Branch didn't sufficiently reign in the banks because the banks have too much power in Washington. Responding to a recent ASSOCIATED PRESS report about Treasury Secretary Timothy Geithner's close ties to a few powerful bankers, Rep. Kaptur said, "Wall Street and Washington is a circuit. And because Mr. Geithner headed the New York Fed, that historic relationship, unfortunately, continues. And it gives them special access and special power to influence policy."

Johnson agrees, arguing that these links are especially beneficial in a time of crisis: "And in a crisis, when everything is up for grabs, you don't know what's going on, the people who will take your phone calls, right, in government and the people who are going to be standing in the oval office, making the key decisions — that's the heart of the system. That's the heart of how you get your agenda through, by changing their worldview."