The title of Ferguson’s book certainly gets the reader’s attention, and he powerfully delivers the goods, with a scathing, detailed history of what led to the biggest financial disaster since the Great Depression. Ferguson takes the reader on a revealing journey -- a sordid and corrupt trail that leads from the Pandora’s box of deregulation from 1980 through 2000, through the two major economic bubbles. The first was the dot.com stock market bubble of 2000, exacerbated by the terrorist attack on the World Trade Center. Then came the much larger housing/mortgage bubble, fueled by sub-prime lending and the emergence of a host of new esoteric financial tools, meant to protect investments -- in fact, they did the opposite, provoking the financial crash.
The economic disaster was driven, Ferguson writes, by a combination of “very low interest rates, pervasive dishonesty through the financial system, massive lending fraud, speculation, demand for high yield securities, and not insignificantly, a squeezed American consumer desperate to maintain living standards, and told by everyone – including George Bush and Alan Greenspan, the brokers and the banks, that home borrowing was the way to do it.”
Along the way, Ferguson debunks the right-wing meme that Freddie and Fannie Mae caused the bubble; he holds the pure private sector responsible, especially its least regulated shadow banking parts.
There have been any number of books dissecting the economic crash of 2007, and how it has left our country a hugely divided mess. The well-off, the top 10 percent, are doing fine, while much of the rest of the country is hurting or still in the dumpster of underwater mortgages and long-term joblessness. But Ferguson’s book gives a more advanced version of the story, based on the interviews and the insights he gained while producing Inside Job.
The earlier work gives Ferguson a broad sense of the consequences of his discoveries. Ferguson writes that besides the fact that the bad guys have gotten away with crimes, " ... the rise of predatory finance is both a cause and a symptom of a broader and even more disturbing change in America. The financial sector is the core of a new oligarchy that has risen to power over the past 30 years, and has profoundly changed American life. “
Ferguson writes with great clarity. His opening salvo, “Where We Are Now," is as sharp and understandable as any summary of the current economic situation available to the interested reader. Still, his assessment of the psychology of the American people is open to disagreement when he writes, “Many Americans no doubt still believe in the American Dream. One wonders how long they can maintain that illusion for America is transforming itself into one of the most unfair, most rigid, and least socially mobile of the industrial countries.”
One can’t disagree with the data that measure the rapid decline of our country, but one can certainly argue that the huge majority of Americans are fully aware of the limits of the country’s economic system, and are quite depressed as a result. As Ferguson himself documents over and over, the whole system has been corrupted by tons of political cash, lobbying and revolving doors, with almost no oversight. As a result, the average American has no political leverage and rarely any good candidates to vote for. The oligarchy Ferguson so clearly documents is fully in the driver’s seat. The American Dream is probably quite dead.
So, if I have a bone to pick with Ferguson, it's that his solutions, his prescriptions to get us out of the mess, are as naïve and vague as his analysis is extraordinary. But I don’t fully blame him, because this lack of clarity and concrete steps about how to build alternative power in this country is one that plagues almost all the best and the brightest of our critics, like Arianna Huffington, Robert Reich and many others. It's easy to wish away political corruption, and the stranglehold the banks have on our system, with hopes of political saviors, third-party candidates and legislation that has zero chance in our political climate. But in the end, political change requires many crucial ingredients like resources, grassroots organizing, media and messaging capacity, union power and much more. But it seems that most of our elite critics don’t really want to go there.
In book after book, after all the brilliant analysis and powerful storytelling, there is usually a very short section in the back that idealistically and naively expresses, in a kind of wishful thinking, handwringing way, that things really do have to change, without offering a clue as to how. As Huffington wrote in Third World Nation, "We just have to get money out of politics" or as Robert Reich, at the end of his book Aftershock: The Next Economy and America's Future, in essence says we need a third-party candidate to rescue us.
Meanwhile, the pernicious role of money and politics in the political system has gotten worse year after year in the past three decades, culminating in the ultimate disaster: The Supreme Court's (seemingly the legal arm of the oligarchy that Ferguson describes) Citizens United decision that demolished the McCain-Feingold law (a weak reform), and opened the floodgates to huge amounts of campaign cash, up to this point mostly coming from the mega-rich.
I personally wish that some percentage of the brain power that goes into digging into the problems and what went wrong was devoted to hard-nosed evaluations of how change takes place. Instead, in Ferguson’s case, part of his hope is that some figure will emerge out of the morass and lead us to the promised land. And absent that, some third-party miracle, or “non-partisan, non-ideological grassroots movement will save us."
But more on that in a bit, because the story that Ferguson’s book tells is extraordinary, as much as it is depressing and infuriating.
No One Has Gone to Jail for the Great Economic Fiasco
Ferguson writes Predator Nation with a bit of a grudge, as he explains in the book. He is appalled that despite ample evidence of disastrous decisions and large-scale lawbreaking, much of it outlined in his film and his book, not a single person has gone to jail for a fiasco that has wiped out a good deal of the hard-working American middle-class' resources.
And he holds Barack Obama responsible, considering him a huge disappointment in his first term.
I asked Ferguson how it felt to have made the widely lauded, Academy Award-winning film about how predatory politicians have taken over our country, and yet nothing’s happened as a result.
Ferguson: I was not under the illusion when I made that film that I was single-handedly going to change the course of American political history. And I wouldn’t say that nothing has happened. In fact, in one area, namely in academia, there’s actually been quite significant change. But still, no senior person has gone to jail as a result of the activities that led to the bubble and crisis.
And nothing’s on the horizon. Does Ferguson find this reality personally frustrating?
Ferguson: Well, I try to maintain a certain level of zen. Of course, I’m a human, sometimes these things do get me upset -- as they get many people. But I have found it actually very important and valuable to maintain a certain amount of equanimity and distance at the personal level …for my own sanity. I just find that if I get too upset about things, I don’t think as clearly as I should and my work isn’t as good. My work is better when I am able to remain calm and thoughtful and relatively unemotional.
We speculated about the motives of Preet Bharara, the “celebrity prosecutor” who serves as the U.S. Attorney for the Southern District of New York. Bharara has charged a number of people with insider trading, received lots of media attention, and is a fixture in the social whirl of NYC...but has not gone after the banks. Why is he not addressing the larger issues of systemic corruption?
Ferguson: I’ve never met him personally and know very little about him. So, I can’t say much about his patterns – but many people have displayed a similar pattern. When you’re in that kind of a job, you prosecute a few, prominent people so you can get your name in the media a lot, but you don’t really fundamentally rock the boat. And then after you’ve had the job for five years, or maybe 10 at the most, you go to work doing defense work, defending the people you used to be prosecuting or threatening to prosecute, and their income goes way up. And there are many people who fit that pattern, including his predecessor Mary Jo White. If that is the kind of calculation you’re making in your mind, you don’t really go after the structural situation; you don’t go after people who are really going to fight back, like Goldman Sachs.
One of the overarching questions about the failure to hold people accountable is one of fear. The power, the chutzpah, the arrogance seems virtually all on the side of the big banks, hedge funds, that have gotten hugely rich. Where are the fearless crusaders we need to fight back? I suggested to Ferguson that Eliot Spitzer, who is featured in the movie and is covered in the book, has been a rare exception. Was he an exception? And where are more Eliot Spitzers?
Ferguson: I think that there are many people who are very smart and who are concerned about this situation. They don’t, these days, have positions of major political power, because they don’t get to have positions of major political power. Spitzer was perhaps the last one who reached to that kind of level, who was willing to revolt in the way he did. In the current environment, which is substantially more extreme than when he first occupied the offices he did, as New York State Attorney General and governor of New York -- in the current environment, it’s not clear that he could have those jobs, that he could get those jobs, or keep them. It’s not that there aren’t people who could occupy those positions. If President Obama had made different choices, different personnel choices and appointment choices then we’d be in a very different situation.
Ferguson’s critique of Obama weighs heavily in Predator Nation. I asked Ferguson, “You seem to be quite discouraged about Obama’s performance and consider it also an area of massive discouragement for millions of Americans. Has his performance surprised you?”
Ferguson: It did surprise me. Perhaps, I’m still naive you know, but -- I’ve been disabused of my few remaining illusions by Mr. Obama’s conduct. And not just his conduct, many people’s conduct. It was surprising. I certainly understood that he would have faced -- did face, does face -- substantial, powerful opposition, but I thought that when he was elected and when he took office, that the political and economic situation in the United States was such that he actually did have a window, a politically feasible window to address some of these things, and he didn’t take it. It was a surprise and a disappointment.
Conflict of Interest in Academia
One of the most powerful sections of Predator Nation is the chapter titled “Ivory Tower.” Ferguson mentions in the book that when people saw Inside Job, one revelation they were most flabbergasted by was the level of conflict of interest and corruption within the academic community, where people expect objective science and a search for truth. But rather, Ferguson documents how “…parallel with deregulation and the rising power of money in America, significant portions of American academia have deteriorated into ‘pay to play’ activities.”
Ferguson: Now, this is so common, so endemic in certain disciplines -- particularly the economics discipline -- and also related ones: law, business, public policy...economics is probably the worst. There are so many eminent, powerful, senior, prominent professors who have these conflicts of interest. They are now the most powerful voices in the university community on these questions.
I asked Ferguson about the Berkeley Research Group, the Analysis Group, and other huge money-making enterprises that marshal the forces and expertise of "bought professors" -- operations that are now a billion-dollar industry. How did these firms become so powerful, prominent, and the professor jobs so lucrative?
Ferguson: It started about 30 years ago. The first place it started was trust policy. Economics professors started consulting on major anti-trust cases. And then it spread out from there, and it grew in parallel with free-market economics and the deregulatory movement. As corporate and special interest money started to become more prominent in the political system, it also, in parallel, started to become more prominent in the economic system. And as with money in politics, it kept on growing, and as with money in politics, nothing was ever done about it. So we woke up one day and discovered that actually, this now is a really major problem in these academic disciplines.
Ferguson offers a short list of the most lucre-driven professors, including Berkeley’s Laura D’Andrea Tyson, and Columbia Business School's Frederic Mishkin, whose papers (for $100k) basically provide the rationale for the criminal collapse of Iceland's economy. Miskin, as Ferguson reports, made more than a million dollars in his various professorial activities before he joined the Fed in 2006, and because he had to complete a financial statement, we know that he owned between $6,740,103 and $21,356,000 in stocks. Tyson, as another example, made approximately $784,000 per year, just from the cash and stocks from the four public companies on whose boards she sits.
But even more striking is the case of Glenn Hubbard – the anti-tax Dean of the Columbia Business School (and an adviser to the Romney campaign) who got $100,000 for testifying in the criminal defense of two Bear-Stearns hedge fund managers (who were acquitted) and who clearly makes millions (more than $700k annually from just three of the boards on which he sits). What does it mean that a guy who plays a huge role in making sure the wealthy aren’t paying taxes is the dean of one of our most prestigious business schools?
Ferguson: It certainly is out of whack, that’s for sure and it’s disappointing. I’m actually more disturbed if it were simply a matter of it happened, by coincidence that he had conservative political views or he had specific views about the tax system, and they were his sincere views and that was that. I would disagree with him, but it would, in some sense, be kind of okay. But in this case and many, many other cases, these people actually make huge amounts of money by consulting for the financial services industry and other powerful industries.
Speaking of large amounts of money, Larry Summers, former president of Harvard, and senior financial adviser to President Obama, received $5 million in one year for working one day a week for D.E. Shaw, a large hedge fund. He’s worth between $17 and $38 million (his earnings the year before he joined Obama were $7,813,000). You mention that in 2007, Summers was marketing Shaw-owned CDOs to Asian sovereign wealth funds. In the book, you wonder if that really was the process of dumping toxic assets on naive institutions, something of course we know Goldman Sachs did. However, you say in the book that Summers is not corrupt in any crude literal way. How do you define corruption and what is crude corruption?
Ferguson: I don’t think that he is crude. I think my statement’s correct. I don’t think -- in fact, I’m certain that Larry Summers doesn’t take envelopes of money in return for saying or doing this or that.
But if he were selling toxic assets to naive institutions for his $5 million-a-year, one-day-a-week gig, would that qualify?
Ferguson: Well, “If.” First of all, we don’t know what he was doing in part because he hasn’t spoken about it. That might have been an unsavory, private business activity. I would say that I’m more concerned about his public policy pronouncements and activities and the way that they have been so consistently a) erroneous and b) heavily favorable to the financial services industry. I think it’s reflective of the fact that Larry is being extremely ambitious and having a very powerful need to be around powerful people and be at the center of things, etc.
In Predator Nation there’s a long litany describing the crisis we’re in -- homes foreclosed and underwater, high, long-lasting unemployment, unprecedented numbers of people in poverty and on and on. Ferguson asserts that “no country has come remotely close to the extreme income and wealth inequities that we have.” Yet it's happened in a relatively short time: 30 years. I asked Ferguson, what are the factors that are most responsible for this transformation, from his perspective?
Ferguson: I would name three things. One is the role of money in politics in that it has permitted inefficient and/or dangerous companies and industries to insulate themselves from proper regulation and from competition by using money to obtain political power or political favors. In the book, I talk about the automobile industry, about broadband policies in America and several other industries, and of course, the financial sector.
The second thing that I would point to is information technology, which is a very, very powerful good force, but which also makes it possible for America-headquartered companies to use global labor forces and in particular, use very low-wage labor from around the world.
And the third factor is that given that fact, the United States can only continue to be prosperous for the majority, for its whole population, if the American population is very well-educated. A lot of -- half of the American population -- is no longer very well-educated.
Social Change and the Mass Affluent
I’ve recently noticed more frequent use of the term “mass affluent,” referring to people who are well above average in terms of income and or net worth, but not at the top. According to Wikipedia, mass affluent is a term used by marketers to identify individuals with liquid assets of $100k to $1 million.
In a couple of places in Predator Nation, Ferguson writes about how the country is working pretty well for 30 or 40 million people, about the top 10% (Wikipedia refers to about 33 million mass affluent households, so actually quite a bit more individuals than 30 or 40 million).
So I posed to Ferguson the big question of how do we change the mess we are in, when the most educated, and arguably very creative, productive 30 or 40 million or more people are doing really well, what is the incentive for us to change the system?
Ferguson: Unfortunately at the moment, there isn’t any economic incentive for prosperous people to change the system. But on the other hand, there is a very strong incentive for the bottom two-thirds, three-quarters of the population to change the system. Since this is still a democracy -- at least in some ways. People still vote.
Right, but will they have any candidates to vote for who are going to make any significant difference in their lives? We have talked about Obama being a huge disappointment. Chuck Schumer, the senator in New York, fights vociferously to keep the hedge fund tax rate at 15%. So, what do we do?
Ferguson: As I say in the book, there are several avenues for reforming this situation and this system. I’m sure that people are going to try all three. One is non-partisan, non-political, social movements like the civil rights movement, the environmental movement, the gay rights movement.
But those movements, as important as they were and are, don’t have so much do with money, the redistribution of wealth, or the availability of jobs, the overall oligarch-driven crisis we are in.
Ferguson: The environmental movement certainly does, and I would argue the others do, too, and there have been such movements. The other two avenues for change are a third party or an insurgency in one of the two established parties. None of those avenues is easy, and it won’t be instantaneous.
Huge Obstacles to Political Reform
Not easy is an understatement. First of all, we did have an insurgency in one of the parties -- the Tea Party. It, in combination with deep-pocketed right-wing donors like the Kochs, effectively took control of the Republican party. And it certainly did not, remotely, begin to solve any of our problems. And this year, there was another attempt at a third party by Americans Elect, which was really a kind of Pete Peterson operation of wealthy people cheered on by New York Times columnist Thomas Friedman, which created a $10 million Web site, got ballot access in all the states, but amounted to nothing. They were looking for candidates –NY Mayor Michael Bloomberg, who’s worth $25 billion, was their prime target.
The system is stacked against third parties and the only real way a potentially viable third party can get established is if there’s a large amount of wealth involved. In the case of Americans Elect, the not-so-hidden agenda was austerity -- to balance the budget. (Ross Perot spent more than $12 million of his own money, as the last viable third-party candidate in 1992, and received 18.9% of the popular vote, but no electoral votes.)
Ferguson: I guess my new view is that the general avenues for changing the system are reasonably clear. They’re the ones that I mentioned. That doesn’t mean that they’re easy. The fact that something is obvious, doesn’t make it easy, on the contrary.
I think it’s an illusion that they’re obvious. I don’t think they’re available.
Ferguson: Well, we disagree about that. My own view, for whatever it’s worth, is that the first, most important... the currently most important -- the necessarily first step in that process is a wider awareness of where we, in fact, are. I don’t think there is yet in America, a broadly shared awareness of our situation. I think that it’s coming.
And this is why we disagree, because I think the American people are hyper-aware of the problem, they just don’t have any path to do anything about it. And they’re scared, they’re really frightened. Of losing their jobs, rocking the boat, creating problems….
Ferguson: Well, who is the “people”? Many people, I would certainly agree that a large number of people are aware, at least to some extent, but it’s not sufficient. The awareness isn’t sufficient yet, I would argue.
Is there a tipping point? Why don’t you think we’re there?
Ferguson: I think there are a number of reasons for that. One is that it is a relatively new situation in historical terms, and many Americans aren’t yet used to thinking in this way. I think, also, that the political techniques used by both parties to emphasize disagreement about so-called values issues has successfully distracted a lot of people from this underwater economic change. I think it’s when you take more time for enough people to get sufficiently aware and sufficiently upset where you begin to see the emergence of some kind of social and/ or political movement today.
Can you imagine that scenario a little bit further? What it would look like?
Ferguson: I don’t know if we’ll see the emergence of a single, charismatic figure in the mold of say, Martin Luther King Jr., or if we’ll see the emergence of a more partisan/political figure who might successfully run for president, or some combination of the two. Maybe this won’t happen. It’s not that I’m in some Pollyannish way, completely optimistic that everything’s going to be fine, I’m not. I’m worried about this condition. But on the other hand, I don’t think that I should just kind of slit my wrists because there’s no hope, either. America’s had problems before -- America’s had very serious problems before, and it has recovered from it, and made progress. Sometimes very painfully, and sometimes very slowly, but it has done so. So I wouldn’t count out this country’s and the American’s people’s capacity for self correction.
And what’s the scenario if it doesn’t self-correct?
Ferguson: There are a number of scenarios. I mean, you could either go relatively slow, relatively gradual, long, decline like... maybe like Argentina between 1920 and 1985. Or maybe more like England or, European countries, Europe in general, much of Europe, really...like Greece. We could end up looking like a really big Greece. That’s one possibility. Another even more disturbing possibility is if we get a really nasty demagogue. Unfortunately, I don’t rule that out.
Do you think that Occupy Wall Street is doing anything to raise awareness? And should Occupy Wall Street take a more electoral focus and consider endorsing candidates?
Ferguson: Yes, I do think that it’s evidence of something. And I think that things like it are going to grow, and we’ll see what they’ll turn into. But demonstrating, raising popular public awareness, basically making life a little more uncomfortable for people who need to be reminded that their actions have consequences is all good.
In terms of elections, no, it’s good they’re exposing the broken system. Occupy Wall Street doesn’t have to be -- and I’m sure won’t be -- the only movement or the only group that addresses these issues. The environmental, the women’s movement has a half a dozen major groups. The civil rights movement had several major groups. So I think there will be several major groups, and Occupy Wall Street and the kind of things they do will be one and there probably will be others that are more focused on partisan politics and getting people elected. There will probably be several slightly different, maybe even substantially different points of view, which is fine.
Is there anything else you want to say that we didn’t touch upon?
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