Interview with Nomi Prins on financial meltdown

10/30/09 Mary Glenney
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The new book by Nomi Prins is called It Takes a Pillage: Behind the Bailouts, Bonuses and Backroom Deals form Washington to Wall Street. She ought to know: she used to be an investment banker at Goldman Sachs.

Today, WMNF Women’s Show co-host Mary Glenney asked Prins how the real economy is brought down by the virtual economy of Wall Street executives who caused the financial crisis by using their “play money.”

Nomi Prins: “That is exactly what the situation is: it’s ‘real’ versus ‘play.’ And ‘real’ happens to be our money, it happens to be public money. It’s our deposits. It’s our interest payments on loans. That’s real cash coming in. And what the trading and all the other types of activities that banks do—because our deposits and loans are intermingled in the current types of banks that we have—is playing around. It is taking risks. It is betting with our money. And right now it’s betting with our actual money, our deposits and our loan interest, and also federal money that’s our future money. So they’re doing a lot of stuff with our money and I do think, as you mention and I mention a lot in the book and a lot of things I write, that we do need do something called reinstating Glass-Steagall. Glass-Steagall was an act in 1933 that separated commercial banks from these investment and speculative banks so that our money was protected and wasn’t used as kind of chips on the betting table. And I think that makes perfect sense as a way to stabilize things going forward. It’s not really the major theme in Washington right now.

“They talk about, ‘Well, what do we do with these too-big-to-fail institutions?’ as opposed to making them smaller, which is the obvious thing you do with something that’s too big. They’re talking about all these other kind of potential restrictions on them, and yet allowing them to stay the size they are and as intermingled with our deposits and their risk as they are. I just think that’s—that’s just wrong. There’s no way we’re going to not have another crisis in that scenario, because we haven’t fixed anything.”

Mary Glenney: “Well, that’s why I think your book is so important. Because, you know, I’m hearing the stuff coming out of Congress now and I’m waiting for Baucus—or maybe he’s already said it—that we can’t afford to do anything about this. I mean, I’m just waiting for him to say that and the Senate Finance Committee. And, you know, because already the lines are being formed: do nothing or, you know, that Volker and others—not exactly raving liberals—are saying that you’ve got to reinstate something like Glass-Steagall. And I thought it was interesting, because he was talking about regulatory—I can’t remember the word he used—but, in other words, you can’t really put regulations on these kind of people, because they frankly will kind of absorb the regulations and turn them to their benefit.”

Prins: “And they will ignore regulations. That’s why these conversations about many regulations are so annoying, because they act as if there’s something being done to contain the risk that was taken. And, in fact, it’s really cosmetic. And, you’re right, banks will found their way around it. However, if you really segregate the banking industry, and you disallow companies to trade that are also dealing with commercial deposits, or at least you severely limit their ability to trade, that’s actual regulation. That actually gets you somewhere and that is something that Volker has—Paul Volker, former chairman of the Federal Reserve—has indicated. And every time he says something, the White House kind of distances itself and says, “No, no, no.” It’s like, “We don’t really want to go there.” And, yet, he makes perfect sense. He’s always made perfect sense. He was against the repeal of Glass-Steagall when it happened 10 years ago. He’s always indicated, and even when he was chairman of the Fed, that there were problems with mixing these different types of financial services in the same institution. And there are. I mean, what more proof do you need than a 14 trillion subsidization of the industry? It’s like if the rest of Congress, and the president, and the treasury secretary don’t get it now, or refuse to understand it now, I don’t know what it would take.”

Glenney: “I don’t either, but I know it’s going to take something. And it’s certainly going to take the kind of information that you have in your book, It Takes a Pillage. Because I think when people actually understand what happens—and not only that, they’re losing their jobs, they’re losing their houses. You know, they don’t have adequate health care. There’s really, there’s no bottom in sight, yet, for the little people here. And I think that’s frightening. And, you know, when Congress is talking about what to do about this, our voices have got to be heard.”

Prins: “Yes. We have to keep on being heard and we have to keep on being loud. And we have to keep on letting the Congress people that we know—and, actually, you know, one for example is Democratic Representative Alan Grayson from Florida Congressman Alan who are saying some very logical things and trying to push for change. And, it’s important for other people in Congress see that they have support from their constituents, because that makes them think about what they should say and the kind of support they could then get in return from their constituents. Congress is like high school. I mean, it’s sort of like, if someone’s popular, then other people kind of migrate. If someone’s not popular, they sort of go away from them. You know, and so you just need to help.”

You can hear this interview in its entirety tomorrow morning on 88.5 FM beginning at 10 am.

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