with Beth-Ann Kozlovich
HONOLULU—Robert Scheer says it didn’t have to happen. It was a scam. The 2008 Wall Street collapse and ensuing global recession could have been prevented. Orchestrated by financial industry leaders and the politicians who agreed with them, the deregulation wave begun under Ronald Reagan became the late Clinton era bipartisan tsunami whose full force would take almost a decade to strike American and global financial markets and suck down most of America.
And it all could have been avoided, Scheer says, if 60 years of New Deal regulations had remained intact and, with them, the wall separating what “investment bankers do with rich peoples’ money and the money of ordinary people handled by commercial banks.”
For most Americans, understanding the 2008 Wall Street meltdown came with the swift effects they felt from it—and in their short term search for someone to blame. Scheer says the whole story spans 30 years and four presidents. His new book is The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Mainstreet.
“Ronald Reagan was singing the song of the financial industry lobbyists as a candidate for president,” Scheer says. “Reagan just drank the Kool-Aid: Get government off the backs of business. But he couldn’t pull it off because of the S & L fiasco.”
Ironically, Reagan signed off on tougher banking legislation. And the final death blow to the Glass-Steagall Act of FDR’s America came in the last years of the Clinton Administration with the passage of the Financial Services Modernization Act followed in 2000 by the Commodity Futures Modernization Act.
“Any time you hear ‘modernization’ you should make sure your wallet is still there,” quips Scheer.
An early warning came from Brooksley Born, a Clinton appointee who then headed the Commodity Futures Trading Commission.
“[Born] said we have a nightmare developing,“ according to Scheer, who devotes a chapter of his book to her story. “This was five years before Warren Buffet called them ‘the financial instruments of mass destruction.’ She said these collateralized debt obligations, credit default swaps, all these new financial gimmicks that take peoples’ savings, their homes, and other debt, put them into securities and were destroying the housing market and creating a basis for a huge meltdown.”
For Born’s pains, Scheer says she was rendered powerless by the clauses in the Commodity Futures Modernization Act, stating that none of the new financial devices would be subject to any existing regulation or any regulatory agency—including the one Born was heading.
Scheer is adamant that he doesn’t blame the average American: “Does anybody even read the five page agreement to get a movie online? No, they just check the box. Same with the 45 pages that come with your mortgage—you just sign believing there are laws in place to protect you.”
And Scheer is furious at the popular line that the public—even those who took liars’ loans—is to blame.
“We have 50 million people whose homes have either already been foreclosed or who are seriously under water on their mortgages,” Scheer says. “There is an incredible amount of pain there. We have 44 million people living below the official poverty line of $20,400 per year for a family of four. We have great misery in this country. That’s why you have a Tea Party. That’s why you have all this anger. The anger is justified. They just don’t see the right target.”
With mounting debt and the revenue needed to service it, Scheer says the monetary and social costs of the 2008 financial implosion will go on for decades. Necessary repairs or expansion of infrastructure will be left unfunded and there will be more finger-pointing than effective solutions.
“I am concerned about the stability of this country now,” Scheer says. “We are very much a consumer, material society. We can’t pull our belts in that tightly. We have a lot of people hurting and when people are hurting, they are going to look for scapegoats. I like Libertarians who are principled. I think they are honest. They are not my enemy.”
But perhaps President Barrack Obama is. Scheer has become increasingly critical since early in the Obama administration when Sheer was alarmed by the president’s choice of advisors, many of whom were the architects of deregulation. Scheer says he finds his current stance toward President Obama especially painful, given Scheer’s financial and rhetorical support of Candidate Obama. That candidate seemed to well understand the cause of the crash, but behind that seeming understanding, Scheer later found a great disparity between the speechmaking and the reality.
From The Great American Stickup: “Take the mask off the Obama candidacy, and there was always a deeply disturbing reality that his massive Internet-driven grassroots contributor base concealed: Obama was the first major-party presidential candidate since Richard Nixon to base his campaign fundraising exclusively on private rather than public funds. But the appearance of all those coins flowing in from the common folk denied the harsh reality that his campaign contributions established him as the darling of Wall Street financiers—the very folks whose interests he served so faithfully during his first year in office as he endorsed, and indeed expanded, the Bush bailout.”
The only way around the current failure of leadership is education of the public about the real problem.
“We are lied to all the time. We have a whole industry of lobbying, PR, and manipulation—that’s why you need leadership,” Scheer says, adding that “if we don’t develop a progressive, enlightened alternative to this problem, if we continue to trust people, whether Republican or Democrat, who are basically carrying water for Wall Street,” we’re in for a protracted recession despite the happy talk and perhaps even some of the indicators to the contrary.
The bottom line?
“The recession isn’t over,” Scheer says. “We need progressive populist leadership, like an FDR. We have a lot of smart people telling us how desperate this is, but we also have demagogs—and right now mostly right wing demagogs—telling us let’s just have the invisible hand here. But we don’t have an invisible hand. What you have is a system of government in which Wall Street owns the government as far as these key issues are concerned. We have to break that ownership. That means challenging the Democrat leadership as well.”