Marketplace Live: What a difference four years does not make

What a difference four years has not made.

That was one of the conclusions from a special live taping of APM's Marketplace and the BBC's Business Daily's World Service at New York Public Radio's Greene Space this week. Marketplace's Kai Ryssdal and the BBC's Justin Rowlatt moderated a panel discussion titled: "Are, we the people, to blame: Do we get the banks we deserve?"

THE PANEL: Host Kai Ryssdal (far right) and the BBC's Justin Rowlatt (far left) lead a panel conversation with former New York Governor Eliot Spitzer, author Bethany Mclean, former Bain Capital partner Ed Conard, and RBC Wealth Management CEO John Taft.

Subprime Meltdown. The Collapse of Lehman Brothers. Too Big To Fail. Those headlines dominated the global news in 2008.

Four years ago, Americans voted for a new president against the backdrop of a deep recession, a crisis in capitalism, and a debate over who should share the blame.

Four years later, it seems a week doesn't pass without the world's banks being in the news for behaving badly. But let's face it: we like the banks when they make money. They pad our pensions, finance our mortgages and keep our small businesses growing. Still, we don't like them when they make too much money, they don't lend their money, or when they lose that money. Shareholders vote against CEO bonuses, politicians call for regulation, Wall Street gets occupied.

So where are we in 2008. Do we get the banks we deserve? Have we wasted the financial crisis of 2008?

Four years later, the five biggest banks in the United States are almost twice as large as they were a decade ago. According to the Federal Reserve, the five banks - Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Goldman Sachs - have assets that equaled more than 50 percent of the United States economy. That was at the end of 2011, more than a 10 percent increase than five years ago.

John Taft, the CEO of RBC Wealth Management in the United States, explained that the roots of the financial meltdown still remain.

"The problems that caused the crisis have yet to be fixed," Taft said on the panel, arguing that the blame does not solely reside with the banks. "There were always be crises. There will always be bubbles. The trick is to contain them so they don’t end up bringing the system down."

Many parties were at fault in creating an unbalanced system. And part of the issue with the financial crisis is a misplaced notion of what caused it, according to Bethany Mclean, the author of the book, “All the Devils Are Here.”

“One of the great myths about the crisis is that it was a myth of homeownership," Mclean said. "Everybody says this is what happens when you put people into homes and they can't afford to pay them back. This was never about homeownership. Most risky loans that were made were so-called cash out refinancing so the people could withdraw equity from their homes in order to spend it."

That comes with the territory of being a consumer-driven economy. She said that blaming the banks entirely misses the complexity of consumer spending. "There are a lot of people who say let's take apart the big banks," Mclean explained. "But what should we replace it with?"

She added that one possible change is to revise the bonus system in the financial industry. Eliot Spitzer, former New York Governor and now host of Viewpoint on Current TV, picked up on this point.

“We have a financial system that became more and more geared toward short term returns because of the bonuses and other compensation systems were determined,” Spitzer said.

Former Bain Capital partner Ed Conard also attended the panel. He is the author of the book, "Unintended Consequences: Why Everything You’ve Been Told About The Economy Is Wrong."

"I think we have to recognize that banks make profits for taking risks," Conard said. "Our leaders have a responsibility to not demagogue the issues and to explain to the American people how the financial system works and what the issues are."

You can hear the entire discussion in the podcast. Listen in the player above.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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Lots of good discussion that unpacked the crisis and offered solutions. Eliot summed it up well when he said that banks made profits on loans,but other people held the down-side risk. But the 99% guy's attacks on Wall-street and Justin's constant harping on "isn't-the-borrower-to-blame" were straw-men for the right and left. They were asserting values and morals, asserting the what, instead of explaining the why.

I think the ending of the show pointed to a topic for another show: How to get more equity investing (like Wilbur) which creates jobs and less short-term capital investment?

Your all making this more complicated and moral than it was. Thousands of mortgage and investment managers made multi-millions during the mortgage and credit default swap hay days, knowing full well the party would not last forever, so they lined their pockets till the end. The average Joe was told their house value would double in a few years and not to worry. Now those manager are laughing all the way to the bank! and the rest of us are stuck with the clean up job.

If there were no laws against killing people, hundreds of assassination companies would open tomorrow - without question or moral issues - they are going to make money -period. Corporations are designed to maximize profit. People are greedy by nature. Only clear and enforceable regulation will draw the line on what is best for the country in the long run. The repeal of Glass-Steagall was a big step backwards. The rest is just noise to avoid and cover this fact (as was most of the panel discussion).

This is a very good panel discussing the economic woes and realizing the short-comings of a regulatory solution. Ultimately the solution for banking remains one that is both reliant on individual as well as organizational finance models. Micro and macro economics becomes one word. ....Stewardship... what a bold refreshing concept. Making the concept stick, however, is well, easier said than done.

Typical of the former Bain Capital partner to blame the consumers. Excuse me, did consumers create "stated income" mortgages? No, the banks did. The banks are the ones who opened the door and said, "come on in--we don't have any standards--just sign up and we won't ask any questions." Then, when everything goes south, the banks turn around and say, "those terrible, irresponsible, PREDATORY, borrowers!" Banks, and their apologists, love to profess responsibility--as long as it doesn't apply to them. Full disclosure: I have a 30-year, fixed rate, standard mortgage. Not just because I'm responsible, but because I don't trust any bank not to screw me if they get the chance.

One amazingly glaring absence from this program was any mention of the Federal Reserve which had far more to do with the economic collapse than banks or borrowers. The program would have been so much more interesting had you included someone with an Austrian economic perspective, someone who could have castigated the government - instead of having a couple of lefties pushing for more government power and "sustainability." At least you included a banker perspective. However it seems that all the Marketplace programs stay in a safe little area of accepted thought (which got us into this mess) and never, or at least I've never heard, is there a true free-market perspective presented.

Well said! Rallying around Keynesian perspective is generally par for course on Public Radio.

There were very few if any structural elements illumniated in the conversation. A poignant example is that a mortgage is paid interest first and principal later. Such structures promote up-front profits on balance sheets and have the downside of realizing reduced property values over time if property values do in fact decline (something which until recently was considered anathema.) Those who continue to pay toward such declining values are making a true sacrifice of income to what they perceive to be value (i.e. a roof over their heads.) Those that choose to opt out due to declining values or other capital or financial needs are making a market timing decision on par with the original mortgage investment.

If mortgages were more leveled, the gains would only accrue to the mortgage originator when the actual value of the property is realized, something that would also accrue to the mortgagee. Further, mortgages are typically granted based on estimates of income growth of the mortgagee. When those estimates decline, perhaps due to employment declines not seen since the great depression, one would think that mortgages would and should be difficult to come by but likewise one would think that the vested interests of both mortgage originator and mortgagee would be synchronized toward realizing increased property value and less focused upon realizing income from the mortgage instrument itself.

I just love the way the banks are blaming the borrowers. The banks have been made completely whole and I have been trying to hold on to my house---begging the banks, for going on five years now. Great panel but you should have had a howe owner on the program. We took money out of the house we purchased because it was over priced and needed work before we could really make it a home.

We thought if we didn't purchase now---we would never be able to afford a home because of the increase in pricing. We have a home in what use to be a ghetto, on the verge of turning around with shopping carts, trash, graffiti and loud music. Every cent went to repairing the roof, rotting drywall, leaking windows and replacing doors with cracks and holes.

After which we were going to go for a 30 year fixed rate---Well guess what? The market crashed and I was laid off along with my husband and no bank would refinance the home. We waited with a broker for eight months before the broker left the business and transferred our business to another broker who was not making any money and couldn't continue.

Instead of begging the banks to modify our loan, we sometimes feel the banks should be paying us to stay here. If the new residences didn't have the trash of some of the neighbors removed along with the graffiti in the alleys and calling the police when we see criminal activity---this house would look like it was in a third world country---worth nothing.

No name

Here's what really happened, and the numerous mentions on this site of Glass-Steagall have got at least part of it right:

1. When corporations stopped sharing with the workers the appropriate share of the profits created by those workers ( giving that money instead to shareholders--whose risk has been practically zero in the past 60 years, while workers take the enormous risk of layoffs and bankruptcy every day) Americans' incomes were frozen while prices continued rising.

2. Advertising kept drumming home the message that American's must buy-buy-buy, and sure enough they over-spent and had to begin borrowing to maintain their lifestyles.

3. The repeal of Glass-Steagall let banks begin earning far higher ROI than any other industry, so massive global investments flowed to the financial industry (which, BTW, began starving the manufacturing sector to death, since it couldn't match the returns being paid by banks).

4. That tsunami of investments drove banks to lower credit standards dramatically, in order to put that money to work. Thus were born the loans that required NO income statements.

5. Those mortgages--which everyone in the financial industry knew were bad--were then packaged and sold as investments, while the scant regulatory framework that remained after the Republicans had gutted it decided that the financial institutions must know what they were doing and left them alone.

So don't give me "predatory borrowers." When a banker--A BANKER (i.e., someone who has made hundreds of mortgages)--assures you that the mortgage s/he is peddling to you is risk-free, the average borrower (who makes maybe two mortgages in a lifetime, separated by many years) believes the banker. I'm sure there were a few borrowers who lied outrageously on their applications, but many mortgages required NO income information at all...and bankers have been verifying such info for hundreds of years, but quit doing it during this period because THEY needed to push large amounts of money into the hands of borrowers.

As one wise person pointed out (above) with reference to priestly rape, the party(-ies) with the greatest power and the deepest knowledge must bear the responsibility for the resulting tragedies. That category includes many in or related to the financial industry, but it decidedly does NOT include the average consumer.

What a golden piece of disinformation this was. The banker, John Taft, successfully took the discussion off point every time he spoke. He claimed bankers paid everything back and suffered terrible losses. Another banker, Ross, blamed the loan applicants. They did not even get close to the truth. There was no mention of Glass-Steagall. There was no mention of the relationship between bank lobbyists, politicians and regulators. There was no mention of the disappearing mark to market rule.


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