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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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SURPRISE! People on Marketplace actually place some blame on inept and shortsighted borrowers and not just the "greedy big lenders". Although this was made with numerous caveats, you still have to give them credit as its definitely out of character for them. Right on...accuracy actually counts for something!

I kept waiting for Ryssdal and Rowlatt to tell me who this "we" was that deserved bad banks.

I didn't take out risky loans during the bubble. Most people didn't. Yet we're still stuck paying for the bank bailout, and the systemic risk is as high as ever.

This was like too much of "Marketplace": glib and superficial, rarely exploring the distributive side of the economic news.

Maybe I wasn't paying attention, but I never once heard the panel mention the fact that the Glass-Steagall Act, enacted in 1933 and repealed in 1999, limited banks' involvement in the kinds of securities activities that lead to this latest financial crisis. Perhaps a more informative use of airtime would be a show explaining the effects of its enactment, as well as the effects of its repeal.

One "fact" that did come up repeatedly was the US homeownership rate. I thought in the past that the Census Bureau got that estimate from members of the real estate sales community, hardly a reliable source. Now I can't seem to find any explanation on the Census website as to where they get that particular number, and whether it represents the number of people who own houses or the actual number of owner-occupied houses. The latter would be more meaningful.

I do know, from personal experience, that some homeowners lie about the occupancy status of their properties. I had a landlord in Arizona several years ago who lied to both his mortgage company and the county assessor about living in the house he was renting to me. Fortunately, when the final notice for his mortgage payment came, I opened it rather than throwing it away as I usually did with mail not addressed to myself. Since I didn't know his real address, I had to send it to the property management company I rented from, with a note warning them to tell the idiot to have his bills sent to his real address, or he just might end up in foreclosure.

The fault of the borrowers? Short of outright fraud, no.

Any idiot can stroll into a bank or a mortgage broker and ask for a loan. It is the responsibility of the loan officer, and only the loan officer, to perform due diligence and say yes or no.

The banks failed in their due diligence, and failed deliberately in most cases. They accepted borrowers who never should have gotten loans and then attempted, through fraud, to shift the risk to others. If the banks had done their job properly there would have been millions of people either turned down for loans or given loans only under stringent conditions. If the banks had done their due diligence there never would have been a housing bubble.

As one of the guests pointed out, we are in a post growth world. With due diligence we would have experienced an economic slowdown in place of a bubble, but it would have been less catastrophic and more of a malaise. Eventually we will have to face the fact that nature doesn't care about our economic goals - only so much oil, iron, copper, and food crops will come out of the ground in a year. The rule of 70 will bite us. (http://www.minorheresies.com/posts/2011/8/7/china-and-the-rule-of-70.html)

I heard Ross blame 'predatory borrowers' within an half-hour of hearing a prominent Franciscan blame sexual abuse of minors on the latter's seducing unsteady priests.

Though adults who take out loans are adults (as A ~= A if you look approximately enough), and financial predation is not pæderastic rape, there is in fact a certain similarity: in both cases, one party has much more power than the other (the power to help you get to Heaven [at least in folk theology], the power to achieve the secular Paradise offered by advertisement and marketting [sic]), and that same party claims to know much, much more about what were right and wrong under the circumstances ("It's what _everybody_ does, trust me," and "It's not a sin,"). Personal responsibility should certainly be there, but to whom very much more has been given, whether it were moral authority or wealth or power---all inevitably conflated, of course---much must be exacted.

Rules:
0.) If there's a lot of return, there's a lot of risk---for _some_one.
1.) Who will actually bear that risk is largely a matter of who is already powerful...even 'voluntary' contracts written in an environment of extreme power differentials will be unfair, even as people seek those that are least unfair.
2.) Never depend on anyone powerful's having a jot or tittle of shame.

"If the banks had done their due diligence there never would have been a housing bubble." Yes and if greed and dishonesty hadn't infected our younger "entitled" generations en masse they wouldn't have taken out ARM's that they knew they couldn't pay if interest rates should rise.
On the show, when discussing causative factors, they omitted one glaring factor....the dramatic rise of, feminist-influenced, "understanding" and "tolerance", rather than real consequences, when it comes to disciplining growing children, plus raising them with the notion that they can have whatever they want...NOW.
Consequently their reality check has been rather dramatic! If anything good has come out of this prolonged recession I think maybe the rapid maturation of our kids (and some of us) is it!

I was surprisedat the absense of one important aspect of all this that ties into our attitute towards credit and the need to "keep up with the Jones" : Isn't all of commercial marketting geared specifically to create the sense that I deserve to live beyond my means? that my Happiness is directly linked and associated with having more stuff ? This way of thinking wasn't always there. Envy has always been around, but it, and pride and greed, had not been treated as virtues in the US until maybe the last 60 years.

If we want to get to a place where we want people to be more savers more thrifty, then we have to change what the "story-tellers" are saying about us. If the only way to sell a product is to use every psychological/socialogical tool at a company's disposal to convince people to be unhappy with their situation and then associate happiness with their product, then I don't see a hope for having thriftier consumers .... And its a fine thing to talk about thriftier consumers, when what seems to motivate some is to be able to afford a Larger Jet than one already owns.

jmatos316 This is a very good point. Also the target audience/citizens must themselves break away from this adverse media influence and herd mentality.

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