Tess Vigeland: Today, President Obama tapped businessman John Bryson to head the Commerce Department. Bryson is the former CEO of the energy group Edison International, and the founder of the Natural Resources Defense Council. The White House has been working to shake any hints of being anti-business, especially in light of new financial regulations that didn’t exactly please the private sector.
In his new book, Age of Greed, Jeff Madrick writes about the various players responsible for untangling Washington from Wall Street — four decades of deregulation that he argues led to the 2008 financial collapse.
Thanks for joining us.
Jeff Madrick: Well thank you.
Vigeland: This book is very character-driven, from economists like Milton Freedman and Alan Greenspan, to Presidents Reagan and Carter. But I wondered if you could introduce us to someone we may not know as much about, though we certainly know his company: Walter Wriston, the former head of the future Citicorp. Tell us about him.
Madrick: Walter Wriston was the pioneer in the aggressive assault on financial regulation in America. He wanted to make a bank into a growth company, and that meant cutting down restrictions on, for example, how much money he could pay savers in the form of interest to collect money from them.
Vigeland: And his philosophy, you write, was one of, you call it: “intense laissez-faire.”
Madrick: Well I think he was born to that. His dad was a very prominent anti-Roosevelt scholar, who became the president of Wesleyan. I think he inherited this anti-government attitude from his dad, and he put it to work in business.
Vigeland: How do you think that attitude came to dominate American politics in the last four decades?
Madrick: I think the change occurred in the 1970s, around the time inflation soared and unemployment soared simultaneously. Americans were confused, and then I think utterly panicked, as were their policymakers. And they were looking for scapegoats. Now, people were losing faith in government since the Vietnam War, but along came a number of effective politicians and a number of very effective economists, who claimed it was the size of government that was causing all their problems.
Vigeland: Well besides the phrase, “age of greed” — which is of course the title of the book — you use another one: “an era of deceit.” What types of things was Wall Street hiding from investors and from the public?
Madrick: So much. The 1990s was one of the most deceitful decades of our history. You could not keep your job at a major Wall Street firm if you were a research analyst studying stocks unless you lied about the value of many, if not most, of those stocks. The government knew about it, the SEC did nothing to stop it until it was too late. Citicorp, which became Citigroup, was the most heavily fined company in that era — the late ’90s, early 2000s. Yet they led the way in abuses in the mortgage market in the 2000s. They claimed they had a debt-to-equity ratio of about 22-1. It turned out the real debt-to-equity ratio was 48-1. Now there was deceit for you.
Vigeland: You know, some might hear this and think that you’re anti-business; what you call greed might to some seem more like competition, which of course is what drives the capitalist economy. Is there a level of greed that you think is acceptable?
Madrick: There’s a level of self-interest, I think, that is acceptable, surely. Occasionally you can’t stop greed. But greed overwhelmed the system, the incentives were asymmetric. Finance dominated America and it channeled money into paper shuffling, into fantasy. So no, I’m by no means opposed to business but I think it has to go hand-in-hand with adequate regulations.
Vigeland: Jeff Madrick’s new book is called Age of Greed. Jeff Madrick, thanks so much for talking to us.
Madrick: I’m so happy to be here, thank you.
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