Steve Chiotakis: Three years ago today, an investment bank called Lehman Brothers filed for Chapter 11 bankruptcy. While the global financial system was already cracked by then, Lehman’s undoing was a big jolt that sent Wall Street bankers scrambling for help.
Phil Angelides chaired the Congressional panel called the Financial Crisis Inquiry Commission
and he’s with us now. Thanks for being with us.
Phil Angelides: Good morning. Good to be with you.
Chiotakis: Three years from the banking collapse, and it seems like the recovery’s sort of stalled. As far as the financial system goes — and how that relates to people like you and me — where are we?
Angelides: Well that’s been the remarkable fallout from this financial crisis. It is three years ago today that Lehman Brothers filed bankruptcy, Bank of America acquired Merrill Lynch. On the next day, AIG got its first bailout of $85 billion. By the end of the week three years ago, the U.S. government had waded in with a proposed $700 billion bailout of the banks. And what we saw three years ago was that finally the recklessness on Wall Street, the regulatory neglect in Washington, took their toll.
What’s been quite striking, though, is that there’s been very little consequence for Wall Street while the rest of the nation has suffered. We’ve got 24 million people out of work, can’t find full-time work. American families have lost $9 trillion in household wealth and retirement savings. But meanwhile, Wall Street’s barely skipped a beat. Compensation was at record levels in 2010 — $135 billion at publicly traded Wall Street firms.
And the top ten banks in this country today now have more power, more assets than ever before. They control 77 percent of the country’s banking assets. Last year they have $62 billion in profits. So it’s quite a remarkable story — a sad story — here about how Wall Street survived and thrived, and the rest of the country has suffered greatly.
Chiotakis: I know one of the goals of your commission was to find ways to make the financial system work for everyday folks. How much progress has been made on that front?
Angelides: Well — not enough, by any means. And I think you put it well because I think what we really need in this country is a financial system that’s not the master of our economy, but the servant of our economy.
You know, in many ways over the last two or three decades in this country, the financial sector became the dominant force in our economy. In 1980, 15 percent of the corporate profits in this country came from the financial sector. By the mid-2000s, that was over 30 percent. The amount of financial debt in this country soared from $3 trillion to $36 trillion.
We became very much a economy that was about money making money, versus an economy where our financial system deployed capital, undertook lending to create jobs and wealth for the American people and the American economy. And on that big score, very little has changed since the financial meltdown of 2008.
Chiotakis: So if we spend too much time looking back at what happened three years ago, do we risk not heading off the next collapse, like we’re not paying attention. Is that what’s happening now with the European debt crisis?
Angelides: Well first of all, the crisis isn’t over — we’re still seeing it’s repercussions. If you look historically, often a collapse in the private markets is followed by enormous debt in the public sector. In America, and in Europe, we now find our economies buried by the debt created by the rampant speculation of the decade that went before us.
I do think it’s important to understand what happened, though, so we don’t repeat the same fundamental mistakes. And there’s a lot of revisionism going on right now from the right, trying to blame government housing policies, regulation, when in fact the record is extraordinarily clear that it was rampant speculation and recklessness on Wall Street, abject regulatory neglect in Washington, that brought us to the point where we are today.
So I do think that what we’ve got to do is, we’ve got to understand history; we’ve got to right the wrongs of what occurred; and then, not just go into economic recovery. We’ve got to have a recovery, but we’ve really really have to remake our economy so that it serves the broader American public.
I think one of the most striking things is — here we are three years after this meltdown, and wages as a shared of gross domestic product are at the lowest level since the 1930s. Since the recession “ended,” in the spring of 2009, 92 percent of the income growth in this country has gone to corporate profit, and none to wages.
And so, I do think we have to understand the power of the financial industry, the mismatch in wealth and income in this country. And understand that so we can remake an economy that’s fairer, that has broader-based opportunity, and again, in which capital is deployed not to create trillions of dollars of phony mortgage securities, but to invest in technology, to invest in clean energy, to invest in infrastructure, to invest in education — the very things that build broad-based wealth. That, in many respects, is the greatest tragedy of the last decade.
Think of it for a moment — we created $13 trillion in toxic and phony, defective and deceptive mortgage securities, when in fact we should have been applying that capital to really create sustained wealth.
Chiotakis: There’s no doubt the economy’s in the tank. Do new regulations, do you think, on banks and in the financial sector, threaten to do more harm than good?
Angelides: I don’t believe so. From the 1930s through really the 1980s, and into the beginning of the ’90s, we had a regulated and stable financial sector, and we had strong economic growth in this country. And what you can see is, in the wake of the rampant speculation of the 1920s, and the Crash in 1929, we had a well-regulated, conservative financial sector that really served the American economy.
Starting with the deregulation of the savings and loans at the end of the 1970s/early ’80s, we began to see a lot more volatility — bank failures in our financial sectors. So I think we’re well served by a steady state regulatory system over our banks. And that’s just, I think, the right thing for the American economy.
In many respects, the financial system is the heart of the economy. It’s not the place you want arrhythmia, it’s not the place where you want the heart racing — you want stability. And that, I think, will best serve our American economy.
But this is also a canard. I want to just talk for a minute about the state of the biggest banks. The ten biggest banks in the U.S. today control 77 percent of the banking assets. They had $62 billion in profits last year. They are paying out billions of dollars of dividends to their shareholders. And of course, banks are required to report the compensation of their top five executives.
And when you look at those ten banks, collectively they paid their top five executives about $460 million dollars last year. The banks are doing just fine, they’re not being crushed by regulatory burdens. It’s really the American people that are being crushed by the excesses that led to this meltdown.
Chiotakis: Former chairman Phil Angelides of the Financial Crisis Inquiry Commission. Thank you sir.
Angelides: Thank you so much.
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