Dylan: Welcome to Episode 72 of Radio Free Dylan. Joining us today, Ron Suskind who heard and was harassed from a wide variety of corners after the release of his most recent book, “Confidence Men,” specifically his indictment of the President as having effectively been, I don’t know how you describe it, but ultimately unable to effectively engage the banking system as the original sin of his presidency and has been in a struggle ever since. And with no further ado, it’s a pleasure to welcome you, Ron, into the conversation. How are you today?
Ron: My pleasure. Great to talk to you, Dylan.
Dylan: Why is the AIG bailout and all the banking bailouts that obviously launched me off of CNBC into a direct engagement of what I see as the corrupt relationship with these banks and the government?
Ron: I think it’s an improved version of you, Dylan, frankly, if I may be so bold.
Dylan: Yeah, I feel the same way quite honestly, and I feel fortunate to have the opportunity to expand and expand my own awareness, you know?
Ron: Yeah, yeah.
Dylan: What is your insight as to why it is that they didn’t do what, for instance, somebody like myself expected them to do, which was legitimately resolve the banking system, put the SWAPs market on an exchange, and the fraud that is the dark market for those securities along with collateralized debt obligations and all this voodoo?
Ron: You know, I think at day’s end, you had a President who was not up to the job at the moment history called him. More and more in the reporting, I sort of came around to that conclusion. Look, he certainly tries; he lifts himself up to the moment. I write about that in the book. He says, “Look, I can be the President they expect me to be, I’ve got no experience, I’m not that good in economics and finance, I’m working hard, I’m studying, I’m getting sources,” but, you know, he tries at the beginning and says, “I can be Roosevelt; this is my moment,” he summons it into its fullness in March of 2009 and basically gets his legs cut out from under him. And interestingly, at that moment, Dylan, which is really surprising, this is right after the AIG bonuses blew up, even Larry Summers, who is very much in the hypocratic risk department, “first do no harm, laissez-faire, don’t mess with the markets,” even Summers is on his side about taking down the too big to fail banks starting with Citi. Obama’s ready to go, he says, “I want to plan for how this will work. We’ll use $200 billion in the TARP fund he wanted to all of them, frankly, at the beginning, “we’ll do that first, we’ll go back to Congress for money to do the whole system right.” Tim Geithner basically says to himself and in the meeting, he says, “Basically, the President doesn’t know what he’s talking about, he doesn’t understand this.” Geithner slow-walks him. A month later, nothing has been done even after the President ordered a lay-down, a plan, a real plan, only Treasury could write up that plan for how to do it. Obama at that moment gets the wind knocked out of him. And after that, you can see him just adrift. I mean he’s adrift for more than a year after that. He tries this, he does that, he loses confidence, confidence that he has trouble summoning. And what does that mean? That means he defaults to a consensus model. Well, let’s go – all the advisors in the room, they all have high IQs, they’ve got sterling credentials, let’s see if I can get them to agree. They don’t agree, and because they don’t agree, Obama doesn’t have the confidence to move. That’s the bottom line of what happened for must of the first two years of this presidency.
Dylan: Now, here’s the question that occurs to me as I listen to you. Today, in a press conference, Barak Obama said “Bankers have not been prosecuted because bankers didn’t commit crimes.” The interesting thing to me is there are all sorts of evidence of the very specific act of inserting non-compliant, non-qualifying loans inside of securities and bonds that are being sold to the government, Fannie and Freddie, that are not conforming with the necessary legal standard to be able to sell your bonds to the government. They call it “dipstick test”…
Ron: That’s right.
Dylan: And some of these dipstick tests would come out and show more than 20% of what was in the pool of securities was non-conforming. And at the same time, we never saw Eric Holder. Eric Holder never once stepped forward to prosecute on behalf of the America people for the fraud that is definably available in the dipstick tests of those securities. I don’t – where your narrative doesn’t reconcile for me is how is it that everybody is being ruled by Tim Geithner that – for me, I’ve really concluded, and I don’t have the reporting you do, that Barack Obama and Eric Holder, they’re doing what they want to do.
Ron: I, at the end of the day, say the President is the President. If he wants Tim Geithner to be Treasury Secretary, that’s his choice, but that choice is defining. I said to the President, “What happened after Tim slow-walks you?” I mean, it’s not disputed. In the Pete Rouse memo the next year, Rouse says, “When Treasury or the economic team disagrees with your decisions, not with what you’re wondering, not with what you’re asking, your decision, presidential decision, they tend to re-litigate, which means ignore, start over as though the President has said nothing again and again. This is the kind of thing that frankly people get fired for. Nixon would have fired him that afternoon. And I guess the question is…
Dylan: But again, what’s your perspective on the Eric Holder failure to prosecute dipstick question, which is really where the obvious crime lies…
Ron: It ends – look, the fact of the matter is it ends with the office of the President. These guys work for the President. The President, at a moment like this, has to call them in and say, “I want prosecutions.” Look, the dipstick is one issue. To be frank about it, I used to be an investigative reporter that did a lot of reporting about crime with prosecutors. What happens at a moment like this? They’ve managed to skirt the letter of the law, you move on a racketeering front we’ve done with the mob, all the way through the difficult days for the mob over the last three decades. That’s what you do. That’s what prosecutors do. And the reason that it hasn’t happened is because I don’t think there’s forceful opinion and guidance from the top, period.
Dylan: You’ve asserted that Geithner blocked the plan to resolve Citigroup from being formed.
Ron: Absolutely.
Dylan: What do you – do you think today that Geithner is currently blocking a resolution plan for Bank of America?
Ron: I don’t have that evidence, but the fact is looking at Tim’s behavior over the last almost three years, frankly take the New York fed four or five years, absolutely. I think that would contort with his views and his behavior up to now. Geithner does not believe that the country can survive without these large banks. America without Bank of America, Citigroup, Goldman, the fact is that we are over-banked, Dylan, we have a gigantic sort of financial mecca in New York…
Dylan: We’re not saying we don’t want banks, we’re saying we want banks that have capital requirements that lend to America.
Ron: Precisely. But that’s not their business model. And unless you kill off the speculative [indiscernible] that the trading machines that do bring them in money but also bring enormous volatility and disruption to the rest of the economy here and abroad, unless you kill that off, you are not going to get replacement business models in these banks, period.
Dylan: Bingo, bingo.
Ron: They’re not going to loan to America because they have that alternative.
Dylan: And as long as it’s legal to basically purchase our government at auction in order to create these types of policies, it’s the easiest money in town.
Ron: Absolutely. You know, and the key is that you’ve got to kill of one if you’re going to force the banks back into the prudent man role to do what banks have always done in the country when the system has worked, which is to look at accretive, sustainable investment and hold the risk, that’s the key. They figured out a way to get rid of the risk, so they lose accountability and essentially they can get profit without any comeback if it goes south.
Dylan: Which is why Occupy Wall Street is a massive wave now, which is why the occupation movement is a massive wave now because Behavioral Economics 101 regardless of the actions of any of these particular individuals as a collective, behavioral economics is very simple in so far as if the villagers are getting screwed by the king and the villagers know the king is screwing them, and there’s a point where the villagers will, rather than take that deal, will burn the village.
Ron: That’s right, absolutely right. You know, people have a common sense understanding of these things, they know when they’re getting conned, and ultimately what you have here – in this book for the first time, the curtain’s pulled back, the evidence is now available. Everything in this book is sourced down to the ground, documents, long-taped interviews, investigative reporting, going in every direction, now the evidence is clear, opportunity was there on many fronts and the President, for whatever reason, decides not to do it. If the President wants something done, it’s his responsibility to say, “Damn it, I want it done, period; I am the President.” And that includes not just taking down the large too big to fail banks, which frankly would have killed off exactly the kind of overhang of fear that’s causing so much disruption right now in the markets here and abroad. This time it’s Europe, next time it will be Asia. The problem, the credit system here and abroad is busted, he had a chance to fix it, but it’s not just that. The financial transaction tax is another example. In the book, toward the end, you have Peter Orszag talking about that, others mention it as well, the President in meeting after meeting is saying, “I want a financial transaction tax.” Summers basically says to Orszag and other, “He’s never going to do it, I’m never going to let him do it”, Summers prevails. Who is the President? That’s my question.
Dylan: Why is Geithner still employed? Am I – are we – again, where I feel like I run into a perceptive disagreement with you, not a factual disagreement, is—and maybe it’s just even in the word choice, I don’t know—I feel like there’s a component of the narrative as you present it that lets this guy off the hook, being the President. Am I wrong? Am I misinterpreting you?
Ron: I, throughout the book, I say “at days end, it’s about the President,” it’s about building the case of how we got here, what happened, how we get past this, the country is in a crisis, the President is a defender. There is no doubt through the shank of the narrative, people are going to come back again and again to Barack Obama and say, “You are the President.” I don’t come up and say, “this is your issue; it’s on your plate,” but clearly the book shows that all the way through. I don’t think we’re very far apart here at all. The President’s the essential actor; the buck stops at his desk. What happens is his responsibility. And whatever Tim does or doesn’t do, he gets slow-walked, he gets ignored, he gets pushed back, at the end of the day, advisors advise, Presidents decide, that’s what they’re paid for. I say that in the book. Whatever happened here is the President’s responsibility.
Dylan: So let’s finish this conversation away from banking and away from the castle dynamics that we’re discussing to talk about what they decided to do instead of addressing the banking system, which is to go down a healthcare debate that I supposed had it actually not been riddled with special deals with drug companies, healthcare companies and everybody else, might have been some form of redemption. But adding insult to injury after having abandoned the basic principles of capitalism by allowing institutions that have taken too much risk to fail and forcing capital requirements in the banking system and, instead, covering up the fraud that is the entire SWAPs market, then turns his head to healthcare where you’re anticipating some sort of engagement with a private health insurance monopoly, the fee-for-service doctor system, the non-competitive drug pricing mechanisms, and what we end up with is a mandate to participate in an unreformed insurance monopoly with an unreformed drug system that actually forces by law every American, which is rational by the way in health insurance because of the naturally misaligned interests between the young and old, but the fact of the matter is to mandate everybody participate in a rigged system that’s being bought at auction is enough to make everybody want to scream. To do that on top of having completely been bought off or whatever it was on the banking system seems to me the reason why there’s now an occupation downtown.
Ron: We had a situation where we had a broken financial system, they opened the federal purse to support an existing broken business model, the same thing happened in healthcare. I’ve got it documented literally week by week in the spring of 2009. What was grand bargain that was going to work—expansion of coverage, but the quid pro quo costs controls that are real and tough, otherwise, the whole thing falls apart. June 8th, Peter Orszag sends a memo to everybody, he and Zeke Emanuel, a healthcare expert, are saying the whole point of it is that cost and coverage needs to walk abreast, we’ve completely thrown cost overboard. At that point, what had happened, even after the President offered enormous political capital for healthcare away from the wider issues of the basics crisis of financial reform…
Dylan: He took his entire presidential wave and turned it to healthcare and abandoned banks.
Ron: They did nothing, they did nothing. I’m talking to Tom Daschle in this book two months after the big healthcare summit. Daschle, Mr. Healthcare, is literally saying “I can’t get a call into the White House.” Two months, the most important two months in 15 years in the healthcare debate, and they’ve done virtually nothing in the White House. Two month, zero. We get to the spring, they’re already losing control of it. It’s going to Max Baucus, it’s going to the Tea Party. Ultimately they never even stepped to the plate on the issue of cost and coverage, the great opportunity of this period, which is why what we have now is an expanded federal mandate without any of the contingent cost issues covered or even dealt with in a serious way. That means what is it? It’s a reverse of ‘starve the beast’. Essentially, that creates a crisis and, who knows, someday we’ll now have no choice but to solve it. That’s not government at work.
Dylan: And that’s why people – I can understand – if you told me that there’s a mandate but it’s a mandate that I participate in a system where I have choice and there’s transparency and competition, I can understand that. That is effectively the car insurance market. I have to, if I want to drive, I’ve got to get car insurance, but I get to choose, and there’s a marketplace of different prices. The rationale behind creating a mandate, which is intellectually honest, there are young people and old people consume far more healthcare than people that are my age or your age or in the middle of their lives…
Ron: That’s right.
Dylan: There’s a natural misalignment, and if we’re – you and I are both going to spend or already have spent a certain amount of money in healthcare in our childhoods and will at some point in our lives come into a cost band of healthcare as we approach the end of our lives. That is true for every human being. It’s the rationale for the mandate. It just confused me that they would offer the mandate and force everybody into a known rigged, bought monopoly system. I mean, what – do you have any sense of what they were thinking?
Ron: Well, what they were thinking was default. Nancy-Ann DeParle, she was on the coverage side. Orszag, Zeke Emanuel, and others were on the cost side. Side B, the second team, basically got cashiered. They had other things to do. Zeke Emanuel had been kneecapped by that point, Orszag…
Dylan: But that’s basically how pumping money…
Ron: …[cross-talking 15:31] and it defaults to coverage and nothing else. That essentially seizes that moment; forget about the other moment in terms of the financial system. That moment was also lost. At the end of the day, Dylan, what I have done over the last two years is I have pulled back the curtain so we actually can have – this is the only book we’re going to get before this election that shows what has happened, why it has happened, what was tried, what was not even attempted so people can exercise informed consent wherever they stand politically, you can see that every letter, every article of these debates laid out in meeting after meeting in the book, so you can see what they did and mostly what they failed to do.
Dylan: And that’s why this is such – this fall I feel like is such an amazing and important learning time to humble yourself and to humble all of ourselves to reach out to acquire more information because we’re going into a period of debate that is pretty remarkable.
Ron: Well, you know, look, it’s a crossroads moment in America, and there’s no doubt about that. And the question is can we exercise informed consent with an emphasis on informed and do it responsibly. That’s the challenge we face.
Dylan: And the thing that’s been encouraging for me is having laid out that precise value system around the singular objective of our Get Money Out campaign because I believe ultimately the reason that healthcare, banking goes the way that it does is because Barak Obama or anybody else is fearful of losing at the money auction and losing their job where 94% obviously drive it. I just ultimately look at the response where – I don’t know what it is, and I should probably shouldn’t even quote it in the podcast it changes so fast, but we shot well into the 100,000 – we’re well north of 125,000, 130,000, 140,000 signatures in a week, and this thing is running at an incredible rate of return, and I believe that – to me, I take as an instrument measuring order of magnitude of interest and energetic response. And if any of this, whether it’s the surge into this petition around a three-sentence amendment to get money out or whether it is the surge of the occupation movement in this country, it is clear that whether they understand the details of your book or not, Ron, people understand the betrayals that are core to what you are describing.
Ron: Well, you know, what’s happening, Dylan, is if – you can’t imagine the number of calls I’m getting from folks up on Wall Street right now at the demonstrations in the Occupy Wall Street movement. Literally, every one of them is going page by page saying here finally is the evidence, these are the clubs that essentially show me what the disclosures reveal, what is real. Look, at the end of the day, what we have here, if want to say, “What’s the most hopeful scenario?” here it is. Is that Barak Obama actually wanted to do more things than he ended up doing, whether it’s because he couldn’t muster the confidence to exercise executive power, whether it was Tim and Larry standing in the way, whatever it was, necessity is the mother of invention, he is in a moment that is indisputably one of increasing desperation. He has a long-shot personality, he’s at his best when odds are longest. This may be a moment, if there is a moment where he goes back to the closet, dusts off things he wanted to do to be essentially the President he was elected to be, and he may roll them out now with so little to lose. Frankly, what’s he got to lose at this point? He’s not getting Wall Street’s money anyway; they’re all going to Republicans, and many of these things might not even get passed, but at least he has to be true to his oath, “this is what I believe,” that could change the conversation, at least change the conversation in the next couple of months.
Dylan: I’ll leave you with this thought. I interviewed Dick Grasso about the banking system and I said, “Dick, what would you do if you were in that room, the room that Ron’s writing about?” And he says, “Dylan, here’s what I’d do. I would take the entire credit default SWAP market and take a look at all the underlying corporate and sovereign debt, all the private borrowing and all the national borrowing that exists, and I would look to see what percentage of all the credit default SWAPs, which is insurance on debt, exist in excess of the underlying value of corporate and sovereign debt.” The point being, we’re selling insurance on debt that doesn’t even exist. General Motors has insurance and it doesn’t have debt. Why are there SWAPs on General Motors? I’m like this is where you can get yourself really angry, want to go down to Zuccotti Park in a hurry, you keep talking like this, but the fact of the matter is that Grasso’s concept was very simple, which was this. Reclassify all the debt that exists in excess of corporate and sovereign debt in the SWAPs market as online gaming, which is what it is, and cancel it.
Ron: Yeah, yeah, right. It’s fascinating. I mean what Grasso’s doing kind of in a roundabout way, he’s saying, “You know, they settled the issue of insurable interest in 1760 in England. If there’s an insurable interest, we’re going to look at it differently than if it’s essentially a gaming concept.” That’s all it was back then, too. They solved this 200 years ago. Wall Street figured out a way to unwind it in the 1990s and we’re paying the price now.
Dylan: And they sell it to us as if it’s some sort of innovation anyway.
Ron: Oh, my goodness. I mean look at the history books. You know what was happening? Ships were sailing across the seas, insurance had just been invented, theory of probability in the late 1600s, statistical breakthroughs, all of a sudden boats were sinking. The found there were hundreds of policies on them. Buildings were burning in downtown London, hundreds of policies. The Brits understood it. Insurable interest, you need a dog in the fight, you need some property, some value of something that you are insuring with an interest, that’s what the concept was. It’s one that still holds, and that’s what Dick Grasso and others are saying. And the fact that we haven’t done it yet is astonishing, and to be blunt about it, Gary Gensler, who’s kind of fighting a one-man fight out there, he doesn’t get almost any support from the Administration, Geithner tried to undercut him several times over the last two or three years. You know, he’s in a rear-guard assault. There are literally lobbyists pitching tents out in front of the CFTC, he’s up in 100-to-1 figure against virtually all of the assemble might of the OTC derivatives market, which mind you, brings in $30 billion to $40 billion a year in profits for the top five banks…
Dylan: I know, I know.
Ron: …that’s real money, one man. The question is if you make a decision to allow that much of an imbalance in terms of bringing public policy, that’s a decision you make which is ultimately destiny. If you let that buy basically be on his own without support from the White House, you know the outcome. That’s where we now stand.
Dylan: That’s the reason the Catholics came up with the word “original sin”. A pleasure. Congrats on the book.
Ron: My pleasure.
Dylan: I hope we can stay in a heavy dialogue the next year because I think it’s going to be important.
Ron: No, no, this is our year. This is – we’ll look back on this a generation hence…
Dylan: Absolutely.
Ron: …and say, “Did we do what was needed now?” So call anytime; I’m here.
Dylan: All right. All the best. Ron Suskind, the book, “Confidence Men”. We’ll talk to you next time on Radio Free Dylan.