Democracy NOW! Interview with Nobel Prize-Winning Economist Joseph Stiglitz: Obama Has Confused Saving the Banks with Saving the Bankers

Democracy NOW!
Nobel Prize-Winning Economist Joseph Stiglitz: Obama Has Confused Saving the Banks with Saving the Bankers
February 25, 2009
VERY IMPORTANT click here to read the entire transcript of this interview!

We get reaction to President Obama’s speech from Nobel economics laureate and former World Bank chief economist, Joseph Stiglitz. Stiglitz says the Obama administration has failed to address the structural and regulatory flaws at the heart of the financial crisis that stand in the way of economic recovery. Stiglitz also talks about why he thinks Obama’s strategy on Afghanistan is wrong and that Obama’s plan to keep a “residual force” in Iraq will be “very expensive.” On health care, Stiglitz says a single-payer system is “the only alternative.” [includes rush transcript]

AMY GOODMAN: President Obama on Tuesday night. Joe Stiglitz, is he holding the banks accountable?

JOSEPH STIGLITZ: Well, so far, it hasn’t happened. I think the more fundamental issues are the following. He says what we need is to get lending restarted. If he had taken the $700 billion that we gave, levered it ten-to-one, created some new institution guaranteed—provide partial guarantees going for, that would have generated $7 trillion of new lending. So, if he hadn’t looked at the past, tried to bail out the banks, bail out the shareholders, bail out the other—the bankers’ retirement fund, we would have easily been able to generate the lending that he says we need.

So the question isn’t just whether we hold them accountable; the question is: what do we get in return for the money that we’re giving them? At the end of his speech, he spent a lot of time talking about the deficit. And yet, if we don’t do things right—and we haven’t been doing them right—the deficit will be much larger. You know, whether you spend money well in the stimulus bill or whether you’re spending money well in the bank recapitalization, it’s important in everything that we do that we get the bang for the buck. And the fact is, the bank recovery bill, the way we’ve been spending the money on the bank recovery, has not been giving bang for the buck. We haven’t gotten anything out.

What we got in terms of preferred shares, relative to what we gave them, a congressional oversight panel calculated, was only sixty-seven cents on the dollar. And the preferred shares that we got have diminished in value since then. So we got cheated, to put it bluntly. What we don’t know is that—whether we will continue to get cheated. And that’s really at the core of much of what we’re talking about. Are we going to continue to get cheated?

Now, why that’s so important is, one way of thinking about this—end of the speech, he starts talking about a need of reforms in Social Security, put it—you know, there’s a deficit in Social Security. Well, a few years ago, when President Bush came to the American people and said there was a hole in Social Security, the size of the hole was $560 billion approximately. That meant that if we spent that amount of money, we would have guaranteed the—put on sound financial basis our Social Security system. We wouldn’t have to talk about all these issues. We would have provided security for retirement for hundreds of millions of Americans over the next seventy-five years. That’s less money than we spent in the bailouts of the banks, for which we have not been able to see any outcome. So it’s that kind of tradeoff that seems to me that we ought to begin to talk about.

AMY GOODMAN: Why is Obama saving these bankers?

JOSEPH STIGLITZ: Well, we could all guess about the politics. We know one of the problems about American politics is the role of campaign contributions, and that’s plagued every one of our major problems. Under the Bush administration, we couldn’t deal with a large number problems, like the oil industry, like the pharmaceutical, the healthcare, because of the influence of campaign contributions. Now, my view is, one of the problems is that whether it’s because of that or not, it lends an aura of suspicion. The fact that there was so much campaign contributions from the financial sector at least raises the concern.

Now, there is one other legitimate concern, that Wall Street has done a very good job of fear mongering. They say, “If you don’t save us, the whole system will go down.” But, you know, when these banks that I talked about before, when they go down, there’s not even a ripple. The fact is, you change ownership. It happens on airlines all the time. An airline goes bankrupt, a new ownership, financial reorganization—not a big deal. What they’ve succeeded in doing is instilling a sense of fear, so that it’s a kind of paralysis that hangs over what we’re doing. And you could understand a politician. He’s been told if you do one thing, the whole system—the sky is falling, it’s going to fall. That induces political leaders to try to do the smallest incremental step, and that’s what got Japan in trouble.