that, and i found the people that do the background checks, whether it is a republican or democratic nominee are very professional. if given the time to do it, you have to rely on them. senator leahy, vice chair of the appropriations committee also discusses federal spending. you can see the entire interview on c-span. and listen on c-span radio watch online at c-span.org. thursday morning, watch the senate judiciary committees debate and vote on the nomination of judge brett kavanaugh to the supreme court. is successfully nominated, he could become the deciding vote on major legal issues that americans care deeply about. -- i now movedd

to report from the committee the nomination of brett kavanaugh to be associate justice of the supreme court. process live thursday morning starting at 9:30 eastern on c-span or c-span.org. host: our guess is steven pearlstein, "washington post" columnist, out with his latest book this month, can american capitalism survive? why greed is not good, opportunity is not equal and fairness will not make us poor. good morning, thank you for being with us. with your workck 10 years ago, you won a pulitzer prize about your work on the wall street collapse. what did you see and when? guest: i wrote the columns in 2007. the crisis began in the fall of 2008. by 2007, you were already beginning to see cracks in the mortgage market.

you were beginning to see companies that were involved in packaging mortgages and selling them to investors on wall street going under. i said, that is sort of interesting. what were they doing? it did not take very much to lift up the rock and say they were writing mortgages where you do not have to put any money down. they were writing mortgages where they did not check your credit score. i don't know about you, but i bought a house, and they were rather thorough in looking at my credit and other things. i could see that people on wall street were making a lot of money doing these things. that is a pretty good sign that when wall street is making a ton of money doing a new product or thing, you can pretty much be sure they are running away in

a way that will not end well. host: when you wrote the columns in 2007, any reaction from the bush administration or official washington? guest: no. there was not even much reaction in the washington post newsroom. this guy again. it was this very euphoric time. markets were doing fabulously. the economy was doing fabulously. people rationalized these things. the reason it is up there is because we are going to be growing at a faster rate, or they are new technology that these instruments are being done, they spread risk. alan greenspan was given a knighthood by the queen of england because he talked about how fabulous these things were in 2006. nobody wanted to hear it.

host: for those that did not have the expertise that you have, what specifically was lehman brothers doing? guest: lehman brothers got into trouble for a bunch of things. one of the things was just investing incredible amounts of money and paying very high prices for commercial real estate. there was a huge commercial real estate bubble. lehman was a little bit involved, other companies more so. when you get a home mortgage, maybe you think the company sits there for 30 years and collects your monthly payment. today, that is not true. they take that mortgage and sell it to an investment bank that takes your mortgage and hundreds of them and puts them in a package.

they create a security out of that package. they sell that security to investors. let's say they had 1000 investors in this package. each investor owns 1000th of each of those homes in that package. that is a way for investors to get 1/1000th of your monthly check. in some number of years you get your principle back. host: in the washington post, you write, in boom times, companies get into debt, forcing them to sell assets to pay interest on those debts, causing asset prices to fall and triggering even more forced selling and marketing. -- market panic. with corporate credit at an all-time high, it is a fair

guess that the u.s. is at another minsky moment. explain. guest: he was an economist that had a theory that explains we would have these crises regularly because people forget about the last one and corporations take on too much debt. it looks like they are fine because they are doing great help and then something happens in the world, and then they are not having profits that they had come and it is difficult to keep up with their debt. they start cutting back. they have to sell things. it causes the price of those things to go down. other people sell. selling begets selling. that is when you have a financial crisis. when the herd behaves in a

certain way, when things turn bad, the herd will be selling. host: could it happen again? the question is how frequent and how severe these booms and busts will be. since 2008, we have done some things to reduce the crisis like the last one from but in continuing to embrace our more ruthless and unregulated and unfair model of capitalism, we have left most of the big things unchanged. guest: we have a different kind of capitalism in the u.s. than they have in europe or japan. it is more ruthless. it offers investors less security. there is a lot less regulation. there is a lot less equality in income. all of those things contribute to this boom and bust cycle. you can go into the details of

that if you want, but it is a different kind of capitalism. we are particularly prone to that kind of boom and bust cycle. it was not true in the first 40 years after world war ii, but in the 1980's, we embraced the kind of capitalism that was much more cowboy like, much more innovative, but much less secure. we needed to do that because we were becoming noncompetitive in the 1980's. we were losing out to japan and germany. we pulled out of that by making adjustments that worked, but we have taken those adjustments and those ideas behind at to such an extreme that we have a different kind of problem in terms of booms and busts, inequality, lack of economic security, not enough regulation in certain areas.

that process of taking all those mortgages, packaging and selling them, and that investors sell insurance against them. that all goes on in and unregulated market called the shadow banking system. good job of a improving regulation of banks. the truth is banks are actually smaller in terms of the money that goes through them then this shadow banking system. that has not changed. we have not changed much since 2008. host: we will be talking about all of this with our guest, steven pearlstein, his new book coming out on september 25. we are dividing our phone lines among democrats, republicans, and independence. we have a line for those of you who may have worked on wall street, especially 10 years ago. that number is (202) 748-8003.

i want to take you back to december of 2008. our conversation with george w. bush about to leave the white house, and this from the oval office. we asked him about the financial crisis, and his reaction. [video clip] >> the other part of my presidency that has been hard is huge economic turmoil recently. i am so sorry it is happening. it is happening, and therefore i have made the decision to not let there be a massive collapse. what is hard about this one is the hard-working taxpayer making his mortgage is wondering why the president is using his money to save farms that got a little excessive in their desire to make money. i understand that complaint.

my answer is that if i thought they could fail without causing the average guy real economic hardship, i would let them. it has been an interesting presidency from that perspective. host: your reaction. guest: that was always the dilemma. tim geithner, secretary of the treasury at the time, had an interesting way of thinking about it. we can either punish all of these guys and make them suffer the full extent of their bad judgment, or we can save the economy, but we cannot do both. tell me what you think is more important. his feeling was less -- let's save the whole economy. the problem of letting the financial crisis become a depression is that lots of innocent people who have nothing to do with all that lose their jobs, homes, savings. it is better to prevent or

minimize that than to do nothing and let all of these firms fail one after the other, and it takes years to come out of that. host: in his book, george w. bush said his choice was to be herbert hoover or franklin and -- franklin delano roosevelt. he opted to be fdr. guest: that is not exactly the right reading of history. 1929, the crash, and it was 38 or 39 before the u.s. briefly came out of recession. it was only world war ii that caused the economy to start humming again. we were making all of those weapons for the war. host: you mentioned treasury secretary tim geithner.

he appeared at an event we covered. he looked back at 2008 and 2009, became treasury secretary at the start of the obama administration. here is his reaction. [video clip] >> it was easier when we decided. the hardest thing was sitting at the table with my wife in the morning with her reading about what we were doing and seeing her face that mix of despair and doubt. [laughter] i believe that she felt we were ethical people trying to do the right thing, but she looked at what we did and said, really? i think that was the hardest thing. that was mirrored by what we faced across the country and that gap between what we thought

was right, the best of available options, what we thought would provide the broadest benefit the fastest possible, and what people thought was fair and just. i think that was the hardest thing. host: that is on our website at c-span.org. guest: that is precisely the point. i wrote a lot of columns supportive of what the government was doing, what tim geithner and paulson were doing. bailing out the auto industry. two of the three auto companies were bailed out. i would get these calls from the far right and far left, how can you be doing this? this is just wrong. why should we bail out those guys at? in order to bailout the economy, you need to bailout the financial system. the only way to bail out the

financial system is to make sure there are institutions that are still solvent that can buy and sell things and offer credit to the economy. if the firm's collapse, the system collapses. if the system collapses, the economy collapses. at that time, some of us say we are lending money into these things. we are temporarily investing money in the case of the banks. we will get it back. we did get it back. we actually made a small profit. what that tells us is that the system wasn't bankrupt. lehman brothers may be an exception. that is why i asked you not to use that one. lehman brothers may have been. most of these institutions were solvent. the problem was there was a run on the bank. everybody wanted their money at

the same time. if everyone who puts money in a bank tries to get their deposits back, it is not there. it is lent out. when you have a panic, the best thing to do is flooded the system with money. the panic subsides. that works only with the institutions are solvent, that in the long run they are able to pay you back. the auto companies paid back the investment with profit. aig paid back investment with profit. all those banks that took money or worm -- or were made to take money paid back with interest. what happens in a panic is even institutions which did have enough capital, which were solvent, if there is a bank run, it looks like they are not. or you cannot tell whether they

are. that is the problem. a bank one of the things they hold is bonds and stocks. if the value of those things in trading goes down, it looks like they are insolvent. if the reason they go down is because there is panic selling, then they were never really solvent. though at the time we don't know. host: our guest is steven pearlstein, a business columnist for the "washington post." he is out with a new book, can american capitalism survive? welcome to our listeners on c-span radio and sirius xm. our program carried live on the bbc parliament channel in great britain. we welcome you. lucy from virginia, good morning. caller: good morning.

i welcome the opportunity to hopefully get some answers. i recall 10 years ago as this financial collapse was occurring, i could not believe what on earth could cause that. if i could make a few points, please don't cut me off. it seems to me politically the democrats have been pushing the idea that everybody, it is a basic human right. it is a nice idea, but a lot of the banks were being pressured to offer these mortgages to people who essentially did not qualify. that is one point. i guess they are called subprime mortgages.

with that causing it to happen, this is the question i want to ask. fed must have been aware of all these mortgages out there that are very dangerous. they were all bundled up into these cdo's on wall street. the fed must be aware of all of these tenuous mortgages. why on earth was it a wise thing to raise interest rates? host: was the fed aware? guest: the short answer is no. they were not. ben bernanke at one point, when this problem with mortgages started to be revealed, he said we have done some analysis, and

if every mortgage in america went under, there is still enough capital in the banks to withstand that. what he did not understand is this shadow banking system, which he did not regulate. the interaction of these mortgage securities with other securities that were linked to them and similar securities and how those were linked to commercial real estate, he did not fundamentally understand that because the fed is a bank regulator. their whole regulatory structure is based on the idea that a bank makes a loan and holds that loan. when that structure changed, the regulatory structure did not change. it still has not. host: you mentioned this earlier, this tweet saying no cash for a rainy day fund, banks

had little cash for a rainy day fund. can you explain that? guest: i think he is making the point that banks had too little capital. banks are required to have a cushion, a capital cushion, to have their own money that they put in treasury bonds in case they make loans that are bad loans and they have to suffer losses. if they suffer too many losses, then they are insolvent. that means the depositors do not get their money back. since the government ensures those deposits, they insist that 6%, 7%, 8%, of their

capital in reserve. as it turns out, they did have enough. that is not the problem. the problem is everyone wanted to sell these fancy securities in the shadow banking system all at once, and nobody wanted to buy them. the trading price, which changes every minute, fell through the floor. it is true that those banks actually owned some of those instruments, quite a few of them. they also owned commercial real estate. all of those things looked like their value was going down very fast. it looked like they did not have enough capital to absorb those losses when they did. we did not know that. when people think a bank is insolvent, people want their and everyone starts

demanding money back from everyone else at the same time. the system collapses. host: how long have you been at the "washington post?" guest: 30 years, a little more than 30 years. i was hired as a business editor in 1988. host: a record amount of book sales. bob woodward will join us at 7:00 a.m. eastern time. dave is joining us from armstrong creek, wisconsin. caller: good morning. i would just like to point out that wasn't the democrats pushing that. that was the george w. bush administration. would you please explain to the audience how the rating institutions were involved, standard & poor's, moody's, how they rated these packages aaa when they were actually toxic.

they were kind of in collusion with the whole thing. it was a very good book i read a long time ago, it explains a lot of the stuff that went on at the time. it is easy to read. the federal government got their money back, but a lot of people, including me, i lost it the portion of my 401(k) at a time when i was 55 years old. i was not able to recoup that. that's great that the government got their money back, but can you speak about that? host: are you working now? guest: -- caller: i am semi retired.

i am 66. i am working part-time. i am getting social security. i am doing ok, but it was at that time for me. a lot of people were caught. host: your argument resonated in 2012 and 2016. guest: let's remember the government's money is your money. the government is not some force out there that is either opposed to you or helping you. it's us. the caller raises a couple of questions. that the government caused this by subsidizing mortgages, there is a little truth to that, but it is fundamentally not true. the reason subprime mortgages

became such a big hit was that wall street saw a bonanza. wall street and the real estate industry saw a bonanza in selling more homes, making more mortgages, putting them into packages and selling them to investors. the demand was huge. it was because the demand from investors was so big that the signals that were sent through the system was send me more mortgages. send me more packages. they went out and told the brokers send me more mortgages. they got them. it was not because the government was encouraging it. it is still the case that these institutions called fannie mae and freddie mac, which are now

owned by the government because we had to take them over, but before they were sort of independent companies. they had rules. they subsidize all mortgages in the u.s. that they buy. their rules were that you had to have a credit check, put down 10% to 20%. the mortgages that fannie and freddie guaranteed, there was not a big problem with those. there was a big problem with the ones that did not go through them, which were subprime. those were financed by the shadow banking system. fannie and freddie were not participating in them. what happened at the end of the boom is that fannie and freddie saw that it's market share was going down. what they did with their money, their profit, they went and bought those securities as an investment.

that is one of the ways they lost a lot of money. it is also true that foreclosures went up across the country, including loans that have been injured by fannie and freddie. sometimes they went down by more than 20%, and those mortgages were underwater. some people were not able to pay. fannie and freddie, to say they caused this or that george bush's encouragement of working class people who did not have the down payment to be able to make that the government caused this, this was financial market driven. host: we want to get back to the calls quickly. if you could quickly sought -- if you could quickly explain. -- dodd-frank signed into

law by obama. guest: i don't really agree with it. there was a problem with it in that the law requires a lot of reporting and a lot of stress testing. it was applied to too many banks, too many smaller banks. they have changed that so that it only applies to big banks. the truth is, even the big banks don't really want to change dodd-frank now. they have come to live with it. they have come to accept it. the banks are in a much better position. this is a theological thing with republicans. they think all regulation is that anytime you have a regulation, they call it job killing. our financial system is already too big relative to the economy, too rich, too powerful.

the idea that it has to be richer and more power, i think we could do with less financial innovation these days. power, ik we could do with less financial innovation these days. host: our guest, can american capitalism survive? white greed is not good, opportunity is not equal, and fairness will not make us poor. caller: good morning. i wanted to say thank you to mr. perlstein. he is a very good conveyor of this information that a lot of people don't understand. i wanted to mention and see if there are any responses. i know he is not here to manage my portfolio.

him what heask thought about this. my husband and i will be retiring. when you say retiring, that is something that means different things to different people. my job,be leaving collecting a very small pension. he is already collecting social security. ago andere two weeks independently, we just don't feel good about what is going on. we already lived through the last losses of things in the stock market. back,e gotten much of it but we took all of our stocks, not all, we have a little bit left, but we took them all out and put them in savings. host: please your question can

it happen again -- is your question can it happen again? caller: i believe it is going down again. mr. perlstein is indicating that is how it works. guest: that is not how it works. but you see signs right now that things are frothy right now and the value of those stocks or bonds, there is a good indication that things have risen higher than their general economic value. if you have a lot of your money in cash, in a savings account, that is probably good to have a lot of it there now. it is very difficult to time markets. people who are professionals cannot time the markets. we can look at when markets looked pretty frothy. they show signs of that now. bonds too.s to

that is the trading value of bonds. if you are willing to hold the bonds until it matures, that is fine. when the market has a correction, the value, the trading value of those bonds will go down, and your monthly statement will say you have less money. if you are willing to hold the bond until it is due, you will get your money back in all likelihood, and you will get your interest every year along the way. the trading value and the value on your statement every month will look like it went down. if you are not prepared to do retirement, are in and you will need that money, you may want to move into cash. int: we are going to brian washington state. good morning. caller: good morning.

i am glad you are on the show this morning because i have been asking myself, i just came up with these situations where they actually happened. if you could just answer yes or no so we could get through them quick. in 1997, did the congressional budget office tell the country that we were going to go from ink ink to black 2007? did that happen? guest: no, we were on the verge of, and we actually ran a surplus for a year or two at the end of the clinton administration. that is correct. host: you want to follow up? guest: i was curious if the situation of us not going to black ink was the bush $500istration issuing

rebate checks to each household. did that keep us in red ink? --t: guest: yes. it was not just $500 to individuals. it was business tax cuts. exceeding.re government revenue was going up in the booming economy of the 90's. we were in that situation. bush tax cuts reduced the government revenue below its expenditure, where it has remained ever since. bday, we are in another oom. we just had another tax cut so that our deficit this year and next year will be $1 trillion per year. the major cause of that will have been the fact that we cut

taxes too much. host: it does than 10 years since the financial crisis. the man who predicted this, steven pearlstein, is here. what are some of the signs we are seeing in the economy today? cliff from connecticut. democrats line. good morning. caller: good morning. thank you. i have a quick question for your guests. i would like to get his opinion on why there were no criminal prosecutions in 2008. there was a lot of wrongdoing across-the-board, but there were zero criminal prosecutions on that. i would like to hear what he has to say about that. thank you. host: thank you. guest: a lot of us are not happy about that, but having bad financial judgment is not a .rime

being stupid is not a crime. being overly optimistic is not a crime. that is the short answer why there were not criminal prosecutions. you have to prove that somebody knew something was wrong or lied about it, and it was very hard to prove such things. there was a lot of self-deception on wall street involved. there were instances where people knew things and did not say it. probably not the chief executive banker of a $20 billion did not know about this mortgage and that mortgage. place in manyk instances was at a very low level. lender, notroker or

a big bank, but a smalltime guy might have known that he was selling stinky loans. major banks generally did not make stinky loans. they bought them and packaged them. a lot of those stinky loans were made by small fry who were essentially brought into the industry and created because the shadow banking system wanted more and more mortgages to packaged so they can earn a fee. host: stinky loans, is that economy 101? guest: yes. that is loans you can predict will go back. the ratings agencies were part of this. there was some thought that maybe they did engage in fraud, that people at the ratings agencies knew they were giving too high of ratings to these

instruments, and they gave them high ratings because they know that they did not have that there were investment banks would not go to them, they would go to another ratings agency. was there grade inflation induced by the desire to earn more and more fees? that whole structure by which the investment bank that puts together the packages pays the ratings agency is inherently unstable and leads to corruption. we ought to figure out a different way to pay the ratings agencies. they should be paid by the investors for home they are giving advice. they are saying this is this risky. the investors are the ones who need that. they are the ones who should pay for it, not the one who is selling the instrument.

he is good to pressure the ratings agency. give me a good grade. we never fixed that with dodd-frank. we should have fixed that so that investors pay for them. headline, the junk debt that tanked the economy. it is back in a big way. from go to ann california. caller: good morning. i have a couple of questions. banks toou expect the start paying us our little higher interest on the money and the banks, especially the regular savings accounts for .eople we used to get 4% and 5% interest rate on regular savings

accounts. now you get 0.1%. you get less than a dollar at the end of the year. why don't you go to your bank or and ask him why he hasn't raise rates? there are some banks that are beginning to pay not 4% to 5%. we are not at that level. you should be beginning to get 1% or even a little more than that. there are banks or money markets that are paying that. you should look around. call the bank and say the fed is raising rates by one percentage point. there should be some connection between the federal funds rate and the bank rate you are getting. host: it could happen again, the

flaws of american capitalism invites cycles of booms and busts. you write that banks are better capitalized and less vulnerable to a short-term loss. consumer protections were strengthened until the trunk crowd took over. the financial system and american economy remain uniquely vulnerable to booms and busts because americans have chosen a set of capitalism based largely on flawed ideas embraced in the 1980's that persist to this day. caller: good morning. i would like to say that i watched the goldman sachs hearings way back when, and i thought they were real helpful in understanding what happened. those were very interesting. the second point, i think

dodd-frank had a hand in this because they allowed the subprime loan to be made available to people, basically opened it up to everyone. people like countrywide went wild with it. i was felt that president obama could have given relief to people in the buckets and not the banks. i felt they could have refinanced a good portion of those loans and made those better and maybe only sustained a smaller proportion of loss when they so those but this, which would bail out the homeowners and trickle up to the banks. i thought obama by bailing out the banks with the homeowners get foreclosed on. that would have been

away. there are several problems with that. one, the government would have to choose between those who were worthy of being bailed out and those who were not, those who needed it, and those who pretended to needed to get some help. if you think about it, that is probably not something the government is going to be very good at doing. it would have been very hard to do in the fairway. it probably would have cost a lot more money. rescuel trick in this was restoring confidence in the peopleal system by the who are involved every day in the financial system. it is not you and me and steve. it is people who package, buy and sell these instruments. you needed to stop the bank run.

the fact that everyone was calling back their money. they wanted the cash. it. just wanted to hold if we could solve that problem, then the panic goes away, and the prices of those instruments goes back closer to their economic value. frankly,a quicker, and it was something the government could probably do and succeed with. doing the other thing would have been very hard, and there would have been all sorts of people who would have thought it was unfair. the caller remembers the goldman hearing. do you remember something else? do you remember how the tea party started? it started because a guy on cnbc who covered the chicago futures exchanges. host: rick santelli. guest: he heard about this idea

of bailing out homeowners. he said i don't want to use my tax money to bail out those people that never should have had a mortgage in the first place. that is how the tea party began. the resentment against fellow citizens who might be getting help you don't deserve it would have been a political problem. mentioned -- caller mentioned the goldman hearings. in goldman,rought and they turned out to have been selling a package of these securities, which they knew were becausebut they did it one of their big customers wanted to bet against them. placeis a way to actually t that aial be

security will go down. this guy wanted to do that. they created a package of stinky loans, which they did it intentionally so this guy could make money. he did. the senators called up the goldman people and said how could you do that? how could you put out a security that you knew were stinky so that a customer could make money on that. they say, we just do this. this is what we do on wall street. it was like the senators and the guys from goldman are from venus and mars. they were talking past each other. the guys at goldman say we do this all day every day. we try to screw the other traders may that is what we do. -- traders. that is what we do. senators were saying this is immoral.

don't deal saying we in morality. i want to sell it. he wants to buy it. i am a grown up. he is a grown up. sometimes people make money. sometimes they don't. host: very quickly, this is a tweet. i want to show the debt clock. at what point does the national debt become a problem? it is now $21.5 trillion. guest: i am not one of those people that goes running around saying we are imposing this burden on our grandchildren. freak, but wet are taking on so much debt because of these tax cuts and entitlementsve that have need of some reforming. we're taking on so much debt that at some point the rest of

the world is going to say, i am not interested in lending you money for that come or if i am, am, i amat, or if i going to require much higher interest. taxpayer isbt per $176,000. guest: don't look at that. look at how much we have to pay in interest every year. this is something i heard the other day. the amount of money we are spending every year to service the debt, to pay the interest, is more than we pay that medicare -- we pay on medicare. interest rates are pretty low now. wait until interest goes back to historical norms when government borrows at 4% and 5%. the number is going to go up. that means either raising taxes

or people are going to start to mandy even more money to lend us money. those people are foreigners to a large extent. that is good to be the problem. the problem is servicing the debt. people have the misconception that this debt will have to be paid by our grandchildren. government debt is never repaid. it is always rolled over. we bonds come due, and issued new bonds. in the hundred years, the u.s. government is good to be able to borrow money. the question is, can we afford interest payments? soon that will product other government -- crowd out other government spending. the government will not be able to do the things we need to do. host: