this week on "moyers & company" -- >> money dominates politics. and as a result we have neither capitalism or democracy. we have some kind of -- we have crony capitalism. and -- >> the big-powered, moneyed institutions are in control in washington. there's no doubt about it. you and i don't have a lobbyist and so we are not represented. funding is provided by carnegie corporation of new york. celebrating 100 years of philanthropy and committed to doing real and permanent good in

the world. the goldberg foundation, with support from the partridge foundation. the clement foundation, parks foundation. the herb albert foundation, supporting organizations whose mission is to promote compassion and creativity in our society. the bernard and audrey rappaport foundation. the john d. and katherine t. macarthur foundation. committed to building a more just, verdant and peaceful world. the betsy and jesse think foundation. the hkh foundation. barbara g. fleischmann and mutual of america, designing customized, individual and group retirement products. that's why we're your retirement company. welcome. this week we're continuing our exploration of "winner-take-all

politics: how washington made the rich richer and turned its back on the middle class." if you missed our first installment, you'll find it at our website, billmoyers.com. now this is only the second broadcast of our new series, yet we've already made our choice for the best headline of the month. here it is -- "citigroup replaces jpmorgan as white house chief of staff." behind that headline is a tangled web. the new chief of staff is jack lew. he used to work for the giant banking conglomerate citigroup. his predecessor as chief of staff is bill daley, who used to work at the giant banking conglomerate jpmorgan chase. daley was maestro of the bank's global lobbying and the chief liaison to the white house. bill daley replaced obama's first chief of staff, rahm emanuel, who once worked for a wall street firm where he was paid a reported $18.5 million in less than three years. the new chief of staff, jack

lew, comes from obama's office of management and budget, where he replaced peter orszag, who now works as vice chairman for global banking at the giant conglomerate citigroup. still following me? it's startling the number of high-ranking obama officials who have spun through the revolving door between the white house and the sacred halls of investment banking. but remember, it was bush and cheney's cronies in big business who helped walk us right into the blast furnace of financial meltdown. then they rushed to save the banks with taxpayer money. but of course, bush and cheney aren't the only ones to have a soft spot for financiers. bankers seem to come and go pretty frequently at the white house. president obama may call them "fat cats" and stir the rabble against them with populist rhetoric when it serves his purpose, but after the fiscal fiasco, he allowed the culprits

to escape virtually scot-free. and when he's here in new york, he dines with them frequently and eagerly accepts their big contributions. like his predecessors, obama's administration has also provided the banks with billions of low-cost dollars they used for high-yielding investments to make big profits. it's a fact. the largest banks are actually bigger than they were when he took office. and earned more in the first two and a half years of his term than they did during the entire eight years of the bush administration. and get this -- president obama's new best friend, according to "the new york times," is robert wolf. they play golf, basketball, and they talk economics when wolf is not raising money for the president's re-election campaign. now, just who is robert wolf? well, he's top dog at the u.s. branch of the giant swiss bank ubs, the very bank that helped

rich americans evade taxes. here, senator carl levin describes some of the tricks used by ubs -- >> here, swiss bankers aided and abetted violations of u.s. tax law by traveling to this country with client code names, encrypted computers, counter-surveillance training, and all the rest of it, to enable u.s. residents to hide assets and money in swiss accounts. >> quite a tangled web. one man who has strong views on all these cozy ties between wall street and washington is david stockman. in the 1970s, he was a young republican congressman from michigan and an early proponent of supply-side economics -- some call it trickle down. you know the theory. if you cut taxes on the wealthy, while cutting government, the economy will take off, money trickling down and creating millions of jobs. it was the centerpiece of ronald reagan's 1980 campaign for president. >> there is enough fat in the

government in washington that if it was rendered and made into soap, it would wash the world. >> once in the oval office, president reagan made david stockman his budget director. >> when president reagan gave me this job he pointed to that budget, which is some thousands and thousands of pages long, and he said go through it from top to bottom with a fine tooth comb and unless you can find a persuasive demonstration why funds must be spent, cut those budgets. >> stockman helped reagan usher in the largest tax cut in u.s. history, a cut that mainly favored the rich. but things didn't go exactly as they planned them. the economy sagged, and in 1982 and '84, reagan and stockman agreed to tax increases. in 1985 stockman left government and wrote a book critical of his own years in power -- "the triumph of politics: the inside story of the reagan revolution."

he then took his economic expertise to wall street and became an investment banker. 30 years later, he's writing a new book, with the working title "the triumph of crony capitalism." i sat down with him to talk about how politics and high finance have turned our economy into a private club for members only. what do you mean by crony capitalism? >> crony capitalism is about the aggressive and proactive use of political resources, lobbying, campaign contributions, influence-peddling of one type or another to gain something from the governmental process that wouldn't otherwise be achievable in the market. and as the time has progressed over the last two or three decades, i think it's gotten much worse. money dominates politics. and as a result, we have neither capitalism or democracy. we have some kind of -- >> what do we have? >> we have crony capitalism,

which is the worst. it's not a free market. there isn't risk taking in the sense that if you succeed, you keep your rewards, if you fail, you accept the consequences. look what the bailout was in 2008. there was clearly reckless, speculative behavior going on for years on wall street. and then when the consequence finally came, the treasury stepped in and the fed stepped in. everything was bailed out and the game was restarted. and i think that was a huge mistake. >> you write, "during a few weeks in september and october 2008, american political democracy was fatally corrupted by a resounding display of expediency and raw power. henceforth, the door would be wide open for the entire legion of washington's k street lobbies, reinforced by the campaign libations prodigiously dispensed by their affiliated political action committees, to relentlessly plunder the public

purse." that's a pretty strong indictment. >> yeah and -- but on the other hand, i think you would have to say it was fair. when you look at what came out of 2008, the only thing that came out of 2008 was a stabilization of these giant wall street banks. nothing came out of 2008 that really helped main street. nothing came out of 2008 that addressed our fundamental problems, that we've lost a huge swath of our middle class jobs. nothing came out of 2008 that made financial discipline or fiscal discipline possible. it was justified as sort of expediency. we need to do this. we need to stop the contagion. but it wasn't thought through as to what the long-term implications of this would be. >> how did you see it playing out? >> i think there was a lot of panic going on in the treasury department. i call it "the blackberry panic."

they were all looking at their blackberries, and could see the price of goldman sachs or morgan stanley dropping by the hour. and somehow they thought that was thermostat telling them that the economy was coming unraveled. i don't believe that was right. i think what was going o simply a huge correction that was overdue on wall street. the big leverage hedge funds on wall street that called themselves investment banks weren't really investment banks. they were just big trading operations using 30, 40 to one leverage. and it was that that was being corrected. but they used the occasion of the wall street banking crisis to create the impression that this was the beginning of a kind of black hole the whole economy was going to drop into. i think that was wrong. and it was that fear that led congress to do anything they wanted. you know, the congress gave them a blank check.

>> not at first, don't you remember, congress first refused to approve the bailout, right? >> and then, the stock market dropped 600 points because all of the speculators on wall street all of a sudden began to think, "hey, they might let capitalism work. they might let the rules of the free market function." >> you mean by letting them fail. >> yes. >> if they let them fail? >> i think if they let them fail it wouldn't have spread to the rest of the economy. there wouldn't have been another version of the great depression. there weren't going to be runs on the bank. we weren't going to have consumers lined up in st. louis and des moines and elsewhere worried about their bank. that's why we have deposit insurance, the fdic. but it would have been a big lesson to the speculators that you're not going to be propped up and bailed out, you're not going to have the fed as your friend. you're not going to have the treasury with a lifeline. you're going to have to answer to the marketplace. and until we get that discipline back into our financial system,

the banks are just going to continue to grow, continue to speculate and find new ways to make easy money at the expense of the system. >> president bush, he was still in office then. >> yes. >> he said, "i have to suspend the rules of the free market in order to save the free market." >> you can't save free enterprise by suspending the rules just at the hour they're needed. the rules are needed when it comes time to take losses. gains are easy for people to realize. they're easy for people to capture. it's the rules of the game are most necessary when the losses have to occur because mistakes have been made, errors have been made, speculation has gone too far. the history has always been -- and this is why we had glass-steagall and a lot of the legislation in the 1930s. >> glass-steagall was the provision -- >> the division of banks between the commercial banking and investment banking and insurance and other --

>> so that you, the banker, could not take my deposits and gamble with them, right? >> that's exactly right. and we need not only a reinstitution of glass-steagall, but even a more serious limitation on banks. and what i mean by that is, that if we want to have a way for, you know, average americans to save money without taking big risks and not be worried about the failure of their banking institution, then there can be some narrow banks who do nothing except take deposits, make long-term loans or short-term loans of a standard, business variety without trading anything, without getting into all of these exotic derivative instruments, without putting huge leverage on their balance sheet. and we need to say simply, that if you're a bank and you want to have deposit insurance, which ultimately, you know, is backed up by the taxpayer -- if you're

a bank and you want to have access to the so-called "discount window" of the fed, the emergency lending, then you can't be in trading at all. now, on the other hand, if they want to be a hedge fund, then they've got to raise risk capital and they have to take the consequences of their risks, both to the good side and the bad side. and until we really approach that issue, and dismantle these giant, multitrillion dollar balance sheet banks, and separate retail and deposit insured banking from just financial companies, we're going to have recurring bouts of what we had in 2008. and they haven't even begun to address that, and it's so disappointing to see that the obama administration, which in theory should've had more perspective on this than a republican administration under bush, to see that one, they appointed in the key positions the same people who brought the problem in -- geithner and summers and all of those, and

secondly, that obama did nothing about it. it could have easily -- they could have begun to dismantle a couple of these lame duck institutions, citibank would have been a good place to start. but they did nothing. they passed dodd-frank, which said, now we're going to have everybody write regulations -- tens of thousands of pages that you know, it was a full employment act for accountants and lawyers and consultants and lobbyists. but they didn't go to the heart of the problem. if they're too big to fail, they're too big to exist. and let's start right with that proposition. >> you've described what other people have called the financialization of the american economy, the growth in the size and the power of the financial industry. what does that term mean to you, financialization? and why should we care that it's happened? >> because what it means is that a massive amount of resources are being devoted, being allocated or being channeled

into pure financial speculation that has no gain to society as a whole, has no real economic contribution to the process by which gnp is created, gdp is created and growth occurs. by 2007 40% of all the profits in the american economy were coming from finance companies. 40%. historically it was 15%. so the financialization means that as we attracted more and more resources and capital, and we made speculation easier and easier, and we funded it with almost free overnight money, managed and manipulated by the fed, that's how the economy got financialized. but that is a casino. casinos -- they're, you know, places for people to go if they want to speculate and wager. but they're not part of a healthy, constructive economy. >> what do you mean by the free money that banks are using

overnight? >> well, by that we mean when the fed, the federal reserve sets the so-called "federal funds rate" at ten basis points, where it is today, that more or less guarantees banks can go into the fed window, the discount window, and borrow at ten basis points. and then you take that money and you buy a government bond that is yielding 2% or 3%. or buy some corporate bonds that are yielding 5%. or if you want to really get aggressive, buy some australian dollars that have been going up. or buy some cotton futures. and this is really what has been going on in our markets. the cheap funding, which is guaranteed by the fed, the investment of that cheap funding into speculative assets and then pocketing the spread. and you can make huge amounts of money as long as the music doesn't stop. and when the music stops then all of a sudden, the cheap, overnight money dries up. this is what's happening in europe today.

this is what happened in 2008. and then people are stuck with all these risky assets, and they can't fund them. they owe cash to the people they borrowed overnight from or on a weekly basis. that's what creates the so-called contagion. that's what creates the downward spiral. now, unless we let those burn out, it'll be done over and over. in other words, if, you know, if a lesson isn't learned, then the error will be repeated over and over. >> stockman says the modern bailout culture took off under president bill clinton. it was engineered with the help of federal reserve chairman alan greenspan and top economic advisors at the treasury, larry summers and robert rubin. >> the american people either didn't agree or didn't understand what in the world i'm up to in mexico. >> i think it started with the bailout of the banks in 1994 during the mexican peso crisis. >> reporter: for investors, it

was a sight for sore eyes. mexico's stock market actually soaring instead of plummeting for the first time in weeks. all this, an immediate reaction to news of a major international aid package, nearly half of it from washington. >> that was allegedly designed to help mexico. it was $20 billion with no approval from congress that was used, i think inappropriately out of a treasury fund. and why were we doing this? it's because the big banks were too exposed to some bad loans that they had written in mexico and elsewhere. >> wall street banks. u.s. banks. >> wall street banks. wall street banks. the banks of the day, citibank, bankers trust, the others that existed at that time. and so the idea got started that washington would be there with a prop, with a bailout, with a helping hand. and then the balls start rolling down the hill. >> the federal reserve bank of new york has taken highly unusual action to head off what

could have been a severe blow to world economies. >> when the hedge fund long term capital management blew up in 1998, it was big news. >> reporter: dan, the long term capital fund lost billions in the recent market turmoil and last night, stood on the brink of collapse. >> long term capital was an economic train wreck waiting to happen. it was leveraged 100 to 1. it was in every kind of speculative investment known to man. in russian equities, in thailand bonds, and everything in between. and it was enabled by wall street. >> reporter: an emergency meeting was organized by the federal reserve last night, here at its new york office. at the table, more than a dozen of wall street's biggest bankers and brokers including david komansky, chairman of merrill lynch, sandy weill of travelers and sandy warner of jpmorgan. one by one the firms each agreed to kick in more than $250 million to bail out

long-term capital before its troubles sent shockwaves through the banking system. >> why did the fed step in, organize all the wall street banks, and kind of sponsor this bailout? because all of the wall street banks that enabled long term capital to grow to this giant size, to have 100 to 1 leverage, by loaning them money. so when the treasury and the fed stepped in and bailed out, effectively, long term capital and their lenders, their enablers, it was another big sign that the rules of the game had changed and that institutions were becoming too big to fail. fast forward. we go through 1% interest rates at the fed in the early 2000s, we go through the housing bubble and collapse. >> following the 2008 economic meltdown came the mother of all bailouts. >> good morning. secretary paulson, chairman bernanke and chairman cox have

briefed leaders on capitol hill on the urgent need for congress to pass legislation approving the federal government's purchase of illiquid assets such as troubled mortgages from banks and other financial institutions. >> the bush administration came to the rescue of some of the county's largest financial institutions, to the tune of 700 billion tax-payer dollars. >> we elect a new government because the public said, you know, "we're scared. we want a change." and who did we get? we got larry summers. we got the same guy who had been one of the original architects of the policy in the 1990s, the financialization policy, the too big to fail policy. who else did we get? we got geithner as secretary of the treasury. he had been at the fed in new york in october 2008 bailing out everybody in sight. general electric got bailed out. morgan stanley, goldman sachs,

all of the banks got bailed out, and the architect of that bailout then becomes the secretary of the treasury. so it's another signal to the financial markets that nothing ever changes. the cronies of capitalism are in charge of policy. >> you name names in your writing. you identify several people as the embodiment of crony capitalism. tell me about jeffrey immelt. >> he is the poster boy for crony capitalism. here is ge, one of the six aaa companies left in the united sates, a massive, half-trillion dollar company, massive market capitalization. i'm talking about the eve of the crisis now, in september 2008. suddenly, when the commercial paper market starts to destabilize and short-term rates went up. he calls up the treasury secretary with an s.o.s., "i'm in trouble here. i need a lifeline." he had recklessly funded a lot of assets at general electric

capital in the overnight commercial paper market. and suddenly needed a bailout from the treasury. within days, that bailout was granted. and therefore, general electric was able to avoid the consequence of its foolish lend long and borrow short policy. what they should have been required to do when the commercial paper market dried up -- that was the excuse. they should've been required to offer equity, sell stock at a highly discounted rate, dilute their shareholders, and raise the cash they need to pay off their commercial paper. that would've been the capitalist way. that would've been the free market way of doing things. and in the future they would've been less likely to go back into this speculative mode of borrowing short and lending long. but when we get to the point where the one aaa, a

multihundred billion dollar company gets to call up the secretary, issue the s.o.s. sign and get $60 billion worth of guaranteed federal reserve and treasury backup lines, then we are, you know, our system has been totally transformed. it is not a free market system. it is a system run by powerful, political and corporate forces. >> thank you. thank you. >> so when you saw that president obama had appointed jeffrey immelt, as the head of his council on jobs and competitiveness, what went through your mind? >> well, i was in the middle of being very disgusted with what my own republican party had done and what bush had done and the paulson treasury. and then when i saw this, i got the title for my book, "the

triumph of crony capitalism." >> and i am so proud and pleased that jeff has agreed to chair this panel, my council on jobs and competitiveness, because we think ge has something to teach businesses all across america. >> if you have a former community organizer who was trained in the saul alinsky school of direct democracy, appointing the worst abuser, the worst abuser of crony capitalism, ge, who came in and begged for this bailout, to head his jobs council, when obviously ge's international corporation, they've been shifting jobs offshore for decades, then it becomes so obvious that we have a new kind of system, and that we have a real crisis. >> where is the shame? shouldn't these people have been at least a little ashamed of running the economy and the financial system into the ditch and then saying, "come lifte

out?" >> yes. you know, i think that's part of the problem. i started on capitol hill in 1970s. and as i can vividly recall, corporate leaders then at least were consistent. they might've complained about big government, or they might've complained about the tax system. but there wasn't an entitlement expectation that if financial turmoil or upheaval came along, that the treasury, or the federal reserve, or the fdic or someone would be there to back them up. that would've been considered, you know, it would've been considered, as you say, shameful. and somehow, over the last 30 years, the corporate leadership of america has gotten so addicted to their stock price by the hour, by the day, by the week, that they're willing to support anything that might keep

the game going and help the system in the short run avoid a hit to their stock price and to the value of their options. that's the real problem today. and as a result, there is no real political doctrine ideology left in the corporate community. they are simply pragmatists who will take anything they can find, and run with it. >> so this is what you mean, when you say free markets are not free. they've been bought and paid for by large financial institutions. >> right. i don't think it's entirely a corruption of human nature. people have always been inconsistent and greedy. but i think it's been the evolution of the political culture in which there have been so many bailouts, there has been so much abuse and misuse of government power for private

ends and private gains, that now we have an entitled class in this country that is far worse than you know, remember the welfare queens that ronald reagan used to talk about? we now have an entitled class of wall street financiers and of corporate ceos who believe the government is there to do what is ever necessary if it involves tax relief, tax incentives, tax cuts, loan guarantees, federal reserve market intervention and stabilization. whatever it takes in order to keep the game going and their stock price moving upward. that's where they are. >> you were disaffected with the party of your youth, the republican party, because it has -- because it's become dogmatic on so many of these issues and no longer listens to evidence and facts. i'm disaffected with the party of my youth because that democratic party served the interest o