there's in the u.s. and they've snapped up thousands of residential and commercial properties door in the town turn well now they've hired j.p. morgan and morgan it stanley they'll be flipping the unit and private sales and through i.p.o. that means the last bag holder gets to once again be the public either directly or through those pesky soon to be more underfunded pension fund. bubbles and how the fed got as here with dean baker in just a minute and here is what the new our prime interests.

increasingly we live in an economy that's driven by fire would be finance insurance and real estate now over the last three decades it's quadrupled in size relevant to the size of the rest of the economy here to discuss this and the nature of how financial bubbles are fueled and destroyed is dean baker he's the co-founder of the center for economic and policy research and also author of false prophets dean thank you for joining me please for a man so how did we get here in this fire economy over the last three decades well soused part of this long process the u.s. we had this sort of golden era coming out of world war two where we had rapid productivity rapid wage growth broadly shared prosperity which things were going right that sort of breaks down for a variety of reason the seventy's and then we get a very very different regime beginning in the eighty's and that's really the cincy of finance in over that period you've seen this enormous growth in the financial sector and i often focus on the very near zero investment banking securities and commodities trading sector that sector is basically quintupled. relative to the

economy as you noted and that's basically because they're sort of calling the shots and that's really been a period where we've had a bubble driven economy let's talk about those bubbles we had a tech bubble we had a housing bubble maybe we're in a new bubble we don't know yet but how do bubbles form we'll the story that i would put is that if you go back to the earlier period we always said the feds are clamping down because they were worried about inflation so that meant they raised interest rates brought the economy to a halt we had recessions seventy four seventy five eighty eighty one for those reasons what happens later is we don't have the same sort of inflationary spiral because workers don't have the bargaining power so what you had will go back to the early ninety's you had you know a budget deficit the clinton ministration said will get the deficit stone and then we're going to rely on low interest rates to spark growth and then actually did happen but the main impact that low interest rates had in growth in that period was through the stock bubble low interest rates will always lead to a bubble but in that situation they did so that's how we got the stock bubble that bubble burst in two thousand of course we got the recession two thousand and one

the fischel story that's a short mild recession in reality we didn't get back the jobs we lost in two thousand and five that was the longest period without job growth we've seen since the great depression up to that point and of course when we did get out of that it was on the back of the housing bubble which again didn't end well exactly do you claim it was actually these bubbles independent of mortgages and related to rivet is that something that's correct well they go hand in hand i mean so so the bubbles were the primary force that's what saying big con to me i mean people focused on the financial crisis and you know it was great theater that you know we had ben bernanke geithner and we've all seen running around how are they going to keep the economy going this that which is bazookas exactly you know there was great theater but the real story the reason why we're in this prolonged downturn and we still haven't made back the lost jobs we lost the housing bubble that's what was driving the economy the financial sector is back in order the real economy is not right and you actually right there it's not a financial crisis per se there's kind of been a little bit of mr. action the public was maybe sold

a bill of goods because it's so complex how can the average person understand it i mean is that your understanding exactly because you know you start talking about the financial crisis you get these complex derivative instruments credit default swaps what are those collateralized debt it people have no idea what eyes glaze over exactly you say housing bubble that house that you live in that used to cost two hundred thousand and went up to four hundred now it's two hundred thousand to get people to understand that well in your book title your book is false prophets so let's talk about some of those problems with false profits one of them is greenspan and we have a clip of him in front of congress in two thousand and eight and let's hear what he had to say. i made a mistake in presuming that the social interest of organizations specifically banks and others are such that they were best capable of protecting their own shareholders. so he's being a little bit conciliatory here and i guess it gets to the question of deregulation

he's kind of saying he might have made a mistake was deregulation the way that it's phrased was that a factor well yes i mean very much so so basically you took off all the restraints keep in mind people talk about deregulation is really a partial deregulation in the sense that you have access to government guaranteed deposit so there is no discipline there so if i'm running a bank and you know i'm doing all sorts of crazy things you as a depositor can care less government guaranteed deposits then you also have an implicit guarantee too big to fail so is only partially regulation so in that context the sort of risk taking i'm going to take the risk make money if i lose well the taxpayer money greenspan how could be surprised by that i know and i think it's kind of a misnomer when people say deregulation equals free markets because basically the big banks carved out exemptions for themselves by getting back we have another false prophet this guy is ben bernanke and this is that his latest press conference and we're all up. fair to say that we have overestimated the

pace of growth. total output growth g.d.p. growth from from the beginning of the recovery i think it's only fair to say that that. economic forecasting beyond a few quarters is very very difficult. all right so we've had a number of regulatory failures the most recent maybe the independent foreclosure review which was a complete debacle we had bernie made off is it possible for regulations and regulators to ever work well i think it's possible but i think we have to be very critical in the sense that the industry basically captures the regulators and that's why i've really come to be a brutal leader and big sticks you know so that's why i say we really want to break up the big banks if they were going to regulate and i don't believe that you have to break them up and that's why you know a glass steagall before separating investment banks from the commercial banks the simple commercial banks love to see something like that brought back again because they don't count on the regulators to prevent basically commercial banks from speculating with government insured deposits but if you let's say that you're j.p. morgan and you spin off their commodities unit like they're doing let's say they

completely abide by this division is it possible that we end up with still into too interconnected to fail well you can never guarantee that you won't have that situation but if you downsize these banks you know currently j.p. morgan their assets depending on their counted are somewhere in the order of three to four trillion he knocked it down to one tenth that size. would it still be able to fail i think you probably could live with that you know three to four trillion you know three hundred billion i might like a little smaller than that maybe two hundred billion and i feel better with but i think we could live with putting a company that's going to i'm glad you're comfortable with two hundred billion. so getting back to britain bernanke and he doesn't seem like he was very pressure and he was a bit conceal the conciliatory himself is this a function of regulators of just being is it impossible to predict the future are they incompetent are they put turning a blind eye well i think there's a lot of things about the economy i should point out bernanke he was at the fed as the bubble was growing so it was it was there but it was right alongside greenspan

the thought everything was fine so he you know he doesn't bear as much responsible as greenspan was certainly there but they failed to recognize the severity of this downturn bit there was an expectation it's not sure to bernanke he had so you know most economists thought the economy would bounce right back. by now we'd be pretty much fully recovered and we're courts quite far from being fully recovered and i think that's because they still don't appreciate how dangerous bubbles are and again they serve rewrite history so i was talking earlier about the two thousand and one recession i look at that i got that took us a long time to recover from conventional view among economists that was nothing let's talk about the structure of the fed the f o m c which is the federal open market committee they vote and they they for monetary policy but the structure of the fed itself is that there are twelve reserve banks and only five of these get to vote on this panel of twelve people how does this affect the ability of the fed or the fed to game the system with the big point here is that the federal reserve banks those twelve banks you talked about basically those are controlled by the

banks in the district so on the one hand you have the private banks having input directly into monetary policy you also have the seven governors those are appointed by the president proved by congress or fourteen year terms so those are representative of the public but then you have twelve people sitting there five of whom voted a one time right who represent basically the banks so you just go where we're does this get off that the banks have a direct say on government monetary policy it doesn't seem that way let's talk about some of the new candidates for the fed chairmanship it looks like bernanke is definitely out so we've got summers i know you're not a fan of summers and we have yellen on the other side what do you think about this is this a is it almost seems like it's a false construction and maybe we're going to get somebody else what are your thoughts well i think there's been enough heat over over larry summers that i think president obama at this point would be unlikely to pick him summers in his career has been tagged a lot of people in addition to what i would say is making a lot of really huge mistakes i mean there are actually harvard especially while at harvard in government i mean you know he's made a lot of enemies pretty much wherever he's been and you know it's more than

a means and actually made very serious mistakes he thought deregulation in the ninety's was great he thought he said enron there was recently saw this when enron was manipulating prices in california electricity prices he said no everything's fine he's made a lager. serious mistakes and i think obama at this point one pick i'm yellin you know she should have everything going for instance that you know as things go she's got all the credentials you might ask for on the most part she's been right although she also didn't see the bubbles i mean you know but as you know given the list of people could be there i think she would be a very good pick now obama made maybe sort of out of impetuousness will say well i'm not going to pick yellen because it sounds like he's sort of had a hissy fit that he's very upset that people don't like larry summers but you know my bed if i had to take a bet i think yellen is the most likely pick well let me let me go back to summers for a second because he's kind of being floated as the hawk in other words he's the guy who is anti q.e. and he's more prone to fiscal policy which i believe that you believe in as well would you accept summers as the next fed chairman oh no no it's going to give me my

choice you know he would not be my choice i mean it's you know i i think pointed beason you do because that's what you could do if we could get congress to pass a nice big stimulus program you know boost the economy that would be better but given that they're not doing that you know it's great the fed will do whatever it can to boost the economy do you what do you see as a future in terms of congressional we have the these deficit ceiling talks coming up in the in the near future and we have about thirty seconds left what do you see as happening with the u.s. fiscal situation i think probably very little change you know you'll see a little theatrical around the ceiling as you always do but i suspect the republicans in congress will back down because it's not good for them it's bad politics and they don't really want us to be up against that you know debt limit and default again it seems to be a bit of political theater here thank you so much for joining me this is ben dean baker author of the. greatest book ever false prophets they are right.

now coming up next we have perry en and she's going to get into the hubbub of obama's new mortgage plan so just who's getting the better bargain than all dual sam sachs over the wind down a penny in freddie to get into amazon snap up of the washington post. says. things like us media and the my colleagues and i will never missed a cyclist put his hands i considered him a war criminal in the. heart of the. flip

on your whole life ahead in. the face. of the. pleasure to have you with us here today.

money and technology innovation all the latest developments from around russia we've. covered. that speech. will. be

misleading. i mean very little. president obama is unveiling his economic plan for america called a better bargain for the middle class on tuesday he made a stop and phoenix arizona and said he wants drownding in foreclosures during his speech he talked about his ideas to build a stronger foundation for middle class homeowners he outlined several housing

initiatives to boost the economy and spoke about the cases and ministration one against predatory lenders. for the past two years we have the department of justice stand up for buyers who have been discriminated against or conned by predatory lending and we won a settlement that gave more money to victims of discrimination in one year than in the previous twenty three years combined. one point five million families received settlements on this housing discrimination case a win for those affected but another housing case obama doesn't want to talk about is the end dependent foreclosure review this case affected four million homeowners who were wrongfully foreclosed on and kicked out of their houses after winning a nine point three billion dollars settlement three federal agencies were tasked with overseeing those funds but the administration failed to provide proper oversight first they spent one point five billion dollars on consulting fees

leaving only pennies on the dollar for the damaged homeowners what was left turn into an embarrassing spectacle as many checks bounced and were sent to the wrong addresses the consultants included promised tory financial group to avoid and ernst and young they were the winners in this deal and that same speech obama in arizona obama went on to talk about the need for private capital in order to have a stable housing market. actually believe in the free market. housing system should operate where there's a limited government role and private lending should be the backbone of the housing market. really well how do you explain the eighty five billion dollars per month that the federal reserve is buying to prop up the housing market not once in his entire speech did he mention the federal reserve how can we talk about housing without addressing the biggest player in the market president obama didn't mention everyone drank the easy money juice the fed poor did he just in say was the

fed who poured it the president said too many people took out mortgages who couldn't afford them and the banks buy mortgages they knew weren't sound but he didn't talk about the fed keeping interest rates artificially low making all of this possible as i outlined yesterday quantitative easing the fed has pumped over two trillion dollars into. the biggest banks a lot of this money is sitting in their reserves the primary dealers have the best bargain of all now president obama did acknowledge the need to wind down fannie and freddie he then called on the senate to confirm his nominee for the federal housing administration. to go i nominated a man named mel watt to be our nation's top housing regulator he is an outstanding member of congress and during that time he's on the housing committee worked with banks worked with borrowers to protect consumers to help responsible lenders

provide credit he is the right person for the job. yes mel watt is a representative from north carolina and spent the past twenty years on the financial services committee but he's also the same politician who may just in comment about derivatives take a listen. a lot of these arguments that i'm hearing today the same arguments that i heard about the rivets were allowed in north damn thing about derivatives i'm not sure i'm still not sure what to do. so let me get this straight obama believes the right person to wind down trillions of dollars of derivatives at fannie and freddie as someone who spent twenty years on the financial services committee and doesn't understand derivatives looks like mel watt is the better bargain on that one the american dream of owning a home turned into a nightmare for millions of americans during the financial panic in two thousand and eight we can't have an honest discussion about housing reform unless we address

the elephant in the room the federal reserve who's easy money policies made the housing bubble possible to begin with obama's a better foundation for home ownership better find the foundation of where financial bubbles come from if he wants to fix this mess. welcome to the daily duel with sam sax political commentator right here on our t.v. hello hello i don't even have my papers today i know you know we're going to exactly let's get to our first topic yesterday president obama delivered a speech on housing reform one of his proposals included winding down fannie mae and freddie mac. by two thousand and eighteen so what would a world without fannie and freddie that look like higher mortgage rates. maybe i

mean i don't think that there are the major problems here look fannie mae was created after the great depression it was created to provide a backstop for all these people who were losing their homes and it did good work for twenty years and it reversed the housing meltdown of the great depression so what happened the late sixty's they decided to turn into a private corporation became this private public entity that was searching i think we're off it's constantly got caught up in this whole housing i will have a lot of private entities are the worst because then they take on the the worst elements of bull i agree with you bob ok but the thing is if fannie and freddie get out of the market we're going to see higher interest rates and we're probably just going to replace it with something else like some kind of another you want this higher interest rates i want i want natural interest rates i want interest rates to be set by the market right now they're artificially low people are going to have to pay more for their mortgages so if we get another scheme it's going to be basically the same moral hazard that's my argue. the president wants and he even said the

quote that this needs to have government limited involvement in the housing market it's a moral hazard because if you insure mortgages how is that different from buying them in and then ensuring that guaranteeing them look i don't know bob i'm just saying the president's policies from the very beginning had this hand program this had out there was going to help form. million people the government needs to have a role in helping the market here the government doesn't need to be backing out now now president obama's hand program was supposed help four million people it's like eight hundred thousand people and of those lots of those were then one were closed and once again it seems like we're being sold another bill of goods because there's a lot of talk and there's a lot of inaction later so why should this time be any different i agree with you this is a lot of talk and it might have to be done on a local level you see lots of cities taking action this is government action not corporate local government action taking homes that are going into foreclosure take it using eminent domain to buy those houses that is crazy i don't think this is crazy i think this is really one of our only options that are left when you have a federal government that's not going to help in housing crises in people's houses

or durations in banks that don't want to rewrite anybody's mortgages ok but it had the city's it sets a dangerous precedent admittedly let me put it they're taking these how they're using eminent domain there they're taking these homes that are going for closure seizing them and then selling them back at more manageable rates for people to buy them in there for keeping their home it's a bailout for the homeowners were still waiting to be bailed out five years after wall street was but i understand it's a clever trick but eminent domain is a slippery slope once you start confiscating people's houses even on a voluntary basis and helping them out what's the next step if you have a problem i'm just saying with trans canada using eminent domain to take people's houses in texas to build a giant pipeline there i do actually let's get to another subject that well many americans spend less than one percent of their net worth on a copy of the washington post amazon c.e.o. jeff bezos spent less than one percent of his net worth on the entire company is this a new trend first i don't buy is dow jones and the koch brothers bought the tribune

newspapers now these us buys the washington post what's next. i have mixed feelings on this i mean i wasn't the biggest fan of the washington post begin with i think lots of newspapers around the country have kind of lost their calling of being a hard investigative journalism but i do have a problem with this notion that the old. the way to fix journalism is for some rich billionaire to come up in and buy via the company that's not the way to fix journalism or to fix journalism is to actually start doing journalism again which is what the washington post and other newspapers so you're saying i don't have a good week of they got a little bit gimmicky but let's there's a difference between say the koch brothers and a company like amazon amazon is more tech oriented the koch brothers they're they're a little bit is there a difference i think you know there were when the koch brothers were trying to buy the tribune and everything there was concerns that they would use editorial decisions to push their political agenda i think it's been pretty clear that arizona has

a somewhat libertarian economic political agenda and spent millions of dollars trying to avoid taxes have tax havens all over the world. knows what might be coming across the editorial pages at the washington post when it comes to tax policy here well another factor in all of this is that they might have to i was talking about this yesterday they're going to have to scale down on their love being so if they buy this newspaper yes they have a voice but then they lose some of their political voice through direct lobbying right well i mean i guess which is which is more powerful i mean direct lobbying their lobbying itself isn't as important anymore in the citizens united area here you don't have to have money to influence lawmakers anymore you can just buy lawmakers during the election and you look lobbying is going down in the citizens you near united air ok so you can buy politicians you can buy newspapers what are we going to buy now who is here if you could buy the politicians and put them out to run all you now have to do is affect get to the readers give the messages through the editorial sections that to the readers the stories you pick to vote for

the politicians here here's here's an innocent take on all this amazon has the kindle all they want to do is provide good content for their users through this little portable device they're just trying to help out and it's that newspaper who's gone into financial trouble is that it is going to be i don't like i said i don't think washington post was all that great of an. paper to begin with so ok whatever amazon do you want to do with time's guy right. and whatever whatever it was on the side to do with it might go we might it might be better i mean washington post made its money all the reason why it was viable for the last few years is because the company was investing in for broader education we got it over others us which collapse if you want to weigh on today's show be sure to like us on facebook at facebook dot com slash prime interest you can follow the best dueler over seven cents and you can follow me english. thank you so much for joining me thank you bob.

and it was a day of anticipation and on prime interest are still hoping for the change we can believe in expression when it comes to housing reform we have seen a plan that addresses moral hazard obama's better bargain leaves us better off to bargain with our hope and change their dollars and cents we're also waiting with bated breath through the next week and will meet to cash out ahead of band break and speaking of dr ben bubbles but we're delighted dean baker could drop by and educate us on its profits that object finally the our way of the outspoken sam fact over the amazon merger as always thanks for stopping by i will be back tomorrow with more of what then you are from interest i'm perry and boring having me.

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