No matter what some politicians may claim, there’s actually no such thing as ‘less regulation’ — there are only regulations that favor the powerful, and those that don’t. Stanford economist Anat Admati walks us through the deregulation of the banking industry and explains how she would overhaul financial regulations to make them work well for society, not just for the rich and powerful.
Anat Admati is the George G.C. Parker Professor of Finance and Economics at Stanford University Graduate School of Business, a director of the Corporations and Society Initiative, and a senior fellow at Stanford Institute for Economic Policy Research. She has written extensively on information dissemination in financial markets, portfolio management, financial contracting, corporate governance, and banking. She is the co-author of ‘The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It’.
Twitter: @anatadmati
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Making financial regulation work for society: https://www.ineteconomics.org/events/finance-society/agenda/making-financial-regulation-work-a-conversation-with-anat-admati-and-brooksley-born
When she talks, banks shudder: https://www.nytimes.com/2014/08/10/business/when-she-talks-banks-shudder.html
Financial crises, corporate scandals and blind spots: who is responsible? https://blogs.lse.ac.uk/businessreview/2018/01/25/financial-crises-corporate-scandals-and-blind-spots-who-is-responsible/
The Bankers’ New Clothes: http://bankersnewclothes.com/
Website: https://pitchforkeconomics.com/
Twitter: @PitchforkEcon
Instagram: @pitchforkeconomics
Nick’s twitter: @NickHanauer
Jessyn Farrell:
There’s this whole world of banking regulation and financial regulation that is super fascinating.
Nick Hanauer:
The reason that we’re focusing on regulation as an important aspect of building an economy that functions effectively is that it is one of the pillars of trickle-down economics. What we say is trickle down economics is wage suppression for the poor, tax cuts for the rich, and deregulation for the powerful.
Anat Admati:
The regulation of this system remains a mess.
Speaker 4:
From the home offices of Civic Ventures in downtown Seattle, this is Pitchfork Economics with Nick Hanauer, the best place to get the truth about who gets what and why?
Nick Hanauer:
I’m Nick Hanauer founder of Civic Ventures.
Jessyn Farrell:
I’m Jessyn Farrell, and I’m senior vice president at Civic Ventures and a former state legislator.
Nick Hanauer:
Today, we’re diving into the world of regulation and deregulation and specifically banking deregulation. The reason that we’re focusing on regulation as an important aspect of building an economy that functions effectively is that it is one of the pillars of trickle down economics that, what we say is trickle down economics is wage suppression for the poor, tax cuts for the rich, and deregulation for the powerful. And that idea that the less constrained the powerful will be, the better it will be for everyone is one of the oldest lies told by powerful elites in human societies. But as our friend, the philosopher Elizabeth Anderson reminded us in the podcast we did with her, there is no such thing as less or more regulation. The only question is are the powerful getting more powerful or less powerful? That’s it. And so the idea that more regulation will be, by definition, bad, is prima fascia observed. Of course it’s not. I think that when we talk about regulating markets, there is no more consequential domain within which regulation needs to be applied than the financial system, because it has such a wide spread effect on the overall economy.
Jessyn Farrell:
The really interesting thing about this of course, is that who is it that regulation favors? And of course in the trickle down mindset, it is to favor the powerful. And we often say, of course, deregulation for the powerful, but really it is around regulating in a way so that the powerful can get away with and do what they want to. And in the banking industry and in the banking sector, the real question is how are regular individuals and small business owners being protected? And the other thing that’s on my mind too, is how about those people that don’t even have access to banking relationships, and have to go to payday lenders, for example, and pay really exorbitant fees. So there’s this whole world of banking regulation and financial regulation that is super fascinating.
Nick Hanauer:
Yeah, and it won’t surprise listeners to learn that the finance industry and the world of academics and policy makers and regulators who interface with it is home to just the worst kind of neo-liberalism and trickle-down economics. These are folks for whom any constraint on the ability of Wall Street executives to earn greater bonuses that’s the most evil thing in the whole wide world. And I think what we’ll learn is that anytime you want to do anything sensible to make the system more stable or work better for ordinary consumers, you will hear that the whole financial system will collapse if such a thing is enacted. But again, it’s worth reminding everybody that it is incredibly clear that it was the widespread failure in financial regulation and supervision that was the principal cause of the 2008 financial crisis. And that financial crisis was entirely avoidable if we had taken a more sensible approach.
Jessyn Farrell:
Yeah, that’s right. There’s a direct line that can be drawn to action that was taken in the late ’90’s by Congress and signed into law by president Clinton. And then a decade later, the meltdown of the financial system that was based on a whole world around predatory loans and subprime loans and all of that, that became possible because of deregulation in the late ’90’s.
Nick Hanauer:
That’s right, the securitization of imaginary assets that went on during those days that made banking executives insane bonuses, but basically bankrupted the world. It was just a shocking failure.
Jessyn Farrell:
So we’re going to talk to Anat Admati about the deregulation of the banking industry and how to make financial regulations work for society and individuals, and not just for the rich and powerful.
Nick Hanauer:
Anat is the George Parker professor of finance and economics at Stanford University graduate school of business. And she is the co-author of a book called The Bankers New Clothes.
Anat Admati:
My Anat Admati, and I am a recovering finance professor if you want to say from Stanford graduate school of business. I am still a finance professor here, but my interests have become extremely much more broad than where I lived in my little bubble before. I have a little tiny initiative here called Corporations In Society Initiative, I’ve become very interested in why capitalism and democracy are failing us together.
Nick Hanauer:
Let’s start at a high level, because today we want to talk about the financial system, the finance industry, and the overarching problems with regulation in that industry. So can you give us a picture of what’s happening and what went wrong?
Anat Admati:
Well when I stepped into banking as a sector, and I’m a finance professor, so we teach stuff, but the area of banking, banks as corporations are always considered very different and special. And when they tell you they’re very special, you oftentimes hear weird things from how they’re special, but I’ll just summarize to you my observation on specialness. And that is they’re special in all that they get away with. So they’re special in the fact that they have a lot of privileges because it’s through this banking system. And then of course all around it, the financial intermediation system where we move money from some people to others, from people to businesses that need money for things, or from people to other people, through what they call credit, credit being such a positive word in the language, but it could mean payday lending or it could mean other kinds of lending.
So it’s passing money through a system. A system of money. There are pipes in the system, there’s monetary things in this system, and there’s just loans and other investments, venture capital and Silicon Valley all the way to sovereign debt. So a financial system and it’s a global system, now, it has some fantastically large corporations like JP Morgan Chase and other big banks, systemic banks. And of course this system has all kinds of offshoots into what’s called the shadow banking system. So it’s basically a lot of other financial institutions that do bank-like things, money market funds, or lenders of various that are not banks and all this other stuff. And so people talk about the financial system as this interconnected system with some very large institutions and a whole bunch of other institutions, and then how this system functions.
Where they make decisions and how it falls on all of us. And the bottom line on this system is it’s very reckless as it is. In other words, the corporations within it are doing some things we need them to do. They are connected to government institutions or semi-government institution like the central bank, that gives them a lot of tender loving care and makes sure that they have money in the ATM’s and all of that and deposit insurance, FDAC, other regulators. But by now, this is a really, really complicated system, very interconnected and very, very fragile. And what we saw in the system, and that is beyond all the fraud and other recklessness having to do with mortgages and with selling securitized and super securitized contracts and derivatives and all of that before the financial crisis, is it really went crazy, making bad loans and taking risks and having hidden risks that we couldn’t see.
And all of a sudden the regulators being blind to a lot of what was going on imploded on us 12 years ago. And imploded to the extent that governments and central banks had to rush to the scene and provide all these spectacular bailouts that they did. And this system supposedly was supposed to be fixed after the financial crisis. And we had [inaudible 00:09:42] and all of this would take a bit to unpack, but the bottom line was the regulation of this system remains a mess is the best one word description of it, it’s a mess. Some of it is overly complicated and stupid. Some of it is a lot of it is just inadequate as well as being wasteful. It’s like the worst mix of irregulation. And so the whole ecosystem around it, and it remains virtually as dangerous and as reckless as it was, just distorted and bloated and all sorts of things like that. Just why is it like that? Because it gets away with it because it wants to and can. And the bottom line is we somehow are made to believe that this is the best we can have, which is just false.
Nick Hanauer:
Yeah, so for our listeners who are not as familiar with Wall Street and the banking system as you are, or I am, I think it’s worth teasing out what the most fundamental problem is, which is these giant institutions take enormous, but profitable risks, but mostly with other people’s money.
Anat Admati:
Exactly, so if the other people’s money is basically they’re funding themselves with debt. So the way to really enter that for a lay audience, for a non-expert audience, is through understanding our deposits. So deposits are very… We all know. We put deposits in the banks, and I like to quote the ex CEO of my local bank over here, Wells Fargo, which became infamous in some of its practices in recent years, saying in some of the debates about various regulations saying, “With Wells Fargo bank,” he said, “We have a lot of self-funded retail deposits.” In other words, that’s my money basically. Because actually I do have a deposit through them, because that was the local bank when I got to Stanford. And he said then, and listen carefully, “And therefore, we don’t have a lot of debt.” In other words, he forgot that my deposit is basically his debt to me.
Nick Hanauer:
That’s right, he owes that money to you.
Anat Admati:
And he forgot that it’s a liability to him. Why? Because I don’t behave like a creditor. So all of us depositers are just trusting that some regulator or some FDIC is going to have the debt covenants that the normal creditor would have when they lend without any collateral, without anything backing up the liability. So the bank owes as money, depositers. the FDIC is insuring some 10 trillion or more of deposits and this system is all on trust that it’s all kind of there. Meanwhile, they can go and use that money and then borrow ever more and more and more and more and more and build a huge, huge tower of debt with which they go take risks.
Jessyn Farrell:
Was there ever a golden age of banking regulation? Did this system ever work better?
Anat Admati:
Well it worked better. People often point to the period of from after the great depression and after the Glass-Steagall Act. And they even give credit to the Glass-Steagall Act, which we can again, discuss whether that was what did it or or not. And through the ’50’s and ’60’s in banking was boring. And investment banks were separated from deposit taking banks and somehow the system did what we wanted it to do. Except then there was oops, the savings and loan crisis where basically interest rates went up and there were money market funds started in the ’70’s. And so already you had that little crisis. So I don’t know in banking more generally, which of course is around the world, but say even here, whether there was ever a great time in this country, we always had a lot of banks, like thousands and thousands of small banks. And originally we were maybe afraid of big banks.
So we created a lot of tiny banks, but they were also very fragile. They weren’t allowed to diversify their risk and all of that. And so until then you had the central bank, you created the fed because of all these bank panics. So banking has always been plagued with this fragility of this open banking system. And then in the history of banking, you created to this day more and more safety nets for the system to make it safe. But the safety net has enabled more recklessness because perversely, it created ever more complacency and also removed any market forces from this system. And so progressively, we got to a point where above caring about downside the risk and above almost caring about the law too.
Nick Hanauer:
Yeah, and the safety nets, I think speaking directly, give banking executives, finance executives, basically an incentive to take larger and larger risks with the public’s money and with civil society and the economy, because making 1% on a trillion dollar bet is much more profitable than making on a billion dollar bet.
Anat Admati:
Right, so when you say other people’s money, people often say other people’s money as if it’s only when it’s borrowed money, but every corporation uses other people’s money. Sometimes they say, “Oh, banks take this money into that money and they’re so important.” Well every corporation takes investor’s money and has some kind of a process by which they translate into some assets. They have a product, they have a service, whatever it is. So there’s always a transformation from people’s money from investors money to some assets. And so that’s not different in banking, what’s distorted in banking is the fact that there’s no markets where investors actually even have. And there’s the other problem, which I hope to get to, which is about the role of investors versus other stakeholders in general, on corporations, more generally.
But in banking, it’s much more extreme because in banking, also all of us are obviously investors in the bank to the extent where our depositers, as well as maybe owners of shares. And yet what do they do in terms of what their service to the economy is? We give them subsidized funding effectively or guaranteed funding to a large extent. And then they go and do whatever they feel like doing. So even to the extent that we want them to make certain loans to fund small businesses or other things, they’ll do us the favor of doing that sometimes. But they’ll play all kinds of games in terms of the distortions of their own investments and what has enough upside for them and what is too boring for them or whatever that they will actually do what the economy needs them to do and fund exactly what should be funded with all this cheap funding that they have.
Jessyn Farrell:
And so in spite of that then, it still seems like it’s worth discussing regulation and figuring out how to do this better. Are there signals or ways that government can aim regulations or directions or signals at the banking industry to get better outcomes, whether it is small business loans or protection of small depositers, how do you get there?
Anat Admati:
Sure, sure. So I wrote a whole book about it, as it turns out. My book is called The Banker’s New Clothes, which is sort of the emperor’s are naked, what’s wrong with banking and what to do about it. And there we explain all the economics of banking and all the nonsense that gets said in the banking space. Not all in the book, we have subsequent documents where we document 34 flawed claims and debunk them. And Banker’s New Clothes is the flawed claims made by people around the banking area, including academics. And what we propose is very simple. The, first and foremost, no matter what else you do, must have less debt and more equity funding. Because when you have equity funding, it absorbs the losses. And at least the losses go to whoever made the gains. So at least you start by not having this privatized juiced up leveraged gains and the losses get spread out on other people.
And the distortions that come from just living as a highly distressed over indebted possibly insolvent corporation at all times like the banks have. So this is a very unhealthy corporate existence when you live with such an overhang of debt. The first thing we must do for everything that would get better, if you do that with no cost to society at all, only correction of distortion is to make sure that they use their earnings to re-invest and then potentially they will break up on their own weight of their inefficient size, the big ones [inaudible 00:00:18:43], and when you bring in market forces through equity investors who are going to tell them, “You’re too complicated, you’re too risky, I don’t want to bear your downside risk.” And the value of a share might decrease properly because it might be over subsidized right now.
Nick Hanauer:
Yeah, so forcing them to decrease the leverage is step one, it sounds like.
Anat Admati:
That’s absolutely necessary, mm-hmm (affirmative).
Nick Hanauer:
Yeah, and the number one thing has to be to substantially increase the personal risk and financial risk that people who run banks or invest in banks take when something goes wrong, right? We want these people to be wiped out when something goes wrong.
Anat Admati:
That’s right, it used to be in the beginning of banking that before they became even limited liability corporations and they were the last ones to become such, they were unlimited liability partnerships with 50% equity and the owner’s own assets were at risk. In other words, if they couldn’t pay the depositors, you’d have to take it out of Jamie Diamond’s house or whatever, you know what I mean? He would be liable for that, but of course they wanted to grow and they wouldn’t grow as partnerships. And so they made them limited liability corporations. But by that point and combined with all the safety net, they became able to live in this unhealthy existence that they do.
Nick Hanauer:
Right, and just to be clear, my family owned a textiles manufacturing company for a very long time, and it was a hard business to run and highly capital-intensive, but there was no safety net for our industry. If we over leveraged ourselves or managed our business poorly, we went bankrupt for real.
Anat Admati:
Yup, that’s exactly why. So the banks cannot fail, they cannot fail. If they fail, the small ones, the FDIC comes in and yet still, basically the FDIC comes in and covers the deposits fund and then they go home and they can start another bank and say, “There’s no market forces that even make any kind of other debt more expensive.” They might pay FDIC fees for that insurance, but the small banks probably underpay deposit insurance fees and the large banks, who knows? They have unbounded implicit guarantees because we can’t let them fail. And there we have a system that just can persist like this because nobody counters the incentives that they have.
Jessyn Farrell:
Well then whose responsibility then is it to counter and to recreate those incentives, if we have this really fragile hot house system that needs some kind of rebalancing?
Anat Admati:
It’s the regulators, and I can tell you, it sits with a few regulators. The combination of the FDIC, especially the fed, which is the regulator of what’s called bank holding companies, which is most of the banks right now. And they can do it. And in fact, the law allows them to do it. And even before Dodd-Frank, it allowed them to do it. In fact, the Dodd-Frank practically mandates that they do it because Dodd-Frank told them to get rid of too big to fail and they haven’t.
Nick Hanauer:
So the fed currently has the administrative power to regulate the banks in this way?
Anat Admati:
Oh yeah, there’s no question about it. You don’t even need… There was a proposal, bipartisan as well, by Senator Sherrod Brown together with, at the time, was David Vitter from Louisiana that it wasn’t even needed that forced the fed to require more equity and it wasn’t even ever discussed, but the fed didn’t need the law. It had authority from the beginning from whatever. And I can give you the precise banking laws that give them all the authority they need. The 30 of the policemen to stop you and say you were driving unsafely, they have prudent banking regulation forever they just don’t seem to have the will to use it properly, from all time.
So instead they create these complicated things like living wills and complicated resolutions that won’t work to deal with the systemic institutions. And we can go into that, the bottom line of this is they have all authority to do much better and they don’t, and they’ll give you whatever excuses that, “Other countries are not doing this and God forbid we do it.” And they cry and cry that this would be so costly, the costs, so to speak, and I’m doing a hypothetical quotation mark, the cost is only that they will be unable to extract so much subsidies. That’s not a social cost.
Jessyn Farrell:
Yeah, tell us more about that, that misconception about the cost and benefits. That’s something that we love to talk about.
Anat Admati:
Exactly, lots of benefits and virtually no social cost, just private cost to very few. And so that’s what I stepped into a decade ago and I just thought, “This is unbelievable. This is crazy. How do they get away with saying this? How do they get away with this system?” And guess what? They do.
Nick Hanauer:
Yeah, so the thrust of our podcast, and one of the enduring themes of it, is to confront all of these neoliberal trickle-down lies. And they always take the same form, which is, “Well, we could do the right thing, but that would be bad for everyone. We could pay people more money, but that would kill jobs. We could pay more taxes, but that would kill jobs.” It is always the same thing.
Anat Admati:
Yup, there’s always a narrative on it and it’s so much flawed narratives around. It’s amazing.
Nick Hanauer:
That’s right, and if I might say so, the neoclassical economics profession has been the enabler of all this nonsense for almost a generation now. All of these clowns with their DGSM models.
Anat Admati:
And what about DSG? Yes, that’s right. And so that’s why I already mentioned including academics, because I was saying that what I saw was horrifying to me as an academic, because it involved banking academics or reverse engineer models and all these assumptions. So basically economics is just the field of making assumptions. It was Abbott [inaudible 00:25:11] who said, “Economics has gained the title of… Every economic transaction is a solved political problem. Economics has gained the title of the queen of social sciences by taking solved political problems as their subject of study.” And the idea of courses in economics that you just make assumptions and then you somehow it becomes a religion.
Nick Hanauer:
Yes, yes. It is extraordinarily harmful and frustrating. So keep punching through the not list of things we must do.
Anat Admati:
Okay, well, I have, since then, I’ve spent about six years fighting that battle over basically banks use of debt versus other means to fund whatever it is that they do. And I was shocked to discover that it was so hard to actually get anywhere with it. I think I’ve planted some seeds, but they didn’t follow what I wanted. Intellectually, I stayed in this battle, but I expanded my horizon and revisited all my notions of corporate governance, where basically in economics and even in the law and economics literature, we obsess forever on whether the managers are doing what shareholders want, because it’s a shareholders world. And that’s what… Ink was spilled for the last 50 years on that one problem between the managers and the shareholders. When in fact I realized the corporate governance problem is really between the corporations and the people who act on their behalf in the name supposedly of shareholder value creation and the rest of society. And the rest of the stakeholders and literally the economy as a whole, democracy as a whole, everything.
Because the incentives of those people supposedly acting in the corporation’s behalf is oftentimes in conflict with society’s broad interests, and I’m including even democracy in all of them, because their incentives would be literally to weaken democratic institutions and to take over the writing of the laws. And that’s more through [inaudible 00:27:16] and people like that who speak to that, but you can see the way in which… I teach in a business school and what we teach them would basically say it’s good investment to invest in the campaign contributions or in the lobbying to obtain market advantages to prevent this and that regulation supposedly for your shareholders. But to the extent that the shareholders are really people who want things, and I’m a shareholder as well as the depositor in banks probably through my little retirement fund, I don’t want them to be reckless like that.
So it goes all the way to the loss. So by now, my passion is really on basic corporate governments and basic justice in the legal system as it comes to corporations. So it’s the old question that people got very upset about why nobody went to jail. Okay, so why nobody went to jail, where the New York times had 10 years to the financial crisis, a full blank page, if you get it in print, which I still do on the weekend, all the full list of executives who went to jail for the financial crisis. And it was like, “This page is intentionally blank.” Lesson number 10 from the 10 years after the crisis, why people didn’t go to jail, well it’s a complicated question that ultimately I became interested in and it has to do with who we hold accountable for any kind of wrongdoing by the corporation.
And then you alluded to that in terms of liability, but think about it even in terms of other kinds of liability, even criminal liability. For example, I live in Northern California in the Bay Area, and we have a utility here called PG&E. Well PG&E, Pacific Gas and Electric, has been implicated with some of the fires that we had here in the last few years, even to the point that in 2018, it was supposedly responsible or even to what was called legally manslaughter. In other words, it killed 84 people in the town of Paradise in this campfire in 2018. Recently in June, PG&E pleaded guilty, as a corporation, to 84 counts of manslaughter. And as the one headline said, dodged 90 years in jail for not being a person.
So now where are we on justice? Okay, when the corner drug dealer disobeys the what’s called Controlled Substance Act for dealing drugs, the mandatory jail is a lot, or even for drug users. So for drug users in the war on drugs. But if McKesson as a distributor of opioids or Walmart as a pharmacy distributes opioids from [inaudible 00:30:06] doctors, that’s not drug dealing. You know what I mean? Everywhere you look there is this injustice in terms of when any kind of wrongdoing or even crime is done by a corporation, you call it, or by people within corporation or for the purpose of profits in corporations. And how do we deal with that?
Nick Hanauer:
Yeah, well, I hate to say it to you, but my shorthand is some white dude who went to Stanford Business School. If they do it, it’s fine, it’s fine.
Anat Admati:
[inaudible 00:30:38] what they can get away with, and that’s success in our economy. So to the point, the point is, so if you ask me what my to-do list is, is to re-examine both the way we write laws, as well as enforcement processes, as it comes to corporate wrongdoing, because all we do is settle for fines that actually do little, the cost of doing business.
Nick Hanauer:
It’s just the cost of doing business.
Jessyn Farrell:
Just a little slap.
Nick Hanauer:
Yeah, there’s all this great psychological research showing that when you fine people, they go from thinking it’s wrong to just the price to do the thing.
Anat Admati:
[crosstalk 00:31:16] about the daycare center-
Nick Hanauer:
Yeah, in Israel.
Anat Admati:
Exactly, they started charging for over time and people just were more late.
Jessyn Farrell:
Right, I wanted to ask a question about what’s happening right now. Do you think, given the eviction crisis that both small businesses and renters are facing and the eviction moratoria that have happened across the country, are we starting to be in the midst of a slow moving banking crisis as this plays throughout that ecosystem? What do you see right now?
Anat Admati:
Yeah, so I’m very worried about all these different contracts that everybody signed and which contracts are worth saving, bailing out, essentially, making sure that people don’t default on all kinds of contracts. If it’s a rent contract versus it’s a corporate debt contract. So the way it works right now is the fed is really supporting any promises made by large corporations that are in public markets. But the people on the small businesses and the individuals who signed contracts, they will just default and be evicted. And that’s a huge problem.
So it is complicated to ask how to handle that. But I do think if we have right now a pandemic and people have lost jobs and all of that, that we have to at what the issues are across the economy, and who’s the most needy of what kind of support. To some extent, the fed is saying that we’ve got to do more fiscal things, more fiscal things. And it is a concern for how small businesses will survive this, how individuals will survive what’s happening right now. There are certain jobs that come about to deliver things or to package things for those of us who can order online things. But it still is an economy in big trouble right now. So I think it is a concern.
Nick Hanauer:
Well we have kept you past time, but we always like to close with one question, same question. Why do you do this work?
Anat Admati:
I really feel it’s my duty to do this work. I really do. I feel that for the things that I both know about and that I’ve experienced, there are important lessons. I just finished teaching a set of Stanford undergraduates. And I can tell you that the end was, do not get cynical, you just did a project on private prisons or on DuPont, or all of this. No, the lesson is you’ve got to fight for it. I think that this economy leaves it too much to individuals to have to fight for everything from clean water to anything. But we have to have a system in which the government works for us, and I feel like if we don’t understand that we need an effective government, not big or small, but just competent and effective to actually have an economy that functions, then that’s why we’re in the trouble we’re in. So I really feel very urgently that I need to do this work.
Nick Hanauer:
I love it.
Jessyn Farrell:
Well we are so glad you’re doing the work, thank you.
Nick Hanauer:
Yes, and thank you so much for being with us.
Anat Admati:
All right, thank you so much for your work.
Nick Hanauer:
Yeah, and we should do this again soon. There’s so much to talk about. Why do we love Anat?
Jessyn Farrell:
Because she is speaking truth to power every day.
Nick Hanauer:
Yeah, she’s a warrior.
Jessyn Farrell:
It’s so great. And one of the things that really struck me is she directly takes on this industry and regime of regulations that are deemed to be complicated and opaque and really hard in theory for the lay person to understand, and she just dials it down into very, very clear problems and solutions. For example, too much reliance on debt and the wrong people are getting the benefit of that. That is easy to understand.
Nick Hanauer:
And if they do something bad, nothing bad happens to them.
Jessyn Farrell:
Exactly, exactly. And one of the things that I just was really amazed by, and this shouldn’t amaze me, but we actually already have some administrative tools to rebalance this fragile system. That was really interesting that regulators actually have the power to do the rebalancing that’s needed to build up a better foundation.
Nick Hanauer:
Without permission from Mitch McConnell.
Jessyn Farrell:
Exactly.
Nick Hanauer:
I agree, Jessyn, that was totally news to me. I did not know that the fed had the broad power to reel some of these worst practices in. I suppose, just knowing what I know about these institutions, it’s not surprising they haven’t done anything because half the people in the fed came from the banking industry probably. And they’re all in cahoots to a certain extent together. And even if you are less cynical about the actual fraud, I think that the larger problem almost always is that the people in those institutions have bought the neoliberal Kool-Aid and truly do believe, in a principled way, that if they constrain these companies, that it will be bad for everybody. They’re wrong, but I think that it does come down to that.
Jessyn Farrell:
We’re in this moment where it’s quite possible we’re moving through this slow moving banking crisis as we don’t get in front of the eviction moratorium crisis, et cetera. And that it is really what’s going on of course, is that we’re giving primacy to certain financial contracts, obviously the ones of big corporations and their obligations and figuring out how to bail them out. And again, we’re not doing it with the individual renters and individual small businesses that need help just as much, if not more.
Nick Hanauer:
The question of regulation is definitely one of the most complex and murky elements in the canon of trickle-down economics and neo-liberalism. It’s easy to be persuaded that regulation is bad for society because everyone can name some pesky regulation which you wish didn’t exist. But if it was true that less regulation created better societies, then the least regulated societies would be paradises and the most regulated societies would be hell holes. And of course the opposite is true. Highly regulated, highly taxed societies are the most prosperous on planet earth. So anyway, diving deep on this stuff, I think is really important so people understand all of the dimensions to it. In the next episode of Pitchfork Economics, we’re going to talk to Bharat Ramamurti, who is a managing director of the Corporate Power Program at the Roosevelt Institute about their proposal for a true new deal.
Annie:
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