We'll find out this week how fast the U.S. economy has been growing - and that's important news for all of us - whether you're President Obama or someone looking for a job. The Occupy protests have sparked even more uproar over the state of our economy - and who's to blame. Acclaimed journalist Bethany McLean talked with WBEZ about what she makes of this populist outrage. McLean's new book is called "All the Devils Are Here: The Hidden History of the Financial Crisis." McLean began by explaining what most outraged her when she was working on the book.
To hear an extended version of this interview, click here:
MCLEAN: I think the way that people’s voices weren’t heard for so many years. Consumer activists were going to Washington starting in the '90s, telling banking regulators, congressmen, Alan Greenspan, that people were getting loans they could never pay back. And whether you think it was predatory lending or predatory borrowing almost is beside the point, the very notion that people were getting loans they couldn’t get back told you that something had gone very wrong in our financial system and yet, nothing was done about it.
WBEZ: And you mention Alan Greenspan, and he was just a true believer in not regulating.
MCLEAN: A true believer in the market. And a lot of people were true believers in the market, by which I mean they thought the market would make the right decisions. It’s almost as if the market became a kind of god that was omniscient and would make all the right decisions. So Greenspan believed that the market simply wouldn’t permit the bad loans to be made because investors wouldn’t buy them and banks wouldn’t make them and so therefore this couldn’t be happening. He allowed his ideology to get in the way of the facts.
WBEZ: People are really angry about the banks having been bailed out and homeowners not having been bailed out. Do you think that’s a fair complaint?
MCLEAN: I do think it’s a fair complaint. I’m not sure there’s anything we could have done differently, but I do think it’s a fair complaint. What I mean by that is you look at the big picture – banks got bailed out, homeowners didn’t, how can you possibly think that that’s fair? But then you get into the dirty details – okay, what should we have done differently? Should we have not bailed out the banks? I’m not sure. You can’t go back and hit repeat and see what would have happened if we hadn’t bailed out the banks. But there’s certainly a decent chance that the worst-case scenario, which is that the world melts down would have come to pass. And then you look at the other side of this – how do you bail out homeowners? And you would have had a lot of outrage out there if next-door neighbors, one person was getting a check for $50,000 in order to get out from under their underwater mortgage, where the family beside them who had lived responsibly and stayed within their means, wasn’t.
WBEZ: What do you think of the Wall Street reform that was passed a year ago? Do you think this is enough to clean this all up?
MCLEAN: I don’t, no. I think the only thing that would have been enough would have been breaking up the banks. And I think it’s really hard to say it was done perfectly when banks were back to paying big bonuses less than a year after the financial crisis. But the fundamental problem is a financial system that is too complicated for anyone to really control and a system that rewards the financialization of everything at the expense of the real economy.
WBEZ: What do you mean by that?
MCLEAN: What I mean by that is these financial innovations like collateralized debt obligations, where the people who create them and trade them can make a great deal of money from them, yet to see their benefit or even relationship to the real economy is really, really difficult. Somebody described finance to me in the book as – the financial system is supposed to be the friction in our economy. It’s supposed to be a necessary cost that makes the gears of the economy move, but just a cost, friction. And when the friction has become a huge percentage of our economy, that’s a problem. Especially because the financial industry by its nature makes a small sliver of people very wealthy while not providing jobs or doing much for the rest of the population.
WBEZ: Do you think the financial state we’re in right now is as grave as say, the Great Depression? Say, 50 years from now, are we going to look back and say, `Wow, it’s unbelievable what we went through’?
"These financial innovations like collateralized debt obligations, where the people who create them and trade them can make a great deal of money from them, yet to see their benefit or even relationship to the real economy is really, really difficult."
MCLEAN: I do. Not because I think that the actual state of our economy has deteriorated to the levels of the Great Depression yet but because I think that if we don’t make some tough choices now, it will. I think we’ll look back and see this as a turning point, where we either made the tough choices we need to or we didn’t. And I mean not only tackling entitlement programs like Medicare and Social Security and making real decisions about how these things are fiscally sustainable, but I mean also looking at our economy and figuring out how we have an economy with middle-class jobs again and we don’t have that right now. And we need to get to a place where people can go to school, work hard, graduate and earn enough money to support their families.
WBEZ: While you were working on this book, how did you keep from becoming terribly depressed about human nature? Or did you become terribly depressed about human nature?
MCLEAN: I did become terribly depressed about human nature. I get terribly depressed whenever I write stories about business gone wrong, and not because I’m such a cynic about business. I actually think business is the driver of our world. You look at a guy like Bill Gates and what he’s been able to create and not just the money he’s now giving away to charity, but the jobs he created for people and the products that made people’s lives better. So when you see business gone wrong, on the other hand, and the devastation it wreaks, it’s just hard not to be sickened and mad.