What's important about where we are now is that we see that the people were right, despite the fact that they were hearing from everybody how wrong they were, that original assessment that this deal stank, that there was something wrong with it was the right one and more than that, people remembered the patterns: they remembered what happened after 9/11; they remembered the way they were sold lies in the lead-up to the war in Iraq, so I think the people are becoming more shock resistant, but unfortunately, the political leadership is doing everything that they can to resist back.
Kall: Well, yes, and that is the problem, isn't it? Do you think they get this? As soon as this broke, the first thing I did was talk about how this was another example of selling WMD, why selling WMD was a way to scare everybody. But--
Klein: In this case, they really are WMDs, right? I mean these toxic debts are often described by economists as like sticks of dynamite in these financial institutions they really are bombs that Henry Paulson is voluntarily taking from the financial sector and bringing to Washington so that they can explode the federal budget. And it may well save the banks and it may well bankrupt the country. These are the stakes and at a certain point the question is: them or us?
Kall: And it seems like they are not finished doing the damage yet. After a day like today we can expect a lot more roller coaster rides, going down and down, further and further.
Klein: There is one good thing that came out of the wrangling and the negotiation, which was a clause that gave Henry Paulson the ability (though it didn't mandate him), the ability to buy equity in the banks and now that clause is being invoked. They are not abandoning, and this is very important for people to understand: they are not abandoning the original terrible plan of buying up the toxic debt; they're just doing both, OK? They're contracting out the job of buying up the toxic debt to the same banks that are applying for the bailout and the levels of conflict of interest, I've been looking at the contracts and who they are being handed out to, I mean it just makes your hair fall out; the shamelessness is unbelievable. The law firm that has been given the contract to advise the government on the equ9ity buyout is the law firm for seven of the nine banks. (laughs) OK?
Kall: Oh, my God; what a conflict of interest.
Klein: Right, but I guess it's hard to top Henry Paulson himself, right? Known as "Mr. Risk" when he was CEO of Goldman Sachs, was one of the inventors of this field of very complex mortgage backed securities and he took Goldman Sachs' debt from 20 billion dollars in 1999 to 100 billion dollars in 2005. So he's one of the people who put those explosives in the bank and now he's taking the explosives off their hands. So I guess once you've accepted that level of conflict of interest, the rest is—minor.
Kall: What do you think of Paulson's appointee, this Neel Kashari?
Any ideas about him?
Klein: Well, he's also from Goldman Sachs and he's very inexperienced; he got his MBA six years ago; he was certainly favored at Goldman Sachs; he was paid $700,000 in his final year. What worries me about him is that he comes out of that world, and he's going back to that world, right? I mean, this is a very short term job for him. He is a political appointment and he will be out of there.
Kall: In a couple of months.
Klein: In a couple of months. And I think that really does raise the question of where his interests lie. I mean they are saying over and over again, "We are only interested in what's good for taxpayers, but as I said, you know, Gordon Brown got a deal for British taxpayers that's you know, more than twice as good.
Kall: 'I haven't heard that reported, anywhere.
Klein: You know what; I read it in Financial Times, OK? In an editorial in the Financial Times today they remarked on that. But the point is that there is still an election; politicians are still open to pressure so they have taken a step in the right direction in going for equity, but the deal has to be much better and it has to be power as well as risk that is transferred to the taxpayer.
So people need to stay engaged in this debate, because as you say, this crisis isn't ending and the stakes couldn't be higher. Anyone who cares about the promises that Barack Obama is making and his ability to make good on those promises, has to care about whether the Bush administration is currently in the process of bankrupting the next administration because the people who are selling this plan right now will go back to their think tanks after the election, if Barack Obama wins, and then—this is interesting, you know, Henry Paulson in a statement yesterday started talking about the financial crises and needing to re-examine entitlements. That's code for Social Security, Medicaid, right?—I mean they're already getting ready to go after what they call the entitlements programs. Which I find amazing even that phrase "Entitlement Programs" after seeing the sense of entitlement (laughs) from the financial industry it's pretty amazing.
But they will use the crisis that they themselves have created and they themselves have deepened as a rationale for saying everything Barack Obama is saying "Yes, we can," about is saying "No, you can't, we can't afford it; we're in the midst of a financial crisis."