The 200k Challenge Live Webcast

Story Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to The Real News Network. I’m Paul Jay in Washington. We’re in the last hours of the Real News Webathon. We’re closing in–or maybe we’ve even passed–I’m–we’re going to get an up-to-date count any minute here, but we’re right around our $200,000 objective. But we really need to get past $200,000. Two hundred thousand dollars covers just about four months of our current activities. But we want to do more. And one of the things we want is we want to be able to do a lot more economic coverage. We want to be able to deal with questions ordinary people have about why is this happening to me, why have I lost lost my job, why is my house not worth as much as my mortgage, why are teachers getting laid off, how come there’s garbage out on my streets, why is tuitions going up in universities when service and the conditions in the schools have not improved, and so on and so on. Most of these issues have systemic answers, and a lot of what happens, even though it seems very local, has national answers and national significance. And, of course, more than national, most of these questions are very tied to a completely globalized economy now. So we want to have a producer that works on this, in fact more than one, and doing investigative reports for ordinary people that ties these–what seem like local issues to the bigger systemic global questions. But to do what we’re doing now and to do more, we need your support. So we’re hoping we crack through beyond $200,000 tonight and that you’ll–. Okay. So–. Oh, I am hearing now–. Hold on. So we have–. Okay. Balloons, okay, imagine balloons. Music, please imagine music. We have hit the $200,000 mark. And, yeah, we’re hearing screams and cheers out in the control room. And–.

TRNN: Thank you.

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JAY: Yeah, thank you to everybody. But we’ve got to keep going. Two hundred thousand is a good beginning for us, but please, we need to get past $200,000. Four months and–of what we’re doing is just the beginning, and we’re really hoping by the end of this campaign, which is 3 a.m. Pacific Time tonight, we hope that we’re going to really crack through into the $220,000, $230,000 mark so that we can do — not just survive for four months but really expand what we do. Okay. Speaking about money, we’re now going to bring in a guest who we’ve interviewed often who knows a lot about money, Jane D’Arista. Jane joins us from Hadlyme, Connecticut. Thanks for joining us, Jane.

JANE D’ARISTA: My pleasure to be with you again.

JAY: So Jane, you used to be a staffer. Was it House or Senate? I can’t remember.

D’ARISTA: House Banking Committee, and then Congressional Budget Office, and then Energy and Commerce subcommittee on securities.

JAY: And wrote one of the more definitive books on the history of the Fed, which is, of course, something that gets a great debate and discussion about–right now about the role of the Fed. Jane, we’ve had quite a few interviews already with you and others about quantitative easing and–but there’s been this kind of new revelation of the real extent and size of what the Fed did. It wasn’t just TARP. We’re talking, perhaps, if I have it correctly, as much as $3 trillion in loans from the Fed to American banks, several large American corporations, foreign banks. This came about partly as a result of an effort, [which] I think you were partly involved with, to force some transparency on the Fed. So tell us a little bit what led to this revelations. Why did this information finally go public? And then we’ll talk about the significance of it.

D’ARISTA: Well, there has been a long-standing effort, going way back, I would say, into the ’70s, to get more information out of the Fed about just what it does and what the balance sheet is all about etc. Some of that kind of got deflected because Greenspan would give the minutes out, or at least a statement, pretty soon after the Open Market committee met, but this wasn’t really giving us information about the Fed. Now, two members of Congress really got this ball rolling in this current session, Ron Paul and Alan Grayson, Alan Grayson a Democrat from Florida, Ron Paul a Republican from Texas. And then, when the 2008 bailouts began, the ball really took some momentum. I think the whole Congress, both sides of the aisle, were in favor of knowing just how much money went where, and how did it happen, how did the Fed do this. And the question is now issues of accountability. The question also was, good heavens, there were members of the board of the New York Bank whose institutions were recipients of this bailout. So, the need to know became very pressing, and it got enacted in the legislation that was passed and signed in July, the Dodd-Frank bill. So, we now have the revelations, and they’re pretty astonishing.

JAY: Now, did some of what came out as the result of a kind of an alliance that took place between some of the progressives in and out of the House and libertarians in and out of the House, the Ron Paul types, and on–Grayson on the Democrat side, is some of the reason we know what we know now is a result of that?

D’ARISTA: Oh, absolutely. But interestingly enough, that has been true for many decades, that on the one hand the libertarians and on the other the progressives have been the ones who have pushed the Fed to be more transparent and more open, and moreover, with different objectives, necessarily, in some ways, to be more responsive to the Congress in terms of how monetary policy is not only conducted, but what its objectives might be. So you now get this new argument on the part of the Republicans that the Fed’s mandate should be stripped down to just stability–in other words, just fight inflation–and nothing about employment. Now, the Democrats fought for years to get that mandate to include employment. And there is a third point, which is growth, maximum production for the economy, as well. So you have economic issues that came in to the Fed, as well as those issues that had to do just with keeping inflation under control.

JAY: Alright. So let’s just talk a little bit about these trillions of dollars. Bernanke was interviewed on 60 Minutes a week or two ago and said that there was no choice, that if the trillions hadn’t been poured into the global financial system, we would have looked at a depression like the 1930s, perhaps worse. He talked about 25, 30 percent. So, essentially, he said we had no choice. So is that true? Did they have no choice? Or at least did they have a choice to do it in some other way?

D’ARISTA: They had choices to do it in other ways. They claim that the mechanisms were not there for shutting down banks or shutting down some of the institutions. Now, it’s true it would have been very difficult to do other than force bankruptcy on AIG, but they certainly did have the tools to shut down some of the larger banks that were in trouble, like Citibank, CitiCorp, and Bank of America. But that could have been done. It had been done. I mean, it was done in Sweden completely. What you do is you build a bridge bank, you take it over, you nationalize it, and then you come back. And in some sense we did that. Look, we are now selling off our stock in CitiCorp. We have stock to sell off in other institutions as well, GM and so on. But we didn’t really–I mean, the astonishing thing was we did not get rid of management in any of these institutions, except GM, and we didn’t have the stockholders take a hit. And that’s what needed to happen in order for the situation to come under control. What you really needed to do was to cleanse these banks, have good banks and bad banks, put the good assets in and keep the system going. Unfortunately, what they did, by rolling it all into one and keep just keeping things going, keeping the institutions alive even if they are zombies, as many of us believe, you have perpetuated this whole system which didn’t work, and it’s not going to work going forward. You haven’t really cleansed the system.

JAY: Well, how fragile are things now? Like, you’re getting this kind of impression from Bernanke, and to a large extent the majority of the media, that, you know, you might not have liked how we did it, but we did it and now we’re past the worst of it, and even though growth may be happening more slowly, we’re not facing systemic collapse anymore. Do you believe that?

D’ARISTA: Well, what I believe about this is this is a wrongheaded idea of having the institutions grow out of their problems by making profits. Unfortunately, the way that they’re making the profits, and you can see it in the newspapers every day–

JAY: You’re talking about financial institutions.

D’ARISTA: –yes–is strictly on their trading accounts. They’re not lending. They’re not making money on the traditional things that either banks–commercial banks or investment banks do. And the economy shows it–it’s not growing that fast. So the idea that the system is fixed because it’s profitable and now they can hand out all of these bonuses is very erroneous. It remains very fragile, and they’re still engaged in many of the same kinds of activities, like the carry trade, like borrowing money to invest in assets that carry a higher interest rate or currency appreciation, or all of these gambling things. And most of them are proprietary trading, they’re for their own account, they’re not doing it for customers. So–.

JAY: But is there a limit? Like, let’s say either the Irish situation or something else in Europe or somewhere else in the world, you know, if it triggers another round of panic and the banks start–you know, we start getting some more of the truth of the real bank ledgers, is there some limit to how much the Fed can just keep pouring back into the system again?

D’ARISTA: Yes, there is, and at that point their hand might be forced. My sense about the QE2, as we call it, is–.

JAY: This is this purchase of $600 billion of T-bills mostly held by various financial institutions.

D’ARISTA: Yeah. And the supporters of the Fed argue this is just ordinary monetary policy. Well, it is, in some sense. They’re doing what they normally do, but on a much larger scale. And that is the question. Now, I don’t think it’s inflationary, because I think the Fed has tied its own feet, in a sense. It creates all these reserves for the banks, then pays interest on those reserves to the banks, an absolutely undercuts any incentive they might have to lend. So, I mean, if you’re sitting there with a guaranteed asset, an account with the Federal Reserve that gives you some income,–

JAY: Why take a risk?

D’ARISTA: –why take a risk?

JAY: Okay. We’re going to ask for questions now. If you want to ask a question, you can write questions (at) therealnews (dot) com, and we’ll either read your question or phone you and get you on the show. If you want to phone and let us know your question, you can call 888-816-8867. That’s 888-816-8867. And we have a lot of people who have written us over the last while about the Fed. So now’s your chance to have your say or ask a question. And now on the line is Jeremiah from Washington. Jeremiah, are you there?

JEREMIAH: I’m doing great. How are you?

JAY: Good. So what’s your question or comment?

JEREMIAH: I have a question about the House Financial Services Committee.

JAY: Yeah. Go ahead.

JEREMIAH: Well, the House Financial Services Committee is going to have a new head coming in for the new Congress. And I was wondering what your opinion is, knowing Ron Paul’s philosophy, of him being the head of the House Financial Services Committee.

D’ARISTA: Well, he is going to be head of the subcommittee that deals with monetary policy. I believe the new head of the committee, the whole committee, is Congressman Bachus, and he has already announced some of his plans, which are to not give additional funding to the regulatory agencies, and in that way effectively undercut the force of the Dodd-Frank bill. Now, what will Ron Paul do in monetary policy? He will probably push very hard to get the Fed to reduce its mandate. I think he is genuinely in favor of abolishing the Fed, but I don’t think that the Democrats will allow that to happen. They want reform, but they’re not necessarily willing to see a total free market in which there is no referee or umpire.

JAY: Yeah, what does Ron Paul suggest replacing the Fed with?

D’ARISTA: Presumably just let the market do it.

JAY: And so, what, the–how do they decide–or who decides how much currency there should be and how it will be distributed?

D’ARISTA: Well, that is difficult to say. He might–he has never really articulated an alternative view of how a central bank ought to operate or how you might operate without one. He could fall back on the Milton Friedman position, which was to simply say that the central bank should issue a certain amount of currency every year. In the legislation that Friedman proposed, it would have been 3 percent increase every year. Now, that’s not unlike other central banks have had in the past. They’ve had limits on the amount of expansion of bank credit. But actually Friedman wanted to go further than that and say, let’s limit the central bank itself.

JAY: Yeah. Jeremiah, are you still on the line with us?

JEREMIAH: Yeah, I’m still on the line.

JAY: Yeah. Do you have a follow-up question you want to–?

JEREMIAH: No, no, thank you.

JAY: Okay. Well, in terms of this kind of alliance–we were talking earlier about progressives in Congress and the libertarians–with [Ron] Paul in this position, the subcommittee, is he going to have the power or the potential to hold hearings that would then force more transparency out of the Fed? And wouldn’t that be a good thing?

D’ARISTA: That part of his orientation will be very good, I think. I think it’ll be very pressing to get the Fed up and to get them to talk. You know. And this has also been true among some of the Democrats as well. Congressman Grayson–who will not be back, unfortunately, but I’m sure others will take up that cudgel, if you will–has asked some very pointed questions about what do you do, and how do you know, and when did you figure out what was the worth of the assets that you bought. I mean, there is just so many unanswered questions about that balance sheet currently and going forward that the American people should know.

JAY: So we might–so everybody might be pretty happy with Ron Paul there, because if nothing else, Paul has had the guts to ask questions in Washington that a lot of even Democrats don’t want to ask. We have a question now from Brazil. Darwin from Brazil writes, I want to ask Jane about the shift of some leaders around the world starting to get or wanting to get rid of the dollar in international trade, he says, here in Brazil and Argentina, and also Russia and China. And how will the US economy be affected if important commodities like oil start being traded in other currencies? What’s your take?

D’ARISTA: Well, I think that the objective is a good one. It’s one that I certainly have favored over time. I think the dollar as a key currency is so damaging to the US economy, if it would go tomorrow I would be happy. But I do understand that the transition has got to take some time so it doesn’t do a lot of damage, and we have to know where we’re going. I know the BRICs–and that’s Brazil, Russia, India, and China–have been clamoring for a shift in the currency, but I haven’t heard the really good ideas from any of these countries on what it should be. They kind of fall back on the SDR. Well, alright, so have the experts that came out with a report from the United Nations. There needs to be a lot more deep thinking about this. The SDR is not a transaction currency. People have to buy and sell goods and denominate them in various currencies. So getting from here to there, we need to think it clearly. I want a new Bretton-Woods agreement, and I certainly think the BRIC should be part of it. But I also think that rather than being outliers who just complain, they need to step up to the plate and start thinking about what kind of a system they want and what will really work in the global economy.

JAY: Well, just to wind up, let me go back to the Fed again. In a recent interview, which we haven’t published yet and we’re going to, like, within a week or two, we’re going to have a much fuller answer to what I’m about to ask. But, Jane, if you could, would you end this Fed?

D’ARISTA: End this Fed? Well, no, I think not. I would certainly reform the Fed. I would have the Congress think about how it wants monetary policy to be conducted. The most important thing we can do at the moment is to reform the way we do monetary policy. The old assumption, which you read everywhere, that the Fed can only do interest rates and that this whole QE2 is to get long-term rates down, is a misunderstanding. What about supply? The Fed has given up altogether using reserves as an effective means of controlling the supply of credit, both up and down. You add reserves, you don’t get a response–there’s no more lending, there’s no more expansion of credit, etc. Interestingly enough, the Chinese are using reserves the way we used, to to control their markets. And nobody questions this. And this is–I’m afraid Ron Paul won’t get into that. And so I’m a little dubious about his chairmanship in that subcommittee, because what really needs to be done is to figure out, why doesn’t monetary policy work? It hasn’t worked for several decades.

JAY: Well, we’ll get into this more with future interviews with Jane D’Arista. And sometime next week we’ll be running the interview. We asked Jane, if you were president, what would you do with the Fed. And we’ll be running that sometime towards the end of next week. Thanks very much for joining us, Jane.

D’ARISTA: Thank you, Paul.

JAY: And thank you for joining us. We’re going to be returning very soon with two eminent economists, Dr. Leo Panitch and Dr. Robert Pollin. Right now we are hoping you’re going to drive us way past $200,000. We hit our target, but we need to go further. As I’ve said probably more times than you wanted to hear, two hundred thousand bucks only buys us about four months of what we’re already doing. We need to really expand what we’re doing in many spheres, but particularly in the economy. We really want to dig in to economic issues in ways ordinary people can understand, what’s happening to me?, what’s in my interest?, and what can I do about it?. And that’s going to take a lot of resources on our side to be able to do this in a way that’s effective. Plus in 2011 we really want to take this to television. And so we need to stabilize what we’re doing. And then we have some ideas about how to finance the move to TV that will still defend our editorial independence. And we’ll talk about more of that in the coming days. So right now, please, if you haven’t donated yet, or if you’ve donated only a little and you want to donate a little more, you can click on the donate signs here. If you’re watching us on Livestream, you can donate on the clicker. If you want to phone, you can phone 888-449-6772. That’s 888-449-6772. And let’s see if we can’t get to, you know, $205,000, $210,000 tonight. That would be amazing. Please join us in a few minutes, where we’re going to talk about the real causes and potential solutions for this global economic crisis. See you soon on The Real News Network.

End of Transcript

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