DATE April 3, 2008 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM AUDIENCE N/A
PROGRAM Fresh Air
Interview: Michael Greenberger discusses the subprime and
TERRY GROSS, host:
This is FRESH AIR. I'm Terry Gross.
The American financial system has been in trouble, and the reasons why are a
little difficult to comprehend. They involve derivatives, credit default
swaps, hedge funds and all sorts of complicated trades that are unlike stocks
and bonds. Our guest, Michael Greenberger, can explain how we got into this
mess in language that people who aren't finance experts can understand. He
served on the Commodity Futures Trading Commission from 1997 to '99, where he
directed the Division of Trading and Markets. He was responsible for
supervising exchange-traded futures and derivatives. He also served on the
steering committee of the President's Working Group on financial markets and
the International Organization of Securities Commissions Hedge Fund Task
Force. He now directs the Center for Health and Homeland Security at the
University of Maryland, where he's a professor at the school of law.
Michael Greenberger, welcome to FRESH AIR. Why is part of the finance system
now being described by so many people as a shadow financial system? That has
a nice conspiratorial ring to it.
Professor MICHAEL GREENBERGER: Well, the reason for that is that most people
in their everyday contact with the financial system know about stocks and
bonds and they can open their newspapers and/or get on the Internet and get
pricing information about where a stock is in terms of its price level or what
a bond is selling at. And even in the traditional futures market, for people
who are hedging--for example, farmers hedging their crops and wanting to lock
in a certain price, or even those who want to speculate in the futures
market--that's all a transparent market. You can go to your computer, you can
go to your newspaper and you will find out immediately what's going on. And
supplementary to that is there is financial reporting about that system.
But since the late 1980s, a much more powerful system has developed, and that
is called the--and it's often referred to as "complex derivatives." And
essentially, the banking community developed these products, starting in the
mid-'80s, and it's just developed a herd of steam since that time, and at this
point in time worldwide, there is more money invested in derivative products
than there are in stocks and bonds, which usually comes as a great surprise to
And these derivative products, when you boil down to their fundamentals, are
essentially bets on the direction that certain events will take place. And
the most common, for example, is betting on the direction of interest rates,
either United States interest or worldwide interest rates. And once it's a
private contract, and one side enters into a bet that the interest rates will
go up and the counterparty or the other side takes the opposite side and bets
that they will go down.
And those are private transactions. They are not easily made public. You
can't open the newspaper and see what's happening. And when you enter into a
bet, if you want the bet, the counterparty who takes the opposite end charges
you a fee for having that bet. That's a very profitable piece of business for
banks and hedge funds to do. And so that's why this is called a shadow
system. We don't see it in our day-to-day lives, and it goes on sort of in
what people refer to as dark markets.
GROSS: And there's no regulation?
Prof. GREENBERGER: There is no regulation. In fact, when I was in the
government, we argued very strenuously that these kinds of hidden bets could
be very disruptive to the financial system, and they played as important a
role as securities and bonds did, which are regulated. We wanted them to be
regulated. That was a battle that we lost out on, and essentially, in
December 2000 on the floor of the Senate, Phil Gramm, chairman of the Senate
Finance Committee, introduced a piece of legislation that completely
deregulated these markets, not only at the federal level but, for the most
part, at the state level. So they are completely outside the law, so to
GROSS: And what was this legislation?
Prof. GREENBERGER: It was called the Commodity Futures Modernization Act.
It was a 262-page bill, and it was added as a rider to an 11,000-page omnibus
appropriation bill as Congress was recessing for Christmas in 2000. I would
say there was no one, except the drafters of the bill, who understood what it
did, and I can assure you that the drafters of the bill were not members of
Congress. They were the lawyers for the investment banks on Wall Street.
They convinced Senator Gramm to introduce this, they freed the system from any
regulation, and we've been embarking on financial fiascoes ever since.
GROSS: And I should mention, Phil Gramm is now the chief economic adviser to
John McCain in McCain's presidential campaign.
Prof. GREENBERGER: He is the chief economic adviser to John McCain. John
McCain famously said quite recently he doesn't really know as much as he
should about economics, but he's reading Alan Greenspan's biography. Phil
Gramm is at his side. Phil Gramm is also an officer of UBS, the Swiss bank
that, just within these last few days, reported losses of in the neighborhood
of $12 billion because of these bets.
GROSS: Now, let me just see if I can understand these complex credit
derivative bets a little bit better. Is credit derivative the right word?
Prof. GREENBERGER: Credit derivative, credit defaults, swaps, OTC
derivatives are the words that you will hear when federal financial regulators
GROSS: It seems to me, if I understand it correctly--and I'm not sure that I
do--that, like, say you can invest in a basketball team.
Prof. GREENBERGER: Mm-hmm.
GROSS: OK. There'd be the stock market way of investing in the actual team,
but the credit derivative approach would just be betting on whether the team
was going to win or lose.
Prof. GREENBERGER: That's a very apt analogy, and that's exactly right.
Instead of owning the team, you go and find either a legal or illegal gambling
operation and you try and profit from the team by betting that they will win
or betting that they will lose.
And in the present crisis, the bets that are at stake are bets on whether
people would pay their subprime mortgages off or whether they wouldn't. And
for the most part, the banks had bet that those subprime mortgages would be
paid off because they thought it was a riskless investment because housing
markets were always going up astronomically, and even people who couldn't
afford their mortgages within a matter of months had gained value in their
real estate so that that value could be extracted and they would then have
money to pay mortgages off that they didn't have to pay off when they started
out with the loan. So the banks entered into a series of bets that those
subprime mortgages would be paid off, and when you hear that they are losing
millions and billions of dollars, it is because those bets have turned bad.
And essentially it's even worse than the fact that they're losing bets. They
took these bets--just as, for example, if you went to a basketball game and
bet on a team that would win, they took those bets and said, `Wow, these are
very valuable bets. We're going to add them as assets to our books. So we
think these are so risk-free that they have tremendous value.' So when you
read a bank's financial statement, that's listed as a very valuable asset.
Well, when it turned out that these bets were going to be lost, that
bookkeeping had to be redone, and instead of being a valuable asset, it was a
very bad liability.
And to make matters worse, the federal government permitted these institutions
to engage in this betting, not through the bank itself or through the hedge
fund itself, but through off-book entities called structured investment
vehicles. So for a long time, when the banks were losing this money, they
didn't even put it on their balance sheet. And when you hear, for example,
that a bank has lost billions of dollars, that is merely the money it has put
back on its books. There may be even greater losses in these structured
investment vehicles. And the banks have been consistently urged to fess up
and tell the world what their losses are so that we can draw a ring around the
extent of this problem.
GROSS: So what you're telling me is a lot of the things that have crashed our
economy, they're basically just bets. They're not even about businesses not
doing well because their products aren't selling and therefore investors are
suffering. This is betting.
Prof. GREENBERGER: It's exactly betting. Now, in some sense, there's
financial prudence in this. For example, if you owned the subprime mortgage
or the asset value of the subprime mortgage and you were worried that it might
collapse, you would want to pay a very small premium for an insurance policy
that, if your investment collapsed, you would be insured and you would not
lose any money. Well, the bank essentially entered into a bet that it would
never have to pay off that insurance, and those are called the credit default
swaps. So for a very small amount of money, they effectively gave investors
insurance policies that the assets they held, the pending on the subprime
mortgages, would never lose value. And that's the bet that was made here, and
the form of the bet, technically speaking, is a credit default swap.
By the way, it sounds an awful lot like an insurance policy, but they don't
want to call it insurance because if it's insurance, it's regulated by the
states. So they were very careful whenever they wrote these contracts to make
clear that the word insurance never appeared. Because if you were doing
insurance, the states would then have a very aggressive role to play. And in
fact, if I may just add, when they made these bets and they got worried
whether they'd be able to pay them off if the subprime mortgagees failed, they
went out and got insurance policies to protect the value of their bet. That
is to say, if they lost the bet and they had to pay, they were insured against
that loss. But when they went to those insurance companies, they said,
`Please don't write us an insurance policy. We want a credit default swap.'
Why? Because credit default swaps are expressly deregulated by federal statue
and cannot be regulated by the federal government or by the states.
Prof. GREENBERGER: And the final tragedy, if I might just add here, yes.
GROSS: Yeah, go ahead.
Prof. GREENBERGER: The insurance companies thought they were insuring--they
thought that this was a risk-free insurance factor. So they gave out
insurance faster than they could write it. So you had these very small
companies insuring billions and billions of dollars of these bets, and you
will read--and eight weeks ago we read a lot about--these insurance companies
are beginning to fail. And the taxpayer has a problem there because most of
these insurance companies have guaranteed municipal and state obligations.
That is to say, taxpayers have paid to have their public bonds insured by
these companies. Now they have failed, the states and cities don't have the
insurance they need, and they have to go out and buy insurance from companies
who are sound, and there is an additional premium that has to be paid. And
state treasurers--for example, the California state treasurer--is beside
himself over this problem.
GROSS: My guest is Michael Greenberger. In the late '90s he served on the
Commodity Futures Trading Commission. He now directs the Center for Health
and Homeland Security at the University of Maryland.
GROSS: We're talking about how the American financial system got into the
mess it's in. My guest is Michael Greenberger. He served on the Commodity
Futures Trading Commission from 1997 to '99. He says the trouble isn't over
Prof. GREENBERGER: We are soon going to find out it's not just mortgages but
it's all kinds of loans: Credit card loans, student loans, auto loans are all
going to be infected. The same system is at play. And the thing to
understand here is that this all started out, it seemed like a wonderful,
wonderful idea. The banks were making loans in the form of mortgages, and
traditionally, when I took my mortgage out many years ago, the bank was very
careful to see that I could pay it off because the bank was going to lose
money if I didn't.
And what has happened in this system is the banks decided, `Look, we're going
to make the mortgage loan. We're going to get all the commissions, the fees,
the courier service charges, the fax charges, but then we're going to sell the
loan to other people through a security'--and that's what you hear called
mortgage-backed securities. They bundle the loans together and, just like a
corporation, investors can buy those securities. Well, when the investors
said, `Wait a minute. If we buy securities for people who can't afford to pay
them off, that's very risky operation.' And that's when the banks said, `Not
to worry. We'll effectively insure them. We will guarantee that they'll be
paid off for a very small premium.'
There's no general reporting system. Nobody, including the Fed, can go and
say, `Well, how many of these bad bets are there out there?' So, for example,
when Bear Stearns went under because of these bad bets and the American public
essentially had to take these bets, these credit default swaps, as
collateral--no one else would take them as collateral, just the United States
taxpayer, ordered by the Treasury to do so--the United States taxpayer takes
it as collateral through the Fed, loans Bear Stearns $30 billion, and within
the last few days the market went up 391 points. People are saying to
themselves, `Wow, the problem's cured.' But the next day, people realize, `We
don't know if Bear Stearns is the mine disaster or the canary in the mine
telling us about a much bigger disaster.' And that's the problem.
GROSS: Well, that leads me to something that you said a few moments ago,
which I found kind of scary. You said we've seen what happened with the
subprime mortgages, but we haven't yet seen the similar damages with credit
card loans and automobile loans.
Prof. GREENBERGER: Student loans.
GROSS: Student loans. So...
Prof. GREENBERGER: And also the private equity, all these people who
borrowed money to buy these corporations have all essentially followed the
same template. Now, obviously I'm simplifying it for your audience, but
really, when you break it down to the fundamentals, whatever my simplification
is is exactly what's happening. It is as if a bunch of Las Vegas bookies
started taking bets and never bothered to write them down or record them or,
as you know, frequently a bookie will try and have a balance book so that if
it loses one side of the bet, it will cover by another side, and they make
their money on the commissions--or the vigor, as they say, I believe. Here,
these banks didn't bother to hedge themselves. So, you know, we would have
better off if Las Vegas had handled this operation than having Bear Stearns
GROSS: I can't imagine how complicated the math is that goes into figuring
out these complicated investment instruments, so in addition to deregulation
making this environment possible, probably computers have, too, making it
possible to keep track of these complicated mathematical formulas and bets.
Prof. GREENBERGER: Well, that's a very interesting query you've made. First
of all, the instruments themselves and how they pay off--in other words, who
wins and loses--are complicated. But the concept is not complicated. And, of
course, the American public is totally scratching its head over this and
doesn't know what's happening. They see people losing homes, and those people
lost homes because the banks really didn't have any risk here. They were
making commissions on the mortgages themselves, so they just wanted to write
this stuff as fast as they could, and they didn't care whether these people
could pay off. So those people who didn't have the wherewithal to pay off
have now been foreclosed upon, neighborhoods have empty houses, people are
But it all goes back to the fact that there were these underlying credit
default swaps. The American people don't understand that. If Franklin Delano
Roosevelt were president right now, we would understand that. There would be
a fireside chat. We would make it so that the American public understands it.
And it's important that the American public understand it because, even as we
speak, the Wall Street interests who have all the money in the world to hire
lobbyists are lobbying 24 hours a day, seven days a week, 365 days a year, 366
in leap year to keep this market what we began our discussion with, a shadow
market that nobody understands.
And what they tell Congress is, `Look, these are complicated things. You are
not smart enough to tell us what to do.' But the fact of the matter is, what
we have seen is these guys aren't smart enough to be able to carry this thing
off without regulation. They're losing money hand over fist, and, of course,
the saddest fact in all this is that when these CEOs lose the money, they're
fired, but they walk away with hundreds of millions of dollars in severance
packages. And when Bear Stearns collapses, the Fed is prepared to have
taxpayer money thrown in to rescue the institution, but no money or relief
goes to the person whose mortgage has been foreclosed.
GROSS: You've explained some of the derivatives and other complicated
investment instruments behind the financial problems we've been having in the
past few months. And you described how Phil Gramm, when he was a Republican
senator from Texas, was behind a Commodity Futures Modernization Act that
prevented regulatory agencies from regulating these complicated instruments.
Phil Gramm was also behind a bill that was passed in 1999 that overturned a
Depression-era bill that regulated investment banks. Tell us a little bit
about that bill.
Prof. GREENBERGER: Well, essentially, as a result of the Glass-Stiegel Act,
which was passed during the Depression, there were two kinds of banks:
depository institutions, which are the kind of banks that we're most familiar
with, where you go in and you open a checking account and a savings account
and you try to get a loan from; and investment banks, which don't take
deposits but have investors, and they are responsible for making investments
in financial instruments. And the Glass-Stiegel Act said that where people
are putting their money, their savings, we don't want these guys doing risky
kinds of stock market investment. Today the problem's derivatives. In the
'30s, it was stocks, which were not regulated. So we want to separate the two
out so people understand when they go to a bank and open a savings account,
the bosses of the bank aren't fooling around with the stock market.
Well, over time, the banks were not happy with that, and they wore that
distinction away. So in 1999, essentially any distinction between an
investment bank and a depository institution was eliminated, and that allowed
banks that we're familiar with, like Citibank or Citigroup or Bank of America,
Wachovia, to have an arm that does all these fancy investments. And the
theory for all of this is that these bankers are very, very smart. They make
a lot of money, they dress nicely, they have nice summer homes. They're not
going to risk their money. They're smarter than the Congress is.
So for years and years and years, the markets have been deregulated, and in
fact, earlier this week, Secretary Paulson announced this restructuring of
financial regulation. That really started before the subprime mess, and it
was the result of Wall Street saying, `Hey, we are so heavily regulated in the
United States, we're losing business to London, and we're no longer going to
be the financial center of the world. We need a lighter touch of regulation.'
And that was set in motion in March of 2007, and essentially what was shocking
to me is that Paulson introduces this legislation, which was modeled after the
British template, which is light regulation of financial institutions. It has
nothing to do with the subprime meltdown; it heads in the other direction of
being a lighter regulatory touch, and ironically the British are reeling from
their regulatory system.
One of the major banks in Britain, Northern Rock, had a run, a classic
Depression-era run, where people lined up outside to get their money out of
the bank. They were heavily into the subprime market. The bank virtually
collapsed, and the British government had to buy the bank. They nationalized
it. So, you know, the irony is the more you argue for deregulation, the more
you end up having government-owned entities, which is not good for anybody.
It's especially not good for the American taxpayer because the American
taxpayer is buying these banks and instruments and everything else when they
had nothing to do with the collapse.
GROSS: The Fed bailed out Bear Stearns with the explanation that if it didn't
it would have been disastrous for the American economy, possibly for the
global economy. Do you think that's a legitimate argument?
Prof. GREENBERGER: I absolutely think it is a legitimate argument. There's
no doubt about it. If Bear Stearns had collapsed, it would have been a house
of cards and others would have collapsed. Then it wouldn't just have been a
United States problem, it would have been a worldwide problem. And so the
point is, don't put us in a position where somebody is too big to fail.
There was an interesting article in The New York Times roughly about December
21st, 2007, called "The Fed Shrugged." It's a play on Alan Greenspan's...
GROSS: Interesting. Ayn Rand, who wrote "Atlas Shrugged."
Prof. GREENBERGER: Ayn Rand, who wrote "Atlas Shrugged." But the point was
that Alan Greenspan, when he was there, and Bernanke now, have been warned
about this not just by anybody, but by other people in the Bush administration
that, as early as 2001, we had a crisis on our hands. And if the federal
government had acted responsibly, this would not have happened, we would be in
a very good economy now with job growth and income growth. But, yes, that's
why, when people tell you this is the worst economic crisis since World War
II, that's a way of not saying the panicky thing, which is, we may be heading
for a depression. And if a Bear Stearns collapses, you're going back to 1929,
that it's not just going to be Bear Stearns, it's a house of cards.
And that's why we don't know. Is Bear Stearns the end? That's why the market
went up so much earlier this week is there's a belief that Bear Stearns is the
end. There are some of us who are very worried that Bear Stearns is the
beginning and not the end. And if we needed $30 billion to bail out Bear
Stearns and there are others that start collapsing and need to be rescued so
we don't go into a total abyss, it's going to be a major crisis. So they did
the right thing when they faced the ultimate crisis. Where they were wrong is
not responding to the clear signals going all the way back to 2001 that this
was going to happen if the Fed didn't intervene sooner.
GROSS: Now, a lot of people are saying if the Fed and the taxpayer is going
to bail out an investment bank then the government should have the right to
regulate investment banks, just as the government regulates commercial banks.
So what are some of the proposals on the table now to do that?
Prof. GREENBERGER: Well, frankly, I just have to be quick to answer that I
don't think there's any effective proposal on the table. First of all, my own
view is that, between the two pieces of legislation, the more famous one,
which was eliminating the distinction between investment banks and commercial
banks, was the least problematic. The lesser known piece of legislation that
Phil Gramm sponsored--which had no hearings in the Senate, no Senate report
came up on the floor, was really just a complete surprise to everybody--is
this deregulation of these instruments, the credit default swaps, OTC
My basic view is: I don't care who the institution is--whether it's a bank,
an investment bank, a hedge fund, a private investor--what I care about is
that these are toxic investments that have been deregulated without any
forethought at all except forethought by Wall Street. Warren Buffett famously
said that these OTC derivatives, credit default swaps are the financial
equivalent of weapons of mass destruction. Now, he found that out because
he'd bought a company that he did not realize when he bought it was heavily
involved in all these derivatives, and he had to unwind them, and it took
years and years and he lost a lot of money. And he has become one of the
foremost advocates for regulating these products.
There's a lot of discussion about helping homeowners. The Senate is now,
apparently there's been some kind of compromise reached, and helping
homeowners is great. It needs to be done, but what also needs to be done is
to eliminate the ability for banks and other lenders not to worry whether the
loan they're making is going to be paid off. What has happened is that it's
removed financial discipline from the market, and the people who do these
loans are making all the money on the commissions from the loan transaction
itself. They could care less about the interest rate being paid. And then
they want to shift the loan out into the economy and have others worry about
it. And that has removed the kind of solid discipline that lenders usually
employee. That was the historic way that financial discipline played itself
out in the system. But once you took the worry about whether the loan would
be repaid out of the system, these lending institutions, all they wanted to do
was make these transactions. So they falsified papers and everything else,
let people submit unverified information, getting these loans out the door.
And now the piper has been paid.
My view is that was all done because they had these tricky little instruments
that they thought would save the day. They didn't. They're the heart of the
problem. And what we need to go back to was where life was on November 2000
when these instruments were subject to regulation.
GROSS: You said that Henry Paulson, the secretary of the Treasury, that his
new proposal to regulate financial systems in the United States is actually
more like deregulation than more regulation. Would you explain that?
Prof. GREENBERGER: Well, that's absolutely true. And as I said earlier, it
arises from a pre-meltdown scenario where the economy was doing rather well
and the investment interest on Wall Street wanted to be regulated less harshly
by the United States government, and they put in motion this review of
financial architecture of the United States. And Paulson grabbed on to it
hook, line and sinker and started this study. And what the report was earlier
this week was the end result of a study that was done before the meltdown
occurred and, by Paulson's own admission, was not written with an eye towards
solving the problems that we're facing on a day-to-day basis right now.
And the reason it is a deregulatory measure is it puts all the responsibility
ultimately in the hands of the Fed. It does not give the Fed the power to
prevent problems from happening, it gives the Fed power to deal with problems
as they occur. In other words, taking Bear Stearns as an example, the Fed
wouldn't have had the power to deal with Bear Stearns as it was getting into
its problems, but once Bear Stearns wanted to call a time-out to avoid
financial disaster, at that point the Fed would intervene and do all these
investigations and look at their books and everything else. It takes power
away from the states and their regulatory abilities. And because of that, the
states attorney generals, insurance commissioners are very upset about this.
It takes--in a very complicated and deft way, it takes power away from the SEC
by telling the SEC that `you've been regulating too restrictively and you have
to have a much lighter touch.'
And within six hours of him announcing this, there were so many vested
interests that were challenged--the states, the SEC, even the Fed in the end
started making noises that while it became the super cop it would have less
tools available to it if the proposal were not adopted.
GROSS: Is there a counter proposal?
Prof. GREENBERGER: Well, there are--first of all, it seems to me that the
Paulson proposal is virtually dead on arrival. And my own view is that
Paulson damaged himself very seriously by engaging in this effort. I mean,
it's like being in the middle of World War II and talking about how you're
going to rearrange the Pentagon after the war is over rather than saying `how
are we going to defeat the Nazis and the Japanese?'
And I, just to emphasize that point, when Congress went out on recess they got
earfuls about the people being upset, worried about this problem, the
foreclosures. The Bear Stearns bailout has really touched a nerve. And even
the Republicans have come back upset. Bernanke had to meet with House
Republicans yesterday because they believe this could be a political
catastrophe for the Republican Party because it's their watch.
But unfortunately, as we sit here today, the proposals that are on the table I
believe are mere Band-Aids. And I think as this problem gets worse and
worse--unfortunately we have to wait for that to happen--we will start getting
more serious proposals from Congress on how to deal with it.
GROSS: I have a question that maybe only a person who doesn't really
understand the finance system would ask, and that is: So where's all the
money that disappeared? I mean, there were so many investment banks where
each of the banks lost billions of dollars. So where's the money? Does
somebody else have it? Did this money ever exist in the first place?
Prof. GREENBERGER: That's a very interesting question, and it's a good
question. And the answer is, yes, someone has it. These were bets. Some
people won those bets. And there are financiers--there's a man named Paulson,
no relation to the secretary of the Treasury, who, if my memory serves me,
made $10 billion in 2007 betting that the subprime mortgages wouldn't be paid
off. So yes, people have pulled money out of the economy. They're not
being--obviously under the Bush tax cuts they're not putting it back in.
They're not using it to create companies and employ people. So, yes, there
are winners in this.
In fact, Goldman Sachs over the summer of 2007 was wise enough to say to
itself, `hey, betting that the subprimes would pay off is not a good bet,' and
they reversed their betting position. And they bet that they wouldn't pay
off. And so Goldman Sachs came out of 2007 in relatively good shape. That,
to me, makes a point: Should we have an economy based on whether people make
good or bad bets, or should we have an economy where people build companies,
create manufacturing interests, do inventions, advance the American society,
make it more productive? This economy is based on people sitting at their
computers making bets all day long. Now, they call it credit default swaps,
OTC derivatives, asset-backed securities, etc., etc.; all makes it very
complicated. But we are rewarding people for sitting at their computers and
punching in bets. That's not the way this economy's going to be built. And
India and China, with their focus on science and industry and building real
businesses are going to eat our lunch unless the American public wakes up and
puts an end to an economy that praises and makes heroes out of speculators.
GROSS: You know, while we're talking about deregulation and how that's
affected the economy, there's been--I mean, there's such a revolving door in
Washington between people in politics and industries of various sorts--but
there has been a revolving door between government and the financial industry.
Can you give us a few recent examples of that?
Prof. GREENBERGER: Well, I'll give you a prime example. Before the
deregulatory legislation went into effect that essentially told Wall Street
and hedge funds and banks, `Go ahead, do these credit default swaps, nobody is
going to regulate you. You can do whatever you want. We won't even keep
track of what you're doing,' there was a very strong argument that those
products should have been regulated by the Commodity Futures Trading
Commission, my old home. And in fact, I was part of an effort that said in
1998, when we'd already had 22 episodes of problems with regards to these
products, that something must be done. While I was there a very nice person
who's a lot of fun to be with, who had essentially been in the cattle industry
in Mississippi and was a friend of the two Mississippi senators, was made a
commissioner of the CFTC. He did not know a lot about commodities. He was
very open to tell people that. For the first year he said absolutely nothing
at any meetings. But he ultimately rose to be the chair of the CFTC. He was
very supportive of deregulating these instruments.
When he left the CFTC he became the president of NYMEX, which is one of the
most successful futures exchanges in the United States. And I believe last
year he made several million dollars in bonuses. NYMEX is about to be bought
out. I'm sure he'll make a very comfortable living from buying his stock in a
sale. There are one example after another.
The lesson that is conveyed, generally, to people who go into some of these
positions is: Help Wall Street out and Wall Street will help you out in the
end. And, you know, you're sitting here talking to a dummy who didn't take
that advice. I'm just a poor professor at the University of Maryland School
of Law. But the revolving door and the ability to revolve out the door is a
tremendous temptation for those in government to be cheerleaders for
deregulation as opposed to seriously trying to get at the bottom of the
GROSS: Thank you very much for talking with us.
Prof. GREENBERGER: You're welcome.
GROSS: Michael Greenberger served on the Commodity Futures Trading
Commission. He now directs the Center for Health and Homeland Security at the
University of Maryland where he's a professor of law.
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
Profile: Geoff Nunberg reflects on the term national conversation
followoing Barack Obama's speech on race
TERRY GROSS, host:
Many people have been speculating about whether Barack Obama's recent speech
in Philadelphia was the beginning of a national conversation about race. Our
linguist Geoff Nunberg has been wondering exactly what national conversations
are and when we started talking about them.
Mr. GEOFF NUNBERG: Just so we're straight on this, all that Barack Obama
actually said in his speech in Philadelphia a few weeks ago was that "race is
an issue that I believe this nation cannot afford to ignore right now." He
didn't call for a national conversation or a national dialogue on race, or,
for that matter, a national discussion, debate, confabulation or pow-wow.
Still, Obama didn't have to say the words for others to hear them.
The Los Angeles Times praised him for "redefining our national conversation
about race and politics," while the Philadelphia Inquirer asked, "who better
to lead a national conversation on the subject?" And Obama's conservative
critics heard the same message, though they were more skeptical about the
enterprise. In his New York Times column, William Kristol wrote, "The last
thing we need now is a heated national conversation about race. Let's not and
say we did."
But these days it's natural to assume that any subject worth thinking about
deserves to have a national conversation all its own. Hillary Clinton kicked
off her campaign by announcing that she was starting a national conversation
about how to get the country back on track. Newt Gingrich has called for a
national conversation on aging. And Condoleezza Rice has called for one on
trade. And other people have issued appeals for national conversations about
climate change, youth sports coaching, the future of classical music,
marijuana laws, health care and personalized learning.
The phrase is meant to conjure up that famous Norman Rockwell painting of a
New England town meeting, where ordinary citizens gather as equals to hash
over the affairs of the day.
Back in the 1930s George Gallup claimed that polling in the modern media had
recreated those meetings on a national scale. As he put it, the nation is
literally in one great room. Of course when you get that many people talking
in one room, it's hard to tell if everybody is paying attention. But by the
time the phrase national conversation entered the language in the 1970s, the
simulated public forum had become the model for a new bunch of media formats.
Jimmy Carter staged the first ersatz town meeting in the 1976 presidential
campaign, the format that later found its Pavarotti in Bill Clinton.
As it happens, that was also when Phil Donahue was pioneering tabloid talk TV
and when Larry King launched the first national radio call-in show. There was
something reassuring about the idea of everybody participating in a vast,
extended conversation, particularly for a country trying to get past the angry
divisions of Vietnam in the '60s. As the alternative therapies of the era
were teaching us, no conflict was so rancorous that it couldn't be dispelled
by open conversation, so long as people were honest about expressing their
True, we probably shouldn't be calling these discussions conversations at all.
A genuine conversation has no purpose. It's about the pleasure of merely
circulating. The philosopher Michael Oakeshott described conversation as an
unrehearsed intellectual venture. It has no determined course; it does not
have a conclusion. And it's always a little disconcerting when somebody calls
for a conversation about a specific topic. `We have to have a little
conversation about all those calls to Toledo.' It sounds like an appeal for an
open exchange of views, but you know that most of the script has already been
Still, nowadays you're always hearing conversation used for exchanges that are
entirely purposeful, particularly when they're designed to give people the
impression that they're coming of their own free will to a conclusion that has
actually been determined in advance. You get this a lot from consultants who
earn a tough living by coming up with sentences like, `We aim to lead this
strategic conversation around value alignment.' Not to be a stickler about it,
but any discussion you can describe as strategic probably doesn't count as a
conversation. The preposition itself gives the game away. "Around" is the
new "about." It's time for a new national conversation around health care.
That isn't how we talk about our everyday chit chat. We were just having a
conversation around our favorite seafood joints.
And when you hear people call for a national conversation, you always know how
they expect it to turn out. Every so often a foundation or the National
Endowment for the Humanities will take the idea at face value and bring groups
of citizens together in church basements or PBS stations for a heart to heart
about race or American identity. But that rarely makes much of a ripple. And
in any case, just calling for a national conversation usually makes the point
all by itself. Both the Clintons understand this, and so does Newt Gingrich.
And William Bennett has called for half a dozen national conversations over
the course of his career without ever feeling that he had to pretend to be a
Actually, what's usually most informative in all this is the debate about
whether to have those conversations in the first place. If you really want to
know what Americans think about race, punch "national conversation" and
"Obama' into Google News or one of the blog search engines. You'll get an
earful. And the subject being race, the tone often falls short of what you'd
call conversational. If we ever did get to the point where we could really
conduct a national conversation about race, we probably wouldn't need to.
GROSS: Geoff Nunberg is a linguist who teaches at the School of Information
at the University of California at Berkeley.
You can download podcasts of our show on our Web site, freshair.npr.org.
I'm Terry Gross.
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