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Paul Krugman Is Proof That To Be Successful Even As An “Objective” Academic You Must Serve The One Percent
Edited Transcript of A Real News Network Interview With Michael Hudson and Bill Black
JAISAL NOOR: Welcome to the Real News Network. I’m Jaisal Noor in Baltimore.
It’s been a tough week for Senator Bernie Sanders on the campaign trail, despite his big win in Wisconsin on Tuesday, because it’s been marked by fierce attacks on his economic plans. On Friday, New York Times’ Paul Krugman penned a scathing critique of Sanders for his slogans of breaking up the banks because he says that won’t protect us from a future crisis and for Sanders failing to provide details about how he would go about this, when asked by the New York Daily News. Sanders met with the Daily News on April 1st for an in-depth interview for a range of his policy positions. That interview’s been widely panned by the corporate media which is especially significant ahead of the April 19th New York primary.
Well now joining us to talk about this is Michael Hudson and Bill Black. Michael Hudson is a distinguished Research Professor of Economics in University of Missouri, Kansas City. His latest book is Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. And joining us from Kansas City, Missouri is Bill Black. Bill is an Associate Professor of Economics and Law at the University of Missouri, Kansas City. He’s a white collar criminologist, financial regulator, and author of The Best Way to Rob a Bank is to Own One, as well as a regular contributor to the Real News.
So I want to thank you both for joining us and let’s start with you Michael. So the New York Daily News is not a small paper. It has the highest circulation out of any local daily in the country and there’s been all this fallout from their interview, including most recently Paul Krugman, who really went after Sanders for his policy positions on breaking up the big banks as well as other things as well. We want to get your response.
MICHAEL HUDSON: Well it’s obvious that supporters of Hillary are now getting very worried. Sanders was sandbagged at the Daily News. One of the reporters for the Daily News is also the co-host of Democracy Now.
NOOR: Juan Gonzales.
HUDSON: Sanders said that the editorial page editor was giving him rapid fire questions, wanted short answers, and then when Sanders gave the short answer, the newspaper later made up a whole attack that was unjustified, saying he didn’t give long answers – when he wasn’t given a chance to. Paul Krugman was used to attack Sanders’ policy on the banks.
Krugman has always been a defender of the banks and always denies that banks can be crooked. A few years ago in Iceland, Iceland had a problem. The banks were very crooked, they controlled the government that was about to give enormous amounts of money to the banks. I had gone over and met with the Prime Minister and former Prime Ministers and convinced them not to pay Britain and the sort of crooked depositors. They hired Krugman at a very high fee, and he said the Icelandic banks are not crooked. He advised that Iceland should pay for “Icesave” and the British bank affiliates that went under even though these were not bank branches but bank affiliates.
The Icelanders were very disappointed because they thought that Krugman would stand with the people and not the banks. But Krugmann’s an elitist when it comes to banking. The day after Sanders gave the Daily News interview, the Wall Street Journal had a better report explaining just what Sanders’ position was with the banks. Sanders wants to give the issue of closing the too-big-to-fail banks to the Treasury, not to the Fed.
Krugman alleged that Sanders position is inconceivableand made a personal attack. The fact is that FDIC head Sheila Bair wrote in her memoirs that she tried to close down Citibank, because this was the crux of the junk mortgage boom. She wanted to close Citibank down, but she was opposed by the Obama Administration.
Krugman said that fraud did not take place in the big banks but in other institutions. But if fraud wasn’t perpetrated by the banks, why did the Federal Reserve have to give 4.3 trillion dollars of quantitative easing and what Randy Wray has calculated as 17 trillion dollars’ worth of taking on bad bank assets. Everybody knew that the banks were crooked, because they called these loans “liars’ loans.” The liars were the banks, not the mortgagees. And they talked about NINJAS, No Income No Job and no Assets. So the fact is, everybody knew who was responsible for those mortgages except Krugman.
Krugman has had a problem with Sanders advisers all the way back. He’s written that it’s impossible for banks to create credit. That they can only act like savings banks and recycle money. He’s always accused Modern Monetary Theorists, who are part of the UMKC, of being cranks. He thought he had a chance a few years ago to defend his right-wing views by having a debate with an Australian economist, Steve Keen, and your viewers can Google Krugman-Keen and see the result of the debate. But Krugman just showed that he really didn’t know what he was talking about when it comes to bank credit and to monetary theory. And that’s exactly why he’s been trotted forth as an opponent of Sanders. Because he has credibility as a Nobel prize winner, the assumption is that he has credibility in bank theory and finance.
It’s very much like when Sanders has accused Wall Street and other wealthy people of mind-control of the political process. The same thing has happened in academia. They’ve bought control or they’ve subsidized economists who really give the Wall Street line. And Krugman right down the line supports the banks, supports Wall Street. He’s to the right of Sheila Bair and other progressive Republicans who did try to stop what was happening. We’re advocating exactly what Bernie Sanders is advocating today—to break up the big banks and to treat them as the fraudsters that they are.
NOOR: Bill I wanted to bring you into this and your response to Krugman. In his piece, he attacks Sanders for his critique of Hillary Clinton for taking money from Wall Street. Earlier this week Sanders said that made her unqualified because of all the corporate money that she’s taken. He’s backed away from that. But I want to read you a bit of what Krugman said. He said “it’s one thing for the Sanders campaign to point out Hillary Clinton’s Wall Street connections which are real, although the questions are whether those connections have distorted her positions. A case the campaign has never even tried to make.” Can we get your response to that?
BILL BLACK: Well I’ve actually written 3 pieces this week that track each of these subjects. In your lead in you said despite Sanders’ win in Wisconsin he’s had these attacks. I would change that. It is because of his win in Wisconsin that there’s a finally a note of desperation in the Clinton campaign.
So let me take it in pieces in what Krugman has said. As Michael Hudson was explaining, Krugman’s central point is that it wasn’t big banks that caused the problem, but little banks. But the example of a little bank that Krugman picked is Countrywide, the largest home lender in the world, which is hilarious. I’ve also written a column this week on Citigroup which is by any measure a massive Wall Street financial institution that not only made predatory loans/fraudulent loans, but purchased and sold them. We’re talking about hundreds of billions of dollars of loans that it knew to be fraudulent. How did it know? Because its own senior people put this in writing.
One of my cofounders of Bank Whistleblowers United is Richard Bowen, Senior Vice President, Chief Risk Underwriter for Citibank. Bowen put in writing to the absolute senior management in Citi including Robert Ruben, that 80% of the loans that Citi was selling on the secondary market—roughly 60 billion dollars a year of this stuff— was fraudulent. So Krugman is simply wrong. There was enormous criminal activity and even the Obama Justice Department, which refuses to prosecute, consistently uses the word fraud and toxic mortgages to describe what was done.
NOOR: For full disclosure you are an adviser to Sanders. So we wanted to get Michael Hudson back in this conversation.
HUDSON: Citigroup certainly is the bank that everybody had wanted to close down. Sheila Bair gives all the reasons for this. The important thing to realize is that Sanders position is the normal position among people who know banking and who see the need to reform. Krugman is taking an extreme pro bank position that is even to the right of progressive Republicans. Krugman’s attacks are not warranted. That’s why I said he’s sort of the Alan Greenspan of the left-wing. The go-to person when the banks want somebody with credibility on the left to support the bank position against the critics and essentially to do a hit job on the critics. That’s what Krugman has been trying to do. He’s trotted out to confuse the left, as if what Sanders is saying lacks credibility, which is simply not the case.
NOOR: And Bill, this isn’t Krugman’s first attack of course. You’ve been writing, you’ve been responding to attacks by the likes of Krugman for some time now. I’m sure we can expect more of it especially over the next week. Give us your thoughts on how Sanders and Clinton compare on this issue of big banks. I’ve been traveling around the country and interviewing perspective Democratic voters. One of the biggest issues is the economy. People feel the banks are responsible, and they want to see the banks reigned in.
BLACK: Well Krugman is now basically serving as surrogate on this issue for Hillary Clinton. I’ve just written an article about Krugman’s over the top attack on Senator Sanders for complaining about the Clinton campaign taking massive funds from Wall Street. And in particular the systemically dangerous banks that when, not if, the next one fails will cause a global systemic crisis. Krugman doesn’t want anything done to these institutions. He wants them to be allowed to operate with massive federal subsidies.
I point out in my column by quoting Krugman extensively from past pieces in which he says campaign contributions are the key corrupting influence and that we have to deal with it. Well that’s what he used to believe until he was supporting Hillary Clinton. Suddenly, his concern that money buys influence became inoperative. So fundamentally, notice that Hillary Clinton in the debates always answers that if the banks pose a system risk then she will deal with them.
By definition the only way you get to be too big to fail—even the Federal Reserve says this—is if you pose a global systemic risk. So we already know they pose a global systemic risk. But pretense has taken over from fact. A recent court decision in favor of Metropolitan Life agreed that the company would cause a systemic crisis were it to fail, but said that unless it can be proven that the company is actually about to fail, nothing can be done about it.
Well, at the point of failure, it’s too late to prevent it.
We can conclude that Hillary and Krugman would not take on the systemically dangerous institutions, just as President Obama has refused to do for 7 years.
NOOR: Well I want to thank you both for joining us at the Real News Network.