[Welcome Senator Bryon L. Dorgan and Host, William K. Black, Associate Professor of Economics and Law, University of Missouri-Kansas City. Author of The Best Way to Rob a Bank is to Own One - bev]
Reckless!: How Debt, Deregulation, and Dark Money Nearly Bankrupted America (And How We Can Fix It!)
Senator Dorgan addresses the most severe crises America needs to confront, going far beyond the specific problem he tackled in Take This Job and Ship It. Each chapter discusses a specific set of related problems and suggests specific steps to respond to the problems.
There is no universal theme to the book, but there is a consistent approach and tone. The author is a prominent Democrat that is critical of the Bush administration and Congress when Republicans dominated it. The tone of his criticism of Republicans is moderate. The book is not a partisan screed. Indeed, he strongly criticizes the leaders of the Clinton administration’s Treasury department. (Those leaders continue to dominate economic policy under the Obama administration.) His critiques combine populist roots and academic training and an accommodation of his state’s (North Dakota) interests (coal).
The book begins with the ongoing financial crises. Senator Dorgan’s diagnosis as to the cause is “greed.” He discusses some institutional changes, particularly deregulation. (Readers interested in learning why economists continue to push deregulation in the face of it causing repeated, intensifying crises can read James Galbraith’s Predatory State and Thomas Frank’s The Wrecking Crew.) Senator Dorgan repeatedly returns to blaming “greed” in the first several chapters, which leads him to wonder why mortgage lenders would make loans to people that were unable to repay the loans. This was the norm for nonprime lenders, yet it is (superficially) difficult to square with lender greed. (It makes perfect sense, however, when you take into account accounting “control fraud.” Lenders optimize accounting fraud by lending to uncreditworthy borrowers, growing massively, and using extreme leverage. This is the unholy trinity.)
Senator Dorgan then links three deficits: the federal budget deficit, consumer borrowing, and the trade deficit. He argues that each deficit is unsustainable and certain to lead to a broader economic crisis.
He returns to regulation to emphasize the problem the key role of regulatory leadership. He cites Harvey Pitt as the exemplar of the regulator that causes his entire agency (the SEC) to fail to meet its statutory mission because he doesn’t believe in regulating. He discusses several other examples of failed regulatory leaders and explains how it harms the public (e.g., Enron creating the California energy crisis of 2001).
Senator Dorgan also cites Enron as an example of the creation of regulatory “black holes” that create “dark money” – opaque financial transactions that can cause catastrophic losses such as AIG’s credit default swaps (CDS). He explains the risk that hedge funds pose because they produce “dark money.”
The concept of dark money leads logically to his concern over the ultimate black hole – the offshore tax havens that need to be eliminated. The hedge fund operators compound the risks they impose by securing unique U.S. tax benefits and then compounding the unfairness by taking advantage of tax havens.
Senator Dorgan’s primary criticism of executive compensation is fairness. He goes through the statistics that will be familiar to most readers of this site. The unfairness is indefensible, but criminologists and economists would emphasize that modern executive compensation creates intense, perverse incentives to engage in accounting control fraud and explains why we have an “epidemic” of mortgage fraud (FBI: September 2004).
Senator Dorgan then changes focus and discusses how the Bush administration led the U.S. to invade Iraq and why contracting in the Bush wars was endemically corrupt. The pattern of privatization, non-supervision, conflicts of interest, and non-accountability (particularly the failure of Congress under Republican domination to engage in oversight) proved disastrous.
Senator Dorgan closes with three chapters devoted respectively to energy independence, health care, and limits on illegal immigration. He’s for most forms of increased production (outside of ANWAR) if they can be done in ways that don’t trash the environment. He also proposes a major conservation push. He decries the costs of the current health care system and the fact that it is a leading cause of bankruptcy. He wants to take on Big Pharma and reduce drug costs. He is careful not to be anti-immigrant, but is strongly anti-illegal immigration.
Overall, what are his solutions? A smaller, more effective government that protects the citizens from powerful corporations, balances it budgets, and is not unnecessarily intrusive.



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Senator Dorgan, Welcome to the Lake.
Bill, Thank you for Hosting today’s Special Book Salon.
Welcome Senator Dorgan, thank you “Lake”
Best,
Bill
It’s good to be with you>
Senator, do you want to take a crack at one or more of my initial questions to get the ball rolling?
Best,
Bill
Fire away!
Bev, does the Senator have my three initial questions?
Best,
Bill
Initial questions from the moderator to start the ball rolling:
1. As a resident of Missouri and white-collar criminologist I have to start by giving you an opportunity to explain something you discuss in your book: the successes of the Truman Commission Hearings in World War II, your call to recreate it, and the opposition you have faced to a proposal that exemplifies good government. How can we help your proposal succeed?
2. The FBI began testifying in September 2004 that there was an “epidemic” of mortgage fraud. It has also written that 80% of mortgage fraud losses occur in cases in which lender personnel are involved in the fraud. You make similar points in your book. Why do right wing pundits and politicians always attack the borrowers instead of the fraudulent lenders that caused the great bulk of the losses? Why are there no convictions and no indictments of senior officers of the huge nonprime lenders for mortgage, accounting or securities fraud?
3. You rightly criticize the rating agencies. Here’s a document from S&P that I think says it all. The context is that the professional at S&P in charge of rating credit risk has asked his boss to obtain from the investment bank (“investor”) creating a collateralized debt obligation (CDO) backed by nonprime loans copies of a sample of the nonprime mortgage loan files (“loan level tapes”). Here’s how his boss responds (the punctuation is in the original e mail message):
Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so. [S&P ’01]
In plain English, the investment bank purchased the toxic mortgages without ever checking the loan files. The rating agency will provide an “AAA” rating for the CDO without ever checking the loan files. The entities buying the CDO form the investment bank will do so without ever checking a single loan file. Do you think any honest business would operate in this manner?
And what about the regulators? Some of the largest banks in the world purchased these CDOs without examining a single loan file. Bank examiners routinely review a sample of a bank’s loan files. Those CDO files in those banks would typically not have had any underlying loan files. In my era as a financial regulator that would have led us to immediately begin the process of removing senior management and finding the truth about asset quality problems. In your oversight role, have you heard of any bank examination of CDOs that led to a prompt, vigorous regulatory response?
Best,
Bill
Welcome to the Lake Senator Dorgan,
Why isn’t there an overwhelming push from the public for a return to fair play, the level playing field?
Good afternoon Senator Dorgan and Professor Black.
Senator, I have not had a chance to read your book but based on the intro from Professor Black, I do have a question.
How do we (you and the rest of the Senate and House), close the tax loopholes including the offshore tax havens AND the tax breks for companies that out-source jobs?
Senator, I know we cannot turn the clock back to the 1990s and the regulations we had. What do you see the future policies to be to regulate the banking system?
The creation of a “Truman Commission” is resisted by some in Congress because they think it will dilute their authority. But the waste, fraud and abuse in defense contracting in Iraq is a major scandal. We just have to keep pusing. I have held 19 hearings on it.
I’m not giving up on turning the clock back, at least in part. We have to recreate some form of the Glass-Steagall act that separated banks from other risks such as real estate and securities.
We will know more in mid June when we see what this administration is going to propose for financial reform. Wall Street is pushing back very hard.
We need more pressure on all members of Congress to close those loopholes. I have written extensively about it in both of my books. The off shore tax havens are a scandal. Where is the economic patriotism. Some want all that our country has to offer them, but don’t want to pay taxes.
Why does Wall Street have any credibility when it “pushes back” — why isn’t it discredited by its failures and greed?
Best,
Bill
It’s unbelievable to me that some of the wealthiest americans are paying a top income tax rate of 15% by claiming their income is something called “carried interest”.
Bill, it should be discredited. The behavior by some of the biggest financial institutions ran this countries economy in the ditch.
The term “Snake-oil salesman” comes to mind…
I have written about the exotic new financial instruments they created. They were like hogs in a corn crib, making massive money by creating and trading unbelievably risky assets. Meanwhile the american taxpayers ended up paying the bill.
Welcome to you both.
wrt to health care: it appears we’re headed to a major battle on whether there will be a public health insurance option (or just a trigger for one) and if we do, how will it be structured? To provide the best affordable care? Or to make sure the insurance companies don’t face too much competition.
Where does the Senator stand on these issues: public plan? Trigger? best design vs sustaining insurer?
And what role do industry campaign contributions play in this debate?
Senator Dorgan, welcome to the Lake and thank you for your book. We certainly need more voices asking for fairness.
I have not had a chance to read your book yet but I am very interested in the mention of corruption in Iraq war contracts. Do you see new oversight in place to prevent the same in the expansion in Afghanistan?
Sure, except that it is probably unfair to snake oil salesmen. I wrote about this in the cover story for the Washington Monthly Magazine in 1974. I wrote a piece titles “Very Risky Business” warning about the potential of unregulated trading of trillions of dollars in derivitives requiring a “taxpayer bailout” in the future.
Have you proposed legislation to end hedge fund managers’ exploitation of the “carried interest” concept? If yes, what’s the status?
Best,
Bill
Hi Senator Dorgan, thanks so much for being here today, and for being such a consistent watchdog in the situation.
I’m not finished with the book I must admit, but wonder if you tackle the subject of systemic regulation? What is your opinion on the matter — should the Fed be further empowered?
I have devoted a chapter to the corruption I have found in the Iraq contracting. It will make you spitting mad. Some of the same things will apply to Afghanistan unless something changes.
It is the most significant waste, fraud and abuse in the history of our country.
Yes, I and some others simply are trying to change the law that would reqire them to pay the income tax rates that others pay. At this point, the Senate Finance Committee has not yet acted. But we are continuing to push.
I’d also note, in my capacity as a white-collar criminologist that has worked on anti-corruption efforts, that Senator Dorgan’s chapter on corruption makes critical points that too many people miss: corruption kills directly (e.g., through electrocution and bad water of/for our troops) and indirectly by ruining the effectiveness of our rebuilding efforts.
Best,
Bill
I think we need much more regulation. It is not a four letter word, despite what many of my republican colleagues claim.
But the big issue for me is whether we should continue to allow financial institutions be “too big to fail”. I think it is a failed concept. And it is time to consider breaking some of them up. Instead, they are still getting bigger through mergers approved by the government.
I hope that what we learn in mid June from the administration will be a set of policies that really represents financial reform. We’ll see.
Thanks Bill. That is especially true with respect to the investigation I have done re. the KBR electrical work in Iraq and Afghanistan. Soldiers after being electrocuted taking a shower or power washing a humvee because the electrical work at most bases was not done to code.
Jane, with respect to the issue of a systemic regulator, it might be worthwhile, depending on how it is structured. But it can’t be a substitute for the regulation that is needed for hedge funds, swaps, and other financial instruments that are now traded in the dark.
This has been a decade of brain dead, willfully blind regulators. That, in addition to some terrible changes in law (The Financial Modernization Act) has contributed to the economic crisis.
Have you had any conversations with Rep Alan Grayson over the corruption in contracting with Iraq?
The administration is trying to rebrand “too big to fail” as “systemically significant” or “systemically important” banks. With my economics and former regulatory hats on I urge that we reject that positive label. These are “banks posing systemic risk” and it is insane to continue to allow banks that are too big to manage and to regulate and threaten to bring down the global economy to continue to exist much less grow (by acquiring other banks posing systemic risk. We need to stop all growth and begin to shrink them.
Best,
Bill
senator dorgan, can i count on you to cosponsor bernie sanders single payer health care bill, s.703. or, if you prefer to write one of your own?
there’s no reason the taxpayer should continue to subsidize, to the tune of $400 billion a year, insurance companies, etc that provide no social good. not when we could, at the same cost, be providing comprehensive health care to every american.
thank you.
Yes, some brief conversations. What we need to do is to create a Truman Committee in the Congress with subpoena power to go after the contractors that have cheated the government and undermined our troops.
I agree. We’ve had some experience with that when we broke up AT&T. Of couse now it has nearly been recreated in another name because there is no one home in anti trust enforcement in the Federal Government.
Senator Dorgan, what is your take on house efforts to audit the Fed? How can we gain transparency into Fed response to the financial crisis?
Senator Dorgan, do you think that a lot of your colleagues confuse what the Traditional Media (which is of course run by corporate entities whose interests don’t always align with ours) reports things to be, with the actual reality on the ground? A lot of people wonder if Congress’ awkwardness on this and many other issues is the result of being bought off, or if being stewed in the environment of a town that is “wired for Republicans” and has been since Nixon is at least partly to blame?
I am not a big fan of “single payer”. But substantial reform is necessary in health care. We’ll see what kind of a concensus we can develop in the next several months.
senator dorgan, what is your position regarding the regulation of otc financial derivatives like credit default swaps?
private clearing, exchange trading, outright banning or something else?
thank you.
The best example of what you write about is how the “traditional media” reports on our failed trade policies as a spectacular sucess story. That is why I wrote my first book “Take This Job and Ship It”.
More and more, all Americans, including the Congress are discovering other outlets for getting news and information. And that is healthy.
Senator Dorgan’s chapter discussing the Truman Committee is particularly important to read. One of the saddest things about this decade has been the almost total failure of congressional oversight during the Bush administration (Senator Grassley is a rare exception). The issue of good, honest governance is essential to the safety and effectiveness of our troops and should have nonpartisan support. Not many folks remember the Truman Committee and how much good it did, how much initial opposition it faced, and how popular it became. As my wife says, our mantra for government should be: “lean, mean & clean.”
We should work with the Truman Presidential Library to get Senator Dorgan out here (Missouri) in a forum where he can explain why a new Truman Committee is vital.
Best,
Bill
Derivatives such as credit default swaps have to be traded on an exchange. I worry that this administration is going to suggest pulling some onto exchange trading, but leave others outside.
Given what we have experienced, we need broad, effective regulation.
there is a senate version of the house bill to audit the fed, s.604 introduced in march by senator bernie sanders.
senator dorgan is not listed (yet!) as a cosponsor.
thank you for the response.
why not? you don’t like medicare?
also, it would be a big help for american manufacturing which now has to operate at a big disadvantage to other industrialized countries.
I will check on it. But I have also offered legislation to audit the Fed. Bernie and I agree on the Fed issues.
I am probably the only Senator who voted against Allan Greenspans confirmation each time it came to the Senate.
He and the Fed has some significant responsibility for what happened. He now acts like he was looking for lunch on the surface of the moon while all of this was taking place.
As we come to the end of this Book Salon,
Senator, Thank you for stopping by the Lake and sending the afternoon discussing your new book and the financial failures.
Bill, Thank you very much for Hosting this very good Book Salon.
Everyone, if you haven’t bought Senator Dorgan’s book yet, here is a link.
Thanks all.
Good afternoon, Sen. Dorgan.
I, too should get to your book soon. Meantime, would you consider other ways beside an absolute size limit to regulate systemically hazardous institutions, such as returning residential mortgage lending to the community bank model or other limits on the scope of interstate banking?
Also, since the Lehman matter showed that some institutions are too interconnected to fail as well as (or even more than) too big, do you have any thought yet how derivatives and similar types of arrangements between banks should be regulated? (I know that many derivative structures use off-shore facilities, so perhaps bringing those entities back on to the tax rolls would solve the problem [only half-facetious].)
Medicare has been a great program that has been a major benefit to senior citizens. The problem is that, without some urgent action by the Congress, it is facing massive financing problems.
But I think nearly all of the alternatives will be considered when we try to put together a bill. As I point out in my book we have more of a sick care system than a health care system. We need to change the model.
Senator Dorgan was also one of only 8 Senators to oppose the Gramm-Leach-Bliley Act that repealed Glass-Steagall.
I’d also note that Alan Greenspan infamously assured the S&L regulators that “Lincoln Savings posed no forseeable risk of loss.” In reality, it cost the taxpayers $3.4 billion — which was the most expensive failure of an insured institution in our history. Of course, his refusal to regulate nonprime loans has now caused losses that dwarfed the prior records.
Best,
Bill
Dear Senator:
I was a fan of your last book. I liked the clear no nonsense writing.
I’m always interested in the power of the lobbyists to get their way regarding legislation. Their ability to create bills or water down bills that might contain even minor regulation is amazing.
Could you please give us some specific instructions on how we can blunt or defeat this extremely powerful force, especially in the financial industry? Also, please name names on which lobbying firms and people running the messaging that we should be looking at focusing on.
Thank you Senator Dorgan, the readers, and Bev who did the work to pull this forum together.
Best,
Bill Black
many thanks to senator dorgan and to bill black.
hiya Senator
I got a simple question:
why not just repeal the gramm leach bligley bill and the credit modernization act of 2000
in fact, why don’t we just repeal every bill that phil gramm ever passed thru congress
give America’s economic crisis the name it deserves
THE PHILL GRAMM DEPRESSION
he passed the laws that caused it, he told us that a 50% drop in stock prices was a “mental depression”
so let phil gramm own his foolish actions for all of history
it’s called accountability
hold the crooks accountable
phill gramm is the biggest crook of all
so why can’t we do that ???
Just briefly, you raise the point about offshore entities for the trading of derivatives. That is a problem…..and it is part of what i call “dark money”. But part of that has happened because the CFTC (our regualtory body) decided to explicitly allow that. They need to recind that and if they don’t Congress should take action.
Thank you. I was happy to participate and I enjoyed the dialogue!
LOL! (Laugh Out Loud).
i remember watching a hearing last fall. your description is perfect.
it wasn’t just phil gramm. lots of people on the D side of the aisle too (including people in the current administration and the 111th congress).
that’s what makes any D willing to fight so important.
Thanks for being here Senator Dorgan.
The financial crisis was definitely based on greed, but I think it was also based on loopholes. Those with a criminal and a “get rich quick” mindset saw the loopholes and had no problem with lending out money to anyone who wanted it, because they knew these risks were profitable in the Shadow Economy. It was all about the Shadow Economy and nothing else. Even AIG was in on the game by insuring these toxic assets with zippo money to back them up, because they too loved the CDS/hedge fund route and watching the money grow. Nothing but fake wealth if you ask me, but that didn’t stop any of these bozos from putting our whole financial sector at the edge of the cliff.
I want to see ALL of the Democrats sewing up the loopholes no matter how much money they’ve received in campaign funds from the banks! There is absolutely no good reason (except for their own greed!) to not take a stand against this.
HELLO ???
dude, wallstreet was pushing hard in the 1990s, and look where we are now
so you are telling me that the fools who caused this are trying to stop you from fixing it ???
thank you for providing a PERFECT EXAMPLE of what is wrong with Washington DC
now we get to find out who you guys work for
And of course, our government will never investigate the September 2008 run on the banks where a HALF A TRILLION dollars was taken out of the money markets within an hour of half. Nope. There will never be an investigation into this and those in the Congress wonder why Americans are so upset with them all the time. What if we found out it was just a couple of powerful offshore hedge funds that decided to take their money before there wasn’t any and this is what caused the beginning of the financial collapse? We’d freak out, of course, but then again the truth shall set us free! It’s not different than viewing the atrocities committed by the Germans in WWII. We had to see it to make sure it never happened again no matter how gruesome or horrific the images were. Sooooo….we have to know who or what caused the run on the banks last September so we can be horrified to the point REAL CHANGE & OVERSIGHT OF THE WALL STREET PLAYERS WILL HAPPEN!
Thank you, sir, should you see this later.
phill and wendy gramm have their fingerprints all over the legislation that caused this crisis
phil gramm wrote it, or he let a staffer do it for him, in HIS name
and I haven’t seen a single Democrat in the Senate who is willing to fight
the senators sit around making nice with each other, and we’re getting screwed in the ass out here
we can’t have reasonable regulation of wall street because wall street doesn’t like it, and the Democrats are afraid they won’t get any money for their re-election committees, and then the mean republicans will get all that money and the Democrats are afraid they’ll lose
same thing with healthcare:
we can’t have single payer because senate democrats are afraid of being rude to their repubican counterparts. meanwhile, the republicans in the senate are pillorying the Democrats every chance they get
and I didn’t see much willingness to fight in this post either
and I’m gettin SICK of it
so are a LOT of other Americans
we want Mr Dorgan to stop telling me how hard these things are, stop being polite to a bunch of lying crooks and hypocrites, and stand up and SHOUT THE TRUTH
if not, we’ll just figure that all his words are just words
the actions are important, not the words
and we ain’t seen any yet
re legislation, if you are referring to either the cfma or repeal of glass-steagall, then it most certainly was not only phil and wendy gramm (although imo they deserve all the condemnation you can muster). for some background on why i say that here are a few links:
http://oxdown.firedoglake.com/diary/2141
http://oxdown.firedoglake.com/diary/3828
and a partial timeline. who doesn’t love timelines? *g*
re healthcare. completely agree. imo it’s criminal that the american taxpayer is forced to subsidize the insurance companies, etc for something like $400 billion dollars a year. i know they make a lot of campaign contributions, but something like 20,000 people die here each year and our manufacturing companies are forced to work at a massive disadvantage.
imo, there’s just no excuse for supporting that kind of a failed system, especially now. we can’t afford it.
you could say that about health care
you could say that about wall street
and you could say that about a hundred other issues
but we never look at WHO is pushing these failed policies
rpublicans, that’s who
I don’t need to refresh my memories
I LIVED THRU IT, screaming all the time about the stupidity of it all
I want someonr to FIGHT IT
call lushbo limpballs a hypocritical traitor, every time you get in front of a microphone
call out mitch mcconnel for being a disgusting peice of S*%* who is selling out Americans
make bohner’s crocodile tears a matter of national scorn
let’s have a real conversion about human decency and accountability
but understand that the republicans have a lot to account for, and they ain’t gonna accept their responsibility without a fight
or we can sit around and watch our “Oh So Polite” Senate drive our country into the abyss
I say we fight
and if Byron Dorgan wants to be polite about it, we fight HIM TOO
all it takes for evil to bloom is for good men to do NOTHING
I’m sick of the “good men” in the Senate
all of them
You speak for me.
in case anybody was wondering, here is our reward for our Democratic Senators’ polite manners
Shelby tries to blame Obama for bank bailouts that happened ‘last fall.’
wanna bet the next time Senator Dorgan sees Richard Shelby, Senator Dorgan mentions what a great guy Richard Shelby is ???
the socialism name calling is of course bullshit. but as for tarp, shelby did vote against it while obama voted for it (and whipped votes for it as well).
http://www.senate.gov/legislat…..vote=00213
I’m come very late to this dialogue, but was just reading NYT article on the politicians failure to do make any serious changes for accountability with the bailout programs. see http://www.nytimes.com/2009/06…..wanted=all Article in today SacBee Forum by McGregor Scott and Courtney J Linn about the absence of any accountability or guidance on how to spend the stimulus money vis a vis local and state governments, essentially ensuring a massive wave of fraud.
The more I know about the Obama administration’s practices and policies, the angrier I get and the anger is about many actions and inactions. The level of contempt and despair approaches the levels of my rage in the BushCo days.
As selise says: there’s just no excuse for supporting that kind of a failed system, especially now. we can’t afford it.
Thanks to Freepatriot for you saying like it is.
Blessings to all
They’ve already had their opportunity to be responsible. They failed. So, now, to protect the public, government regulations have to be created.
Similarly, the health care industry (including insurance) had their chance and have us headed towards national bankruptcy (as so many individuals have already met). They failed. Now we have to apply some gov’t force to keep them in line. For now the big question is who should pay for the inclusion of those who currently aren’t insured and for the improvements in IT and procedures and treatment evaluation and the like.
Regardless of it’s name it is money moved from the financial investment realm to the real economy. It inflates the real economy and decreases investment capital. As such we need to tax it to make investors reconsider removing capital from the financial world.
Small changes in incentive can change a lot of behaviors for the better.
Maybe we should send him a bill for $3.4B and see how good his word is.
Many people seem to be terrified that the financial industry, comodities exchanges and such will just go off-shore and destroy our economy.
They don’t seem to care though that companies have been taking jobs off-shore for decades and destroying American families & communities.
Still, ignoring that for a moment, it is a serious question. The world economy is here and we have to adjust to it before it causes us terrible problems.