tv Book TV CSPAN April 15, 2012 10:00am-10:45am EDT
in iceberg and storms. john adams crosses the atlantic and the ship is struck by lightning and everybody has to pump until they make landful. the passengers have to take turns because the ship is filling with heart. so it is hard, it is hard to get around. it's hard to get around the united states. to go from new york city to albany, new york, if you took a hours, that would take you three days, on our own horse or a coach. if you took a boat up the hudson, that would take three days if the wind was right. if the wind was bad it could take you a couple -- ten days to get from new york city to albany. and now on a train it's like, what, few hours. so, yes, there are restrictions that come from not being able to
>> it is about finding a your place in the world and growing up. dick and jane smith met shortly after they moved to the cities. sparks flew. declarations of love or had. rings were exchanged, and vows to follow. and then they begin to search for a home of their own. though he didn't have a college degree, he had recently found work in a high-tech industry. it promised a new age of technology for everyone. the initial public offering a few years back had been the most successful in american history.
dick and jane, like the rest of the country, or caught up in petty optimism of this moment, which was called a new era. they have a lot of love, he didn't have so much cash. and so the smiths went to their local bank to see if they could get a mortgage. after a few calculations, the mortgage officer informed them that what they earn -- they couldn't get enough to buy a house. if they got an amortized mortgage to pay back the interest and principal every month. but the mortgage officer told them there was something new. something that makes their dreams come true. something that smart people use all the time. something called a balloon mortgage. not only, but they could
refinance in a few years. they could sleep soundly at their household income have nowhere to go but up. just like the value of a house itself. when the time came, a few years later, to refinance the house, he would be there. it wouldn't be a problem. they would just get a new loan. of course the banker knew after they left that he had nothing to worry about. he knew he could just resell the money. he could resell the debt to someone else. and not worry about it. so the couple moved into their new house. and dick went to work for it jane filled the house with fashionable and contemporary furniture that she bought on a installment plan. he bought a chevy. his father only pay cash for cars, but he got a loan. although the smiths didn't have savings, they did have dick's steady income.
everything was working out. unfortunately, this only lasted a little while. things very quickly begin to go badly at this new high-tech firm at which dick worked. the orders begin to slow down, and then suddenly, everywhere all around him, the house values began to plummet. that mortgage note debut, and they went back and saw it they could get a refinance. but they could not. the mortgage officer had been sacked. shortly thereafter, dick, too, lost his job. when they came to repossess the house, they thought that they couldn't sell their ipod. they couldn't sell the notebook. they couldn't sell the stereo. all those things didn't exist. they wouldn't be invented for an another 100 years, because it is
1932. the parallels between this moment in 1932, between dick's manufacturing job at general motors in flint, michigan, and today is unsettling. but the largest structural similarities between the 1920s and the present are truly terrifying. with credit, the smiths and millions of other americans of that time and our own bar their way to the american dream. in both eras, approving credit was made possible by new ways to repackage and sell individuals back into the capital market. in both eras, the world made possible by credit came crashing down in a financial cataclysm. like the past decade, americans of the 1920s use credit to live beyond their means.
in the last 100 years, inequality has been shown into particular moments. 1928 and 2007. it is no coincidence that our highest eras of inequality have also coincided with excessive lending or it why is this? why is this? an industrial economy, of course, based on mass production, does require mass consumption. at that moment, there are two ways to pay for that mass consumption. either through credit or through wages. to keep those wheels of industry turning. but more than just understand these moments of inequality, we must also understand the moments of relative equality. in the post- wars. the postwar prosperity was a way
that the federal government responded to the crash of 1929 and the subsequent great depression. now, in the last few years, journalists asked by many tales about novel, coming greed the bakers supposedly recently invented. but the true footprints go back to the great depression. they go back to the choices that were made in the aftermath of 1929. it is these policies that solve that particular crisis, which laid the foundation for both postwar prosperity and eventually the financial crisis with which we now grapple. as the that new deal order dissolved in the 1970s. what we need to recognize is the differences between the 1920s and the two thousandths. we also need to realize stunningly, what a similar. economic inequality, a need for
profitable investments, and a dead-end housing boom. now, one way to do this would be to really bore you with lots of macroeconomics. talking about ratios, and things that are equivalent to a high school algebra class, which would be very exciting. more than any graph, i think we should look at this picture. this picture, i think, explains everything about the world that was lost in the world that was made. this is a picture in a small shop in the late 19th century. anybody who didn't want to give more credit to their customers. the owner of the shop could very easily relate to this and say no, i will not sell for credit. what is interesting to me about this picture is it is the opposite of what we think today. we think of stores that sell on
credit, people who lend credit, they are prosperous. but this teacher is exactly the opposite of that story. if you look at it, you can see a man on the left, who is thin, ragged, hair like mine. the man on the left, -- the fat man on the right, he has sold for cash. look at that. look at those chops. williamsburg would envy those chops. something to behold. but behind their appearances, was a financial practice. this man sold on credit. he might lend money -- not money, the goods to be paid back
in the future to his customers at the grocery store. in return, he would have ious, which pile up in his coffers. on the other hand, you have a gentleman who only sells for cash. look at him. a cigar in hand, the flower, and his book is filled with money and possibly sushi. [laughter] >> i want you to look at this picture, not for the fashion, of course, but to understand the inversion, the mayor image of what we think today. it is the opposite logic. now, when you borrow money from the skinny man, you would write your name in a ledger. he had to lend. he had to lend to his customers
to keep them coming back. it was a competition. but he would not make money doing it. he might have charged them a little extra, a credit price. but it wasn't profitable. it wasn't something that he wanted to do. it was something he had to do. it was a bad business decision. because it was his money out there. the money that was lens came out of his own pocket or even his own ball. no bank would lend him money. they couldn't resell the debt to someone else. loans were not commodities bought and sold like they are today. businesses do not think that that was a good investment. it's hard to think about that that way -- as an investment, but that is exactly what it is for those who own it. there is not a good use of this man's -- more importantly, this man's scarce capital.
for instance, the singer sewing machine, which we have all heard of. they used to offer credit all across america so people could buy their sewing machines. now, they did it not because they made any money on it. this is why it's a great example. they make money on the manufacture of those sewing machines, but no money on the landing. this is very different than the world we live in today. one of the questions of our wing is how does this world become inverted? out of this world become the opposite of what it was in the 19th century? that is, how did it stop being personal? out of debt stop being personal so you could sell manufactured goods? how did that become profitable in and of itself? most important, how did that become resolve all? how did it become a commodity?
how did it become an end in itself rather than a means to an end to? in the process, of becoming an end of itself, how did that ultimately displace, replaced the making of real things? look at this story the borrower tells. now, that went from being the province of loan sharks, to investment bankers. in this moment, we begin to see the connection between indebtedness and inequality. now, the common wisdom is important as we begin to borrow in the 1970s. a system that became reality, consumerist lust, what changed
in the 1970s wasn't the american character, we were already, and always will be -- in my opinion, lustful consumers. no. it was that the americans paycheck changed. we stopped being able to pay back will be barred. the 1%, which paid the 99% post- world war wages, no longer did so. so the 1% got better. in the 1%, with all that money saved up, decided not to invest in businesses. which is really the only way to justify that kind of concentration of wealth. workers needed money, because they got paid less, and because they were paid less, the 1% had a welcome audience for their loan. this is an example of just what kind of a different world we live in today. look, here. from 1955 to 1969, can see a 47%
rise in the real wage. in 1969 to 2007, a period of 41 years, there is only a 3% rise. even though the economy begins to continue to grow. all those gains -- the wages stay like this, and all of that -- except that 3%, goes to people at the top of the economy. this is hard to understand. it is hard to believe. it's hard to believe that it was investment decisions that drove this transformation. this is how that worked. it is the same decision we make when you are investing in a factory or april arm. one of the key drivers in this moment was simply in that moment, it became more profitable to put a dollar into consumer debt than a dollar into a factory. to learn that money, you needed
borrowers as well as lenders. you needed people who wanted and needed to borrow all that money. you needed mortgages, credit cards, car loans, and the like. places to invest. and you needed that debt to be retail -- resell level. need to turn that picture upside down and the practices of how people borrowed to change. in "borrow: the american way of debt", it tells the story of where those practices came from. sometimes in the most unexpected of places. how debt became a part of our lives. it explains, for instance, how the inventor of the modern car company, henry ford, also resisted the modern car loan, and in turn how gm embraced it and nearly drove ford out of business. it tells the story of how bloomingdale's gave us the first credit card, and why they succeeded when citibank, at
first, failed. how target, in the 1960s was called tarsier, and how ann taylor and bloomingdale's gave credit cards. i promise to be quick before you go out to dinner before the snow comes. but i did want to take a second and talk about this idea of investment and debt. and what it has changed in the 1970s to bring this back. what changed in the moment from the 1920s, to bring back our new regime. i want to talk about mortgage backs his -- mortgage-backed security. in my book, i show how the mortgage-backed securities under the housing boom of the 1920s. this is how dick spencer was able to sleep at night after the
collapse. he knew that the money would come. but these mortgage-backed securities are shunned by the market, because they, like today, were toxic assets that acids that could not be resold. they lost all their value, as those mortgages and houses. they were banned by the federal and ignored by the market in the 1930s, only to be resurrected in the 1970s as a way to channel money into the inner cities, with the noblest intentions. it was conceived under the johnson administration, but it was under nixon that came to fruition. someone named george romney, father of a certain presidential candidate that was implemented. he wrote on the set of the occasion in 1970 of this very first mortgage-backed security
being issued, that this event marked a revolutionary step forward in our efforts to increase the funds available of mortgage financing. in an eerie figuring of 2000, the subprime lending program fell apart as predatory lenders and unscrupulous house slippers exploited first-time buyers. the government found itself unable to resell the houses that they had to foreclose on. after first denying the problem, romney was ultimately forced to freeze it in 1971. yes, even as a particular lending program ended, the mortgage-backed securities blossomed, at least for higher-quality, middle-class homes. securitization worked as an instrument to connect local demand and capital. these new kinds of bonds, which
would fund any kind of house, transformed global finance. it bypassed traditional banks, which will make the loans to allow money to come from anywhere. small-town banks, union pension, and european investors. all of them could buy american mortgages in your hometown. lending on houses, at least in the middle class, became easier than ever before. that was exactly the problem. while mr. romney may have stopped the fraud, he did not address the flipside of the crisis or overthrowing the economy overall. millions invested in mortgages and debt and houses. in unproductive houses with money not invested in business.
said differently, the policymakers of the 1960s and 70s confused because of prosperity, which was good jobs from a system of ownership. they found new ways to funnel mostly money into houses instead of small and medium-size businesses. the main things that would've created good jobs. even then, be securities -- even then if as we were being disseminated in our economy, they became confusing. they seemed otherworldly. they seemed mysterious. that is because they were. nobody knew how they work, except for the dwarves. these are the nouns. that man, the cfo of freddie mac, on how to use securitization.
these mortgage-backed securities offered something to that 1%. it gave them a safe place to put their money and get a little extra on the side. in this moment, supply created demand. first for mortgages and then for credit card debt, all furnished by these folks, leland and associates. the knowns. how can one company started industry became from the knowns? if i saw this, it would not make me want to invest in freddie mac securities. [laughter] it is terrifying. but, it would be funnier, i think, if it didn't end in tragedy. these development was not in -- inevitable. it was not -- it was us allowing
this to happen. in doing so, he became easier to invest in my credit card debt than in small businesses. i want to give you a sense of that very first mortgage-backed security and where it came from. this is the advertisement from 1969. from the associated mortgage company. they were very proud of getting money into america's ghettos. these are the companies that offered money and 1969, and these were the people on wall street that sold this -- these mortgage-backed bonds in the very first debt issue in 1970. names that should be familiar to us now. it has always been the case that there were connections of people on the ground and wall street. wall street producing these bonds, for investments for the 1%. and for 40 years, since 1970,
this is far earlier than we imagine things had begun, but even from the get-go, they were unstable. they produced distortion and misery in our lives. they have never worked. for 40 years, we kept doing the same thing. trying to find new ways to funnel money into housing while doing little to put money into growth, even in places that we wanted to help. the regulations that make it harder to profit in ways that didn't help the many, but only if you. profit was chosen over stability. finance was chosen over production. credit was chosen over wages. the memory of the depression and its causes were forgotten. but let us not forget again. let us remember not only as recent history, but with a long history of credit in america.
first, before we can remember, we must understand. and right now, i fear that we do not understand. the current crisis is not the result of a few people breaking the rules. it is not the result of a few bad apples. it was the rules themselves that were broken. most borrowers follow the rules. by rules, i don't just mean the law, but the rules of our lives. what made for a responsible adult. they bought houses like responsible adults, and lived inside their budgets. they obeyed their budget. the scary thing about the recent crisis is that resulted more from people doing what they were supposed to do then not doing what they were supposed to do. borrowing for houses, cars, like responsible adults. but no matter how quickly that budget may be laid out, no matter how it helps you
discipline the week to week expenses that you spend your money on, it does not discipline the world around you. it does not make the economy more orderly place. as americans lost their jobs, first the working class in the 1970s, than to the middle-class in the 80s and 90s, their work lives became ever more precarious. and those budgets evermore meaningless. and then, of course, even if they follow the budget, the house couldn't be sold because of the crash. americans follow the rules, just like they had done in the 1920s. even bankers on the other side, for the most part, follow the rules. now, there was predatory lending and some fraud. but it wasn't just housing for the poor that cost less. it was housing for the middle-class. it was not just a few bad bankers doing bad things with their money.
it was pension funds, investing in aaa bonds. it was following the rules they got there. while it makes for a good morality play to say was that people, it was also good people just doing their job. it was good people that thought they were helping to buy the things that we wanted. it was good people following the laws. it was good people following the rules on both sides, and those rules -- it is then the that need to be changed. it doesn't matter if the rules were broken, but the rules should never have been written that way in the first place. the idea that it was fraud -- cold comfort, because the system does not work. the fact that the rules themselves that were broken should comfort us, actually. because if it was just human nature, then we can change that. but we can certainly change the rules, the laws. the institution and moral
prescription that we think about our life and decide our economic actions through. people do bad things sometimes, but mainly it will follow the rules. the rules need to be changed. like they were changed in the 1930s to bring order and stability to our financial system. so that the real work -- the work of making real things for real people can happen once again. we can bring back prosperity. the knowns will work for us, and not us for the knowns. it is not just enough to stop what is working. we also have to figure out what really works. i hope this book to be some part of that, giving us some long perspective and stories to tell, so we can understand what really happened. i think you, and i look forward to your questions in the q&a. [applause]
[applause] [applause] >> and if there is no q&a, we can just go to. [inaudible] [laughter] >> [inaudible question] what do you see being the new deal that might come in two years to get us out of our current financial crisis? >> i think the most important thing to realize about the new deal is that fdr was no intellectual. he was not a consistent thinker. he tried whatever came across his desk. what i think is very interesting about the 1930s was that it offers us a lot of different experiments. a lot of different ways of thinking about what is capitalism.
on the one hand, you have people saying, we should spend more money. taxpayer money directly creates jobs. there certainly was an aspect of that the new deal. in the book, i read a lot about the secretary of the interior, the head of pwa. a very good liberal. on the other hand, there is james moffitt, who ended up being the end of the -- the head of the fha. he came out of standard oil in new jersey. he was like a rich man's son. he was no part of what we imagine the new deal to be. now, unfortunately for this morale of the story, it was moffitt and the fha and that had a greater effect on the american economy. it was moffitt and the fha which created relations that channeled private capital into investments. the fha spent no money. it created ways for private
capital sitting on the sidelines, like it is today, to be invested at a prophet, safely, and for a social purpose. at the time, we definitely needed housing. we probably have enough housing in vegas right now. but there was a time when housing was needed. with a new deal could offer us both then and when we imagine the policies it could be implemented, it is creative thinking. creative thinking about what we want to do. it is not sufficient to say to capitalists, to say -- don't make a profit. don't do that. just let him tax you, and then spend it as you will. it is more powerful to use a carrot and a stick. you offer them a little bit of money. businessmen are terrified. they want to find ways to invest safely. we cannot than ways to do this. we cannot do them, instead of mortgage-backed securities, business backed securities.
we cannot than ways to secure small, medium and large sized business. we can offer than ways to invest to benefit americans and create jobs. this is what is a great lesson of the new deal. to use policy and finance creatively, to channel private capital into the social and that we desire, and not say either or -- either the market runs free, running roughshod over us of our lives, or we tax the crap out of each other. right? it's not an either or. we can make policies that will work. we can make policies that will bring growth back to make it possible for small banks not just to invest in mortgage-backed securities, investing in credit card debt and all the things that produce nothing, and instead investing, again, in our communities. >> that ties in with my question, actually, which is,
what about some of the other types of securitization and mortgages that have developed, like securitizing medical receivables or some more exotic things. do those have the same risks as the mortgage-backed securities? or are they more like what you are saying investing and business? >> it's very interesting. sometimes when i give this talk, people say, oh, that's all well and good. but mortgages have something real. they are based on houses. when those loans goes out, you can always resell the house. as we all know, houses have lots of intrinsic value. that is the lesson we should take from the last two years. [laughter] >> now, i guess the question is -- well, it's not really about intrinsic value, what is the
riskier? what's the riskier? of course, business people are created. the mortgage-backed security was developed in concert with the federal government, and then it was used for consumers, then it was expanded incrementally into other aspects of our lives. into car loans, medical debt, credit card debt. but those other kinds of debt, outside cars and houses, are all unsecured. there's nothing backing them, except for your future income. that is what underpins these loans. why not invest, instead, and dismisses? not crazy startups, that's your venture capital, i'm talking about regular businesses. shoe shops, plumbing supply businesses -- things that have been around for a while. things that you have that defined profit, defined by
accounting, to make something profitable. things that are the backbone of our economy. there is a difference between different forms of debt. the distinction one might make between discrete secured and unsecured debt is the credit card. we have figured out ways to do that. are there any other questions? >> dimension participation research project with its? i was wondering. could we talk about the great depression and they were not a good idea? >> what i like about this question is it is a history question. and i am a historian. let's talk about this. what actually happened in the origins in the 19th century, with our mortgages -- and the
beginning of the book i talk about this. how finances made in the west as a way to finance all those mortgages -- initially, these kind of mortgage bonds were sold to pay for owning and lending money in the west. they were owned by two different kinds of institutions. banks and these things called bond houses, the directly -- they act like mortgage companies today. they lent the money. they would lend the money, and then they would sell it on against a mortgage. unlike today, these bonds couldn't be resold. there was no secondary market. but what happened was, in terms of causes in the great depression -- or at least the housing crisis of the great depression, like i said in the introduction, most of these houses had to be refinanced every three to five years. these balloon mortgages of the 1920s had to be refinanced. there were only three to five years. and the idea was you could then
go to the bank and get another mortgage. which is all well and good, as long as your bank finds buyers for those bonds. after the crash, within a couple of years, buyers of these bonds were fewer and fewer. investors were holding back their capital. because of that, it accelerated the foreclosure rate, which in turn made people weary. it is only in the moment where the government creates the homeowners loan corporation to step in and issue new kinds of bonds that we stop the freefall. in the market. that is the connection. with stories and anecdotes, the book is colorful and zany. i highly recommend them. are there any other questions? thank you so much for having me. i will be around signing books if you'd like to have a book
signed. [applause] [applause] >> is there a nonfiction author or book that you'd like to see on "book tv"? send us an e-mail at booktv.org order send us a twitter. >> let me preface my talk about kurt vonnegut. the prologue describes our friendship and relationship we had. kurt vonnegut plan to give this new teaching job at the university of iowa his best shot. as he zoomed across the midwest in early september 1965 in his son's new volkswagen beetle, his 6-foot frame pressing against his head against the roof liner, it was like failure clattering behind him tied to the bumper. the ashtray was stuffed with crushed butts up, cigarettes,
and the windshield was colored with nicotine from his smoking. he had a lot to think about. the 1200-mile cross-country drive between his home on cape cod and iowa city, iowa, gave him all the time he needed. he was bored by his 20 year marriage, who he had married five years after his interment. he had been fallen in love with a woman who was waiting to divorce so they could marry. if this job did not suit him, he was going to leave it and compensate himself for his troubles by coming on strong with sarah. on the other hand, he would remind himself that he was an old boomtown on the hunt for affection. he was old enough to be her father.
he needed -- she needed him like a case of shadows. why start in the middle of a man's life? it is because kurt vonnegut wasn't famous or popular until he was almost 80 years old. for the first part of his writing life, the majority of it, in fact, kurt vonnegut was a freelance writer who is writing fiction for popular magazines like colliers and ladies home journal and saturday evening post, and just barely making it. he had a large family with six children. they lived in a big ramshackle house on tape cod. kurt was living paycheck to paycheck. to put food on the table, he wrote stories and tried teaching special education for a semester, and that didn't go well. and he received an inheritance from his father and decided he should go into selling automobiles on the cape. because he thought it was an ideal job for a writer. he put the new cars in the showroom, people come in and buy them, you can sit in the back
and write all day. he lost his shirt. or was her was not doing well in 1965 when he went to iowa for the iowa writers workshop. jump ahead a few years when he swings into my view and view the view of the generation. it is 1969, and i'm a college student at the university of illinois. draft eligible, facing the war in vietnam. like so many of the young men my age, our fathers had fought in world war ii. so we were facing truly a moral dilemma. would we serve? would be by? what we felt that we couldn't? what we do instead? suddenly, breaking like a storm over us was slaughterhouse five and 1969. we embrace it. here we were feeling the welded and disoriented, not knowing what we would do, and in
slaughterhouse five, it is a pilgrim. someone trying to be a good soldier who doesn't know what's happening, and he suffers from a strange phenomenon where he ricochets in time. looking back now, we know that it was probably a manifestation of postherpetic stress disorder, which was undiagnosed at that time. but billy pilgrim is suddenly back in the battle. then he is back in front of his office, and then he is somewhere on a far-flung planet called. [inaudible] at the far end of the universe where he is safe. there is someone who loves them. time has no meaning. and he's back again. this book, with its non-technology, with its flashback, with its droll humor and moments of terror, they really seem to capture a lot of us and what we were doing. when i finished mockingbird, a
portrait of harper lee, and i was looking around for another subject of a biography, i wanted to know who headed a biography written about him or her. and who had a big impact on people of my age. well, kurt vonnegut came to mind right away, and i was surprised that he had come in fact, never had a biography written about him. it turned out that he was a little bit amiss but nobody has taken the time. half a century of writing, 14 books in print, and no one had ever written a biography of him. i wanted to find out who was kurt vonnegut, the author of these books that suddenly became so popular, so suddenly, because he is out of print -- as i say in the prologue, in the 60s and 70s had a body of work that had been reset the dated from the ash heap of literature, like god bless mr. rosewater, sirens of titan, mother night,
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