Lefty take on 2008 financial crisis powerfully depicts how not punishing the bankers was the point
It’s almost impossible to find that beautifully written, deeply reported, cleverly edited needle in the podcast haystack. And you can’t even trust the reviews since every podcaster’s plea for friends to “if you like what you hear, rate and review” has polluted the system. Everyone who produces a podcast—including Sea of Reeds Media!—has been involuntarily turned into a little marketing division by Spotify, Apple, and Google, who are the main beneficiaries of the podcasting craze.
Press play to hear a narrated version of this story, presented by AudioHopper.
That’s why, when something lasting and valuable does manage to break through the horrible thing of everybody taping a conversation with their buddy and calling it a podcast, there’s a moral imperative to share the discovery.
The very best podcast of the year actually launched last year. But because it focused on events more than a decade earlier and is not about grisly murders, it didn’t get the attention it deserves.
Meltdown, an eight part series produced by Audible, tells the story of the financial collapse of 2008. It’s well-worn terrain, with dozens of books and even movies that go over the basic contours. But what makes Meltdown special is its unique ability to explain how the lack of political will to punish the perpetrators was a feature not a bug.
The podcast makes a very compelling argument of bipartisan cynicism. While of course the evil Republicans were on the side of the banks, the podcast focuses more on just how deviously the Democratic leaders behaved. They controlled the White House, had a massive majority in the House and nearly 60 votes in the Senate, but constantly schemed to derail reforms that would have helped the very people who had elected them in such great numbers in 2006 and 2008.
Efforts blocked by Democrats include gutting cramdown provisions. That would have allowed homeowners to renegotiate the terms of their first home, rather than just their second through seventh homes, as Obama memorably skewered McCain during the debates before surrendering on that very provision. Meltdown also describes how $700 billion of TARP money found its way not just mostly but exclusively to the very banks who had created the crisis rather than to the homeowners whose pain it was meant to alleviate.
The Obama administration joined both New Jersey Democratic Senators, plus Democrats from big banking states like South Dakota and North Carolina to tank the Brown-Kaufman amendment, despite it being named for two fellow Democrats. Another leading opponent, California’s Dianne Feinstein, dismissed the amendment’s attempt to break up some of the banks that were too big to fail, “This is still America.” At the time, she was the fifth wealthiest senator; her husband was an investment banker.
The show paints a particularly villainous portrait of Obama’s Treasury Secretary Tim Geithner. His impatience as his fellow Democrats dare to question his benevolence leads to some hilarious exchanges with Senator Warren.
Not all heroes wear capes
But the best part is the unlikely champions.
Lisa Epstein is a nurse in Palm Beach. She follows every instruction for seekers of the American Dream, and her voice just oozes believability and normalness. The crash leaves Epstein holding the bag as the value of a condo she’s trying to sell collapse. It forces her to pay its mortgage along with the that of the house she was trying to move into for her growing family, and she goes to the bank for help. She gets a runaround that will seem familiar in 2022 but was novel in 2008. Not only has the bank sold her mortgage several times, now sitting with a company of which she’s never heard, but no one will even tell her who to talk to for the loan modification she’s supposed to seek.
They tell Epstein just give it a few months and help will arrive. When that “help” shows up in the form of a foreclosure notice, she becomes a dogged detective. She not only helps unearth the bogus signatures and hijinks that attacked her mortgage, but also helps a small cadre of similarly situated homeowners.
Neil Barofsky, who President Obama appointed to be the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), is another unlikely hero. As Barofsky points out, Inspectors are by nature backseat drivers; the agency heads they’re supposed to monitor genetically resist that sort of supervision. But Geithner took arrogance to the next level, literally only meeting with Barofsky one time before making it very clear that he had no use for the sort of transparency Barofsky suggested. He preferred to shovel $700 billion of American sweat to the very men who had caused the crash.
Barofsky knows he’s onto something when his lame government-issued website generated 12 million pageviews. The public couldn’t grasp how all of its tax money was funding lavish bonuses for the whiz kids at AIG while ordinary Americans kept getting kicked out of their homes.
A clear, persuasive explanation of just what happened is so welcome right now as we see bubbles in our current economy beginning to burst.
Another winning element of the podcast is how its host and lead reporter, the investigative journalist and occasional political consultant David Sirota, tracks his own loss of idealism. He discusses his early days as comms Director for then-Congressman Bernie Sanders. His criticism of fellow Democrats who constantly weaken bills designed to hold Wall Street accountable almost got him fired from a think tank.
It’s a journey that Sirota, who has gone on to receive an Oscar nomination for the story for the Netflix warming satire Don’t Look Up, recounts with the wisdom of someone who is no longer angry about discovering how things really work. Instead he simply sounds committed to shedding light upon it in the hopes that maybe things can incrementally improve.
I have my own mini history with Sirota. For the Wall Street Journal, I reviewed his book about the 1980s and how Reaganism set the stage for the selfish capitalism that followed. I liked the book, but I had some criticisms. Sirota did that thing of instantly taking to the Internet to invalidate my take on the basis that I had worked for Rudy Giuliani.
That’s exactly the kind of “kill the messenger” stuff that Sirota successfully eviscerates in this podcast. One of its strengths is its portrait of North Carolina Congressman Brad Miller. Sirota portrays him as the exact kind of wonkish, sincere, and well-intentioned reformer the country could use. But his lack of personal charisma – he was happy to call himself Congressman Opie– ultimately dooms his efforts to corral his fellow Democrats into supporting meaningful reform.
So it was ironic, I guess, to see Sirota take the same tack with me. But ultimately it doesn’t matter. I liked his book, and you can find the same reliance on pop-culture references that animated in this great podcast, with nods to Charlie Chaplin, Twisted Sister, and Network. He relies effectively on the Goodfellas scene in which Paulie expects to be paid no matter what, and brings in other reference makers such as the reporter Matt Taibbi, who refers to a Terry Gilliam movie in hilariously depicting mortgage document robo-signers, who Taibbi describes as having “mass perjured themselves.”
I later had a much friendlier interaction with Sirota. He was fired from Pando Daily along with provocateur Ted Rall for what seemed like no reason. I never understand why these publications hire bombthrowers and then clutch their pearls when these guys start throwing bombs. I was then the editor in chief at the New York Observer and emailed Sirota to say, “Look, I know you didn’t like my review, but you’re a hell of a reporter so if you need a place to hang your hat, consider us.” By then, Sirota’s old boss Bernie Sanders had started to run for president. Sanders would of course become a victim of DNC and Hillary dirty tricks of precisely the variety that had disillusioned Sirota when he first came to Washington.
But what Sirota does so well here is what he tried to do in his book about the 80s. He draws a straight line from the anger that Americans felt watching their hard-earned cash help exactly those who needed it least to the election of Donald Trump. Sirota asserts that the first real tea party riot was Rick Santelli’s famous CNBC rant in February 2009. From the perspective of Meltdown, Santelli improperly blamed mortgage holders for being deadbeats rather than mortgage writers for being con men. Sirota thinks that set off a wave of populism where a demagogue could make a credible case that the government was not serving the people’s interests and take the reins of power. That’s what we saw in 2016.
So whose fault was it?
There are a couple of oversimplifications here, naturally. It dismisses credit default swaps, which no doubt played a decisive role in the collapse–people who are more like gamblers than investors misused them–as though they have no legitimate role. But much like short-selling, the ability to hedge against an asset’s failure plays an important part in freeing up capital to be used elsewhere.
It’s like any other kind of insurance. If I face the possibility of devastation from losing my house, I might have to keep the entire value of my house sitting in a safe in case it burns down. Therefore, that cash is not available to the economy. But if I buy fire insurance, I can deploy that capital elsewhere.
Sirota credits Elise Bean, chief counsel to the Permanent Subcommittee on Investigations, as “the person most responsible for the American public’s understanding of what happened in 2008.” She points out that Smith cannot legally buy insurance on Johnson’s house, since that would create a moral hazard — you don’t want Smith benefitting from Johnson’s fire. But that’s not a great analogy for credit default swaps, which pay off when a company misses a bond payment or has some other credit disaster. A financial institution that holds a CDS on General Motors isn’t usually hoping that General Motors fails. It’s much more likely that they’re a huge lender to General Motors. They buy the CDS so that they can help GM by continuing to lend.
Sirota is dead right about the unseemliness of Goldman‘s habit of betting against products that it was simultaneously touting. Re-hearing the devastating audio in which Sen. Carl Levin disembowels former Goldman Head of Mortgages Daniel Sparks made me as angry today as it did in Spring 2010. When Levin confronts him with an email in which his department describes the product they’re selling as “God, what a shitty deal,” Sparks replies, “I think it’s very unfortunate to have that in email.”
But he misplaces the bias against short bets in general, especially for an investigative reporter. In fact, shorts play a critical role in puncturing hype. Nate Anderson of Hindenburg Research caught electric vehicle maker Nikola rolling a truck downhill in a video that the manufacturer designed to make it appear that the car was actually driving. For years, short seller Harry Markopolos warned anyone who would listen that Bernard Madoff’s gains were too good to be true. Short sellers provide an important check on the unrelenting hype pervaded on the long side by CNBC and every other official source of financial information.
Fascinatingly, Meltdown also reveals something that I never saw covered anywhere during the entire 2020 campaign. By that point, Sirota was working as senior advisor and speechwriter for his old boss Bernie Sanders. Sanders looked to be on the march until Joe Biden whipsawed him in South Carolina. When Congress was first reforming bankruptcy laws during the 1990s, the progressive members of the caucus, like Sanders, were ferociously advocating to include credit card debt on the list of obligations that overburdened debtors could apply for modification. The leading voice in the Senate to exclude credit card companies from the requirement of working with overburdened debtors: Joe Biden.
That’s just one of many revelations here. Sirota and Audible have created something lasting and meaningful. Give Meltdown the careful, thoughtful listen it deserves.