Michael Lewis, author of "Liar's Poker," the fabled book about Wall Street in the '80s, appeared on "The Rachel Maddow Show" tonight to promote his latest book about becoming a father, titled "Home Game." However, the conversation quickly turned to the current situation in the financial industry, and Lewis pointed out some of the paradoxes inherent in the way the current bank bailouts has been handled.
Lewis explained that the problem with the current system of bailouts is that, by not having the creditors take major hits and not actually nationalizing these companies, a situation has been set up where you have to flood the banks with public money in order for them to get back up and running and turn a profit. But these profits are "contrived," and whatever new regulation is imposed on the banking industry is going to reduce these profits, leaving the companies in the hole again:
For example, if they actually impose the sort of leverage requirements that a commercial bank is supposed to have on what were the investment banks, it's gonna be harder for them to earn their way out of this.
Lewis also marveled at the political power that Wall Street continues to wield and reserved his harshest words for the ratings agencies:
The ratings agencies are culprit number one in all this. They put their seal of approval, they credit-rated all these piles of subprime mortgage bonds Triple-A, and thereby allowing people who could only buy Triple-A rated securities to buy these things, and thereby helping to create more of these things. Without the ratings agencies doing what they did, there's no way this financial crisis would have happened in the way it happened. It would be a much more muted event. And the problem is the investment banks pay the ratings agencies... That conflict, which is essentially federally sanctioned, doesn't seem to be addressed at all.
He and Maddow ultimately agreed that radical, structural change is necessary. Watch the interview below:
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