Last year we awarded Dylan Ratigan one of our First Amendment Awards for Outstanding Journalism for his job calling out the scammers who were bringing down the economy. Dylan and I were chatting about how things have played out since then, and what we need to do to continue fixing the broken infrastructure of capitalism …
Damien Hoffman: Dylan, what financial reform do you think we’ll end up with?
Dylan Ratigan: Since it’s Washington, I have no idea. But if I were to bet, I think we’ll end up with derivatives reform. I’d love to see it deal with the issue of collateral because that would expose the fraud of the entire system. Credit derivatives are just a mechanism to monetise the future for the present.
Actually, three things would expose the fraud: forcing investors to post collateral on derivatives, an audit of the Fed, or an assignment of forbearance to the homeowner and away from the banks. These three problems illustrate that we’ve got a highly leveraged banking system in which the bank executives are paying themselves a lot of money. They are claiming it’s a yield to our economy when — if the state bears the rip in the banking system — it’s nothing more than a tax on capital.
Damien: What about the transfer of risks?
Dylan Ratigan: We’ve got an inefficiency by which a few people figured out how to monetise the future and then sell the government a mathematical formula that is wrong. Then, they had the state bear the risk of that wrongness. This allows the private sector banking system to retain the profits and transfer the losses. It’s a pretty bad deal for the country.
Damien: The country can’t afford it right now.
Dylan Ratigan: Right. But the bankers don’t care. That’s why they are viciously fighting off any attempt to reform the status quo. The Democrats and the Republicans have a tremendous fear that it will reveal the leverage. That would call into question why the people running these banks are paying themselves all this money when there’s accounting and underwriting fraud at the heart of these banks who are misrepresenting their assets. Basically, they’re levering their misrepresentations through accounting relief with the Treasury and then paying themselves.
Damien: So are we in a Catch-22 where either we expose the fraud or if we’re too scared to expose it, we end up recreating the same playing field which is going to lead to an even worse or similar style crash somewhere down the line?
Dylan Ratigan: Yes, exactly. That’s exactly right. But we may have a few years. It is like we’re being told we’re going to have a heart attack. But instead of just taking advantage of the fact that we’ve been given a five-year warning to make a plan – getting off the sugar, maybe some exercise, whatever – everybody is still trying to deny the heart attack by saying, “We’re not going to have a heart attack.”
It’s kicking the can down the road to our generation and the next generation.
Damien: If we go down this road again, we will be in a lot worse trouble because the boomers are going to be tapping Social Security and Medicare like never before. So then how the hell are we going to pay for anything?
Dylan Ratigan: The end game is the paper currency is toast. Look at the implied rate of returns or the pension funds at 8%. Then look at the demographics. There’s not enough money, right? Paper currency has no value. So how do you get out of that?
Well, we actually have to start to produce things of value. This means we need to have an efficient lending and investing mechanism as well as a robust educational mechanism. People must make something for other people as their job. Then we will have a value-creating society as opposed to a value-extracting society. Right now we’ve mastered the art of extraction.
Damien: How do we make the switch when extracting is so much easier in the current system?
Dylan Ratigan: You and me and everybody else must become aware of the penalties that are being assigned to our generation in the form of social disruption or potential austerity measures and taxation. Not to mention the deprivation that is less felt but is very much present through high yields, underwater homes, etc.
But the government and banks don’t want to do it because they’re afraid of what they would have to do if we all understood the scam.
Stay tuned for Part II of my interview with Dylan …
Business Insider Emails & Alerts
Site highlights each day to your inbox.