"Roman Candle" turns 20: Secrets of Elliott Smith's accidental masterpiece (slideshow)
Elliott and the friends with whom he recorded in middle school in Texas (photo courtesy of Dan Pickering)
“Inside Job,” Charles Ferguson’s Oscar-winning documentary film on how government, Wall Street and academia colluded to deliver us the worst financial crisis since the Great Depression, made a powerful case that something was very very rotten at the heart of the American political/economic nexus. His follow-up book, “Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America,” can be considered the legal brief that dots every “i” and crosses every “t” in his argument. A tightly argued, profusely footnoted and deeply enraged castigation of everyone involved, “Predator Nation” isn’t just a factually unchallengeable account of how Wall Street blew up the global economy. It’s a denunciation, a call for justice and a warning: After getting away with the crime of the century, Wall Street still isn’t satisfied.
“If you have already got 96 percent of what you want,” Ferguson told Salon, “why not take the remaining 4? That’s where the culture of American finance is right now, and I think it’s really dangerous for the country.”
For at least 30 years the United States has been headed on the wrong track, handing over more power and wealth to a tiny percent of the American population at the expense of everyone else. But Ferguson’s story isn’t just focused on the greed and recklessness of the elite. It’s also about their criminality. The bankers who wrecked the financial system broke the law. And yet, amazingly, not only have the vast majority of responsible parties not been convicted of any crime — they haven’t even been charged. There have been a few settlements of fraud allegations with the Securities and Exchange Commission and other regulatory bodies and a smattering of slap-on-the-wrist fines, but nothing that comes close to a proper reckoning for the massive hardship and economic destruction that they caused.
Ferguson’s glowering rage spares neither political party. Clinton gets the blame for completing the process of financial sector deregulation, and George W. Bush is lacerated for his general incompetence. But Barack Obama is showered with a particularly aggrieved contempt. Obama, writes Ferguson, came into office with more hope invested in him than in any recent leader, and then proceeded to “betray” and “screw” his supporters by declining to bring Wall Street to account for its misdeeds.
“Predator Nation” hits bookstores on Monday, just in time to cash in on the headlines generated by the latest banking atrocity — JPMorgan Chase’s massively failed derivatives bet.
“Predator Nation” is an angry book. Were you this angry before you started making the film “Inside Job”?
No, I absolutely was not. I remember the first time I got any kind of inkling of what was to come was in August or September 2007, when Charley Morris sent me a copy of a galley proof of his book, “The Trillion Dollar Meltdown.” It was scary and powerful, but I couldn’t bring myself to believe it. I remember calling Charley and saying, “You lay out a very convincing case but really, these people aren’t that crazy, they aren’t that stupid. They are regulated. Can it really be this bad?”
And he said: “You just wait.” And boy, he was right.
It’s not that I thought that investment bankers were like Mother Teresa. I knew that they weren’t. But the degree of nakedness and extremity of the dishonesty and its pervasiveness was a huge shock to me. It turned out that many banks, on a very large scale, and without any disclosure, had created and sold securities with the intent of betting on their failure. And this was done with the knowledge and approval of senior management of all these banks, including the oldest and most traditional.
How do you explain this behavior? How did we get to a point where it was routine for Wall Street bankers to behave in ways that most Americans would consider frankly immoral?
I think this has its roots all the way back in the 1970s and the beginning of the era of deregulation. But there was a kind of inflection point during the five-year period between 1997 and 2003 — the late Clinton and/or early Bush administration — when all the rules just went away. You went from a period, a regime, where people did have at least some concern about going to jail, to a point where everything is legal, and derivatives couldn’t be regulated at all and nobody went to jail for anything. And looking back I would say that this period definitely started under Clinton. You absolutely cannot blame this on George W. Bush.
You say that everything is now legal, but in your book you dismiss Obama’s argument that he could not prosecute Wall Street bankers for criminal behavior because what they did was technically not illegal as “complete horseshit.”
I should be more precise. I should have said, “where everything was perceived as being legal.” There was no perception that, even when you were in fact violating the law, that there would be any legal jeopardy or legal consequence to what you were doing. And that was part of my surprise when I was making “Inside Job.” I really was surprised that people would so overtly and explicitly do things that 20 years previously probably would have gotten them landed in prison.
One can certainly argue that the penalties and prosecutions following the S&L [Savings and Loan] and insider scandals of the 1980s were vastly insufficient. No doubt about that. But there still were consequences. I don’t know whether [junk bond king] Michael Milken would have still done everything he did, if he knew that he was going to spend two years in prison and have about half of his wealth confiscated. Maybe he still would have made that bet, but still, clearly he had a few unpleasant days. And now, nothing, just nothing.
In your book, you have a laundry list of things you believe the bankers could be prosecuted for, everything from securities fraud to perjury to RICO Act violations. And then you point out, more than once, that during the Obama administration there have been no arrests or indictments of any firms or senior executives “related to causing the bubble or the crisis.” What’s your explanation for this? Is it as simple as the Obama administration being captured by the financial sector?
I’m not President Obama’s psychoanalyst, so I can’t speak to what goes on inside his head. But that is what I would say of the Obama administration generally. In the book I go through the list of his personnel appointments and it’s pretty clear.
But how do we square that with the negative Wall Street reaction to bank reform? You devote only one sentence in your entire book to Dodd-Frank, calling it “weak and ridiculously complicated.” But even so, House Republicans have introduced nine bills trying to repeal parts or all of it, Romney is campaigning on repealing the whole thing, and Wall Street hates it and has tried to kill every last part of it. There is clearly antipathy against Obama from the financial sector now, from Jamie Dimon on down, that wasn’t there when he got elected. If he was truly captured, why the antipathy?
Well, there is some antipathy. But he just held a very successful fundraiser at the home of the president of private equity group Blackstone. So the antipathy is not universal.
But you know, when I was in academia and also when I was running a software company I had a fair amount of contact with portions of the financial sector, investment banking industry, and the venture capital sector. And certainly they were already pretty rapacious and pretty politically conservative. But they would never then have said and done the things that they say and do now. I recently was at a dinner in New York City and one of the people there was a very, very successful man who is on the borderline between venture capital and private equity. And this guy went into an extended rant about how he was at a disadvantage because he had to pay 15 percent capital gains taxes. When I was first dealing with venture capitalists in a significant way, the capital gains tax rate was 28 percent, and nobody was complaining. Then they got them reduced to 20 under Clinton, and then later 15 under Bush. Plus, they got a rollover provision so if they took the proceeds of a venture capital investment and rolled it over into a new venture capital investment it was tax-free. At that point, we’ve reached nirvana, what more could there be?
But now we’re in this environment where this guy was loudly and aggressively complaining that he has to pay 15 percent to the government. And if that’s where you’re at, then of course you are going to complain about Dodd-Frank. You are going to complain about everything. If you have already got 96 percent of what you want, why not take the remaining 4? That’s where the culture of American finance is right now, and I think it’s really dangerous for the country.
Do you find it alarming that even after this huge crisis and even with a lot of populist anger on both the right and the left focused on Wall Street, Mitt Romney is running for president while promising to further deregulate Wall Street and repeal Dodd-Frank, and the polls show him neck and neck with Obama?
That is true, but I don’t think that Romney is going to get votes primarily or even secondarily for that. Most of the votes he is going to get will be because he’s religious, he’s against gay marriage, et cetera, all of these allegedly “values” issues — things like that and wanting to reduce taxes. That’s why he is going to get a substantial fraction of the popular vote. The reason he says he wants to roll back Dodd-Frank is not to get votes, it is to get money.
Ninety-nine percent of your book tells a story of how we’ve gotten ourselves into a bigger and bigger mess, and then you’ve got about a page and a half discussing what could be done to fix it. But your solutions — a legitimate third-party alternative, controlling the influence of money in politics, real tax reform, fixing education — it’s just really hard to see how we get from our current problems to those bullet points.
Yes. And we’re not. Not right now. I think it’s going to take things getting worse, either slowly or fast. Either we continue to melt away for another 25 years and then finally people wake up, or there might be another crisis. And maybe that will be sufficient. We’ll see. I don’t know. I’d be interested in your own view of this. I’ve had debates with several of my friends on this question. If Obama had really had the balls to try to do the various kind of things that he’d promised to do, or kinda sorta almost promised to do during his campaign, if he really made an effort, how far do you think he could have gotten in 2009?
At this point, I’m in the camp that believes that American government is completely broken. And we didn’t really find out how broken it was until Obama came in. In your book, you talk about Obama coming in withoverwhelming majorities, but he really only had 60 votes in the Senate from July 2009, when Al Franken was finally sworn in, to January 2010, when Scott Brown took over Ted Kennedy’s seat. And even the things that Obama did get through had to pass muster with a handful of very conservative Democrats. Nebraska’s Ben Nelson had control over the entire government. It’s a completely dysfunctional system. I think Obama severely underestimated what he was facing when he came in, and picked the wrong strategy of trying to go bipartisan, but it’s not as if he had the freedom to do what he wanted that Roosevelt enjoyed when he became president in 1932.
But there are an awful lot of things that the president can do even without the Congress. He didn’t have to choose the people he chose. He didn’t have to choose the attorney general he chose or the head of the criminal division of the Justice Department that he chose. I think that if he had said, I’m going to allocate $500 million to a special prosecutor’s office, and we’re going to find out what the fuck happened here, he could have done that.
There’s some talk now that JPMorgan’s disastrous bet on credit default swaps might lead to tighter regulation. I have to say, it was bizarre to be speed-reading your book while the Morgan news was causing post-traumatic stress flashbacks to the worst days of the financial crisis. Does what happened there fit into the narrative of “Predator Nation”?
I rather think so, yes. Mr. Dimon has long been largely correctly regarded as the best, most judicious, most careful steward of a major global bank. That he and his bank could make a mistake like this does not bode well. One thing that has actually not been widely discussed, somewhat to my surprise, in the commentary about all of this, is that this mistake — which it appears will cost them between $2 billion and $5 billion — this occurred in a very forgiving economic environment. If they made a mistake like this in September 2008, then things could look really quite different.
Does it qualify as criminal behavior?
There is some suggestion of criminality in the lack of honesty on disclosure of the positions and their potential implications. I can’t say; we don’t know enough yet. It certainly is the case that JPMorgan, although more prudent than many other banks over the last decade, has frequently been just as dishonest. It has done a number of extremely unethical things, some of which I mention in the book. So it wouldn’t be a surprise if they had not been forthcoming about this.
Do you think it will make any difference in how banks are regulated?
I fear not. Honestly. I’m sure that Mr. Dimon is momentarily chastised, and that JPMorgan will not be making any similar bets in the next couple of years. But is it going to change the overall posture of bankers and banking and is it going to change the regulatory environment in any significant way? I tend to doubt that. Unfortunately.
So where does this leave us? Your book is filled with a strong sense of personal outrage. How do you personally feel about the prospect that the only thing that could get us out of the mess we’re in is yet another crisis, perhaps even worse than the one we just lived through?
Personally, I am very fortunate. I have a very blessed life. I made some money earlier, I’m basically pretty financially secure. I can’t have private jets and private islands but I don’t have to worry about having a roof over my head or being able to eat well, unlike many people in this country going forward. And I do work that I love. I love making movies, I love writing books. Personally I’m fine.
But the country is not. But this happens to countries. This is not the first country it’s happened to. It’s not even the first time it happened to the United States. We’ll see whether we come out of it. Last time it happened we came out of it, eventually. It took a long time and it was very painful but eventually we came out of it. Will that happen again or not, I don’t know, I honestly don’t.
Elliott and the friends with whom he recorded in middle school in Texas (photo courtesy of Dan Pickering)
Heatmiser publicity shot (L-R: Tony Lash, Brandt Peterson, Neil Gust, Elliott Smith) (photo courtesy of JJ Gonson photography)
Elliott and JJ Gonson (photo courtesy of JJ Gonson photography)
"Stray" 7-inch, Cavity Search Records (photo courtesy of JJ Gonson photography)
Elliott's Hampshire College ID photo, 1987
Elliott with "Le Domino," the guitar he used on "Roman Candle" (courtesy of JJ Gonson photography)
Full "Roman Candle" record cover (courtesy of JJ Gonson photography)
Elliott goofing off in Portland (courtesy of JJ Gonson photography)
Heatmiser (L-R: Elliott Smith, Neil Gust, Tony Lash, Brandt Peterson)(courtesy of JJ Gonson photography)
The Greenhouse Sleeve -- Cassette sleeve from Murder of Crows release, 1988, with first appearance of Condor Avenue (photo courtesy of Glynnis Fawkes)