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Former banker predicts more of the same -

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ELEANOR HALL: One former investment banker says he's certain that even if the US President does get
his reforms through, they will not prevent another economic collapse.

John Talbott worked for the Wall Street giant Goldman Sachs before he left the financial industry
to write a series of books warning about economic instability and predicting the US housing market
collapse.

He's in Australia at the moment to promote his latest book, "The 86 biggest lies on Wall Street"
and he joined me in the World Today studio a short time ago.

JOHN TALBOTT: We have to be careful with President Obama. I mean, he sort of fooled me.

I wrote a book in 2008 when he was in a catfight with Hillary Clinton called "Obamanomics" and I
was effusive in my praise because I had read his books and his philosophy agreed exactly with mine.

You know, greater economic justice, greater economic opportunity for everybody.

And now once he's gotten in power he's sort of turned the keys to the castle over to the Congress
which every American knows is bought and paid for by big corporate lobbyists.

Until you solve the lobbying problem you can't address these other issues, like, regulating Wall
Street, straightening out health care, global warming etcetera.

Because if they're writing the rules - if Wall Street's writing the rules, they're going to want to
put it back together the way it was.

I call it the humpty dumpty reform, right, all the king's horses are racing to just put it together
the way it was and that's exactly what they're doing.

ELEANOR HALL: Well you've been predicting a double-dip recession. Is there anything the President
can do to avoid that?

JOHN TALBOTT: Not the direction he's going. He'd have to completely change his direction; he'd have
to quit listening to people like Jim Johnson the ex-CEO of Fannie Mae who is one of his advisers.

Tim Geithner, he says he never worked for Goldman Sachs, but he certainly acts like he wanted to. I
mean, they're giving away the shop they're giving whatever these people want.

And if you take bold stands and talk about radical change you're not going to win Americans over,
especially with our media which is all corporate owned.

ELEANOR HALL: Well you do make some pretty radical calls in your latest book.

You talk about closing down the hedge fund industry, the credit-default swap markets altogether and
eliminating ratings agencies just to take a few things.

Do you think any of that's likely to happen?

JOHN TALBOTT: No, but let me tell you how rational it is, because it sounds crazy when you first
hear it.

I was accused by an economist at the University of Queensland of suggesting radical reforms, and I
said, "Gees, you mean I suggested a radical reform when the entire global financial system almost
melted down?"

I mean, what's the alternative to radical reform, right? So let's look at one of those: the
credit-default swap market. It grew from $145 billion just 11 years ago to $60 trillion today.

There's only about $8 trillion of corporate debt out there, so they can't be using it to hedge
their debt exposure which was the idea behind it.

What they're doing is they're just, casino-like, speculating and trading on each other's default
risks. They're betting on who's going to go bankrupt next.

And after Lehman Brother went they concluded nobody can go Bankrupt. Well if nobody can go bankrupt
that's not capitalism, right?

ELEANOR HALL: So has Wall Street changed at all since the collapse of Lehman Brothers one year ago
today?

JOHN TALBOTT: Well, yeah it's changed. It's gotten smaller and more concentrated. So again the
problem has gotten worse not better.

ELEANOR HALL: You mentioned that massive sum of money that was effectively given to Wall Street but
there was unanimity around the world that governments had to inject money into their economies to
avoid a repeat of the 1930s Great Depression.

You don't disagree that the Government's had to do something, do you?

JOHN TALBOTT: They had to do something but they didn't just have to give money away.

I mean, if you remember Hank Paulson came and asked Congress over the weekend for $700 billion. And
I know it was only a year ago but that used to be a lot of money.

We weren't used to talking in trillions a year ago, and you know, it's amazing to me not that he
got it in three days but that he said he was going to use it to buy toxic assets and create good
banks and bad banks.

Well you know, I think there's reasons why that may or may not have worked but the day he got the
money he didn't do any of that. He just went and gave $300 billion away to his best friends.

I would have allowed a lot more of these smaller institutions to bankrupt and I would have cleaned
up the CDS market so that it wouldn't have taken down the whole system.

ELEANOR HALL: What has actually happened to that toxic debt we were so worried about a year ago?

JOHN TALBOTT: It's still on the banks' balance sheets. We never bought a dollar of it.

Because we haven't made any of these substantive reforms certainly the next crisis that comes along
we're going to be completely, inadequately prepared to handle it.

Australia has a funny feeling. I've been here for eight days now and it does seem to be growing,
and it's because you're beautifully positioned between China and the US, and you're benefitting
from both stimulus packages.

But China is the question mark. It's still driving demand for those Australian natural resources
but I don't think it's sustainable.

ELEANOR HALL: Well Australia has so far managed to make it through this global financial crisis
without too much pain. Are you saying, though, that we're also living in false dawn?

JOHN TALBOTT: Australia did a lot of things right. Your banks were better regulated. Having said
that, Brisbane I found out has got an average home price right now of $470,000.

Ten times the value of your total salary in your house. That's exactly what the ratio was in Las
Vegas, Phoenix and San Diego before the crash.

ELEANOR HALL: You've no doubt noticed while you've been here there's a lot of political debate in
Australia about whether or not the fiscal stimulus packages should be scaled back. What is you
view?

JOHN TALBOTT: Australia is just tied to the global economy now and they're going to ride the wave
with the US, Japan and China and I don't think it makes any difference at all how much stimulus
Australia pays itself.

ELEANOR HALL: Now your book is provocatively titled, "The 86 Biggest Lies on Wall Street", tell me
what would you like to see change most significantly on Wall Street right now?

JOHN TALBOTT: I think the biggest one is it all comes back to lobbying pressure, right, it all
comes back to corporate campaign contributions and the fact that they are not only writing the laws
but they're removing the regulations they don't like.

So the banks had very good regulation on them that prevented them from over-leveraging with debt,
from getting in to investment bank and trading activities, from doing things off balance sheet and
crazy things in the derivatives market.

But all those regulations were removed through lobbying pressure. The ideology behind it is that
the markets don't work if there's any government interference at all and that just not right.

You need some government rules and regulations to play the game called capitalism.

ELEANOR HALL: John Talbott is a former investment banker who worked for Goldman Sachs before
turning to critiquing the financial industry.

His latest book is called "The 86 Biggest Lies on Wall Street" and you can hear a longer version of
that interview on our website