The Best Way to Rob a Bank Is to Own One – BILL BLACK (1/9)

Bill Black traces the history of modern American financial fraud starting in this episode with the S&L Banking scandal. Bankers continue to loot their banks, customers, and society to this day. Part 1/9 on with Paul Jay.



Paul Jay

Hi, I’m Paul Jay. Welcome to, please don’t forget the donate button and the subscribe button if you’re on YouTube, and be back in a second.

In 2014, a billion dollars disappeared from three Moldovan banks. The Republic of Moldova is a tiny, landlocked country in Eastern Europe. How did a billion dollars do a vanishing act? That’s 12 percent of the country’s GDP.

As the title of Bill Black’s book says, the best way to rob a bank is to own one and that’s more or less what happened in Moldova. The heads of the three major banks created a Ponzi scheme between them, loaning and hiding money with each other, moving it offshore to hide the assets. A carousel borrowing scheme was applied. Loans in one bank were paid off with loans from another. The banking fraud in the United States that led to the crash of 07 and 08 makes the Moldovan scandal look like child’s play.

Here’s the thing, in Moldovia, many of those that were responsible for the fraud went to jail, in the U.S. other than one mid-level trader, it was none that went to jail. Not a single senior executive ever charged in one of the biggest financial frauds ever. Has the situation changed? Could such a scam repeat itself? A docuseries titled The Con breaks down what happened during those years leading up to 2007 08? Here’s a trailer from the docuseries.

Excerpt from The Con

“I’m neither an economist or a scholar. I’m just an average American who lost my home and very nearly my family to foreclosure when the market imploded, and I’ve spent almost every day since trying to find out why. Once the dust settled, it quickly became clear that my story was no different than millions of other Americans. We all thought that we were alone. We all thought that we’d failed, but none of us really knew why. With a gun in her hand, Addie Polk apparently shot herself in the chest as deputies were knocking on her door with eviction papers in hand. This dramatic increase in mortgage fraud cases was the canary in the mine. It was the warning. This was money chasing people. This was not somebody looking for a loan. It was all designed to maximize profits for all of the different players.

The person who sold you a loan made more money if they sold you a higher rate loan. They were sold a lot. They’re selling to their very clients these loans that they know are a disaster. I lost my home not because of money, because of fraud. I don’t believe Addie Polk took out the mortgage on my home. I don’t believe she signed any documents. They just generated all this junk, took home huge bonuses, and then when it collapsed, they said, oh, not us. This notion that the financial crisis was there wasn’t fraud and there wasn’t crime is absolutely wrong. It’s dead.

We were targeting, in many cases, minorities. We were waiting for the leadership to say, go, that never happened. The investigation was suppressed. This was all part of the same puzzle that was falling apart. This is the largest conspiracy of lies in the history of the world. This investigation has just begun.

Paul Jay

Now joining us to discuss the history and present state of what he calls control fraud is Bill Black, who’s in the film and was an adviser to its producers. Bill is an American lawyer, academic, author, and former bank regulator with expertise in white-collar crime, public finance, regulation, and other topics in law and economics. In fact, he’s an associate professor at the University of Missouri, Kansas City in Law and Economics. As I mentioned, he’s the author of the book The Best Way to Rob a Bank is To Own One. Thanks for joining us again, Bill.

Bill Black

Thank you.

Paul Jay

So, let’s start with this term you use, “control fraud’. What is it and when does this start to appear in finance?

Bill Black

Well, it started to appear in finance as soon as there was finance, and it isn’t unique to finance either. It’s obviously an ungainly term. I mean, what the heck is control fraud, and here’s the reason for the ungainliness. The insight we had was that when the people who control a seemingly legitimate entity, whether it’s the government or a nonprofit or a for-profit firm, are able to use that seemingly legitimate entity as a weapon to defraud and predate, and a shield that protects them largely against being held responsible, accountable for their depredations, then you’re going to get massively more harmful forms of fraud and predation. And why control? Because the context we developed it in was the savings and loan debacle and the most notorious fraud there was Charles Keating, and he never held the position with Lincoln Savings, the entity that he was using as his weapon and shield, yet he utterly controlled every aspect of the institution.

Paul Jay

OK, now I assume that a lot of our viewers, especially younger ones, but others as well, have no idea what you’re talking about. What happened during the savings and loan crisis? When was that? And out of that, how did the control fraud appear?

Bill Black

OK, so by the way, as we discuss this, it’s the 30th anniversary of one of the key events in that savings and loan debacle when that Charles Keating, who was the most notorious fraud, Looting his savings and loan, was able to bring together a whole series of senators to try to extort first the head of our agency and then a group of us who were the regional regulators in San Francisco, and they went on.

Paul Jay

What’s the agency?

Bill Black

Well, the agency was called at the time the Federal Home Loan Bank Board, but it was about to change its name to the Office of Thrift Supervision. So that gets a little complicated, and we were in a regional entity that had still another name. So, I’m going to avoid the names so much and describe what they functionally did most of the time in all of this. In any event, we realized that if you controlled the firm first, people wouldn’t believe that you would loot the firm. That seemed crazy to them, but of course, if you think about it, that’s who you can loot with impunity because you know where all the safeguards are. Indeed, you are supposed to be the principal safeguard. It’s like a homeowner who wants to commit insurance fraud, right? You have a code, and you turn off the home alarm system and you take the things out of your house. You can do that very easily. Well, the CEO can do that even more easily, and what we realized was they use seemingly normal corporate mechanisms to do this. They just use accounting to massively overstate earnings, and then under modern executive compensation, that automatically triggers a huge bonus, and the company then pays the CEO and the other officers these huge bonuses.

If you stuck your hand in the till in America as a CEO and took just ten thousand bucks, you’d go to prison for 20 years, but you could take out twenty million, forty million, two billion, through the mechanisms I just explained and never go to jail. This was a really sweet scheme that people had developed, and the way we figured it out is we did autopsies of every failure in the savings and loan debacle. Everybody knew. Everybody told us it’s not fraud, it’s just people “gambling for resurrection”. It was almost a Christian, type of thing, right? The bank was losing money, and so the valiant CEO took high-risk, and sadly, they often lost those high-risk gambles and such. We said no, that doesn’t make any sense, and here are two reasons it doesn’t make any sense. So first, if you were just gambling, you wouldn’t have the pattern of purported success that they were reporting, right? If you’re taking a bunch of high-risk honest gambles, you’d win some big you’d win a few small and you’d lose a lot big. Right.

Paul Jay

Now, the gambles are loans they’re making.

Bill Black

That’s right. The gamble is making riskier loans, went the logic. You would expect to see a pattern like that, some winners, some losers type of thing. Except that everybody that followed this pattern that we identified as actually being looting, looting the savings and loan through accounting fraud, reported winning at first and not just winning, but winning at first, right, and they were literally reporting in places like Lincoln Savings, Vernon’s Savings, which we in the regulatory ranks refer to as vermin. Right, by the time we got through the speaker of the House, Jim Wright’s efforts to prevent us from taking the place over, 96 percent of its loans were in default.

Paul Jay

Give us an idea how many banks were involved and when was this? This is during Reagan.

Bill Black

This is Ronald Reagan. This begins in 1981-ish. So right at the beginning of the Reagan revolution, and it’s facilitated through the first appointee as the top regulator for savings and loans by Ronald Reagan. An academic account economist Dick Pratt, very smart, very quick, clever guy type of thing, but a huge believer in laissez-faire.

He deregulated and he said, hey, we have this, in jargon, it’s called a natural experiment, because there are many different jurisdictions in the United States. 50 different states, and they have different state regulatory patterns. So, we’ll look and find in all of the United States which state has the most successful savings and loans, and then our deregulation will emulate their deregulation where they’ve already deregulated, and they looked and they said Texas, Texas is the model that you need to follow. It’s far and away reporting the best results. Well, of course, it was that’s where the fraud started because that’s where the deregulation started, and the frauds are a sure thing. They are mathematically guaranteed if you follow what we identified as the recipe for accounting control, fraud for looting. If you follow that recipe, it is a sure thing, right? You will absolutely report record profits. They won’t be real, but you’ll report record profits. So, he used the worst possible model for his deregulation and then he deliberately set off what economists called a race to the bottom, which they thought was a good thing because regulation, bad, deregulation, good.

Remember this. In fact, it had begun with Jimmy Carter at the national level before Ronald Reagan. Both parties really believed in this deregulation stuff. So great, Texas is deregulated already, now the United States at the federal level will deregulate even more than Texas. That will set off a race to the bottom where Texas and California will try to deregulate even more and for good reason. In the United States, we have this doctrine called supremacy of the federal government, which means that we can preempt any state efforts to get in the way. So, if the feds deregulate, the state can’t do anything to you, but if the state can’t do anything to your savings and loan to either help you or hurt you, why should you make political contributions to the state banking chairman of the Senate or House answer. You wouldn’t, so that was a powerful incentive to keep the flow of money to the key committee chairmen to deregulate, and California and Texas won the race to the bottom, and these two states produce 60 percent of the total losses out of the savings loan debacle of the 1980s and 1990s.

So good policy, right, in all of these things, in our jargon, I have a doctorate in criminology and I study elite fraud and corruption principally within those fields. This is going to mean what we call a criminogenic environment, and that’s a direct steal from natural science, where we talk about pathogenic environments, an environment, like a cesspool that produces lots of bacteria and viruses and such and causes lots of infections where you get the same thing happening throughout whatever portion of the economy you deregulate.

In particular, finance is most susceptible to this. So they deregulated at the worst possible time in the worst possible way, and they said simultaneously, they put in writing, we don’t have to worry about no stinking fraud. Fraud is inherently trivial. Right, and I’m not overstating. I mean, it’s not the exact words, but I’m not overstating.

Paul Jay

Who said that?

Bill Black

The head of the agency [Dick Pratt], a top academic economist, expert in finance, said.

Paul Jay

Well, were they in on it? The fraud?

Bill Black

What my saying is of this era, it always is. The sad fact is you didn’t have to bribe anyone. They really believed in laissez-faire, so to skip ahead a few years, there’s this road to Damascus experience. Apparently it’s a big biblical day in our talk. His successor, Ed Gray. Now, his successor is a personal family friend of both of the Reagans, Mrs. Reagan as well. Critical to his survival, and he’s a PR guy, right, that’s his thing. So, in the midst of the worst financial scandal in U.S. history at the time, President Reagan says, let me put a PR guy in charge, because what the hell, right? And the trade association, which political scientists rated the third most powerful in the United States. It was called the League of Savings Institutions. They go and tell Ed Gray, you’re getting this position because of us. We lobbied with the administration and we lobbied to get you because we were sure you would do what we want done, they tell him this and he tells us the senior staff. So, this is the world, and then two things happen. First, the examiners, the examiners are the people that actually go out into the field and they don’t just look at what the institution writes in propaganda policies and such. They look at what’s actually happening. They’re the people closest, and it turns out to that to be able to run the scams I’m talking about, you have to destroy what’s called the loan underwriting process. Now, that’s insane because the loan underwriting process is what makes banks profitable, honestly profitable.

Paul Jay

They evaluate the risk.

Bill Black

Should we take it and if so, at what price? Right. So, it’s the most critical thing that you would never do if you were an honest banker, which is of course how spoiler alert, we’re going to convict of felonies over a thousand elites, out of the savings and loan debacle, completely different than what’s going to happen in the great financial crisis. OK, so Ed Gray comes in and the first thing he does is he listens to the examiners.

They put in every month these Significant Supervisory Cases, and this is the coming problem. There are roughly three thousand savings and loans and the number in this SSE case book grows from around one hundred to around five hundred. OK, and they are short write-ups, but Gray reads them religiously and he goes. Oh, shit. None of this is running the way the economists claim it’s running, it’s a coming disaster, and then he has the peak of his road to Damascus experience. This wonderful, laconic Texan, with a pronounced Texas twang, no art at all, in a Texas accent, but he knows his stuff about underwriting and such, and he drives and he’s taking pictures like the eight-millimeter stuff in those days. This is 1982-ish, 1983-ish. So, he’s driving for miles with the camera stuck out and narrating as he’s going along. In an utterly no inflection voice. He’s not excited, Gray calls it financial pornography, watching it because it’s mile after mile after mile of real estate developments that aren’t really being developed where they are just wasting all the material. You can see it rotting on the ground and it goes on for over an hour driving around this huge complex, even goes up in a plane and does the same thing looking down. Many of these things were so bad that they never got beyond the concrete pad for the home.

Paul Jay

And these are all phony loans for building these things.

Bill Black

Right, we call them Martian landing pads. Gray, who’s this ardent anti-regulator; He really loves Ronald Reagan and Mrs. Reagan, goes this is obscene and it’s going to produce a catastrophe. It is my duty, though, I hate it, to try to do everything I have to throw myself in front of this bus. He predicts to us that it will destroy his career both in business and in politics. He’s like 52 prime, super high in a significant position, a riser, and a personal friend, as I say, of the folks, and he knows it’s going to piss off the Reagans. He starts re-regulating. Charles Keating, alleged super Christian, who’s actually a massive fraudster, is an incredible lobbyist, and since he’s looting Lincoln Savings, what does he care? He knows the institution is going to fail if you spend an extra 20 million on lobbying. So what? So he lobbies like crazy. He hires Alan Greenspan as a lobbyist. Alan Greenspan personally walks around the Senate recruiting the five U.S. senators who will become known as the Keating Five when they meet with us on April 9th, 1987, to try to extort us to not take enforcement action against Lincoln Savings on behalf of and I quote “our good friend Charles Keating” type of thing. When Gray begins this reregulation, this majority at the express request of Charles Keating’s lobbying effort. Keating was a top 100 granter, a donor to Reagan and Bush. He was very politically connected. A majority of the House of Representatives co-sponsored a resolution telling us to stop the re-regulation. The entire leadership of both parties in the House signed that. So think of this, you’ve got the president against you, Vice President Bush is running the financial deregulation task force. He hates you, the chief of staff, the former Marine, the former head of Merrill Lynch hates you and is against you. OMB is trying to destroy you. OMB files a criminal referral against Ed Gray on the grounds that he’s closing too many insolvent savings and loans.

Paul Jay

And how many had he closed by that point? But they were insolvent.

Bill Black

Yes, but you have to understand the highest priority of the Reagan administration vis a vis the savings and loan debacle at all times, the red line was that you could not say it’s going to require a federal bailout, because that would mean the federal deficit was really $150 billion bigger and of course, President Reagan’s top priority was getting the tax cut, and the argument against it was the deficit swelling, and so if they had to admit that the deficit was really much larger, they might not get the tax cut.

Paul Jay

The hole of the bank debt was about 150 billion bucks?

Bill Black

The hole in the insurance fund, so the industry was insolvent on a market value basis by roughly $150 billion, and there were $6 billion in the insurance funds still. So, we went to work every day wondering whether there was going to be a nationwide run for five years.

Paul Jay

How much of this was public at this time?

Bill Black

It was not made public because this was the red line, right? Gray knew that if he crossed this red line he’d be removed immediately. So, we just didn’t talk about how much it was ultimately going to cost, we just went about trying to make sure it cost as little as possible.

Paul Jay

So, thousands of banks are involved in fraud?

No, three hundred savings and loans were growing more than 50 percent annually, and we’re following this looting strategy of fraud, but Gray’s first action, which was before he saw the Texas guys tape, the financial pornography, just reading the examiners Significant Supervisory Cases. The first thing he did, which was in November of 1983, which was essentially when the deregulation that his predecessor had put in place was kicking in, Gray stopped any new savings and loans from starting in California, Texas, and Florida, and the frauds, were almost always real estate developers who were failing, and of course, the dream of every real estate developer is to own their own captive lender like a bank or a savings and loan, because that’s what you need as a real estate developer– funding. If you have your own bank or savings and loan, that’s never an issue type of thing. So, this was like the dream of all time for these sleazy developers.

Paul Jay

And whose money is in these savings and loan?

Bill Black

Well, overwhelmingly ours, right? They are deposits. In America as opposed to other countries the liability side of a bank is almost entirely deposits and in the American context, almost all of those deposits are fully insured by the federal government. So, who’s on the hook really? The taxpayers are on the hook. Europe has many more large loans, typically from other banks. That is uninsured hot money, as it’s called. So, you can see Gray is going to commit political and career suicide and knows that he’s going to commit it. The trade association, of course, instantly turns against him as well. So, if you look at the correlation of forces as the military talks about it, it’s everybody on one side against Gray and pretty much Gray on the other. So obviously, we’re going to lose, and here’s the remarkable thing, yeah, we lost personally. We’re unemployable in government, but we stopped this raging epidemic of fraud and the new entrants. Gray by saying no more of these real estate developers are going to come in the door in California and Texas and Florida, he prevented it from becoming any kind of even mild recession, much less a great financial crisis. That’s just the second stage.

The third stage turns out to actually be the great financial crisis, and for that, you have to know what Gray’s big legacy was. Gray did something really simple. He knew, as I said, that the two great disasters were California and Texas, so he asked everybody he had respect for who were the two top financial supervisors in America, and then he personally recruited them, and appointed them in California and Texas.

The guy in Texas was Joe Selby, who had twice risen through the ranks at the Office of the Comptroller of the Currency, the acting comptroller of the Currency, but of course, he would never be made head because you’d have to be politically powerful to get that kind of thing. So getting him was a real coup and he put him in the absolute worst place, which was Texas. Selby was from Texas. Selby knew that this was going to end disastrously for him because Selby was gay, and the speaker of the House, the Democratic speaker of the House, Jim Wright called up Ed Gray and demanded that Gray get rid of Selby on the grounds that Selby was a homosexual. This is how recently these things were that badly screwed up. Even after we brought Charles Keating down, he sued, and one of his lieutenants began a deposition demanding to know who the employees at the Federal Home Loan Bank of San Francisco, where I was the top lawyer by then, were homosexuals. Under the allegation that gays are secretive, and they must have a secret conspiracy against Charles Keating because he’s a Christian. The chief judge, based on what we call a proffer by the lawyer that says, I have a good faith basis for this conspiracy. I’m not just making this shit up right – the judge, the chief judge in Arizona, which is where Lincoln Savings Home was, the parent company, allowed those questions. Now, after that good faith basis, the second question of that lawyer was, have you ever heard a rumor about who might be gay at San Francisco Bank, which is kind of inconsistent with a proffer. Our moderately senior supervisor who is being deposed came back at lunch break in absolute tears. She was just completely broken down by this outrageous treatment, and so this is the first I hear about it and I say the deposition is over, we are going to go for emergency writ in front of the judge, and of course, we destroyed them in that. They had absolutely no basis, but at that hearing, they started the hearing by making a motion to exclude me from the courtroom.

The lawyers for the Keating lieutenant say you shouldn’t allow Bill Black to be in this room, and the judge said that may have worked with Danny Wall, Gray’s infamous successor who caves into Keatings demands and extortion, but it is not going to work in this courtroom, and then because he’d been lied to in the proffer, he basically chopped the heads off these folks. That lieutenant I saw in other depositions. I went up to him and told him how scurrilous I thought he was. He said, I can’t be bigoted. I’m black. Well, I guess you proved it. Again, people forget how recently this kind of homophobia was absolutely dominant and could destroy executives. The point is, Selby prevented a Texas disaster from becoming a Texas catastrophe, knew it would lead not under Gray, but under his successors to his being smeared and fired and did it anyway for America. Mike Patriarca, a name people have not heard was his counterpart in California that I worked with, and he stopped the first aspect that I’ve talked about, this looting.

Now, I want to transition to the second aspect, which Patriarca also stops, and that is what becomes the great financial crisis, which actually is the third act of the savings and loan debacle of the early 1990s. This is literally true, Orange County, California, is the financial fraud capital of the world, not America, the world. We were out there and California had jurisdiction over it, and so the examiners came to us. Again, the examiners are the hero of this story, and they said there’s a new scam, and you’ve got to stop it.

Paul Jay

What year are we in?

Bill Black

This is 1990. All right, there’s a new scam and you’ve got to stop it now. So in 1990, we are still dealing with the second act of the savings loan debacle, the looting that I was talking about, and we are incredibly overwhelmed.

Is anybody charged at this point?

Oh, yes, hundreds, but you’re right to ask. It doesn’t happen immediately and I’ll bring you back, but I’ll tell that story briefly. No one was being charged in the 1980s. There wasn’t even a criminal referral system that was coherent. So first under Gray. Gray said, look, here are two top priorities. One, get the frauds out of controlling the savings and loan because as long as they’re in control, the losses are going to mount exponentially. Two, once you get them out, hold them personally accountable wherever possible by criminal prosecution. Also by lawsuits, not against the savings and loan, lawsuits against them, where you grab their funds.

So that’s what we did. So we figured out we had to develop a criminal referral system. So we started making referrals and soon we were making thousands of referrals. We decided to make them public every month. Well, this is back in the day when there were actually more reporters in places and pretty soon places like The Washington Post noticed. There are five thousand criminal referrals and only three prosecutions. What the hell’s going on? And they would start writing stories.

Paul Jay

Criminal referral means your agency tells the Department of Justice there’s a case here. It’s a referral to the DOJ. Am I right?

Bill Black

That is correct, And the FBI. They’re not just, hey, we think we got a problem. We had criminal referral coordinators and they met periodically with their counterparts, the FBI and Department of Justice. We got feedback on every major referral and then we would retrain folks about, OK, this is what they want, they think is weak. This is the strong part, and it got better and better. Continuous improvement regime and B school type jargon. These became superb. In major cases, the text was 40, 60 pages, and 200 to 400 pages of attachments with all kinds of easy things about how to find the most useful stuff. We really set out the entire path to make the prosecution successful.

Paul Jay

So, hundreds of these types of referrals and how many actual charges at that point.

Bill Black

So, thousands of these referrals and in the mid-1980s, essentially two or three prosecutions. The attorney general actually puts in his memoir that they just got tired of getting bashed with all of this. When a new guy comes in after the disgraceful Danny Wall, who gave in to the pressure of the five senators and the speaker of the House. The new guy was Tim Ryan. This is Bush one appointing Tim Ryan to be the new head of the agency. A very bright lawyer, and he hires a very aggressive litigator as his person because as he explains to me personally, he met with Bush and Bush said, corruption-george-h-w-bush

OK, new regime. He gets appointed in like 1992-ish and such there are over 20,000 thousand criminal referrals, by then there were 30,000 criminal referrals. By then there were a meaningful number of prosecutions, but Tim Ryan also sacrificed his career for the public knowingly, and what he did is bring an enforcement action. We massively increased enforcement actions as well. He brought an enforcement action against the son of a sitting president of the United States of America, and he’s been unemployable since.

Paul Jay

Which one?

Bill Black

Neil Bush. He’s the guy that brought that enforcement action and everybody knew what was going to happen if he did that, he was a super-fast tracker.

Paul Jay

If you go back to Gray and the gentleman you’re talking about now and you and your team, if all of you had caved to the pressure, what would have happened?

Bill Black

Something akin to the great financial crisis would have happened in the mid-90s.

Paul Jay

Which means these banks would have all failed, the federal insurance plan would have to have stepped in at the rate of.

Bill Black

Oh, it couldn’t have. They would have had to bail out the insurance plan, not in terms of billions, which they did eventually, but in trillions of dollars.

Paul Jay

Now, the Reagan administration, the professionals even on Wall Street, they must know this is how it’s unfolding, and you said earlier they don’t want this to go public because how do you do a tax cut in the midst of all this? So, I mean, it’s really part of the fraud that this keeps getting covered up.

Bill Black

Yeah, but I would go easy on the idea that they knew, right? Remember, the conventional wisdom that I gave you from Dick Pratt was well fraud by elites can’t ever be serious.

Paul Jay

Right, one person doing a $20 check is serious.

Bill Black

Well, they look like us, they can’t be real crooks. They dress nicely. They speak well. They can’t be real crooks; they can’t cause real problems.

Paul Jay

But when Gray gets his head around how serious this is and he’s a friend of Reagan. He must tell Reagan. So, from at least that point on.

Bill Black

No. Your point is absolutely logical, and I went to Ed Gray to make exactly that point. I said, you’re a personal friend. Tell him, and he said, you don’t understand, it’s impossible. I guarantee you, he’s right, because I know Ed Gray, not because I know Ronald Reagan. If Ed Gray says it was absolutely impossible, it was.

Paul Jay

Yeah, but from what I’m learning about Reagan. I’ve just been interviewing the guy Matt Tyrnauer who did this four part series called The Reagans for Showtime and reading some other stuff. Reagan didn’t want to hear what he didn’t want to know, not because he didn’t know, but he didn’t want to hear what he didn’t want to know.

Bill Black

Yeah, but what does he know about banking?

Paul Jay

Nothing, he just knows that the people that help make him president want such and such, so he doesn’t go against them.

Bill Black

As human beings, we are primed for those people that help us the most. They’re the last people in the world we see as cheats and fraudster’s, and Charles Keating was one of his leading donors.

Paul Jay

Was Keating part of that kitchen cabinet that helped get Reagan to run?

Bill Black

No, but Ed Gray was at the savings and loan that was at the heart of the San Diego savings and loan that was at the heart of that kitchen cabinet.

Paul Jay

Because, I mean, they deliberately created Ronald Reagan to be a front man for their agenda.

Bill Black

But again, that’s the point, right? So, Don Regan is his consiglieri. Don Regan is the self-professed Marine tough guy who his first words out of his mouth when he meets Ed Gray is you’re going to be a team player, aren’t you? And felt that he could intimidate folks and by the way, the very first thing the Bush administration did within months, its first major legislative proposal, was to make sure that this could never happen again. Now, this is not the crisis. This is Ed Gray. Could never happen again.

Paul Jay


Bill Black

Yeah, so the first thing the legislation did– we were an independent regulatory agency and they eliminated that and made it a bureau within the Treasury – a member of the executive branch, so that there could never be someone independent using their judgment again, I’m quite serious. That’s the first thing that they decided to get away with. So, again, you get this immensely successful prosecution. Let me make clear how successful this was. Our key strategic disadvantage, of course, was money. In the form of lobbying, in the form of political contributions. That’s how the terrible things were happening. That’s how at the behest of Charles Keating, the most notorious fraud in America, our jurisdiction in San Francisco, was removed over Keating, at the demand of the five senators and the speaker of the House, Jim Wright, and the cowardice of Gray’s successor, Danny Wall. For the first time in U.S. regulatory history, he removed the jurisdiction at the demand of the crooks because we had insisted on going forward with our recommendation that it be taken over by the federal government and we had made a criminal referral.

Paul Jay

And you’re including these senators in the crooks, these five.

Bill Black

Well, they were assisting the crooks. You can see my notes of the meeting, which is what made it something before the Senate Ethics Committee. Ultimately the only way to get them to back off was to tell them we were about to make a criminal referral and do they really want to be going full force for a massive felon.

Paul Jay

OK, we’re going to end this here and do a part two and I don’t know how many other parts, but we’re going to let this story unfold. And in the next part, I’m going to start by asking Bill, a thousand prosecutions or more. Some people actually went to jail out of all this, and by 2007, 2008, as this whole subprime of the crisis that unfolds, another massive essentially financial fraud, the people involved are not very worried about going to jail. So why when so many people eventually did go to jail, do the next crop of these fraudsters seem absolutely unconcerned that this is going to come down on their heads. So we’ll take that up in the next part with Bill. Thanks for joining us on Thank you, Bill, and look out for part two of our series.

Reaganism is the Model for Trumpism – Matt Tyrnauer director of ‘The Reagans’

The documentary series “The Reagans” shows that President Ronald Reagan’s roots are corruption, racism, and corporatism. Trumpism is not an anomaly but walks in the footsteps of a right-wing construct to achieve tax cuts for the rich and undoing the New Deal. Director Matt Tynrauer joins with Paul Jay.

The Real Donald Trump Is a Character on TV

Understand that, and you’ll understand what he’s doing in the White House.

On Sept. 1, with a Category 5 hurricane off the Atlantic coast, an angry wind was issuing from the direction of President Trump’s Twitter account. The apparent emergency: Debra Messing, the co-star of “Will & Grace,” had tweeted that “the public has a right to know” who is attending a Beverly Hills fund-raiser for Mr. Trump’s re-election.

“I have not forgotten that when it was announced that I was going to do The Apprentice, and when it then became a big hit, Helping NBC’s failed lineup greatly, @DebraMessing came up to me at an Upfront & profusely thanked me, even calling me ‘Sir,’ ” wrote the 45th president of the United States.

It was a classic Trumpian ragetweet: aggrieved over a minor slight, possibly prompted by a Fox News segment, unverifiable — he has a long history of questionable tales involving someone calling him “Sir” — and nostalgic for his primetime-TV heyday. (By Thursday he was lashing Ms. Messing again, as Hurricane Dorian was lashing the Carolinas.)

This is a futile effort. Try to understand Donald Trump as a person with psychology and strategy and motivation, and you will inevitably spiral into confusion and covfefe. The key is to remember that Donald Trump is not a person. He’s a TV character.

I mean, O.K., there is an actual person named Donald John Trump, with a human body and a childhood and formative experiences that theoretically a biographer or therapist might usefully delve into someday. (We can only speculate about the latter; Mr. Trump has boasted on Twitter of never having seen a psychiatrist, preferring the therapeutic effects of “hit[ting] ‘sleazebags’ back.”)

But that Donald Trump is of limited significance to America and the world. The “Donald Trump” who got elected president, who has strutted and fretted across the small screen since the 1980s, is a decades-long media performance. To understand him, you need to approach him less like a psychologist and more like a TV critic.

He was born in 1946, at the same time that American broadcast TV was being born. He grew up with it. His father, Fred, had one of the first color TV sets in Jamaica Estates. In “The Art of the Deal” Donald Trump recalls his mother, Mary Anne, spending a day in front of the tube, enraptured by the coronation of Queen Elizabeth in 1953. (“For Christ’s sake, Mary,” he remembers his father saying, “Enough is enough, turn it off. They’re all a bunch of con artists.”)

TV was his soul mate. It was like him. It was packed with the razzle-dazzle and action and violence that captivated him. He dreamed of going to Hollywood, then he shelved those dreams in favor of his father’s business and vowed, according to the book “TrumpNation” by Timothy O’Brien, to “put show business into real estate.”

As TV evolved from the homogeneous three-network mass medium of the mid-20th century to the polarized zillion-channel era of cable-news fisticuffs and reality shocker-tainment, he evolved with it. In the 1980s, he built a media profile as an insouciant, high-living apex predator. In 1990, he described his yacht and gilded buildings to Playboy as “Props for the show … The show is ‘Trump’ and it is sold-out performances everywhere.”

He syndicated that show to Oprah, Letterman, NBC, WrestleMania and Fox News. Everything he achieved, he achieved by using TV as a magnifying glass, to make himself appear bigger than he was.

He was able to do this because he thought like a TV camera. He knew what TV wanted, what stimulated its nerve endings. In his campaign rallies, he would tell The Washington Post, he knew just what to say “to keep the red light on”: that is, the light on a TV camera that showed that it was running, that you mattered. Bomb the [redacted] out of them! I’d like to punch him in the face! The red light radiated its approval. Cable news aired the rallies start to finish. For all practical purposes, he and the camera shared the same brain.

Even when he adopted social media, he used it like TV. First, he used it like a celebrity, to broadcast himself, his first tweet in 2009 promoting a “Late Show With David Letterman” appearance. Then he used it like an instigator, tweeting his birther conspiracies before he would talk about them on Fox News, road-testing his call for a border wall during the cable-news fueled Ebola and border panics of the 2014 midterms.

When he was a candidate, and especially when he was president, his tweets programmed TV and were amplified by it. On CNBC, a “BREAKING NEWS: TRUMP TWEET” graphic would spin out onscreen as soon as the words left his thumbs. He would watch Fox News, or Lou Dobbs, or CNN or “Morning Joe” or “Saturday Night Live” (“I don’t watch”), and get mad, and tweet. Then the tweets would become TV, and he would watch it, and tweet again.

If you want to understand what President Trump will do in any situation, then, it’s more helpful to ask: What would TV do? What does TV want?

It wants conflict. It wants excitement. If there is something that can blow up, it should blow up. It wants a fight. It wants more. It is always eating and never full.

Some presidential figure-outers, trying to understand the celebrity president through a template that they were already familiar with, have compared him with Ronald Reagan: a “master showman” cannily playing a “role.”

The comparison is understandable, but it’s wrong. Presidents Reagan and Trump were both entertainers who applied their acts to politics. But there’s a crucial difference between what “playing a character” means in the movies and what it means on reality TV.

Ronald Reagan was an actor. Actors need to believe deeply in the authenticity and interiority of people besides themselves — so deeply that they can subordinate their personalities to “people” who are merely lines on a script. Acting, Reagan told his biographer Lou Cannon, had taught him “to understand the feelings and motivations of others.”

Being a reality star, on the other hand, as Donald Trump was on “The Apprentice,” is also a kind of performance, but one that’s antithetical to movie acting. Playing a character on reality TV means being yourself, but bigger and louder.

Reality TV, writ broadly, goes back to Allen Funt’s “Candid Camera,” the PBS documentary “An American Family,” and MTV’s “The Real World.” But the first mass-market reality TV star was Richard Hatch, the winner of the first season of “Survivor” — produced by Mark Burnett, the eventual impresario of “The Apprentice”— in the summer of 2000.

Mr. Hatch won that first season in much the way that Mr. Trump would run his 2016 campaign. He realized that the only rules were that there were no rules. He lied and backstabbed and took advantage of loopholes, and he argued — with a telegenic brashness — that this made him smart. This was a crooked game in a crooked world, he argued to a final jury of players he’d betrayed and deceived. But, hey: At least he was open about it!

While shooting that first season, the show’s crew was rooting for Rudy Boesch, a 72-year-old former Navy SEAL and model of hard work and fair play. “The only outcome nobody wanted was Richard Hatch winning,” the host, Jeff Probst, would say later. It “would be a disaster.” After all, decades of TV cop shows had taught executives the iron rule that the viewers needed the good guy to win.

But they didn’t. “Survivor” was addictively entertaining, and audiences loved-to-hate the wryly devious Richard the way they did Tony Soprano and, before him, J.R. Ewing. More than 50 million people watched the first-season finale, and “Survivor” has been on the air nearly two decades.

From Richard Hatch, we got a steady stream of Real Housewives, Kardashians, nasty judges, dating-show contestants who “didn’t come here to make friends” and, of course, Donald Trump.

Reality TV has often gotten a raw deal from critics. (Full disclosure: I still watch “Survivor.”) Its audiences, often dismissed as dupes, are just as capable of watching with a critical eye as the fans of prestige cable dramas. But when you apply its mind-set — the law of the TV jungle — to public life, things get ugly.

In reality TV — at least competition reality shows like “The Apprentice” — you do not attempt to understand other people, except as obstacles or objects. To try to imagine what it is like to be a person other than yourself (what, in ordinary, off-camera life, we call “empathy”) is a liability. It’s a distraction that you have to tune out in order to project your fullest you.

Reality TV instead encourages “getting real.” On MTV’s progressive, diverse “Real World,” the phrase implied that people in the show were more authentic than characters on scripted TV — or even than real people in your own life, who were socially conditioned to “be polite.” But “getting real” would also resonate with a rising conservative notion: that political correctness kept people from saying what was really on their minds.

Being real is not the same thing as being honest. To be real is to be the most entertaining, provocative form of yourself. It is to say what you want, without caring whether your words are kind or responsible — or true — but only whether you want to say them. It is to foreground the parts of your personality (aggression, cockiness, prejudice) that will focus the red light on you, and unleash them like weapons.

Maybe the best definition of being real came from the former “Apprentice” contestant and White House aide Omarosa Manigault Newman in her memoir, “Unhinged.” Mr. Trump, she said, encouraged people in his entourage to “exaggerate the unique part of themselves.” When you’re being real, there is no difference between impulse and strategy, because the “strategy” is to do what feels good.

This is why it misses a key point to ask, as Vanity Fair recently did after Mr. Trump’s assault on Representative Elijah E. Cummings and the city of Baltimore in July, “Is the president a racist, or does he just play one on TV?” In reality TV, if you are a racist — and reality TV has had many racists, like Katie Hopkins, the far-right British “Apprentice” star the president frequently retweets — then you are a racist and you play one on TV.

So if you actually want a glimpse into the mind of Donald J. Trump, don’t look for a White House tell-all or some secret childhood heartbreak. Go to the streaming service Tubi, where his 14 seasonsof “The Apprentice” recently became accessible to the public.

You can fast-forward past the team challenges and the stagey visits to Trump-branded properties. They’re useful in their own way, as a picture of how Mr. Burnett buttressed the future president’s Potemkin-zillionaire image. But the unadulterated, 200-proof Donald Trump is found in the boardroom segments, at the end of each episode, in which he “fires” one contestant.

In theory, the boardroom is where the best performers in the week’s challenges are rewarded and the screw-ups punished. In reality, the boardroom is a new game, the real game, a free-for-all in which contestants compete to throw one another under the bus and beg Mr. Trump for mercy.

There is no morality in the boardroom. There is no fair and unfair in the boardroom. There is only the individual, trying to impress Mr. Trump, to flatter Mr. Trump, to commune with his mind and anticipate his whims and fits of pique. Candidates are fired for

  • being too nice to their adversaries (weak), for
  • giving credit to their teammates, for
  • interrupting him.

The host’s decisions were often so mercurial, producers have said, that they would have to go back and edit the episodes to impose some appearance of logic on them.

What saves you in the boardroom? Fighting. Boardroom Trump loves to see people fight each other. He perks up at it like a cat hearing a can opener. He loves to watch people scrap for his favor (as they eventually would in his White House). He loves asking contestants to rat out their teammates and watching them squirm with conflict. The unity of the team gives way to disunity, which in the Trumpian worldview is the most productive state of being.


And America loved boardroom Trump — for a while. He delivered his catchphrase in TV cameos and slapped it on a reissue of his 1980s Monopoly knockoff Trump: The Game. (“I’m back and you’re fired!”) But after the first season, the ratings dropped; by season four they were nearly half what they were in season one.

He reacted to his declining numbers by ratcheting up what worked before: becoming a louder, more extreme, more abrasive version of himself. He gets more insulting in the boardroom — “You hang out with losers and you become a loser”— and executes double and quadruple firings.

It’s a pattern that we see as he advances toward his re-election campaign, with an eye not on the Nielsen ratings but on the polls: The only solution for any given problem was a Trumpier Trump.

Did it work for “The Apprentice”? Yes and no. His show hung on to a loyal base through 14 seasons, including the increasingly farcical celebrity version. But it never dominated its competition again, losing out, despite his denials, to the likes of the sitcom “Mike & Molly.”

Donald Trump’s “Apprentice” boardroom closed for business on Feb. 16, 2015, precisely four months before he announced his successful campaign for president. And also, it never closed. It expanded. It broke the fourth wall. We live inside it now.

Now, Mr. Trump re-creates the boardroom’s helter-skelter atmosphere every time he opens his mouth or his Twitter app. In place of the essentially dead White House press briefing, he walks out to the lawn in the morning and reporters gaggle around him like “Apprentice” contestants awaiting the day’s task. He rails and complains and establishes the plot points for that day’s episode:

  • Greenland!
  • Jews!
  • “I am the chosen one!”

Then cable news spends morning to midnight happily masticating the fresh batch of outrages before memory-wiping itself to prepare for tomorrow’s episode. Maybe this sounds like a TV critic’s overextended metaphor, but it’s also the president’s: As The Times has reported, before taking office, he told aides to think of every day as “an episode in a television show in which he vanquishes rivals.”

Mr. Trump has been playing himself instinctually as a character since the 1980s; it’s allowed him to maintain a profile even through bankruptcies and humiliations. But it’s also why, on the rare occasions he’s had to publicly attempt a role contrary to his naturecalling for healing from a script after a mass shooting, for instance — he sounds as stagey and inauthentic as an unrehearsed amateur doing a sitcom cameo.

His character shorthand is “Donald Trump, Fighter Guy Who Wins.” Plop him in front of a camera with an infant orphaned in a mass murder, and he does not have it in his performer’s tool kit to do anything other than smile unnervingly and give a fat thumbs-up.

This is what was lost on commentators who kept hoping wanly that this State of the Union or that tragedy would be the moment he finally became “presidential.” It was lost on journalists who felt obligated to act as though every modulated speech from a teleprompter might, this time, be sincere.

The institution of the office is not changing Donald Trump, because he is already in the sway of another institution. He is governed not by the truisms of past politics but by the imperative of reality TV: never de-escalate and never turn the volume down.

This conveniently echoes the mantra he learned from his early mentor, Roy Cohn: Always attack and never apologize. He serves up one “most shocking episode ever” after another, mining uglier pieces of his core each time: progressing from profanity about Haiti and Africa in private to publicly telling four minority American congresswomen, only one of whom was born outside the United States, to “go back” to the countries they came from.

  • The taunting.
  • The insults.
  • The dog whistles.
  • The dog bullhorns.
  • The “Lock her up” and “Send her back.”

All of it follows reality-TV rules. Every season has to top the last. Every fight is necessary, be it against Ilhan Omar or Debra Messing. Every twist must be more shocking, every conflict more vicious, lest the red light grow bored and wink off. The only difference: Now there’s no Mark Burnett to impose retroactive logic on the chaos, only press secretaries, pundits and Mike Pence.

To ask whether any of this is “instinct” or “strategy” is a parlor game. If you think like a TV camera — if thinking in those reflexive microbursts of adrenaline and testosterone has served you your whole life — then the instinct is the strategy.

And to ask who the “real” Donald Trump is, is to ignore the obvious. You already know who Donald Trump is. All the evidence you need is right there on your screen. He’s half-man, half-TV, with a camera for an eye that is constantly focused on itself. The red light is pulsing, 24/7, and it does not appear to have an off switch.

Europe’s Struggling Political Parties Promise a Return to the Pre-Thatcherite Era

BERLIN—To win voters lost to an anti-globalization backlash, Europe’s mainstream parties are going back to the 1970s.

In Germany, the U.K, Denmark, France and Spain, these parties are aiming to reverse decades of pro-market policy and promising greater state control of business and the economy, more welfare benefits, bigger pensions and higher taxes for corporations and the wealthy. Some have discussed nationalizations and expropriations.

It could add up to the biggest shift in economic policy on the continent in decades.

In Germany, Europe’s biggest economy, the government has increased social spending in a bid to stop the exodus of voters to antiestablishment, populist and special-interest parties. Reacting to pressure on both ends of the political spectrum, it passed the largest-ever budget last year.

“The zeitgeist of globalization and liberalization is over,” said Ralf Stegner, vice chairman of the 130-year-old Social Democratic Party, the junior partner in Chancellor Angela Merkel’s government coalition. “The state needs to become much more involved in key areas such as work, pensions and health care.”

The policies mark the end of an era in Europe that started four decades ago, with the ascent of former British Prime Minister Margaret Thatcher and her U.S. ally, President Ronald Reagan.

Margaret Thatcher and Ronald Reagan in Paris, 1982. PHOTO: ASSOCIATED PRESS

After Thatcher abolished capital controls in 1979 and began selling off state companies in the 1980s, other European governments followed suit, embracing supply-side policies, deregulation, market liberalization and tax cuts. Revenues from privatization among European Union member states rose from $13 billion in 1990 to $87 billion in 2005, according to Privatization Barometer, a database run by consultancy KPMG Advisory S.p.A.

Today, concerns about growing inequality, stagnating wages, immigration, the debt crisis and China’s rising power have fueled the recent political shift. European businesses and governments also worry about potential changes in U.S. policy, amid looming threats of trade sanctions.

Smaller State Governments across Europe retreated from many economic sectors and sold state companies starting inthe 1980s.Privatization proceeds in EU countriesSource: Privatization Barometer reports

This erosion of the old technocratic consensus about how to run an economy, even in countries where populists aren’t getting any closer to power, could be one the most lasting consequences of the recent antiestablishment surge.

Even in countries where populist parties are already in government, such as Poland, those parties have shifted their focus from nationalist and anti-immigration rhetoric to championing generous welfare policies and state aid.

Bigger BenefitsGermany’s government has increased socialspending in a bid to win over voters. Germany’s government spendingSource: Germany’s Federal Ministry of FinanceNotes: Data through 2017 are actual; 2018 and 2019are targets. €1=$1.14
.billionSocial and welfare benefitsOther spending2012’13’14’15’16’17’18’19050100150200250300350€400

Germany’s SPD has embraced additional welfare spending, paid for by tax revenues, to combat a retreat of voters so rapid it threatens to turn the once-dominant force in German politics into a niche player. The party is now pushing for policies such as unconditional pension for people who have worked for a certain period but didn’t make sufficient contributions into the pension pot.

In the U.K., Jeremy Corbyn, leader of the opposition Labor Party, has proposed renationalizing railways, public utilities, the postal service and the Royal Bank of Scotland ,the country’s second-biggest lender. It’s effectively a reversal of the privatization spree initiated by Ms. Thatcher. The party is also toying with policies such as universal basic income for all and a four-day working week for public-sector employees.

Labor has been polling ahead of the ruling Conservatives in opinion surveys for most of the past two years.

The re-nationalization plan would cost around $210 billion, according to an estimate by New York-based consulting firm S&P Global. Labor has said it would issue treasury bonds to finance nationalizations. Thames Water, the U.K.’s largest water company, added a clause to its bond to make sure holders are repaid immediately should it be nationalized.

U.K. Labor leader Jeremy Corbyn in May. PHOTO: BEN BIRCHALL/PA IMAGES/GETTY IMAGES

In France, President Emmanuel Macron reacted to weeks of violent street protests by abolishing plans to increase fuel prices and announcing measures to boost the incomes of low earners. The estimated cost of the spending is more than €10 billion ($11 billion). In a symbolic concession to the antiestablishment yellow-vest movement, Mr. Macron declared he would shut down the university École Nationale d’Administration, his own alma mater, because it instigated elitism.

Mr. Macron reversed a decision to eliminate 200,000 civil-service jobs and announced a tax increase for companies that overly rely on short-term contracts, which his government blames for creating an underclass of workers. In addition, monthly pensions of less than €2,000 have been pegged to the rate of inflation.

He also embraced the idea of holding referendums on certain policy issues, a key demand of populist leaders. The first major referendum will decide whether the sale of the state’s majority stake in the company that runs Paris’s airports should go ahead as planned.

French President Emmanuel Macron in May. PHOTO: PIROSCHKA VAN DE WOUW/REUTERS

Denmark’s Social Democrats, who had been out of government since 2015, won a general election on June 5 following a policy makeover that included going further left on economic policy, while sharply turning right on immigration. They pledged to increase public spending and taxes for companies and the wealthy, and to enable early retirement by rolling back some recent pension changes. Their far-right rivals the People’s Party suffered a major loss in the election.

The reaction from European economists is decidedly mixed.

Some have greeted the shift as a welcome correction to years of pro-business and free-trade policies they think have dug deep rifts in Western societies.

“The lesson from Germany is: Strong growth and a generous social welfare system alone are insufficient to satisfy voters. Globalization and technological change are putting pressure on many people,” said Marcel Fratzscher, head of the German Institute for Economic Research, a Berlin-based think tank. “Europe’s social welfare state needs a fundamental overhaul as it has to focus on empowering people and on stopping the market abuse of firms and lobby groups.”

Others are concerned Europe is deviating from proven economic recipes just as growth is wobbling, or that the policies are outdated.

“We are indeed seeing a kind of return to the pre-Thatcherite approach, but it is doubtful that policies from the era of closed markets and capital controls could work in a globalized world. A vision of the past can’t be implemented in the present,” said Branko Milanovic, a New York-based Serbian-American economist who studies income distribution and inequality.

In Germany, despite a decade of robust economic growth and near full employment, almost four million working people receive welfare benefits to supplement their income. Around one-quarter of all employees work in the low-wage sector, according to government statistics and research by Mr. Fratzscher’s group.

Low Wages Increased competition put downward pressure on wages, while shrinking unemployment benefits increased incentives for Germans to take lower paying jobs. Share of German workers who are low paid*Source: German Institute for Economic Research*Those who make less than two-thirds of the country’s median earnings

Subsidies to Germany’s mandatory pay-as-you-go pension scheme almost reached the €100 billion mark for the first time in 2018. Earlier this year, Ms. Merkel’s government adopted a new industrial strategy that centers on protecting German companies from foreign competition, including by enabling the government to buy stakes in businesses to shield them from foreign acquisition.

Peter Altmaier, economics minister and author of the industry strategy, said it was designed in part to address the anxieties of Germans who have been drawn to far-left and far-right parties in recent years.

Germany’s SPD, the junior partner in Germany’s government coalition, is now debating whether large real-estate investors should be expropriated as a way to stabilize rents. In Berlin, where they preside over the local government, the SPD announced a freeze on rent prices. The head of its youth wing recently called for car maker BMW to be nationalized, earning grass-roots plaudits and some support from SPD ministers and mayors.

The SPD scored its worst result ever at last month’s European Union election. Polling around 12% to 14%, it is a shadow of its 1998 self, when it gathered 41% of the vote.


The environment-focused, center-left Greens more than doubled their votes between the country’s last general election in September 2017 and the EU election. It is now polling at around 26%. At least two polls since early June showed the Greens had become Germany’s most popular party for the first time since its creation in the 1980s—ahead of Ms. Merkel’s Christian Democratic Union.

Twenty years ago, the German Greens co-wrote with the SPD the country’s last big tax cuts and a deeply unpopular overhaul of labor-market legislation. Today, the party is toying with an unconditional universal income and seizing real estate from commercial landlords as a way to stop rent increases.

The far-right Alternative for Germany, known as AfD, lost ground in last month’s EU election, and is now polling around 13%.


How can Europe’s mainstream political parties win back voters? Join the conversation below.

The AfD has campaigned on immigration in recent elections. Party leaders recently consulted with Steven K. Bannon, President Trump’s former chief strategist and now an adviser to nationalist and populist parties in Europe. In a meeting in Berlin on May 13, he advised the leaders to tone down their anti-Islam fervor, purge radical members, and refocus their message from identity politics to economics.

“The real message is the economy,” Mr. Bannon said in an interview. “Populists need to talk to the workers.”

Jörg Meuthen, the AfD co-chair who met Mr. Bannon, said he agreed, but questioned the timing of the message. He said Germany’s economy—with record low unemployment and slowing but still positive growth—remained too healthy for an immediate policy shift.

When the recession kicks in and people start worrying about their jobs, then we can roll out economic campaigns and show our competence. Populists must look at what is affecting people emotionally, and at the moment that is migration and the climate,” Mr. Meuthen said.

Globalization BacklashProtest parties focused on denouncing the economic, cultural and security impact of globalization have drawn more attention across Europe.Populist party poll performance in selected countries Source: NomuraNote: Weighted averages of national polls.

In Spain, Pedro Sanchez, acting premier and leader of the Socialist Party, won the national and the EU elections this year after sharply raising the minimum wage and announcing a boost in social benefits and corporate taxes.

Mr. Sanchez’s bet on wooing working-class voters lost to protest parties paid off, said Daniel Diaz Fuentes, professor of economics at the Spanish university of Cantabria. Mr. Fuentes said that the rise of populism could trigger a re-nationalization wave.

“I think that the state will become a much more active entrepreneurial actor via venture capital and involvement in investment via the banking system,” Mr. Fuentes said.

Two TrajectoriesThe income of low earners has decreased since 1980, while that of top earners has grown.Income shares of the top 10% in European regions*
Income shares of the bottom 50% in European regions*Source: Thomas Blanchet, Lucas Chancel and Amory Gethin, World Inequality Database*Population-weighted country averages

Wolfgang Schmidt, deputy German finance minister and one of the strategists behind the SPD’s new approach, said the success of socialists in Spain, Britain and Denmark, in elections and opinion polls, shows that voters have turned against economic orthodoxy.

“As a society, we need to stop looking down on people. Anxiety about the future of work is driving voters to populists. People read about automation and self-driving cars and they ask themselves what will happen to their jobs in the near future,” he said.

Many European politicians and economists say the swing away from markets and back to the state misses the point of many voters’ anxiety, which is rooted in politics or culture. An annual poll about the fears of Germans conducted by the R+V Versicherung AG insurance group found that nine of respondents’ top 10 fears focused on politics, security and health. Economic concerns dominated between 2004 and 2015.

Paul Ziemiak, the second most senior official in Ms. Merkel’s conservative party, opposes what he says is an SPD-driven spending spree. “These policies have never made any country successful. Countries that have [tried them] have ultimately failed—politically, but also economically,” he said.

Protectionism would destroy a German economy built on exports and cross-border supply chains, said Clemens Fuest, an economist and adviser to the German government. Ambitious redistribution programs such as pension increases, early retirement or a universal income would collapse as soon as tax revenues fall in the slowdown. Companies were privatized 30 years ago because the state is generally bad at managing businesses, he said.

“Established parties are taking over the populists’ agenda to show voters that they have heard their message,” Mr. Fuest said. “But they are making big promises that cannot be kept.”

Making Sense of the New American Right

Keeping track of the Jacksonians, Reformicons, Paleos, and Post-liberals.

I like to start my classes on conservative intellectual history by distinguishing between three groups. There is the Republican party, with its millions of adherents and spectrum of opinion from very conservative, somewhat conservative, moderate, and yes, liberal. There is the conservative movement, the constellation of single-issue nonprofits that sprung up in the 1970s

  • gun rights,
  • pro-life,
  • taxpayer,
  • right to work

— and continue to influence elected officials. Finally, there is the conservative intellectual movement: writers, scholars, and wonks whose journalistic and political work deals mainly with ideas and, if we’re lucky, their translation into public policy.

Reagan’s Supply-Side Warriors Blaze a Comeback Under Trump

Like perms, Members Only jackets and Duran Duran, their economic theories were big in the go-go 1980s. Now they’re back.

On a Tuesday evening earlier this month, several dozen Washingtonians gathered in a ballroom at the Trump International Hotel, ostensibly to enjoy an open bar and watch a new PBS documentary about money. In reality, the event also served as a rally for a small clique whose fierce devotion to supply-side economics made them influential figures in the 1980s, and has won them renewed clout and access under President Donald Trump.

Invitations listed the hosts as Stephen Moore, a habitué of conservative think tanks, and Art Laffer, the supply-side economist, who did not end up attending. Larry Kudlow, the director of Trump’s National Economic Council and one of the president’s closest advisers, showed up in a pinstriped suit. “Larry Kudlow is my best friend in the world,” gushed Moore in opening remarks, noting that Laffer and Kudlow served as co-best men at his wedding to his second wife, Anne, who sat in the front row. Taking the floor next, Kudlow gazed out at the room and offered a shoutout to Adele Malpass, a RealClearPolitics reporter and former chairwoman of the Manhattan Republican Party, whose husband, David, has just taken over as president of the World Bank on Trump’s say-so.

Those decades of free-market machinations are now paying off, as a quintet of Ronald Reagan administration alumni — Kudlow, Laffer, Forbes, Moore and David Malpass—united by undying affection for each other and for laissez-faire economics, have the run of Washington once more. Members of the tight-knit group have shaped Trump’s signature tax cut, helped install each other in posts with vast influence over the global economy, and are working to channel Trump’s mercantilist instincts into pro-trade policies. Blasted by their critics as charlatans and lauded by their acolytes as tireless champions of prosperity, there’s no denying that the quintet has had an enduring impact on decades of economic policy.

Most recently, in late March, and partly at Kudlow’s urging, Trump announced his intention to nominate Moore to one of two open seats on the Federal Reserve Board of Governors, the body that sets the tempo of the global financial system.

The announcement prompted protests from economists across the ideological spectrumGeorge W. Bush’s top economist, Harvard’s Gregory Mankiw, said Moore lacked the “intellectual gravitas” for the job—who warned that appointing Moore, a think-tanker with no Ph.D., would politicize the Fed. Soon, it emerged that Moore had made a mistake on a 2014 tax return that led the IRS to place a disputed $75,000 lien against him, and CNN dug up scathing comments Moore had made about Trump during the presidential primary.

Whether Moore can survive the scrutiny and pass muster with the Senate will be a test of the supply-siders’ renewed cachet. They believe they can pull it off.

“I understand there are imperfections,” Kudlow told POLITICO. “I think it can be worked out.”

Moore described some of his recent conversations with Trump, which often turn to Fed Chairman Jerome Powell.

“I think his criticism of Powell is excessive and could be counterproductive,” Moore said, because it could actually provoke Powell to prove his independence by defying Trump’s wishes. Generally speaking, Trump wants Powell to keep interest rates low to decrease the chances of any economic slump before the president faces voters again next November.

Moore also recounted how he and Laffer, who began advising Trump in 2016, helped place Kudlow in his current posting.

Roughly a year into Trump’s term, as Trump’s first NEC director, Gary Cohn, prepared to depart the post, the duo sprang into action. Moore said that during this period, whenever he and Laffer engaged in their semiregular consultations with Trump, they would have some version of the following exchange:

“You know, Mr. President, you’re missing one thing,” Laffer or Moore would say.

“What is that?” Trump would ask.

“Larry Kudlow,” Laffer or Moore would tell him.

We just drilled the message over and over,” Moore recalled. “‘Larry, Larry, Larry, Larry.’”

At the same time, Moore said, the pair worked the press. “We made a concerted effort to make it seem like a fait accompli that Larry would get the job.”

That included knifing a few of Kudlow’s rivals. “We had a campaign to say ‘this person’s completely unqualified,’” he said, though he declined to name their targets. “I think we took them down,” he added.

It proves that in Washington, appearance is reality, sometimes,” Moore continued. “So that was highly effective.

During that same period, following the 1974 midterms, Laffer first drewhis famous Laffer Curve — a representation of the idea that at a certain level of taxation, lowering taxes would theoretically spur enough growth that government revenue would actually rise—at a meeting near the White House with Wanniski, Dick Cheney, then an aide to President Gerald Ford, and Grace-Marie Arnett, another free marketeer active in Republican politics.

Reagan would go on to fully embrace supply-side theory, a shift from the party’s traditional emphasis on fiscal discipline, appointing Laffer to his Economic Policy Advisory Board.

Then as now, supply-side economics was criticized for favoring the rich and derided by critics as unrealistic “Voodoo Economics.” The critics got an early boost from a 1981 Atlantic cover story in which Reagan’s budget director, David Stockman, aired his doubts that this novel theory was working in practice.

The piece ruined Stockman’s standing with Reagan—Laffer calls him “the traitor of all traitors”—but Stockman’s young aide, Kudlow, now 71, remained a loyal supply-sider and struck up a relationship with Laffer.

Reagan would go on to appoint Forbes as the head of the Board of International Broadcasting, which oversaw Radio Liberty and Radio Free Europe, and Moore worked as the research director for Reagan’s privatization commission. Malpass, meanwhile, worked in Reagan’s Treasury department. Representatives for Forbes and Malpass said they were not available for interviews.

In the 1988 presidential primary, another supply-sider, the late New York congressman Jack Kemp, lost out to George H.W. Bush, curtailing the crew’s influence within the party.

But they stuck together. Moore, now 59, first became close with Laffer and Kudlow in 1991, after he recruited them to participate in an event celebrating the 10-year anniversary of Reagan’s first tax cuts for the libertarian Cato Institute.

In 1993, Kudlow and Forbes teamed up to craft a tax cut plan for New Jersey gubernatorial candidate Christine Todd Whitman, who went on to unseat incumbent Democrat James Florio.

Meanwhile, Kudlow hired Malpass to work for him at Bear Stearns, where he had been flying high as the investment bank’s chief economist.

The next year, Kudlow crashed to earth—he left the bank and entered rehab for alcohol and cocaine addiction. Laffer stuck by Kudlow, hiring the investment banker to work for his consulting firm in California when he emerged.

In 1996, Forbes, backed by Moore, entered the Republican primary and lost out to Bob Dole, but the group takes credit for getting Kemp picked for the bottom half of that year’s ticket, which lost to incumbent Bill Clinton.

At some point, Forbes, Kudlow, Moore and Laffer became inseparable in the eyes of their peers.

You could call them the Four Musketeers of the supply-side movement,” said Avik Roy, an editor at Forbes involved in some of the group’s advocacy. Or you could call them the “the supply-side Beatles,” as Moore does—or “the four amigos,” as anti-tax crusader Grover Norquist does. “There’s a fourness to them,” observed Jack Fowler, vice president of the conservative National Review.

Malpass, 63, who has maintained a lower public profile over the years, qualifies as something of a fifth musketeer.

“They’re a little rat pack. There’s no doubt about that,” said one New York financial world player who keeps in touch with the group. “They’re all pretty straight guys. They’re not criminals. They don’t do anything weird, outwardly. You know what I’m saying? They like talking about supply-side economics. They get hard talking about tax cuts.”

Whatever you call them, there’s no denying their impact on American society. The group has argued that the best way to manage the economy is to make life easier for the producers of goods and services—by limiting taxes and regulations—so that producers are incentivized to supply more of these goods and services to the market, and that taming deficits is less important than spurring growth.

Before Reagan took office and empowered the supply-siders, the top marginal federal income tax rate in the U.S. had remained somewhere north of 60 percent since the Great Depression. Under their influence, Reagan briefly pushed the top rate below 30 percent, and it has not returned to anything near the pre-Reagan status quo since then.

Before Reagan, the national debt-to-GDP ratio had been declining since World War II, thanks in large part to the old Republican school of fiscal discipline. Since Reagan, the debt ratio has been climbing back toward its wartime peak. Trade and migration barriers have also come down. American society has become both wealthier in real GPD terms and more unequal. These trends have persisted thanks to a post-Cold War, bipartisan free market consensus, and to the bipartisan Keynesian response to the last financial crisis—but it was the supply-siders who really got the party started.

And they have not stopped partying since. Members of the group have continued to actively socialize with each other over the decades, with some spending New Year’s eves together. At one birthday party for Laffer in New York, they presented the aging economist with a signed poster of the Jedi master Yoda. “I’m short, a little bit fat. I’ve got big, green ears,” Laffer explained. “I look sort of like Yoda.”

In 2015, Forbes, Laffer, Kudlow and Moore created the Committee to Unleash Prosperity, a group intended in part to counter the emergence of the “Reformicons,” a rival gang of Republican eggheads who felt the party had gone too far in the direction of laissez-faire policies favoring the rich.

Among the other 29 committee members listed in a press release were both Malpasses, Kevin Hassett, now chairman of Trump’s Council of Economic Advisers, and Andy Puzder, who was Trump’s initial pick for labor secretary until allegations of domestic abuse unearthed by POLITICO derailed his nomination.

The group sought, with considerable success, to vet Republican presidential candidates for their supply-side credentials and to influence their platforms, holding large private dinners at Manhattan venues such as the Four Seasons and the 21 Club, so that committee members and other notable invitees—like Rudy Giuliani and Roger Ailes—could feel out the candidates.

Before meeting with the larger group, candidates would huddle with the committee’s founders to receive economic tutorials. Or in the case of Ohio Governor John Kasich, to give one. “We were all sitting there, and he would talk for an hour,” Moore recalled. “We’re like, ‘No, we’re supposed to be talking to you,’ and he’s talking to us.” Moore called the episode “Classic John Kasich.”

Though the events were supposed to be off the record, journalists often attended, and an otherwise lackluster February 2015 dinner for Wisconsin Governor Scott Walker made headlines when Giuliani barged in, proclaimed he did not believe that President Barack Obama “loves America,” and insisted a POLITICO reporter could print the quote.

Almost every serious Republican candidate participated in the dinners—but when Trump’s campaign first came calling early in the mogul’s bid, Moore said the committee passed.

It just seemed like a joke to me that he was even running. I was like, ‘No, we’re a serious organization,’” he recalled. In hindsight, Moore said, “That was stupid.”

Meanwhile, Trump defied the committee’s free market orthodoxy on issues like trade and immigration, drawing public criticism from both Moore and Kudlow, and feuded with the laissez-faire Club for Growth, which Moore had co-founded in the late ’90s.

At the same time, Kudlow—who spent two decades in media as a National Review editor and CNBC host—was also eyeing a 2016 Senate run in Connecticut, but he did not jump in.

As the voting started, it became clear that Trump was emerging as the likely nominee, but he continued to have trouble attracting experienced advisers. In March 2016, then-campaign manager Corey Lewandowski invited Kudlow and Moore to meet with Trump at the candidate’s midtown office. (Laffer—who moved from California to Tennessee in 2006 for tax reasons—had already met with Trump and begun advising the campaign on a tax plan.)

The duo hit it off with the apparent nominee, and Trump asked them to help refine his tax proposal, which he had first unveiled in September 2015. According to “Reagonomics,” Trump wanted the pair to make his plan “bigger and more beautiful” than Reagan’s tax cut, but he also needed to trim the projected cost of his original proposal, which was about $9 trillion. The populist Steve Bannon, the book says, pushed Trump to trim the cost by jacking up his original plan’s top income tax rate. The supply-siders fought back, making charts for Trump that showed when Reagan slashed taxes on the wealthy, the share of tax revenue paid by the top 1 percent actually went up. Ultimately, Trump’s new proposal reflected a compromise position between the two camps, with a top tax rate that was higher than the original plan’s, but lower than the current effective rate.

At the March meeting, Trump also mentioned he was planning a trip to Capitol Hill to confer with congressional Republicans. Moore had heard a similar recent meeting with lawmakers had gone badly—they complained Trump was “arrogant”—and suggested that he and Kudlow, who personally knew much of the caucus, accompany the candidate to help “break the ice.”

Apart from a confrontation between Trump and Arizona Senator Jeff Flake, Moore said the approach “worked like a charm.”

After Trump won, the trio continued to advise on the tax plan. Kudlow and Moore pushed the plan on Capitol Hill, drawing on the same relationships with Senate Republicans that they hope will ensure a smooth nomination process for Moore. Malpass, who had begun advising Trump during the campaign and then went into the Treasury Department, also helped craft the plan.

After the tax bill’s passage in December 2017, Laffer and Moore turned their attention to their campaign to install Kudlow in the White House, which succeeded last March. (Two other members of the Committee to Unleash Prosperity, the grocery and real estate billionaires John and Margo Catsimatidis, were dining with Kudlow and his wife at the Italian restaurant Cipriani when Trump called to formally offer Kudlow the job.)

Once inside, Kudlow returned the favor, ensuring that Moore’s and Laffer’s writings regularly made their way to Trump’s desk.

The supply-siders began pushing Trump on trade, advising him to encourage a lowering of trade barriers on all sides, rather than raising them. Last June, Kudlow persuaded Trump to float the idea of the world governments eliminating all tariffs at a G-7 summit in Quebec.

Last month, Kudlow showed Trump an op-ed co-authored by Moore in the Wall Street Journal that criticized Powell. The op-ed reportedly pleased Trump so much that it prompted him to offer Moore the Fed job.

Kudlow also championed his former Bear Stearns protege’s World Bank ascension. “For Malpass, I worked very, very hard,” he said.

Moore has predicted that Malpass will gradually bring the supply-side gospel to the World Bank, which influences the economic policies of governments around the world.

To their friends, the prospect of the rat pack getting back at the economic levers is wonderful. “The economy is the best it’s been in a long time!” John Catsimatidis exclaimed.