The Cycle | November 21, 2012
>>> closed door fiscal talks continue in washington this week despite the thanksgiving holiday. next week, you can expect a little more urgency as the full congress returns to town. facing debt is nothing new for us. in fact, it's helped shape our country and accomplish incredible things like the expansion westward and the louisiana purchase , florida, texas and california. those cost money, you know. our next guest argues that, yes, we are a country of dreamers and also a country of defalters. in the guest spot, scott nelson , an author of "a nation of deadbeats." i guess my first question would be, you have basically outlined in the book a pattern you say you can see repeetding throughout american history , 19th century , the wall street meltdown. can you tell us what that pattern is and why we keep repeating it?
>> yeah. the pattern goes back, in fact, early 1793 . it's the beginning of the first bank of the united states . we have -- europeans lending to the u.s. really since the nation began. and lending to the country itself, but also, a lot of private lending and a lot of private lending is -- turns out to be not very good at paying it back and so the failure to pay back led to the 1819 panic. same thing in 1837 and again in 1857 . our reputation in britain in the early part of the 19th century is terrible. we're -- they call us again and again a nation of defalters, a nation of deadbeats effectively.
>> the terms like dead have a negative connotation and not for lending and borrowing, if it weren't for debt we wouldn't be the country we are today, would we?
>> that's right. i mean, we could not have expanded west. there's an image of freehold pioneers, you know, broadening in to the west. relying on nothing but the first institution that really spreads america to the west is the store. the store provides the european goods that are necessary, plow points and all these other sorts of things and we borrow and borrow to make it possible. we cannot have settled louisiana without a lot of debt. not just louisiana purchase which was financed in france, but also, you know, a lot of the private lending. california, texas , none of those could have been settled without extensive borrowing. of course, also a place to escape to. texas the place to escape from the debts in 1837 . it was an independent republic. in the middle of that panic, mississippi and louisiana planners who had lost everything, were in serious debt, would escape to texas the next day and sheriff that is came to collect on their debts would -- they'd mark on the back of the forms gtt, gone to texas . texas was really a deadbeat republic until it became a state.
>> scott, the end of the book you talk more about the current crisis of 2008 . and i'm going to read something you wrote. you said the democratic party embraced wall street following in bill clinton 's footsteps. president obama and congressional democrats did not reach for the boom stick instead they sought the counsel of those insiders who had demanded the deregulation of the markets in '90s and talk about ram emanuel and geithner and larry summers . how do we get to rereform then? we had an opportunity to do something.
>> we did. and this is the thing that keeps me up at night is sort of thinking about the situation that we are in. we had the debt obligations. there was a huge derivatives market that ballooned in -- you know, from the late part of the '90s all the way through 2008 . it almost collapsed, that derivatives market almost collapsed and then ballooned back up again. there was an opportunity to reform with dodd -frank. the pieces never got passed. part of what i'm trying to do in this book is outline the way in which party politics depends -- it -- the party politics in the u.s. is built on a rock split down the middle and has everything to do with banks. first and second bank of the united states and finally the federal reserve . parties themselves build themselves in relationship to their feelings about those banks. we wouldn't have had a democratic party without anger at the first bank of the united states . that sense of the two- party system being built around conflict over the banks has kind of collapsed in the last six or seven years and it is kind of a -- gives one reason to reflect. the democratic party had an opportunity and i feel like didn't take it in the last four years.
>> scott, to that point, dodd -frank incomplete in reforming the financial system .
>> what do we need to do to prevent another collapse?
>> well, my sense is that a lot of these panics are built around a stable institution that -- a stable bond, aaa, that is going to provide you something like 4% or 5% interest. that aaa bond is in trouble. right now what needs to happen, i think, the derivatives market finally has to -- there has to be some response to this incredible leverage. you've got the lcfos. the large and complicated financial organizations in a derivatives market whose nominal value is 600 trillion. and none of that -- none of those assets are really backed by collateral and has to come in. the leverage has to be eliminated and the last part of dod dodd -frank, the part that's not been worked out. i hope that a sort of both sides of congress will agree that something needs to be done there. to me, that's the danger. that's the thing that -- a reason of sovereign debt funds and reason firms are not back in the u.s. stock market is fears about what's going to happen with these banks.
>> all right. scott reynolds nelson from down there in colonial williamsburg , thank you for joining us.
>>> they say a picture is worth a thousand words . an author/artist is dazzling the world with that sentiment. he's our guest, next. v.fififi gotcha. covered.