In an attempt to flush some confusion out of the complex situation, the Business Report gathered five experts in the fields of economics and finance for a conversation on Oct. 1. The following panelists discussed topics ranging from the history of the crisis to the politics entwined in solving it:
- John Clinebell, professor of finance at the University of Northern Colorado
- John W. Green, regional economist and editor of the quarterly Northern Colorado Economic Report
- Mark Kross, president of Larimer Bank of Commerce
- Ronnie Phillips, professor of economics at Colorado State University
- Julie Piepho, vice president of Cornerstone Mortgage and chair of the Colorado Mortgage Lenders Association
An audio version of the 75-minute discussion is available in .MP3 format (35 MB).
For the full version of the discussion in .pdf format, click here.
KRISTEN TATTI: Do you think there was a particular event that signaled that we were getting to the point of crisis?
RONNIE PHILLIPS: I think a lot of people, around 2002, 2003, started pointing out that the Federal Reserve was keeping interest rates at historically very low rates, the Federal Funds rate might have even gotten below 1 percent for a while. That's one thing, the expansive monetary policy through 2004.
JOHN GREEN: The money supply grew at 16, 17 percent a year.
RP: Where was this money going? And I think the other thing that has created problems is the more than doubling of deficit spending by the federal government which has served to depreciate the dollar, which is going to have some long-term implications. And I think, starting with some problems with the Gramm-Leach-Bliley Act of 1999, there have been regulatory failures.
MARK KROSS: I think it started with the government wanting to have more homeownership. The government pushed on Fannie Mae and Freddie Mac to loosen their standards and get better homeownership. We have record homeowner percentages today, and that's a good thing.
Then the regulators involved in Fannie Mae and Freddie Mac had very little regulatory authority and ability to regulate those institutions, so you had minimal oversight.
You had a business model in the lending industry that is a little bit risky. You're originating loans with people who won't be responsible for whether or not those loans are paid back. It's all based on the fact that Fannie Mae will guarantee those loans, institutions will package those loans, and then pension funds and trusts will buy those loans, and as long as that system works, things work pretty well.
When I started out in my career in 1991, underwriting standard said in order to get a mortgage loan on a house and be Fannie Mae and Freddie Mac guaranteed, you had to have about 20 percent down or you had to have mortgage insurance. Then you had to have debt-to-income of about 36 percent, and you had to have good credit.
By the time you get to 2006, you're looking at mortgage loans being done with zero money down, people with bankruptcies within the last six months getting loans, stated income loans, so you didn't have to prove any income at all. So you went from pretty reasonable to pretty unreasonable over 15 years.
For a long time, the real estate market covered that up. You had increasing prices, a healthy real estate market, and the money supply helped that process along. Good markets cover up a lot of mistakes. And once that real estate market turned the corner, then that's really the turning point in this whole thing. With too many houses on the market, the prices of houses started to fall, then it wasn't so easy to get out of a mortgage and it wasn't so easy to sell your house and make money.
Then foreclosures started and that meant the free flow of credit between Freddie Mac, Fannie Mae and the investment banks stopped. The buyers of these credits, the pension funds and so forth, just didn't want to buy the mortgage-backed securities anymore. That happened about a year ago. A lot of them got stuck holding mortgages that they shouldn't have had - they intended to sell them to somebody else, and they got stuck holding them when the market shut down.
Well, a lot of those companies had borrowed up to 95 percent of the money to fund those mortgages, and they borrowed it from 10 other financial institutions and now we have interlocking relationships that have led to this crisis. Because Bear Sterns owed a lot of people a lot of money and they couldn't sell the assets they needed to sell to raise the capital to meet their obligations and so they were bailed out. And this is happening over and over again, because you have these assets that people can't get rid of but they need to get rid of because they borrowed on them short in order to sell them. It's sort of like having excess inventory and it has to work its way through the system before it goes away.
JOHN CLINEBELL: There's also been a real disconnect between valuing the securities based on the risk that they have versus the perception of risk. Because if you look at what's happened - and it's probably from the mid-'90s, when you started having the tech bubble with so much money flowing in to the economic system - there were a lot of good intentions behind it. But you have government-sponsored enterprises buying and packaging these mortgages and creating some of these credit derivatives that they were using and splitting them up in all different ways - and some of those were very risky. But with the growth in the real estate market, it's not an issue.
Most investors, from a financial perspective, view the mortgage-backed securities issued by these GSEs as being relatively low risk, which was totally false. With the loosening of credit, even if you look at some of the foreclosure rates now, given the riskiness of those loans, it's probably perfectly appropriate. The problem was they weren't priced correctly.
And now the secondary market for those securities has dried up. The price is what it is, but there isn't any market for these market-backed securities - no one wants to buy them.
JG: And covering it up was foreign investors, buying the bonds and the paper of the banks and Freddie and Fannie. So we thought things were going along OK, because somebody was buying those things, so it went on for a year or two longer than it would have otherwise, because we were flooding the world with dollars and those dollars were flowing back in as securities purchases.
JC: And as you said, the interest rates have been so abnormally low. It was interesting how much the LIBOR jumped, from 3 something to 6.85 percent, almost overnight. Historically, Treasury bills go for around 3 to 4 percent, if you look at long-term averages, about what LIBOR was, and now it's running about half - 2 percent, if that. I'm actually surprised we haven't seen interest rates jump up more even in the last few weeks.
JG: But they're still flooding the market with dollars, pushing the money out there.
RP: And that's not over yet.
JULIE PIEPHO: (Mortgages) will still be $1.9 trillion this year, which is going to be the eighth largest year ever in United States history, so in the end, mortgage lending is still out there.
JG: But the early warning sign should have been the slowdown in the construction industry, because the construction industry saw the decreasing demand before these other signals triggered our interest.
JC: For me, the warning sign for real estate was when you started to see shows on TLC about 'Flip This House' and make lots of money. A basic investment strategy should be once the popular press starts saying, 'Oh, this is what you should do,' you're in trouble.
What I found interesting was how compensation packages were changed and restructured. In the real estate area, but in all of the loan areas, people were being compensated on the size and number of the loans they made, not on the quality of the loans. They weren't on salary. The more you can give, the better - you want a $100,000 loan, but I'll give you $200,000 because I get a bigger commission off of it.
MK: It's not that that business model can't work and can't be effective, and it's not that providing good incentives to people to do a good job is a bad thing, it's just that it didn't have the regulatory oversight that, for example, the banking industry has.
The commercial banking industry is healthy. The investment banking industry is totally different. Commercial banks aren't in bad shape at all. I know that comes as a surprise to a lot of people because it comes as a surprise to our customers. And local banks are in great shape. Our local economy is in better shape than the national economy, and our real estate market's much better than the national. We didn't participate in the upside of this particular run-up in prices, and we aren't participating in the downside as much.
JG: Moderation on the upside usually means moderation on the downside.
MK: If you look at the banking industry today, there's 8,465 in the United States, and only 117 of those are in the category of troubled. Only about 120 more have what they call just fair equity, they are just fairly capitalized, so 98.7 percent of all banks in the United States today are well capitalized, meaning they have more than 10 percent capital. Average reserve for loan loss is 1.2 times. Our industry loss over the last 30 years is less than one-half of 1 percent.
Working in this industry - the traditional commercial banking industry - I have seen the credit standards loosen slightly in the last 15 years. And there are not the problems as a result. You have ancillary problems, like lenders that have lent to construction companies that are struggling, developers, things of that nature, and that kind of ebbs and flows with the economy. When a certain segment of your customer base has trouble, you're going to struggle a bit. Some banks have more exposure to that and some less.
RP: The OCC has been around for almost 150 years. The OCC and the FDIC examiners are very good. The commercial banking system is what you should probably have the most confidence in.
JC: It's not just the regulation, because you need some regulation to make sure you take care of some of the fraudulent practices. But a lot of it was the mispricing of these securities when people were buying them and thinking that the government was backing them when there was really a lot of risk associated with them. People didn't value those as high risk because they were coming from Fannie and Freddie and going through this whole process. And most of them were passing through Fannie and Freddie at some stage.
JP: There were a number of private securities on the subprime market that weren't passing through Fannie and Freddie.
JC: But people would group these together ...
RP: Take some bad and some good and they should all be good, right?
MK: You look back at the mortgage industry and one of the safest loans that could be made was a loan on someone's personal residence. The default rates on those are very, very low when you look back 25, 30 years - under standard underwriting terms, which meant the person could afford the home, they had money down, and they had good credit history. When those circumstances were met, mortgage loans were some of the safest ones you could do.
What I think must have occurred is that people would say, 'Well, with all those standards, it's a third of 1 percent default rate on these types of things, so wouldn't it just be three times that if we had real loose standards?' And the rating agencies actually rated a lot of these mortgage pools as triple A.
We'd never tried this on a mass scale in the country: If you loosen standards tremendously, how many will go bad? I think now we'll have good statistics on it. Good underwriting practices led to low default rates. I think they determined that, well, people just won't lose their houses, and that's not the case.
JG: Because they didn't think the price would go down. Then when the price did go down, they mis-estimated the number of people who were willing to walk away from their house.
MK: That's the other thing that always happens in every one of these bubbles that we have - people think, 'It's different this time.' It's always 'different this time.' It's never different; it always ends the same way. We're all people, and people do the same things again.
RP: The FDIC had this symposium in 1997: 'Lessons for the Future.' (In the symposium proceedings,) William Siedman wrote: 'Our third lesson is that the biggest danger for financial institutions is lending based on excessive optimism generated by certain kinds of lending that are the fashion of the day.' Whoops.
MK: Again, the people who came out with that book regulate the banking industry. They have authority and power in the banking industry to stop practices that are unsafe and unsound, and they do. And for the most part, other than a few minor exceptions, the banking industry is very healthy as a result of good regulation, and regulators who have the authority to come in. They have a history in this and they know what things work and what doesn't work.
JG: Regulators can be told to back off.
JP: I think the big key to regulation is enforcement. We've got all this regulation out there, and I think about WaMu and IndyMac and look what happened with that. The OCC regulators don't have a clue how to manage the mortgage side of the banking business at all. They just don't understand mortgage-backed securities, they don't understand the compensation.
JG: They don't collect the statistics so they can know, because they're told to don't interfere.
JP: That's exactly right. And they truly don't have a clue. The training on the mortgage side is appalling.
RP: I know that at the OCC, when the bank examiners go out, they go out with Ph.D. economists who are supposed to understand all of these derivatives that the bank examiners don't. And I know for these large banks there is a group of bank examiners and economists who are assigned to that bank.
Now, it was a problem during the 1980s and '90s that members of Congress might try to influence the regulators. We don't really know in terms of the failing banks if we don't have the CAMELS ratings, but the regulators still have some discretion. But I think that's been reduced, again, for commercial banks.
MK: Washington Mutual and IndyMac really aren't commercial banks. Yes, they had those charters, but they got those charters later, and they really were mortgage originators. And their real problem was just like the investment banks - they got stuck when the market shut off. You can't regulate that type of industry the exact same way you can a commercial bank, because a commercial bank holds a loan for a long time, and if they're making mistakes, you're going to see it. When loans are constantly flowing through, well, how do you know which ones are good and which ones aren't?
JG: And why do you care, because it's gone tomorrow.
MK: It's gone tomorrow, absolutely. Some of these loans are only on the books for 30 or 60 days.
RP: And WaMu was a savings institution, right? (Regulated by) the Office of Thrift Supervision. Remember, the OCC and the OTS, where do they get their revenue to fund their bank examinations? It's from fees paid by the banks.
After the savings and loan debacle, a lot of institutions shifted to bank charters. We've been trying to get rid of the OTS for, well, since they created the OTS, basically, because of this problem. You still have a savings bank charter and that's different from a commercial bank charter, and I think that's important to point out, too. Those two were savings banks, not commercial banks.
It did concern me a little bit that there seemed to be some problems with IndyMac in terms of how the FDIC was communicating, because generally, the FDIC is the model of what you do when you close a bank. You come in and you shut it down.
JG: In one night, and open it the next day, and everything's all arranged.
Mark, is the bailout really going to help commercial banks? Or are commercial banks OK and maybe we shouldn't have a bailout?
MK: People talk about the differences between Wall Street and Main Street, and we operate on Main Street. There are some differences, but we are lending money, a lot of our competitors are still lending money. It's not a whole lot different in my world than it has been.
If I look at my own personal experience of what's happening in my business and what's happening in Northern Colorado, I would think, well, you don't need a bailout, things are going OK. We're loaning money, other people are loaning money, there's demand, people are buying things, there's distressed properties being bought by investors - the market is working.
Now, when I hear the explanation of why you need this bailout package, because of the credit freeze, that makes a lot of sense to me, too. I'm not seeing it personally, which is why I think this is very unpopular. People talk about the Great Depression - I obviously wasn't anywhere near living at that time - but this doesn't seem like it's that bad.
On the other hand, I understand all these commingling relationships with banks and no confidence in the system. I see that a little bit on a daily basis, because we're getting deposits from solid organizations that have no issues at all but people are moving their deposits to get $100,000 FDIC insurance from our bank. In the last six months almost every day I've heard someone want to understand what the FDIC limits are. I went 10 years in my career and it wasn't a big issue. But it's perception rather than reality.
JP: I think fear is a huge factor right now. I think fear is just overriding the country. I've heard of two instances in the last week where a stockbroker called a client and said, 'Cash out all your securities, take out all your money in the bank and take it home and put it in the mattress.' So, it's that perception of fear that's also driving the run on the banks. And I think the press and unfortunately even our President is causing that to happen.
JC: The bailout itself, if you look at it, is primarily psychological. Of course the markets, the economy, is driven by psychology, because if everybody stops buying and takes all their money out of the banks and out of the markets, it goes to pot.
By the way, credit freeze, to me, is a total misnomer. Credit has tightened but it hasn't totally frozen. Corporations can still get money. It's going almost back to where it was 15 or 20 years ago, but we've gotten used to loose credit, low interest rates, easy credit.
Now, we're kind of walking this tightrope of how do we make sure we're still giving people credit but we don't go too crazy and it's too loose, but how do we reassure people?
What drives me crazy as a finance person: the 777.68 drop in the market on Monday (Sept. 29), in the news media, this is the Great Depression, it's Black Monday of October '29 all over again, it's the worst thing that's ever happened. The first thing I said to my students was: This isn't even in the top 10 of one-day drops. I doubt it's even in the top 15 of one-day drops, percentage-wise. That's all that matters - the percent. Points are meaningless, but that's what they focused on. Really, when the market drops 700 points is probably one of the best buying opportunities you have.
MK: When the market crashed in October 1987, a 24 percent drop, the next day was the biggest point gain ever.
JC: It took about 4 or 5 months to recover from a 24 percent drop ...
JG: But it was back to where it was in about 4 months.
JP: On the mortgage side in the last year, we've seen over 800 'products,' if you will, completely go away, from the wholesale correspondent side of business of the loans. And you've seen a lot of the major investors quit doing wholesale, you still have them doing correspondent.
But the market regulated itself, before the regulators even came in and regulated it. Today, we can't do a no-asset, no-income loan - no NINJA loans. It's funny, but Chase has a product out there that is 103 percent to try to help the first-time homebuyer, but guess what? Our warehouse bank won't let us do it because we can't give a 103-percent loan.
So you still have a lot of gaps in the market. There's still the demand over here, the regulators are here, and the investors are right here, and they still haven't come together to figure out what they're going to do about the mortgage market.
MK: Some of it may be necessary, but there's no question when the flow of credit slows down, when money gets tighter, it's harder for the economy to grow, it's harder for jobs to be created, and the chances of going into a recession or having an economic downturn are increased. At this point, I'm not sure even a bailout plan will change that. But this is a normal part of our business cycle, too, to some degree. I hope there's nothing permanent with it, I hope we can come back and get back to normal.
JC: The economy has been talked down for a year or more. In the fourth quarter of last year, we had a contraction in the economy - very slight, I think -.2 in the fourth quarter. In the first quarter, the economy started rebounding, grew at 0.8 percent; second quarter, initial estimates were at 3.3 percent, actually relatively high growth. But some of that was due to the stimulus package. Unemployment is about 6 percent; that's a lagging indicator anyway.
If you look at some of the basics within the economy, this is not that dire, depressive era where you have 25 percent unemployment and things like that. But people compare it to the Great Depression. It's not even close.
RP: I think there is an important lesson about how the system was saved in the 1930s that people have forgotten about. Under the Hoover administration they created the Reconstruction Finance Corp. When Roosevelt came into office, through the Emergency Banking Act of 1933, they expanded the authority of the Reconstruction Finance Corp. to buy preferred stock in banks.
Remember, we didn't have temporary deposit insurance until 1934 and no permanent federal deposit insurance until July 1, 1935, but by July 1, 1935, the Reconstruction Finance Corp. was a part-owner - a stockholder - in one-half of the banks in the United States, and one-third of the total bank capital outstanding was owned by the Reconstruction Finance Corp. We had nationalized the banking system.
Now, after the recovery - a period of 10 years, I believe, probably after World War II - of course the RFC was eventually dissolved and they got rid of the preferred stock. They sold it back to the private sector and deposited the profits in the Treasury.
That's what we've done - we've nationalized Fannie and Freddie. I also would point out that Fannie was first a government-owned corporation, in 1938. So when was it privatized? In 1968. The problem with a government-owned corporation is its debt is on-budget. Lyndon Johnson says, 'We're going to have this huge deficit unless I find some way to balance the books.' So the Johnson administration and Congress privatize, make a GSE, out of Fannie. The Nixon administration in 1970 said, 'Fannie needs some competition, so let's create Freddie.'
What should be done with Fannie and Freddie is, once things recover, they should be totally privatized. They should get rid of that GSE model.
JC: Or totally nationalized. It's got to be one or the other. Either a straight government agency or it's got to be private. These quasi-things, I think, are ridiculous.
JG: So, the bailout will create a Reconstruction Finance Corp., in modern terms, that will do this?
RP: I think that's what they should do. But they haven't really set up something like that. They're going to have the Treasury do it. The Reconstruction Finance Corp. was, of course, under the Treasury Department, but they haven't done it here. It's what they really need to do.
MK: I've seen very few things the government has done that work very well. I think that's kind of the reluctance about this whole thing. Would they do as good a job doing this as it could be done by the market or the private sector or some other place? On the other hand, my understanding is with the savings and loan debacle with the RTC they did actually do fairly well.
RP: The Resolution Trust Corp. from the 1980s is another thing they need to revive, basically. If you look at it, the RFC was a government-run corporation, but you can put Warren Buffet, or someone like that, in charge of it. The guy who was in charge of the RFC, Jesse Jones, he spent the government's money like it was his own.
The other thing I was going to say about the 1930s is what stopped the bank runs is that Franklin Roosevelt went on the radio and he explained to people the way our banking system works. He said, 'We're going to open the good banks, we're going to close the bad banks and the others we'll open after a while.' In one week you're going to examine the 30,000 banks in the United States? No, they didn't, but they stopped the bank runs.
During that time, with provisions of the Emergency Banking Act, the Federal Reserve could loan against any eligible asset - basically anything on a bank balance sheet. They ran the printing press, just like they did for Y2K, and dispersed the Federal Reserve notes out to the banks and they were ready for the bank runs.
JP: What you're saying about Roosevelt, it's so true about leadership. We need some leadership right now in our country that would take care of some of this fear. If our President came out today or Congress came out today and said, 'We have this model, we believe it will work, and you do not need to be afraid,' I think a lot of this would calm back down, because there is credit; there is money.
JG: So if we don't have a bailout, how is the banking system as it exists going to solve this problem over time?
MK: I see that things are a little tight and it's a little nerve-wracking, but it's working. But does that just mean it hasn't spread to Main Street yet? If things go as they have in the past, I don't see a problem. If you do see things spreading to Main Street, you do have people pulling money out of the banks that are perfectly healthy and you do see institutions fail that shouldn't, those are the types of things you worry about.
JG: So is do nothing a temporary solution to this?
MK: Oh, absolutely. There is no reason to pass this in the next day or two or whatever. There seems to be a huge sense of urgency. When I hear them describe that no one can get a loan, you can't get a car loan, you can't get a house loan. I'm not seeing that. I'm seeing that people are getting loans all the time.
(Editor's note: President Bush signed the bailout bill into law two days after this conversation took place.)
JC: The market will work its way through, but you'll see a lot of tightening up. And then you get into the whole issue of do we want to tighten the credit up that much or do we want to still make credit available to low-income individuals? You get into the social policy side of it. You could argue and debate whether or not that's the best course of action or the worst course of action.
The other misnomer is this is a Wall Street bailout. It has absolutely nothing to do with investors, Wall Street, the brokerage firms and people investing and buying and selling stocks, other than how investors are reacting to what they think the long-term impacts will be on the society. It's a credit market issue, not an investment issue.
MK: When people on the news say it's all about Wall Street greed ...
JC: That's not true, either. Well, there is some truth to it. The whole crisis to me is it's one of these things that was brought on by a combination of good intentions, and some stupidity, by the government and by investors...
MK: And by the industry.
JC: You have a little bit of fraud and corruption.
JP: But not as much as everyone believes there is.
MK: Some of it is just capitalism at work. You have people who are incentivized to do mortgages, and they have rules. They don't get to make the decisions on the mortgages and they just work hard to get them done. Even the Wall Street packages, they didn't make a lot of money on each individual mortgage that they sold. In fact, the margins were very, very thin. It's just the huge volume that made it all go.
RP: I think it's not good when Congress is rushed to do something. Roosevelt could get away with that. When they passed the Emergency Banking Act, Congress hadn't even read it.
JC: In some ways I much prefer a two-page bill being passed through Congress than a 500-page bill that no one understands and half of them never read.
RP: Unfortunately, the two-and-a-half pages says, 'Just trust us.' Like I said, Roosevelt got away with that, but Bush can't get away with 'trust us' on $700 billion.
JC: Let's be fair to him, because the Bush administration pushed to really oversee and do some work to try and fix Freddie and Fannie about five or six years ago. They brought it up to Congress. They wanted to change some of the regulations, some of the stuff we've already talked about, in 2002, 2003, 2004 and 2005. They actually did push some of that.
MK: And amid some serious opposition. On the other hand, it's the whole mess of blame, because even though one group was supporting keeping it the way it was and one was saying we should look at changing it, at the end of the day neither one of them did anything.
JP: And I've been lobbying every year for five years in Washington for greater oversight on GSE - every flipping year for over five years. For all of our Colorado people, that was one of the three things I would ask for every year. But it wasn't very important because we had the appreciation, the market was good and real estate was doing great. So it wasn't a priority for them.
What does the industry look like after this?
RP: Well, what it looks like is a very small number of financial holding companies, very large institutions that will be really problematic in terms of who is going to regulate them. And then you are going to have thousands of other small banks - commercial banks - and that's just fine. I would really be concerned about the future regulation of JPMorgan Chase, Citigroup and all of these, because one of the problems that isn't straightened out is the regulatory structure.
What I would like to see is a clear separation between the agency that deals with liquidity problems and the agency that deals with solvency problems. So I would like to see the Federal Reserve get out of the regulatory business and let the combined FDIC and OCC be responsible for solvency. The Federal Reserve can create money, and the FDIC and the OCC can't. And I, for one, am not that crazy about giving more and more authority to the Federal Reserve, because they print money.
JG: They really created a problem in the first place by lowering interest rates to 1 percent.
MK: I look at the commercial banks, and the commercial banks I've worked for are relatively small. I don't deal with 20 different regulators. I just deal with one or two, and it's usually at the same time. It works fairly well. So the traditional FDIC and state regulators working in community banks, I think, still makes sense. That model works.
But when you get to these huge organizations you run the risk of if they are regulated by the OCC and some from the SEC and five or six different regulators - who really has the power over all of those things? You can see a little bit of a problem here and a little bit of a problem here and not think it's that serious. But if you put everything together it is that serious.
RP: It's true because only the FDIC can close a bank. The Federal Reserve does not have the legal authority to close a bank. Congress has to address this. If Citibank and these others get into trouble, you'll have to nationalize them. That's what you're going to have to do unless we get everything else lined up. It's something they had the Reconstruction Finance Corp. do.
JP: I think we just have to get the whole patchwork of regulation together. And how long has Congress been trying to do that? Forever. I look at the new SAFE Act and look at what its doing. The SAFE Act, on a national level, says you have to do this, but states can do whatever they want as long as they meet the minimum of the SAFE Act. There are states, and I'm afraid Colorado will be one of them, that is going to go up to this next level that's even higher to regulate. And it still isn't doing any good because they are overstepping the boundaries of the federal regulations. I think it's a serious problem I don't think (members of Congress) understand. There's too many agencies out there and nobody understands what everybody does and how they interact with each other. I mean, there's only one agency that can close banks, but here's somebody else saying you can do this and this.
MK: Everyone is trying to blame it on the other person right now. You don't know if they really don't know what they're talking about or if they are just trying to play like they don't. If you blame it on a group that a majority of people resent and don't like, well then, it's a good thing. So we say it's these real rich people on Wall Street that are the problem. Well, it really doesn't have a lot to do with that. It isn't the source of it. It isn't why it started. It isn't how it broke. None of it is that way.
RP: People talk about Herbert Hoover. The Emergency Banking Act was written by Ogden Mills, who was Secretary of the Treasury under Herbert Hoover. They had it ready. Hoover didn't have the guts to close the banks, and the people didn't have any confidence in him. If Hoover had tried to close the banks it wouldn't have worked because people had already lost confidence in him. But someone like FDR could pull it off.
