Anat Admati, along with Simon Johnson, has been one of the most forceful advocates for having banks carry much higher levels of equity than they have in recent decades. In this interview with Bill Moyers, Admati stresses how little has been done to fix the underlying problem: that banks are subsidized to borrow, that creditors are confident that large banks will be rescued and hence don’t exercise
any adequate discipline, and that they therefore have a “heads I win, tails you lose” deal with the rest of society:
ANAT ADMATI: They got a great deal. And so what they’re going to do is, if they make profit, they want to pay them out and keep borrowing. And so there’s nothing essential about that, or nothing good about that, except for a few people. And then who exactly wins and loses? They might tell– pacify the shareholders by saying, here, we’ll give you dividends, we’ll give you dividends in good times.
And then when the bad time come, or when they have fines or anything else happens, the shareholders pay. And who are the shareholders? That’s also all of us through our pension funds. And how did we do on the S&P 500? Very poorly. So the notion that these institutions by living dangerously somehow help us, that’s completely nonsense. And so what we have is a really unhealthy system that we perversely get talked into subsidizing and supporting.
This interview also features Admati debunking some of Tim Geithner’s defenses of the Administration’s “save the banks, the devil take the hindmost” response to the crisis on Jon Stewart. The more Geithner is called out on his misdirections and lies, the better.