Columbia professor and Nobel-prize-winning economist Joseph Stiglitz visited CNBC this morning. Interviewed by Joe Kernen and Becky Quick, he expressed his disgust for the Fannie (FNM) and Freddie (FRE) bailouts--and especially the ongoing enrichmment of shareholders and management at the (likely future) expense of taxpayers. Transcript courtesy CNBC:
Joe Kernen: JOSEPH STIGLITZ, NOBEL PRIZE WINNER ECONOMIST AND PROFESSOR AT COLUMBIA UNIVERSITY, STILL, PROFESSOR, WELCOME.GOOD TO SEE YOU. STILL ALMOST $9 WORTH OF SHAREHOLDER EQUITY PER SHARE. WOULD YOU GO TO SLEEP AT NIGHT THINKING AT LEAST I'VE GOT MY $96 EQUITY IN FANNIE MAE? WILL THAT HOLD UP WHEN IT'S ALL SAID AND DONE?
Stiglitz: PERHAPS NOT. WHAT BOTHERS ME FROM THE POINT OF VIEW OF PUBLIC POLICY IS THAT FREDDIE MAC AND FANNIE MAE CAME TO THE AMERICAN TAXPAYERS, ASKED FOR THE RIGHT TO WRITE A BLANK CHECK. CONGRESS GAVE THEM THAT RIGHT. WHILE WE ARE, AS TAXPAYERS, IN A POSITION TO PUT MORE MONEY INTO FREDDIE MAC AND FANNIE MAE.THEY'RE TAKING OUT MONEY. TO ME THIS DOESN'T MAKE ANY SENSE. IF THERE IS A THREAT OR A LACK OF LIQUIDITY IN THE FIRM, WHY ARE THEY STILL PAYING DIVIDENDS AT ALL? ANY DIVIDEND. IT SEEMS TO ME THAT, YOU KNOW, WE PASSED LEGISLATION GIVING THEM THE RIGHT TO BORROW FROM US AND NOW THEY'RE TAKING OUT MONEY WHILE WE'RE POTENTIALLY PUTTING MONEY IN.
Becky Quick: AND YOUR POINT IS ALSO THAT THE TAXPAYER SHOULD BENEFIT ON ANY UPSIDE ALONG WITH THE RISK FROM THE DOWN SIDE AND THE WAY THE AGREEMENT IS SET UP, WE WON'T SEE ANY UPTICK.
Stiglitz: AND THE DOWNSIDE IS GETTING LARGER THE MORE MONEY THEY TAKE OUT. IT WENT THE RIGHT DIRECTION AND REDUCED IT.
Kernen: LOOK HOW MUCH THEY SPEND ON LOBBYING. THERE ARE A LOT OF THINGS GLARINGLY INAPPROPRIATE IN THE SYSTEM BUT IT ALL GETS ATTRIBUTED TO, HEY, THIS IS THE -- THIS GREASES THE WHEELS OF THE ENTIRE INDUSTRY. WE NEED THEM SO LET THEM DO WHATEVER THEY WANT.
Stiglitz: THAT WAS A FUNDAMENTAL MISTAKE. WE GO INTO BANKRUPTCY, WE HAVE A CHAPTER 11 WHICH IS DESIGNED TO KEEP PEOPLE -- FIRMS GOING. KEEP EMPLOYEES ON THEIR JOB, TO KEEP ENTERPRISES GOING, BUT WE RESTRUCTURE FINANCIALLY SO WE --SHAREHOLDERS ARE WIPED OUT. CREDITORS BECOME SHAREHOLDERS.NEW EQUITY INJECTIONS. WE KNOW ABOUT THIS AND ALL THE OTHER INDUSTRIES.
WE COULD HAVE KEPT FANNIE MAE AND FREDDIE MAC GOING. WE COULD HAVE PROTECTED, YOU KNOW, THE INTEGRITY OF OUR HOUSING INDUSTRY BUT NOT PROTECTED THOSE GUYS WHO ARE TAKING OUT MILLIONS OF MILLIONS OF DOLLARS, BILLIONS OF DOLLARS, REWARDED HEAVILY. YOU LOOK AT THE SALARIES. THAT'S WHY THEY HAD THE LOBBYISTS. THEY'RE THERE TO PROTECT THEIR OWN INTERESTS. WE SHOULD HAVE SAID, LOOK, WE MADE A VERY BIG DEAL THAT THE GOVERNMENT WAS NOT GUARANTEEING THE GSE. THE GOVERNMENT SPONSORED ENTERPRISES, WE HELPED CREATE THEM, BUT THEN 40 YEARS AGO WE SAID YOU'RE ON YOUR OWN. WE PRIVATIZED THEM. AND THERE WAS ALWAYS THIS LITTLE BIT OF AMBIGUITY WERE WE PROFITIZED OR NOT?
Quick: IT'S THE STRUCTURE AND THE WAY IT'S BEEN SET UP. SOME LAWMAKERS MAY SAY, HEY, WE DO WHAT WE NEEDED TO DO IN AN EMERGENCY. IT MAY NOT BE PERFECT. WE HAD THE HUD SECRETARY, STEVE PRESTON , HERE. HE SAID IT MAY NOT BE PERFECT.THERE ARE A LOT OF THINGS HE DOESN'T LIKE IN THE BILL AS WELL BUT WHEN YOU'RE DEALING WITH BILLS THAT QUICKLY GET PASSED THROUGH CONGRESS, IS THERE ANY WAY?
Stiglitz: THERE'S NO EXCUSE FOR THIS BECAUSE WE HAVE BEEN IN A PROBLEM WITH THE HOUSING SECTOR SINCE AUGUST OF 2007. ACTUALLY I'VE BEEN TALKING ABOUT A PROBLEM IN THE HOUSING SECTOR FOR MUCH LONGER THAN THAT. SO THIS HAS BEEN ANYBODY WHO HAS BEEN ON THE JOB SHOULD HAVE SEEN THIS PROBLEM COMING FOR THE LAST THREE YEARS SO TO SAY THAT YOU WERE TAKEN BY SURPRISE IS INEXCUSABLE. IF YOU'RE IN PUBLIC OFFICE, YOU SHOULD HAVE HAD CONTINGENCY PLANS. SO THAT IS NOT AN EXCUSE.
See Also: Fannie's Efforts To Save Itself Will Put More Pressure On Housing Market
