Les Leopold, author of The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It, talks to WRRL’s Errol Louis about the financial crisis, and how thirty years of deregulation and a dangerous casino culture on Wall Street caused the mess we’re in today.

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EL: [T]his is one of the clearest guides I’ve seen to, really, what went wrong, and how it’s not really just a bank crisis, but that there are some underlying structural problems in the economy that we really need to deal with. Tell us a couple of things that are really important that we need to know about how to stop this financial crisis from re-occurring in the future.

LL: OK. Let me lay out what I think are two big things that happened. Thirty years ago, this crisis started when we embarked on this enormous experiment—and the experiment involved two things. First, we were going to get rid of as many regulations as we possibly could on the financial community so they could do their thing. And we were going to get rid of as many taxes as possible on the super-wealthy. And those two things together were going to create an enormous amount of money for investment in the U.S. economy, which was going to have all boats rise. That was the theory, and that was the experiment that started thirty years ago.

What actually happened was the boat for the folks at the tippy-tippy-top sure did rise. The average CEO salary versus the average worker salary was about 45 to 1 in 1970. The top hundred CEOs versus the average worker today is 1700 to 1. So the money gushed to the top. And when you combine the money gushing to the top, and incredible deregulation in the financial community, what you get is a casino. Because there’s not enough places in the real world to invest the money.

Wall Street’s not stupid, and they set up a whole series of very very fancy investments to suck in this money. And those investments I call fantasy finance, because they were based on very very few real, tangible assets. They were bets. They were literally bets. They called them “Credit Default Swaps,” which is really a word for insurance bets—but you can’t use the word “insurance” ’cause insurance is regulated and these Credit Default Swaps are not. Well, they created these elaborate games.

But at some point, there was a mismatch between all these elaborate bets and the underlying reality. And when the underlying reality broke through, the whole edifice collapsed—collapsing the financial sector and taking the rest of the economy out with it.

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