【InsideJob】【监守自盗】英文字幕

InsideJobIcelandisastabledemocracywithahighstandardofliving--and,untilrecently-andgovernmentdebt.Wehadthecompleteinfrastructureofamodernsociety.Cleanenergy,foodproduction.Fisherieswithaquotasystemtomanagethem.Goodhealthcare,education,cleanair.Notmuchcrime.It'sagoodplaceforfamiliestolive.Wehadalmostend-of-historystatus.Butin2000,Iceland'sgovernmentbeganabroadpolicyofderegulation-disastrousconsequences-andthenfortheeconomy.TheystartedbyallowingmultinationalcorporationslikeAlcoa-aluminum-smeltingplants--andexploitlceland'sgeothermalandhydroelectricenergysources.Manyofthemostbeautifulareasinthehighlands-aregeothermal.Sonothingcomeswithoutconsequence.Atthesametime-Iceland'sthreelargestbanks.Theresultwasoneofthepurestexperiments-everconducted.Wehavehadenough.Howcouldallofthishappen?Financetookoverandmoreorlesswreckedtheplace.Inafive-yearperiod,thesethreetinybanks-outsideoflceland--borrowed120billiondollars--10timesthesizeofIceland'seconomy.Thebankersshoweredmoneyonthemselves-Therewasamassivebubble.Stockpriceswentupbyafactorofnine.Housepricesmorethandoubled.Iceland'sbubblegaverisetopeoplelikeJonAsgeirJohannesson.Heborrowedbillionstobuyuphigh-endretailbusinessesinLondon.Healsoboughtapinstripedprivatejet--a40-million-dollaryacht-Newspapersalwayshadtheheadline:Thismillionaireboughtthiscompany-orinFranceorwherever--insteadofsaying:Thismillionairetook>abillion-dollarloan--tobuythiscompany,andhetookitfromyourlocalbank."Thebankssetupmoneymarketfunds-deposit-holderstowithdrawmoney-inthemoneymarketfunds.ThePonzischemeneededeverythingitcould.AmericanaccountingfirmslikeKPMG-andinvestmentfirms-AndAmericancredit-ratingagenciessaidlcelandwaswonderful.InFebruary2007-tothehighestpossiblerate,triple-A.Itwentsofarasthegovernmentheretravelingwiththebankers-WhenIceland'sbankscollapsedattheendof2008-insixmonths.ThereisnobodyunaffectedinIceland.Alotofpeoplelosttheirsavings.Yes,that'sthecase.Governmentregulatorswhoshould'vebeenprotectingthecitizens-Youhavetwolawyersfromtheregulatorgoingdowntoabank-Whentheyapproachthebank--theywouldsee19SUVsoutsidethebank.Youenterthebank--andyouhavethe19lawyerssittinginfrontofyou,right--verywellprepared,readytokillanyargumentyoumake.Andthen,ifyoudoreallywell,they'llofferyouajob.One-thirdofIceland'sfinancialregulators-Butthisisauniversalproblem,huh?InNewYork,youhavethesameproblem,right?WhatdoyouthinkofWallStreetincomesthesedays?Excessive.I'vebeentoldit'sextremelydifficultforthelMF-Iwouldn'tsaythat.WedeeplyregretourbreachesofU.S.law.They'reamazedathowmuchcocainetheseWallStreeterscanuse-andgotoworkthenextday.Ididn'tknowwhatcreditdefaultswapsare.I'malittlebitold-fashioned.HasLarrySummerseverexpressedremorse?Idon'thearconfessions.Thegovernment'sjustwritingchecks.That'splanA,that'splanBandthat'splanC.Wouldyousupportlegalcontrolsonexecutivepay?Iwouldnot.Areyoucomfortablewiththelevelofcompensationinfinancialservices?Ifthey'veearnedit,yes,Iam.-Doyouthinkthey'veearnedit?Andsoyou'vehelpedthesepeopleblowtheworldup?Youcouldsaythat.Theywerehavingmassiveprivategainsatpublicloss.Whenyouthinkyoucancreatesomethingoutofnothing--it'sdifficulttoresist.I'mconcernedpeoplewanttogobacktotheoldway-priortothecrisis.Iwasgettingalotofanonymouse-mailsfrombankerssaying:Youcan'tquoteme,>butI'mreallyconcerned.Whydoyouthinkthereisn't-beingundertaken?Becausethenyou'llfindtheculprits.YouthinkColumbiaBusinessSchoolhasanyconflict-of-interestproblem?Idon'tseethatwedo.Theregulatorsdidn'tdotheirjob.TheyhadthepowertodoeverycasethatImade.Theyjustdidn'twantto.LehmanBrothers,oneofthemostvenerable--andbiggestinvestmentbanks,wasforcedtodeclareitselfbankrupt.Another,MerrillLynch,wasforcedtosellitselftoday.Worldfinancialmarketsarewaydown,followingdramaticdevelopments-.InSeptember2008-investmentbankLehmanBrothers--andthecollapseoftheworld'slargestinsurancecompany,AIG-Fearsgrippedmarketsovernight-.Stocksfelloffacliff.Thelargestsinglepointdropinhistory.Sharepricescontinuedtotumble-oftheLehmancollapse.Theresultwasaglobalrecession-tensoftrillionsofdollars--rendered30millionpeopleunemployed-oftheUnitedStates.Withthedestructionofequityandhousingwealth--thedestructionofincome,ofjobs--50millionpeoplegloballycouldendupbelowthepovertylineagain.Thisisjustahugely,hugelyexpensivecrisis.Thiscrisiswasnotanaccident.Itwascausedbyanout-of-controlindustry.Sincethe1980s-hasledtoaseries-financialcrises.Eachcrisishascausedmoredamage-moreandmoremoney.AftertheGreatDepression--theUnitedStateshad40yearsofeconomicgrowth-Thefinancialindustrywastightlyregulated.Mostregularbankswerelocalbusinesses--prohibitedfromspeculating--withdepositors'savings.lnvestmentbanks,whichhandledstockandbondtrading-Inthetraditionalinvestmentbankingmodel--thepartnersputthemoneyup-verycarefully.Theywantedtolivewell--buttheydidn'twanttobettheranchonanything.PaulVolckerservedintheTreasuryDepartment-FederalReservefrom1979to1987.Beforegoingintogovernment-atChaseManhattanBank.WhenIleftChasetogointheTreasuryin1969-of$45,000ayear.Forty-fivethousanddollarsayear.MorganStanley,in1972-110totalpersonnel--oneoffice,andcapitalof12milliondollars.NowMorganStanleyhas50,000workers--andhascapitalofseveralbillion-inthe1980s,thefinancialindustryexploded.Theinvestmentbankswentpublic-ofstockholdermoney.PeopleonWallStreetstartedgettingrich.Ihadafriendwhowasabondtrader--atMerrillLynchinthe1970s.Hehadajobasatrainconductoratnight-andcouldn'tsupportthem-By1986,hewasmakingmillionsofdollars-itwasbecausehewassmart.Thehighestorderofbusinessbeforethenation-oureconomicprosperity.In1981,PresidentRonaldReaganchoseasTreasurysecretary-MerrillLynch,DonaldRegan.WallStreetandthepresidentseeeyetoeye.I'vetalkedtoleadersofWallStreet.Theysay,"We'rebehindthepresident100percent."TheReaganadministration-andfinanciallobbyists--starteda30-yearperiodoffinancialderegulation.in1982,theReaganadministration-savings-and-loancompanies-investmentswithdepositors'money.Bytheendofthedecade-companieshadfailed.Thiscrisiscosttaxpayers$124billion-theirlifesavings.Itmaybethebiggestbankheistinourhistory.Thousandsofexecutiveswenttojailforlootingtheircompanies.OneofthemostextremecaseswasCharlesKeating.Mr.Keating,gotaword?In1985,whenfederalregulatorsbeganinvestigatinghim-namedAlanGreenspan.Inthislettertoregulators--GreenspanpraisedKeating'ssoundbusinessplansandexpertise-Keatingtoinvestcustomers'money.KeatingreportedlypaidGreenspan$40,000.Keatingwenttoprisonshortlyafterwards.AsforAlanGreenspan-chairmanofAmerica'scentralbank-Greenspanwasreappointed-andGeorgeW.Bush.DuringtheClintonadministration-underGreenspan-RobertRubin-investmentbankGoldmanSachs--andLarrySummers,aHarvardeconomicsprofessor.Thefinancialsector,WallStreetbeingpowerful--havinglobbies,lotsofmoney--stepbystep,capturedthepoliticalsystem.BothontheDemocraticandtheRepublicanside.Bythelate1990s,thefinancialsectorhadconsolidated--intoafewgiganticfirms,eachofthemsolarge-thewholesystem.AndtheClintonadministrationhelpedthemgrowevenlarger.ln1998,CiticorpandTravelersmerged--toformCitigroup-companyintheworld.ThemergerviolatedtheGlass-SteagallAct-aftertheGreatDepression-withconsumerdeposits-riskyinvestment-bankingactivities.ItwasillegaltoacquireTravelers.Greenspansaidnothing.TheFederalReservegavethemanexemptionforayear-ln1999,attheurgingofSummersandRubin-theGramm-Leach-BlileyAct-astheCitigroupReliefAct.ItoverturnedGlass-Steagall-forfuturemergers.Whydoyouhavebigbanks?Becausebankslikemonopolypower,lobbyingpower.Becausebanksknowthatwhenthey'retoobig-Marketsareinherentlyunstable.Oratleastpotentiallyunstable.Anappropriatemetaphoristheoiltankers.Theyareverybig--andtherefore,youhavetoputincompartments-thesloshingaroundofoil-Thedesignoftheboathastotakethatintoaccount.AndaftertheDepression-theseverywatertightcompartments.Andderegulationhasledtotheendofcompartmentalization.Thenextcrisiscameattheendofthe'90s.Theinvestmentbanksfueledamassivebubbleinlnternetstocks-in2001--thatcaused$5trillionininvestmentlosses.TheSecuritiesandExchangeCommission,thefederalagency-toregulateinvestmentbanking-Intheabsenceofmeaningfulfederalaction-ofself-regulation--it'sbecomenecessaryforotherstostepin-EliotSpitzer'sinvestigationrevealedtheinvestmentbanks-theyknewwouldfail.Analystswerebeingpaidbasedonhowmuchbusinesstheybroughtin.Whattheysaidpubliclywasquitedifferentfromwhattheysaidprivately.Infospace,giventhehighestpossiblerating-asa"pieceofjunk."Excite,alsohighlyrated,called"suchapieceofcrap."Thedefensethatwasprofferedbymanyoftheinvestmentbanks--wasnot"you'rewrong"--itwas,"Everybody'sdoingit,everybodyknowsit'sgoingon.Nobodyshouldrelyontheseanalystsanyway."lnDecember,2002--10investmentbankssettledthecaseforatotalof$1.4billion-tochangetheirways.ScottTalbottisthechieflobbyistfortheFinancialServicesRoundtable--oneofWashington'smostpowerfulgroups-world'slargestfinancialcompanies.Areyoucomfortablewiththefactthatseveralofyourmembercompanies-inlarge-scalecriminalactivity?-l--You'llhavetobespecific.Andfirstofall,criminalactivityshouldn'tbeaccepted,period.Sincederegulationbegan,theworld'sbiggestfinancialfirms-money,defraudingcustomers-againandagainandagain.CreditSuissehelpedfunnelmoneyforIran'snuclearprogram--andforlran'sAerospaceIndustriesOrganization-Anyinformationthatwouldidentifyitaslranianwouldberemoved.Thebankwasfined$536million.Citibankhelpedfunnel$100millionofdrugmoneyoutofMexico.Didyoucommentthatsheshould,quote:Loseanydocumentsconnected>withtheaccount?Isaidthatinakiddingmanner.Ididnotmeanitseriously.Between1998and2003-bymorethan$10billion.Theseaccountingstandardsarecomplex-overwhichexpertsoftendisagree.CEOFranklinRaines,whousedtobePresidentClinton'sbudgetdirector--receivedover$52millioninbonuses.WhenUBSwascaughthelpingwealthyAmericansevadetaxes-withthegovernment.Wouldyoubewillingtosupplythenames?-lfthere'satreatyframework.You'veagreedyouparticipatedinafraud.Butwhilethecompaniesfaceunprecedentedfines-havetoadmitanywrongdoing.Whendealingwiththismanyproducts,thismanycustomers,mistakeshappen.Thefinancialservicesindustryseemstohavealevelofcriminality-Youknow,whenwasthelasttimethatCisco--orlntelorGoogleorAppleorIBM,youknow--?Iagreeabouthigh-techversusfinancialservices---High-techisacreativebusiness--wherethevaluegeneration-actuallycreatingsomethingnew.Beginninginthe1990s-andadvancesintechnology-financialproductscalledderivatives.Economistsandbankersclaimedtheymademarketssafer.Butinstead,theymadethemunstable.SincetheendoftheColdWar--alotofformerphysicists,mathematicians--decidedtoapplytheirskills--noton,youknow,ColdWartechnology-Andtogetherwithinvestmentbankers--Youknow,asWarrenBuffettsaid,weaponsofmassdestruction.Regulators,politicians,businesspeople-thethreatofinnovation-ofthefinancialsystem.Usingderivatives-onvirtuallyanything.Theycouldbetontheriseorfallofoilprices--thebankruptcyofacompany,eventheweather.Bythelate1990s--derivativeswerea50-trillion-dollarunregulatedmarket.ln1998,someonetriedtoregulatethem.BrooksleyBorngraduatedfirstinherclassatStanfordLawSchool-toeditamajorlawreview.AfterrunningthederivativespracticeatArnold&Porter--BornwasappointedbyClinton-TradingCommission-thederivativesmarket.BrooksleyBornaskedmeiflwouldcomeworkwithher.Wedecidedthatthiswasaserious,potentiallydestabilizingmarket.InMayof1998,theCFTCissuedaproposaltoregulatederivatives.Clinton'sTreasuryDepartmenthadanimmediateresponse.IhappenedtogointoBrooksley'soffice-thereceiveronhertelephone-fromherface.Andshelookedatmeandsaid,ThatwasLarrySummers.Hehad13bankersinhisoffice.Heconveyeditinaverybullyingfashion-Bankswerenowreliantforearningsontheseactivities.Andthatledtoatitanicbattletopreventthisfrombeingregulated.ShortlyafterthephonecallfromSummers--Greenspan,Rubin,andSECchairmanArthurLevitt-condemningBorn-tokeepderivativesunregulated.Regulationofderivativestransactions-byprofessionalsisunnecessary.Shewasoverruled,unfortunately.FirstbytheClintonadministration-In2000,SenatorPhilGrammtookamajorroleingettingabillpassed-derivativesfromregulation.Theyareunifyingmarkets,reducingregulatoryburden.Ibelieveweneedtodoit.Itisourverygreathope-tomovethisyear--onlegislationthat,inasuitableway-forOTCderivatives.Iwishtoassociatemyself-ofSecretarySummers.lnDecemberof2000,Congresspassed-ModernizationAct.Writtenwiththehelpoffinancial-industrylobbyists-ofderivatives.Afterthat,itwasofftotheraces.Useofderivativesandfinancialinnovation--explodeddramaticallyafter2000.BythetimeGeorgeW.Bushtookofficein2001-wasvastlymoreprofitable-thaneverbefore.Dominatingthisindustrywerefiveinvestmentbanks--twofinancialconglomerates-companies-Andlinkingthemalltogetherwasthesecuritizationfoodchain.Anewsystemwhichconnectedtrillionsofdollars-withinvestorsallovertheworld.Thirtyyearsago,ifyouwenttogetaloanforahome-expectedyoutopayhimorherback.Yougotaloanfromalenderwhowantedtobepaidback.We'vesincedevelopedsecuritization,wherebypeoplewhomaketheloan-iftheyfailtorepay.Intheoldsystem,whenahomeownerpaidtheirmortgageeverymonth-totheirlocallender.Andsincemortgagestookdecadestorepay,lenderswerecareful.Inthenewsystem,lenderssoldmortgagestoinvestmentbanks.Thebankscombinedthousandsofmortgagesandloans--includingcarloans,studentloans,andcreditcarddebt-collateralizeddebtobligations-TheinvestmentbanksthensoldtheCDOstoinvestors.Nowwhenhomeownerspaidtheirmortgages-allovertheworld.Theinvestmentbankspaidratingagencies--toevaluatetheCDOs-weregivenatriple-Arating-investmentgrade.ThismadeCDOspopularwithretirementfunds-highlyratedsecurities.Thissystemwasatickingtimebomb.Lendersdidn'tcareanymoreaboutwhetheraborrowercouldrepay-riskierloans.Theinvestmentbanksdidn'tcareeither.ThemoreCDOstheysold,thehighertheirprofits.Andtheratingagencies,whichwerepaidbytheinvestmentbanks-ofCDOsprovedwrong.Youweren'tgonnabeonthehook,thereweren'tregulatoryconstraints.Soitwasagreenlighttojustpumpoutmoreandmoreloans.Between2000and2003-madeeachyearnearlyquadrupled.Everybodyinthissecuritizationfoodchain-untiltheend--didn'tcareaboutthequalityofthemortgage.Theywerecaringaboutmaximizingtheirvolume-Intheearly2000s-intheriskiestloans,calledsubprime.WhenthousandsofsubprimeloanswerecombinedtocreateCDOs-triple-Aratings.Now,itwouldhavebeenpossibletocreatederivativeproducts--thatdon'thavetheserisks-ofdeductibles-thatcanbetakenon,andsoforth.-Theydidn'tdothat,didthey?-Theydidn't.Inretrospect,theyshould'vedone.Sodidtheseguysknowtheyweredoingsomethingdangerous?Ithinktheydid.Alltheincentivesfinancialinstitutionsofferedtotheirmortgagebrokers–themostprofitableproducts-Iftheymakemoremoney,that'swherethey'llputyou.Suddenly,hundredsofbillionsofdollarsayear-thesecuritizationchain.Sinceanyonecouldgetamortgage-andhousingpricesskyrocketed.Theresultwasthebiggestfinancialbubbleinhistory.Realestateisreal.Theycanseetheirasset.Theycanliveintheirasset.Theycanrentouttheirasset.Youhadahugeboominhousingthatmadenosenseatall.Thefinancingappetitesofthefinancialsector-Lasttimewehadahousingbubblewasinthelate'80s.Inthatcase,theincreaseinhomepricehadbeenrelativelyminor.Thathousingbubbleledtoarelativelysevererecession.From1996until2006-effectivelydoubled.At$500aticket,they'vecometohearhowtobuytheirveryownpiece-GoldmanSachs,BearStearns,LehmanBrothers-Thesubprimelendingaloneincreasedfrom30billionayearinfunding--toover600billionayearin10years.Theyknewwhatwashappening.CountrywideFinancial,thelargestsubprimelender--issued$97billionworthofloans.ltmadeover$11billioninprofitsasaresult.OnWallStreet,annualcashbonusesspiked.TradersandCEOs-duringthebubble.LehmanBrotherswasatopunderwriterofsubprimelending--andtheirCEO,RichardFuld--tookhome$485million.OnWallStreet,thishousingandcreditbubble-ofdollarsofprofits.Youknow,by2006about40percentofallprofits--ofS&P500firmswascomingfromfinancialinstitutions.Itwasn'trealprofitsorincome.Itwasmoneycreatedbythesystemandbookedasincome.Two,threeyearsdowntheroadthere'sadefault,it'sallwipedout.Ithinkitwas,infact,inretrospect,agreatbignational--Andnotjustnational,globalPonzischeme.ThroughtheHomeOwnershipandEquityProtectionAct-hadbroadauthority-ButFedchairmanAlanGreenspanrefusedtouseit.AlanGreenspansaid,No,that'sregulation.Idon'tbelieveinit."For20years,RobertGnaizdawastheheadofGreenlining-advocacygroup.HemetwithGreenspanonaregularbasis.WegavehimanexampleofCountrywide--and150differentcomplexadjustable-ratemortgages.Hesaid,Ifyouhadadoctorateinmath--youwouldn'tbeabletounderstandthemenough-andwhichwasn't."Sowethoughthewasgonnatakeaction.Butastheconversationcontinued-withhisideology.WemetagainwithGreenspanin'05.Oftenwemetwithhimtwiceayear,andneverlessthanonceayear.Andhewouldn'tchangehismind.Inthisworldofglobalcommunications-ofcapital-prosperityinhumanhistory.Ahundredandforty-sixpeoplewerecutfromtheSECEnforcementDivision?Isthatwhatyoualsotestifiedto?Yes.Yeah,lthinktherehasbeenasystematicgutting--orwhateveryouwannacallit,oftheagency-throughcuttingbackofstaff.TheSECOfficeofRiskManagement--wasreducedtoastaff,didyousay,ofone?Yeah.Whenthatgentlemanwouldgohome,hecouldturnthelightsout.Duringthebubble,investmentbankswereborrowingheavily-andcreatemoreCDOs.Theratiobetweenborrowedmoneyandthebanks'ownmoney-Themorethebanksborrowed,thehighertheirleverage.In2004,HenryPaulson,theCEOofGoldmanSachs-torelaxlimitsonleverage-tosharplyincreasetheirborrowing.TheSECsomehowdecided-gamblealotmore.Thatwasnuts.ldon'tknowwhytheydidthat,buttheydid.We'vesaidthesearethebigguys,andclearlythat'strue.Butthatmeansifanythinggoeswrong,it'sgoingtobeanawfullybigmess.Youaredealingwiththemosthighlysophisticatedfinancialinstitutions.Thesearethefirmsthatdomostofthederivativeactivity.Wetalkedtosomeastowhattheircomfortlevelwas.Thefirmsactuallythoughtthatthenumberwasappropriate.Thecommissionersvotetoadoptthenewrulesasrecommended.Yes.Wedoindeed.It'sunanimous.Andweareadjourned.Thedegreeofleverageinthefinancialsystem-Investmentbanksleveraginguptothelevelof33-to-1.Whichmeansthatatiny3-percentdecrease-wouldleavetheminsolvent.Therewasanothertickingtimebombinthefinancialsystem.AlG,theworld'slargestinsurancecompany-ofderivatives-ForinvestorswhoownedCDOs-likeaninsurancepolicy.Aninvestorwhopurchasedacreditdefaultswap-lftheCDOwentbad-fortheirlosses.Butunlikeregularinsurance-creditdefaultswapsfromAIG-theydidn'town.Ininsurance,youcanonlyinsuresomethingyouown.Let'ssayyouandlownproperty.Iownahouse.Icanonlyinsurethathouseonce.Thederivativesuniverseessentiallyenablesanybody-Youcouldinsurethat,somebodyelsecould.So50peoplemightinsuremyhouse.Sowhathappensis,ifmyhouseburnsdown-becomesproportionatelylarger.Sincecreditdefaultswapswereunregulated--AIGdidn'thavetoputasideanymoneytocoverpotentiallosses.Instead,AIGpaiditsemployeeshugecashbonuses-weresigned.ButiftheCDOslaterwentbad-Peoplewereessentiallybeingrewardedfortakingmassiverisks.Ingoodtimes,theygenerateshort-termrevenuesandprofits-Butthat'sgonnaleadtothefirmtobebankruptovertime.That'sadistortedsystemofcompensation.AlG'sFinancialProductsdivisioninLondon--issued$500billionworthofcreditdefaultswapsduringthebubblebackedbysubprimemortgages.The400employeesatAlGFP--made$3.5billionbetween2000and2007.JosephCassano,theheadofAlGFP--personallymade$315million.lt'shardforus--andwithoutbeingflippant,toevenseeascenario-realmofreason-inanyofthosetransactions.ln2007,AlG'sauditorsraisedwarnings.Oneofthem,JosephSt.Denis-Cassanorepeatedlyblockedhim-AlGFP'saccounting.Onepersondidn'tgetabonus.ThatwasSt.Denis.Mr.St.Denistriedtoalertthetwoofyou-intobigproblems.Hequitinfrustration,andhedidn'tgetabonus.In2005,RaghuramRajan-oftheInternationalMonetaryFund-attheJacksonHolesymposiumintheworld.Whowasintheaudience?Itwasthecentralbankersoftheworld-Mr.Greenspanhimself--BenBernanke-TimGeithnerwasthere.Thetitleofthepaperwasessentially:IsFinancialDevelopment>MakingtheWorldRiskier?Andtheconclusionwas,itis.Rajan'spaperfocusedonincentivestructures-basedonshort-termprofits-forlaterlosses.Rajanarguedthattheseincentivesencouragedbankers-destroytheirownfirms-financialsystem.It'sveryeasytogenerateperformancebytakingonmorerisk.Sowhatyouneedtodoiscompensateforrisk-adjustedperformance.Andthat'swhereallthebodiesareburied.Rajan,youknow,hitthenailonthehead.Whatheparticularlysaidwas:Youguyshaveclaimed>you'vefoundaway-withlessrisk.Isayyou'vefoundawaytomakemoreprofitswithmorerisk.There'sabigdifference."Summerswasvocal.Hebasicallythought-inthefinancialworld--andwasworriedabout,youknow,regulation-EssentiallyheaccusedmeofbeingaLuddite.Hewantedtomakesurethatwedidn'tbringin--awholenewsetofregulations-You'regonnamakeanextra$2millionayear,or$10millionayear-atrisk.Someoneelsepaysthebill,youdon't.Wouldyoumakethatbet?MostpeopleonWallStreetsaid,Sure,I'dmakethatbet.Itneverwasenough.Theydon'twannaownonehome,theywannaownfivehomes.Andtheywannahaveanexpensivepenthouse-Andtheywannahavetheirownprivatejet.Youthinkthisisanindustrywherehigh--?Veryhighcompensationlevelsarejustified?IthinkIwouldtakecaution,ortakeheed-veryhigh.lt'srelative.Youhavea14-million-dollarhomeinFlorida.YouhaveasummerhomeinSunValley,ldaho.Anartcollectionfilledwithmillion-dollarpaintings.RichardFuldneverappearedonthetradingfloor.Therewereartadvisorsthereallthetime.Hehadaprivateelevator.Hewantedtobedisconnected.Hiselevator,theyhiredtechnicianstoprogramit-inthemorning-wouldholdit.There'sonlyathree-secondwindowwhereheactuallyhastoseepeople.Andhehopsintothiselevatoranditgoesstraightto31.Lehmanownedcorporatejets.Howmanywerethere?Well,thereweresix,includingthe767s.Theyalsohadahelicopter.Isn'tthatkindofalotofplanestohave?We'redealingwithtype-Apersonalities.Bankingbecameapissingcontest.Mine'sbiggerthanyours.Thatkindofstuff.Itwasallmenthatranit,incidentally.Fifty-billion-dollardealsweren'tbigenough,sowe'ddo100-billiondeals.Thesepeoplearerisk-takers.They'reimpulsive.It'spartoftheirbehavior.It'spartoftheirpersonality.Andthatmanifestsoutsideofworkaswell.Itwasquitetypicalfortheguystogoout-Iseealotofcocaineuse,useofprostitution.Recently,neuroscientistshavedoneexperiments--wherethey'vetakenindividualsandputthemintoanMRlmachine-wheretheprizeismoney.Andtheynoticedthatwhenthesubjectsearnmoney-thatgetsstimulated-thatcocainestimulates.Alotofpeoplefeelthattheyneedtoparticipateinthatbehavior--tomakeit,togetpromoted,getrecognized.AccordingtoaBloombergarticle,businessentertainment--represents5percentofrevenueforderivativesbrokers--andoftenincludesstripclubs,prostitutionanddrugs.ANewYorkbrokerfiledalawsuitin2007againsthisfirm-prostitutestoentertaintraders.There'sjustablatantdisregard-mighthaveonsociety,onfamily.Theyhavenoproblemusingaprostitute-Howmanycustomers?About10,000atthatpointintime.WhatfractionwerefromWallStreet?Ofthehigher-endclients,probably40to50percent.WereallthemajorWallStreetfirmsrepresented?-LehmanBrothers.They'reallinthere.MorganStanleywasalittlelessofthat.IthinkGoldmanwaspretty,prettybigwiththat.Clientswouldcallandsay:CanyougetmeaLamborghini>forthegirl?Theseguyswerespendingcorporatemoney.Ihadmanyblackcardsfrom,youknow,thevariousfinancialfirms.What'shappeningisservicesarebeingcharged-Tradingresearch,youknow,consultingformarketcompliance.Justgavethemletterheadandsaid,Makeyourowninvoice.Thisbehaviorextendstotheseniormanagementofthefirm?Absolutelydoes.Yeah.Iknowforafactthatitdoes.Itextendstotheverytop.Afriendofmineinacompanythathasabigfinancialpresencesaid:It'sabouttimeyoulearned>aboutsubprimemortgages.Sohesetupasessionwithhistradingdeskandme.Andthetechiewhodidallthisgetsveryexcited--runstohiscomputer,pullsupinaboutthreeseconds-issueofsecurities.Itwasacompletedisaster.Borrowershadborrowed,onaverage,99.3percentofthepriceofthehouse.Theyhavenomoneyinthehouse.Ifanythinggoeswrong,theywalkawayfromthemortgage.Thisisnotaloanyou'dreallymake,right?You'vegottabecrazy.Butsomehow,youtook8000oftheseloans-theguysweredone-andtheratingagencies-wereratedtriple-A.Theywereratedassafeasgovernmentsecurities.It'sutterlymad.GoldmanSachssoldatleast$3.1billionworth-inthefirsthalfof2006.TheCEOofGoldmanSachsatthistimewasHenryPaulson-onWallStreet.Goodmorning.I'mpleasedtoannounce-tobetheSecretaryoftheTreasury.Hehasalifetimeofexperience.Hehasknowledgeoffinancialmarkets.He'searnedareputationforcandorandintegrity.Youmightthinkitwouldbehard-governmentsalary.ButtakingthejobasTreasurysecretary-financialdecisionofhislife.Paulsonhadtosellhis$485millionofGoldmanstock-forthegovernment.ButbecauseofalawpassedbythefirstPresidentBush--hedidn'thavetopayanytaxesonit.Itsavedhim$50million.ThearticlecameoutinOctoberof2007.Already,athirdofthemortgagesdefaulted.Nowmostofthemaregoing.Onegroupthathadpurchasedthesenowworthlesssecurities--wasthePublicEmployees'RetirementSystemofMississippi-toover80,000retirees.TheylostmillionsofdollarsandarenowsuingGoldmanSachs.Bylate2006,Goldmanhadtakenthingsastepfurther.Itdidn'tjustselltoxicCDOs-sametimeitwastellingcustomers-high-qualityinvestments.BypurchasingcreditdefaultswapsfromAlG-CDOsitdidn'town-whentheCDOsfailed.Iaskedifanybodycalledthecustomersandsaid:Wedon'treallylikethiskind>ofmortgageanymore-yououghttoknow."Theydidn'tsayanything,butyoucouldfeelthelaughteroverthephone.GoldmanSachsboughtatleast$22billion-ltwassomuchthatGoldmanrealizedthatAlGitselfmightgobankrupt.Sotheyspent$150millioninsuringthemselves--againstAIG'spotentialcollapse.Thenin2007,Goldmanwentevenfurther.TheystartedsellingCDOsspecificallydesigned-theircustomerslost-GoldmanSachsmade.SixhundredmilliondollarsofTimberwolfsecuritiesiswhatyousold.Beforeyousoldthem-weretellingtoeachother:Boy,thatTimberwolf>wasoneshittydeal.Thiswasane-mailtomeinlateJune,afterthetransaction.No,no.YousoldTimberwolfafteraswell.Thenexte-mail--Takealook.July1,'07.--tellsthesalesforce,ThetoppriorityisTimberwolf.Yourtopprioritytosellisthatshittydeal.Ifyouhaveanadverseinteresttoyourclient-todiscloseit?Totellthatclientofyouradverseinterest?-That'smyquestion.-l'mtryingtounderstand--Ithinkyouunderstand.Youdon'twannaanswer.Doyoubelieveyouhaveaduty--toactinyourclients'bestinterest?Irepeat,wehaveadutytoserveourclients-thattheyaskustoshowpricesfor.Whatdoyouthinkaboutsellingsecurities-arecrap?Doesthatbotheryou?Ithinktheywould-.-Well,thenIdon'tknow--Weheardittoday.Thisisashittydeal."Thisiscrap."Iheardnothingtoday-anythingwentwrong.Istherenotaconflictwhenyousellsomethingtosomebody-tobetagainstthatsamesecurity--andyoudon'tdisclosethattothepersonyou'resellingitto?Youseeaproblem?Inthecontextofmarketmaking,thatisnotaconflict.Whenyouheardyouremployeesine-mailssaid,"Whatashittydeal"-That'sveryunfortunatetohaveone-mail.Areyouembar--?Andveryunfortunate--Idon't--Idon't--One-mail?Howaboutfeelingthatway?It'sveryunfortunateforanyonetohavesaidthatinanyform.Areyourcompetitorsengagedinsimilaractivities?Yes,andtoagreaterextentthanusinmostcases.HedgefundmanagerJohnPaulsonmade$12billion-themortgagemarket.WhenPaulsonranoutofmortgagesecuritiestobetagainst-andDeutscheBanktocreatemore.MorganStanleywasalsoselling-against,andit'snowbeingsuedby--theGovernmentEmployees'RetirementFundoftheVirginIslands-ThelawsuitallegesthatMorganStanleyknew-Althoughtheywereratedtriple-A-wasbettingtheywouldfail.Ayearlater,MorganStanleyhadmadehundredsofmillionsofdollars-hadlostalmostalloftheirmoney.Youwouldhavethoughtpensionfundswouldhavesaid:Thosearesubprime.>Whyamlbuyingthem?TheyhadtheseguysatMoody'sandStandard&Poor's--whosaid,"That'satriple-A."Nosecuritiesgotissuedwithoutthesealofapprovaloftheratingagencies.Thethreeratingagencies,Moody's,S&PandFitch-givinghighratingstoriskysecurities.Moody's,thelargestratingagency,quadrupleditsprofits-Moody'sandS&Pgetcompensatedbasedonputtingoutratingsreports.Andthemorestructuredsecuritiestheygaveatriple-Aratingto-ImaginegoingtoTheTimessaying:Writeapositivestory,>I'llpayyou$500,000.Ifyoudon't,l'llgiveyounothing."Ratingagenciescouldhavestoppedthepartyandsaid:Sorry.We'regonnatighten>ourstandards-thefundingtoriskyborrowers.Triple-A-ratedinstruments-tothousandsandthousands.Hundredsofbillionsofdollarswerebeingrated,youknow,and--I'venowtestifiedbeforebothhousesofCongress--onthecreditratingagencyissue-prominentFirstAmendmentlawyers--andarguethat,"Whenwesaysomethingisratedtriple-A--thatismerelyour'opinion.'Youshouldn'trelyonit."S&P'sratingsexpressouropinion.Ourratingsareouropinions.They'reopinions.Opinions.Andtheyarejustopinions.Ithinkweareemphasizingthefactthatourratingsareopinions.Theydonotspeaktothemarketvalueofasecurity--thevolatilityofitsprice,oritssuitabilityasaninvestment.Wehavemanyeconomistssaying:Thisisabubble,>it'sgoingtoburst.Thisisgoingtobeanissuefortheeconomy."Somesayitcouldevencausearecessionatsomepoint.Whatistheworst-casescenarioif,infact,weweretoseeprices-acrossthecountry?Idon'tbuyyourpremise.It'sanunlikelypossibility.We'veneverhadadeclineinhousepricesonanationwidebasis.BenBernankebecamechairmanoftheFederalReserveinFebruary2006-Butdespitenumerouswarnings-FederalReserveBoarddidnothing.RobertGnaizdametwithBernankeandtheFederalReserveBoard-Bernankebecamechairman.Onlyatthelastmeetingdidhesuggestthattherewasaproblem-oughttolookintoit.When?Whenwasthat?Whatyear?It's2009,March11th,inD.C.Andsoforthetwopreviousyearsyoumethim-.-Evenin2008?0OneofthesixFederalReserveBoardgovernorsservingunderBernanke--wasFredericMishkin-byPresidentBushin2006.DidyouparticipateinthemeetingsRobertGnaizda-withtheFederalReserveBoard?Yes,ldid.Iwasonthecommitteethatwasinvolved-AffairsCommittee.Hewarned,inanextremelyexplicitmanner,aboutwhatwasgoingon.HecametotheFederalReserveBoardwithloandocumentation-thatwerefrequentlybeingmade.Andhewaslistenedtopolitely,andnothingwasdone.Soagain,ldon'tknowthedetailsintermsof-.Infact,ljustdon't--l--Whateverinformationheprovided,I'mnotsureexactly-.Tobehonestwithyou,Ican'trememberthiskindofdiscussion-thatwerecomingup.Thequestionis,howpervasivearethey?-Whydidn'tyoutrylooking?Wehadpeoplelookingat--Excuseme.Youcan'tbeserious.Youwouldhavefoundthings.That'sveryeasytoalwayssaythatyoucanalwaysfindit.Asearlyas2004-aboutanepidemicofmortgagefraud.Theyreportedinflatedappraisals-andotherfraudulentactivity.ln2005,theIMF'schiefeconomist,RaghuramRajan-couldleadtoacrisis.ThencameNourielRoubini'swarningsin2006--AllanSloan'sarticlesinFortunemagazine-#NAME?in2007-#NAME?fromthelMF.Isaid,andonbehalfoftheinstitution,thecrisisinfrontofusisahugecrisis.Whodidyoutalkto?Thegovernment,Treasury,Fed,everybody.InMayof2007,hedgefundmanagerBillAckmancirculatedapresentation--"WhoisHoldingtheBag?"-#NAME?howthebubblewouldunravel.Andinearly2008,CharlesMorrispublishedhisbook-#NAME?You'renotsure.Whatdoyoudo?Youmighthavesomesuspicionsthatunderwritingstandardsareweakened.Butthenthequestionis,shouldyoudoanythingaboutit?By2008,homeforeclosureswereskyrocketing-#NAME?imploded.Lenderscouldnolongerselltheirloanstotheinvestmentbanks.Andastheloanswentbad,dozensoflendersfailed.ChuckPrinceofCitibankfamouslysaid-#NAME?untilthemusicstops.Actually,themusichadstoppedalreadywhenhesaidthat.ThemarketforCDOscollapsed-#NAME?hundredsofbillionsofdollars-#NAME?theycouldn'tsell.Whenthecrisisstarted,boththeBushadministration-#NAME?weretotallybehindthecurve.Theydidnotunderstandtheextentofit.Atwhatpointdoyourememberthinkingforthefirsttime:Thisisdangerous,thisisbad?Irememberverywellone--IthinkitwasaG7meeting--ofFebruary,2008.AndlrememberdiscussingtheissuewithHankPaulson.AndlclearlyremembertellingHank:Wearewatching>thistsunamicoming--andyou'rejustproposingthatweask-#NAME?we'regoingtoputon."Whatwashisresponse?Whatwashisfeeling?Thingsareundercontrol.Yes,wearelookingatthissituationcarefully--and,yeah,it'sundercontrol."We'regonnakeepgrowing.Okay?And,obviously,I'llsayit:Ifyou'regrowing,you'renotinrecession,right?Imean,weallknowthat.OneofthepillarsofWallStreet-.lnMarch2008,theinvestmentbankBearStearnsranoutofcash--andwasacquiredfor$2asharebyJPMorganChase.Thedealwasbackedby$30billioninemergencyguarantees-#NAME?Thatwaswhentheadministrationcouldhavecomein-#NAME?toreducesystemrisk.TheinformationI'mreceivingistheendisnothere-#NAME?Well,l'veseenthoseinvestmentbanks-#NAME?andtheSEC--strengthentheirliquidity,strengthentheircapitalpositions.Igetreportsallthetime.Ourregulatorsareveryvigilant.OnSeptember7th,2008-#NAME?thefederaltakeover--ofFannieMaeandFreddieMac,giantlendersonthebrinkofcollapse.Nothingaboutouractionstodayreflectsachangedview--ofthehousingcorrection-#NAME?ofotherU.S.financialinstitutions.Twodayslater-#NAME?recordlossesof$3.2billion-#NAME?TheeffectsofLehmanandAlGinSeptemberstillcameasasurprise.Imean,thisisevenafterJulyandFannieandFreddie.Soclearlytherewasstuffthat,asofSeptember--majorstuff,thatnobodyknewabout.Ithinkthat's--lthinkthat'sfair.BearStearnswasratedtriple-Alikeamonthbeforeitwentbankrupt?#NAME?#NAME?#NAME?#NAME?A2isstillnotbankrupt.No,that'sahighinvestmentgrade.Solidinvestmentgraderating.LehmanBrothers,A2withindaysoffailing.AlG,double-Awithindaysofbeingbailedout.FannieMaeandFreddieMacweretriple-Awhentheywererescued.Citigroup,Merrill,allofthemhadinvestment-graderatings.#NAME?-Well,that'sagoodquestion.That'sagreatquestion.Atnopointdidtheadministrationevergotoallthemajorinstitutionsandsay:Thisisserious.>Telluswhatyourpositionsare.Youknow,nobullshit.Whereareyou?"Well,first,that'swhattheregulators--That'stheirjob,right?Theirjobistounderstandtheexposureacrosstheseinstitutions.Andtheyhaveaveryrefinedunderstanding--thatlthinkbecamemorerespon--Morerefinedasthecrisisproceeded.-So---Forgiveme,butthat'sclearlynottrue.Whatdoyoumean,that'snottrue?InAugustof2008-#NAME?heldbyLehmanBrothers--MerrillLynch,AIG-#NAME?thattheywereaccurate?Well,certainlybythattime-#NAME?weren'taccurate.#NAME?-No,theyhadn't.Therewasdowngradingintermsoftheindustryandconcernsofthe--AllthosefirmswereratedatleastA2-#NAME?beforetheywererescued.Theanswerisldon'tknowenoughtoansweryourquestiononthisissue.GovernorFredMishkinisresigning,effectiveAugust31.HeplanstoreturntoColumbia'sGraduateSchoolofBusiness.WhydidyouleavetheFederalReserveinAugustof2008-#NAME?oftheworstfinancialcrisis?Sothat--Ihadtoreviseatextbook.Hisdepartureleavestheboardwiththreeofitssevenseatsvacant-#NAME?needsitmost.I'msureyourtextbookisimportantandwidelyread,butinAugust2008-#NAME?goingonintheworld,don'tyouthink?ByFriday,September12th-#NAME?runoutofcash-#NAME?industrywassinkingfast.Thestabilityoftheglobalfinancialsystemwasinjeopardy.Thatweekend,HenryPaulsonandTimothyGeithner-#NAME?theNewYorkFederalReserve-#NAME?withtheCEOsofthemajorbanks-#NAME?ButLehmanwasn'talone.MerrillLynchwasalsoonthebrinkoffailure.AndthatSunday,itwasacquiredbyBankofAmerica.TheonlybankinterestedinbuyingLehmanwastheBritishfirmBarclays.ButBritishregulatorsdemandedafinancialguaranteefromtheU.S.Paulsonrefused.WegotinacabandwenttotheFederalReserveBank.Theywantedthebankruptcycasecommencedbeforemidnight--ofSeptember14.Wekeptpressingthatthiswouldbeaterribleevent-#NAME?IusedthewordArmageddon-#NAME?ofwhattheywereproposing.Theeffectonthemarketwouldbeextraordinary.#NAME?0Theyjustsaidtheyhadconsideredallofthecommentswehadmade-#NAME?thatinordertocalmthemarkets-#NAME?forLehmantogointobankruptcy.-"Calmthemarkets"?0WhenwereyoufirsttoldthatLehman,infact,wasgoingtogobankrupt?#NAME?#NAME?Okay.Andwhatwasyourreactionwhenyoulearnedofit?Holycow.PaulsonandBernankehadnotconsultedwithothergovernments--anddidn'tknowtheconsequencesofforeignbankruptcylaws.#NAME?emptytheirdesks-.UnderBritishlaw--Lehman'sLondonofficehadtobeclosedimmediately.Alltransactionscametoahalt,andtherearethousandsoftransactions.ThehedgefundswhohadhadassetswithLehmaninLondon--discoveredovernight,totheircompletehorror--theycouldn'tgetthoseassetsback.Oneofthepointsofthehubfailed.Andthathadhugeknock-oneffectsaroundthesystem.Theoldestmoneymarketfundinthenation-#NAME?ofabilliondollarsinbaddebt-#NAME?LehmanBrothers.Lehman'sfailurecausedacollapseinthecommercialpapermarket-#NAME?topayforexpenses-#NAME?Thatmeanstheyhavetolayoffemployees,theycan'tbuyparts.Itstopsbusinessinitstracks.Peoplestoodandsaid,Listen,whatcanwebelievein?There'snothingwecantrustanymore."Thatsameweek,AIGowed$13billion-#NAME?anditdidn'thavethemoney.AlGwasanotherhub.IfAIGhadstopped,youknow,allplanesmayhavetostopflying.OnSeptember17th,AlGistakenoverbythegovernment.Onedaylater,PaulsonandBernankeaskCongress--for$700billiontobailoutthebanks.We'recomingtogether-.Theywarnedthatthealternativewouldbeacatastrophiccollapse.Itwasscary.Youknow,theentiresystemfrozeup.Everypartofthefinancialsystem,everypartofthecreditsystem.Nobodycouldborrowmoney.Itwaslikeacardiacarrestoftheglobalfinancialsystem.I'mplayingthehanddealtme.AlotofwhatI'mdealingwith--I'mdealingwiththeconsequencesofthingsthatweredoneyearsago.SecretaryPaulsonspokethroughthefall.Allthepotentialrootcausesofthis,andthereareplenty---hecalledthem.I'mnotsure---You'renotbeingseriousaboutthat.Iambeingserious.Whatwouldyouhaveexpected?Whatwereyoulookingforthatyoudidn'tsee?Hewasthesenioradvocate-#NAME?ofcreditdefaultswaps-#NAME?ontheinvestmentbanks.Soagain,what--?Hementionedthosethings?lneverheardhimmentionthosethings.Couldweturnthisoffforasecond?WhenAIGwasbailedout,theownersofitscreditdefaultswaps-#NAME?wasGoldmanSachs--werepaid$61billionthenextday.Paulson,BernankeandTimGeithner--forcedAIGtopay100centsonthedollar-#NAME?lowerprices.Eventually,theAIGbailoutcosttaxpayersover$150billion.AhundredandsixtybilliondollarswentthroughAlG.FourteenbillionwenttoGoldmanSachs.Atthesametime,PaulsonandGeithnerforcedAlG-#NAME?andtheotherbanksforfraud.Isn'tthereaproblemwhenthepersoninchargeofdealingwiththiscrisis-#NAME?ofGoldmanSachs?Someonewhohadamajorroleincausingit.It'sfairtosaythatthefinancialmarketstoday-#NAME?#NAME?urgentlyneededmoney-.OnOctober4th,2008-#NAME?a700-billion-dollarbailoutbill.Butworldstockmarketscontinuetofall-#NAME?isnowunderway.Thebailoutlegislationdoesnothingtostemthetideoflayoffs-#NAME?UnemploymentintheUnitedStatesandEuroperisesto10percent.Therecessionacceleratesandspreadsglobally.Ibegantogetreallyscaredbecauselhadn'tforeseen-#NAME?atthesamerateatthesametime.ByDecemberof2008-#NAME?arefacingbankruptcy.AndasU.S.consumerscutbackonspending-#NAME?seesalesplummet.Over10millionmigrantworkersinChinalosetheirjobs.Attheendoftheday,thepoorest,asalways,paythemost.Here,youcanearnalotofmoney.Like70,80U.S.dollarspermonth.Asafarmerinthecountryside,youcannotearnasmuchmoney.Theworkers,theyjustwiretheirsalarytotheirhometown-#NAME?ThecrisisstartedinAmerica.WeallknowitwillbecomingtoChina.Someofthefactoriestrytocutoffsomeworkers.Andsomepeoplewillgetpoorbecausethey'lllosetheirjobs.Lifegetsharder.Weweregrowingatabout20percent.Itwasasuperyear.Thenwesuddenlywenttominus-ninethisquarter.Exportscollapsed,andwe'retalkinglike30percent.Sowejusttookahit,youknow.Felloffacliff.Evenasthecrisisunfolded,wedidn'tknowhowwideitwasgoingtospread-#NAME?Wewerestillhopingthattherewouldbesomeway-#NAME?andbelessbatteredbythestorm.Butit'snotpossible.It'saveryglobalizedworld.Theeconomiesarealllinkedtogether.Everytimeahomegoesintoforeclosure-#NAME?wholivesaroundthathouse.Whenthathousegoesonthemarket,it'llbesoldatalowerprice.Maybebeforeitgoesonthemarket,itwon'tbewell-maintained.Weestimateanother9millionhomeownerswilllosetheirhomes.Wewentoutonaweekendtoseewhathouseswereforsale.Wesawoneweliked.Thepaymentwasgoingtobe$3200.Everythingwasbeautiful,thehousewasverypretty.Thepaymentlow.Everythingwas--Wewonthelottery.Buttherealitywaswhenthefirstpaymentarrived.Ifeltverybadformyhusband-#NAME?Andwehavethreechildren.Themajorityl'veseenarepeoplehurtbytheeconomy.Theywerelivingdaytoday,paychecktopaycheck-#NAME?Unemploymentwon'tpayamortgage.Itwon'tpayacarbill.Iwasalogtruckdriver.Theyshutdowntheloggingsystems,shutdownthesawmills.Solmoveddownhereonaconstructionjob.Andtheconstructionjobsgotshutdowntoo,so-.Thingsaresotough.There'salotofpeopleoutthere.Soonyou'regonnabeseeingmorecampslikethis--becausethere'sjustnojobsrightnow.Whenthecompanydidwell,wedidwell.Whenthecompanydidnotdowell,sir,wedidnotdowell.Themenwhodestroyedtheirowncompanies-#NAME?intocrisis-#NAME?withtheirfortunesintact.ThetopfiveexecutivesatLehmanBrothersmadeoverabilliondollars-0Andwhenthefirmwentbankrupt,theygottokeepallthemoney.Thesystemworked.Itdoesn'tmakesensetomakeafailingloanbecausewelose.Theborrowerloses,thecommunitylosesandwelose.Countrywide'sCEO,AngeloMozilo--made$470millionbetween2003and2008.OnehundredfortymillioncamefromdumpinghisCountrywidestock--inthe12monthsbeforethecompanycollapsed.Iholdtheboardaccountablewhenabusinessfails.They'reresponsibleforhiringandfiringtheCEO-#NAME?bigstrategicdecisions.TheproblemwithboardsinAmericaisthewayboardsareelected.Youknow,theboardsareprettymuch,inmanycases,pickedbytheCEO.Theboardofdirectorsandcompensationcommittees-#NAME?todeterminepayforexecutives.Howdoyouthinkthey'vedoneoverthepast10years?Well,lthinkthatifyoulookatthose--IwouldgiveaboutaB,because--#NAME?#NAME?#NAME?#NAME?StanO'Neal,theCEOofMerrillLynch--received$90millionin2006and2007alone.Afterdrivinghisfirmintotheground-0allowedhimtoresign--andhecollected$161millioninseverance.Insteadofbeingfired,StanO'Nealisallowedtoresign--andtakesaway$151million.That'sadecisionthatthatboardofdirectorsmade.Whatgradedoyougivethatdecision?That'satougherone.Idon'tknowifl'dgiveitaBaswell.O'Neal'ssuccessor,JohnThain,waspaid$87millionin2007.AndinDecemberof2008-#NAME?wasbailedoutbyU.S.taxpayers--ThainandMerrill'sboardhandedoutbillionsinbonuses.lnMarchof2008,AlG'sFinancialProductsdivision--lost$11billion.Insteadofbeingfired,JosephCassano,headofAIGFP-#NAME?foramilliondollarsamonth.YouwannamakesurekeyplayersandkeyemployeeswithinAlGFP-#NAME?thatintellectualknowledge.Iattendedaveryinterestingdinner-#NAME?alittlemorethanoneyearago-#NAME?andacoupleofCEOs-#NAME?Andsurprisinglyenough,allthesegentlemenwerearguing:Weweretoogreedy,sowehave>partoftheresponsibility.Fine.Thentheywereturningtothetreasurer,SecretaryoftheTreasury,andsaying:Youshouldregulatemore.>We'retoogreedy,wecan'tavoidit.Theonlywaytoavoidthisistohavemoreregulation."Ihavespokentomanybankersaboutthisquestion-#NAME?AndthisisthefirsttimethatI'veeverheardanybodysay-#NAME?toberegulatedinanyway.Yeah,becauseitwasatthemomentwheretheywereafraid.Andafter,whensolutiontothecrisisbegantoappear-#NAME?theychangedtheirmind.IntheU.S.,thebanksarenowbigger,morepowerful-#NAME?thaneverbefore.Therearefewercompetitors.Alotofsmallerbankshavebeentakenoverbybigones.J.P.Morganisevenbiggerthanitwasbefore.J.P.MorgantookoverfirstBearStearnsandthenWaMu.BankofAmericatookoverCountrywideandMerrillLynch.WellsFargotookoverWachovia.Afterthecrisis,thefinancialindustry-#NAME?FinancialServicesRoundtable-#NAME?tofightreform.Thefinancialsectoremploys3000lobbyists-#NAME?foreachmemberofCongress.Youthinkthefinancialservicesindustry-#NAME?intheUnitedStates?No.Ithinkthateverypersoninthecountry-#NAME?hereinWashington.AndyouthinkthatallsegmentsofAmericansociety-#NAME?tothesystem?Thatyoucanwalkintoanyhearingroomthatyouwouldlike.Yes,ldo.Onecanwalkintoanyhearingroom.Onecannotnecessarily-#NAME?thatyourindustrywrites-#NAME?contributionsyourindustryengagesin.Between1998and2008-0spentover$5billion-#NAME?andcampaigncontributions.Andsincethecrisis,they'respendingevenmoremoney.Thefinancialindustryalsoexertsitsinfluence-#NAME?mostAmericansdon'tknowabout.Ithascorruptedthestudyofeconomicsitself.Deregulationhadtremendousfinancialandintellectualsupport-#NAME?fortheirownbenefit.Theeconomicsprofessionwasthemainsourceofthatillusion.Sincethe1980s,academiceconomists-#NAME?ofderegulation-#NAME?inshapingU.S.governmentpolicy.Veryfewoftheseeconomicexpertswarnedaboutthecrisis.Andevenafterthecrisis,manyofthemopposedreform.Theguyswhotaughtthesethingstendedtogetpaidalotofmoney-#NAME?Businessschoolprofessorsdon'tliveonafacultysalary.Theydovery,verywell.Overthelastdecade,thefinancialservicesindustries--madeabout$5billionworthofpoliticalcontributionsintheU.S.That'skindofalotofmoney.-Thatdoesn'tbotheryou?#NAME?MartinFeldsteinisaprofessoratHarvard--andoneoftheworld'smostprominenteconomists.AsPresidentReagan'schiefeconomicadvisor-#NAME?ofderegulation.Andfrom1988until2009-#NAME?ofbothAlG--andAlGFinancialProducts-#NAME?YouhaveanyregretsabouthavingbeenonAlG'sboard?Ihavenocomments.No,IhavenoregretsaboutbeingonAlG'sboard.#NAME?#NAME?Okay.YouhaveanyregretsaboutAlG'sdecisions?IcannotsayanythingmoreaboutAlG.I'vetaughtatNorthwesterninChicago,HarvardandColumbia.GlennHubbardisthedeanofColumbiaBusinessSchool-#NAME?oftheCouncilofEconomicAdvisers-#NAME?Doyouthinkthefinancialservicesindustry-#NAME?intheUnitedStates?Idon'tthinkso.No.Youcertainlywouldn'tgetthatimpression-#NAME?thattheyregularlygetinWashington.Manyprominentacademicsquietlymakefortunes-#NAME?publicdebateandgovernmentpolicy.TheAnalysisGroup,CharlesRiverAssociates--CompassLexecon-#NAME?ConsultingGroup-#NAME?industry-#NAME?forhire.Twobankerswhousedtheseservices-#NAME?andMatthewTannin-#NAME?prosecutedforsecuritiesfraud.AfterhiringtheAnalysisGroup,bothwereacquitted.GlennHubbardwaspaid$100,000totestifyintheirdefense.Doyouthinktheeconomicsdisciplinehasaconflict-of-interestproblem?I'mnotsurelknowwhatyoumean.Doyouthinkasignificantfractionoftheeconomicsdiscipline,economists-#NAME?thatmightcallintoquestionorcolor--?Iseewhatyou'resaying.Idoubtit.Mostacademiceconomistsaren'twealthybusinesspeople.Hubbardmakes$250,000ayearasaboardmemberofMetLife-#NAME?ontheboardofCapmark-#NAME?mortgagelenderduringthebubble--whichwentbankruptin2009.HehasalsoadvisedNomuraSecurities-#NAME?andmanyotherfinancialfirms.LauraTyson,whodeclinedtobeinterviewedforthisfilm-#NAME?UniversityofCalifornia,Berkeley.ShewasthechairoftheCouncilofEconomicAdvisers-#NAME?EconomicCouncilunderClinton.Afterleavinggovernment,shejoinedtheboardofMorganStanley--whichpaysher$350,000ayear.RuthSimmons,presidentofBrownUniversity--makesover$300,000ayearontheboardofGoldmanSachs.LarrySummers,who,asTreasurysecretary,playedarole--inthederegulationofderivatives,becamepresidentofHarvardin2001.WhileatHarvard,hemademillionsconsultingtohedgefunds--andmillionsmoreinspeakingfees,muchofitfrominvestmentbanks.Accordingtohisfederaldisclosurereport,Summers'networth--isbetween$16.5millionand$39.5million.FredericMishkin,whoreturnedtoColumbiaBusinessSchool--afterleavingtheFederalReserve,reportedonhisdisclosurereport-#NAME?$6millionand$17million.In2006,youcoauthoredastudyoflceland'sfinancialsystem.Icelandisanadvancedcountry--withexcellentinstitutions,lowcorruption,ruleoflaw.Theeconomyhasadjustedtofinancialliberalization-#NAME?supervisionisgenerallyquitestrong."Andthatwasthemistake,thatitturnsout-#NAME?wasnotstronginlceland---duringthisperiod--#NAME?You'regoingwiththeinformationyouhad-#NAME?Icelandhadverygoodinstitutions.-ltwasanadvancedcountry--#NAME?#NAME?#NAME?Youhavefaithinthecentralbank,whichactuallydidfalldownonthejob.Thatclearlyit--This--#NAME?-Well,thatfaith--Youtry--Becauseyougowiththeinformationyouhave.#NAME?-lwaspaid--Ithinkthenumber--It'spublicinformation.OnyourCV,thetitleofthisreporthasbeenchanged--from"FinancialStabilityinlceland"to"FinanciallnstabilityinIceland."Well,ldon'tknow.Whateveritis--Ifthere'satypo,there'satypo.Whatshouldbepubliclyavailable-#NAME?doesresearchonatopic-#NAME?financialconflictwiththatresearch.ButifIrecall,thereisnopolicytothateffect.Ican'timagineanybodynotdoingthatintermsofputtingitinapaper.You--Therewouldbesignificantprofessionalsanctionforfailuretodothat.Ididn'tseeanyplaceinthestudywhereyouindicatedyou'dbeenpaid-#NAME?ofCommercetoproduceit.-No,Idon't--Youknow.0RichardPortes,themostfamouseconomistinBritain-#NAME?LondonBusinessSchool-#NAME?lcelandicChamberofCommerce-#NAME?thelcelandicfinancialsector.Thebanksthemselvesarehighlyliquid.They'vemademoneyonthefalloftheIcelandickrona.Thesearestrongbanks.Theirmarketfundingisassuredforthecomingyear.#NAME?#NAME?LikeMishkin,Portes'reportdidn'tdisclosehispayment-#NAME?ChamberofCommerce.DoesHarvardrequiredisclosuresoffinancialconflictofinterest?Nottomyknowledge.Doyourequirepeopletoreportthecompensation-#NAME?#NAME?Don'tyouthinkthat'saproblem?Idon'tseewhy.MartinFeldsteinbeingontheboardofAIG--LauraTysonatMorganStanley--LarrySummersmaking$10millionconsultingtofinancialservicesfirms-.Irrelevant?Yeah.Yeah.Basicallyirrelevant.You'vewrittenmanyarticlesaboutawidearrayofsubjects.Youneversawfittoinvestigatetherisks-#NAME?creditdefaultswaps?Ineverdid.Samequestionwithregardtoexecutivecompensation?Theregulationofcorporategovernance?Theeffectofpoliticalcontributions?Idon'tknowthatlwouldhaveanythingtoaddtothosediscussions.I'mlookingatyourresumenow.Itlookstomeasifthemajorityofyouroutsideactivities-#NAME?anddirectorshiparrangements-#NAME?industry.Wouldyounotagreewiththatcharacterization?Tomyknowledge,ldon'tthinkmyconsultingclientsareonmyCV.-SoIwouldn'tknow.#NAME?Idon'tbelievelhavetodiscussthatwithyou.Okay.Infact,youhaveafewmoreminutesandtheinterview'sover.Doyouconsultforanyfinancialservicesfirms?#NAME?#NAME?And--Butldonotwannagointodetailsaboutthat.Dotheyincludeotherfinancialservicesfirms?Possibly.Youdon'tremember?Thisisn'tadeposition,sir.Iwaspoliteenoughtogiveyoutime.Foolishly,lnowsee.Butyouhavethreemoreminutes.Giveityourbestshot.ln2004,attheheightofthebubble-#NAME?readpaperwithWilliamC.Dudley-#NAME?ofGoldmanSachs.Inthepaper,Hubbardpraisedcreditderivatives--andthesecuritizationchain-#NAME?allocationofcapital-#NAME?financialstability.Hecitedreducedvolatilityintheeconomy-#NAME?hadbecomelessfrequentandmilder.Creditderivativeswereprotectingbanksagainstlosses-#NAME?Amedicalresearcherwritesanarticle,saying:Totreatthisdisease,>youshouldprescribethisdrug.Turnsoutdoctormakes80percentofpersonalincome-#NAME?Doesnotbotheryou?Ithinkit'scertainlyimportanttodisclosethe-.Well,lthinkthat'salsoalittledifferent--fromcasesthatwe'retalkingaboutherebecause-.So,whatdoyouthinkthissaysabouttheeconomicsdiscipline?Well,lmean,ithasnorelevancetoanything,really.And,indeed,Ithinkit'sapartofthe--It'sanimportantpartoftheproblem.TherisingpoweroftheU.S.financialsector-#NAME?inAmerica.Sincethe1980s,theUnitedStateshasbecomeamoreunequalsociety-#NAME?hasdeclined.CompanieslikeGeneralMotors,ChryslerandU.S.Steel-#NAME?oftheU.S.economy-#NAME?behindtheirforeigncompetitors.AndascountrieslikeChinaopenedtheireconomies-#NAME?sentjobsoverseastosavemoney.Formany,manyyears,the660millionpeople-#NAME?weresheltered-#NAME?thatexistedontheplanet.SuddenlytheBambooCurtainandthelronCurtainarelifted--andyouhave2.5billionadditionalpeople.Americanfactoryworkerswerelaidoffbythetensofthousands.Ourmanufacturingbasewasdestroyed,literally-#NAME?Asmanufacturingdeclined,otherindustriesrose.TheUnitedStatesleadstheworldininformationtechnology-#NAME?areeasytofind.Butthosejobsrequireaneducation.AndforaverageAmericans,collegeisincreasinglyoutofreach.WhileuniversitieslikeHarvardhavebillionsofdollarsinendowments-#NAME?isshrinkingandtuitionisrising.TuitionforCalifornia'spublicuniversities--rosefrom$650inthe1970stoover$10,000in2010.ThemostimportantdeterminantofwhetherAmericansgotocollege-#NAME?themoneytopayforit.Meanwhile,Americantaxpolicyshiftedtofavorthewealthy.WhenIfirstcametooffice,lthoughttaxesweretoohigh,andtheywere.Themostdramaticchangewasaseriesoftaxcuts--designedbyGlennHubbard,whowasserving--asPresidentBush'schiefeconomicadvisor.TheBushadministrationsharplyreducedtaxesoninvestmentgains--stockdividends,andeliminatedtheestatetax.Wehadacomprehensiveplanthatwhenacted--hasleftnearly$1.1trillioninthehandsofAmericanworkers-#NAME?andsmall-businessowners.Mostbenefitsofthesecutswenttothewealthiest1percentofAmericans.Andbytheway,itwasthecornerstone--inmanyways,ofoureconomicrecoverypolicy.InequalityofwealthintheUnitedStates-#NAME?thaninanyotherdevelopedcountry.Americanfamiliesrespondedtothesechangesintwoways:Byworkinglongerhoursandbygoingintodebt.Asthemiddleclassfallsfurtherandfurtherbehind-#NAME?torespond-#NAME?Youdon'thavetohavealousyhome.Thelow-incomehomebuyercanhavejustasniceahouseasanybodyelse.Americanfamiliesborrowedtofinancetheirhomes,theircars--theirhealthcare,andtheirchildren'seducations.Peopleinthebottom90percent-#NAME?between1980and2007.Itallwenttothetop1percent.Forthefirsttimeinhistory,averageAmericans-#NAME?lessprosperousthantheirparents.TheeraofgreedandirresponsibilityonWallStreetandinWashington--hasledustoafinancialcrisis--asseriousasanythatwe'vefacedsincetheGreatDepression.Whenthefinancialcrisisstruckbeforethe2008election-#NAME?toWallStreetgreed-#NAME?oftheneedforchangeinAmerica.AlackofoversightinWashingtonandonWallStreet-#NAME?intothismess.Aftertakingoffice,Obamaspokeoftheneedtoreformtheindustry.Wewantariskregulator,increasedcapitalrequirements.Weneedaconsumerfinancialprotectionagency.WeneedtochangeWallStreet'sculture.Butwhenfinallyenactedinmid-2010--theadministration'sfinancialreformswereweak.Andinsomecriticalareas,includingtheratingagencies--lobbyingandcompensation-#NAME?wasevenproposed.AddressingObamaand,quote,"regulatoryreform"--myresponse,ifitwasoneword,wouldbe"ha."There'sverylittlereform.Howcome?It'saWallStreetgovernment.ObamachoseTimothyGeithnerasTreasurysecretary.GeithnerwaspresidentoftheNewYorkFederalReserve--duringthecrisis,andakeyplayerinthedecision-#NAME?100centsonthedollar-#NAME?WhenTimGeithnerwastestifying-#NAME?asTreasurysecretary-0Ihaveneverbeenaregulator.Thatsaidtomehedidnotunderstandhisjob-#NAME?ThenewpresidentoftheNewYorkFedisWilliamC.Dudley-#NAME?ofGoldmanSachs-#NAME?praisedderivatives.Geithner'schiefofstaffisMarkPatterson-#NAME?AndoneofthesenioradvisorsisLewisSachs--whooversawTricadia,acompanyheavilyinvolved-#NAME?themortgagesecuritiesitwasselling.ToheadtheCommodityFuturesTradingCommission--ObamapickedGaryGensler,aformerGoldmanSachsexecutive-#NAME?theregulationofderivatives.ToruntheSecuritiesandExchangeCommission--ObamapickedMarySchapiro,theformerCEOofFINRA--theinvestmentbankingindustry'sself-regulationbody.Obama'schiefofstaff,RahmEmanuel--made$320,000servingontheboardofFreddieMac.BothMartinFeldsteinandLauraTysonaremembers--ofObama'sEconomicRecoveryAdvisoryBoard.AndObama'schiefeconomicadvisorisLarrySummers.Themostsenioreconomicadvisors--aretheoneswhowerethere,whobuiltthestructure.WhenitwasclearthatSummersandGeithner-#NAME?asadvisors-#NAME?goingtobestatusquo.TheObamaadministrationresistedregulationofbankcompensation-#NAME?tookaction.Thefinancialindustryisaserviceindustry.Itshouldserveothersbeforeitservesitself.InSeptemberof2009,ChristineLagarde-#NAME?ofSweden,theNetherlands--Luxembourg,Italy,SpainandGermany--calledfortheG20nations,includingtheUnitedStates-#NAME?onbankcompensation.AndinJulyof2010-#NAME?enactedthoseveryregulations.TheObamaadministrationhadnoresponse.Theirviewisit'satemporaryblipandthingswillgobacktonormal.Thatiswhylamreappointinghim-#NAME?Thankyou,Ben.ln2009,BarackObamareappointedBenBernanke.Thankyou,Mr.President.Asofmid-2010,notasingleseniorfinancialexecutive--hadbeencriminallyprosecuted,orevenarrested.Nospecialprosecutorhadbeenappointed.Notasinglefirmhadbeenprosecutedcriminally-#NAME?oraccountingfraud.TheObamaadministrationhasmadenoattempt--torecoveranycompensation-#NAME?duringthebubble.Icertainlywouldthinkofcriminalaction--againstsomeofCountrywide'stopleaders,likeMozilo.I'dcertainlylookatBearStearns,GoldmanSachs-#NAME?andMerrillLynch.#NAME?0-lnregardto---Yes.They'dbeveryhardtowin-#NAME?enoughunderlingstotellthetruth.Inanindustryinwhichdruguse,prostitution-#NAME?asabusinessexpense--occuronanindustrialscale--itwouldn'tbehardtomakepeopletalkifyoureallywantedto.Theygavemeapleabargainandltookit.Theywerenotinterestedinmyrecords.Theyweren'tinterestedinanything.#NAME?-That'scorrect.Correct.There'sasensibilitythatyoudon'tusepeople'spersonalvices--inthecontextofWallStreetcases,necessarily,togetthemtoflip.Maybeafterthecataclysmsthatwe'vebeenthrough,peoplewillreevaluate.I'mnottheonetopassjudgmentonthatrightnow.Youcometoustodaytellingus,We'resorry,wedidn'tmeanit.Wewon'tdoitagain.Trustus."Well,lhavesomepeopleinmyconstituency-#NAME?someofyourbanks.Andtheysaythesamething.They'resorry.Theydidn'tmeanit.Theywon'tdoitagain.In2009,asunemploymenthititshighestlevelin17years-#NAME?over$14billion-#NAME?over$16billion.ln2010,bonuseswereevenhigher.Whyshouldafinancialengineerbepaid--fourtimesto100timesmorethanarealengineer?Arealengineerbuildbridges.Afinancialengineerbuilddreams.And,youknow,whenthosedreamsturnouttobenightmares-#NAME?Fordecades-#NAME?wasstableandsafe.Butthensomethingchanged.Thefinancialindustryturneditsbackonsociety--corruptedourpoliticalsystem-#NAME?intocrisis.Atenormouscost,we'veavoideddisaster-#NAME?Butthemenandinstitutionsthatcausedthecrisisarestillinpower-#NAME?Theywilltellusthatweneedthem-#NAME?complicatedforustounderstand.Theywilltellusitwon'thappenagain.Theywillspendbillionsfightingreform.Itwon'tbeeasy.Butsomethingsareworthfightingfor.