Inside Job - Full documentary on the Financial Crisis 2008

foreign foreign is a stable democracy with a high standard of living and until recently extremely low unemployment and public debt foreign we had the complete infrastructure of a modern society clean energy food production Fishing with a quota system to manage them good medical care a good education you know that the air is clean, there is not much crime, it is good, it is a good place for families to live. We had almost the end of history, but in 2000 the Icelandic government began a broad deregulation policy that would have disastrous consequences, first for the environment and then for the economy.

By allowing multinational corporations like Alcoa to build gigantic aluminum smelting plants and exploit Iceland's natural sources of geothermal and hydroelectric energy, many of the most beautiful areas of the highlands with the most spectacular colors are geothermal, so nothing remains without consequences, foreign thanks at the same time. The government privatized Iceland's three largest banks. The result was one of the purest experiments in

financial

deregulation ever undertaken. Finance took over and more or less ruined the place. In a five-year period, these three small banks that had never operated outside of Iceland borrowed $120 billion. Ten times the size of the Icelandic economy.

The bankers poured money on each other and their friends. There was a massive price bubble. of stocks rose but affected nine house prices more than doubled the Iceland bubble gave rise to people like Jan Askgary Johannesen he borrowed billions from banks to buy luxury retail businesses in London, he also bought a Striped private jet, a $40 million yacht and a penthouse in Manhattan. The newspapers always helped the headline: This millionaire bought this company in the United Kingdom or in Finland or in France or wherever, instead of saying that this millionaire took a billion dollar loan to buy this company and took it from his local bank, the bank's pool of money market funds, and the bank's deposit holders advised the deposit holders to withdraw money and put it in the money market funds.

The political scheme needed everything possible. American accounting firms like KPMG audited Icelandic banks and investment firms and found nothing wrong. American credit rating agencies said Iceland was wonderful in February 2007. Rating ages decided to upgrade banks to the highest possible AAA rate. It went so far that the government traveled with the bankers as a public relations spectacle when Iceland's banks collapsed in late

2008

. Unemployment tripled in six months. There is no one unaffected in Iceland, so many people here lost their savings. If that's the case. Government regulators, who should have been protecting Iceland's citizens, had done nothing. You have two lawyers from the regulator going to a bank to talk about some issue.

As they approached the bank, they saw 19 SUVs outside the bank, so you went. to the bench and you have the 19 lawyers sitting in front of you, very, very well prepared, ready to eliminate any argument you present and then, if you do it very well, they will offer you a job. A third of Iceland's

financial

regulators went to work for the banks, but this is a universal problem. Hey? In New York you have the same problem. I'm on my way. I'm making it much larger than life. What do you think of Wall Street's excessive income these days?

I am told that it is extremely difficult for the IMF to criticize the United States. I will not say that we deeply regret our violations of American laws. They are amazed at how much cocaine these Wall Streeters can do and they get up and go to work the next day. I didn't know what Curry default swaps are. I'm a bit old-fashioned, as Larry Summers once expressed remorse. I don't hear confessions. The government is only issuing checks. That's plan A, that's Plan B and that's plan C. Would you support it? legal controls on executive pay. Wouldn't you be comfortable with the level of compensation in the financial services industry if they've earned it, so yes, I am, do you think they've earned it?

I think they've earned it and therefore you've helped these people blow up the world oh you could say they were having massive private games with public losses when you start to think you can create something out of nothing it's very difficult to resist. I am concerned that many people want to go back to the old way they operated before the

crisis

, I received many anonymous emails from bankers saying that they cannot quote me, but I am really concerned that a systematic investigation is not being carried out because then We will find the culprits. Do you think Columbia Business School has any major conflict of interest issues?

I don't see that we do. The regulators did not do their job. They had the power to solve all the cases I brought when I was State's Attorney. Overall, they just didn't want it, honey please, over the weekend Lehman Brothers, one of the largest and most venerable investment banks, was forced to file for bankruptcy. Another Merrill Lynch that was forced to sell today. Crisis conversations around the world. Financial markets are very low today. After the dramatic events that occurred in September

2008

, the bankruptcy of the American investment bank Lehman Brothers and the collapse of the largest insurance company in the world, AIG, triggered a global financial

crisis

that has taken over the markets overnight. tomorrow with Asian stocks, stocks fell off a cliff, the largest single point drop in their Stock prices continued to fall after the Lehman collapse, the result was a global recession that cost the world tens of trillions of dollars, left 30 million people unemployed and doubled the national debt of the United States if we look at the cost of its destruction. from capital wealth from housing wealth the destruction of income from jobs 15 million people around the world could end up below the poverty line again this is just an enormously generally costly crisis this crisis was not a accident but was caused by an industry out of control since the 1980s.

The rise of the American financial sector has led to a series of increasingly serious financial crises. Each crisis has caused more damage while the industry has made more and more money. After the Great Depression, the United States had 40 years of economic growth without a single financial crisis. The financial industry was strictly regulated, most regular banks were local businesses and were prohibited from speculating with positive savings investment banks that handled stock and bond trading were small private partnerships on the traditional banking partnership model. investment, the partners contributed the money and, obviously, the partners watched that money very care

full

y, they wanted to live well but they didn't want to bet the ranch on anything.

Paul Volcker served in the Treasury Department and was chairman of the Federal Reserve from 1979 to 1987. Before entering the government, he was a financier. Economist at Chase Manhattan Bank when I left Chase to go to treasury in 1969. I think my income was around forty-five thousand dollars, forty-five thousand dollars a year. Morgan Stanley in 1972 had approximately 110 employees in total, one office and a capital of 12. million dollars now Morgan Stanley has 50,000 workers and a capital of several billion and has offices all over the world in the 1980s the industry financial exploded investment Banks went public giving them huge amounts of money from shareholders people on Wall Street began to get rich I had a friend who was a bond trader at Merrill Lynch in the 1970s, he took a job as a driver orchestra trained at night, so she had three children and couldn't support them with what a bond trader earned in 1986, he was making millions of dollars and thought. was because he was smart, the most important task before the nation is to restore our economic prosperity in 1981, President Ronald Reagan chose as Secretary of the Treasury the CEO of the investment bank Merrill Lynch, Donald Regan Wall Street and the president to agree agreement.

I've talked to many Wall Street leaders, they too were behind it 100 percent. The Reagan administration, supported by economists and financial lobbyists, began a 30-year period of financial deregulation. In 1982, the Reagan administration deregulated savings and loan companies, allowing them to do risky businesses. Investing with their depositors' money By the end of the decade, hundreds of savings and loan companies had failed. This crisis cost taxpayers $124 billion and cost many people their life savings. It may be the biggest bank robbery in our history. Thousands of savings and loan executives went. to prison for looting his companies, one of the most extreme cases was that of Charles Keating.

He was given word in 1985 when federal regulators began investigating him. Keating hired an economist named Alan Greenspan. In this letter to regulators, Greenspan praised Keating Sound's business plans and experience and said he saw no risk in allowing Keating to invest his clients' money. Keating reportedly paid Greenspan forty thousand dollars. Charles Keating went to prison soon after, as Alan Greenspan, President Reagan appointed him chairman of the United States Central Bank, the Federal Reserve, Greenspan was re-appointed by Presidents Clinton and George W. Bush during the Clinton administration deregulation continued under Greenspan and Treasury Secretaries Robert Rubin, former CEO of the investment bank Goldman Sachs, and Larry Summers, Harvard economics professor, the Wall Street financial sector is powerful, it has pressure groups, it has a lot of money, it captures step by step the political system that you know, on both the Democratic and Republican sides, by the late 1990s, the financial sector had consolidated into a few giant companies, each so large that their bankruptcy could threaten the entire system and the Clinton administration helped them grow even further in 1998.

Citicorp and Travelers merged to form Citigroup, the world's largest financial services company. The merger violated the Glass-Steagall Act, a law passed after the Great Depression that prevented banks with consumer deposits from engaging in risky investment banking activities. It was illegal to purchase Travelers Greenspan. He didn't say anything, the Fed gave him a one-year waiver, and then they got the law passed in 1999, at the behest of Summers and Reuben. Congress passed the Graham Leach Bliley Act, known to some as the Citigroup Relief Act, repealed Glass-Steagall and cleared the way for future foreign mergers. Why do they have good big banks? because banks like monopoly power because banks like lobbying power because banks know that when they are too big they will be billed markets are inherently unstable or at least potentially unstable and the appropriate metaphor is Oilmen are very large and, therefore, they must be placed in compartments to prevent the splash of oil from capsizing the ship.

The ship's design must take that into account, and after the Depression, regulations introduced these very watertight compartments. and deregulation has led to the end of compartmentalization. The next crisis occurred in the late 1990s. Investment banks fueled a huge bubble in Internet stocks, which was followed by a crisis in 2001 that caused five trillion dollars in losses. according to the Securities and Exchange Commission, the federal agency that had been created during the Depression to regulate Investment Banking had done nothing in the absence of significant federal action and there has been none, and given the clear failure of self-regulation It has become necessary for others to step in and adopt the necessary protections Elliot Spitzer's investigation revealed that investment banks had promoted Internet companies that they knew would fail, stock analysts were paid based on the amount of business they generated and what they said publicly was quite different from what they said privately. infospace given the highest possible rating dismissed by an analyst is a piece of garbage excitement also highly rated called such a piece of shit, the vents were offered by many of the investment banks, you are not wrong, everyone is doing it and everyone knows that is happening and therefore no one should Trust these analysts anyway In December 2002, 10 investment banks settled the case for a total of $1.4 billion and promised to change their ways Scott Talbot is the main lobby of the Financial Services Roundtable, one of the mostWashington powerbrokers who represent nearly all of the world's largest financial companies, are they comfortable with the fact that several of their member companies have engaged in large-scale criminal activity?

They will have to be specific. Well, first of all, criminal activities for Iran's nuclear program and for the Iranian Aerospace Industries organization, which makes ballistic missiles, any information that would identify him as Iranian would be deleted. The bank was fined $536 million. Citibank helped funnel $100 million of drug money out of Mexico. Did you comment that I should cite? Lose any documents related to the account. I said jokingly it was in the early stages of this I didn't mean it seriously what we did between 1998 and 2003 Fannie Mae overstated its profits by more than $10 billion these accounting rules are very complex and require determinations about what experts often disagree CEO Franklin Reigns, who used to be President Clinton's budget director, received more than $52 million in bonuses when UBS was caught helping wealthy Americans evade taxes.

They refused to cooperate with the US government. Would you be willing to provide the names if there is a treaty framework? no treaty framework you have agreed that your participating firms face unprecedented fines investment firms do not have to admit any wrongdoing when you are so big and you deal with so many products and so many customer mistakes happen the financial services industry seems to have a level of crime that is somewhat distinctive, do you know when was the last time Cisco, Intel, Google, Apple or IBM, I totally agree with you aboutHigh tech versus financial services, but high tech How can high tech is a fundamentally creative business where value generation and income derive from the creation of something new and different since the 1990s?

Deregulation and technological advances led to an explosion of complex financial processes. products called derivatives Economists and bankers claim made markets safer, but instead made them unstable since the end of the Cold War. Many former physicists and mathematicians decided to apply their skills not in Cold War technology but in the financial markets and go to investment bankers and creating different weapons absolutely you know, as Warren Buffett said he knows, weapons of mass destruction The regulators, politicians and businessmen did not take seriously the threat of financial innovation on the stability of the financial system using derivatives Bankers could bet on practically anything they could bet on the rise or fall of oil prices the bankruptcy of a company even the weather in the late 90s derivatives were a $50 trillion unregulated market in 1998 someone tried to regulate them born in brooksley graduated first in her class from stanford law school and was the first woman to edit a major legal journal After leading the derivatives practice at Arnold and Porter Bourne she was appointed by President Clinton to chair the Commodity Futures Trading Commission that oversaw the derivatives market.

Brooksley Born asked me if I would come work with her and we decided that this was a serious and potentially destabilizing market. In May 1998, the CFTC issued a proposal to regulate derivatives. Clinton's Treasury Department had an immediate response. I walked into Brooksley's office and she was hanging up on her phone and her blood had drained. of her face and she looked at me and said it was Larry Summers, who had 13 bankers in his office invaded in a very intimidating way, as if telling him to stop the banks that relied heavily on profits from this type of activity and that led to a titanic battle to prevent this set of instruments from being regulated shortly after Summers Greenspan's phone call, Reuben and SEC Chairman Arthur Levitt issued a joint statement condemning Born and recommending legislation to keep derivatives unregulated thanks to the regulation of derivatives transactions that are negotiated privately by professionals their rules are unfortunately unnecessary first by the Ukrainian administration and then by Congress in 2000 Senator Phil Graham took a major role in the approval of a draft law that practically exempts derivatives from radiation they are unifying markets they are reducing the regulatory burden, I think we have to do it foreign hope that it will be possible to advance this year on legislation that will adequately create legal certainty for OTC derivatives uh I would like to associate myself with all of Secretary Summers' comments in December 2000.

Congress passed the Commodity Futures Modernization Act, drafted with the help of financial industry lobbyists, banning the regulation of derivatives. Once that was done, it was off to the races and the use of derivatives and financial innovation exploded dramatically after the year 2000. So help me, God, help me. My goodness, when George W. Bush took office in 2001, the American financial sector was much more profitable, concentrated, and powerful than ever before. Dominating this industry were five investment banks, two financial conglomerates, three securities insurance companies and three rating agencies, and linking them all was the securitization food chain, a new system that connected trillions of dollars in mortgages and other loans with investors around the world 30 years ago, if you were going to take out a loan for a house, the person lending you the money expected you to pay him.

You got a loan from a lender who wanted you to pay him. Since then, we have developed securitization whereby the people making the loan are no longer at risk if it is not paid in the previous system, when a homeowner paid their mortgage every month. the money went to your local lender and since mortgages took decades to pay off, lenders were careful in the new system, lenders sold the mortgages to investment banks, investment banks pooled thousands of mortgages and other loans, including loans for automobiles, student loans and credit card debt to create complex derivatives called collateralized debt obligations or CDOS.

Investment banks then sold the CDOS to investors. Now, when homeowners paid off their mortgages, the money went to investors all over The world's investment banks paid rating agencies to evaluate CDOs and many of them received a triple A rating which is the highest possible investment grade. This made CDOs popular with retirement funds who could only buy them. Highly rated securities This system was a time bomb Lenders no longer cared if a borrower could pay, so they began making riskier loans to investment banks. They didn't care either, the more CDOs they sold the bigger their profits would be and the rating agencies paid for by the investment banks had no liability if their CDO ratings turned out to be wrong, you weren't going to get caught and there were no regulatory restrictions so was the green light to grant more and more loans between 2000 and 2003, the number of mortgage loans granted each year almost quadrupled everyone in this secrecy food chain from start to finish, they didn't care about the quality of the mortgage, they Concerned about maximizing volume and earning a fee In the early 2000s, there was a huge rise in the riskiest loans called subprime, but when thousands of subprime loans were combined to create CDOS, many of them still received AAA ratings by now it would have been possible to create derivative products that did not have these risks that carry the equivalent of deductibles where there are limits to the risks that can be assumed, etc., they didn't do it, right?

They didn't do that and in retrospect they should have done that so these guys knew they were doing something dangerous. I think they did appreciate all the incentives that the financial institutions offered to their mortgage agents, they were based on selling the most profitable products, which were Predatory loans, the banker makes more money if they put you in a high-risk loan, that's where they're going to put you in Abroad hundreds of billions of dollars a year flowed through the securitization chain since anyone could get a mortgage home purchases and home prices skyrocketed, the result was the largest financial bubble in history , real estate is real, they can see your asset, they can live in your asset, they can rent your asset, there was a big boom in housing that didn't make any sense. the financial appetites of the financial sector drove what everyone else did the last time we had the housing bubble it was in the late 80's, in that case the increase in house prices has been relatively minor, that housing bubble led to a relatively severe recession from 1996 to 2006. prices effectively doubled and 500 a ticket have come to hear how to buy your own piece of the American dream Goldman Sachs bear Stearns Layman Brothers Merrill Lynch we are all in on this only subprime loans rise from 30 billion a year in financing to more than $600 billion a year in 10 years they knew what was happening Countrywide Financial the largest subprime lender issued loans worth $97 billion obtained more than $11 billion in profits as a result on Wall Street annual cash bonuses soared Traders and CEOs became filthy rich during the bubble Lehman Brothers was a major underwriter of subprime loans and its CEO, Richard Fold, took home 485 million dollars on Wall Street so that this real estate and credit bubble was generating hundreds of billions of dollars in profits.

The percentage of all profits of s p 500 companies came from financial institutions, they were not real profits, they were not real income, they were simply money created by the system and counted as income two and three years from now, there is a breach, that is all. deleted I think in retrospect it was a huge national Ponzi scheme and not just national and global through the homeownership and wealth protection act the Federal Reserve board had broad authority to regulate the mortgage industry the chairman of the Fed Alan Greenspan refused to use it Alan Greenspan said no, that is regulation ideologically.

I don't believe in her for 20 years. Robert Ganizeda was the head of Green Lining, a powerful consumer advocacy group. He met with Greenspan periodically. We gave you an example of 150 complex adjustable rates nationwide. mortgages, he said that if you had a PhD in mathematics you wouldn't be able to understand them enough to know which one was good for you and which one wasn't, so we thought he was going to take action, but as the conversation continued it became clear that he was trapped in his ideology, we met Greenspan again at o5, we often met them twice a year and never less than once a year and he did not change his mind in this wonderful world of instant Global Communications, free movement and capital efficient. is helping to create the greatest prosperity in the history of mankind when six people were excluded from the law enforcement division of the SEC is that what you also testified yes, yes, I think there has been a systematic destruction or whatever call it the agency and its capacity by reducing staff the SEC's risk management office was reduced to one staff, did you say one?

Yes, when that gentleman came home at night, he could turn off the lights during the bubble. Investment banks were taking on a lot of debt to buy more. loans and create more CDOs the ratio of borrowed money to the bank's own money was called leverage the more banks borrowed, the greater their leverage in 2004 Henry Paulson, the CEO of Goldman Sachs, helped lobby the Commission Stock Market and Securities to relax limits on leverage, which allowed banks to dramatically increase their borrowing. The SEC somehow decided to let the investment banks bet a lot more. That was crazy. I don't know why they did that, but they did it.

We have said that these are the big ones. That's true, but that means that if something goes wrong, there will be a tremendous disaster at these levels. You are obviously dealing with the most sophisticated financial institutions. These are the companies that do most of the derivatives activity in the United States. We talked to some of them about what their comfort level was that companies really thought the number was appropriate. Commissioners voted to adopt rule amendments and new rules recommended by staff. Yes, yes, in fact we do it unanimously andadjourns the session. The degree of leverage in the financial system became an absolutely terrifying investment.

Banks were leveraged up to the 33-to-1 level, meaning that a small three percent decline in the value of their acid base would leave them in Solomon's. There was another time bomb in the financial system. AIG, the world's largest insurance company, was selling huge amounts of derivatives called credit default swaps to investors who owned CDOs; the credit default swaps functioned like an insurance policy. An investor who bought a credit default swap paid AIG a quarterly premium if the CDO went bad. AIG promised to pay the investor for his losses, but unlike regular insurance speculators they could also buy AIG credit default swaps to bet against credits they did not own in insurance.

You can only guarantee something that you own, let's say you and I own property. I am a homeowner. I can only insure that house once The derivatives universe essentially allows anyone to insure that they have it, so they could insure that someone else can insure it, so 50 people could insure my house. So what happens is that if my husband goes down now, the number of losses in the system becomes proportionately larger from the credit default. swaps were not regulated AIG did not have to save money to cover potential losses, instead AIG paid its employees huge cash bonuses as soon as the contracts were signed, but if the CDOs then failed, AIG would be in trouble, people were essentially being rewarded for taking massive risks and good times to generate short-term income and profits and therefore bonuses, but that will bankrupt the company over time.

It is a totally distorted compensation system. AIG's financial products division in London issued credits worth $500 billion. default swaps during the bubble, many of them for CDOs backed by subprime mortgages, Aigfp's 400 employees earned $3.5 billion between 2000 and 2007. Joseph Cassano, the head of Aigfp, personally earned $315 million. dollars in a scenario within any kind of Kingdom or Reason you could see - we lost a dollar on any of those transactions in 2007. AIG's auditors issued warnings: one of them, Joseph St Dennis, resigned in protest after Casano told him repeatedly prevented investigation of aigfp's accounting. Let me tell you one person who didn't get a bonus while everyone else did. getting bonuses, that was Saint Dennis.

Mr. Saint Dennis, who tried to alert you two to the fact that you were getting into big trouble, resigned in frustration and did not receive a bonus in 2005, Raghuram Rajan, then chief economist of the international organization. The monetary fund delivered a paper at the annual Jackson Hole Symposium, the world's most elite banking conference, who is in the audience, was, uh, I guess the world's central bankers, from Mr. Greenspan himself, Ben Bernanke, Larry Summers, he was a Tim Geithner. there, the title of the article was essentially "Financial development makes the world riskier" and the conclusion was that Rajan's article focused on incentive structures that generated huge cash bonuses based on short-term profits but did not They imposed penalties for subsequent losses.

Rajan argued that these incentives encouraged bankers to take risks that could eventually destroy their own companies or even the entire financial system. It is very easy to generate returns by taking on more risks, so what you need to do is offset the adjusted return. risk and that is where all the bodies are buried. Rajan, you know, hit the nail on the head. What he said in particular was that you have claimed that he found a way to make more profits with less risk I say that he found a way to make more profits with more risk and there is a big difference Summers spoke basically thought he was criticizing the change in the financial world and he was worried about uh, you know, a regulation that would reverse all this change, so essentially he accuses me of being a Luddite.

He wanted to make sure that we didn't introduce a whole new set of regulations to limit the financial sector at that point. an additional two million dollars a year or $10 million a year for putting your financial institution at risk someone else pays the bill you don't pay the bill levels are well justified I think yes, I would take precautions or pay attention or take exception to your word very high, I mean, everything is relative. you have a $14 million oceanfront home in Florida. you have a summer vacation home in Sun Valley, Idaho. You and your wife have an art collection

full

of million-dollar paintings.

Richard Fold never showed up on the trading floor there are no advisors there all the time, you know he had his own private elevator, they did everything they could to get him disconnected, I mean his elevator, they hired technicians to program it, you know, so that his driver will call in the morning and a security guard will hold him and there's only a two or three second window where he actually has to see people and he jumps on this elevator and goes straight to 31. Layman owned several Jets corporate, do you know about this? yes, how many were there?

Well, there were six, including 767s, it also had a helicopter. Aren't that too many planes to have it? We deal with type A personalities and type A personalities know everything in the world. Banking became a fishing contest no mine is bigger than yours that kind of thing was all the men who read it by the way the 50 billion dollar deals weren't big enough so we make 100 billion deals billion dollars these people are risk takers they are impulsive it is part of their behavior it is part of their personality and that manifests itself outside of work it is also quite typical for kids to go out to strip bars to do drugs.

I see a lot of cocaine use, a lot of prostitution use abroad. Recently, neuroscientists have done experiments where they have taken individuals and put them in an MRI machine and had them play a game where the prize is money and they noticed that when these subjects win money, the part of the brain that is stimulated is the The same part that cocaine stimulates, many people feel. that they really need to engage in that behavior to be promoted and recognized, according to a Bloomberg article. Business entertainment accounts for five percent of New York derivatives brokers' income and often includes strip clubs, prostitution and drugs.

A New York broker filed suit. in 2007 against his company, alleging that he was required to hire prostitutes to entertain merchants. There is simply a blatant disregard for the impact his actions could have on society. In the family. They have no problem using a prostitute and returning home to their wife. How many clients are there? Ten thousand at that time, what fraction were from Wall Street? um of the highest end clients probably 40 to 50 percent and we're all the major Wall Street firms represented by Goldman Sachs Lehman Brothers no they're all there Morgan Stanley was a little bit less than that uh I think Goldman was pretty big, a lot of clients were calling me and saying, can you get me a Lamborghini to spend the night for the girl?

These guys were spending corporate money. I had a lot of black cards, you know. What is happening at the various financial firms is that services are being charged for computer repair, business research, you know, Market Compliance Consulting. Dad would usually give them a piece of letterhead and say, make your own invoice, so this pattern of behavior that you think extends to the upper management of the company definitely does, yes, I know for a fact it does, it extends. to the highest. A friend of mine who is involved in a company that has a large financial footprint said, "Well, it's about time you learned about subprime mortgages," so he set up a session. with his trading desk and me and the technician who did all this gets very excited he runs through his computer and stops in about three seconds versus Goldman Sachs the Securities issue was a complete disaster but our words had borrowed on average the 99.3 percent of the price of the house, which means they have no money in the house, if something goes wrong they will abandon the mortgage, this is not a loan you would really do well, you must be crazy, but somehow you took out 8,000 of these loans and by the time the guys ended up at Goldman Sachs and the rating agencies, two-thirds of the loans were rated AAA, which meant they were rated as safe as government securities.

It's totally crazy that Goldman Sachs sold at least $3.1 billion. of these toxic CDOs in the first half of 2006. The CEO of Goldman Sachs at the time was Henry Paulson, the highest-paid CEO on Wall Street. Good morning, welcome to the White House. I am pleased to announce that I will nominate Henry Paulson to be Secretary of the Treasury He has a lifetime of business experience He has a deep understanding of the financial markets He has earned a reputation for sincerity and integrity You would think it would be difficult for Paulson to adjust to a salary meager government but taking the job as Treasury secretary was the best financial decision of his life Paulson had to sell his $485 million in Goldman shares when he started working for the government, but due to a law passed by the first President Bush He didn't have to pay any tax on it.

He saved her $50 million and by October 2007, a third of the mortgages were already in default, now most of them are gone. One group that had purchased these now worthless securities was the Mississippi Public Employees Retirement System, which provides monthly benefits to more than 80,000. The retirees lost millions of dollars and are now suing Goldman Sachs in late 2006. Goldman had gone a step further: it not only sold toxic CDOs, but began actively betting against them while telling its clients that they were high quality investments. By purchasing credit default swaps from AIG, Goldman could bet against CDOs it didn't own and cash out when the CDOs failed.

I asked if anyone called the customers and I said, "You know we don't like these types of mortgages anymore," and we thought you want to know and you know they didn't really say anything, but you know you just feel the laughter that comes over the phone. Goldman Sachs bought at least $22 billion in AIG credit default swaps; It was so much that Goldman realized that AIG itself could go bankrupt, so they spent $150 million insuring against AIG's possible collapse. Then in 2007, Goldman went even further and began selling CDOs specifically designed so that the more money its clients lost, the more money Goldman Sachs made. 600 million dollars at Timberwolf Securities is what they sold before you sold them, this is what your sales team was telling each other, boy, that Timberwolf was a shitty business, this was an email to me at the end of June, right, and you sold the Timberwolves stock, no, no, you sold Timberwolf afterwards and we also made trades afterwards.

Mind you, okay, next email, take a look, July 107 tells the sales force that the top priority is Timberwolf, your top priority for selling is that shitty deal, if you have an adverse interest to your client, you have the duty to communicate this to your client. that client of your adverse interest that's my question sure Mr. President I'm just trying to understand I don't think you understand that I don't think you want to answer do you think you have a duty to act in the best interest of your clients again, uh Senator , I'll say it again, you know we have a duty to serve our clients by showing the prices of transactions that ask us to show the prices of what do you think about selling securities that your own people think or shit, does that bother you?

I think they would do it again like hypothetical no, this is real, so we didn't hear it today, well we heard it today, this is a shit deal, this is shit. I didn't hear anything today that makes me think something went wrong. There is no conflict when you sell something to someone and then you are determined to bet against that same security and you do not disclose it to the person you are selling it to, you see a problem in the context of market making that is not a conflict. when you heard your employees and these emails saying God, what a shitty deal God, what the fuck, do you feel anything?

I think it's very unfortunate to have it in email, right? I think it's very unfortunate that anyone said that anyway. Do you understand that your competitors were involved in similar activities? Yes, and to a greater extent than we do in most cases, the administratorHedge funder John Paulson made $12 billion betting against the mortgage market when Paulson ran out of mortgage securities to bet against. He worked with Goldman Sachs and Deutsche Bank to create more Morgan Stanley also sold mortgage securities that he bet against and is now being sued by the Virgin Islands government employees' retirement fund for fraud.

The lawsuit alleges that Morgan Stanley knew that the CDOs were junk, even though they were rated AAA. Morgan Stanley was betting they would fail a year later. Morgan Stanley had made hundreds of millions of dollars while investors had lost almost all of their money. You would have thought that the pension funds would have said they were high risk. Why am I buying them and they had these guys at Moody's at standard employers saying it was triple A? None of these securities were issued without the imprimatur, you know, the Good Housekeeping seal of approval from the rating agencies, the three rating agencies Moody's p and Fitch. earned billions of dollars by giving high ratings to risky securities Moody's, the largest rating agency, quadrupled its profits between 2000 and 2007.

Moody's and SP receive compensation based on the publication of rating reports and, to the most structured, they gave a triple A rating the higher their profits were. we were going to be for the quarter imagine if you went to the New York Times and said look, if you write a positive story, I'll pay five hundred thousand dollars, but if you don't, I won't give you anything that the radio agencies can We stopped the party and we said we're sorry, you know we're going to tighten our standards, this is and immediately cut off much of the flow of funding to risky borrowers.

AAA-rated instruments multiplied from just a handful to thousands and thousands upon hundreds. Billions of dollars were being rated, you know, and every year, every year, oh yeah, now I've testified before both houses of Congress on the issue of credit rating agencies and both times they brought out very prominent lawyers from the First Amendment and argued that when we say something has a AAA rating that is simply our opinion you should not rely on it P readings express our opinion our ratings are uh our opinions their opinions opinions and those are just opinions I think we are emphasizing the fact That our ratings are uh uh, our opinions do not speak to the market value of the security, the volatility of its price or its suitability as an investment.

We have so many economists coming out and saying, "This is a bubble and it's going to burst and this is going to burst." be a real problem for the economy some say it could even cause a recession at some point what would be the worst case scenario if we actually said prices drop substantially across the country well I guess I don't believe your premise it's a Quite unlikely possibility that we have never had a decline in national housing prices. Ben Bernanke became chairman of the Federal Reserve Board in February 2006. It was the best year for subprime lending, but a Despite numerous warnings, Bernanke and the Federal Reserve board did nothing.

Robert Ganizeda met with Ben Bernanke and the Federal Reserve board three times after Bernanke became chairman. Only at the last meeting did he suggest that there was a problem and that the government should investigate it. When? When it was? What year? 2009 March 11 of this This year we met, yes, and for the previous two years you met him, including in 2008, yes, one of the six Federal Reserve board governors who served under Bernanke was Frederick Michigan, who was appointed by President Bush in 2006. Did you participate in the assembly? annual meetings that Robert Ganizeda and Green Lining had with the Federal Reserve board.

Yes, I do. I was actually on the committee that was involved in the Community Consumer Affairs committee. Hugh warned in an extremely explicit way about what was going on and he came to the Federal Reserve board with loan documentation of the type of loans that were frequently made and they listened to him politely and nothing was done right, so I don't know the details in terms of uh of um, in fact, just right? I'm not sure exactly about the information you provide. Actually, it's to be honest with you. I don't remember this type of discussion, but there were certainly issues that arose, but then the question arose.

How ubiquitous are they? Why didn't you try searching? I think people do. We had people who watched. We had a whole group of people watching this for some reason. You can not be serious. If you had looked, you would have found this. You know, it's very, very easy to always say that you can always find it back in 2004, the FBI was already warning of an epidemic of mortgage fraud, they reported inflated appraisals of manipulated loan documentation and other fraudulent activities in 2005, the IMF's chief economist , Ragurum Rajan, warned that dangerous incentives could lead to a crisis; then came Nuriel Rabini's warnings in 2006.

Alan Sloan's articles in Fortune magazine and the Washington Post in 2007. and repeated warnings from the IMF. declared on behalf of the institution the crisis in front of us is a huge crisis who spoke to in the government treasury fed everyone in May 2007 hedge fund manager Bill Ackman circulated a presentation called who holds the bag that described how the bubble would collapse and in early 2008 Charles Morris published his book about the impending crisis: You're just not sure what to do and you might have some suspicions that underwriting standards are weakening, but then the question is: should do something about it?

In 2008, foreclosures skyrocketed and the securitization food chain imploded. Lenders could no longer sell their loans to investment banks, and as loans failed, dozens of lenders failed. Citibank's Chuck Prince famously said, "We have to dance until the music stops." already stopped when he said that the CDO market collapsed, leaving investment banks with hundreds of billions of dollars in loans, CDOs and real estate that they could not sell when the crisis began, both the Buda Bush administration and the Federal Reserve were totally Behind the curve they didn't understand the extent of this. At what point do you remember first thinking that this is dangerous?

This is bad. I remember it very well, uh, Bree, 2008, and I remember discussing it with heartthrob Polson and I clearly remember telling him. piece, we are watching this tsunami coming and you are simply proposing that we ask what swimsuit we are going to wear, what was their response, what was their feeling, things are pretty much under control, yes, we are analyzing this situation carefully and, yes, It's under control we're going to continue growing it's okay and obviously I'll say it if if you continue if you're growing you're not in a recession right, I mean, we all know that oh in a matter of days one of the pillars of Wall Street in March 2008, the bank Stearns Investments ran out of cash and was acquired by JPMorgan Chase for two dollars a share.

The deal was backed by $30 billion in emergency guarantees from the Federal Reserve, which was the time when the administration was able to come in and put in place, you know, various types of measures that would have de-risked the system. The information I am receiving from some entities is the end. It is not here that there are other shoes to fall. I've seen those investment banks at work. with the FED the SEC strengthened its liquidity strengthened its capital positions. I get reports all the time. Our regulators are keeping a close eye on September 7, 2008. Henry Paulson announced the federal acquisition of Fannie Mae and Freddie Mac, two giant mortgage lenders. on the verge of collapse nothing in our actions today reflects in any way a change of view on the real estate correction or the strength of other American financial institutions two days later, Lehman Brothers announced record losses of 3.2 billion dollars and its shares They collapsed due to the effects of Layman and AIG. in September it was still a surprise, I mean, this is even after July and Fannie and Freddie clearly there were things that starting in September, important things that nobody knew, I think that's fair, Bear Stearns received AAA rating like a month before . went bankrupt, uh, most likely A2 A2, yeah, okay, A2 is not bankrupt yet no, no, no, it's a high investment grade, solid investment grade rating, Lehman Brothers A2 within days of fail, um AIG double A, within days of being bailed out, um, uh, Fannie Mae and Freddie.

Mac were Triple A when they were bailed out Citigroup Merrell they all had investment grade ratings, how can that be? That's a good question, that's a great question, at no point did the administration go to all the major institutions and say, "You know what this is." Seriously, tell us what your positions are, you know, um, no, where are you? Well, first, that's what the regulators just do is their job, their job is to understand the exposure across these different institutions and they have a very refined understanding that I think became a greater response. the more refined the crisis is, um, preceded, so forgive me, but that is clearly not true.

That is not true. In August 2008, were you aware of Lehman Brothers Merrill Lynch AIG's credit ratings at the time and did you think they were accurate? Well, certainly, according to At that time, Victoria made it clear that the previous credit ratings were not accurate because they had been downgraded substantially, no they had not, there was still some downgrade in terms of the industry and the concerns and certainly the stock price at which all those companies were rated. at least A2 until a couple of days before they were rescued, so you know, so the answer is I just don't know enough to really answer your question on this particular topic.

Governor Fred Mishkin will resign effective August 31. He plans to return to his teaching position at Columbia Graduate School of Business. Why did he leave the Federal Reserve in August 2008? I mean, in the middle of the worst sexual crisis. So I had to review a textbook. His departure surely leaves. the FED board with three of its seven seats vacant just when the economy needs it most. I'm sure his textbook is important and widely read, but in August 2008 you know there were some somewhat more important things going on in the world, right? Do you think that on Friday, September 12, Lehman Brothers had run out of cash and the entire investment banking industry was rapidly going under?

The stability of the global financial system was in danger that weekend. Henry Paulson and Timothy Geithner, president of the New York Federal Reserve, called an emergency meeting. with the CEOs of the major banks in an effort to rescue Lehman but Lehman was not alone Merrill Lynch another large investment bank was also on the verge of bankruptcy and that Sunday it was acquired by Bank of America the only bank interested in buying Lehman It was the British firm Barclays, but British regulators demanded a financial guarantee from the US government. Paulson refused, we all got into a yellow taxi and went to the Federal Reserve Bank, they wanted the bankruptcy case to start sooner midnight on September 14 and we continued to press for it to happen.

It was a terrible event and at one point I used the word Armageddon and they fully considered the consequences of what they were proposing, the effect on the market would be extraordinary, you said this, yes, they simply said they had considered all the comments we had made and they still believed that to calm the markets and move forward it was necessary for Lehman to enter democracy calm the markets yes, when were they first told that this common man was going to go bankrupt after the fact, after the fact, wow? Well, and what was his reaction when he found out?

Paulson and Bernanke had not consulted with other governments and did not understand the consequences of foreign bankruptcy laws. Lehman Brothers London continued to empty what, under British law, Lehman's London office had to be closed immediately, all trading stopped and there are thousands and thousands and thousands of transactions that hedge funds that had been holding assets with Lehman in London discovered overnight, to their utter horror, that they couldn't get those butts back to one of the Hub locations. It failed and that had huge repercussions throughout the system. The nation's oldest money market fund took over about three-quarters of a billion dollars in bad debt issued by the now-bankrupt Lehman Brothers.

Lehman's bankruptcy also caused a collapse in commercial papers. Market that many businesses rely on to pay operating expenses, such as payroll, meaning they may havethan lay off employees, can't buy parts, stops business, suddenly people stood up and said, listen, what can we believe? There's nothing we can do. Trust No More That same week AIG owed $13 billion to credit default swap holders and didn't have the money. AIG head another center if AIG had stopped, you know, it's possible that all the planes would have to be, you know, stopped flying on September 17th. AIG is taken. controlled by the government and a day later Paulson and Bernanke asked Congress for $700 billion to bail out the banks.

When they came together, they warned that the alternative would be a catastrophic financial collapse. I was afraid, you know, the whole system froze every part of the financial system. system every part of the credit system no one could borrow money there it was like a cardiac arrest of the global financial system and play the hand that was to help me a lot of what I'm facing you know I'm dealing with the consequences of things that were done often many years ago Secretary Paulson talked all fall and all the possible root causes of this and there's a lot that he called uh so I'm not sure I'm not being serious I'm being serious about what you expected what you was looking and didn't see that he was C's main advocate for banning regulation of credit default swaps and also lifting leverage limits on investment banks, so again he mentioned those things.

I never heard him mention them. Could we please turn this off for a second when AIG was bailed out? The owners of its credit default swaps, most of whom were Goldman Sachs, received $61 billion the next day. Paulson Bernanke and Tim Geithner forced AIG to pay 100 cents on the dollar. Instead of negotiating lower prices, AIG's bailout ultimately cost taxpayers more than $150 billion. 160 billion dollars went through AIG. 14 billion went to Goldman Sachs at the same time that Paulson and Geithner forced AIG to give up its right to sue Goldman and the other banks for fraud. There's no problem when the person in charge of dealing with this crisis is the former CEO of Goldman Sachs, someone who had a major role in causing it.

I think it's fair to say that financial markets today are incredibly complicated, the supply of money urgently needed. On October 4, 2008, President Bush signs a $700 billion bailout bill, but global stock markets continue to fall amid fears that a global recession is underway. The bailout legislation does nothing to quickly stem the wave of layoffs and foreclosures, unemployment in the United States and Europe. It increases to 10 percent the recession accelerates and spreads globally I started to be very afraid because I had not foreseen that the whole world would go down at the same rate at the same time in December 2008 General Motors and Chrysler face bankruptcy and as American consumers cut spending Chinese manufacturers see sales fall more than 10 million immigrant workers in China lose their jobs at the end of the day the poorest, as always, are the ones who pay the most here you can earn a lot of money, like between 70 and 80 US dollars a month as a farmer in the countryside you can't earn that much money, workers are just wireless salary nowadays, hometown to give them a family, the crisis started in America, now it will come to China, some colleges try to cut some workers and some people are left a pool because they lose their jobs, their homes, lives become more difficult, growing around 20 percent, it was a great year and suddenly we reached -9, this quarter exports collapsed and we are Talking about 30 percent, so we took a hit.

You know, and it fell off a cliff, even as the crisis unfolded, we didn't know how big it was going to spread or how severe it was going to be and we still hoped that there was some way to have a shelter. and be less hit by the storm but it is not possible it is a very globalized world the economies are all interconnected thanks every time a house goes into foreclosure it affects everyone who lives around that house because when that property goes on the market it will be sold at a lower price maybe before it goes on the market it will not be well maintained we estimate that another 9 million homeowners will lose their homes abroad the vast majority I have seen lately unfortunately are people who have just been hurt by the economy they were living in , you know, day to day, paycheck to paycheck and unfortunately that's gone and unemployment is not going to pay the mortgage on a house, it's not going to pay the car bill, well I was a truck driver for a long time and they went out of business .

I shut down all the logging systems up there, set up the sawmills and everything, so I moved here for a construction job and a construction job got shut down too, so things are so tough there's a lot of people out there and very soon you are going to We will see more camps like this because there are simply no jobs right now when the company did well we did well when the company did not do well sir it did not do well for us the men who destroyed their own companies and sank the world in the crisis they left From the rubble, with their fortunes intact, the five main executives of Lehman Brothers earned more than a billion dollars between 2000 and 2007 and when the company went bankrupt they kept all the money with which the man worked. system, it doesn't make any sense for us to do it. a loan is going to fail because we lose they lose the borrower loses the community loses and we lose Countrywide CEO Angelo Mozillo earned $470 million between 2003 and 2008. $140 million came from dumping his Countrywide shares in the 12 months before the company finally collapsed.

I hold the board of directors accountable when a company fails because the board is responsible for hiring and firing the CEO and overseeing big strategic decisions. The problem with board composition in the United States is the way boards of directors are elected and, in many cases, boards of directors are elected by the CEO, board of directors and compensation committees are the two bodies best placed to determine pay packages for executives. How do you think they have fared in the last 10 years? Well, I think if you look at them, they would give about a B yes no an F no an F no an F Stan O'Neill, the CEO of Merrill Lynch, received $90 million in 2006 and 2007 alone after leading his company to the ground Merrill Lynch board of directors allowed him to resign and collected 161 million dollars in compensation instead of being fired Stan O'Neill is allowed to resign and takes away 151 million dollars that is a decision that that board of directors made at that time moment and what grade you give to making that decision is more difficult, I don't know if I would also give a B to O'Neill's successor, John, who was paid $87 million in 2007 and in December 2008, two months after for American taxpayers to bail out Marrow, Thane. and Meryl's board of directors handed out billions in bonuses in March 2008 aig's financial products division lost $11 billion rather than be fired Joseph Cassano the director of aigfp stayed on as a consultant for $1 million a month and you want to ensure that We key players and key employees within aigfp retain that intellectual knowledge.

I attended a very interesting dinner hosted by Hank Paulson a little over a year ago, some officials and a couple of CEOs from the largest banks in the US, and, surprisingly, everyone. These gentlemen were arguing that we were too greedy so we have power responsibility and then they turned to the treasury for six three of the treasury and said we should regulate more because we are too greedy, we can avoid it, the only way to avoid it. is to have more regulation. I have spoken to many bankers about this issue, including some very high level ones, and this is the first time I have heard someone say that they really wanted their compensation to be regulated, yes, because it was at the time when they were afraid and afterwards, When the solution to the crisis started to appear, they probably changed their minds in the US.

The banks are now bigger, more powerful and more concentrated than ever, there are fewer competitors, many smaller banks have been absorbed by the big ones. JP Morgan today is even bigger than it was before JP Morgan first took over birthstones and then WaMu Bank of America took over Countrywide in Mary Lynch Wells Fargo took over vachovia after the crisis, the financial industry, including financial services, Roundtable worked harder than ever to fight reform the financial sector employs three thousand lobbyists more than five for every member of Congress do you think the financial services industry has political influence excessive in the United States?

No, I believe that every person in the country is represented here in Washington and you believe that all segments of American society have equal and fair access to the system. that you can enter any courtroom you want. Yes, I do, so I can enter any courtroom. You can't necessarily write the kind of lobbying checks your industry writes or engage in the level of political contributions your industry makes. Between 1998 and 2008 the financial industry spent more than $5 billion on lobbying and campaign contributions and since crises are spending even more money the financial industry also exerts its influence in a more Subtly way, something that most Americans are not aware of has corrupted the study of economics itself, regulation had tremendous financial and intellectual support because if People argue that for its own benefit the economics profession was the main source of that illusion since the 1980s.

Academic economists have been important advocates of deregulation and played powerful roles in shaping US government policy. Very few of these economic experts warned about the crisis and even after the crisis many of them opposed the reform. The guys who taught these things tended to charge a lot. money being consultants business school professors don't live off a professor's salary they do very, very well over the last decade the financial services industry has made about five billion dollars in political contributions in the United States it's kind of a lot of money that doesn't Don't bother, no Martin Feldstein is a professor at Harvard and one of the most prominent economists in the world.

As President Reagan's chief economic advisor, he was a major architect of deregulation and from 1988 to 2009 he served on the board of directors of AIG and AIG. financial products that paid you millions of dollars do you regret being on the board of directors of aig no comment no, I do not regret being on the board of directors of aig, that I can say absolutely not, absolutely not okay, um, se regrets aig's decisions, i can't say. a little more about AIG I have taught at Northwestern and Chicago at Harvard and Columbia Glenn Hubbard is the dean of Columbia's business school and was chairman of the Council of Economic Advisers under George W.

Bush. Do you think the financial services industry has too much political power? In the United States I don't think so, no, you certainly wouldn't get that impression from the beating they regularly take in Washington, many prominent academics quietly make fortunes while helping the financial industry shape public debate and government policy, the group of analysis. Charles River Associates Compass Lexicon and Law on Economics Consulting Group run a multibillion-dollar industry that provides academic experts to hire two bankers who use these services: Ralph Chiafi and Matthew Tannen Barrister, hedge fund managers, were indicted for securities fraud after hiring the analysis group. both were acquitted.

Glenn Hubbard was paid one hundred thousand dollars to testify in his defense. Do you think that the economic discipline has a conflict of interest problem? I'm not sure I know what you're referring to. Do you think that a significant fraction of economic discipline? Several economists have financial conflicts of interest that could somehow be questioned or colored. I understand what you are saying. I doubt it. You know that most academic economists, uh, you know, are not rich businessmen. Hubbard earns $250,000 a year as a board member of MetLife and was previously on the board of Capmark, a major commercial mortgage lender during the bubble that went bankrupt in 2009.

He has also advised No More Securities KKR Financial Corporation and many others. financial firms. Laura Tyson, who declined to be interviewed for this. Film is a professor at the University of California Berkeley, was president of the Council of Economic Advisors and then director of the National Economic Council during theClinton administration, shortly after leaving the government he joined the board of Morgan Stanley, which pays him $350,000 a year. Ruth Simmons, president of Brown University, earns more than three hundred thousand dollars a year on the board of Goldman Sachs. Larry Summers, Secretary of the Treasury, played a key role in the deregulation of derivatives and became president of Harford in 2001.

While at Harvard, he was part of Millions Consulting. to hedge funds and millions more in speaking fees, much of it from investment banks according to his federal disclosure report. Summer's net worth is between $16.5 million and $39.5 million. Frederick Mishkin, who returned to Columbia business school after leaving the Federal Reserve, reported on the federal disclosure of him. report that your net worth was between $6 million and $17 million in 2006 you co-authored a study on Iceland's financial system true Iceland is also an advanced country with excellent institutions low corruption rule of law the economy has already adapted to financial liberalization while Prudential Regulatory oversight is generally quite strong, yes, and that was the mistake that it turns out that prudential regulation and supervision was not strong in Iceland and particularly thinking that it was.

I think you're using the information that you had and generally uh. The opinion was that Iceland had very good institutions, it was a very advanced country. What kind of research did you do? You talked to people who you have faith in the central bank, who actually failed at the job, which this is clearly what it is. Uh, why do you have faith in a central bank? Well, that phase because you go with the information you have, how much they paid you to write it. They paid me, uh, I think the number was, uh, it's public information on your CV, the title of this report. it's been changed from financial stability in Iceland to financial instability in Iceland oh well I don't know what it is, the other thing is if it's a typo, there's a typo.

I think what should be publicly available is whenever someone does research on a topic. to disclose if they have any financial conflict with that research, but if I remember correctly, there is no policy on that. I can't imagine anyone not doing that in terms of putting it in a document. It would be a significant professional penalty for failure. to do that I didn't see anywhere in the studio where you indicated that the Icelandic Chamber of Commerce had paid you to produce it. um, you know, okay, Richard Portis, Britain's most famous economist and professor at the London Business School, was also commissioned by the Icelandic Chamber of Commerce in 2007 to write a report praising the Icelandic financial sector.

The banks themselves are very liquid. In fact, they have made money from the fall of the Icelandic krona. These are strong banks. They are financing their market. is secured for next year these banks are well managed Richard, thank you very much, as is Michigan. Portis' report did not disclose his payment from the Icelandic Chamber of Commerce. Does Harvard require disclosure of financial conflicts of interest in publications? Not that I know? require people to report compensation they have received from outside activities. No, you don't think that's a problem? I don't see why Martin Feldstein is on the board of AIG.

Laura Tyson is going to the board of directors of Morgan Stanley. Larry Summers makes $10 million a year Consulting to financial services companies irrelevant yes, yes, basically irrelevant. He has written a large number of articles on a wide range of topics. He never saw fit to investigate the risks of unregulated credit default swaps. I never did the same. question regarding executive compensation corporate governance regulation the effect of political contribution I don't know if I would have anything to add to those discussions. I'm looking at your resume now it seems to me as if most of your outside employee activities are consulting on management agreements with the financial services industries.

Wouldn't you agree with that characterization? No, as far as I know, I don't think my consulting clients are even on my CV, so who are your consulting clients? I don't think I have to do it. discuss that with you, okay, Jack, you have a few more minutes and finish the interviews. Do you consult any financial services company? The answer is yes, but I don't want to go into details about it. Do they include other financial services companies? You may not remember that this is not a statement, sir. I was polite enough to foolishly give it time.

I see it now, but it has three more minutes. Give it your best shot in 2004, at the height of the bubble. Glenn Hubbard co-authored a widely read article with William C Dudley, chief economist at Goldman Sachs, Hubbard praised credit derivatives and the securitization chain stating that they had improved capital allocation and were improving financial stability, citing the reduction of volatility in the economy and claimed that recessions had become less frequent and softer credit derivatives protected banks against losses and helped spread risk. A medical researcher writes an article that says that to treat this disease this medication must be prescribed.

It turns out that the doctor gets 80 percent of the personal income of the manufacturer of this drug, it doesn't bother him. I think it's certainly important to reveal the um, um, well, I think that's also a little different from the cases that we're talking about here because, um, um, so what do you think this says about economic discipline? It really has no relevance to anything and And look, in fact, I think that's part of it, it's just a big part of the problem. The growing power of the American financial sector was part of a broader change in the United States since the 1980s.

The United States has become a more unequal society. Its economic dominance has become more unequal. Declining companies like General Motors Chrysler and U.S. Steel, previously the core of the American economy, were poorly managed and fell behind their foreign competitors, and as countries like China opened their economies, American companies sent jobs overseas to To save money for many years, the 660 million people in the developed world were effectively protected from all this additional labor that existed on the planet. Suddenly, the bamboo curtain and the iron curtain are lifted and there are 2.5 billion more people. American factory workers were laid off by the tens of thousands.

Our manufacturing base was literally destroyed. Over the course of a few years, as manufacturing declined, other industries rose, the United States leads the world in information technology, where high-paying jobs are easy to find, but those jobs require an education, and for average Americans, The university is increasingly out of reach, while private companies. Universities like Harvard have billions of dollars in their endowments. Funding for public universities is shrinking and tuition is rising. Tuition for California's public universities rose from $650 in the 1970s to more than ten thousand dollars in 2010. It is increasingly the most important determinant of whether Americans go to college.

The question is whether they can find the money to pay for it. Meanwhile, American tax policy has changed to favor the rich. When I first came into office, I thought taxes were too high and the most dramatic change was a series of tax cuts designed by Glenn Hubbard, who at the time was serving as President Bush's top economic advisor, the Bush administration We dramatically reduced taxes on investment gains, stock dividends, and eliminated the estate tax. We had a comprehensive plan that, when implemented, left nearly $1.1 trillion in the hands of American workers, families, investors, and business owners. small businesses, most of the benefits of these tax cuts went to the richest one percent of Americans and, by the way, It was really, in many ways, the cornerstone of our economic recovery policy.

Wealth inequality in the United States is now greater than in any other developed country. American families responded to these changes in two ways: by working longer hours and by going into debt as a means. Social class is falling further and further behind. There is a political need to respond by making it easier to obtain credit. It is not necessary to have a lousy house. The low-income home buyer can have a home as nice as any other. American families borrowed. They finance their homes, their cars, their healthcare, and their children's education. People in the bottom 90 percent lost ground between 1980 and 2007.

It all shifted to the top one percent for the first time in history. As average Americans are less educated and less prosperous than their parents, the era of greed and irresponsibility on Wall Street and in Washington has led us to a financial crisis as serious as any we have faced since the Great Depression, when The financial crisis broke out just before the 2008 election. Barack Obama pointed out the greed and regulation of Wall Street. failures as examples of the need for change in the United States the lack of oversight in Washington and on Wall Street is exactly what got us into this mess after taking office President Obama talked about the need to reform the financial industry we want a systemic risk regulator higher capital requirements we need a Consumer Financial Protection Agency we need to change the culture of Wall Street, but when they were finally enacted in mid-2010, the administration's financial reforms were weak and in some critical areas, including the rating agencies, the lobby and compensation, nothing significant was even proposed directed at Obama and I quote regulatory reform, my response was one word would be ha, there is very little reform, why is it a Wall Street government?

Obama chose Timothy Geithner as Treasury Secretary. Geithner was the president of the New York Federal Reserve during the crisis and one of the key players in the decision to pay Goldman Sachs 100 cents on the dollar for its anti-mortgage bets, when Tim Geithner was testifying to be confirmed as secretary of the Federal Reserve. Treasury, he said that I have never been a regulator and that he told me that he did not understand his job as president of the New The new president of the New York Fed is William C Dudley, the former chief economist of Goldman Sachs, whose article with Glenn Hubbard praised the derivatives.

Geithner's chief of staff is Mark Patterson, a former Goldman lobbyist, and one of the senior advisers is Louis Sachs, who oversaw Tri-Cadia, a firm heavily involved in bets against the mortgage securities it sold, to head the trade commission. of commodity futures. Obama tapped Gary Gensler, a former Goldman Sachs executive who had helped ban regulation of derivatives, to lead the Securities and Exchange Commission. Obama chose Mary Shapiro, former CEO of Finra, the investment banking industry's self-regulatory body, Obama's chief of staff, Rahm Emanuel, earned $320,000 serving on Freddie Mac's board of directors, both Martin Feldstein and Laura Tyson are members of Obama's Economic Recovery Advisory Council and Obama's economic chief.

The advisor is Larry Summers. The senior economic advisors are the same people who are there and built the structure. Summers and Geisner will play important advisory roles first. I knew this was going to be the status quo. The Obama administration resisted regulation of the Bank's compensation. even as foreign leaders took action the financial industry is a service industry that should serve others before serving itself in September 2009 Christine Lagarde and the Finance Ministers of Sweden, the Netherlands, Luxembourg, Italy, Spain and Germany asked the G20 nations, including the United States, to impose strict regulations on bank clearing and in July 2010 the European Parliament enacted those same regulations, the Obama administration had no response, their opinion is a temporary problem and things will go back to normal. normality and that is why I will reappoint you for another term as chairman of the Federal Reserve, thank you very much in 2009, Barack Obama re-elected Ben Bernanke, thank you, Mr.

President, in mid-2010, not a single senior financial executive had been criminally prosecuted or even arrested, no special prosecutor had been appointed, not a single financial company had been prosecuted. criminally for securities fraud or accounting fraud, the Obama administration has made no attempt to recover any of the compensation awarded to financial executives during the bubble. I would certainly think of criminal actions against some of the country's top leaders like Mozillo. WithoutI would definitely look at Bear. Stearns Goldman Sachs and the Layman brothers and Merrill Lynch in criminal cases can win, but I think they could if they had enough subordinates to tell the truth in an industry where prostitution for drug use and the fraudulent billing of prostitutes is a commercial spending that happens on an industrial scale it wouldn't be hard to get people to talk if you really wanted to they gave me a plea deal and I took it they weren't interested in any of my records they weren't interested in anything they weren't interested ​In your records that is correct that is correct there is a sensitivity that people's personal vices in the context of Wall Street cases are not necessarily used to get them to change.

I think maybe it's after the cataclysms we've been through, maybe people will reevaluate that. I'm not the one to judge that right now, you come to us today telling us we're sorry, we didn't mean to, we won't do it again, trust us. I have some people in my constituency who actually robbed some of their banks and they are saying the same thing, they are sorry they didn't mean it, they won't do it again in 2009 as unemployment is at its highest level in 17 years Morgan Stanley paid its employees more than 14 billion dollars and Goldman Sachs paid more than 16 billion in 2010, the bonuses were even higher, why should a financial engineer be paid four to 100 times more than a real engineer?

A real engineer. Bill Bridges, a financial engineer builds dreams and you know when those dreams turn into nightmares. other people pay for it for decades the US financial system was stable and secure but then something changed the financial industry turned its back on society corrupted our political system and plunged the world economy into a crisis at enormous cost we averted disaster and our recovery but the men in the institutions that caused the crisis are still in power and that must change they will tell us that we need them and that what they do is too complicated for us to understand they will tell us it will not happen again they will spend billions They fight against reform, it won't be easy, but some things are worth fighting for