tv [untitled] CSPAN April 6, 2010 11:00pm-11:30pm EDT
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nicholas biddle said in the 1930's. i will also will also tell you when teddy roosevelt took on jp morgan there was a lot of concern in the submarket that this would be destabilizing. you know, they have a lot of power. if they want to do damage to this economy, they probably can. they are threatening us. make a mistake about it. and you should go home and reflect on how you feel about that. you are being threatened. your elected representatives are being threatened by a few very powerful bankers. now enter jackson is on the 20-dollar bill for a reason. not because he likes money. he hated paper money. he would be mortified if he knew was on the 20-dollar bill. is on the 20-dollar bill because he won a very important site, right? he determined that we should not be captured to a financial
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oligarchy. i think that was a good call. i mean, we probably could imagine a different path with a central bank to the united states during the 19th century. hat. but we also didn't have an economy dominated by a few very powerful finance years distorted in the way that other places state and other places struggled with in the century including europe and latin america. i think andrew jackson made the right call. we can argue on the economics, politics -- you know, you probably guessed from my funny accent i am an immigrant. i've been here 25 years, citizen for ten years. i thought long and hard before becoming a citizen. i took a test. who became a test before becoming american? there you go. a few of you. did the rest of you even know there was a test? i did well on the test. i think we have a very good constitutional framework and
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iain incredibly strong position but as far as i can see from my reading then and now there is nothing that says we have it forever. there is nothing written or assured that says you don't get taken over and don't get a distorted like so many other countries have. i feel we can fight it off and i think the jackson of roosevelt and fdr furious did fight it off but it has to be done. it doesn't happen for you. someone has to do it. how are we doing what is the constraint? >> [inaudible] >> another free questions. okay on the left and in the front. a bible br rot afterwards if i don't get to everybody's questions. >> another funny accent. first of all i completely agree with your position. i made the same conclusion after
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the crisis so i like to call it privatizing the games socializing the losses and i think it's got to be stopped somehow. another is cognitive. i think it is considerable what happened and i applaud you for carrying a message. first you mentioned we need to limit the size of the bank's and they get to a truce the commercial banks and investment banks. anything else needs to be done in order of bringing the system and to balance again and my second question is i saw your article about jamie dimond and the question is do you think it is beneficial to take the conversation private and have you heard back from him? [laughter] >> may i ask what country are you from originally?
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>> russia. >> it does anything about our predicted that strike you as unpleasantly familiar? [laughter] >> exactly. why i end up in a place of such dramatic change. in moscow in the nineties and now i am here. i just moved from san francisco. >> if you could go back to moscow -- no i'm just kidding. look, we've taken on some features we usually prefer to ascribe to other countries and when we see other countries we say look a certain sector, the oil and gas sector and from time to time the banks as well has gotten powerful or the cory in table has taken over and distorted the system. and whenever we see that in other countries in fact whenever our treasury in the 1990's and other countries they always
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insisted that when you talk anticrisis measures to address the underlying problem which isn't easy to do and that's what we have to do. one of the other measures we have a long list we talk about in the book. i think the key blind spot is banks. that is even sensible people on capitol hill are still not getting to that. but certainly we think there should be a lot more capital in the financial system. we think that the current consensus on raising capital would basically take us back -- move all financial institutions to a capital level roughly equivalent to what the lehman brothers had the day before it failed even if you measure lehman brothers capital correctly which doesn't strike as a compelling idea. the en brothers didn't have enough capital but anybody at that level have enough capital we stink it should be more than that. and the counter toward negative spirit i know people's eyes glaze over whenever i see that
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it's important and it's very political but they should be traded on exchanges and there should be more capitol hill that the derivatives and you see a contraction in the amount of derivatives trading. there's also a subsidy for durham evidence which arises from the fact the broker-dealers to write contracts are too big to fail and therefore have funding costs and that is a big part of the problem. i think that is less likely to get addressed than the bank's size. and as for jamie dimond, you know, all the points we make hour about policy. this is not a personal antiindividual crusades. i think is helpful to put names on that. this is not a conspiracy. most of the reviews in the book have been very positive. two people so far have said conspiracy theory. they didn't read the book. this is not people conspiring. this is a system of incentives and believes that is developed over time and it's a very
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unfortunate distorted system that needs to be fixed and i had to talk to any banker biggar small who wants to talk about this and i do engage with them at every opportunity and jaime dimond has not yet caught me. [laughter] >> we will take how many more questions? to more. this lake erie and this gentleman here and then we can do smaller questions. >> is it on? okay. recently i've heard a lot of people the last one was greenspan talking about paul volcker's proposal rule that these organizations should not be treating in their own accounts with our money but as greenspan said the other day i agree but it just isn't practical you won't be able to separate the accounts from the proprietary account of the bank, the personal training to the other trading.
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now i've heard others say you can't separate it. it sounds good but in the real world it won't work. do you think it would work? >> yes. it certainly could work. i testify to the senate banking committee and the dreary on this issue there were representatives of the banking industry fighting against it and on my left was the former head of citibank's who among other things says he regrets putting together the size of citibank and also in his view sissy could impose this kind of restriction on proprietary trading for any large bank for example. now i think the other deeper troubling question is how much difference would make. but they find other ways to get around that or to take excessive risk and i sure they would so while i am supportive of the rule both in general and the assistance on the specifics i do not think it would solve much of the problems and i don't think it would address the problem of too big to fail.
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fine, let's do it but you should not regard that as a substitute for -- it is a set of solutions and you've got to go after multiple directions assume some of them are not going to work and it's good to have redundancy built into the system but the amount affect he would get from that measure certainly isolation would be tiny and even as a set of measures it's not i think the key. okay this gentleman here is the last question. the second row on the isle. >> thank you. it does what you have in mind need to be done in all of the world financial centers in order to be effective in preventing the next crisis or is it something that can be done here and that would be enough to avoid the subtitle of your book? >> certainly can be done here. it should be. it would be helpful for avoiding
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a massive meltdown. i do worry about the rest of the world and i think we should take a leadership role and push for them to rein in their banks. they are much deeper. many countries are deeper and is relying on make the banks and we are. we have by tradition by history and by the practicing a more decentralized system than some countries. the system is become more concentrated overtime but we can reasonably imagine the situation where we have $100 billion banks competing with each other and competing globally rather than that being small relative to the economy where some countries even 100 billion-dollar bank with a relative to the country and some countries including in europe think the big banks are just fine. now, i think first and foremost we deal with this ourselves and persuade people to come with us and then if they don't want to come we have to consider to what extent we are regarded as safe forever non-financial companies to do business with massive
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banks that could get in trouble when other companies and to what extent we want as if banks that could cause problems to operate in the united states. we do not for example allow the citizens to banquet financial institutions based in iran. we of clear rules that prevent you from transacting with financial banks in various countries because we regard that as not consistent with our national interest. i think those criteria have to be reassessed. we should push our allies to come with us and make the banks safer. but if we want to cooperate i think we have to reassess what we allow them to do in the country with our financial system and remember the driver, what people want to participate in in this economy is the dynamism of the innovation, the new companies, the resourcefulness of the people and i think what i hope again we will once again be the resilient credit worthiness of the
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corporate sector and government sector. that's us. you get to work in the financial markets if you play by the rules. noss any other basis. it's the united states and that is to what you can say to the outside world. other countries by the way in all other countries have the ability to say that but we can and we should. and i think on that note thank you very much. [applause] >> [inaudible conversations]
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all this month see the winners of c-span's studentcam video documentary competition. middle and high school students from 45 states submitted to use on one of the country's greatest strengths or a challenge the country is facing. what's the top winning videos every morning on c-span at 6:50 eastern just before washington journal. and at 8:30 during the program meets the students to meet them, and for a preview of all of the winners, visit studentcam.org. former treasury secretary henry paulson talks about his new memoir "on the brink" with berkshire hathaway warren buffett. he talks in response collapse. this event was part of the greater omaha chamber of commerce 2010 annual meeting.
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>> well, hank i want to thank you for coming us. you honor us. i should declare right off the bat that i am a friend of hank's. i have been so for some years. i admired him before he took the job. i get my ear him a lot more after the job is done as the secretary of the treasury. the name of this book is "on the brink," and that is exactly where we were in september and october of 2008. at that time, our economy, our financial world went into cardiac arrest, and we had four people in the operating room we were fortunate as a country to have in place. we had hank, we had been bernanke, we had tim geithner and sheila bair the head of the
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fdic. i really -- i know a lot of people in finance and a lot of people in business, i know a lot of people in government, and i can't think of for that would have done a better job of getting us through that. now it's kind of a fashionable to look back and pick at one aspect or another of what was happening then, but our country's financial system froze up during that period. some of you in this room or at a party i was at in september of 2008 when at the top was the money market safe? now you have 3.5 or more chilling than funds held by 30 million people who on sunday night or worrying about whether they can get their money, that money was half of all of the deposits by u.s. banks at the time. you have a panicked. you had commercial paper frees
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up entirely and some of the biggest companies in the united states and some of them are described in this book that worry whether they were going to meet their payroll in the short period of time. dewitt the sixth largest bank in the country in terms of domestic deposits, washington mutual field over the weekend. you had the third largest bank, wachovia, the need a shotgun marriage on monday morning to survive. most interestingly, this book starts in early september when freddie mac and fannie mae essentially were broken. here are two institutions the guaranteed 40% of the residential mortgages in the united states whose debt was held over the world in very significant amounts including foreign governments that would not have taken kindly to the default in ephriam fanny or friday. you had them honing a large portfolio of a mortgage
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themself, and like i say in early september they both were broke. it's worth noting for those who take shots at some of the people who were operating during september and october those two institutions, freddie and fannie were chartered by congress and were ruled by congress and for those who have heard them criticize the leverage in the banking system and should also be noted the allowed fannie and freddie to operate with authority:1 ratio and let them guarantee over 100 times the amount of capital they had in the mortgage guarantees. so the two institutions which were vital to the mortgage market or were vital to the integrity of the united states and which had received in this complicated hank's problem in a very short period before september the watchdog agency congress established to watch
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the agencies had given them a clean bill of health and a clean bill of health might be fun to go back and read now. let's get on to hank's book. when i got this book i got a little early and i expected to learn about the financial crisis and i did. but i didn't realize that i also learned something about how to attract women. [laughter] it's a little late on realize but -- [laughter] hank had a surefire approach, which when he took wendi out on their first date in boston i would like you to describe a few even want the latter date of like to hear about it. [laughter] >> let me say before i do that i am first delighted to be here today in omaha. another foot of snow it would be
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just like washington. and again, i've been a longtime friend and admirer of warren and he was a pillar and source of strength for me during the credit crisis. warden was referring to something in the book i was not a model of maturity when i was a senior at dartmouth college and by first data with wendy we were at the boston box and she wasn't impressed when i made my beeper plan. >> did you hit them? >> nope, but she gave me another chance. >> didn't she go home early that night? >> yeah, she went home early that night. >> fortunately he got a second chance. tell us a little bit about -- hank says in the book i'm a tough guy. i forget at what point he said
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that but he was a rustler in high school and was a tackle and everything but win the president asked him to become secretary of treasury and hank's initial reaction was how to do it but he decided to do it but he had one big worry and i think the crop might be interested in knowing what makes a grown man trembled. [laughter] >> warren is talking about my mom and i quite close to my mother. she is a strong woman, engaged and interested in politics and policy and she was not and admirers of george bush and very unhappy with the war and interested in women's issues and so on so there have been a fair amount of speculation in the press that i might go to washington and i get turned down the opportunity a couple of times and i had assured her what was not going to go because i had no intent of going but then when i had reversed myself and
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decided very suddenly it was the right thing to do and not to say no to my country i was and illinois where we live and have our primary residence and i was there on memorial day weekend because the president was going to make the announcement on the tuesday after memorial day weekend so i was going to see my mom. unfortunately at church, we were at church together, i had a longtime friend asked me about what i was doing next and i told her as of course she went up to my mom and citizen this great and mom didn't think it was great so when i a right to to tell my mom she already had known about it and i didn't see her saw that much but she was sobbing and very angry, angry and crying. i started with nixon and now i was going to end up with bush and i deserved everything i got.
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[laughter] and then i was jumping on a sinking ship. i will say this though at the and i say that the time i finished in washington my mother had a different opinion of george w. bush, but it was -- it's not a good way to start off and wendy wasn't much happier with me. >> one of the most interesting things i found in the book and i've not heard a word about this before was your account of how some top russian officials had gone to some top chinese officials with the suggestion essentially that they started dumping the bonds of probably friday and fannie at that time and that almost sounds like a bear raid. that sounds like the sort of thing the evil guice and wall street did it tell me about that. >> it never happened but we were
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very, very concerned about stabilizing fannie and freddie because as warren said there's $5.4 trillion of security either injured or issued directly by these institutions. they are highly leveraged institutions and these securities were held about 1.7 trillion of side of the u.s. the biggest portion was inside the u.s. and we had gone -- i had been trying to get the reform to get the kind of reforms we needed but we were unable to get action until they were just on the image and so we were able to go to congress and get the authorities and then as we needed to spend time poring over their books understanding the financial situation i had in
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the book i recount i was in in china for the olympics and i had -- i was given to understand that the chinese had been approached by the russians with a suggestion that maybe they could sell some of the securities together and they need to test the resolve, who knows why. >> why do you think? >> i would say probably -- i don't know why, but we had so many conversations with the russians, the chinese and everyone else i just knew any kind of sudden selling would have spooked the markets and i would say it never happened but it was some people say to me just about everything bad that could have happened did happen on i say not quite. it felt that we sometimes, but
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we -- all i worried about the other possibility of a sudden decline in the dollar or other things that never happened and one of the biggest concerns i had was getting fannie and freddie stabilized, and in a sense we tell the story of how very suddenly we put them into conservatorship which was essentially guaranteeing their debt because it was in essence an implicit obligation by the united states of america. it was sort of like the banks had their conduit's which were off the balance sheet and with implicit guarantees. that is a little bit like what fannie and freddie were and we were racing against time to stabilize those before we knew that earnings were going to be coming from the banking sector and particularly lehman brothers
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losses so there was a race against time and i was fortunate -- we were fortunate to be able to get it done without the markets becoming spooked or on settled so that is why i -- you know, what i had heard in china got my full attention. >> there is a front-page story in the journal this morning about fri and fannie and it's very much worth reading and i believe is it there's no 111 billion that's been put in by the federal government, but it's expected much more will. so in effect it presently looks like the federal government will lose more money in a pretty and fannie than aig by some margin. >> welcome warren, as i look at the program's overall we will get every penny that we put into the banks back with a profit. >> i think you're right. >> when you look at the other programs we may be surprised what we get back and actually
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even on a free e and fannie i think the fed will make a lot of money by holding the securities put your right in terms of the losses. to me the important thing about freddie and fannie is right now needs to play an otherworldly are playing, but one of the things that got us into this problem is not just fannie and freddie but if you look at the weight of all of our programs to stimulate housing, and it just has gone too far and friday and fannie are not going to be able to stay in their present form. they need to be -- i think the mission needs to be shrunk. the need to be restructured in very fundamental ways. but right now we need them where they are but i think how we on
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wind the situation is going to be important. >> we were getting grilled by the congress and they would point out how there was too much leverage in the banking system. were you ever tempted to say the institution debris and had the most leverage of all? >> i was tempted to say a lot of things, warren. [laughter] but i resisted the temptation because one of the things that i am pleased about was i was able to build enough relationships on both sides of the ogle and the congress did act before the system collapsed and if it had collapsed we would have easily had 25% unemployment in this country. it would have been a terrible situation and the crisis, the book is still a large extent the collision of market forces and political forces and the crisis came in many ways of
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