>> meacham: welcome to our program. i'm jon meacham filling in for charlie rose who's on assignment today. tonight we begin with the global fallout from the wikileaks release of private u.s. diplomatic documents. >> i think for the most part, these documents are not sort of revelations of things we've never heard before. instead, it's sort of the back story. the private conversations behind the big events. >> i think wikileaks by broadening this to every single policy of the united states has become, in effect, an anti-american foreign policy agent. weakening the state department, weakening the united states. can we recover? yes, we will recover. but it will make it harder. >> when you read diplomats talking about north korea, they recognize that while the public

line is complete verifiable irreversible disarmament, nobody thinks that north korea is going to give up its nuclear weapons. similarly, very few think that sanctions are going to be enough to force the iranians to make a strategic change. >> meacham: we continue with an interview charlie taped last week with filmmaker charles firg son. his new documentary "inside job" looks at the financial crisis of 2008. >> i knew that there was a story there that i wanted to tell. it turned out that the story was even more extreme and even more remarkable and even more shocking than i realized. that when you get to the point where gigantic financial institutions are collapsing on a daily basis, you know, something's going on, something big is going on. >> meacham: the wikileaks war and ferguson coming up.

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>> meacham: i'm jon meacham filling in for charlie rose who's on assignment today. we begin tonight with the fallout from the release of over 250,000 diplomatic cables from the whistle blowing web site wikileaks, the exchanges detail subjects ranging from private american assessments of global threats to unflattering portraits of foreign leaders. many of the sensitive cables deal with arab fears about iran's nuclear program. others say that american diplomats have been asked to collect personal data, including frequent flier information on their foreign counterparts. the cables were sent between 1966 and 2010, but most are from this post-9/11 decade. they were made available to the "new york times" and four other publications. earlier today, u.s. secretary of state hillary clinton and attorney general eric holder both condemned the release of the documents. >> whatever are the motives in

disseminating these documents, it is clear that releasing them poses real risks to real people and often to the very people who have dedicated their own lives to protecting others. now, i'm aware that some may mistakenly applaud those responsible. so i want to set the record straight. there is nothing laudable about endangering innocent people and there is nothing brave about sack tajing the peaceful relations between nations on which our common security depends. >> this is, as i said, an active ongoing investigation. to the extend that we can find anybody who was involved in the breaking of american law and who has put at risk the assets and the people that i have described they will be held responsible. they will be held accountable.

>> meacham: joining me now are the "new york times"'s scott sthan from washington and david sanger from cambridge, massachusetts. they have reported on document for the paper. in new york is jamie rubin. he served at the state department under pic and now teaches at columbia university. welcome. david, i want to start with you. you have a story out tonight for the paper tomorrow about north korea. tell us what you have that's new. >> well, i think, jon, what was striking about the cables from north korea were that the south koreans and the united states have engaged in a fairly detailed discussion that we've always heard the echoes of that never seem to close up about what would happen in the event that north korea collapses. and that seoul would try to begin to take over all of the korean peninsula again so that really for the first time since the end of world war ii. and some of that discussion goes to the question of how the

chinese would be placated. remember, china is perfectly happy to keep north korea in place even if it's a somewhat unruly neighbor, because it's a buffer between china and those american forces in the south and the south koreans and so it serves a very useful purpose for them. at one point, the south korean vice foreign minister, who's now the national security advisor, suggests to the american ambassador in seoul that the chinese would be offered commercial opportunities in north korea and assured that american forces wouldn't move north of the d.m.z. into what's now north korean territory. all ways of quieting chinese objections. now, this may be a fantasy. i mean, we have no indication right now that north korea's on the brink of collapse. and as you know better than most as a historian of american presidents, every american president since harry truman has been counting on the north koreans collapsing on his watch and the north koreans haven't

cooperated. >> meacham: what's your sense of how this plays given the already tense relations with north korea over the past couple of weeks? >> a little bit difficult to tell. it's hardly news to the north koreans that the south would step in if the north finally falls apart. i mean nobody really understands right now what has kept north korea as a working state given the starvation, the gulags, the dictatorships, and the complete economic chaos. on the other hand, i'm sure they don't like reading this kind of thing. the other thing that we discovered from the cables was that the chinese have a pretty vivid conversation under with the united states about their own assessments about north korea. what struck me, as somebody who's covered north korea for a number of years, is that many of the chinese predictions about

what would happen turned out to be wrong. for example, in early 2009 they told the obama administration that they didn't think the signs that north korea was going to conduct a nuclear test were very convincing. and the north koreans probably wouldn't go ahead with it. well, two weeks after that conversation, the north koreans conducted a nuclear test. >> meacham: scott, what have you found in your reporting that surprised you the most? >> well, i think for the most part these documents are not sort of revelations of things we've never heard before. instead, it's sort of the back story. the private conversations behind the big events. for example, we ran in our first story a snippet of a conversation between the president of yemen and general david petraeus about counterterrorism operations in yemen.

and we knew and we had reported and others had reported that there had been u.s. missile strikes on al qaeda in yemen, but it's still remarkable to hear the president say "you do the strikes and we'll take the blame." essentially. "we're claim that they're yemeni strikes." and even joke about, you know, he was worried about smuggling from neighboring djibouti but he was mainly worried about drugs and weapons but he didn't mind the smuggling of whiskey as long as it was good whiskey. there were these moments of kind of color and humor that give you some sense of the diplomatic process. >> meacham: jamie rubin? you are not thinking of this as particularly good humor. tell us from the perspective of the state department and your view what the significance this entire leak and the publication? >> well, i'm out of office now and haven't had access to these kind of documents in several

years, so i enjoyed reading them let me be clear. i learned things, detailed about what officials are saying. but broadly speaking, i think people should realize the broad contours-- whether it's north korea, iran, or yemen-- we've known broad contours of these policies that are detailed in the cables. so the real affect is dangerous because, let's face it, at the end of the day the state department's main function is to talk to foreign leaders. and its relationships with foreign governments are its currency. its basic function. the pentagon has military weaponry. the treasury department has sanctions and financial tools. the state department's tool is essentially the trust that it can build between american officials and foreign leaders. that trust has now been weakened. i don't think it's been destroyed forever, but it's been weakened. this case of the yemeni

president is a perfect example of why this could harm our security. if we have less of a chance to attack an al qaeda cell in a country like yemen because the yemeni president doesn't want to read about hit in the "new york times" and wants to be able to mislead his country, then america is weaker and less secure. and so i think the wide sprid dissemination of pretty much everything that the u.s. state department does is an attack on the u.s. ability to operate in the world. it's not on one policy like i'm against iraq war or i'm against the afghan war. it's an attack against the american government's ability to conduct its foreign policy. meaning america's being attacked in a cyber attack by a particular group of individuals who are trying to harm american foreign policy and therefore america. and therefore in my opinion, harm the interests of the west.

>> rose: david, do you think this is an attack in the terms jamie's is talking about. >> you know, i'm not certain that it began as such an attack. we're not certain how these documents leaked out. there have certainly been allegations against a prooifd who is accused of having taken some of these things out of a computer system, but i think the important thing to remember that all of us had to wrestle with at the time-- and these are never easy decisions about revealing classified documents-- is that these documents were coming out anyway. wikileaks was going to publish them. the question that we had was could we along the way provide a context for them so that people understood where they advanced our knowledge and where we already knew as mr. rubin has suggested, that the broad contour of these events.

and in some cases-- and scott can speak to this as well-- the times acted as a bit of an intermediary going back from... to other publications. the "guardian," der spiegel and others to convoy to them what some of the u.s. government requests were for some redactions. the "times" had gone through this material to make sure that individual sources had not been revealed, that individuals who could be retaliated against, dissidents, that their names were struck out. but we also took these documents to the u.s. government to say "if we've missed anything along those lines, please let us know." they came back with some things they asked to be redacted. we did some of them, we did not do all of them. conversations that were merely embarrassing because it was the king of saudi arabia or the king of bahrain talking about their concerns about the iranian nuclear program we thought advanced a lot the discussion about how the world is going to

deal with the challenge of iran. >> meacham: play that out a bit, though. the fact that something is embarrassing does not necessarily make it illuminating. >> that's right. but it also doesn't necessarily make it a national security threat. in these cases, i think they were illuminating. you have a series of largely sunni arab states who are around the gulf who have been very silent about iran's nuclear program in public, though in private we have heard that they are as concerned about the rise of iran as, say, israel is. when you see in these discussions that, in fact, they are quite concerned about it and yet are not willing to step up to that with the united states but instead want the united states to do their bidding for them, i think that raises a series of important policy questions. and, you know, we all ask the question on this show and others back before the iraq war and

after whether the press fully did its job in airing all of the possibilities, all of the complications of a mission as complex and ultimately troubled as the invasion of iraq. i'm not suggesting here for a moment that the u.s. is going to find itself in direct confrontation in iran or yemen or other places, but it may at some point and so illuminating what the region... how the region views the dynamics of these is an important part of what we do and the question is how you balance the news value of that versus potential damage. and that's a very, very difficult balancing act to conduct. it's something we've all been engaged in a lot of discussions on. >> i don't think the "times" in the end really made the defining judgments here. the judgments were made by wikileaks to release the documents and to give them to other newspapers the "times" made its own judgment about what it would use, perhaps played an

intermediate role with the state department but in the end the basic point of the publisher of the documents by bill keller, their executive editor, was this was going to come out anyway. so it wasn't a case like the pentagon papers or a case where the actual publication was either going to happen or not going to happen the "new york times." so i don't have any problem with what david did in his job or scotttor editor of the "new york times." i'm simply saying that this organization, wikileaks, began as an opponent, perhaps, of the iraq war, or the afghanistan war and thened to encourage the united states public to stop supporting the war or the world's public. fine, that happened. but it's transformed itself because of the documents they've received to essentially broadly criticize attack, undermine every policy of the united

states because in every state in the world there is a diplomatic exchange in which america's diplomats have tried to win the trust of a foreign leader. this release-- broadly speaking-- has weakened that trust. and ironically the state department are the people who are trying to do the job that the wikileaks founder says he's trying to do, which is world peace. it's not going to happen if the state department can't make secret agreements sometimes with foreign leaders. >> and during the pentagon papers, the nixon white house, elseburg was known as the most dangerous man in america. daniel elzburg. is this now simply part of this landscape that every diplomat, every administration, every country is going to have to deal with going forward? is wikileaks now the most dangerous force in the world, in a sense? >> look, i think over the years

the idea of secrecy in foreign affairs has weakened. 100 years ago, 200 years ago in european capitals treaties were made in secret by secret envoys of kings and autocrats and then that document and that treaty became the law of the land in countries across europe. we are a long way from that, and every year it gets more and more open. but there is a line that sometimes should be drawn. there is a line where sometimes we're better off-- americans-- if another government can lie to its people and tell us they're going to allow us to attack a terrorist. and i think we've got to acknowledge that. and so i think wikileaks by broadening this to every single policy of the united states has become, in effect, an anti-american foreign policy agent. weakening the state department, weakening the united states. can we recover? yes, we will recover. but it will make it harder...

next week when there's a meeting between the king of saudi arabia and an american ambassador, they're going to kick the note takers out and he's going to make joke and say "are you going to write this down? am i going to read hit in the newspaper?" and will he be less candid? initially, yes, he will. >> if i could just address something that jamie said. i think we certainly understand and wrestled with the potential damage to national security into american international relations that could be inflicted by publishing some of these cables. but i think one thing is that it's somewhat unpredictable what the effect is. and while it's understandable that diplomats are used to conducting their affairs in private would assume that the fallout is going to be all negative. we are going to be writing more and we have already written on

afghan corruption. a remarkable anecdote in one of these cables is that the former vice president of afghanistan was found entering dubai with $52 million in cash. hard to imagine how you even transport that much cash. and it was picked up by a cooperative program between the u a e and the drug enforcement administration. they allowed him to continue with that money. now, does that kind of exposure for what looks like potentially some shenanigans with money coming out of afghanistan, is that going to make things worse or better for american efforts to encourage president karzai to crack down on corruptions? you know, i would certainly think it was possible that it would increase pressure. as david suggested, these... arab states that are now being sort of spotlighted in their

extreme anxiety about iranian nuclear weapons, is that going to strengthen the hand of the united states in trying to combat iranian nukes? certainly secretary clinton today suggested that that might be one ofkt. she also said something that i thought was sort of interesting, which is the.... >> meacham: secretary clinton? >> yes, secretary clinton. she said that one of her unnamed foreign counterparts said... sort of shruged this off and said "you should see the things we say about you." and i think to some degree there's a kind of mentality that realizes that it was not the state department that put this stuff out. that the u.s. is embarrassed by some of this and regrets it. and won't necessarily blame the state department and the u.s.

government for these leaks. >> i agree that completely, scott. and i think in the case of the afghan vice president and arguably even in the case of the arab leaders who tell one thing to their public about their relations with iran and then privately suggest that we ought to attack them, that there are sal yatory affects. many people have said-- in fact one of your colleagues, tom friedman-- has written about a hundred columns saying if only arabs would say in public what they say in private the arab world would be a better plats. and i agree with that. and i certainly accept this isn't all negative. i think there are good examples-- like the yemeni president-- is a good example of where that might be a good issue. for those of you who cover foreign affairs to read the cables that guys used to brief you about after the meeting and see what was actually in them, i understand this is revealing,

interesting, important data. but i do think we need to understand from the perspective of wikileaks, they've done something very conscious, which is to make all this public. and something bad is going to happen as a result of it, we don't know what. and it's not related to any one policy. so that's why i say and i use the word advisedly, it's an attack on american foreign policy because it's going to weaken... in some way we can't predict, in some they we can't specify the ability of state department diplomats to operate in some way, shape, or form. the big guys will get over it. they're used to certain things coming out. but guys like that saudi king, a lot of business is done privately with the saudi king. and i suspect a lot less business will be done for some time untilhings change. >> meacham: you arguing that

wikileaks is not a rational actor? >> yes. >> meacham: are they a rogue nation in this? >> no, what they are is... they start out as this anti-war group trying to stop the iraq war and it evolved based on what they received and the excitement of all these secret documents. everybody loves secret documents. and i think they lost their way. >> wikileaks itself stow so far despite having trumpeted that that they were going to release hundreds of thousands of documents has been extremely cautious so far and their practice over the last couple days has been to release only the documents that the newspapers in europe and the "new york times" are releasing and with the same material redacted. and i have to say because i've worked with them splaying the "new york times" documents they have shown great care and anxiety about redacting documents the same way we have. so whether this is a sign that

they are now very concerned about their image and exactly what the impact of their efforts will be i guess remains to be seen. but i have to say they have not-- as the white house feared-- dumped all 250,000 documents out on the web. and i should say they've... we believe they've had them for almost six months. second with tut... they could have put them out in june if that's what they wanted to do. >> david, you've done a brilliant book on the foreign policy world that obama inherited. you've now had a lot of chance to read the from the cables of the decade you were writing about beforehand. what do you think at this point... how would you assess the american performance on foreign policy and these issues from what you've seen from this new information. how are we going out there? >> jon, i think it's fair to say that president obama has put a huge amount of energy into many

of the issues we've discussed today, particularly proliferation which i think you rightly pointed out leaps out from these cables as a major concern involving iran and north korea. i'll come back to that in just a moment. but i think what you also slern that particularly in the case of iran from the first few months that president obama was in office, he put more energy into devising a sanctions regime into iran, into deviseing an anti-missile architecture that would surround the persian gulf than the bush administration ever managed to. do although the bush administration did start many of those efforts. and the clinton administration did a few before that which i'm sure that jamie recalls vividly. why is that? and i think what i saw from the cables is that even more than i knew when i was writing about the bush administration-- i was a white house correspondent during much of that time-- the

iraq war soaked up so much of the attention and energy of the bush administration that they were simply out of gas for doing things like containing the iranian nuclear program. and once president obama came in he managed to get some things organized pretty quickly. now, the sobering part of these cables is nobody really believes it's going to be enough. when you read diplomats talking about north korea, they recognize that while the public line is complete verifiable irreversible disarmament, nobody think peg that north korea is going to give up its nuclear weapons. similarly, very few think that sanctions are going to be enough to force the yernians to make a strategic change. and that leaves the very sobering question when you're done going through this archive of whether we are headed to some much bigger confrontations if, in fact, the united states is going to make good on its vow that it could not live with a

nuclear iran or would not live with a nuclear north korea. and one of the more striking findings-- and this was in a cable that withheld at the request of the government but we wrote about in the general terms-- was that the north koreans ship to iran 19 missile that are sort of medium to long-range. they could reach berlin on the european side, moscow in the other direction. and these missile were once used by the russians, a similar design, to make a nuclear missile. it really ramps up the question of how fast the iranians could proceed and to what degree the north koreans and the iranian are cooperating. >> meacham: is that a sign... >> what we learned from the cables was.... >> meacham: is that a sign, david, that at least two-thirds of the axis of evil might be vindicated? >> you know, that would turn it into an axle of evil, i guess, john. but certainly iranians and the

north koreans have had a long missile relationship. we don't know if they have a nuclear relationship as well. >> iran is part of this cable dump that i've spent the most time reading over the last 24 hours. i've read about i guess 35 or so cables. and i think this is the case where journalists like david and "newsweek" where you used to work and a lot of other publications that follow american foreign policy everyday deserve a lot of credit. the basic contours of american policy towards iran, the fact that many arab states are extremely concerned about it, the fact that nobody has a great solution but sanctions are toughening up. all of these basic facts we've learned about through good journalism over the last several years including, as david brought us to the final question. and i think you see in the cables the diplomats saying what

the american people are going to be saying very soon which is which is worse? an iran with a nuclear weapon capability of some kind or the consequences of using military force against iran? this is the fundamental question of our... of knees few years and i think as david points out through... across the world, whether it's china, saudi arabia europe, the united states, russia, all the major players.... >> meacham: turkey. >> turkey, have been organized by washington around this question because this is the one that president obama doesn't want to face. and i think whether it's china or russia or turkey or others, we've probably lowered some other priorities in order to try to get their cooperation for sanctions which there's not one of those cables i read in which any one thinks that even these toughened sanctions will stop frern pursuing a nuclear weapons

capeability. so that's the big one. bomb iran or iran with the bomb. and it's still out there. >> meacham: are we a better country? are we a better-informed country today and therefore a better democracy than we were a week ago? david? >> i'm not sure that i would say that the wikileaks dump hire with all of the ethical concerns one has about how these were initially taken from government computer systems, how they were passed around, makes any of us feel particularly good. but to your broader point, what the founders had in mind was for a press to be actively questioning and illuminating things that the government often found uncomfortable. you know, i think that's a good deal of what the best journalism in america and around the world does each and everyday. but it didn't take wikileaks for the "new york times" and other

publications to report as aggressively as we have over the past few years about the tensions between the pakistani military and the united states and the question of whether or not pakistani leaders have sort of been fighting both sides of the war. both the american side and the taliban side. what we're getting out of documents like this is that that concern isn't just a journalistic concern, it isn't just something outside analysts discussed, it is part of the everyday fabric of american diplomacy. and to the degree we see that, it's not an entirely bad thing. will it lead to temporary problems of the kind that jamie discussed sfwhfr will some people be more cautious? yes. but in the end i suspect that countries fundamental interests end up winning out here. and if it's in president saleh's interest to have the united states help him fight terrorists who are trying to unseat him, he'll do it. the same thing with the pakistani. >> meacham: scott?

>> well, you know, another thing that this sheds light on that rarely gets the light it deserves is the work of diplomats. and i have of the say that from our own sampling of these documents, american diplomats come out looking pretty good. there are fascinating accounts of two conversations, for example, between american diplomats in kandahar in southern afghanistan and achmed karzai, the half brother of hamid karzai ham, who is, as one of the cable notes, you know, widely suspected to be involved in corruption and to profit from the drug trade. and there's this sort of wary standoff between these two sides who sort of need each other and it's very, very gripingly recounted by the diplomats. and even in places that we haven't mentioned that are far from the sort of center of our

concerns about counterterrorism and nuclear proliferation, diplomats do amazing work. there's an account that we put on our web site of a wild wedding in dagestan, the caucuses republic in russia, that is worth everybody's... worth ten minutes of your time to go and read. it's just wonderful to read about this wild wedding where the guests are throwing $100 bills at children dancing and everybody, all the guests, go for night jetskis on the caspian. >> meacham: it sounds like a "new york times" retreat (laughter) >> i wish, john! (laughter) >> meacham: the $52 million... y'all haven't had an expense account like that since johnny apple tide. we have... in your opinion the public information business, you were in public diplomacy, you were about informing in your

heart, you believe in a strong democracy as a strong global power. >> i think the challenge is to see where this ends up. i think david and scott are correct that an informed public is a better public. i think journalists are doing their job, which is to inform and making their judgment calls about what is dangerous and what isn't. i think all of that is to the good and the more the american people can focus on the complexities of the iran issue or north korean issue or afghanistan or iraq or any of these things the better. but i think one thing that hasn't been stated which i think is very important which is that people who probably thought when they were leaking all these documents that they would somehow prove the hypocrisy of the united states that we were

saying one thing in private and a different thing in public might learn from this, and people who read it, of the basic result of our democracy and our foreign policy in this country, which is very unique around the world, that more or less by and large with some exceptions what will the united states says publicly is what it's doing privately. and that's very, very important for people to know. that there is no hypocrisy on our part. there may be on the part of the president of yemen. and i think that in the end we'll find out whether david's right, that he'll still allow the missile attacks or whether the u.s. government is right that maybe he won't and an attack won't happen. but in the end we're all better off for more knowledge. but i think people should realize that sometimes things really do need to be kept secret if you're going to run a railroad. >> meacham: right. internal tension. david, quickly, what can we look

for in the next couple of days from the "times"? >> well, i think you'll see some interesting reporting on both the cooperation and intentions with pakistan not only nuclear issues but on counterterrorism issues. i think you'll read a fair bit more about yemen as the week comes to an end. i think you'll read some really interesting pieces about china and the google cyber attacks and other cyber attacks along the way. what the state department knew, didn't know, believes it knew. you'll read about weapons trade that runs between north korea, syria, iran, and hazard among others. so i think that almost all of the major foreign policy issues of the day that illuminate the "times"'s front page and what we see on television each night, i think you're going to end up having a richer appreciation not only of what's going on behind the scenes but as scott says the

effort says very dedicated people to deal it with. at moments it's depressing, at moments it's impressive. >> meacham: david sanger of the "new york times," scott shane of the "new york times," jamie rubin, thank you all very much. and all will be right with the world tomorrow and charlie rose will be back. thank you very much. >> rose: charles ferguson is here, he wrote and directed "no end in sight" the 2007 academy award nominated documentary. his latest film is "inside job." it examine it is financial crisis of 2008 an contends that the economy's collapse could have been avoided had there been more regulation of wall street in the preceding decades. here is a look at the trailer. >> bear stearns, goldman sachs, lehman brothers, they knew what was happening. >> what do you think about selling securities with that your own people think are crap? does that bother you as a hypothetical?

>> no, this is real. >> what do you think of wall street incomes these days? >> excessive. >> by 1986 he was making millions of dollars and thought it was because he was smart. >> he famously said we have to dance until the music stops. actually, the music has stopped already when he said that. >> at some point i used the word armageddon. these people are risk takers, they're impulsive. there's a lot of cocain use, prostitution. >> so these guys knew that they were doing something dangerous? >> i think they did. >> i don't hear confessions. >> what can we believe in? there's nothing we can trust anymore. >> we had a whole group of people looking at this for whatever reason. >> you can't be serious. if you would have looked, you would have found things. >> it's a wall street government. >> why do you think there there isn't a more systematic investigation being undertaken? >> because then you'll find the culprits.

>> i don't believe i have to discuss that with you. >> you come to us today telling us we're sorry, we won't do it again, trust us. well, i have some people within my constituency that actually robbed some of your banks. and they say the same thing. >> i never heard him mention those things. could we turn this off for a second? >> rose: i am pleased to have charles ferguson back at this table. welcome. >> thank you, sir. "could we please turn this off"? did you find that often that when you were moving in to make what you thought were a point about contradictions or failure to disclose people said "wait, this is not what i bargained for"? >> yes, that happened quite a number of times. we decided... i decided it would be overkill to show them all in the film so, in fact, david mccormick is the only one where we show him saying it. >> rose: because i read somewhere that someone maybe at sony had said if, in fact,

mishkin... if you had shown what it was in fact like it would have been so devastating it may have turned people against you who thought... is that fairlying a senate >> yes, that's exactly right. several people said when they saw an earlier cut of the film, you know, you can't do this. yes, it's all true, but that's exactly the point. the film and the reaction of the film is going to become about your destruction of these individual human beings and that's not what your film is primarily about. it's not what the film is about at all. >> rose: what's the film about? >> the film is about the systemic corruption of the united states by the financial services industry. that's what the film is about. and the consequences of that system of corruption. >> rose: now, you've decided to make this film after the dark days of lehman brothers' collapse. >> yes, yes. which was, of course, lehman... the so-called lehman weekend was actually lehman/a.i.g./merrill weekend. >> rose: right, right.

and you decided to make what kind of film? the story of or did you know there was a story there that you wanted to tell? >> i knew there was a story there that i wanted to tell. it turned out the story was even more extreme, remarkable, and shocking than i then realized. but, you know, when you get to the point where gigantic financial institutions are collapsing on approximately a daily basis, something's going on. something big is going on. >> rose: what did you know... what didn't you know when you started making this film that you now know? >> i would say there are two things, and i found them both, actually, surprising and shocking. the first was the ethical level to which american finance, particularly investment banking, had sunk. you know, if shall be had told me in advance that i and we, the world, would discover that goldman sachs and most of the other major investment banks had on a systematic basis using tens

of billions of dollars had created securities with the intention of causing them to fail so that they could profit by betting against them, i would have said, you know, no, we don't do that in the united states. that can't occur. people don't do that in the united states. well, people do do that in the united states. they did it on a very large scale for several years, very systematically and it turns out that it's not, per se, illegal. as a practical matter, it's pretty hard to do all that legally, and i suspect that there was massive fraud because it's a pretty hard sale if you're telling the truth. the other thing that shocked me, i have to say, was the astonishing incompetence of the government's response during the crisis period of 2008. the one thing that i thought we could assume with a treasury department headed by paulson, the previous c.e.o. of goldman sachs, would be knowledge and competence about the financial

markets. >> rose: and so when someone like warren buffett writes a piece in the "new york times" and basically says "we're damned lucky that we had the people, there otherwise it would have been much worse" you say? >> well, it is absolutely true that it could have been much worse. you know, and paulson and bernanke did a number of things correctly. >> rose: necessary in terms... at the moment? >> well, that's a... they did a number of things well. the things that they did well were intimately connected with things that they also did very badly. so, you know, yes, it absolutely could have been much worse. if they had sat around and done nothing, yes, we could be back to growing our own food at this point. but they did two things that were deeply wrong. one of which was a matter of competence, and the other of which was, you know, a matter of ethics or cold-blooded political calculation or some combination of the two. >> rose: those were? >> those were... the

incompetence was primarily just being completely unprepared for what was happening. so did they study carefully what would if lehman were to go bankrupt? no. everything that actually did happen when they forced lehman to go bankrupt-- and forced is the word-- came as a complete surprise to them. and if they had spent any time at all studying lehman, they would have known that lehman's debt structure was intimately connected to the money markets, intimately connected to the commercial paper market. they would have known that british bankruptcy law would have forced the closure of the london office, etc. disaster, disaster. totally avoidable disaster. the other thing, of course, was that the things that they did, even the things they did well, saved the banks and they did isn't the rest of the american population and they didn't force the bankers to take any sacrifices at all. >> rose: on this program, barney frank said that the treasury and henry paulson didn't have the

authority to say... save it. barney frank. >> how polite a word can i use? (laughs) >> rose: choose your word. they'll probably bleep it out, but that's too bad. choose your word. >> it's organic matter emitted by a large animal. >> rose: this is barney frank who you use here. >> barney frank is on balance a very good guy. he's a politician, though. he's a politician. may i note that about 24 hours after they failed to save lehman they managed somehow to find some reason to give a.i.g. $85 billion. >> rose: what was the difference? in their mind? >> well, that's a very good question. i would love to be henry paulson's psychoanalyst. there have been... supreme speculated. there's a long list of potential explanations. the only one that we're fairly confident has no real force is the one that they officially

gave; namely, that they couldn't in fact, save the company. >> rose: in fact paulson has said now, according to a column by andrew ross sorkin that if he had the authority that is now in the financial reform bill he could have done it. >> well, it is now true that there's an official above-board comprehensive way to take over such institutions. but, in fact, there were 28 things that they could have done. lehman had already asked, for example, to be given status as a bank-holding company. they had refused. >> rose: which was later given to morgan stanley and goldman sachs. >> which a few days later was given to morgan and goldman. i don't know how tedious you want to get about the details of the mechanics of this but they absolutely could have done something if they decided that they wanted to. why did they choose not to? again, there's a list of reasons. most of the top management of lehman was democrats. there was only one republican, a relative of george bush, in the senior management. lehman was emerging as a substantial competitor to

goldman. he wanted to make an example of lehman. as a matter of personal dislike, he hated richard full-- which put him in a large club, by the way, a lot of people didn't like mr. full. >> rose: because of his largesse? >> yes, indeed. and then there's the ego reason. he wasn't able to put together a private thing to save lehman so could he admit that he'd made a mistake et cetera. so what combination of these is true, i don't know. >> rose: and moral hazard played nothing? >> it may have. it may have. but let's put it this way, he certainly made the point a little more forcefully than perhaps he intended to since it turned out that he froze up the commercial paper market almost overnight and, you know, people were truly terrified. >> rose: after lehman brothers. >> after lehman brothers. >> rose: therefore people who went overnight to get commercial... do sell commercial paper couldn't. >> well, in fact, large very secure corporations, at&t for a

week couldn't borrow money. >> rose: general electric. >> that's right. >> rose: i don't know how long it lasted but there was that moment, jeff immelt has said... >> yup. terrifying. >> rose: was it illegal? >> if you're referring to the behavior of the financial institutions and bankers during the bubble, my own view is that there had to have been massive illegality. you know, i don't want to point to individuals because the justice system should do that and i shouldn't. but we already know that merrill lynch engaged in massive self-dealing to prop up artificially the prices of its securities. we already know that lehman brothers used a variety of accounting tricks to inflate its assets and also decrease artificially its liabilities. we already know that a half dozen investment banks massively massively created securities

that they hoped to profit from primarily by betting against them. >> rose: are these the same kind of things that people who worked at enron went to jail for? >> they're very similar and as a practical matter i am absolutely certain that these things could not have been done for as long as they were, as successfully as they were on the scale they were without people committing massive criminal fraud. >> rose: do you expect that there will be prosecutions for criminal wrongdoing coming out of what what we now know and what you point out in your book... in your film and people have pointed out in all the books written about that crisis which now must be numbering up close to 50? >> we, many, many. whether will there will be or not unfortunately i have to give this quite depressing answer is a function of political pressure. because it is unfortunately,

disastrously, tragically clear that the obama administration has no interest in doing anything about it. >> rose: and the reason is? >> that's a very good question. i'd like to be president obama's psychoanalyst also. and, again, there's a menu of answers ranging from he's personally very conflict averse to cold blooded political calculation to lack of experience and therefore insecurity in very large scale economic and financial matters and therefore being prisoner of his advisors. perhaps some combination of all those things. i don't know. i don't know. i don't know mr. obama. i only met him once for a few minutes. >> rose: you said finally that there are three changes to make in order to make the system work better. one is to change the role of money in elections, two is to pay regulators well and three is

have law enforcement that's necessary to enforce the laws we have. >> yes. >> rose: do you expect those things will happen? >> i think someday they will. i think it's going to take... my own view is that... and other people with whom i've spoken share this view. is that when president obama was elected he had a very, very special opportunity of a kind that comes once a century, maybe, to really change this country for the better. to reverse what's been happening to this country for the last quarter century. and he blew it. he let it pass. and now that he let it pass, his political situation and our collective political and social and economic situation is very difficult and now it's going to be a very gradual uphill fight. it's going to look more like the civil rights movement or the environmental movement. for the american people gradually to exert enough pressure so that we have a

government again actually governs and regulates and keeps control and tries to make the society better. >> rose: would you like to see somebody challenge him in the democratic primary leading up to the 2012 sflex >> if it was the right person. i'm not a partisan person. i'm not a political person. i've never run for office, i never will. i've never served in the government. i view my function as policy analysis and investigative journalism. but do i think that this is a terribly, terribly important problem? yes, i do. and i think we're in danger unless we do something about this: i think we're in danger of finding that america has become a very different place far from the dreams of its founders. >> rose: not only that. that the world has changed dramatically in terms of where the power centers are, too >> well, of course, of course. but even regardless of whether we... in our individual daily lives care whether america is

the preeminent world power i hope we all still care that people who are born poor have an opportunity to educate themselves, have an opportunity to make a good living and provide for their own children, that this is still a country of opportunity and freedom. >> rose: and that ought to be the great debate that we enter. >> i certainly think that it should be, yes, yes. and i fear that we're now a situation in which we have a political due woply in which neither political party challenges those issues and challenges... >> rose: tlabd's a majority in the country that you think is ready to be... >> i hope so. >> rose:... tapped into? >> i hope so. i think that what's happened is that the majority of the population that should and, in fact, i think does share this view that something deeply wrong has happened with regard to these questions is unfortunately divided, perhaps intentionally by the parties, perhaps not, is

unfortunately divided according to other social issues. you know, whether or not someone believes from gun control or gay marriage or religion in schools or those kinds of issues. and... or abortion. and those are important issues, i don't mean to suggest those are not important issues. but there's another issue, this one, that is corroding this society and it's endangering everybody. >> rose: thank you for coming. >> thanks. >> rose: thank you for joining us. see you next time.