little agency that was pretty unmemorable rather it's called the c f t c the u.s. commodity futures trading commission the c f t c chairwoman brooksley born who had come into the clinton administration late one thousand nine hundred ninety six saw a problem with financial deregulation and critically had huge concerns about unregulated markets called o.t.c. markets or dark markets that sounds scary as it should because these were bets on what a stock might be worth in the future be it a day or year or a month or more regulators or had no view was taking place they had no view as to what was taking place and nobody knew what or how much was being wagered nor the exposure the risk that is of the entities engaged in the trading so chair borne work with the p.w.g. the president's working group which included secretary of treasury and chairs of the federal reserve securities and exchange commission and herself to see f.t.c. but none of the others were concerned about dark o.t.c. markets after all clinton nomics was about deregulated not regulating but chair

borne didn't let up to see if he issued a proposal just a proposal on how the dark o.t.c. markets might be regulated in a thoroughly unusual unprecedented fashion the other members of the p.w.g. trashed it within hours of its release for her troubles president clinton replaced or the new chair had no issues with these dark o.t.c. markets and fast forward it past two thousand and the us has a new president george w. bush bush forty two and he takes over great really a great economy with budget surplus u.s. g.d.p. fell in the wake of nine eleven but recouped in two thousand and three through two thousand and five which saw three point five percent rate the deregulation of the financial sector continues with laws and various rules and then the housing market starts to go gangbusters and here to talk about what was taking place is kathy the co-founder of real wealth network kathy welcome appreciate you being here what was

going on with housing then regarding prices in particular up until the crash and with foreclosures cathy. i was a mortgage broker at the time and i can tell you it was very very easy to give anyone a loan i was shocked and i wondered and i kept asking who is approving this you know who is sitting in a boardroom saying sure we can give you a nina loan and no income no assets needed to anyone and so when you have an abundance of money that can be given freely to anyone without any background checks really no credit checks you're going to you're going to see people take that money and borrow it and buy things that they probably can't afford especially as you know when nobody was really checking to see if what they were writing on their loan applications was true it was a stated income loans so what we were seeing was anybody being able to buy a house a brand new house you had new homes selling like hotcakes hotcakes it just lines

out the door of the subdivisions because you could just walk in and actually get money back. it's crazy programs too right kathy i mean blues and and arms and all the sudden somebody who could barely afford to maybe make a few payments after a certain time you know they were going to be underwater in a heartbeat right. yeah and so here is from my perspective as a mortgage broker i could make on a million dollar loan which in california was fairly common i could make ten to thirty thousand dollars on that on that loan and at the time these were stated income loans that meant an application where they didn't need any follow up documentation it was easy money so pretty soon everyone was a mortgage broker and everyone was getting their friends loans you could you could be an investor you could be as you saw and movies about about this crash you could be a hairdresser and own ten or twenty investment properties with no money down and in some cases money back it's really not me was it yeah the big short they had that

great scene in the woman who's the character talking to you you could have a balloon rate and she's she says on all of my properties she said all of them yeah i've got five just nobody i mean i like to say when i was. back in the day when as a governor i say oh homeownership rate was great the homeownership rate did increase but not necessarily the right way correct. right i would sit in my office and people would come in and say you know i want i want this loan i want to buy this house and i would say well you know your mate mortgage fame is going to be about two thousand dollars a month and you make about two thousand dollars a month so that's not going to work and she said well i thought there was a starter loan and that's what they were called teaser rates and you could actually qualify based on this teaser rate which wasn't a real rate. so all she needed really was to prove. that she could pay a two hundred dollar

a month payment or something but when it adjusted it would be two thousand it would be more than she made completely and i looked at her and said what are you going to do in three years when you when the payment adjusts and she's all worry about it then i'll just revive the house will be worth more and i'll do what everybody else is doing refight take the money out and live without having to work for a year you know crazy stuff thanks for sharing kathy appreciate you being with us. thank you. and then the financial players and prominently the big bank which no longer had speculative trading restrictions upon them since that glass steagall act we talked about had been repealed back in ninety nine they began speculating in earnest in those dark o.t.c. markets about which chair brooksley born had warned they traded the mortgage bundles through these new products called credit to swap default swaps or c.d.'s and they were betting if the c.d.s. would fail or not and when the value of these products was whatever the traders

deemed appropriate so if a trader traded one thing in value did it x. and the other trader might value with it why the problem was these things were traded among thousands of traders and financial firms and they were broken apart sliced indicts to the point where nobody knew what the risk was for anyone and regulators had of course not a clue it was the exact type of risk crazy risk in the spring of two thousand and eight the seventy five year old firm bear stearns one under bankruptcy it was a shock to many that this well established firm would take such a deep and devastating dive and it had many of us me included at the time to see if to see wondering what it might mean was there more to come and there was. and it was lehmann brothers which became the financial straw which broke the economy's back for more years or to slash the banks what over six hundred billion dollars in assets and a little over six hundred billion dollars in debt lehman brothers had to file

bankruptcy making it the largest bankruptcy filing and u.s. history and the first week of september lehman brothers management made unsuccessful overtures to many potential partners as a result their stock plunged by seventy seven percent the company would continue to see this trend to as its hedge fund clients started pulling out and it short term creditors began cutting credit lines by the end of the second week in september and brothers was left with only one billion dollars in cash leaving the company desperate for any help it could get and during the weekend of september thirteenth two thousand and eight lehman was in talks with barclays ca and bank of america corp hoping one of the banks would take over unfortunately lehman brothers was out of luck and declared bankruptcy on monday september fifteenth two thousand and eight women brothers was the fourth largest u.s. investment bank at the time of the collapse having twenty five thousand employees

worldwide that day twenty five thousand employees lost their jobs and poise had been following the news over the weekend when they arrived to headquarters on monday they cleared out their offices aware of what was to come seven days after the collapse in a move holdings incorporated announced and what acquire lehman brothers franchise in the asia pacific region and clued in japan hong kong and also. at later also announced it would acquire the company's investment banking and at what is businesses and europe and the middle east this deal became effective on monday october thirteenth two thousand and eight barclay also acquired a portion of lehman brother. following the collapse surely after the collapse took place many question why the federal reserve didn't bail out with the brothers during the time of the collapse timothy geithner was the president of the new york

federal reserve and two hundred fourteen he said the bank wanted to assess lehman brothers adding quote we explored all available alternatives to avoid a collapse of lehman but the size of its losses were so great that they were unable to attract a buyer and we were unable to land on a scale that would save them despite the federal reserve's inability to save lehman brothers the collapse left to many employees and customers uncertain of what the future would hold and washington actually banks art. and what the future did hold it also ahead treasury secretary hank paulson and federal reserve chair ben bernanke really critically concerned with lehmann did what was next with contagion from lehmann and perhaps others who could fall destroy the economy and still nobody knew the financial risks of those dark o.t.c. markets with those bundles of bad mortgages in the credit default swaps fearing the

worst total economic destruction paulson and bernanke headed to capitol hill with a three page document seeking more than seven hundred billion dollars to buy what they called troubled assets held by large and small banks and insurance giant aig i-g. which should insure the o.t.c. dark market products for many of the banks and it did become law for more we're joined by legal journalist molly barrows at the ring of fire network molly some of our viewers may have only a really a veg recall of tarp or know the acronym the history is pretty muddled take us back to a tarp one hundred one if you would. sure have our will as you said secretary paulson and fed chair ben bernanke frame this as dire and urgent it's a must pass the house initially thought that that bill but effectively they needed it to enable this bailout so the senate revive the package ultimately tarp was born to essentially buy and hold these assets that seem to become worthless until some time in the future when they expected normalcy to return yeah and bush forty three

he was in office a republican but tell us how this actually got passed congress. was voting which way was interesting and it was one hundred seventy two democrats only ninety one republicans who actually supported the president's request to do this and enable it to become law some of those democrats who voted for tarp however they lost their next election so it seemed like as popular as it was it certainly cost them and ultimately did tarp work out pretty well it certainly did financially the money was eventually repaid to the treasury in the financial system us as well as globally did not collapse so even though it was one of the most unpopular ideas alternately it was extremely successful an extremely successful economic program one of the most successful ever mark thank you molly appreciate it molly barrow that the ring of fire network appreciate it molly. thanks bart. and there is much

more to explore with the crash i will do so in sixty seconds back in a flash. still dollars. dollar bill thirty seven billion of those are printed every day there's no backing there's no collateral there ious against a system that has twenty or twenty one twenty two trillion in debt. not including them and the medicare medicaid social security that would give it a under two hundred fifty trillion and that. prosecution will need to. be called where you. just read you'll find. somebody number one place you do i mean. political pressure

on the. moon concludes you know through security in this finance with bundled up business models here was my american corporations. solution. alys up. i knew going to. be all these were deleted to an investigative documentary. ghost more. if they were just on. my side yes that could mean i judge.

their eligibility a little bit. i mean in the him a ride on a mission about a lane i. look. to for the look i. don't want the money i don't want to go about. such as it really is not mr need just. don't click on the i don't want to a shuffle stemming we have been down. in the world there and you'll get a little warmth and you know what. i want and set up a wall and. shot ideas so i don't fall for this at all of the.

walls already on the table which. that's discrimination and large in the ways of the ukraine in most of those churches one such cool if acceptance will presuppose that the ukrainian norse of the church should change its name and that it should be a name to the russian of course the church in the ukraine it is something like put singly of. halo. on the jewel at the ends of the infield just so it george. welcome back well the impact of the great recession upon the crash that was huge in the u.s. the g.d.p. began retracting during the third quarter of two thousand and eight and ended up

negative point one percent for the year followed in two thousand and nine by a negative two point five percent rate unemployment for two thousand and eight was seven point three percent but went up to nine point nine percent the next year home foreclosures jumped by eighty one percent in two thousand and eight up two hundred twenty five percent from two thousand and six as over eight hundred sixty thousand families lost their homes just in two thousand and eight and another two point eight million families received at least one foreclosure notice in two thousand and nine and for more on the impact we are joined by john grace president of investors advantage corp and henry ford which are from the c.e.o. of straw mark john thanks for being here both of you thanks for being here john what happened in the u.s. stock markets were generally overall not good but explain well i had started out a good year two thousand and eight part and by the end of the year the s. and p.

and the dow according to yahoo finance rough about thirty seven percent their draw down did not stop there i believe it stopped around late march early april to a total decline for stocks of about fifty seven percent for two thousand and eight ending in march march thirty first two thousand and nine and john about it which were sort of the worst sector stocks head. well it was a broad brush bart so it probably led with the financials given all the drama that you're just reporting on that we all remember so vividly i mean i happen to be at goldman sachs it was around november just before thanksgiving two thousand and eight and i will tell you coming out of a conference meeting a meeting in the conference room it didn't feel like a library felt like the morgue i mean that's just what it was on the fiftieth floor so nobody knew what was happening as the market in that day was off i think nine hundred points in one day so it just got worse and worse and worse day by day by day so i mean i love the question that you're posing here because the answer the

best answer i see is brian sozzi who was a lehman analyst in two thousand and eight and his answer is are we better prepared today than we were then in the end his answer is we've learned squat to use his words. that may be true in some cases for sure and hillary talk about contagion talk about the u.k. and the e.u. first yes ok with regard to contagion you know that was the greatest fear was the spread of course across all of europe and one of the differences is people talk about like the integration of monetary policy but not the disintegration it's very tough to break up so what you saw across europe of course was this entire dependability now you look at what was happening as well as like an unintended consequence there was a flight to safe havens one of the reasons that london rose even more so as a global financial state sector was this rise of the the flight to free havens you also have in europe on the biggest difference you mentioned top of the it was this a lot of a stronger as a strong central bank so you have to have

a lender that is the like willing to be the lender of last resort a strong central bank and that did not exist in europe the e.c.b. was not strong enough to kind of stop this in europe so that's why you saw the ramifications through spain and cyprus of course the devastation of cyprus off towards the other issue in europe of course is the debt that the banks hold of government debt the percentage. in germany and greece it was about twenty percent and in spain thirty percent you don't have that in the u.s. and that was what was part of that contagion in europe and reminded by the way you know when barclays was trying to buy lehmann that fateful weekend it was actually the regulators in the u.k. who said no they didn't want this contagion but they seem to get it right well actually barclays only then they actually caused by lehmann in the end but off the bankruptcy polson in his memoirs you probably saw that also you know he actually said that the the u.k. really and he used different language i'll just say it is over but i think a lot of it was due to the shareholders concerns because they also couldn't vote on

it but yes that was a situation. they wanted a guarantee from the fed was saying no we can't do it it's questionable whether or not they had the authority i saw warren buffett say i don't care if i if i were fed chair even if i didn't have the authority i would have done it and dealt with it in court it says killer talk about what was the impact of the recession in asia i know it was less but what do we know now actually when i was it was less i think the difference was because you know asia's always somewhat more conservative particularly china and china and japan i think there were one step removed and they don't have the same structure they don't have the same structural weaknesses when i just mentioned strong central bank i mean you can't get any stronger than china and also of course don't forget that a lot of it was caused by panic and the reaction the lack of confidence so you had a run on the banks of course like the great depression that was what didn't occur in china as much and john thought finally i mean you always talk about active investment this was certainly

a time where investors need to be active in these markets right. absolutely and bart let me just say today it would be absolutely one hundred percent appropriate for the same investors to go back to see how bad it was in two thousand and eight if you were making contributions who cares but let's suppose you started the year with a million dollars in your traditional retirement account and you only took out three percent thirty thousand dollars and then the market washed away fifty seven percent so that's the maximum drawdown of sixty percent which means one million dollars suddenly becomes four hundred thousand right before your very eyes and guess what you can't buy and hold in this equation is the retirement accounts and you must take increasing withdrawals for the rest of your lives so that means that the odds of getting what is now four hundred thousand back to a million when there's a nother withdrawal because you have to make those withdrawals is probably pretty slim and so what we're saying is go back to see what you can learn from two thousand and eight look to see where you could apply active management strategies

to all things liquid wherein they work so that maybe you were fully invested in risk assets where the one of the percentage the stocks and bonds might be at the beginning of the year but if it was there a system that would have kicked in no matter how busy you are that might have pulled your assets out of risky assets into cash or alternatives by year in limiting your loss for two thousand and seven being off thirty seven you're only off twenty if we're off twenty we need twenty five to get back to even as that loss gets greater certainly become more challenging to try to get the account back to the starting balance thank you so much john gray said hell were your time guys. are playing with fire. and the financial crisis led to a regulatory revolution with the passage of the two thousand and ten wall street reform and consumer protection act otherwise known as dodd frank it sought to address things like those dark o.t.c. markets and under-capitalized financial institutions for more on this we're please be joined by bartlett naylor a public citizen thank you so much for being here again three hundred ninety eight

rules county i know nobody will how many of these were actually. completed well all bit about eighty have been completed the two areas most dramatic discrepancy with executive compensation and credit rating we think that. executive compensation was very much central to the crash these people bankers didn't do this because they were playing some sort of video game or toy kids throwing their toys out of the pram they were doing because they were being paid up mortgage backed securities they were getting bonuses and so for those those rules have not been completed credit rating agencies those collateralized mortgage obligations were very complicated to understand and so they relied on credit rating agencies well they were they were in on the scam they were in on the scam used to be that investors paid for the credit ratings because a photocopy machines they couldn't make any more money because people were basically giving them to their fellow investment friends for free and so the issuer

began to pay for them and the credit rating agencies began to look to the issuers and giving them basically inflated grades so those are two of the basic areas where the regulations remain unfinished and we talked about we did cover o.t.c. the dark markets that's regulated now and talk about glass steagall that was sort of redone partly as a thing called the bowker rules part of dodd frank that changing the difference between commercial and investment banking explain where that is well where that is is that the regulators did approve a rule that became final in two thousand and sixteen you worked on that i voted on it you voted on it it's a very complicated rule public citizen and the progressive organizations did not like that rule in particular it was overly complex again this rule says that banks should not gamble especially with taxpayer backed f.d.i.c deposits they should be engaged in the difficult boring business of making loans. the the the liquidity.

that was threatened hasn't really appeared and yet the banks want this relaxed and as we speak the five agencies including your former agency are busy at work relaxing that rule i hope it doesn't happen i want to ask you about the future what do you think might be the next big crisis difficult to say. if i knew i would make a beeline to the regulators and make sure there is they are aware you're different such a different fellow people would say i'm headed to my investor you say go to the regulators well we've got into the last mess because some of your other guests point out we were giving away mortgages like can't like free candy we are also we have too much student debt we're also using all this corporate tax tax cuts to do buybacks and we are have corporate leverage and so i'm not sure if it's going to be junk bonds corporate debt student loans auto loans it will be something we have

a crisis every decade decade and a half and we're we're going to have another one i think it's going to be something that we do not see now where the folks in the financial sector as he is they are trying to make profits will figure out some way and the regulators will again like they did when brooksley born brought this up look the other way and not figure it out. thank you so much appreciate your help. at boom bust we try to be nimble and quick and those aren't traits which come easily to financial regulators but we'll keep doing our part right here and try to help us look at look out for the next financial crisis and of course for all of the booms and the bust that's it for now see you next time. join me every thursday on the alec simon show and i'll be speaking to guests of the world of politics small business i'm show business i'll see you.

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