. >> guest: and lehman. i think more of what it was was such a startling thing that bald had grown -- markets evolve to the point there were lots of institutions and wall street that depended on lots of short-term borrowing. and i think the fear was when bear couldn't borrow short term if they failed everybody would be in trouble and nobody would be able to borrow short-term and all of the banks would seize up, and so i think that was the judgment they made that the bad things that came from bailing them out, the notion people on wall street would do reckless things because they think the fed will always be there were held weighed by the shock that would have happened bear failed. >> host: what they actually had to do is take pretty toxic assets and land of the money to another bank, jpmorgan chase to rescue, have them rescue bear stearns. >> host: basically $30 billion of federal money which is our money used to subsidize the purchase of bear stearns by jpmorgan chase. and in return the fed got its characte

lehman gets into trouble. paulson to some extent bernanke are very reluctant to do another bear stearns. they've both been pummeled by their colleagues for bailing out bear stearns -- >> host: and by the public. >> guest: and by the public and they say there are three issues here. one, wall street shouldn't count on us to deliver video. number two, the markets know that lehman is in trouble, and number three, we don't lehman is in such bad shape they don't have enough collateral security to offer the fed for a loan big enough to keep them going so they say let's do bear stearns again only this time let's see if we can get wall street for its own self-interest to subsidize the deal. that's when they call everybody together at the fed and the actively manage to get wall street to put money on the table and find a buyer. barclays, the british bank. unfortunately for them the government doesn't let it happen and they get to this point where they don't have any alternative they think. >> host: very late in the game

about the extraordinary weeks after lehman brothers, which was the most tense week that there was.y we capitalized with warren buffett and the day after that we did a capital raise. we have access to the capital markets and we were not relying on that government help. the tarp legislation came three weeks later. that being said, i do not know it and cannot sit here and tell you what would have happened. i know for sure that no one else knows either. i feel good about it but we were going to bed every night with more risk than any responsible manager would want to have, either on a business or for the system as a whole. risk, not certainty. even after the tarp was implemented, did that exacerbate the risk? no. but the question does not have to turn on which you have gone under but for? the world was unsafe, the government and regulator and taxpayers took extraordinary measures to reduce intolerable levels of risk to a much more tolerable level of risk. and the reason the press this is not to make you say uncle. what was done differently and more regulated commercial banks, was extra

about the extraordinary weeks after lehman brothers, which was the most tense week that there was. that is when we became a bank holding company. the next day we capitalized with warren buffett and the day after that we did a capital raise. we have access to the capital markets and we were not relying on that government help. the tarp legislation came three weeks later. that being said, i do not know it and cannot sit here and tell you what would have happened. i know for sure that no one else knows either. i feel good about it but we were going to bed every night with more risk than any responsible manager would want to have, either on a business or for the system as a whole. risk, not certainty. even after the tarp was implemented, did that exacerbate the risk? no. but the question does not have to turn on which you have gone under but for? the world was unsafe, the government and regulator and taxpayers took extraordinary measures to reduce intolerable levels of risk to a much more tolerable level of risk. and the reason the press this is not to make you say uncle. what was done

when lehman brothers collapsed in early september of 2008, it sparked a severe crisis of confidence. we experienced a classic run on the bank. as the entire investment banking business model came under siege, morgan stanley and other financial institutions experienced huge swings and spreads tied to our debt and sharp drops in our shares price. causing further depletion of cash resources. in an effort to stem the panic, morgan stanley moved up the announcements of its strong third quarter earnings to september 16, but our stock remained under heavy pressure. it lost nearly a quarter of its value the following day, falling from 28.7 to 21.75. despite the strong results, it continued to trade low and finally traded as low as $6.71. this crisis of of confidence in the market, had a chain reaction to the broader economy, as lower prices for financial assets undermine confidence, and led to lower prices throughout the rest of the economy. this period was marked by rampant rumors and speculation, by management team, like those of my peers here, worked around the clock to address these rumo

in the midst of this storm, aig posed a much greater threat to lehman.d not. aig was one of the largest life and health insurance companies in the country. one of the largest property and casualty insurers providing insurance to 180,000 small businesses and other corporate entities, which together employed about 100 million people. aig had sold products to protect local and city governments, pension funds, and thousands of public and private companies. through guaranteed investment contracts and protection for 401(k)s, and as problematic, aig engaged in a broad range of financial activities that strayed well beyond traditional insurance businesses. using a credit rating based on the strength and profitability of its insurance companies, it had become one of the largest providers of complicated financial products in the world. it made hundreds of billions of dollars of financial commitments without the resources to back up those commitments. aig should have never been allowed to take those risks. but it was. its insurance regulators in 20 different states

the weekend when they let lehman brothers fail and bailed out aig. then you go back to the runner-up of the crisis and proceed more or less chronologically through the whole step-by-step thing, until last summer. now your basic judgment, as i get it, is that many people, including ben bernanke and his predecessor, alan greenspan, should have seen the potential for the meltdown. that happened in the financial system, and acted to head it off. but they didn't. and oncesis happened, bernanke was the right man in the right place. he's something of a hero of this, of this volume. so let's start by talking a little bit about ben bernanke, and why you think this was true. what did he learn from being a scholar of the great depression, for example? >> guest: well, ben bernanke, when he was a student of economics at harvard and mit, became very interested in the work that the great economist nona friedman and anna schwartz did, that basically pin the blame for the great depression on the federal reserve. that the federal reserve was too tight with credit, at

and when they did not have the means to save lehman brothers.reasonably say that the fed had other powers that it did not use aggressively in the run-up to the crisis. it allowed citigroup to develop a lot of risky leveraged, and they had the power to police the way mortgages were issued to customers, and they did not do that effectively. lots of people ended up with loans that they could not pay back. if we're going to give someone regulatory powers, should it be the fed? we have dueling proposals in congress where the bill produced by barney frank in the house more or less at here's to with the administration would like. in the bill put forth by christopher dodd in the senate banking committee, it would take the existing powers away from the banks and fdic, and give it to a new organization. host: bernie from ohio. caller: good morning. the first question is regarding the banks. i recently wrote on a website that they have no conscience, obviously. number two, 40,000 jobs are lost on wall street, and they say they have to pay them so that they

in the midst of this storm, aig posed a much greater threat to lehman. aig was much larger it was spread across the globe and its failure would have been far worse, hitting americans in ways lehman could not. aig was one of the largest life and health insurance companies in the country. one of the largest property and casualty insurers providing insurance to 180,000 small businesses and other corporate entities, which together employed about 100 million people. aig had sold products to protect local and city governments, pension funds, and thousands of public and private companies. through guaranteed investment contracts and protection for 401(k)s, and as problematic, aig engaged in a broad range of financial activities that strayed well beyond traditional insurance businesses. using a credit rating based on the strength and profitability of its insurance companies, it had become one of the largest providers of complicated financial products in the world. it made hundreds of billions of dollars of financial commitments without the resources to back up th

in the midst of this storm, aig posed a much greater threat to lehman. aig was much larger it was spread across the globe and its failure would have been far worse, hitting americans in ways lehman could not. aig was one of the largest life and health insurance companies in the country. one of the largest property and casualty insurers providing insurance to 180,000 small businesses and other corporate entities, which together employed about 100 million people. aig had sold products to protect local and city governments, pension funds, and thousands of public and private companies. through guaranteed investment contracts and protection for 401(k)s and as problematic, aig engaged in a broad range of financial activities that strayed well beyond traditional insurance businesses. using a credit rating based on the strength and profitability of its insurance companies, it had become one of the largest providers of complicated financial products in the world. it made hundreds of billions of dollars of financial commitments without the resources to back up tho

not understand why the fed let lehman failed, but rescued bear stearns. markets need clarity about policy, especially in times of crisis. yet just when our markets need a clarity about fed policy, chairman bernanke's ad hoc response left our markets in the dark. consequently, the failure of cleveland was disrupted and more damaging than it needed to be. his response to the financial crisis also leaves questions about his judgment. in october 2008 he appeared before the banking committee in the u.s. senate to urge the passage of t.a.r.p. he testified that government purchased assets from banks was the best way to respond to the financial crisis. at the time, as a lot of you know, i post are because they did not believe that purchasing toxic assets with a workable solution or should we bailout anybody. i argued that it was really are making our financial problems worse by indirectly posing the failure of other financial institutions and it did. despite chairman bernanke's idea that it was the best solution just days after the passage of t.a.r.p., treasury d

most fascinating thing about enron was that the banks that enron did business with, bear stearns, lehman brothers, citigroup, did not think this business model was very strange at all. and when people say, could we have avert this crisis by doing something different with bear stearns in 2007, by bailing out lehman, the last time to do anything about this was enron. after that, these regulations had so be loaded, the markets, financial markets were not subject to any reasonable discipline because they knew that market disappointment economic catastrophe. and that is how we get from there to 2007, 2008 when the markets finally did correct the excesses just as they had in the late '20s, but they could not do so without creating another great depression. and that is how we got the nationalization of all risk in the financial industry. the opposite of prudent regulation and market discipline and finance is not freer markets as we've seen. it is nationalization of one of the most important elements of the economy, who decides which businesses get investment capital and on what terms. it's fash

just because we tried going the other way in the 1930s and we also tried it with lehman brothers. things did look very good and they certainly didn't turn out well in the '30s. so the option of just -- some people in chicago, we should let the whole system collapse and everything would've been fine in a few weeks. maybe they are right but i'm glad we didn't run that social experiment. and the '30s didn't work out very well. but question is, how do you bail out wall street? there treasury and fed both, you know, they deserve a lot of the criticism they've got. that had a lot more leverage than they realize. the banks were frustrated. golden was about to go out of business. they were all about to go out of business if they couldn't raise money. attacks therefore providing them a lifeline and we should have charged more than we did. so i think that's a legitimate argument. the banks are now repaying their loans and they're claiming we gave taxpayers a good deal. they may 10, 20 percent on their investment over a year. that's completely fallacious argument. at the time they got these,

consequently, the failure of lehman was far more disruptive and damaging than it needed to be. bernanke's response to the financial crisis also raises questions about his judgment. in october, 2008, he appeared before the banking committee in the u.s. senate to urge the passage of tarp. he testified that government purchase of top assets from banks was the best way to respond to the financial crisis. at the time, as a lot of you know, i opposed tarp because i did not believe that purchasing toxic assets was a workable solution or should we bail out anybody. i argued that it risked ruling our financial -- risked making our financial problems worse by indirectly causing the failure of other financial institutions, and it did. despite chairman bernanke's urging that an asset purchase was the best solution just days after the passage of tarp, the treasury department and the federal reserve abandoned the very asset purchase plan that he judged to be the best course forward when he testified before congress. equity injections were employed because the usual -- because the asset purch

the right one just because we tried going the of the way in the 1930's and we also tried it with lehman brothers and things didn't look very good and certainly didn't turn out very well in the '30's. some people in chicago synced we should let the whole system collapse and everything with confine in a few weeks. maybe they were right but i'm glad we did not run that social experiment. to some extent in the 30's when the government allowed the banks to collapse it did not work out very well but the question then is how do you bailout walls treen there i think treasury and the fed both, they deserve criticism because they had a lot more leverage than they realize. the banks and they were about to go out of business if they couldn't raise money. we the taxpayer were providing them a lifeline in we should have charged them a lot more for it than we did so i think that is a legitimate argument. the bankston are now reaping their loans in clamming, we gave the tax there goodale. they made ten, 20% on their investment over the year. that is a completely fallacious argument. by the time they go

if you're looking at bear stearns or lehman brothers, is not a simple thing to do.and the extent to which on shortselling has added real information to the marketplace about what the appropriate price ought to be for the stock of a particular company, that's a good thing. to the extent it's based on rumormongering or desire to drive down the price of a stock artificially, that's a terrible thing. so our investigations are trying to find the path to the amounts of data. you know, we tried billions and billions of shares a day in this country. and understand whether we have cases that could be brought for manipulative shortselling. >> mr. chairman, this is an interesting question to us and obviously a verbal answer in the time we have will not be sufficient. so if you'll allow us to friends and questions to you for response we would appreciate that very much. >> i would be happy to do that. >> and that myers will make a universal statement that we can ask all the questions we would like to ask, and when we get follow-ups to the ones we have. we're learning as a goal a

it may be the case that your spreads increase after lehman failed, but@@@@@@ >> thank you, mr.nessy. mr. wallison? >> thank you mr. chairman. i would like to focus on a couple of things -- a few things for all of you that relates specifically to what caused deep financial crisis. the newspapers have covered this somewhat but i would like to get it in the record. >> excuse me, mr. wallace, could you pull the microphone down? >> i got this is a subject that we obviously hear a lot about, so much about it that we put information on our website as to what happens. but we had transactions outstanding -- as to what happened. we had marginal arrangements with them. >> and these were credit default swaps? >> credit default swaps. the conditions eroded. they owed us a lot of money. they literally gave us the cash, in our possession, with respect to the mark to market losses. with respect to the difference, we held the cash. during the period, 32008, we were marking to market, as were our regimen, and we were one of the most aggressive in that, because that was our regiments, and they be

these steel with vast earnings, lehman, and aig.now it just so happens that on december 2, chairman bert mackie spoke to the economic club of washington and i was forcing it. i was invited to sit at the table, but edwards not several questions ahead of time and hope that i would have a chance to address these two chairmen bernanke. these questions were: the first the handling of bear stearns versus lehman. why did the federal reserve save bear stearns who made that decision? why was the decision made not to save lehman? who made that decision? what were the respective roles of the treasury, the federal reserve board, and the federal reserve bank of new york? why did the fed save american international, a group who made that decision? why did the fed invest so much money in the project bikes first $85 million brought in to $85. and how would the federal reserve describes the ways into which the sharp expansion of the fed's balance sheet reflects its key role as a lender of last resort? now, we have done a lot of work on this issue be

criticized for years for being too conservative about its banking system, but if i am not mistaken with lehman brothers bust, the us and britain in shatters, indias solid banking system is part of a six and a half growth story this year. so did you make the right mistake? >>nath: well, i have always said, i have always preached on following the best practices of the western world, and i said we will follow the next practices, i think our next practices are holding us in good stead. >>friedman: alright, thanks for joining us. >>nath: thank you >> >> abirached: the midlife crisis has become something of a cliche, when men of a certain age try to recapture their youth by buying flashy sports cars, motorbikes and vintage guitars. but for some, the midlife crisis can mean serious business. >>rolling thunder, an iconic piece of rock n roll art painted for the grateful dead by alton kelly, now on sale for $100,000. as retirement looms for the baby boomer generation it is not just the classic sports car which is driving these investors to buy a symbol of their lost, and sometimes misspent, youth. bonh

these steel with vast earnings, lehman, and aig.now it just so happens that on december 2, chairman bert mackie spoke to the economic club of washington and i was forcing it. i was invited to sit at the table, but edwards not several questions ahead of time and hope that i would have a chance to address these two chairmen bernanke. these questions were: the first the handling of bear stearns versus lehman. why did the federal reserve save bear stearns who made that decision? why was the decision made not to save lehman? who made that decision? what were the respective roles of the treasury, the federal reserve board, and the federal reserve bank of new york? why did the fed save american international, a group who made that decision? why did the fed invest so much money in the project bikes first $85 million brought in to $85. and how would the federal reserve describes the ways into which the sharp expansion of the fed's balance sheet reflects its key role as a lender of last resort? now, we have done a lot of work on this issue be

when lehman brothers collapsed in its september, 2008, it sparked a crisis of confidence like many ofced a classic run of the bank. as the entire investment banking business model came under siege. morgan stanley experienced huge swings in spreads on the threat of false swaps tied to our debt and sharp drops to our share price. this led banks to request that firms post additional collateral. in an effort to stem the panic, morgan stanley moved up its announcement of its strong third quarter earnings to september 16. but our stock remained of her heavy pressure. it lost nearly 1/4 of its value the following day, falling from 28.7 to 21.75. despite the strong results, it continued to trade lower and finally traded as low as $6.71. this crisis of confidence in the market fed a chain reaction to the broader economy, as lower prices for financial assets undermined confidence and lead to lower prices. this year was marked by rampant rumors and speculation. my management team worked around the clock to address these rumors and it -- provide investors and employees entered information. we als

we estimate that the top five executive teams of bear stearns and lehman brothers derived cash flowsof about $1.4 billion and $1 billion respectively during 2000 to 2008. and these cash flows substantially exceeded the executive's initial -- initial holdings in the beginning of the time frame. as a result, unlike what happened with long-term shareholders, the executives net payoffs for 2000 to 2008 was positive. the second point i would like to make is that we cannot rely solely on existing government arrangements to produce the necessary reforms. to be sure, some firms have announced a fault in the compensation structures. an example, an indication that bonuses would be subject [unintelligible] but firms have not provided information that would enable outsiders to determine whether the cognex would be meaningful or merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt appear to be at least partly motivated by a desire to appear responsive to outside criticism, there is a basis for concern that arrangements whose details are not disc

we estimate that the top five executive teams of bear stearns and lehman brothers derived cash flows of about $1.4 billion and $1 billion respectively during 2000 to 2008. and these cash flows substantially exceeded the executive's initial -- initial holdings in the beginning of the time frame. as a result, unlike what happened with long-term shareholders, the executives net payoffs for 2000 to 2008 was positive. the second point i would like to make is that we cannot rely solely on existing government arrangements to produce the necessary reforms. to be sure, some firms have announced a fault in the compensation structures. an example, an indication that bonuses would be subject [unintelligible] but firms have not provided information that would enable outsiders to determine whether the cognex would be meaningful or merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt appear to be at least partly motivated by a desire to appear responsive to outside criticism, there is a basis for ) following aspects of a -- an existing state that

but, if you look back at the key that is in the crisis, bear stearns, of lehman, the fallout thereafter the sec is essentially missing in action. and publicly silent. and so my question to you is, given that it is now quite apparent that an enormous component of this crisis is the ability to assess counterparty, that is central to that is often asserted lehman's interconnectedness and pervasive impact when it failed. why is the provincial regulator, was the sec unable to say publicly something about the genuine financial condition of these large investment banks at the center of this crisis? >> it is a hard question for me to into because i wasn't there and i don't know the decisions that were made by my predecessor about what to speak to and what not to speak to. it is my belief, having looked carefully at the programs that existed at the time and consolidate of consumer into the program was disbanded by my predecessor in the fall of last year, of 2008, that the agency never made a full commitment to what was a voluntary program and i think that is one of the flows of the program. the

my career at lehman brothers and 29 years. rose to vice chairman of the firm in the 1980s, and i was cochairman of the investment banking division and chairman of the merchant banking division. i have held financial positions in the public sector, as deputy mayor of the city of new york during the financial crisis of the 1970s. and as counsel to the secretary of the treasury in the carter administration. i haven't acted on corporate boards, not-for-profit foundation board, where i've been involved in an investment decisions. so the past one years i've been chairman of the peter j. solomon company, a private independent investment bank and member of general. our firm is a throwback of the air of the early 1960s when investment banks function as agents and fiduciaries advising their corporate clients on strategic and financial matters such as mergers and raising of debt and equity capital. i like today's diversified banks, we do not act as principles of a nor do we take proprietary positions. we do not trade and we do not lend.

lehman brothers, aig. we thought everything was going to go off of the cliff. that didn't happen. we had -- yes, stimulus and maybe a budget you think may have been too lauded by the committees and congress. but the entire saving of the financial system was huge. i do think that when you are in a recession it is a great time to tackle the unmet social net issue of our time. which is health care. the fact that most most americans are insecure and fear if they lose their job they are not going to have health insurance, this is big and has to be tackled and the fact that he has gotten it past the 80 yards -- you know, down the field, 80 yards so far, is pretty amazing. >> but it is -- isn't it fair to say that it is -- more than americans might have bargained for when -- when they elected him? it is -- i mean, it is something no democratic president has been able to get past in the -- you know -- >> sure. it was -- i was on the show. not too long ago with peggy in an an. we were worried he was trying do too many different things. >> trying to do too many -- no, it was all genius. >>

i think it covered a bear stearns, lehman brothers, merrill lynch, goldman sachs, and morgan stanley. one of which failed, some of which had to be acquired, and the others became bank holding companies. that was during the financial crisis. did the program fail in providing sufficient credentials supervision? >> we have to conclude that the program was not successful. as i understand the program was developed in regard to changes in european law that require the five largest u.s. investment banks be subject to the consolidated supervision by some entity. because there were investment banks, not commercial ones, they elected to be supervised by the sec. the sec created the program. prior to that, the good news -- investment bank holding companies were not subject to any supervision at all. that was due to be good, to bring them under the umbrella of regulation. i have lots of concerns about the program and many of the specifics. generally, i think there were several problems. one is that requires the sec to become a provincial regulator, which is not traditionally what it had done. it

her stern, lehman brothers, cfc program and others. we are happy to share that information.it is important to me as well because of the new leader of the sec and having brought in new leadership across the agency i want everybody informed by the things that didn't work out well so they can make appropriate changes going forward in building much stronger regulatory program across the board and across foliage of the spirit >> two new mac. ms. bair? >> with an ongoing self-examination with a number of changes than i would have happy to give you some of the documents that describe that. i would also say when when banks fail there is an investigational by the bank failed interview of the supervisory process. i think one piece of that that is missing is because the large institutions were buildout that did not fail. the statutory provisions requiring what we call the material luster views of his investigations have not applied. i think it's very helpful to reap provide -- we need to look better at what the supervisory issues were leading up to those larger institutions becoming un

and what happened with the lehman brothers crisis is that suddenly that dynamics stock. everywhere in the world people stopped investing -- dynamic stopped. everywhere in the world people stopped investing. it affected especially japan because they're so specialized in their products. for the world declined -- economy to grow again, you need to go back to very fast growth in emerging economies. the danger is that too much, perhaps, in the short run is still driven -- driven by stimulus. and there is more needed to go back to the very fast growth that we saw before the crisis. but it is a real phenomena and is home grown. >> very quickly, the image that i have been pushing, and living with for the last couple of years is that this is a world turned upside down in so many ways, not the least of which is we actually have the official sector in the emerging world supporting banks in the mature world. that is a tremendous inversion of the official capital active in the 1990's. but i think, the point i would really highlight youhere is thai came into this business in the early

along is what you do, but when you look at where e we are now in terms ever after the fallout from lehman, you're going to get the market back on a sounder footing almost racing that huge blip downward and back up. what that means is you take away that extreme, the world coming to an end and back to we have a recession, working out of it. a lot of opportunities. the market's getting back to solid footing higher than now with good long-term insurance. >> talk about a one-year, five-year and ten-year time horiz horizon. what do you do jrnlgs one-year you can't be involved in the market. money markets or ultra short-term bonds at most. onesy get into five year bring in stocks, bonds, and want to have the alternative space. alternatives we mean commodities irk talking gold, oil, all of those thing this in sma space. a mixture of stocks bonds and commodities opinion ten years or longer, as much inatic kuwaits as you can sleep at night comfortably with and a quarter of the difference in alternatives and commodities things like that. much less for a ten-year time horizon or longer. >> you both s

lehman brothers simply went bankrupt, and that did lead to a lot of the meltdown.ewhere in there is a balance, but the company's that failed, they should have been allowed to fail. countrywide, wachovia, washington mutual, lehman brothers, they all failed, and then went away. there is able for the government to make sure the failure of one company does not trigger the systemic failure of thousands of others. that is really what this is about. when a company fails, make sure it does not bring down the whole system. host: next phone call from new jersey. pat on the republican line. nashville, tennessee. go ahead. caller: i would like to make a statement about fannie mae and freddie mac. if i am not mistaken, these two mortgage institutions were created in the 1970's for the purpose of enabling low income, primarily african-americans to purchase homes. from then until 2000 the program worked fine. they got people into low income homes. they gave them part of the american dream, and it worked fine. it is mine understanding that it was not until the lending institutions

and what happened with the lehman brothers crisis is that suddenly that dynamics stock. everywhere in the world people stopped investing -- dynamic stopped. everywhere in the world people stopped investing. it affected especially japan because they're so specialized in their products. for the world declined -- economy to grow again, you need to go back to very fast growth in emerging economies. the danger is that too much, perhaps, in the short run is still driven -- driven by stimulus. and there is more needed to go back to the very fast growth that we saw before the crisis. but it is a real phenomena and is home grown. >> very quickly, the image that i have been pushing, and living with for the last couple of years is that this is a world turned upside down in so many ways, not the least of which is we actually have the official sector in the emerging world supporting banks in the mature world. that is a tremendous inversion of the official capital active in the 1990's. but i think, the point i would really highlight youhere is thai came into this business in the early

you could call anything like the in the crisis, it was that it worked so well fannie and freddie, lehman, all had massive defaults with huge numbers of setting -- all setting, and in the benefit of hindsight, people were able to hedge their risks, protect themselves, and it worked very well, better than i would have thought. i don't think we should rely on -- i think that that was lucky. , regulators and legislators, are focused on making sure that the instrumentality and the pipes of clearing derivatives are rim place, i think it is highly justified, since we did not have a specifically derivatives crisis. >> do you think that failure or near failure of aig was related to credit swaps? credit default swaps? and you think that having clear rining would have in any way ree the inherent risks and aig's positions? >> i think it may have helped a bit. i don't think it was the key thing. aig was bent on taking a lot of credit risk. they took it out in the derivatives market and by writing insurance against credit even spirit they took it by holding securities. it was a failure of risk managem

we do not want any more lehman brothers. we want a well-established, well stated identified worked out a system that can be used to wind down his company's, allow them to fail, let creditors take losses, let counter parties like the edgy counterparties take losses. but without completely destabilizing the whole economy. as can happen. >> as a part of all this i'm concerned that we will not reestablish the kinds of proper approaches and the principle of moral hazard. until we and t.a.r.p., and provide an exit strategy from the recent government guarante guarantees, and decide how they're going to proceed with fannie mae and freddie mac. would you agree with that? >> i do agree with that. fannie mae and freddie mac are particular problems, had to be addressed. but under the current situation, the t.a.r.p. was used about companies and make all creditors whole, except for the shareholders, under a well-designed resolution regime, you know, many creditors could, would, should lose money which would create market discipline going

lord lehman came back with advice the was very strong indeed that while there should be a full summary published you should not publish the serious case review. then we have the ennis b.c. seat. they reported last week in the house of commons sere they may have doubts whether there should be full publication of these. in fact they made absolutely clear while they want a full summary don they do not want full publication of these reviews. so i have to take the advice not just what seems common sense to me that we protect the anonymity of the children and also as the lord lehman said perhaps he thinks it is more important than that make sure people feel free to get them to say the things they want. and i do hope people will look of the arguments that have been proved by the speed and other professionals in the field as well as her lord layman himself. people said they were grateful for him doing that. and now because the publicity surrounding the case people want to jump to a simple answer which is published a case review. surely the answer is we have got to look for is how these authori

s problems became acute just a few days before lehman declared bankruptcy. our financial system and our economy stood at the brimbing of collapse. the banks and financial institutions that americans rely on to protect their savings to help finance their children's education, to help pay their bills were at risks in which few americans had ever experienced. the banks and the financial markets that businesses rely on to meet payroll, to build inventory, create new jobs, were threatened like at no time since the great depression. across the country, across the united states of america, people were rapidly losing confidence in our financial system and in the government's ability to safeguard their economic security. in the midst of this storm, a.i.g. posed a much greater threat than lemman. a.i.g. was much larger and spread across the globe and failure would have been far worse. a.i.g. was one of the largest life and health insurance companies in the country, one of the largest property and casualty insurers, providing insurance to 180,000 small businesses and o

times that have changed our nation, september 14, 2007, which had to do it bear stearns and laymen -- lehman brothers, brought to our attention a long-term deficit trend that we have had as well as a short-term tremendous blow to our economy. should that date symbolize a -- along the lines of the berlin wall and 9/11 that has affected our nation. it looks like a trend that is going to happen for a while. >> well, i think it is important for us. this goes back to the first question. how do we know we are in one of these trends formative moment? it is important if you are an analyst to consistently said yourself and arts and say, and i say this and i think i am in one of these moments, i will start fundamental assumptions. i would answer that in the negative. i do not see the financial crisis as such a moment. the reason is, and maybe i'm old-fashioned -- don't you think that the most powerful actors in the world, some of them shouldn't these be changing their strategies? if the entities with the most capability and are not altering their strategic remarks and to do not see a sign of it, right

had financial institutions together working to come up with a solution to prevent the failure of lehman, and it was that weekend that we learned also about aig and i had two meetings over the course of that weekend at the new york fed with tim geithner, with officials from aig. >> right. in those meetings was there any discussion of asking the counterparties to take less than 100%? >> was there any discussion of what? >> any discussion of the counterparties taking less than 100%? >> i sure don't recall any. we were talking about the financial problems that -- that aig had and it was clearly -- clearly had issues with counterparties. >> right -- >> they clearly had issues with counterparties because that was the crux of the issue, was a ratings and potential ratings downgrade which would cause the company to have to post collateral and so that would lead to -- >> so their obligation to the counterparties was discussed? >> well, obviously that was the -- the issue. any institution that is facing failure -- >> sure. >> -- is going to have an issue with paying creditors. >> you know, once t

september 15 came along and lehman brothers collapses and people see that things really are bad. obama shoots ahead becomes -- it becomes a heavily democratic year. in 2004, there was a big question that voters were asking which is which president will make us more secure. terry did not realize that. he got torpedoed by use of his military record. in 2000, we had a close election and we were still not sure what? or try to answer. republicans were trying to say -- -- still not sure what we were trying to answer. go all the way back to ronald reagan. ronald reagan two alexian's -- elections, -- ronald reagan won two elections asking the same question. as you are thinking about your senate races for congressional races -- for congressional races, i think the congressional question was kind of easy. for republicans, it was all trying to change the question so that the question became something other than the national question. going into 2002 and, -- 2010, there seems to be a buyer is developing -- a bias developing. part of what you're going to have to decide is if you still want to

. >> the fact that the top executives of bear stearns and lehman brothers were able to get large bonusesased on earnings, which they were able to keep even though all of those earnings were evaporated. >> thank you, mr. chairman. >> the gentleman from missouri. >> i have a number of questions, i will try to ask them quickly. before i ask the questions, i was a part of this committee in 2005. my recollection is that mike was the chair of this committee and our current chairman was the ranking member. one of the first things that we dealt with when i came on this committee was some proposed reform -- maybe both the former chairman and the current chairman, dealing with fannie and freddie was proposed. i was talking to reporters two days ago that says that one of the problems in washington is that the truth does not matter, it is whether or not you can say a lie over and over again so that everyone buys it. my concern is that history has been distorted because the former chairman proposed trying to deal with the issue of fannie and freddie's compensation, and as i recall, they did not get a

if you think about what gives you a global recession -- it so happens that oil and lehman brothers came together so is difficult to distinguish, but if we see a live above it dollars per barrel, that would be something to add significant medium-term downside risk. second, the fiscal issue. we can talk about it all day. . . we should be prepared to imagine the unimaginable. this is not turmoil in the spanish debt market, but the u.s. treasury market. the issues seem to become so high that this raises concern. one important thing to keep your mind on is the rating agency. they seem to be attempting to avoid problems but they will have to understand that many of these dynamics are going into the smaller countries, and they are not sustainable with the current debt rating. the third downside risk is in the euros zone. the concerns i have are not just about the budget deficits, this is about the tough problems that we have in that region, during a time when we are trying to implement or maintain a fixed system in a difficult time. when this is tough and the unemployment rates increase, he th

it so happens that oil and lehman came together.if we've seen oil prices move back above $80 or if they go to $100 or above. if it does happen, that would be something, i think would add significant near-term, medium-term downside risk. second, the fiscal issue. which we can talk about all day. don't worry, we won't. i think the issue that i haven't heard anyone latch on to is the sort of unknowledgeable we should all, you know, with respect to people like desmond who call the '08 crisis very well. we should all be prepared to imagine the unimaginable. what i'm talking about here is not turn oil in the greek market or even the spanish debt market. but turmoil in the u.s. treasury market. because u.s. debt issue is perceived to become so is high that is raises concerns. one important thing to keep your eye on there is what the rating agencies do and say. at the moment, they seem to be sticking their head down and trying to avoid attention. at some point, they are going to have to recognize that many of the dynamics, not in the small

it was in response to the fall of lehman brothers and the credit markets using ups and the stock marketrashing -- its credit market seizing up and the stock market crashing in 2008. extraordinary steps were taken by a republican president and republican-appointed chairman of the federal reserve and it continued in a democratic administration with an extraordinary economic catastrophe. i think there's a lot to fault president bush on, but his acting -- his backing -- it was probably one of his finest hours. he continues to tell me whether the governor is going to stay in that race. he is under significant pressure regarding running for elective your. -- regarding all running for election again. we were trying to wait for the governor to make the decision. he is under considerable pressure. they are trying to woo weight. it will be a difficult race for him. host: under the radar screen-is that the case. guest: we do our ratings of the time. i do not believe in least in the senate races, we have done that in our senate races. i do not really have one. with so much pulling taking place, par

institutions, and the net result is that virtually all of them were saved from collapse, all but lehman brothers which had failed before this request. and so the economy moved forward and then the bankers repaid the effort of the american taxpayers by announcing, many of them, that they now felt that times were so good for them, they could start declaring bonuses for their officers and their employees, bonuses. in the real world of 40-hour work weeks and day-to-day grind, most people see a bonus as a reward for good performance or successful performance. many of these financial institutions were literally the victims of their own greed and their own malice and their own poor planning, and then after taxpayers rescued them with tarp money, they wanted to turn around and reward themselves for good conduct. it grated on the american people, and this senator as well, and the tarp program, which was initiated to keep these banks from failing, is one which few of us would step up and say well, let's try that again, that was a great idea. i, frankly, think it was a probably necessary thing to

president inherited starting before, but certainly made visible in september of the year before with the lehman brothers crisis, which was the visible symbol of the most recent and serious economic downturn, which has prevailed during the course of last year with negative growth in our countries are the first time in 60 years. and combined with that, the involvement of american forces in afghanistan, the combination of their activities overseas and in terms of events and expenditures and accumulating budget deficits, a 10% plus unemployment and probably a combined on a planet of 16%, 17% at a minimum. and when you're president of the united states and you're looking at the range of problems, i think you'd have to say that those problems certainly on the face of it are more significant than 11 million people combined with the israelis and the palestinians in a city of 350 million arabs. notwithstanding the importance to all of us about that particular issue and notwithstanding the fact that when you talk to israeli and palestinian friends, they perceive this as being the center of the universe.

geithner he mentions, secretary geithner, that you -- he said that you and he met with aig to discuss lehman'sfailure? >> to discuss what? >> september 14th. now, that was two days before -- >> oh, yes. you're saying -- so you're talking about 2009, march -- i think you're talking about september 14th 2008. >> that's right. okay. all right. i stand corrected. i am. that discussion -- you participated in some of the discussions about aig and their financial condition leading up to -- >> yes. that weekend of september 13th and 14th was the weekend when we were -- had financial institutions together working to come up with a solution to prevent the failure of le and it was that weekend that we learned also about aig and i had two meetings over the course of that weekend at the new york fed with tim geithner, with officials from aig. >> right. in those meetings was there any discussion of asking the counterparties to take less than 100%? >> was there any discussion of what? >> any discussion of the counterparties taking less than 100%? >> i sure don't recall any. we were talking about the financia

it was in response to the fall of lehman brothers and the credit markets using ups and the stock marketcrashing -- its credit market seizing up and the stock market crashing in 2008. extraordinary steps were taken by a republican president and republican-appointed chairman of the federal reserve and it continued in a democratic administration with an extraordinary economic catastrophe. i think there's a lot to fault president bush on, but his acting -- his backing -- it was probably one of his finest hours. they can have their own opinion. but i don't think -- i think calling this stuff communism and marxism is a little strong. host: you were talking about new york state. it's the trieffecta because you have two senate races and then the governor's race. does that have any impact on governor patterson as he seeks a full term? guest: i think the key is governor patterson, i have to give my associate name gonzalez credit on the governor's races because he follows them more closely than i do. he continues to tell me that he wonders whether the governor's going to stay in that race. his pol

financial crisis, so at this conference we did, alistair darling said during the interview that after lehman brothers and the crisis in september, he was talking to a very senior, well-respected london banker, and he said, have things changed at your institution? oh, yes, things have changed a lot. one thing we have made a firm policy that we are not going to buy any security we do not understand. wait a minute. what did you do before? these are very complicated. it is a much more complicated world, and even people that are in the middle of it do not understand. >> i have a really tough question about journalism. what is the use? you talk about the futility of journalism, but we cannot really explain what is going on. is that what you're saying? >> in my side of the business back in the late 1960's, i have a model in my mind that if we bring the right facts to bear that the system is ultimately rational. it may not be rational day-to- day and week to week, but if you bring the right facts to a situation, a policy will go in the right direction. if you persuade people this is an educational p