>> in connection with lehman brothers the opportunity to lynn to of lehman brothers was dependent on collateral which was sufficient to justify the loans and they did not as of september 15th have that type of collateral. >> i get the sense that the fed fog that something could be done but since they weren't regulator in charge they stepped back. how do you feel about that? >> i am not qualified to and to that question in terms of what we were trying to do. over that weekend there were efforts being made. there were efforts to salvage some aspect of lehman. i can't comment beyond that. >> in your report you cited many times the risks lehman was taking was far and above, in september of 2008. >> they had in place a risk matrix that limited the amount of risk for individual transactions. they exceeded that 20 times to take on more. they simply raised the level of risk they were qualified to take. that is the way they addressed it. many were assets which became an anchor around them. >> i found a real contrast with some testimony given by mr. crookshank. is there an opportunity to compa

he continued to talk about lehman. i will be kind, and just say he talked about lehman in an unflattering way. books did you look at where the discrepancies were, the use of repo 105? did that, that all the? >> and not at all. >> i am over time. >> yes. >> the chair this think all witnesses for their testimony today. some members may have additional questions for this panel. they may wish to submit them in writing. without objection the hearing record will remain for 30 days open -- [reading] this hearing is adjourned. [gavel] >> now we will begin opening statements. >> thank you. we meet again today to look at another massive corporate failure. we have heard the sad song of corporate greed and breakdowns one to many times in recent years, and in some sense suggests enron, madoff fraud, and the massive problems of aig. the problems at lehman brothers add another burst to the troubling refrain. in the lehman brothers tune it deeply troubles me that we must explore this taking advantage of an incentive by cinders on main

lee, in your opinion, lehman brothers executives at lehman brothers hiding the true nature of the firm'se global balance sheet from the sec or the federal reserve or both -- >> on the basis of disclosure the answer is yes. >> could you elaborate on that? >> i am not an accounting financial disclosure expert but the knowledge i have gained over the years i think the public will be misled as to true love ridge -- coverage of lehman brothers at least during fiscal 2008. >> secretary timothy geithner and chairman ben bernanke have excuse the failure of the fed, to correct its -- on the grounds they were not regulators. do you find that explanation convincing and is it appropriate for governmental regulator on the grounds regular order -- acting in a regulatory capacity? >> it is never correct. you have a responsibility, if the fed does not have rules mandating its employees make referrals to the sec, they change that today. they require those kinds of referrals. it was hit with complete -- this with the quotation from the report from the federal reserve bank of new york official. how we men

>> we were discussing lehman.prior to the crisis, you want to take actions to limit risk, and i am very sympathetic to the view that through capitals, through restrictions and activities, through liquidity requirements, three effective compensation, through a whole variety of mechanisms, it is important we eliminate excessive risk-taking, particularly when the losses are borne by the taxpayer. >> you dance well. are you going to answer the question? are you or are you not in favor of the law passed by the house and inc. in the senate bill authorizing regulators with greater authority to break a organizations if necessary, if deemed too large to fail? >> i think it would be something that would be constructive, and i am certainly willing to work within its dictates. >> madam chairman bentsen -- madam chairman? >> thank you. i would agree having that authority for regulators is critical, and i would point to an example of a program to illustrate that, because that was a program on a statutory basis, and despite its

i joined lehman brothers in 1994. was the comptroller of the global financial controller of the fund balance sheet and the global legal entities. there were a number of issues over the year at lehman brothers. i had my normal load of issues which were discussed regularly with my boss. those include all of the items in which i will get to it in a second. they also include issues in the second e-mail that i will talk about later. my own personal issues, there were other issues that we had some sort of classification as to why these issues were not being resolved. on may 16th, which was two weeks before the end of the second quarter, i hand delivered to my letter to the four addressees. i was fired the any notification. i stayed another two weeks, i had meetings with the internal order and i realized that this was being done about my letter. i was so angry that nothing was being done. i said i would write down some answers for some other issues. i drafted a second letter, i sent it to my attorney decided not to issue it.

history, lehman brothers. susie, it was quite a scene on capitol hill with lawmakers grilling everyone from lehman's former c.e.o. richard fuld to fed chairman ben bernanke and treasury secretary tim geithner. >> susie: tom, at that hearing of the house committee on financial services, lawmakers had sharp words for those gentlemen, and what they did and didn't do in the collapse of lehman. >> tom: it's all part of a huge effort to figure out the best way to run the nation's financial system in the future. but as darren gersh reports, there are no easy answers. >> reporter: as the financial crisis deepened, regulators did not ask the right questions, did not share the right information, and did not insist lehman brothers change its risky ways. that's the conclusion of anton valukas, the court-appointed examiner who dissected lehman's failure. but even if regulators had acted, valukas says, it is not clear they could have saved the firm. >> but what is clear is, had the government acted sooner on what it did kno

, the run already started on lehman.it was merrill lynch was going to be right there so you had the three institutions, and as war and said we had washington mutual shortly thereafter in wachovia and over the next week's we had six european nations that have to step in and recognize the institutions so this was coming at us pretty quickly from all sides. >> it's ironic that in effect a thing to talk about kenneth lee was having an appetite for deals, but if in fact he hadn't have made this deal which doesn't look like the necessarily greatest deal he offered a 70% premium on the day when the next stock might have been zero but didn't he save the system? >> i told you he was a confident decisive ceo and there is no doubt but that was very much of a stabilizing action. >> do you think we would have gotten to to stay on the morning of eight ayachi if there hadn't been action on the lehman that they? >> i don't know what would have happened because i don't think, warren, i don't think we could have taken another big institut

lehman is gone, but the failures of the fed and the s.e.c. are still with us and should not be rewarded with new regulatory powers. >> holman: mixed in with the debate over wall street reform were questions about who was in fact responsible for lehman's demise. last month, an examiner for the federal bankruptcy court found that lehman hid $50 billion in bad debts through an accounting maneuver known as "repo 105". it allowed the company to sell toxic assets at the end of a quarter, wipe them off the balance sheet, and then quickly buy them back. but the chairman of the federal reserve, ben bernanke, said the central bank never knew. >> however, knowledge of the lehman's accounting for these transactions would not have materially altered the federal reserve's view of the condition of the firm. the information we did obtain suggested that the capital and liquidity of the firm were seriously deficient, a view that we conveyed to the company, and that i believe was shared by the s.e.c. and the treasury department. >> holman: the chair of the secu

lehman's failure is a story in large part of a fraud. it is fraud that begins at the absolute latest in 2001. that is with their subprime and liars loan operation. lehman was the leading purveyor of liars' loans in the world. studies on these loans showed incidents of fraud of 90%. lehman sold this to the world with reps and warranties that there no such fraud. if you want to know why we have a global crisis, in large part it is before you. it has not been discussed today, amazingly. financial institution leaders are not engaged in risky when they engage in these loans. these loans will cause a failure. they lose money. the only way to make money is to deceive others by selling that paper. that will lead to liability and failure. when people cheat, you cannot continue business as usual. they go into a different category. you must act completely differently as a regulator. the sec -- we are told they are only 24 people in the comprehensive program. who decided how many people would be in the program? and decided the staffing? the sec did.

paulson gave to lehman about the state of lehman's balance sheet, did you review that? >> no, i didn't. >> and do you recall mr. paulson's warnings? >> i read his book, i'm embarrassed to say, but i read his book. >> do you recall mr. geithner's concerns and urging that lehman move to a more conservative place with this balance sheet? >> president geithner and i had a number of conversations regarding liquidity, potential capital raised. i do not recall a warning from him. >> ok. do you recall a warning from the office of supervisors that with the arch done deal, that you were maturely overexposed? >> i do not. >> do you recall the concerns of madeleine or michael gillman or matthew lee with respect to the risk management of -- risk levels of lehman or offbalance sheet accounting? >> start backwards. i saw matthew lee today, he reminded me that he and i had met at a social event, so i was not familiar with him. michael gelvan, longtime member of the firm. i will only tell you that the day after mr. gelvan left the firm, the senior officer that took his place, came to se

but the lehman brothers people i mean they still walked away dick fuld, the ceo of lehman brothers they made many, many, many tens of millions of dollars that he got to keep after his firm collapsed. >> who was howie hubler? >> yes, howie hubler is sort of the reductio ad absurdum of this because this is -- this was to me my revelation that first -- that the financial system had organized itself around this bet. and second was that no matter which side of the bet you were on you still got rich personally. your institution might have lost huge sums of money but you, yourself, got rich. howie hubler the trader at morgan stanley. morgan stanley the wall street investment bank. he's regarded as the hub of a little -- of the smartest group of traders and they trade sub prime backed mortgage bonds. they agitate. they're not satisfied making just millions of dollars a year. they want to make tens of millions of dollars a year so they start to agitate within the firm for a piece of the action, for a bigger piece of the action. they want to be given sort of like their own little hedge fund withi

we lehman -- the run started on lehman. merrill lynch was going to be right there so you add those three institutions and as warren said we and washington mutual shortly thereafter and wachovia and we had over the next week's six european nations have to step in and recognize so this was coming at us pretty quickly from all sides. >> it's ironic that in effect i think you talked about can't always have an appetite for deals or something but if in fact he hadn't made this deal which doesn't look like the greatest deal he offered a 70% premium on the day that the stock might have been at cero but didn't he in effect kind of save the system for us? >> at times he was -- he was a confident, decisive ceo. and that -- and there's no doubt thought was a very much stabilizing action. >> do you think we would have gotten to tuesday on aig if there hadn't been that action at merrill? >> i don't know what would have happened, because i don't think, warren, i don't think we could have taken one other big institution failure, do you? >>

it was lehman. when lehman went under their debt... the credit default swaps on their debt settled out at nine cents on the dollar. in october, one month after they went bankrupt. we publicly pointed out the time that that was on the basis of $150 billion of lehman's debt. so the debt was impaired by 90%, roughly, or $135 billion. couple that with the $20 billion of equity that was wiped out, we confidently said in october of '08 that the hole at lehman brothers was $150 billion give or take. the whole at enron, charlie, when the bust settled was about $65 billion. lehman was twice enron. we haven't even gotten to a.i.g. yet. so the magnitude of the holes in these balance sheets... and secretary paulson eluded to it in his accounts when the banks look at the books they realized the stuff was overvalued by 100% still. so as i pointed out, you can be... >> rose: that's why they couldn't get anybody to buy it. >> exact lift you can be off by a billion here and a billion there maybe. but when you're off by a $150 billion on a $600 billion

if you were a lehman brothers employee, you got hurt. that is about it. >> do say that everybody at the table walked away with millions and even named a couple of them. >> everybody but the people at lehman brothers walked away with tens of millions of dollars. >> who is howard? >> kthis is my revelation. the financial situation was that no matter which side of the bet you were on, you still got rich. howard hubard is a trader at morgan stanley. he is regarded as the hub of a small group of traders. they were not satisfied making millions of dollars, they wanted to make tens of millions of dollars. they started to agitate for a bigger piece of the action. they wanted to be their own little hedge fund. very soon, months after they're set up, they make an enormous debt. it is a complicated bet, but the gist of it is that they end up owing about $15 billion of triple-a-rated cdos backed by subprime mortgage loans. that is collateralized debt organizations. the loans go into a trust and the trust is sliced. there are junior and senior claims

were a lehman brothers bondholder, you got hurt. if you were a lehman brothers employee, you got hurt. and that is about tment >> but you say here that everybody at the table, the big players, walked away with millions. and you cite some of them. >> the c.e.o. of are lehman brothers had made many tens of millions of dollars that he got to keep after the firm collapsed. >> how was howie? >> this was, to me, my revelation. first that the financial system had organized itself around this bet. and second was that no matter which side of the bet you were on, you still got rich personally. your institution may have lost sums of money, but you still got rich. the trader at morgan stanley, the wall street trader at the investment bank, he is at the hub of the smartest group of traders. they agitate. they are not satisfied in making just millions of dollars a year. they want to make tens of millions of dollars a year. they start to agitate in the firm for a bigger piece of the action. they want to be given sort of their own hedge fund owned

for them a very difficult decision to let one of their banks go ahead and in the middle of a run lehman brothers step in and make the acquisition and be confident they had the wherewithal to do that. limited part in a much smaller transaction and i think it was tuesday or wednesday of the british authorities said if you have an account with lehman keeping securities there you couldn't take it out. they froze the accounts basically, which i gather came as a surprise, came as a big surprise to me. >> that was i think that shocked the markets. my recollection is it was tuesday but i could be wrong. as i recall learning because i recall learning about it tuesday and i was actually the day of the aag rescue. but what happened was the collateral third-party customer accounts in the broken dealer and others were frozen toribio and investors needed to know that their accounts were safe. and of course when they weren't with lehman brothers in the u.k., then there was a big corrosion compliments in the investment banking model, the liability of the investment banking model. >> have an apartment i

the london operation of lehman was of the trade it every day. there was no warrior on the monday after of lehman brothers field on sunday night. the u.s. government doesn't have the legal right nor will it ever have the legal right to manage what happens to that subsidiary of lehman or the next equivalent in another country. you can go talk to the g20 actually you probably can't but i can and i have and i put it to them like this that they will not allow and agree to a cross border resolution author ready which is would be required to apply with the treasury says it is doing to make it work across the world. the g20 will not agree. they can't even get one with in europe. the imf has been urging the european union and even more specifically the year roseau which is no share of currency, one central bank has been pushing them hard to come up with a cross border resolution of 40 or mechanism to deal with the failure of banks within europe that have operations in multiple countries. they haven't done it, they can't do it, they won't do it. countries

is coming back at lehman brothers. >> what are they asking lehman brothers, and will this -- obviously, some of these executives may not have jobs at this point. i'm wondering what the inclination is of lehman to actually divulge information which might make life a lot harder for some of the other banks that still exist. >> well, they're focused on mortgage-backed securities. repo 105, hiding assets. something i talk about in my book, qualified special purpose entities. you could actually hide mortgages not just in cdos but you can hide them in the cayman islands in other types of entities. >> larry,ish it sounds like some of the stuff lehman was doing is far more egregious than what happened here at goldman sachs. true or false? >> true. 100% true. the only thing that's interesting with goldman is the credit default protection since last wednesday has almost doubled in price. so if you're going to try to buy default protection in goldman sachs, it traded today at a higher level than even citigroup for the first time since probably 2008. >> larry, who is next -- look around the world.

." >> they did not bailout lehman brothers in 2008.ision led to the bankruptcy of lehman that cost investors billions. republicans expressed opposition to the senate bill. their hard line begins to have softened. but both parties agree, no bailout. >> the financial reform appears to be helped by the climate. goldman sachs is citing fraud charges. there is the anger of taxpayers who spent three years building up the financial sector. analysts believe lehman bros will not be the only bank charged with fraud. viviana hurtado, abc news. >>> people have a free-speech right to show videos that show graphic violence against animals. a virginia man was sentenced to three years in prison for videos he made of peoples fighting. that was struck down in an 821 ruling. >>> president obama will speak at a west virginia coal mine. joe biden will also attend the service on sunday. it was the worst coal mining disaster in 40 years. >>> the death toll from the earthquake in china is now more than 2000. nearly 200 people are still missing. yesterday two

guests include former lehman executives. host: ken vogel of politico is here, talking about fundraising in 2010. the most money raised for the 2010 campaigns was massachussets, pennsylvania and arlen specter, florida, nevada, connecticut, and then on the house side, south carolina's 2nd district, pennsylvania's 12th district, minnesota's 6th district, ohio and forida at about $$4 million. where are we headed for 2010? guest: towards a super-expensive election cycle, not only because it's getting more expensive to compete for senate in these states with larger media markets, but also because we're going to see unprecedented spending by outside groups, particularly corporations facilitated by the decision in january, citizens united vs. the federal election commission, where decades of rules were struck down prohibiting ads that explicitly support candidates, and they are already seeing 527 groups gear up for extremely expensive, aggressive campaigns outside the direct fundraising we see here. so they are trying to answer some

with the lehman brothers report you have a road map and with what happened at aig, the civil case and it will stand or fall on its own merits, but there was a lot of criminality, in my view, that was going on at other institutions. >> but let me follow up on carl's question. a column in "the washington post" the other day that said this is a nonscandal. that the creation of these market baskets is done all the time and anybody buying them, anyone selling those are a buyer and vice versa and only people

. >>> and are banks using lehman-like accounting metheds to high debt levels? it may be legal, but it is coming up about the ethical nature of it. we will look at that. >>> and meanwhile, let's look at how we closed wall street, because as we approached, the market shot up, and hit 11,000 and then bounced awe of that, and we have heard cheers, because people were waiting to see if 11,000 was the next milestone and it is. volume picked up at the end of the day as well, about 907 million shares traded today. the nasdaq finishing at 2454 and the s&p 500 picking up eight points about .66% at 1,194. scott is here with the rapid rally of the day. >> well, the tone was set by chevron which came out with a positive outlook with the earnings and said that the first quarter is better than the fourth, and refining margins had improved. and that lit a fire under energy stocks even though oil was down on the day today, you did have oil stocks as the leadership group. let me give you some more color as well as to how we got from dow 10,000 to dow 11,000. remember we recrosse

. >>> the lehman brothers bankruptcy trial is set to start tomorrow. their collapse in 2008 was the largest corporate bankruptcy in history, helping to trigger the global recession. investigators claimed their executives use gimmicks to manipulate balance sheets, an accusation lehman brothers denies. >>> maryland governor martin o'malley wants to keep his job, so he is kicking off his reelection campaign this week. he will campaign in baltimore and also visit a community college and a park. for him, tuesday is just the start of a three-day, and 11- tour -- three-day tour. >>> the d.c. principal found dead in his comics will be honored this week at a special memorial service. d.c. public schools will host a memorial for him. the private funeral was held last week for the beloved principal. >> no matter what times, we could call on him. he would talk to us about our problems. >> kids that were behind academically. he was a father figure. >> the middle school will host a school tribute to him on thursday for students, parents, and staff, and then the publ

lehman brothers did have enough capital why would anybody at that level have enough capital. and we also think over-the-counter derivatives. i know people's eyes glaze over whenever i say that. but it's important and it's a very political. but they should be the should be traded on exchanges and there should be a lot more capital held against positions and you see the contraction in the amount of derivatives trading on the basis. there's also a subsidy for the derivatives which arises from the fact the broker-dealers to read the contract to big to fail that therefore have funding costs and that is a big part of the problem. i think that is less likely to get addressed than the banks. and as for jamie dimond, all of the point we make hour about policy. this isn't a personal antiindividual crusades. i think it is helpful to put names on it. this is not a conspiracy. most of the reviews in the book have been for a positive i think to people so far have said a conspiracy theory -- they didn't read the book. we will make it very clear this is not people conspiring. this is a syste

take us back -- move all financial institutions to a capital level roughly equivalent to what the lehman brothers had the day before it failed even if you measure lehman brothers capital correctly which doesn't strike as a compelling idea. the en brothers didn't have enough capital but anybody at that level have enough capital we stink it should be more than that. and the counter toward negative spirit i know people's eyes glaze over whenever i see that it's important and it's very political but they should be traded on exchanges and there should be more capitol hill that the derivatives and you see a contraction in the amount of derivatives trading. there's also a subsidy for durham evidence which arises from the fact the broker-dealers to write contracts are too big to fail and therefore have funding costs and that is a big part of the problem. i think that is less likely to get addressed than the bank's size. and as for jamie dimond, you know, all the points we make hour about policy. this is not a personal antiindividual crusades. i think is helpful to put names on that. this is not

right now, the house financial services committee holding a hearing, looking into the collapse of lehman brothers. the bankruptcy that ushered in the bailout of the big banks that were deemed too big to fail. just moments from now, we're going to hear from jack reid, but we should point out we just heard a democratic aide say that the senate won't likely take up the financial overhaul bill until next week. that's big news. this morning, democrats and republicans were sparring over this bill. >> it is important for the country and the taxpayer that we get this right. that we put them before politics. >> but principally for us is really very simple one in complicated issues. >> coming up, we're going to be speaking with dylan ratigan to talk more about the fight over financial reform and this showdown on capitol hill. we're also going to hear as i mentioned, from senator reid. he's on the senate finance committee. i think he's going to be coming with some big news as we've been talking to him throughout the day. >>> also, this just in. the supreme court struck down a federal law which woul

this is one as one congressman said, autopsy for lehman brothers. that's why it's important, because you want to make sure this doesn't happen to another patient, especially when the rest of us are all picking up the tab, right if so this is what the treasury secretary said, timothy geithner. basically, this is how he described what happened to lehman is so important for financial reform and making sure that we fix the problems we have that led to these collapses. let's listen. >> imagine building a national highway system with two sets of drivers, the first group has to abide by the speed limit, wear seat belts, buy cars are anti-lock brakes. the second group can drive as fast as they choose, with no safety features and without any fear of getting pulled over by the police. imagine both groups are driving on the same roads. that system would inevitably cause serious collisions and drive drivers following the rules of the game would ineftly get hit by drivers who weren't. a system like that makes no sense. we would never allow it on the roads, so wh

thanks, ali. >>> it helped sink lehman.it drove aig to a government bailout. now, it's at the heart of the debate over wall street reform this week. it's called derivative trading. what does that mean? our cnn national political correspondent, jessica yellin, is here to explain. so, jessica, have at it. >> okay. breaking this down, candy, derivatives are basically like buying an insurance policy, and it all started with crops. for the sake of it, let's just say you grow green beans. you spent money planting and raising them. and you hope that they stay healthy and make you money. well, just in case there's a cold snap or a problem, you take out an insurance policy. if your green beans go bad, your insurance pays up and covers your crops. if the beans go to market, the bank pays you nothing. that insurance policy is a derivative. and it's a lot like a bet on your green beans. now, creative finance executives said, why stop at green beans? let's do the same thing for other products. oil, gold, even housing and mortgages, you

lehman brothers bankruptcy whether the housing bubble burst. >> lehman's unscrupulous practices illustrate exactly why the senate needs to quickly pass and the congress needs to swiftly finalize the wall street reform bill. >> reporter: as they push it -- >> we cannot allow the same reckless financial practices to continue. >> reporter: democrats today dropped the plan to keep bailouts as a backup. that could win over republican votes. >> a very serious effort to reengage now and to get it resolved. >> reporter: a hint of cooperation. >> i think we are getting closer together. >> reporter: a touch of republican remorse. >> i think that the remember rick on our side has been over the top. >> reporter: both sides are cooperating against the likes of richard fuld, former lehman brothers' ceo. >> one day we had a firm. the next day we did not. a lot of people got hurt by that. >> reporter: thin ray could mean fewer lehman like excess on wall street and more koopg on capitol hill. less verbal confrontation up here now does not mean democrats will get one republican vote and one in the u.s. sena

lehman brothers bankruptcy when the housing bubble burst was probed in the house. >> the unscrupulous practices illustrates why the senate needs to quickly pass and the congress needs to swiftly finalize the wall street reform bill. >> reporter: democrats dropped the plan to keep bailouts as a backup. that could win over republican votes. >> there's a very serious effort to reengage and get a result. >> reporter: a hint of cooperation. >> i think we are getting closer together. >> reporter: a touch of republican remorse. >> i think the rhetoric on our side has been over the top. >> reporter: both sides are cooperating against the likes of richard fuld, the former lee man brothers ceo who made half a million dollar but let his company fail and drag down the economy. >> where one day we had a firm. the next day we did not. a lot of people got hurt by that. >> it could mean fewer lehman-style excesses on wall street and more cooperation on capitol hill. i'm steve handelsman, nbc, washington. >>> and now here's a look at some other stories making news early today in america. tornado seaso

the lehman bankruptcy. but the issue of adequate capital is important because just think for the minute, if we knew what the actual number should be, and of views as to what that number ought to be, it's higher obviously. >> that will be a followup question in writing. if we had adequate capital and quid it's, whatever -- liquidity, whatever else we do would be adequate but not critical. if we had everything but but not adequate capital and liquidity, the system will fail to function. in short, i'm saying, we can solve this problem on the capital liquidity and collateral side as well as doing it in other areas like -- i say fraud and misrepresentation. in my judgment, over the last decades, has been inadequately enforced and that is a critical question. but how you structure regulation is interesting, important, but not critical to resolving this crisis and preventing the next one. >> i think we'll hear from a number of folks offering testimony that fraud or behavior should have consequences and if it's ill

the ceo of lehman brothers said pretty much the same thing in october of 2008 weeks after lehman brothersfiled for bankruptcy and he said go to the grave wondering what he could have done differently. the conventional wisdom was established by the ceos and is the was the conventional wisdom to this day and what i discovered in the reporting of this book was of course the conventional wisdom has nothing to do with the troops which is often the case in these matters. it has a lot to do with the truth but wall street would like you to believe but not the real truth and so what i discovered is wall street did this to itself and part of the way wall street did this to itself was the transformation of from being private partnerships where they shared in the risks and shared in the liabilities and they were cognizant on a daily basis of the risks being taken in the firm and to the dynamic on wall street where other people were taking the risk and the rewards call what i call secret less risks or been taken and the rewards went to the people who worked there for and how do i know this? i worked o

and lehman is a good example of that. lehman actually wasn't the biggest institution.g broke caused these massive structural problems. if you look at some other banking systems which prove to be stable in the crisis, for example, canada has a much more consolidated financial industry than the u.s. and actually, the american financial industry is pretty fragmented. america has lots of small banks. i don't think the core of the problem is the banks were too big. i think the core of the problem is the banks were allowed to take on too much risk and credit derivatives, i think, were a big issue, too. >> senator mccaskill, then, if chrystia -- if what chrystia's saying is right, then why not reinstate the bill and make sure they can't branch out too much in areas where perhaps they would be taking too much risk? is that the right way of putting it? >> well, the bottom line is if this bill were in place, when lehman started to go under, the regulators would have moved in, broken it up and sold it off, and the money to do that would have come from the banks, not from taxpayer

lehman brothers could be next and could cost taxpayers big time. >> joining success former lehman brothersesident lawrence mcdonald and he's author of a colossal failure of common sense. we've had plenty of that to go around, haven't we? >> we've had some failures. as we look at fraud charges bought against goldman on friday. who broke the law? goldman, lehman, who else? >> let's just focus on those two for now. but essentially, we are in a collision course with the meteor and it's not from outer space. if you look at the last three financial crisis, in the 1980's we had the financial crisis. lehman is bigger than them all. if we don't stop this now, we're all in trouble. we have to break up these banks. they're too big to succeed and too big to be managed. >> you sound like the administration. you want to break up the big banks. >> years ago, they were a lot smaller. i mean, years ago when you had failures, people could see the risk, you know, in the s&l crisis, you had hundreds of banks fail and it wasn't as deadly. now, you let one of the dominos go and it hurts so many people around th

when we learned about lehman using the power 105 to conceal it leverage, i'm using at the short-term financing market is another shadow market where there's not a lot of transparency by its very nature and provides an opportunity for more shady financial activity in the future. would you explain, mr. chairman, how the fed itself uses these repose and share any thoughts you have an improving financial stability in terms of the short-term debt and equity markets function, especially in a crisis. >> i like particularly to address the functioning of the tri-part we go market which is a short-term market that allows money markets funds, pension funds and others to put their money for short periods. it's a huge market, it's $2.5 trillion or so. and the federal reserve has been premature engaged in trying to make the market stronger, more resilient. we were very concerned back in the crisis. one of the reasons we were so worried about the failures of bear stearns and lehman brothers was that we thought it might lead to a collapse of this critical market. and so in recent quarters, the fed,

>> it worked great when lehman failed. there were no problems. mike pence wants to go back to when republicans ran the show. the last time they ran the show was september 29th. they voted down the t.a.r.p., and the market fell 750 points. it's not that simple with a financial firm. when financial firms go bust, it's not that pleasant. that's really why we're all here. let me get to fannie and freddie, if i can. >> stick with this other poin this is a very important point you're making. i hear you. >> we saw what happened. it's so pleasant. this is industry money they're talking about. >> let me ask nicole. what's your reaction to what roger is saying? because, look, if heaven forbid we have another total widespr d widespread, what's called a systemic meltdown where there's no trading between banks and there's a credit freeze-up, i understand there have to be back stops in the name of civilization. but what if not, nicole? this bill is really designed to look at individual cases where they've written their own funeral plans, and if they flank thos

in this bill would have made lehman brothers not blow up? >> excellent question. with this -- these reforms that provide a way of bankruptcy-like mechanism for dismembering banks safely without the taxpayer being exposed, it would have allowed to us come in earlier and in, effect, put lehman into receivership, break it up and dismember it over time without it causing the panic that it provided. so the -- a bankruptcy provision designed for large banks combined with the necessary capacity to spray a little foam on the runway, an example is your neighbor's house is on fire, you want the fire station to come and make sure the fire doesn't spread, and they do that in part by hosing down the neighboring buildings. that's the balance. you want to make sure you can draw a circle around the failing institution, isolate it, make sure the fire can't jump the fire break and effect the entire financial system. >> when you look at america's housing policy, we have all these massive distortions that we put in place. we -- this interest -- mortgage interes

lehman didn't have enough capital, why would anybody at that capital. we think over the counter-derivatives. i know people's eyes glaze over whenever i say that. but it's important. and it's very political. but it should be -- it should be they should be traded on exchanges and there should be more capital on the derivatives and you could see a cap on derivatives trading. there's a subsidy from the derivatives that the big broker dealers are too big to fail they have clear up funding costs and that's a big part of the problem there. i think that's less likely to get addressed even the bank size. as for jamie diamond. all the points we make is about policy. this is not an anti-individual. i think it's helpful to put names on it. this is not a conspiracy. i mean, most of the reviews of our book have been very positive. i think two people so far have said a conspiracy theory. well, they didn't read the book. we make it very clear. this is not people conspiring. this is a system. it's a system of incentives and beliefs that develops over time. and it's a ve

there's a huge difference in this market versus lehman's market, though. if the fed is behind this market, the fed is on the gas pedal and they're not going to let it go down. >> 100%. >> gary. >> and the major difference too is you were paid, or you were rewarded if you were a money manager to actually have some cash post-lehman. it was okay to underperform the benchmarks because you were protecting capital. it's the exact opposite. speak of beaks, as clarence beaks would say in one of the greatest movies of all time, steve, this is a different type of market. >> that is some transition you made. >> let's just hope i don't get put in a monkey suit. >> this is a different type of market clearly, but if you look at the market you have now, the poster child for it has been apple. look at apple. the earnings are reported this week. we talked about it. the stop out point on appsale 250. yesterday it began to extend the market higher toward the price target the analysts have 285. got above 270 today. this is an easy trade. stop yourself out below 250. >> let's

>> my view for the first week before lehman brothers said, it actually helped. you could see the spread come in a dramatically. the foreign investors and their securities were putting a lot of pressure -- >> the securities of of fannie and freddie? >> yes. i cannot make a judgment on the market more generally . . >> and helped the markets? >> i can't make a judgment. there was some stablelation and the lehman weekend. >> that would be because the guarantee have been hardened? >> yeah. >> mr. falcon. >> i would concur with what director lockhart said. >> thank you, mr. chairman. >> i'd like to take a moment on my time to follow up on the line of question. because i am struck. i don't know if -- i'm trying to get to the essence of happened here. is there a little -- remember when we were kids we had the little toy guns that would shoot out the darts that had the rubber tip. were in the position of trying to bring down the elephant or wrestling with the matres. in '05, '06, '07, there were exams done. you did issue letters. but it's not as those the alarm bells are

this was demonstrated most recently in lehman brothers' bankruptcy." if bankruptcy was the cure in lehman brothers, it was one that almost killed the patient. when former treasury secretary hank paulson decided to let lehman brothers go into bankruptcy, our global credit markets froze and creditors and counterparties panicked and headed for the hills. instead of imposing market discipline, it only prompted more bailouts and almost brought down the entire financial system. it ultimately took 18 months to close out the case on lehman brothers, an eternity for financial institutions that market-to-market and fund their balance sheets on an intraday basis. bankruptcy is even more an unattractive option when one consider lehman was an investment bank, while today's megabanks operate under the bank holding company umbrella. it is virtually impossible to have an integrated resolution of a large and complex bank holding company. the bank subsidiary would go into fdic resolution, the insurance affiliates would go into state liquidation procedures, the securitie

lehman brothers and bear stearns were let fail. now goldman sachs' largest competitors in fixed income was lehman brothers. lehman brothers is gone. so goldman sachs now has total control over that marketplace. and so, of course, if the government is picking winners, which they did, they picked jp morgan, they picked goldman sachs, they picked ge, for that matter, and those winners are now able particularly in the banking sector as goldman is, able to suck up all of the business. it's as if all the other cable stations were taken out by the government and suddenly msnbc had all the cable viewers because the government decided to put all the other cable stations out of business. >> what do you make of the fact that now they're pushing back, taking on financial regulatory reform. many people thought this would be a slam dump and that who is going to go and say, i'm supporting and defending wall street? sure enough, some people are doing that. >> they both are. the democrat's plan preserves too big to fail. the republican's plan also

fold says we've got it all wrong. >> lehman and his people have been unfairly vilified. there's been a lot of misinformation about repo 105. among the worst were the erroneous are reports on the front pages of newspapers claiming that lehman used 105 to remove toxic assets from its balance sheet. that simply was not true. >> no they were just using it to hide the fact that they were insolvent so they could continue gambling with those toxic securities. back with us, gretchen morganson who broke the story with for "the new york times." and "huffington post" business editor and author of "13 bankers." simon. gretchen, where else should we be demanding investigations from our legislators on wall street. >> i think you have to start examining these cdos that were made up of credit default swaps. which are at the center of the whole derivatives argument, right, why we need to have more regulation, more transparency in this. they're central to these toxic securities. that metastasized the subprime cancer that we're all just still reeling from. so any bank that had a big fixed

lehman brothers, when it failed at more than 600,000 in london. the london operation of lehman operates on the basis of money that was white from new york and started every trading day. there was no wire on the monday. the u.s. government doesn't have the legal right nor will ever have the legal right to manage only the next equivalent in another country. you can go talk to did she try deputy. actually you probably can't, but i can and i have and i put it to them like this, that they will not allow, agree to a cross-border resolution authority, which is what would be required to apply with the treasury says it doing, but to really make that work across the world. the g20 will not agree to that. they can even get one within europe. it's very interesting. the imf has been urging the european union and even more specifically the euro sound, as you know, shows the currency is one special thing. it's been really pushing it hard to come up with a cross-border resolution authority or mechanism to deal with the failure of eggs within europe that have oper

formal probe to follow up on washington's probe which is business with another probe, the collapse of lehman brothers and who caused it. two days ahead of president obama's trip to wall street. forget the nasty volcano in iceland, a nastier eruption is here. the billionaire and publisher ain't feeling a lot of lava. >> oh ... >> mort, welcome. >> thank you very much. >> you're kind of in that position, you're a big obviously wall street titan in your own right. financial, not just wall street. but this is our lifeblood in this city. our lifeblood keeps getting battered, for very good reasons, are you worried? >> i'm worried for new york city and state because it's the major industry in the city and state, the biggest taxpayer, the average working person who is involved in the financial industry makes around $75,000. it's one of the great levers of american power so i would hate to see it come apart for whatever reason, whether it's shall we say politics or fact. >> goldman provide the opportunity for the financial open season? >> you could argue that. i don't fully understand. i don't know i

when lehman failed, you know, it made losses at lehman much worse. under the current resolution authority i think they can basically step in, keep the operating entity operating, keep the derivative contracts in place, they can wind down the holding company, they can sort out, they can sell off the operating entity at a higher value because it's still an operating entity to, you know, jpmorgan or pick your favorite surviving financial institution, and then they can make sure the people that took the risk absorb the pain. the problem i had with, you know, what took place over the last year su had bond holders that get paid well above a treasury yield to take meaningful risks. they didn't properly oversee the institutions and they got bailed out by the taxpayer. and the current authority is not going to allow bailout of financial institutions it's going to allow for proper allocation of losses to the people that took the ricks. that's very important. i think it's very smart. i wish it were -- we had this 18 months ago. there were element of the bill if