the lessons of lehman brothers tonight.ou are watching "inside story" from washington. ♪ >> hello, i'm libby casey. when the huge wall street firm lehman brothers collapsed five years ago this week, it was only the beginning of a crisis in the bank industry from which the american economy is still recoverying from. we'll talk tonight about what has happened to the banks, and the new rules under which they operate. but first some background. >> some of the largest investment banks in the world failed, banks stopped lending to familiar list and small businesses. >> it has five years since the upheaval, so powerful we will still feeling the reverberation. >> it was a perfect storm that would rob millions of americans of jobs and homes and savings they spent a lifetime building. >> weak banking regular laces and bad housing loans caught up with the u.s. housing system. fannie mae and freddy mac pushed for a sale, and let lehman brothers collapse. the bush administration established tarp. which allowed the u.s. treasury to buy o

so lehman wasn't the cause, lehman was the symptom. i tend to use my colleague's popcorn analogy, so then what i say very simply now -- i didn't say it at the time because we were working desperately to save lehman but looking at it now i say by gosh if b of a had bought lehman-- which we were trying to facilitate-- then merrill would have failed and it would have been worse because it was bigger. >> rose: and nobody would have saved merrill. >> yeah, there's no one there. we didn't have the powers to deal -- >> rose: the only way to save lehman was to have somebody prepared to buy it and you could back them up? >> you could back them up, you could facilitate it. you could give them some help along the way, but that's what we learned up cos and person with bear stearns. but the market wasn't going to accept that. the when an investment bank was imploding it took j.p. morgan and j.p. morgan had to be willing to guarantee whole trading book during dependency of the shareholder, as you'll recall. so as i look back on it and the other thin

so lehman filed on a monday. then by tuesday, money market funds were breaking the buck because they had been invested in lehman debt. >> are you inferring, dave, that they should have saved lehman at the time? >> i think they had to. it was too big to fail. and it worsened the crisis. now, that's a completely separate thing from whether banks needed to be regulated much better and they did. and the investment banks as well. but what we're talking about is the specific instance of allowing a too big to fail institution file bankruptcy. that shouldn't have been done. >> do you thinkm lehman should have been saved? >> no, it would have extended -- that you had to bail out more and more banks. the only reason that lehman brothers was a crisis there was an expectation based on the bailout of bear that everyone was going to be saved. david brings up the breaking of the buck. there's no breaking of the buck if bear is allowed to go under because the financial markets would have prepared for either lehman finding a buye

what's happening on wall street yes that was the catastrophic reaction to the destruction of the lehman brothers the biggest financial blow since the great depression but a decade on how the leave in lessons been learnt what it seems the risk taking habits are hard to shake just last year will see its biggest bank j.p. morgan chase lost at a six billion dollars on dodgy credit default swaps which the bank tried to cover up it's also been accusations of improper and it is trading reports that the bank children of chinese officials to help with business and several cases of misleading customers on identity theft products and mortgages as well all together these legal disputes will cost the bank just under seven billion dollars a teeny tiny paid out for a bank with assets of two point four trillion dollars so now i'm joined by young from t.v. advisors so patrick tell me have the lessons been learnt fundamentally when it comes to lehman's i think we can safely say that nobody's learned the lessons from this escapade whatsoever government overall has simply missed the object they've ended up

aaron kalin, a rising star at lehman brothers and the first many female cfo. she told cnbc the firm was headed in the right direction. >> we are in a great spot now with this capital behind us with wind in our sails. >> art she left lehman in june 2008 she did a brief stint at credit suisse before leaving the business in new york altogether and declined to do press until the recent lean-in debate prompted her to write an op-ed in "the new york times" on the work/life balance debate. in 2007 countrywide ceo angelo ma sill low adamantly told cnbc his company wasn't going anywhere. >> no more chance for bankruptcy today tore countrywide than it was six months ago, a year ago, two years ago and when the stock was $45 a share. we were a very solid company. >> three years later with them being purchased by bank of america he paid out over $67 million to settle fraud and insider trading charges filed against him by the s.e.c. banned from serving at any publicly traded company he's been laying low since then. former ceo chuck prince resigned from citigroup in 2007 and

five years ago this week lehman failed. about six weeks or two months before that collapse, ken predicted a major american investment bank would fail. he saw it coming. this week's "time" cover story, how wall street won five years after the crash. it could happen all over again. let's talk about the crisis ha happened here. it appears to be a crisis that was wasted, an opportunity that was wasted for change. too-big-to-fail banks are up to 40% bigger today than five years ago. and you ask americans how they feel. wholesale americans sure don't feel safer. so how did wall street win? >> well, in a word, lobbying. there's been a tremendous amount of time and money on the part of the banks put against lobbying for dodd/frank rules to be watered down, delayed, made weaker. i mean, you know, the stat that only 40% of the rules have been written so far is very telling. banks are complaining about rules that would require them to use only 5% of their own capital on risky deals. you know, when the rest of america wouldn't dream of

advisors so patrick tell me have the lessons been lance fundamentally when it comes to lehman's i think we can safely say that nobody's learned the lessons from this escapade whatsoever government overall has simply missed the object they've ended up actually in the back pockets of the banks fundamentally the banks themselves haven't realised the fact that they have to change indeed if we're going to look at this from a big picture in history standpoint the thing that the collapse of lehman smart is the absolute peak power from now on it's the power of networks intermediating the banks that will challenge the financial monopoly government doesn't understand this the bankers don't want to accept it and have we learned our lessons sadly not so is it the government's fault that the bankers have too much power. oh fundamentally i think banks have ended up in an incredibly toxic alliance with governments and that's a fundamental problem for society it's not that we don't need money we need money we need capitalism but we don't and we should not have a situation where any industry is fundamen

lehman was in trouble and a couple others were. hank had to force jpmorgan and chase to take the money, so as not to stigmatize the others that needed it. it could be -- and there is a massive -- he was asked, what is your plan if the soviet union attacked israel? >> to me, where politics could enter in, i grew barney, -- i agree with barney, the banks are better regulated. my focus is on other issues. not that banks are the big problem, but, i am more focused on any in frederick -- fanny and freddie. we will know how these things work when we have a crisis and people use the authorities. the place where politics could come in, ok, is my making. the things we did were so unpopular. really unpopular. there were poles when i left office that showed torture scrolling -- scoring higher. >> and you are up for reelection. >> those who voted for it are more concerned about the polls that i was. the deal is, i think regulators have the twill's they need. -- tools they need. everything that i think they need. there may be a bridge pressure

fundamentally when it comes to lehman. i think we can safely say that nobody's learned any lessons from this escapade whatsoever government overall has simply missed the object they've ended up actually in the back pockets of the banks fundamentally the banks themselves haven't realised the fact that they have to change indeed if we want to look at this from a big picture in history standpoint the thing that the collapse of lehman smart is the absolute peak power from now on it's the power of networks disinter mediating the banks that will challenge the financial monopoly government doesn't understand this the bankers don't want to accept it and have we learned our lessons sadly not see the governance felt that the bankers have too much power. oh fundamentally i think banks have ended up in an incredibly toxic alliance with governments and that's a fundamental problem for society it's not that we don't need money we need money we need capitalism but we don't and we should not have a situation where any industry is fundamen

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the lehman brothers bankruptcy. the first information on the friday before the actual monday bankruptcy that they would be shutting their doors. and you see these people walking out, it marked the beginning of the worst of the financial crisis. lehman brothers assets in north america were bought by the british banking giant barclays. how has that bank been doing? joining me now, just two blocks north of fox business is adam shapiro. adam, i remember you running out the doors here in 2008 just two blocks away and putting a camera up to those glass windows, and it looked pretty upsetting, what we could see inside, how upset people were. >> reporter: it was upsetting when you would try to speak to the employees as they would come out with boxes filled with materials today had on their desk. but went you talk about what had been lehman brothers in the building behind me which is now barclays where barclays has gone, you know, they got caught up in the libor scandal, bob diamond issued a statement today saying that too b

much of it paid for by the lehman estate. the d.o.j. and s.e.c.pped their investigations after they concluded they don't have enough evidence against him. fuld has kept a low profile. he's been spotted on the weekends flying coach to one of his homes in florida. while he rode his lehman stocks from $1 billion down to $56 billion, he's not exactly poor. he has a mansion worth over $8 million and he sold a park avenue apartment for over $46 million. he recently made headlines suing his former son-in-law for $13 billion over a loan for an apartment. fuld and his lawyers didn't return our phone calls. >> what could i have done differently? what could i have said? what should i have done? i have searched myself. this is something that will stay with me for the rest of my life. >> barclays bought the investment bank's operations after the collapse and the too big to fail still lives. it continues to weaken global banking and it admits banks including barclays were over ledged in the boom years. it was a huge shot to the financial system. how much has it

and it has been five years of the last of the new lehman brothers bailout, and that caused the governmentailouts of the big banks and helped to create the "too big to fail" phrase that we have come to know. we will take a look at the debate later in the show. it is monday, september 16, 5:00 p.m. in washington, d.c., and you are watching rt. gunshots rang out at the d.c. navy yard in washington, d.c., with at least urging people killed at the systems command headquarters, including adc police officer and another law enforcement officer plus alleged shooter aaron alexis. the navy yard was established back in 1799 and is the oldest operation. it is responsible for weapons development, among other functions. there are about 16,000 civilian and military employees that work in the complex, with 3000 employees in that specific building, and it is about 2.2 million square feet of office space in total. president obama addressed the tragedy in his speech today. >> we have had another mass shooting, and today, it happened in a military installation in our nation's capital, targeting our military a

lehman brothers going into bankruptcy.were at the white house with president bush. both of you, welcome. >> president bush was gathering all of the information from his advisers on the policy side. it was not just that day. it helps to focus the mind go back. they said okay. i want to know, what do you think will happen if we do not go forward with this plan. both of them said it is our estimation that it could be worse than the great depression. president bush said okay. i will give you my decision soon. he went into the oval office. that is when he made the decision. it was go time. it was very difficult to get the legislation passed. having been there and watching him, his biggest concern for people like my mom and dad. this country is in crisis. p6 what did you say to the president? >> we were worried about the moral hazards. when you say did you not want to do it, of course we did not want to do it. we had to think about what was the downside of not doing anything. we deal with it on a systemwide basis. we made sure t

who is responsible for their use details coming up and it's been five years since the collapse of lehman brothers investment bank and the bailout of ai g. that caused a crisis that included the government bailouts of the big banks that helped create the too big to fail phrase that we all know today we'll take a look back at what we've learned later in the show. it's monday september sixteenth eight pm in washington d.c. i'm on your i david and you're watching our t.v. . gunshots rang out this morning at the u.s. navy yard in washington d.c. killing several people and injuring many others at least thirteen people have been killed at the naval sea systems command headquarters including a d.c. police officer and another law enforcement officer plus the alleged shooter aaron alexis who also died at the scene of the mass shooting in navy yard was established back in seventy nine hundred nine and is the oldest navy installation it's the residence of the chief of naval operations and it's responsible for weapons development among other functions there are about sixteen thousand civilian and mil

and didn't go to zero the way lehman did.: right. >> he had a lot of opportunities, the perception the way history has been written his arrogance in not, you know, not basically accepting a big loss for shareholders, not admitting how bad things were. melissa: yeah. >> and so a lot of blame goes to him. so there's a real reason why, why he's tarred with that brush. melissa: real quick because we're out of time, what do you think happened with larry summer? i said before when you read that thing it is like i want to snd some more time with my kids? what really happened? did the president say it was over for you? >> i think so. they float ad trial balloon. it came out a few weeks ago. a lot of people in the president's own party -- melissa: took an ak-47 to that -- >> we don't want this guy. it is ironic, yellen is more dovish candidate. it is interesting, i think the paradox here and some people close to the fed, told me yellen getting job, for example, short term may be more negative for the bond market. she is already o boar

legacy of inequality james saft of reuters when lehman went down five years ago it set in train forces which could easily have led to the failure of many financial institutions face of the possibility of take a large sways of the banking system into effective government control first the bush and later the bomb administrations chose instead to shelter institutions and executives from the consequences of their actions that involved creating a variety of policies which subsidize large banks and helped to dig a moat around the businesses this went hand in hand he said with monetary policy and put this in the context of the guy who wrote a commentary on forbes dot com where he's saying that lloyd blankfein his profits make him a holier than the ninety nine percent when as james saft envoy here is pointing out is government policy it's manipulation through the fed that is giving me that has built a moat around goldman sachs and enabled them to profit at the expense of everybody else but this is a failure of all markets due to market fundamentalism the collapse of lehman was a market said no

legacy of inequality james saft of reuters when lehman went down five years ago it set in train forces which could easily have led to the failure of many financial institutions face of the possibility of take a large sways of the banking system into effective government control first the bush and later the bomb administrations chose instead to shelter institutions and executives from the consequences of their actions that involved creating a variety of policies which subsidize large banks and helped to dig a moat around the businesses this went hand in hand he said with monetary policy and put this in the context of the guy who wrote a commentary on forbes dot com where he's saying that lloyd blankfein his profits make him a holier than the ninety nine percent when as james saft envoy here is pointing out is government policy it's manipulation through the fed that is giving the it that has built a moat around goldman sachs and enabled them to profit at the expense of everybody else but with this is a failure of a market signal due to market fundamentalism the collapse of lehman was a m

>> in regard to lehman there's nothing i can think of that we would have done over.said we didn't have the authorities. i wish we have had the authorities. but let's not forget the fact that lehman was a symptom. it wasn't the cause of the crises. that i'm very pleased when i look back, very pleased about one thing and that is that we are able to work with the democrats, with republicans, to be able to work on a bipartisan basis. twice, with fannie and freddie and then with the tarp, get the authorities we needed, move quickly, get capital out in the banks and avoid a catastrophe. >> you mentioned tarp. a lot of corporation to this day about that program. that became almost a household made. the troubled aid relief program a lot of government money went to the banks. the banks are thriving, making more than they ever made. taxpayers haven't really been a part of this. was there something about tarp that you would have organized differently? >> let me correcting one thing, ok? the money that went into the tarp capital and insurance company bank -- bank and insurance c

lehman brothers is paying a record amount in legal fees for its bad behavior. lehman filed the biggest bankruptcy in u-s history at the height of the finanicla crisis in 2008. the bank could not find a buyer or secure a bailout because of its involvement in subprime lending and debt swaps. the bank's failure is often cited as the first domino to fall in the global meltdown. since then the lehman estate has paid more than $2 billion in legal fees -- a record. lehman exited bankruptcy last year. coming up... did you believe the "beautiful lie"?...movies and money looks at a documentary about lance armstrong's heroic climb and epic fall. and later on in chart talk...is it too late to get in on the ride as facebook and netflix pick up steam.. stay with us... i'm going to pass chemistry, and i'll take it from there. i'm going to do what makes me happy. i'm going to work hard. be independent. live large. make the most of every opportunity. i knew i wanted to go to college. but figuring out how to pay for it? i didn't have a clue. the u.s. department of education has

famously was sold the line that lehman was about to go bust sold to them by j.p. morgan it was shortly my brothers it was not actually going to go bust but when the news got out that it was going to go bust you had a huge short selling attack on lehman and it went bust same thing with greece goldman knew was going to go bust the engineer of the collapse they profited from the collapse something on the subprime market same thing with the u.s. economy same thing on the european central the asian economy same thing on the mexican economy insiders closing the event probing from the event and then claiming the markets didn't we don't know what markets do yes of course you do this proves that what you're saying is the absolutely beautiful proof we've got financial terrorist group three that it was summer tourist information not just nine eleven that they knew was happening and profited from but it also you know america is now being a little bit more comfortable with embedding that it is a empire so one thing that empires don't like to do is lose their position as the wo

when lehman failed the government safety net split in two.ernment bailed out bear stearns leaving the market to believe that the government would step in and rescue everyone. so when lehman failed that set off chaos in the market as far as what is the federal government's role going to be? >> i want you to respond to that neil irwin. >> the fundamental thing with lehman brothers unlike bear stearns and aig, it wasn't just having a short-term shortage of cash, it was insolvent. and at the time the government had no tools around to fill that

>> he tried to make a go after lehman.around, helped manage the bankruptcy, then tried to start his boutique advisory firm. from what i could tell, fuld didn't talk to me, no one wanted to hire him to advise them, which might not entirely be a shock. >> yes. >> he's since gone on, does have a business. he's working with a small chemical company, penny stock, touting it at conferences. he's trying to maintain a certain kind of dignity, having a job, going to work, not just disappearing and going to jail. life isn't pleasant for him. >> you know, i mean, matt, i don't know there's a lot of americans whose empathy gene is firing -- go genes fire? i don't know anything about the human body, who do not feel a large amount of empathy for these guys and many more of these sort of wall street titans should have seen their fortunes diminish because of what happened to many other americans in the crisis. the question remains, was the -- was this litigated correctly when we talk about the financial crisis. >> the real tragedy we don'

when we come back, lessons from the financial meltdown five years after the lehman brothers collapse is our banking system any safer and is too big to fail? a thing of the past? we have got to get the three-technique block! i'm not angry. i'm not yellin'. . . >> this sunday marks the fifth anniversary that investment giant lehman brothers touched bankruptcy, touching off a financial meltdown that brought the u.s. economy to its knees, five years out, what lessons have we learned from that time and is our banking system any safer? we are back with dan henninger, kim strassle and editor james freeman joins us. so let's ask that fundamental question, which i guess is the main issue here, five years later, are we safer from another meltdown? >> we wish. we'd like to say that we are. but absent a few minor reforms, we are missing the role of credit ratings, maybe we'll see some reduction in the amount of debt banks can take on. basically what we've had is a codification of the 28 bailouts of wall street. now firms are officially, systemically important and implicit, too big to fail label.

lehman brothers one of the oldest investment banks in the country. i'm not sure how many of you had given much thought to lehman brothers before that day. even the brightest economic minds in the country doubted its failure would turn what was at the time the are ordinary recession into the great recession. banks wouldn't lend to other banks let alone to companies or individuals. the global flow of credit came to a virtual standstill, that meant laying people off. folks who lost jobs couldn't make their mortgage payments, the pain spread beyond america's shores, triggering a near global collapse, people lost their homes their savings and their incomes. things are getting better, millions are still unemployed but stocks have come back for those who had the stomach to stay invested. and to make sure this never happens again, we have to make sure we never forget how bad it got. five years ago this month, america and the world marched to the edge of the economic abyss. on september 7th, 2008, warning sirens sounded when the government took over fannie ma

front of lehman brothers reporting minute by minute.th their boxes full of supplies just walking out thinking what am i going to do next. it was a very scary moment, it was also a moment we saw a lot of big mergers -- >> forced mergers. and no one would buy lehman, that was one of the issues. jenna: but why is it now that the banks are now bigger than they were before? >> well, what happened was i believe they should have broken up the banks -- jenna: the government should have? >> at the time. they had an opportunity to do it. when you bail them out, the banks lose their right to veto stuff, and they should have made them a lot smaller. if lehman just went under, it wouldn't have been a big thing. the economy could have handled lehman, but what happened is it set off this chain reaction because other people had risk related to lehman's risk, and it set off a chain throughout the banking system. that imperilled citibank which is a huge bank. that would have blown up the economy. bank of america, and maybe goldman sachs and jpmorgan. jen

. >> as lehman brothers filed for bankruptcy protection just after midnight.th $613 billion in debt on its books, lehman is by far the largest bankruptcy ever in this country. >> while merrill lynch, the giant brokerage firm, sold itself to bank of america in order to save its own skin. >> as the merrill lynch deal was harm hammered out, word came late that insurance giant aig was also struggling to raise $40 billion to stay afloat. >> good evening and even congratulations. you are now the proud owner of a massive insurance company. >> the federal government steps in to rescue insurance giant aig to the tune of $85 billion. >> so many people within the industry, within the banking industry, tell me they have never seen anything like this. >> that was almost five years ago to the day, september 15th, 2008, the beginning of the financial disaster, a by-product of decades of deregulation and malfeasance, that threw the country and the world into complete panic. and as americans began to grow increasingly anxious about their finances, president bush famously told

in 2008, lehman was in trouble. lehman went under, but goldman, wells fargo, j.p. morgan chase?ank had to force them to take the money. they had to take it to not stigmatize the others that needed it. the massive stuff -- i want to quote you -- he feels asked what if the soviet union invades israel? he said there are some things you cannot plan for. >> paulson said you're not going to get a word in edgewise with barney on the thing. he said, don't worry, i'm really aggressive. >> to me, where politics could enter in. i agree with barney. we have a lot of the tools we need. the banks are better capitalized and better regulated. we focus on other issues, not that the big banks are a problem. i'm much more focussed on fannie, freddie, the shadow banking markets and so on. i want to say the place for politics to come in were partly my making. the things we did were so unpopular. really unpopular. there were polls that when i left office that showed torture showed higher, more favorable than the tarp. >> and you weren't up for re-election. >> those who voted were not concerned about