lehman brothers also faces similar be a normal increases in fails to deliver before its collapse. according to bloomberg, "as lehman brothers struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time." that was more than a 57-fold increase over the prior day's peak of 567,000 failed shares -- trades. many banks that helped to drive the u.s. economy are particularly at risk from abusive short-selling practices due to the importance of investor confidence in maintaining capital. on september 18 -- 19, 2008, the s.e.c. implemented a temporary emergency order barring all short-selling to protect 799 financial companies which included many banks. because the damage naked short selling has done in destroying their companies an investor values. but bearing all short-selling is lying throwing the baby out with the bath water. proper short selling provides the market with a prospect of meaningful price discovery. naked short selling practices led the market to seek equilibrium and the s.e.c. recognize the the only way to pro

lehman brothers, you could have bought protection of lehman brothers before it failed at 7%. the next week you had to come up with 97% of cash. so it is a pricing issue that i >> i am hoping somebody can answer this question. at this whole bank of business, in our full term, in this entire business agreement, what percentage would be of that classification that is not easily valued? >> i think most of the over-the- counter contracts to not have a problem in that regard. it up about the energy currency, what ever it is. there is a vigorous trade in cap market. it is easy to come up with derivatives. when you are talking about liquid corporate bonds, if you are talking about a complex structured asset with three levels of packaging away from the reference asset that it is supposed to be derived from, it creates some questions in terms of pricing. there are very few firms on the street that did the have the people resources to do that wor. the resources and money to do the work. let me give you an example -- >> doesn't that get to the point i was raising on the previous question

lehman brothers, you could have bought protection of lehman brothers before it failed at 7%. the next week you had to come up with 97% of cash. so it is a pricing issue that i think is at the core. it's not whether there is utility. polis obviously utility and these strategies. >> i'm hoping somebody can answer this question. this whole bank of business kind of an artful term but this entire business arena, what percentage would be of that classification that's not easily valued? >> i think most over-the-counter contracts don't have a problem in that regard if you're talking about energy, currency, whatever it is if there is a vigorous trade market it's easy to come up with a derivative. but if it is a very complex derivative. but when you were talking about a liquid corporate bonds or loans to corporations if you're talking about a complex structured asset two or three levels of packaging away from the reference asset it's supposed to be derived from that creates complexities in terms of pricing that i think is daunting and i will tell you now there are very few firms on the

fun separates him time you would have saved lehman brothers? >> we would have given that a try. >> let me ask about the process you went through in determining to give bank of america 15 billion in october. why that number? how did you come up with that number? >> i did not develop that number. i'm sure it was related to the size of the firm and capital ratios. >> who came up with that number? >> i'm not certain, it was probably treasury. >> your mom sure who came up with the number? so the $10 billion given to merrill lynch at a subsequent point in time you don't know who came up with that number either? >> this was t.a.r.p. money and the treasury's responsibly. >> and you didn't have conversations with mr. paulson about this? >> i don't recall. >> as i look at it appears if you take the 15 billion the galt in october, the 15 billion that merrill got, the $20 billion that was given to the b of a of january that pretty much pays for what the b of a paid for merrill to read today basically subsidize the purchase of merrill lynch to b of a? >> no

that is for sure, and there is a big difference in my way of looking at things between letting lehman brothers were bank of america or citigroup going bankrupt or general motors because of the summit of fact of a huge bank going down the drain in an uncontrolled way can be enormous. you get in the 30's. what is the difference between what they are doing now with general motors, which at the end of the day will mean there will be huge job cuts? i don't know exactly but and there were 14 plants close in the united states. you probably would have more less the same results after two years in the bankruptcy situation here now. >> is in bankruptcy, of course. >> chapter 11, pure bankruptcy situation where you would immediately have parts of the business taken over and now you're trying to do it in a controlled way. there's an argument for that but their arguments against it also can and it's interesting to hear about individual dealerships being preserved as a result of congressional intervention or the local politician calls up general motors and says you can't close to the dealership, that's impo

lehman brothers one of the oldest and venerable banking house is in the world declared bankruptcy. and others became wards of the state. and at aig they were so afraid of the collateral debt obligations because not only were is there $50 trillion of collateral debt obligations but there was also so-called derivatives. a derivative is a bad. you can bet if you want to the fly will crawl up or down a window pane. [laughter] that is a derivative. the fly is the derivative. you can bet that oil prices will go up or go down. cold. sweet. 10. you can write contracts on anything then you can get complex contracts were you look at the ratio of the basket of currencies to another basket of currencies and you bet on that ratio so it gets increasingly complex that the former head said i did not understand it and nobody else did either. but about one year ago, a $700 trillion in derivatives. is that a quadrillion dollars in derivatives. that is why the powers that be in its treasury are totally spooked about what could happen because if the counterparties begin to refuse to honor their bets th

they are back to around where they were right before the lehman brothers blow up. that is encouraging. remind me of your second question? host: executive compensation. guest: as part of the effort to regulate systemically important institutions there will be a look at how executives are compensated. that is another delicate balance to strike. we saw with what happened after these tarp fund restrictions were put into place many investors became cautious of getting involved in any of these bankers and tarp programs because they do not want regulations on executive pay. the fact of the matter is that competition affects the behavior and incentives of the senior people at institutions. it is very hard to try to shape the landscape of finance without taking a hard look at the incentives and senior decision- makers at financial institutions. compensation is on the table and it must be. host: a few more calls. the republican line, go ahead. caller: as someone coming from zero small town of 10,000 in illinois, with this recession it seems like the obama administration is i

leaves this customers at a significant disadvantage but the memories of aig, bear stearns, and lehman brothers to name a few, should prompt in fact demand, a swift and thoughtful response from our regulators and legislators. today, the vast majority have standardized terms and trade in large daily volumes. arguments have been advanced about the importance of customized derivatives, about the importance of these instruments which represent a small percentage of total activity. customized derivatives are important but they come with significant operational risk, model risk and financial risk. we should permit the continued use of muchized derivatives with a properly heightened regulatory capital requirements and far clearer risk disclosures to nonfinancial end users. these arguments are nothing more than a strategy to on fuse skate the reel issues at hand, principally the need to bring much overdue modernization to our market place. this problem has an international dimension. we must work to coordinate our actions with for regulators otherwise we face the risk of cross-border arbitrage. the sta

problem we were faced on numerous occasions in the last year with large firms whose failure like lehman brothers what significantly disrupt the financial system and world economy. we had no good options to deal with those companies. it's extraordinarily important as i said for some time as congress reforms the regulatory system that we develop a resolution regime for resolving failed in system ackley critical firms we increase oversight and take steps to make sure to big to fail will not be a problem in the future so i agree strongly with that. >> i've read many articles the last few months and let seen all different sorts of figures as to how much money in total the fed has loaned and pledged, paid and all the different bailouts. would you tell what you believe the total amount to be that the fed has committed over the last few months? >> inerms of bailout's the amount of money we have involved an aig and bear stearns was about $100 billion. >> and in other actions that >> i've seen figures like to .2 trillion. >> the balance sheet is 2.2 trillion but more than half of that is u.s. government b

the market was shut down in 2008 after the failure of lehman brothers. the fed announced the formation of this in 2008. this provides loans to investors, with the asset backed securities, but the securities as collateral for loans. the backing was for the treasury services instrumental in being able to do this. we modified the facility and the total dimensions, even the geep -- before they began their operations. there were the securities backed by the simple assets, they were familiar in the market participants. then we moved on to the longer instruments, and eventually the only eligible securities were the originated auto loans, and small-business loans guaranteed by the administration. in april other securities were made eligible, by the mortgage inventions, the key advantages, and dealer inventories. eligibility increase to the mortgage-backed securities. initially, securities were eligible only if supported by new loans. the intention was to bring the market back to life, by directly financing the investors willing to purchase this, and finding the

it shut down in october 2008 after the failure of lehman brothers. in response, the fed announced the form -- the formation of talf. with backing from the treasury, it provides loans to investors to make purchases of highly rated asset backed securities. the backing was from the treasury as part fun and was instrumental in our ability to do that. as conditions involved, we modified facilities. the first markets targeted by the facilities for those backed by relatively simple assets. the securities were familiar to market for disciplines and their pricing was relatively straightforward. they moved on to more complex instruments. the only eligible securities were those backed by newly and recently originated autocratic part in student loans. small-business loans guaranteed by the small business administration were also used. in april, other securities were made eligible. leases of business equipment and dealer inventories are examples. this eligibility was broadened to commercial mortgage-backed securities. we changed the acceptable origination date as

that granted in extreme circumstances such as that weekend of september 15th and the failure of lehman brothers and what was happening in the collapse of the financial system, was there anything we could do in reforming the regulations to provide for faster disclosure, for instance, the 8-k requirements that were not carried out precisely in this case and that disclosures by the company were not necessarily made within the four days? i know there was an argument about whether or not they were lil litt legally required to. was there something we could do to assure shareholders who do get at risk as a result of not forced but encouraged acquisitions such as this, is there anything we in the federal government can do to clarify that problem and to make it clear that would help the banking institutions in future events of this sort? >> sir, are you speaking to the lehman or merrill lynch? >> to the requirement of your filing for disclosure and notice to your shareholders when this was pending. you didn't necessarily precisely follow what could be considered a notice requirement. >> i think clarity

chairman, ceo of lehman brothers and later co-founded the blackstone group. here we are in the greatest recession since the great depression, and he's got sort of a bird's eye view of this that few people would have. >> who is po bronson and ashley merriman? >> po bronson is author of the number one best seller what should i do with my life, ashley merriman is a science journalist, and they've taken a look much as dubber in and leavitt did for the economy and friedman did for globalization, they're taking a cultural look at the way we raise children, and they've discovered there are certain key twists that science has overlooked. and recent research shows that conventional wisdom of raising our kids is all wrong, so they won a national magazine award for a piece they did on praise for new york magazine. turns out overpraising your children will, n., make your children less inclined to attempt to do things they don't think they're good at. there are also chapters on siblings, there are chapters on gifted programs, testing for private scools. turns out that the

found himself the secretary of commerce for nixon, chairman, ceo of lehman brothers and cofounded theack stone group and here we are in the greatest recession since the great depression and he's got a sort of bird's eye view of this that few people would have. >> who is po bronson and ashley merriman? >> po bronson is a journalist and writer. ashley merryman is a science journalist and they've taken a look much as leavitt did for the economy. they are looking at the way the way we raise children. there are certain key twists that science has overlooked and recent research shows conventional wisdom about raising our kids is all wrong. and so they won a national magazine award for a piece done on praise. it turns out that we all think praise your children give them a sense of confidence, you're very bright and good-looking. overpraising your children will, in fact, make your children less inclined to do attempt things they don't think they are good at and more inclined to cheat. there are also chapters on siblings. there are chapters on gifted programs, testing for private schools. it t

>> i thought it very likely that if merrill lynch failed, it was after robbing and-- the lehman brothers and it would create very serious problem in the financial markets, i did. >> as a manager, he pretty well filled merrill lynch needed to be addressed one way or the other to keep it from going under. >> i thought letting it failed would be, pose a serious risk although it was not clear we could that prevented it from failing. >> okay, now, i saw that committee's statement here and it is in the record, that when someone said, did you in polk a threat or something else, that they invoked the mac there would be repercussions to management. and, we can pull up the record. i am almost sure you said no, i didn't say it that way but i did indicate that if they invoke the mac and there was, what was that? they needed assistance afterwards, that there was this created situation where they needed assistance then there would be problems. and, the clarification there was the fact that it wasn't just this, these mac but it is that they did they mac in needed to come to us for assistance because of

lehman brothers, bear stearns shouldn't have happened in your view. >> there may be a difference of opinion but we don't want -- we don't want to pick any winners or losers. >> if you go back to september or even into march when a lot of this was occurring, when it began to occur, a lot of the decisions, if you recall were done over a weekend. there's no transparency or accountability or uniform plan. i mean, i would wake up in the morning, monday morning, to find out who won and who lost. who was going to go bankrupt and who was going to get saved? and i don't think that's a method that the american people who want to know what's going on and know that their investments are safe, their future's safe in terms of their economics, and i think our plan brings forward, i think, some very good ideas to avoid those kind of scenarios. >> and on that point, one of the things that i have found in talking to stakeholders, talking to investors, talking to people back in my district, i represent new jersey, so a lot of investors there they continue to literally sit on the sideline today with regard to

pickings of winners and losers do you wish hadn't happened and let go or -- which of the outcomes of lehman brothers [inaudible] >> mabey difference of opinion, but we don't want -- we don't want to pick any winners and losers. >> i would like to say something about that. if you go back to september, or even into march when a lot of this was occurring and began to occur in a lot of the decisions if you recall were done over the weekend. this no transparency or accountability or uniform plan, and then you would almost -- i would wake up in the morning monday morning to find out who had won and who had lost, who was going bankrupt and who would get saved, and i don't think that is a method the american people who want to know what is going on and know their investments are safe, the future is safe in terms of their economics and i think our plan brings forth a very good ideas to avoid those kind of scenarios. >> on that .1 of the things i found in talking to the stakeholders and investors and people back in my district i represent new jersey so a lot of investors there is the continue to literally sit

his father's diner, found himself the secretary of commerce for nixon and a chairman and ceo of lehman brothers and later founded the blackstone group and gary are in the greatest recession since the great depression and he has a bird's eye view of this. that few people would have. >> who is paula ronson? and actually murchison? >> a journalist and writer, author of the number one bestseller, what should i do with my life, actually is a science journalist and they have taken a look much as for the economy and friedman for globalization, taking a cultural look at the way we raise children and what they've discovered is that there are certain key twists that science has overlooked in recent research shows that conventional wisdom of raising our kids is all wrong. so they won a national magazine award for a piece they did on praise in new york magazine and it turns out for example, that we often praising your children gives a sense of confidence, you are bright and good-looking, but overpraising studies show well in that make your children less inclined to attend to do things they don't think they

>> i thought very likely if merrill lynch failed it was after all bigger than lehman brothers, it would create a very serious problem in the financial markets. i did. >> so as a manager, you pretty well felt merrill lynch needed to be addressed one way or the other to keep it from going under? >> i thought letting it fail would be -- pose a serious risk although it was not clear we could have prevented it from failing. >> okay. now. you made a statement here that when someone said, did you invoking a threat or something else that if they invoked the m.a.c. there would be repercussions to management and we can pull up the record, i'm almost sure you said, no, i didn't say it that way but i did indicate that if they invoked the m.a.c. and there was, what was it, they needed assistance afterwards, that if there was this created situation where they needed assistance, then there would be problems. and that the clarification there was that it wasn't just the m.a.c. but it was if they did the m.a.c. and then needed to come to us for assistance because of that, there would be hell to be paid.

and the that the dealers that were affiliated with lehman brothers and bear stearns were sort of modestly regulated but i feel we feel now we have to bring that in. so the dealers by regulating the dealers, we get i would say nearly 100% of the marketplace. it would be possible if you and i entered into a derivative neither of us is a dealer but any dealer that holds themselves out to the public and offers these types of transactions negative we can lower the risk of having the capitol margin, increase transparency with record keeping reporting. at the same time, we can let the tens of thousands of users of the products take greater comfort by regulating as i call the stages or promoting the standard products on two exchanges and on to central clearing while with the same time recognizing there will still be some tailored products that could be the airline companies that need a certain breed of jet fuel delivered in a certain location on a certain day. that would still be regulated because the dealer in the league could you were offering the product have to put aside capital and margin an

that singly lehman brothers build an american international group was prevented from failing by extraordinary government action. he that month wachovia faced liquidity pressures which spread its viability in result of an acquisition by wells fargo. in mid october an aggressive international response was required to avert a local-- global melt them. in of them for the possible destabilization of citigroup was prevented by government action. in short the pig was one of the short risk for the global economy as well as bank of america and merrill lynch. on december 17th 2008 senior management of bank of america informed the federal reserve for the first time that because of significant losses at merrill lynch for the fourth quarter of 2008, bank of america was considering not closing the merrill lynch acquisition. this information led to a series of meetings and discussions among bank of america, the regulatory agencies and the treasury. during these discussions bank of america ceo ken lewis told us the company was considering invoking a material adverse event clause in the acquisition contract n

choice and a john mccain who some people asked is he too old, is this guy who says on the day that lehman brothers collapses in the market is going on a free fall that the fundamentals of the economy are sound? whether they were or not. >> host: seemed to mark a serious and the cayman? >> guest: i think also only because john mccain was forest, i think he will use by his republican base to take positions he really did not believe. jill, baby, drill -- not john mccain and. really the first green republican and in the past 25 years in the seventh to step forum and to make some great steps for it on the green issue. now but barack obama seemed like this and when i say that there are a lot of my conservative friends said how can you say that. i am not looking to an ideological lens. this is about temperaments, this is per canada. it is about russell kirk talking about how conservatives concerned, how conservatives established social order and how americans don't want to starting to far one way or another. >> host: this is a guy to work in tv and cares about how things look and sima and the impression

can be very detrimental to the economy and if there was any doubt about that, the failure of lehman brothers and the near failure of a.i.g. should put that to rest. i think it's critically important going forward we find measures to avoid such a situation in the future and i would very much like, again, not to be involved in such activities. >> you have outlined the challenge because some feel that some failures would have cleansed the system, some believe they would have brought down the whole thing and in fact this debate has occurred probably at least five times in the last 15 years as to whether we were at the precipice and the question is if it will lead to this much intervention every time there's extraordinary discretion in a few individuals to say this is -- i'm not disagreeing on this one, i voted every single time with great political duress for each of the financial interventions but the process here concerns me and the more data we get the more it concerns me. >> again, if we have a resolution regime that would be more appropriate for resolving firms in a crisis we can avoid this

many of the largest fishingz in america came under very severe pressure, the failure of lehman brothers and near failure of a.i.g. were important reasons why the world economy went into a nosedive that lasted for the entire second fourth quarter of 2008 and the first quarter of 2009. the treasury, federal reinvestor and other aeingz worked overtime to try to prevent additional failures, additional crises, fortunately the congress provided the t.a.r.p. funding in october october. in mid-october there was an incrip yent global crisis that involved responses by policymakers around the world, u. k australia, japan, germany and elsewhere. united states was able to join in that effort because of the t.a.r.m. money. we averted at that point a global melt down which in my opinion very likely would have created a depression-like environment in the united states far more severe than the recession we have seen recently. >> thank you very much, mr. chairman, and i gave you your shot and now i'm going to come back at you. okay? >> sure. >> the thing we must decide is what we're going to do in the fu

to the overall financial stability, the economy, because our desire to not let something like lehman brothers again happen, we make an exceptional effort. we make an exceptional assistance that they get. that is not available to their peers, and it's not based on a general goal. it is based on an exceptional intervention to assist them decently in their fundamental financial stability. that is a very different situation. and while i could give you, and i think that principle is one people understand that i think they understand there is something different about aig and citigroup ngm vendor community bank that takes more capital and the capital purchase program. i want to make clear the law of the land that was passed and recovery act applies to everyone. so the restrictions on bonuses. we added provisions on larger expenditure on say on pay, on having to write in a narrative way would you risk analysis is. but we were not as interested in those situations because many of those banks are community banks in your district. where you are giving taxpayer dollars to a company that would have gone

importance to the overall financial stability in the economy and the desire to let something like lehman brothers happen, we make exceptional effort. we make an exceptional assistance they get. it is not available to their peers and it isn't based in a general goal, it is based on an exceptional intervention to assist them and essentially in their fundamental financial stability that is a different situation and i think that principle is one people understand. i think people understand there is something different about a on eg and citigroup and gm in the community bank that takes more capital and the capitol purchase program and i want to make clear fall of the land that was passed in the recovery act applies to everyone so the restrictions on bonuses we added provisions on luxury expenditure, say on page, having to write in the narrative way of the risk analysis is but we were not as interested in the situations because many of those banks are the community banks in your district where you were giving taxpayer dollars to a company that would have gone into bankruptcy if they were not systemical