lehman was a symptom, but the fact that lehman failed widened the credit spreads for everyone. and just made the crisis that much more severe. >> rose: just look back at this for a moment, though, with me, and get beyond the authority question, if i can. could you have done more now, with 20/20 hindsight saying "if we had pinpointed the lehman problem more, if i had made more of a public effort to failure out a way to say we've got to do something about lehman" that you could have somehow stitched together something to save lehman? >> well, i don't believe so, charlie, and here why i don't believe so. once lehman came, we had one thing after another after another move quickly. but the way this situation... and we tell the story in the book, i tell the story... >> rose: and a very interesting story. >> and so we were urging lehman to find sources of capital and they were raising capital in the public markets, urging them to find an investor, urging them to find a buyer. so we were working that. and then we knew... and here's the important point. we knew we needed these resolutio

but it seems to me that forgetting about lehman, that you have merrill lynch that followed a lehman bankruptcy, i think you and i would agree that merrill would have gone almost instantly. >> right. >> what would've happened if they had made a deal on there on that sunday? >> it would have -- they wouldn't have lasted, in my judgment, you know, it wouldn't have lasted a week. what people miss, and i think it is easy to miss, was this was a doozy. these excesses have been building up for a long time. i knew we were overdue for a credit crisis. and i told the president back when i came to washington. but i didn't expect anything of this magnitude. that it had been building up and building up in the united states and in europe. and as you can see from reading the papers, it is still working its way's through the european system, but have been building up for a long time. and the institutions had been sitting on losses. we had been pressing them to recognize losses, raise capital. so simultaneously, we had on the same weekend, we learned about the extent of aig's problems on saturday. lehman, it w

lehman brothers, the room already started on the lehman brothers. so you had those three institutions and as warren said, we had washington mutual shortly thereafter wachovia, and we had over the next week's six european nations have to step in and recognize the institutions of this was coming at us pretty quickly from all sides. >> it's ironic that in effect i think you talked about kenneth lewis having an appetite for deals or something of the sort. but if in a fact he hadn't made this deal which doesn't look like this is only the greatest deal to offer a 70% premium on their next day the stock might have been zero but didn't he kind of save the system force? >> i tell you, he was a confident and decisive ceo, and there's no doubt that was very much at a stabilizing action. >> do you think we would have gotten to to stay on the aig if there hadn't been action of merrill lynch that they? >> 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 institutions failure, do you? the system is

but in effect, they blocked the barclays acquisition of lehman. do you think they understood what the consequences were? >> i don't know everything they understood, but remember, there was a requirement for a shareholder vote. >> but we overcame a lot of things in this country. >> that's right. and then what we needed was, we needed a buyer that could do what j.p. morgan did with bear stearns, which was filled the capital hole and didn't guarantee the trading during a shareholder vote. because there was no authority to do this in the u.s. and what i think people have a hard time understanding, because we are the united states of america, and i had a hard time understanding until i started overturning, turning over every stone to see what authorities we had, that there was no authority to guarantee liabilities or to put capital into institutions. but in any event, i'm not sure what -- but the british were, i had said in the book, i did use some rational language when i was disappointed, but as i said in a book, as i reflected on it, they obviously

lehman brothers, we have already started. merrill lynch was right there so you have those three institutions and as warren said, we have washington mutual shortly thereafter and wachovia and over the next weeks we had six european nations have to step in to recognize who this comes in pretty quickly from all sides. >> host: it is ironic. but having an appetite for this, in effected he did not make good deal, he offered a 70% premium the next day and might had been a o didn't he save the system? >> he was a confident and decisive and ceo. there is no question it was a stabilizing action. >> host: would we get to aig action if not for merrill lynch? >> i don't know because i don't think we could take one other big institutions. the system would is hard for people to understand, we have 10 institutions that have 50 or 60% of the financial assets in this country and it is so interconnected, in many ways, we were, but it is terrible. we are pretty fortunate. >> the british had been you a warning about the situation a couple of day

lehman can't pay lehman dollars to pay lehman debt. >> i'm not suggesting that greece is going to default. not at all. i completely understand what you're saying, but the answer is, they either print money and/or they cut their spending. one of the two. either way, the bottom line is it's negative for the euro and positive for the dollar. >> i agree with that assessment it's definitely driving action into the dollar, no doubt about that. but i do also wonder about the newspaper. the same newspaper had a story about angelina jolie and brad pitt visiting a space alien. we can find a million different headlines. >> but let's bottom line this, the fact is if this is appearing in the newspaper and being read by investors around the world, whether it's true or not, if it's having an impact, it's having an impablt. brian, what is the bottom line trade off of this? >> the bottom line trade is safety. you have to be short euro, long dollars. that's the best trade i see out there right now. all currency trades are relative value. relative to the euro, the u.s. dollar looks much better right now. >>

the lehman bankruptcy i think we agree that lehman brothers would have gone instantly. what would have happened if they hadn't made the deal on that sunday? >> that in my judgment wouldn't have busted a week. what people miss and it's easy to miss is this was a doozy. these successes have been building up for a long time. i knew that we were overdue for a credit crisis and i told the president that when i came to washington but i didn't expect anything of the magnitude but it had been building up in the united states and europe and as you can see from reading the papers it is still working its way through the european system that's been building up for a long time and the institutions have been sitting on losses. we've been pressing them to recognize losses and raise capital. so, simultaneously we have on the same weekend we learned about the extent of aig's problems on saturday. and the run had already started on lehman. merrill lynch was great to be right there, you had these three institutions, and

the lehman bankruptcy i think we agree that lehman brothers would have gone instantly. what would have happened if they hadn't made the deal on that sunday? >> that in my judgment wouldn't have busted a week. what people miss and it's easy to miss is this was a doozy. these successes have been building up for a long time. i knew that we were overdue for a credit crisis and i told the president that when i came to washington but i didn't expect anything of the magnitude but it had been building up in the united states and europe and as you can see from reading the papers it is still working its way through the european system that's been building up for a long time and the institutions have been sitting on losses. we've been pressing them to recognize losses and raise capital. so, simultaneously we have on the same weekend we learned about the extent of aig's problems on saturday. and the run had already started on lehman. merrill lynch was great to be right there, you had these three institutions, and as warren said we had washington mutual and short lee wachovia, and o

the lehman bankruptcy i think we agree that lehman brothers would have gone instantly. what would have happened if they hadn't made the deal on that sunday? >> that in my judgment wouldn't have busted a week. what people miss and it's easy to miss is this was a doozy. these successes have been building up for a long time. i knew that we were overdue for a credit crisis and i told the president that when i came to washington but i didn't expect anything of the magnitude but it had been building up in the united states and europe and as you can see from reading the papers it is still working its way through the european system that's been building up for a long time and the institutions have been sitting on losses. we've been pressing them to recognize losses and raise capital. so, simultaneously we have on the same weekend we learned about the extent of aig's problems on saturday. and the run had already started on lehman. merrill lynch was great to be right there, you had these three institutions, and as warren said we had washington mutual and short lee wachovia, and o

but it seems forgetting about lehman brothers upn but if you had merrill lynch , that followed a lehman bankruptcy, we would agree merrill would have gone almost instantly away. if the if they had not made the deal that sunday night, . >> host. >> guest: no. they would not have lasted in my judgment, one week. what people missed and i think it is easy to miss, was this was a doozy. that access had been building up for a long time. i knew we were overdue for a credit crisis and told the president that when they came to washington but did not expect this magnitude but it was building them up in the united states and europe. and it is still working its way through the european system. but building up for a long time and the institutions were sitting on losses and we were pressing them to raise capital. simultaneously, on the same weekend, obery learn about the extent of the aig problems on saturday. merrill lynch would be right there. you have those three institutions. as warren said, washington mutual, shortly thereafter, wachovia, then zero her the next week comment nations had to step b

>> yeah, there are people that think they are the european lehman brothers. to repeat history, lehman brothers was one of the largest banks in the u.s. and it was allowed to fail september 15, 2008, and that's when the financial crisis hit a tailspin and things went from bad to quite ugly and to a degree that we hadn't seen since the great depression. and i think that's not that long ago, and that's in a lot of people's minds, that if you allow something big to fail, it has repercussions throughout the world. so in addition to spain, portugal and greece, and there is even concern about italy and ireland, together they are being called the p.i.g.g.s., portugal, italy, airline, and spain. host: our next call comes from edn. on our line for independentents in mournt poconno, pennsylvania. >> good morning. this has to do with the economy. i just want to make this comment. i'm getting tired of hearing the democrats cry about what obama inherited. when we paid hundreds of millions of dollars begging for votes, now they are crying to their momies like little girls.

now let me go to lehman. would we have solve the problems with lehman had avoca rule been in place? on they yet another institution that wasn't taking deposits but were doing some-- >> the volcker rule, much as i'd like to say it's all the problems did not solve all problems. it is part of i think coherent reform of the financial system. lehman, under the-- they are not a bank so the rule would not have applied but under the general regulatory approach that has been proposed by the administration, he would have had presumably a leverage restriction in the capital restriction on lehman and you would that had a resolution authority like you favor. i hope and believe that combination would have produced a very good chance that lehman would not have failed. >> here is where i think we are getting to go. based upon what you are saying to me and i think it is now clear. you are saying i think mr. chairman that this is a great opportunity since we are doing financial reform anyway, to put this rule in place. but it really would not have solved the problem with aig. it really but not have s

when we have to solve the problems with the lehman brothers had "volcker rule" been in place? on day at another institution that wasn't taking deposits but were doing some proposals? >> proposals did not solve all the problems. it is part of a i think it procured reform and the financial system. lehman brothers under not just judicial order, they are not banks of the rule would apply, but under the general regulatory approach has been proposed by the administration, you would have had presumably unlovely restriction, a couple of restrictions and you would have a resolution authority that he favored. i hope and believe it that combination would have produced a very good chance of leaving without have failed. >> here is where i think we're getting to them. based upon what you are saying to me and i think it is now clear peering to are saying i think mr. chairman the this is a great opportunity since we're doing a financial reform anyway to put this rule in place. but it really would not have solve the problem with aig. it really would not have solve the problem with lehman broth

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

. >> reporter: so if you'd been in the administration after lehman brothers failed, you wouldn't have supported bailout out a.i.g.? >> absolutely not. it was the single most, you know, drastic error in policy in modern history going back to the 1930s. this was exactly the wrong thing to do. it's destroyed any basis for fiscal discipline in the united states. i was a member of congress and i know how they think and they think by analogy. if you did it for john, you've got to do it for bob. there is no way that any congress is ever going to vote against farm subsidies or ethanol subsidies or housing subsidies or anything else, refrigerator subsidies. once we've made this tremendous bailout for wall street and we stepped into a.i.g... >> reporter: well spoken like a true gunslinger, but you would have been taking an enormous risk. >> it's part of the capitalist system. you know, if an investment bank gets in trouble, it ought to fail. if a hedge fund gets in trouble, it ought to fail. the idea that our system is so fragile that the failure of lehman brothers or even goldman sachs which c

has to be done now is what we need is we need a wind- up authority so we don't have something like lehman. >> reporter: but right now isn't your bank, bank of new york-mellon too big to fail? >> no. >> reporter: would the government really allow a company which is, in your own words, critical to the infrastructure of the country, to fail? >> if that ever occurred which would be extremely unlike in the stockholders' view as well as the debt holders view because we're viewed tass strongest bank in the nation. what they could do is they could come in, take us over and just continue to run us our wind us down. my expectation is they could do it at zero cost to the nation. >> reporter: are you saying no banks out there are too big to fail? >> i would say no. if you get the right systems in place, more capital, more liquidity, better regulation, wind-up authority. >> reporter: yes but right now we don't have those things. right now there are no banks in america that are too big to fail? >> there are several banks that are problematic still in the nation. that is solvable. >> reporter: you under

lehman brothers was still functioning sat kimber 28. i turned that chapter in. i can't go back. it's that kind of situation. that was the challenge for me now a challenge of ethics but of leges discipline or approach were saying i have to acknowledge i can't say it all in this book. that is probably what took me six years into the previous book because i kept saying i've got to get more and i couldn't do that with this one and i got pretty good at saying okay, i have to stop. >> i would like to thank you -- one more. i won't think you yet then. [laughter] >> i have a couple questions. i really had my ear the fan of keeping obama's naim intact because one of the things going on in the community is that we only go so far with african culture. there are some populations that do change their name so i was wondering how do you see that as playing a role developing an american ethnicity with african influence because bill cosby made a statement, too. a lot of things about men being responsible but he also said in the same breath you can't make it by changing the name to fun the africa

so more stuff is going to happen, like i mentioned lehman brothers. they said why did you have more about the economy? lehman brother was still functioning, september 28, i turned a chapter in. i can't go back. so it's that kind of situation. that was the real challenge for me, not a challenge of ethics, but a challenge of i guess discipline or approach. i have to have knowledge that i can't see it on the book. i mean, that's probably what took me six years for the previous book. i said i've got to get more, i've got to get more. and i couldn't do that with this one. i got pretty good at saying okay, i have to stop. >> well, i'd like to thank you -- one more, i'm sorry. but i will thank you. >> i had a question. you know, i really admire keeping obama's name intact. because one of the things that's always been going on in african americas communities as we only go so far with african-american culture. there is some populations who do change the names. i was wondering, how do you see that as playing a role, developing and american ethnicity with africa

but with a background in high finance at lehman brothers ratherthan building boards, it's fair to say his first efforts didn't quite hit the mark. >>strand: i look back on my early boards and they're just a joke to me right? but you put something out there and you start building some sales and some enthusiasm and you use that momentum to go back in and redesign and keep evolving the product till you get to something that really can become the foundationof an ongoing category. and that can take years because there's so much knowledge and revisioning that has to go on. >>reporter: so he did what my entrepreneurs have done: went to work in the garage to fine tune the product andgoing into debt. by 1999, strand had started freebord manufacturing based in a warehouse in san francisco. and it's not just the board design that changed over the years... >>kendall: the average freeborder has changed a bit over time but i think if you start with a snowboarder, 16 to 24, male, somebody who's willing to try something new and different. the average freeborder thoughnow is definitely getting younger

as you were in throes of the period around bear stearns or up to the lehman episode, if you walked into the cfo office of any of the nine or 10 big money center institutions, investment banks and banks at that time, and you asked them, are you solvent? first of all, with the complexity on the balance sheet, they may not have known, probably didn't, but secondly, if you asked them, are you solvent and they gave you an honest answer, the honest answer was, it depends on the eight other guys. and we had a situation, which i think calls for something akin to a bank holiday. where you close them all, you measure them all, you recapitalize them in parallel. and instead, what we had was a process of a bear stearns where the politically strong can get to the back of the bus. and then you do bear stearns, and then you wipe out a couple of others, and you recapitalize others, and the politically strong at the back of the bus, after you resolve the other seven, can look at you and say, yeah, of course we're solvent and what ended up happening is there was a horrible microeconomic violence where th

the first round coming out of the post lehman crisis was of the liquidity crisis. central banks have the tools to address a liquidity crisis and they did it in large -- with large amounts, very robustly worldwide. now we have a different sort of a fix here. we have a sole ventsy crisis and that has moved into sovereign debt. that requires a political discipline. the markets are forcing that discipline and the reaction is a pushback. we're going to see it in greece with the unions in the streets. we saw it in portugal with what was the makings of a failed government bond auction. so we now have to confront that tension. my view is it will ultimately be resolved because the markets will force the resolution of governments to behave themselves, but it won't be pleasant while it happens. >> david, this is christine. when you say sovereignsy crisis, what do we hear the most? a default? sure that's unlikely. >> it's unlikely that a government in the end defaults, unless it runs out of money, like argentina. so what happens is governments get forced to push back on their

but again i think the simplest way to they this is look at what happened after lehman brothers and the broader collapse of many of our large institutions. the value of the american savings fell by 40%. you saw hundreds of thousands of businesses forced to close, millions of people lost work. basic confidence in the stability of our system was broken. the rivets for coming of the submarine and in that environment to have the largest insurance company in the world that had written savings protection contracts to thousands, hundreds of thousands of american households into a bunch of local governments, to have that institution fail in that environment our judgment would have been catastrophic so what we did was the best we could with limited tools to try to limit risk to the taxpayer. >> okay. when did you first become aware that aig was in trouble, you, personally. >> aig informed the treasury and the fed on friday, i can't remember if it was september september 12th or if it was that friday i think it was set friday that they were-- >> this was in september? >> that's right, september 2

we see that bear stearns gets bailed out, then lehman brothers collapses and then we bail out a.i.g., well, if you're running a $20 billion a year hedge fund, you don't know what the rules of the game are. now you have complete uncertainty as to what the rules of the game are. and in fact a lot of people have pointed out that the markets really started to falter not when lehman brothers went down but rather eight days later. now we might not remember this because we probably didn't keep track of everything that paulson and bernanke and george bush did, but lehman falls on september 15, then what we have is on september 23 the chairman of the federal reserve and the secretary of treasury come into congress and they testify that they need $700 billion, they've got a 2 1/2-page bill, they don't know what they're going to do with the money, but if you don't give it to them then the world is going to end. now that makes you a little currentble if you're deciding what you're going to do with your investments. not only that, but the next day the president of the united states comes on nation

lehman brothers the last time to do anything was enron but after that the regulations had eroded and they were not subject too any reasonable discipline because they knew the market to supplement economic catastrophe and that is how we get 22008 when the markets finally did correct their excesses but they could not do so without creating another great depression and that is how we got then nationalization of all risk in the financial industry, the opposite of market discipline and finance is not a freer market as we have seen seen, nationalization of one of the most important elements of the economy, who decides which businesses get investment capital and on what terms. it is fashionable to say the crisis has been a black swan, something we could not have anticipated but the real blacks one is with we had gotten rid of every prudent regulation and all discipline of finance and did not have a historic financial crisis. what does that mean we know what we have to do exactly. we have to go back and apply the old principles to new markets and don't need huge bureaucracies micromanage by

we see the bear stearns gets bailed out, then lehman brothers collapses and then we bail out a.i.g. if you're run ago a $20 billion a year hedge fund, you don't know what the rules of the game are you have complete uncertainty as to what the rules of the game are. in fact, a lot of people have pointed out that the markets really started to falter, not when lehman brothers went down, but rather eight days later. we might not remember this because we probably didn't keep track of everything that paulson and bernanke and george bush did, but lehman falls on september 15. then what we have on september 23, the chairman of the federal reserve and the secretary of treasury come into congress and they testify that they need $700 billion. they have a 2 1/2-page bill. they don't know what they're going to do with the money. but if you don't give it to them, it's world is going to end. that makes you uncomfortable if you're deciding what to do with your investment. not only that, but the next day, the president of the united states comes on national television and says the following, speaking

are two phases, there was that oh my god moment and describe very interesting leave the use of the lehman brothers collapse to create the tear the world would and you must do this now. after less incited congress started to work on three regulating and actually making changes to how securities and banking would be operated to do with the structural issues how is that going? you said the test is a flight is on the table would have adopted preventing from happening again. how were they doing? >> guest: pretty badly. pretty badly. the major change of regulatory structure is to give the fed more power. what the fed. >> host: wait a minute. >> guest: but they were the ones that were responsible. they did not use the powers they had to prevent it. >> host: they helped to inflate it. >> guest: not only that, but they could have done something to put regulations on down payments, other instruments. the argument is we only have one instrument. interest rates. that is not true too seven you make that point* in the book. >> guest: here you have that agency that cause the problem or at least responsi

there were examples people gave where you would look at behr and lehman. >> lightning round. lightning response. is it too big to fail or bank holding company trading activities? >> it's both. banks should be limited in the securities they hold. if they will perform trust activities for individuals, companies and so forth they shouldn't trade on their own account. they can't advise people how to invest. we don't want goldman sachs telling people to buy swaps and short the market. >> do you think they should be private, peter? >> i think they should cease to be a bank. it should sell the industrial bank that it used to get the federal charter. be an investment bank. get out of the banking business. no federal guarantee. >> mark, i don't like the federal guarantee as far as too big to fail. we had a hudson banker here, a mid-sized banker. to me, this is where volcker should put his strength. you have a chance to get a real change in too big to fail. >> i agree. one of the remarks he said today that raised my eyebrow is where he said the house bill fixes that. i have to ask whet

. >> even if we talk about something like a lehman, how would the economy survive something like that? >> the lehmans and what happened in the fall of 2008 is in the past and going forward we are very interested about how this financial reform focuses and on what to do about the companies that are so-called too big to fail. our idea is simple. we have to let some of them fail. how do we let them fail. >> with conventional protections to consumers we always had. one is called bankruptcy. the congress is considering this dissolution authority which i know you read about and studied and this is a good idea but that authority doesn't need to cut any favors to the companies that fail. you know, we -- you just had a report about compensation of executives on wall street. they get rewarded handsomely for the risks they take but there also has to be punishment in the new regulation that puts some fear in those executives so they don't take risks that put you and i at risk. >> do you think that we are coming together now with a generation that sees how this has played out and maybe is losing s

that same weekend when lehman was going under, and the companies wanted to get it done. the government also did want to get it done. later on, ken lewis, the former ceo of bank of america, went to the government and said, we need help to get this done. and the attorney general is saying, well, that amounted to fraud. ali, we should also mention that bank of america is saying these charges are absolutely without merit, and let me read the statement from bank of america as well. "bank of america and its executives, including ken lewis and joe price, the former cfo, at all times acted in good faith and consistent with their legal and fiduciary obligation, in fact, the s.e.c. had access to this same evidence as the new york attorney general and concluded that there was no basis to enter either a charge of fraud or to charge individuals. the and these executives will vigorously defend ourselves." ali? >> they make an interesting point there. we've invited bank of america on to the show as well as the new york attorney general. let me just ask you about this. it gets confusing

. >> all the banks that blew themselves+]-6Ñ up, they were al publicly traded bear stearns, lehman brothers, merrill lynch. goldman sachs. they used to be partnerships now they became publicly traded. >> when you were a partner at a wall street firm. you were a partner. that meant joint and several liability. liability if one of your partners screws up badly and loses millions when you are sued they go after the partner's assets that includes not just stocks and bonds and bank accounts, but their houses and their cars and their boats and their rolexes. there is no shield. other than telling your wife that you know you've had an affair, i can't think of more of an uncomfortable situation than going to the partners saying i lost you 50, 100 million dollars which each will have to write a check out of the checking account you would be out of business nt= you took a stupidess insame -- insane risk with other people's money. >> the guys with the green visors looking at the numbers making sure we are not going to take much risk because i'm not going to lose my house everything was handled in a co

we saw with lehman bear stearns the public was outraged they dumped on these stocks so much. it's a good idea just to slow it down. will it work, 10%? we have ten exchanges in the country, 50 dark pools at least. it's debatable. we would like to see these guys, these market measures exempt because it does add a lot of liquidity in the market. it's a useful tool used properly which these guys use properly every day and we see eventually short sales become buyers. >> gordon? >> i respectfully disagree. i'm not a regulation kind of guy. i don't think there is any need for it. if you look back also to when it started, it was difficult. there is a cost of regulation, the actual ergoo nomics of hand held in a market that's got multiple routing destinations. you're not exactly sure. you're trading in micro seconds. what is the tick at any given second? i think it brings on a lot of burdens that are unnecessary. >> sounds like you're saying let's just say they did this, if a stock goes down 10%, we all remember when the banks were going down they did this temporary rule that you were

all, we had the private credit expansion that imploded and almost exploded with the subprime in the lehman crisis. now we've had the public reexpansion. to the extent we've expanded in stocks at certain price earnings ratios and high yield bonds at certain narrow yield spreads, then yes, that trade, that expansion in the balloon basically is over. what we're seeing is, yes, today hedge funds to a certain extent, taking some of the leverage off the table. gold down 5%. oil down 5%. the japanese yen going the other way. everything basically ha that has been predicated upon the dollar carry trade is now at risk. we don't sense that there's significant amount of risk, but we do sense that the expansion, that the used for i don't is over. >> let me ask you this then development you want to be looking at all of the asset classes as far as risk rising bill? we know the commodities have had such a fantastic run over the last year or two. the bond market as well. what do you want to be doing with these asset classes in the face of what likely will be more volatility and perhaps more downside to equ

look back to what happened after lehman brothers failed. our judgment was -- this was the judgment of a range of people responsible for those decisions at that time, including president bush, secretaryw3 paulson, chairman bernanke along with me. our judgment was those problems would have been dramatically amplified if aig had failed and they would spread to parts of the system that would have otherwise been unaffected, including basic confidence in the insurance industry. >> or is it to the derivative business? securities lending and insurance companies? the commercial paper? the aircraft leasing business? or something else? >> it is hard to separate. what is systemic risk is a difficult thing to judge. >> we are all finding that out. >> that is the reality of it. i think the simplest way to say it is look at what happened after lehman brothers and the broader collapse of many of the large institutions. the value of american savings fell 40%. hundreds of thousands of businesses forced to close. mary and the people lost their work. basic con

richard, the head of lehman brothers, catastrophic failure. we don't know whether he's under investigation. we certainly don't know whether he committed a crime. he is, you know, certainly -- nothing's happened to him yet. another figure, joseph casano, he is an elusive figure. it's hard to get a photograph of him. the "daily mail" of london got that one. he made $300 million. aig collapsed calamitously. there's been in criminal case brought there. again, i don't want to accuse him of a crime. it's certainly worthy of investigation. no one has been prosecuted yet. >> and so why not -- if ken lewis can be charged civilly, is it easier to bring a civil charge? >> it's easier to bring a civil charge. the burden of proof is preponderance of the evidence, not proof beyond a reasonable doubt. so far the government has not been able to establish that this isn't just a bad luck mistakes, everybody trying to do their best, but not fraud. that's the defense so far and so far it's worked. >> and what would be the potential -- civil -- just a monetary fun

i mean, you've got to remember that when this industry collapsed after lehman, we had a 40% collapse from the peak of the marketplace in 20, 2001 to where we ended last year. there was tremendous overcapacity all across the united states. and it's not something you take lightly closing a plant. you look at the workers behind me. when that market collapsed and we had 100,000 unassigned vehicles sitting in our ports that we didn't have dealers to be able to accept because inventories were so high, we didn't lay these people off. we kept these people working because we know that they are a huge asset for us. so we don't take closing a plant or numi doesn't take closing a plant lightly. we believe in our workers. they've done a tremendous job in getting us through all of this. so numi is, unfortunately, we're going to stop ordering product at the end of march. and we will do what we can to try to help the workers through transition. and hopefully, i don't know if another assembly can go in there or they can redevelop the property and create jobs through the redevelopment and whatever els

phase, the immediate "oh my god" moment with a bailout and you describe interestingly the use of the lehman brothers collapsed to create an almost terror of "oh my god the world will end you must do this now." after that subsided the congress started working on, and certain federal regulators started working on reregulating, how the banking and insurance would be operated so as to try to deal with some of the structural issues, change the incentives and figure out where the risk was. how has that been going? use said the test would be if what is on the table were adopted what it prevent what just happened from happening again. however the during? >> guest: pretty badly. let me give you one example. a major change in regulatory structure is to give the fed more power. but the fed was -- they were the ones responsible. they didn't use all the power they had to presentable. they were the ones who said -- >> host: they helped inflate. >> guest: not only that did they pump it up in that way but they could have done something about putting the regulation on the down payments, other instruments, o

phases; there's the immediate "oh my god moment" with the bailout and you described the use of the lehman brothers collapse to sort of create a terror of "of light of the world will and you must do this now." after that subsided, the congress started working on and the federal regulators start working on free regulating, eckert and making changes to how the securities, banking and insurance would be operated so as to try to deal with some of the structural issues, change the incentives, figure out where the risk was. how has that been going? you said the test would be if what is on the table were adopted would prevent what has happened from happening again. how are they doing? >> guest: pretty badly. let me give you one example. the major change in the regulatory structure is to give the fed more power. but the fed -- post to wait a minute -- >> guest: they were the ones responsible. they didn't use all the power they had to prevent the bubble. they were the ones who said -- >> host: helping inflate with low-interest rates. >> guest: not only did they pump it up in that we that they could

phases, there's the immediate "oh my god" moment with the bailouts and you described the use of the lehman brothers collapse to sort of create an almost tiergarten of "oh my god the wild life and you must do this now." after that subsided congress started working on and federal regulators started working on a deregulating, actually making changes to how securities, banking and insurance would be operated so as to try to deal with some of the structural issues, change the incentives, figure out where the risk was. how has that been going? you said the test would be if what is on the table were adopted it would prevent what has happened from happening again. how are they giving? >> guest: pretty badly. let me give you one example. the major change in regulatory structure is to give the fed more power but the fed was -- >> host: wait a minute. >> guest: they were the ones responsible. they didn't use all the power they had to prevent the bubble. they said -- >> host: after helping inflate. >> guest: not only that, but not only did they pumped up in that way but they could have done something

my question of a lot of the problems with lehman, with her strength, with aig was the fact that regulators and other banking institutions had no idea where their liabilities, where their talent exposure live. there is no way to calculate the aggregate that information. and as a result, i think the regulators were flying blind essentially, doing the best they could, trying to work things out. a lot of it was just sort of flying with instruments that were working in bad weather. it was more the seat-of-the-pants dance aesthetic regulation. so one of the things i think we have to do is create a repository of information available to regulators, available to the public of appropriate delays so that the system is much more understandable and i when there is a shock to the system, markets don't react out of fear. they react with some knowledge. and thank you, mr. chairman. >> thank you, senator reed. we have on this committee become accustomed to something we call the corker role, were violating or not violating actually breathtaking refreshing difference from senatorial custom, senator corker i

carl eluded it was bear stearns before lehman, do you think that's the case? are there more shoes to drop? >> joe, i was thinking that things have gone downhill ever since the vikings lost the nfc championship game. i think we clearly took the wrong team to the super bowl. but beyond that, i -- i -- i -- you know, i think we got to remember we got a heightened sensitivity in this country, and really in the globe right now, to crisis, nipg thanything that like it, walks like it, we have a visceral attitude, we're doing that here. as i look at it here, there's not the indicators in the united states marketplace that would normally show a contagion going global, you know, libor spreads have hardly moved. credit default wspreads or mortgage junk spreads are fairly benign. we haven't had a huge flight of quality from the ten-year treshl treasury, i think that's a very good sign. i think we also have, you know, there's a number of countries in the -- in the european community that have the wherewithal to stop this thing or backstop it, and i think they're going to.

blankfein recently told the financial crisis commission that the firm wasn't necessarily on the brink after lehman brothers collapsed in mid-september 2008. >> that weekend, when we became a bank holding company, the next day, we capitalized ourselves, in part, privately, with warren buffett. and the day after that, we did a capital raise for $5.75 billion, which you could have made a lot higher. we had access to the capital markets, and we could have made it more, and we weren't relying on that government help. >> reporter: but others are dubious that goldman could have raised so much money without government help. >> you don't go to the fed on a sunday night and say, "i really need to become a bank holding company now, because i want to help out all my competitors." you go because you need capital and this was a way to do it. >> reporter: because the government could only give them money if they were a bank or a bank holding company as opsed to an investment bank? >> right. >> and basically, if you hold securities or anything else-- i think including your car if you're goldman sachs, at this poi

blankfein recently told the financial crisis commission that the firm wasn't necessarily on the brink after lehman brothers collapsed in mid-september 2008. >> that weekend, when we became a bank holding company, the next day, we capitalized ourselves, in part, privately, with warren buffett. and the day after that, we did a capital raise for $5.75 billion, which you could have made a lot higher. we had access to the capital markets, and we could have made it more, and we weren't relying on that government help. >> reporter: but others are dubious that goldman could have raised so much money without government help. >> you don't go to the fed on a sunday night and say, "i really need to become a bank holding company now, because i want to help out all my competitors." you go because you need capital and this was a way to do it. >> reporter: because the government could only give them money if they were a bank or a bank holding company as opposed to an investment bank? >> right. >> and basically, if you hold securities or anything else-- i think including your car if you're goldman sachs, at this p

so maybe the lehman shock, may be the case that we give us the opportunity to change the economic structure. and it has historical significance that we now are faced with this mission of changing japanese economy. i'd like to conclude this at this point here. >> thank you very much, minister sengoku. we will certainly discuss what some of those structural changes might mean, particularly as we move towards more domestic demand led economies. everybody always promises best and yet as i pointed out in a recent column by my rough and ready calculations, at least 70 to 80 percent of world gdp in countries that seem to be hoping for export led growth. it would be helpful if we diminish the proportion somewhat sends mars probably isn't a very good import market. now let me turn to the new asian giant, china, which has had an astonishing new successful stimulus program and the remarkable growth performance last year, which some of us and i have to admit, i am of them, were somewhat skeptical about. so congratulations. and we hear a lot about the overheating bubbles and obviously the government is

geithner, secretary geithner, he mentioned that you -- he and you met with aig to discuss lehman's failure. >> to discuss what? >> september 14th. that was two days. >> oh, yes. you're saying so you were talking about in 2009, march. i think you're talking about september 14th, 2008. >> that's right. okay. i stand corrected. i am. that discussion, but you participated in some of the discussions about aig and their financial condition leading up to -- >> yes, the weekend was the weekend we had financial institutions to previous the failure of lehman. it was that weekend that we weren't also about aig. and i had two weekends with the officials from aig. >> all right. in those hearings was there any discussion of asking the counterparties to take less than 100%? >> was there any discussion of what? >> any discussion of the counterparties taking less than 100%? >> i certainly don't recall any. it was clearly an issue with counterparties. >> we have issues with counterparties. that was the issue. it was the ratings on a potential ratings downgrade. which would cause the company to have to post

look back to what happened after lehman brothers failed. our judgment was -- this was the judgment of a range of people responsible for those decisions at that time, including president bush, secretaryw3 paulson, chairman bernanke along with me. our judgment was those problems would have been dramatically amplified if aig had failed and they would spread to parts of the system that would have otherwise been unaffected, including basic confidence in the insurance industry. >> or is it to the derivative business? securities lending and insurance companies? the commercial paper? the aircraft leasing business? or something else? >> it is hard to separate. what is systemic risk is a difficult thing to judge. >> we are all finding that out. >> that is the reality of it. i think the simplest way to say it is look at what happened >> but that's the reality of it. again, i think the simplest way to say it is look at what happened after lehman brothers and the broader collapse of many of our larger institutions look what happened in that. savings vel

we estimate that the top five executive teams of bear stearns and lehman brothers arrived cash flows of about one point for billion, and 1 billion, respectively, from cash bonuses and equity sales during 2002008. and this cash flow substantially exceeded the value of the executives at national holdings in the beginning of the period. as a result, unlike what happened with the long-term shareholders, the executives net payoff for 2000-2008 were decidedly positive. the second point i would like to make is that we cannot rely solely on existing governors arrangement. to produce the necessary reforms. to be sure, some firms have announced reform of the compensation structures. for example, they have indicated that bonuses will be subject. but firms have generally not provide information that would enable outsiders to determine whether it would be meaningful and effective behavioral or would be merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt i appear to be at least partly motivated by desire to appear with positive to outside critic