tv Wall Street Week FOX Business September 25, 2016 9:30am-10:01am EDT
special coverage of the first presidential debate. good night from new york. [♪] >> announcer: this show has never been solely about investments. we talked about anything that affected people and their money. from fox business headquarters in new york city, the new "wall street week." anthony: welcome to "wall street week," the show of record for long-term investing. i'm carr. gary: i'm gary kaminsky. we recently marked the 8th
anniversary of the collapse of lehman brothers. the federal reserve keeping interest rates incredibly low. some say the low rates prompted bad behavior like wells far go opening up unauthorized bank accounts. gary: tom russo was a chief executive officer of lehman brothers and currently of a.i.g. what has changed in the last 8 years? >> i think a lot has changed. after dodd-frank there is a lot of attitude, certainly a lot of regulation. the capital cushions are a lot more now and stress testing having he living wills by the major institutions. in and of itself -- i'm personally not crazy about the
idea. but it forces people to think through what if, what if if something should happen. i think all of that is very positive. >> when the federal reserve chairman ben bernanke was on our show. he said they did everything they could to keep lehman brothers alive and there was nothing they could do legally. >> i would respectfully disagree as most people who looked at it would disagree. they had plenty of power under section 13.3. when congress looked at it through the federal crisis commis for documentation about not having power. there was a recent paper done by the chairman of the economics department of johns hopkins,
lawrence ball, and the 214-panel paper which he went through with a thorough analysis and he also came to that conclusion. more important the emphasis was on this particular section. but there was the primary dealer's credit facility which lehman had well over $130 billion that was pledgeable and they cost could have gotten $88 billion out of that. so they didn't even need the power under section 13. i think it was a judgment call at the time in which they miscalculated the effect of lehman. and it was a bad judgment call. gary: when you look at today's environment. the wells far dough new -- the o news of this week. and the interest rates. are we still living in the environment cause the by lehman? >> one is -- not saving lehman,
but they saved aig the next day. i'm in the same position with aig as i was with lehman. i think that did a lot of damage to the economy that was unnecessary. and as a result, they had to do dramatic things, including with a lot of other investment bangs that following weekend. anthony: do you think there was an expectation in the executive suite at lehman that they would get back stopped? that is ultimately what the fed was designed to do. gary: i said publicly for many years here now and tom can agree or disagree, i believe senior management whether it be dick phal or tom. hang paulson told them they
encouraged them to find a financial partner. i think management was operating on the assumption they were given a put option saying we'll always thereby for you. >> personally i don't know paulson said anything as clearly as you articulated. i think what happened is just the data. if you look at data. i think people felt that after the saving of bear stearns -- remember the week before they saved freddy and fanny. i think the feeling was there was facilities at the fed which could have been very, very helpful whether it be the power of the fed through a particular section or effectively through the window. and i remember that weekend very well. it's hard to forget it. we sent a note to the fedex plaining the ramifications.
and i personally didn't think anyone could have made that decision. but i think it was aness calculation by them of what lehman would mean which became very, very apparent and they had to totally reverse it. one thing i think is part of it is the "wall street journal" did an editorial on that friday, and they were talking about no more bailouts. i think it was the moral ha -- l hazard issue was what lehman would mean and the moral hazard issue took center stage after letting lehman go. anthony: a.i.g. was one of the most successful bailouts by the federal government. they paid the money back plus interest. the american taxpayer made money off the bailout. why are there such significant
mass over the bailout situation? >> the bailouts were highly successful and probably saved the economy. and the reaction was to limit the fed's power to do bailouts. if they would have labeled it something other than bailout you might have gotten a different result. underlying it is the psychology that banks caused the problem, they got bailed out, the rest of the american public didn't, let's punish the banks. let's punish the executives who ran it. i think like all things that's a superficial way of looking at it. everyone was involved in the crisis. the consumer was involved, the banks were involved. anthony: we'll be right back with more "wall street week." >> announcer: next on "wall street week." nor elizabeth warren laying
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gary: as we mentioned earlier one of the big headlines was wells fargo john stumpf. >> you should resign, you should give back the money you took while the scam was going on and you should be criminally investigated by both the department of justice and the securities and exchange commission. this just isn't right. gary: tom, you have been in that room and probably sat in similar hearings. what is your reaction? >> on the wells fargo thing it's difficult for me to have a
reaction simply because i don't have all the facts. gary: your reaction to senators and politicians grilling wall street -- >> i don't know the exacts there and there are two sides to every story so i w'tonto that. but in terms of highlighting the issue, i think that frankly is a good thing to highlight. i am sure that at every institution there are people who feel they have to reach goals and what have you. i think the job for all of us is to make sure that they know what the value proposition is with respect to values. and the thing that must always trump, it's as simple as do the right thing. have a culture, create a culture. if you miss a goal or what have you. that's okay. but never sacrifice. >> you said on the snow last
week. it's a sales culture they have over there. that's how they push the incentive. >> i'm playing powerball base never thought it would agree with elizabeth warren. she is 100% right about this. what i finds astonishing that he doesn't lose his job over this. he's a great guy, i like him as a person. but the culture there has to be changed immediately. >> to me it's not -- it's not so much wells fargo, it's what is the point being made by elizabeth warren. and the point should be for all of us to say, you know, make sure people understand that what really matters is doing the right thing. it not only go to the culture of the firm or what have you. it goes to what makes people happy.
i think people if they feel that -- first priority is to do the right thing. i think it important thing in life is to be content with who you are. anthony: i tell my staff don't dishonor my dad who was a blue collar worker who rose to a desk job. gary: the other big story was the fed did not move again this week. but we talked about central banks and federal reserve. explain to the viewers. they don't really know how it affects their life and what the role of the fed is suppose to be. share with us your thoughts as it relates to today's environment and what happened to lehman.
>> it goes to not just lehman and the crisis of '08. it goes to 1907 and the role of the central bank, whether you called it a central bank in history or not. all of us at times will immediately kiddity. we have different words for it. we'll all at some point need drugs, we'll need an operation, we'll need help. a central bank is meant to be there when no one else is there. it doesn't mean no one else this for substantive reasons. it may mean there is a panic because people are afraid. and once they are after he frayed they behave different than they do. so market prices aren't indicative of intrinsic value. there you want someone to be a back stop. you don't want them to give away money. but when something is generic as opposed to an individual company
as it was in '08. it's a disease of sort. and you want a central bank to be there to add liquidity. it wasn't a capital issue, it was a liquidity issue. that's one of the reasons why. to take away that power ore make it seem like it's a moral hazard -- even paulson, you mentioned him earlier, even in his book he talked about that. he talked about having a central bank there for that purpose. it's not to make rich people richer. it has nothing to do with it it's a systemic and important thing. anthony: we want to thank you for being here with us. tom russo, lehman brother's former chief executive officer. "wall street week" will be right back.
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>> i have no concern the fed is politically motivated and i will assure you you will not find any signs of political motivation when the transcripts are released in five years. it's important that we maintain the confidence of the public. gary: we welcome form reagan budget director and best-selling author. he has a best-selling book called "trump." david stockman. >> if you believe that i have swampland in florida. i thought the decision yesterday after 93 months was cowardly clueless and catastrophic. the only thing this can do is inflate this hideous bubble we have in the world financial system even more and make the ultimate resolution or crash all
the more traumatic. when you have $13 trillion of government bonds worldwide trading at subzero rates. and governments getting paid to borrow money, that's hideous. when you have trillions being borrowed by the corporate sector to trash their own balance sheets that's a hideous bubble. when you have the s & p 500 trading 25 times trailing earnings. $87 in the last 12 months. and earnings down 19% from their peak. in the face of a world economy that has head winds everywhere including the great red ponzi teetering. this can't solve -- gary: not being influenced by politics, what is the influence?
when janet yellen sits down wednesday and makes that final decision, what is the thinking? >> there isn't any thinking. janet yellen is a robotic keynesian economist who is creating massive windfalls to 1%. but don't tell me she has anything to do with snack the labor market. anthony: it seems like you are holding back your opinion. anthony: i want to ask this question. you have been around a long time and you are saying in this new book we are on the brink of financial ruin. >> we are. anthony: what steps can we take prevents that? >> we have to have a house cleaning at the fed. there has been essentially a coup d'etat.
they have taken over the entire financial system. gary: tom ruls oh just ex -- tom russo just explained to the viewers, they are the market maker when there is no price discovery. anthony: they are saying the prices are beyond an litter cal. >> their role as lender of last we sort. and they have gone to the point where you can't get natural price discovery. >> when i was in government in the 1980s there will be were market watchers. the fe -- the federal funds mart today is the fed. they are pegging the raid it's price control. when you have overnight money for free, it's carry trade gone to heaven and back and can't believe it. >> give us a couple things we can do.
you are making a lot of valid points. what would you do? >> first of all i would recognize the fed through this massive intrusion can affect what yellen was talking about. there is regulation, taxes, competition with cheap labor all the way around the world it's not a monetary policy. she shouldn't be talking about it. the participation rate is hooked up by a tiny little bit. but if you look at workers. secondly inflation coming in too low. what is she talking about? food and energy up to 2.3 per there are last year. the difference is global oil has collapsed and commodities collapsed.
the fed can do nothing about that. it's a good thing on the margin because we import more oil than we produce. beyond that the wage earners in america. i call it fly-over america are being killed by inflation targeting. the fact that cost of living is going up faster -- anthony: if i'm at home watching this program and agree with everything you just said, and this is a program of long-term investors. what do i do? do i put all my cash in a vault, cash dollars in my house? >> i think you get out of harm's way as quickly as you can monday morning. these markets are dangerous. these bubbles are utterly unstable. there are a few robomachines left in the market driving these prices to insane levels, and all you have to do is have one unexpected black swan including
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