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tv   Q A  CSPAN  November 15, 2010 6:00am-7:00am EST

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would sing the association song. thank you very much. [laughter] [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] we wil have live coverage of an cspan 3 on a hearing about charles rangel article >> this
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year's studentcam video documentary is in full swing. make a video on the washington, d.c. "in my lens" the deadline is january 20. for how to apply your video, go on line at a >> this week, our guest is bethany mclean, "all the devils are here." >> you had written a book called "the smartest guys in the room: the amazing rise and scandalous fall of enron."
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where are they now? ken lay are in his grave although people don't think he is. >> jack skilling is in prison, although his conviction is also on appeal at the supreme court. andy fastow is still in prison as well. >> i want to run a brief comment about how you felt five years ago. we will talk about your new book. >> i have become more cynical than i would like to be about corporate america and whether people live up to their responsibility that being a corporate citizen entails. our american system makes it possible for people to make great sums of money, boards of directors, corporate executives.
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i am not sure that that commensurate level of responsibility comes with that. i think the corporate culture has been corrupted by this get- rich-quick notion. make your quarterly earnings estimates, get stocks to go higher, get your options in the money, and cash out. who cares what happens next? i see that pretty frequently. i think that is just -- that is really terrible, not just because it is a betrayal of responsibility but because it is a betrayal of possibility. >> would you change anything? >> i would almost say that i was not cynical enough. if you had asked me back then if we were going to have another potential crisis, this will makes enron look like a canary in a coal mine or just a hiccup before the big explosion. i would say it cannot possibly happen for a while. we have learned some lessons, surely. i would have been completely wrong. >> correct me if i am wrong,
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but your life has changed a lot during the last five years. you were living in new york and now you are in chicago. >> yes. you have remarried and you have children. >> i have one child and another on the way. >> then you were working for "fortune." how did all this happen? >> i met my husband in the world's most surprising way. he was actually the prosecutor on the enron team. he was the lead enron prosecutor and we were both divorced at the time we met. lo and behold, i guess people meet in all sorts of strange places and life takes some very strange twists. if you had asked me when i lived in new york if i would ever leave "fortune" or ever leave new york, i would have said certainly not, and here i am. >> why "fortune" to "vanity fair"? >> in a way it is not so
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different, and i loved "fortune" and i am very grateful to the magazine for the freedom i got when i was there. "vanity fair" is one of the few magazines that runs very long investigative pieces. even "fortune" only rarely does that. there is a little more freedom of subject matter at "vanity fair," although right after i got there the financial crisis was in full force so i found myself doing the same sort of stories i worked on at "fortune." i spent 13 years there and my entire career as a journalist and that was all i knew. you learn something about yourself by moving to a different place. sometimes good things, sometimes bad things, usually both, but those are important lessons, i think. >> bringing everybody up to date, born in minnesota in 1970, williams college, graduated in 1992. spent three years with goldman
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sachs, 13 years with "fortune," and went with "vanity fair" in 2008. up to where we are now, a brand new book. this book is called "all the devils are here: the hidden history of the financial crisis." where did you get the title? >> just as the title of the other book came from the publisher, this one is actually a line from shakespeare. >> where did you start thinking about this book? >> we started thinking about it in the fall as the financial crisis was hitting in full force, september 2008. my co-author, who was my editor at "fortune" and who edited "the smartest guys in the room " -- i thought -- i was not so sure about embarking on another book.
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the last one was a really difficult process and i think it was still too fresh in my mind, but i have the utmost respect for joe and the ability to work with him again, plus being able to spend a couple of years thinking about something i was really interested in and delving into all these tales that otherwise i would never really be able to delve into. >> as you know there have been a lot of documentaries and other books written. how is your approach different from everyone else? >> i think it is a really good book. i think from the very beginning we wanted to tell the history of the financial crisis. we wanted to go back 20 years in time and talk about all the various strands that had to come together in order to create this. they are very different strands,
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and pulled together into a narrative. we definitely had moments of second-guessing -- for example, andrew ross sorkin's book came out and it was a wonderful blow-by-blow of the meltdown of wall street. we thought, thank goodness we did not do that. we wrote the book that we set out to write. it has ended up being pretty different than anything else that is out there. >> explain the difference. >> because it really goes back in time. it starts in the 1980's with the invention of mortgage- backed securities, or the modern invention of mortgage- backed securities for the characters that were there at that time and traces the growth of the subprime lending and freddie mac and washington, d.c. it traces on wall street the various means of measuring tools like credit defaults swaps and it really tells you the history of countrywide.
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it ends right with the conservatorship of fannie mae and freddie mac in the fall of 2008. it is not a blow-by-blow of the meltdown. it is, rather, a history of the events that led us up to the meltdown, told in a character driven, narrative way. >> why did you start with this sentence, "stan o'neal wanted to see him"? >> it is a fascinating example of the power that one man has over a country and the really untold story of how merrill lynch, once one of america's great companies, was brought to the brink of destruction and saved by a last-minute merger. just through the actions of a few people and this chain of events, it is almost remarkable in hindsight, the incredible exposure to the disastrous subprime mortgages accumulated on its balance sheet without stan o'neal even knowing that
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was happening. >> where is he today? >> i think he is still trying to recover from what happened at merrill lynch. this crisis, although i suppose as much as i say i have become more cynical, i have developed more sympathy for the mistakes that people make and the devastation they suffer when they make those mistakes. i think it is easy to look at a man like stan o'neal and say, look at what they did to our economy, look at the money they took out of their companies. on another level, these were very proud men who believed in the companies they created and will always be remembered because of what happened. i think that is worse than any prison sentence could be for them. >> i suspect a lot of people watching right now would say, i don't care what happens to them.
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>> i suspect that they would say not only that, i hope they suffer. do you have any evidence at all -- you have 100 names of 100 players in this story. do you have any evidence that any of these folks who ran these big financial institutions are suffering? >> any evidence -- getting to know people through the course of reporting a book, you come to see what means the most to them and the extent to which people define themselves by their professional accomplishments, and their pride in what they think they have built. itomes down to a question of what you call suffering. to americans who have lost their homes and are struggling to meet their bills in the wake of the financial crisis, no, these people are not suffering in terms of material wealth. if you think about your sense of the world and your faith in
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yourself being destroyed when you are 60, 65, 70 years old, and having to look in the mirror with a very different reality than you thought you were facing, i think that can be devastating. i am not saying it makes up for what they -- what people think they have done. i am not saying it is suitable punishment. i am just saying there's a human level of pain there. >> take stan o'neal. how big was merrill lynch? >> it was a huge company at its peak. it was one of the five big broker-dealers on wall street employing tens of thousands of people. it was the thundering herd. it was an immensely proud company. it had a really long history and legacy. all of that is gone, and stan o'neal was a man like some in american business who really came from nothing and beat back incredible prejudice and rose to be a really prominent african-american ceo.
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there is a tragedy in his fall as much as when you read the book, you see that he brought it on himself. >> i don't know how you pronounced his name. >> john breit. >> your prologue, which is only three pages long, is about john breit. can you give us some background on what happened that made you lead the book with that? >> he is really a risk manager who came to see how bad merrill lynch's exposure really was. he had been sidelined, which is how merrill lynch was able to accumulate all the stock on its balance sheet without anybody knowing. it was the slow sidelining of risk management. a critical function on wall street but one we have all discovered exists in name only in many firms. merrill lynch was slowly dismantled and pushed aside in a way that o'neal did not understand what he was doing.
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the story that we told at the beginning of the book is about this moment of realization that doom was upon us. to me it is a very human story, which is part of the reason why we wanted to start with it. for most of this book, as in the enron book, most people did not want to be quoted. the government has not brought many criminal cases. there is still enough noise swirling around all this that people do not want to be dragged into it. the book relies heavily on anonymous sources. >> you actually quote stan o'neal and john breit in here. >> sometimes quotes come from third parties who observed events and sometimes they come from people who were there. >> can you give us some examples of people who refused to talk to you?
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>> people who refused to talk to us -- one person i would have loved to have spoken to not so much refused as was unable talk to us, roland arnall. he died in the spring of 2008. in many ways he really was a pioneer or the founder of subprime lending, despite the fact tt mozillo was often given that honorific. he was just a fascinating character. not a well-known name because he never took any of his companies public and never was the ceo of any of his companies. other people were always the face person. he became a huge political donor and was appointed ambassador to the netherlands by george bush in 2006 when his company had just settled the largest predatory lending accusations by that state attorney general's ever. at the time, it was just astounding that no one paid attention to this. the largest subprime lender in
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the country just paid millions to settle accusations of predatory lending. did something happen here that we should all be aware of? >> what did he die of? >> he died of esophageal cancer. >> go back to the founding or the person who invented subprime mortgages. where did it start? >> it really started out as so- called hard money lending. the practice of somebody buying a refrigerator and paying an exorbitant interest rate, and the loans would be heavily collateralized and go into a second lien mortgage lending where people would take out high second rate liens on their homes. they were a small, tough bunch who really excelled in knowing their consumer and getting enough collateral that they got their money back. with the law surrounding mortgage lending which we
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recapped in the book and the end of the savings and loans, and the rules surrounding what they could do, you had a whole new breed of people start mortgage lending. it really took off in the 1990's. then there was the advent of securitization. in the past, if you were a lender, you would have to find some way to finance your loans. if you are a small, fly by night lender, how to get the cash to go out and make loans? you had to crowd together investors, and it was a slow, painstaking process. with securitization, you could bundle up loans and sell them to wall street, who would sell them on to investors in the form of securities that would get a high rating from the credit rating agency, by virtue oall the financial engineering techniques, and then the business just exploded. the first wave of subprime lending was in the 1990's.
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it ended badly, and it is another canary in the coal mine type example. no one paid attention to the fact that it ended really badly once before. >> can you still buy securitized loan packages of mortgages? >> you can if you go through fannie and freddie. right now they are basically the only game in town. investors are unwilling to buy mortgages unless they have fannie and freddie's stamp on them, meaning they are explicitly backed by the full credit of the u.s. government. in the so-called private market, which was these companies that sell their loans directly to wall street and they would not have a government guarantee, they have been pretty much shut down in the wake of the crisis. >> in your epilogue at the end of the book, you say the most glaring omission was any mention of fannie mae and freddie mac. why?
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>> because it is such a difficult problem to answer. fannie and freddie, the government sponsored enterprises, became deeply embedded in the housing market. they are part of what is known as the secondary mortgage market. it is an invisible part of the finance mechanism to most americans, but it is a critical part. they would stamp them with a guarantee, meaning that nobody had to worry about the credit references of fannie and freddie. they became enormously powerful and controversial companies. they were enormously controversial.
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in the wake of this, when the government has to take them over and we are on the hook for untold billions of losses, you think we would shut them down, right? but without fannie and freddie today, we do not have a mortgage market because there are no private lenders out there who are willing to make loans. the fha and fannie and freddie basically account for the mortgage market today. you are in this conundrum of what to do, how do you yank these enterprises out from under the market when they are the market? >> tell me where i am wrong. as an observation, we do not know anything about fannie and freddie today. they are not written about in newspapers to any degree. there is no face on them. we don't know who runs them. i remember we asked one time just to get a list of the board of directors and they said we will not give that to you unless you write us a letter. >> that is astonishing.
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it is interesting, they were always such an odd mixture of partly public-partly private- partly government-owned entities. they were huge forces on wall street but they were located in washington, d.c. now that they are owned by the government in effect, they are even stranger, because they are run by their regulator, run by the government. it is really hard to determine for what purpose they are being run. are they being run to minimize taxpayer losses and make as much money as possible? or are they being run to support the housing market, possibly at the cost of the taxpayers. you are right, there is a shroud of secrecy over them now. >> did you talk to anybody at fannie mae and freddie mac? >> it is safe to say that i talked to a lot of people who used to work there. most of the first people are gone. when fannie mae was put into conservatorship, it had to fire its ceo, and most of the top
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executives left. that is one thing fannie mae people complain about, wall street firms did not have to fire their ceos. >> one chapter is the big fat gaps. it starts out this way. this is an outfit that had a board of directors including five appointed members. >> you cannot argue that david maxwell earn his money. he took what was a failing enterprise on the verge of going broke when he stepped in and turned it into a
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phenomenally profitable enterprise. i think during those years he did recently managed the twin goals of being profitable also supporting the housing market. over time, and i blame the change in wall street culture, fannie and freddie got seduced by the same enemy that so many corporations fall prey to, which is just relentless profit growth at all costs. if you are supposed to be a mission or any company that has this other reason for existence beyond producing profits, that becomes a pretty difficult conundrum over time. the big fat gap in the title refers to the way that fannie and freddie earned its profits, taking advantage of its ability to borrow money at a lower rate because investors assume that they were backed by the u.s. government, and buying mortgage- backed securities in that. it was alan greenspan who referred to that as the big fat gap.
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>> is david maxwell still alive? >> yes. >> did he talk to you on the record? >> yes. >> what did he do over those 10 years that specifically saved fannie? >> he took a company -- the washington post had an article saying it was headed for the biggest financial disaster in modern history. it was going broke at a phenomenal rate. like many of the s&l's, it had bought mortgages at a time of rising interest rates and was stuck with fixed-rate mortgages paying one rate while the cost of funding was going through the roof. money was just going out the door every single day. maxwell started to run it more like a business. he demanded accountability on the part of managers and changed some of fannie mae's policies and procedures so they would no longer commit to buying a loan at any interest rate
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from someone a year in advance and be stuck with that loan even when it turned out to be unprofitable. you could argue that maxwell put fannie mae on the course of being a bottom-line oriented company. like everything in life, there is a balancing act. >> you point out that he passed it on to jim johnson. did jim johnson get the job because of his political connections? >> i think it was a mixture. i think the political connections were almost a deterrent at the time. i was told a story about how some of the republican board members were incredibly offended by jim johnson and did not want him to become the ceo
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of fannie mae. but he did have these deep political connections, and i am sure that david maxwell was savvy enough to see how important those would be to fannie mae in the coming years, because fannie mae was constantly fighting this battle with wall street and others in the mortgage industry that wanted some of its very lucrative turf. he had worked at shearson lehman and had enough of a business background that he was not a pure political operative. >> you quote him as saying "we are going to cut them off at the knees." >> some of that was bred into their dna. they always had the sense that people were trying to kill them off, and it was true. fannie and freddie always had those in the government who wanted to see them end.
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he had a very take no prisoners approach to the world. >> most of the media put paul volcker on a pedestal during this process. the reason i mention this is that you wrote in 1990 -- >> i think it is a testament to low risk that everybody believed mortgages had. in fairness, that probably did have that low a level of risk, but people at the time could not have foreseen or did not foresee the changes in the mortgage market that made them carry a much higher level of risk. the changes in fannie mae's business that led it to carry far more leveraged than it did then.
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>> over the years, why did the government not pay much attention to him? >> they did. the bush administration tried desperately to rein in fannie and freddie. alan greenspan would actually publicly say that their portfolio, the amount of mortgages they held on the balance sheet needed to be kept. the very blunt answer was that there were too politically powerful for anybody to do anything. people were also scared, as they are today. what happens if you take them out of the mortgage market? the housing market cannot function without fannie and freddie. there was a paralysis due to political power and due to fear. >> what role did foundations play? they had money they spent through philanthropic practices
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throughout washington's and contributed money to politicians. there is a constant revolving door of politicians coming in and out of fannie and freddie. >> that as part of why the lobbying apparatus was regarded as the most politically potent force that people had seen. i had a quote in there from richard baker saying that basically general patton could not have stood up to them. people talk about the sheer amount of money that fannie and freddie spent, but that pales in comparison to the other ways in which they bought influence, whether via the foundation or partnership offices they open all over the country, or the revolving door, as you mentioned. people went back and forth between fannie mae and washington d.c. barack obama as new chief of staff was once a high-ranking fannie mae executive. >> richard baker left the congress to head of a trade association. >> he did. the revolving door is nothing
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new to fannie and freddie. >> you have a chapter or you talk about robert rubin and larry summers. this whole business of people coming into government, going back to the financial industry and coming back into government. how much of that the defined? >> there is an awful lot of that. i think you can look at that through two prisms. in one, they come in and share their insights with the rest of us. how wonderful they are willing to give that up and devote time to public service. you can look at through a less benign lens and say that the ultimate form of corruption is not someone doing some else as explicit favor, but if you have
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this revolving door, between government and wall street, you are likely to get a lot of people who think the same way in positions of power. then you don't need explicit corruption or favors becse you already agree anyway. >> what have you found? you have a big book, almost 400 pages. was this preventable? >> it was preventable in the early years. by the time 2005-2006, i think it would have been very difficult for one person stepping in to have taken an action that would have prevented what was coming. so the crisis is not a story of big decisions made by big people. it is a story of corruption or wrongdoing, or invention gone
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wrong, simply pushed to a place it was not meant to go. you had to have this transformation of subprime lending. you had to have the mortgage become this product it had never been in order to provide the raw material for the leverage that eventually took the system down. you have to have this unwillingness to rein in the amount of debt that was in the system. he had to have the invention of all this complicated financial tools on wall street. so you had to have these disparate things come together to make a crisis of the size that we had. i think it was preventable in numerous ways along the way by regulation or oversight of derivatives, by tighter regulation of investment banks,
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by smarter regulation of banks and investment banks, by some sort of action in the mortgage industry, given that was that -- that was a shocking thing to me, where are the warnings from nsumer activists starting in the 1990's on predatory lending? preventable, yes, but in the paths along the way, not in something someone could have stood up and shouted from the rooftops in 2006. we'll have a financial crisis unless we do x, y, and z. >> what did you do for goldman sachs in the 1990's? >> i worked in the mergers and acquisitions department and spent a year working for a goldman fund that invested in distressed real estate. >> what did you see there? >> i was very young when i
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worked there and probably younger -- i was a young naive kid from minnesota who found herself working on wall street. it was an eye opening experience in terms of, i would say, how hard people work and how motivated people were by money. that stood out to me. i came away from goldman sachs and my time there as a denier of the firm. i would not say those were the easiest three years of my life. in some ways, there are the hardest, but i felt like i grew up a lot and learned an immense amount by working there. i guess i have retained a level of loyalty to the place over the years. >> what about during the time period where this whole business of them getting bailed out? >> my view began to change.
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i was always an admirer goldman sach's success. unlike other firms on wall street who only talk about risk management, they actually practiced risk management. there was always this underlying complaint about goldman sachs but no one would ever say it on the record. the culture had turned rapacious, that was profits at any cost. the whole notion that the person business principle was that clients come first was just completely meaningless, that they would run over a client in the search of enriching their own bottom line. i listened to the complaints, and they were loud enough that it was hard to discount them, but it was also really hard to find any proof that this was happening, because nobody would go on the record and complain about goldman. the really telling thing about the financial crisis was that it does show how goldman's culture had changed.
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the firm had become a public company and it was really hard to look at their actions during the financial crisis and say that this is a company who believed that our clients come first, unless you very narrowly defined the term client. >> frank rich, a liberal columnist for "the new york times" wrote this. i wanted see what your take is on this.
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>> i am not sure i would put it exactly the same way that frank rich does, but i don't disagree with the sentiments underline that. it is indisputable that a byproduct of the and into a crisis is that too big to fail institutions he got an even bigger and more powerful. now we have even less diversity among financial institutions. why not just break them up and make them into small firms so we don't need to go through all these legislative contortions about how to make a firm fail? i think it will be very difficult if we are faced with the failure of one of these firms to actually let it fail. i think the underlying issues of the financial crisis have not been fixed at all. there is no easy fix. one thing is similar to what we talked about when we talked about in run five years ago.
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it is this culture of short-term greed. i can get mine and get out, who cares what happens after i am gone? that is an attitude that is pervasive across wall street. there is not the sense of a larger right and wrong. i don't know how you fix that. the other issue to me is that this crisis, people want to phrase this as a crisis about home ownership. this was a crisis caused by putting people in homes they could not afford. it really was not. if you look at most subprime loans, their refusal people could do cash out refinancings of their homes. in other words, use their home like an atm card because people are not making enough money to support a lifestyle that they have gotten used to. that is a huge underlying problem. that is not a quick fix about america's home ownership policy. that is just a huge underlying problem.
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i am not sure what the fix is to that. >> he writes a little more about the banking industry. he called it an outrage. >> i think unfortunately that that is mostly true. i would give it a caveat by saying that some of the banks engaged in the foreclosure mess today are not those that were involved in peddling subprime mortgages. it is easy to put everything under the rubric of the financial industry, but there is a mass of different actors.
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it would be nice to be able to hold bank of america up and say it is under countrywide so it is accountable for all of countrywide's sense. is bank of america really accountable? legally they are, but since this is an ethical question -- for better or worse, the story of the financial crisis is a story also trying to find the line between greed, and outright corruption, and outright fraud, and most of it is somewhere in the murky middle. as much as we may abhor a certain behavior, it may not be criminal. just because you are disgusted by behavior, it cannot say it is criminal when it is not. i don't believe that firms are not being prosecuted because of some sort of political agenda.
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if they were finding myriad examples of prosecutable fraud, they would prosecute it. the countrywide case against executives settled on the eve of the trial because the case was not ironclad. it is a tough thing to come to terms with. as a country, we like our villains. makes us all feel better when we suffer something as devastating as this to be able to hold of someone or something and say this is what is to blame. when you have this murkiness, it makes the whole thing even harder to comprehend. >> are there still such things as credit of all swaps? >> there are. >> what does that mean? what is a credit defaults what, and can i buy one? >> if you were going to bed
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with somebody, you would have to find a broker, but you could make a bet that bethany's earnings are going to deteriorated dramatically in the wake of her book coming out, that this book is not going to be a success. you could buy an instrument that would pay you if i crashed and burned. that would be a credit a false wall. you have to find somebody who is willg to take the other side of the bet he would say no, bethany mclean is going to excel. you would agree on payments to be made, a desperate measure of my success or failure. it did not start out as gambling. nothing on wall street ever does. it started out as a fairly legitimate. i might want to buy credit defaults of all myself, because if i crash and burn, i would have some protection. if you have a wall street firm that has made a loan to general motors, and they could buy at an instrument that protect them if general motors defaults.
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you can see that that is legitimate. like everything on wall street, something that starts as a good idea gets taken to a speculative frenzy. so credit of all swaps eventually became a means of betting on the demise of companies that one had no connection to the underlying debt, and of structuring insanely complex investments based on mortgages. >> last time we talked about short sellers. have you changed your mind on that, and if you have not, why not? explain what they do. >> it is a complicated question. in the stock market, i am a fan of short sellers. what they is basically they are betting that the stock of a company is going to go down. because they are making a bet, they do detailed extensive research to uncover financial frauds in order to uncover weakness in a companies accounting.
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they do this sort of research that most people in the market don't do. face it, we live in an economy where we want everything to go up. most of fraud, like enron, takes the complicity of the victim, and the victims are all too willing to be complacent because our money is in it as well. short-selling is an incredibly leavening force against that. you really have to think twice about that when it comes to mortgage-backed securities. in an ideal world, the fact that there were people shorting the mortgage market would have signal to everyone that there are smart investors who think this thing is going to crash and burn. but the market is opaque enough that you cannot see that the way you can see it in the stock market. the way these instruments were, you are basically not betting on real mortgages but inventing on the casino version of a mortgage.
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it ended up multiplying the exposure to mortgages that was out there and multiplying the damage done by the financial crisis. mem not sure, it's hard for to argue the social utility of it in the mortgage industry. >> can you still buy a subprime mortgage? >> i don't think so. i have heard rumors of some subprime lending coming back around the edges. >> explain what a subprime or it is. >> it is basically a mortgage made to anybody with a low credit score. it used to be anybody who did not qualify for conventional mortgage. you probably paid a higher interest rate. your mortgage might have some special fees, and it was supposed to be because you were a worse credit risk, but you could still get credit by getting a subprime mortgage. once again, in theory and in
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balance, that is a great idea. a fannie mae executive said to me, do we want to live in a country where because you have a lot on your credit, you could never have a house? probably not. things are created and they go to extremes without pausing at the metal. >> you have a chapter, "why everyone loved moody's." don't they still rate? moody's, fitch, s&p -- >> these are the so-called credit rating agencies. there were hidden by a very powerful part of the financial machinery of the financial or markets. they are supposed to be able to tell you when debt is going to be paid back on time and in full. a aaa rating, which the united
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states has, basically means that you are assured of getting your money back. aaa's were supposed to be handed out very sparingly. less than a dozen corporations warranted a aaa rating. the credit rating agencies are funny. the ability to break that makes them incredibly powerful. as a company, you cannot sell that without their approval. they are not flashy like wall street firms. people there are academic, kind of nerdy. they did not make the salaries that people on wall street did. they are really the little gremlins' down in the basement making the gears work. with the advent of structured finance, which is making securities out of mortgages, they became even more powerful than they were, because the
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whole purpose of securitization was to take something that was risky, subprime mortgage, in turn it into something that looked really say. to do that he needed a stamp of approval of the credit rating agencies. it was moody's and s&p and fitch who headed out aaa ratings like candy. this one pristine, highly cherished rating became highly degraded over the years. >> you talk about a man named brian clarkson. >> in the end, changes in culture are often traced to one person. it never fails to be remarkable to me the impact that one powerful person can have on the character of an organization, whether it is stan o'neal at merrill lynch or brian clarkson at moody's. >> you said he had a reputation of being nasty.
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>> moody's used to pride itself on basically, we don't care what issued the investment banks think. we are about serving investors who buy this debt. if you like us, that is your problem. under brian clarkson, the culture began to change, where movies began to care about investment banking clients more than the investors who were buying these things at the end of the day. >> credit of all swaps, derivatives, ceo's, if you are an investor today and you look out at the world, do you try to get a mortgage? do you trust that? help us out here. are we safer in any way or not?
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>> i don't think we are safer in any way. i have to agree with frank rich on that. i think it is to separate issues. i don't see why anybody in the world would want to own the stock of a financial company. there is just absolutely no way. nobody on the outside cannot tell what is going on on the inside of these companies. the balance sheet and financial statements of these companies may have absolutely nothing to do with reality. i think that is really scary for our system. that is one issue. as a consumer, can you trust the financial products that people are selling you? can you trust the people who are selling you to do the right thing? clearly, the answer is no. internal washington presentations showed how washington mutual try to get customers to take out an option are instead of a 30 year fixed mortgage. they could turn around and sell
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the option are far higher profit to wall street. the consumer could say i like paying off my mortgage every month and these things are dangerous. the washington mutual person had ways to overcome those objections. to me, it is all in the marketing and honesty of the marketing. if the person giving your mortgage said to you, i am not working in europe best interest. i want you to take the highest price product you possibly can. it is the hypocrisy that people pretend to be your friend and to be doing this in your financial best interest, and they are not. >> where does this come from, in your opinion? we like to think of ourselves as a country is doing good and being good people. you start in washington and go up the east coast, and all you see is this kind of thing we have been talking about. what happened? >> i don't know. i obviously was not around 40
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years ago. i don't know if it is the methodology of america and we were never really that way, or if there is some truth to it. part of that is the story of modernization and globalization, and that the bigger society we live in, the less people felt personally accountable, and the more leeway there often is in their actions. the corporate or has to be structured in a way that people do what they are paid to do. >> looking back on your own career, the book on enron, how did it sell? >> i think it's all pretty well. it was a strange book in that it sold really well over time. i don't think it ever made the top 10 on a best seller list, but it sold consistently. >> would it be 50,000 copies, or
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more than that? >> i think more than that, but i would have to ask my publisher. >> you are working on an hbo movie, "too big to fail." did you find yourself in the middle saying why am i not represent my own book? >> there is always a little bit of ego involved in anything. at the end of the day i could say i wish it were "all the devils are here." i think that is an easier story to tell in film than the book we wrote is. our book was not done when hbo wanted to do the movie. i think it will be a great film. >> have already worked on it? >> yes. >> how do they use you in something like that?
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>> you try as much as you can -- i talked to the screenwriter about issues in the subprime lending industry, about characters, people that i got to new during the course of the book that i might have some insight into how they were being portrayed. hank paulson features pretty prominently in the movie "too big to fail." i have some inside hopefully into how he works. >> what grade would you give hank paulson as secretary of the treasury? >> that is a very tough question. i think that in retrospect, it is very easy to poke holes and everything it hank paulson did. i do not believe that he ever operated in a way that he thought was not in the best interest of the country. i firmly believe that he thought it was. i also think that he stepped into a situation that was about ready to explode when he stepped
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in as treasury secretary. to put the weight of the financial crisis on him because he became the most visible force as it exploded, i think is unfair. you can ask questions about his role at goldman sachs and why when he felt so strongly about certain issues he did not raise them more when he was the ceo of wall street's most prestigious firm, but to me, it's difficult to deeply criticize his actions as treasury secretary. to put a different way, i am not sure i would want to replace those events with a different person as treasury secretary. >> given the revolving door in washington to the financial community to the important jobs in this town, who is the best kind of person? where should you get the person to run these organizations if not from the financial industry? >> it is a really tough question. i think you want somebody who
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is both knowledgeable and an independent thinker. it is very hard to find. most people like to think like other people and there is a group think mentality that takes over. we need to meet skeptics like some of the once profiled in our book, they are often a little bit out there. they are often weird figures. they are not the sort of people -- they are always saying what about this and what about that? if i come away from this with one pleading, is to listen to the skeptics and try to find people for those roles who have an ability to think independently. >> you are married to the enron prosecutor. >> yes, i am. his name shawn berkowitz. >> what have you learned about the business of prosecuting century have been married to him? >> after leaving the
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government, my husband went to a law firm where he does defense work now. it is an interesting change in perspective, i guess. i think i understand a lot more clearly the issues between ethical wrongdoing and criminal wrongdoing. and some of the other side of the story, that often when you have a very unsympathetic character, it does not make its way into the public narrative. i think i have more appreciation for the complexity of the law. >> our guest, bethany mclean. the book, "all the devils are here: the hidden history of the financial crisis." thank you very much. >> thank you.
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