How Insurance Works

CSULB Distinguished Speaker William D. Cohan


[ BACKGROUND NOISE ]>>ART LEVINE: GOOD
EVENING EVERYONE AND WELCOME TO THE THIRD ANNUAL CSULB
DISTINGUISHED SPEAKER SERIES. I’M ART LEVINE, THE DIRECTOR OF
THE SERIES AND WE’RE DELIGHTED THAT YOU’RE JOINING US TONIGHT. HERE TO WELCOME YOU ON BEHALF
OF CSULB IS OUR PRESIDENT, DR. F. KING ALEXANDER.>>DR. F. KING ALEXANDER: THANK
YOU ART AND WELCOME EVERYBODY TO THIS THIRD ANNUAL
SPEAKER SERIES. THIS IS A VERY INTERESTING
NIGHT FOR US BECAUSE I REMEMBER, IF YOU PAID ATTENTION TO
PBS LATELY, THERE’S A STORY THAT WAS WRITTEN IN 1857
ABOUT A PONZI SCHEME, A BANKER WHO RAN A PONZI
SCHEME THROUGHOUT LONDON AND BASICALLY PUT
HALF OF LONDON UNDER AND SENT MANY PEOPLE
TO DEBTOR’S PRISON. HE EVENTUALLY, MR. MERDLE WAS
HIS NAME AND HE EVENTUALLY LEAD TO THE COLLAPSE OF THE
GREAT MERDLE BANK IN LONDON. FORTUNATELY, FORTUNATELY, THIS
IS A CHARLES DICKENS PIECE AND IT’S JUST FICTIONAL AND
IT CAN’T EVER HAPPEN TO US. ON BEHALF OF THE FACULTY,
ON BEHALF OF OUR GREAT STAFF AND ON BEHALF OF OUR
36,000 STUDENT BODY STRONG, I’D LIKE TO WELCOME
YOU TO OUR CAMPUS. WELCOME MANY OF YOU BACK. THIS IS A VERY INTERESTING NIGHT THAT I HOPE WE’LL
TAKE A LOT AWAY FROM AS WE GO THROUGHOUT THE
EVENING AND THERE’S A LOT TO BE LEARNED FROM
WHAT HAS HAPPENED. WE’RE ALL LIVING WITH THE
REALITY OF WHAT WAS CAUSED ON WALL STREET AND
LIVING WITH THE REALITY IN OUR STATE GOVERNMENTS AS
WELL AS THROUGHOUT OUR CAMPUSES AS YOU SEE THE DAILY
EVENTS UNFOLD, WHETHER IT’S THE PROTESTS AT
UCLA OR OTHER TYPE RAMIFICATIONS THAT GO ON THROUGHOUT
THE COUNTRY. SO WE’RE VERY GLAD
THAT YOU’RE HERE. WE HOPE YOU ENJOY THIS
EVENING AND GO BEACH.>>ART LEVINE: BEFORE INTRODUCING OUR
SPEAKER LET ME MENTION THAT WE’LL BE HAVING
A PANEL DISCUSSION THAT WILL FOLLOW HIS REMARKS. IT’S AN IMPORTANT
PART OF THE EVENING. WE’LL ALSO BE INVITING
QUESTIONS FROM THE AUDIENCE AND PLEASE WRITE YOUR
QUESTIONS ON THE INDEX CARDS THAT ARE INCLUDED IN THE
PROGRAM AND WRITE LEGIBLY, PLEASE KEEP THEM SHORT
AND PASS THEM TO THE ISLES AND USHERS WILL BRING THEM UP AND WE WILL ADDRESS YOUR
QUESTIONS TO THE SPEAKER. WE ALSO WILL HAVE AUDIO
TAPES OF THE PRESENTATION AND THE PANEL DISCUSSION
AVAILABLE FOR SALE AND THE SPEAKER WILL
BE SIGNING BOOKS AT THE CONCLUSION
OF THE PRESENTATION. IT’S NOW MY PLEASURE
TO INTRODUCE YOU TO OUR 2009 CSULB DISTINGUISHED
SPEAKER WILLIAM D. COHAN. MR. COHAN HAS WRITTEN TWO BEST
SELLERS ABOUT WALL STREET. HE’S A TRAINED JOURNALIST AND
HE SPENT 17 YEARS ON THE STREET AS AN INVESTMENT BANKER. HE IS PERHAPS UNIQUELY QUALIFIED
TO TALK ABOUT THE MELT DOWN AND SUGGEST WAYS TO
AVOID ONE IN THE FUTURE. LADIES AND GENTLEMAN,
PLEASE JOIN ME IN WELCOMING OUR DISTINGUISHED
SPEAKER, WILLIAM D. COHAN. [ APPLAUSE ]>>WILLIAM D. COHAN:
HELLO EVERYONE. THERE, IT’S WORKING. I WANT TO THANK DR.
ALEXANDER AND ART LEVINE BECAUSE LET ME TELL
YOU SOMETHING, THIS IS A VERY WELL
OILED MACHINE AND A VERY CLASSY
ORGANIZATION AND I AM PRIVILEGED TO BE HERE TONIGHT
TO TALK TO YOU ALL ABOUT WHAT I THINK IS A VERY
IMPORTANT TOPIC AND THAT IS, HOW THIS FINANCIAL CRISIS
HAPPENED AND WHY IT HAPPENED AND MAYBE IF WE LEARN THAT
STORY WE CAN PREVENT IT FROM HAPPENING AGAIN. YOU KNOW WHEN I FIRST STARTED
TO THINK ABOUT HOW TO TALK ABOUT THIS BOOK, WHICH I
ACTUALLY STARTED WRITING ON MARCH 17, 2008, WHICH
MANY OF YOU WILL THINK OF AS ST. PATRICK’S DAY. I LIKE TO THINK OF IT AS THE DAY THAT JPMORGAN CHASE BOUGHT
BEAR STEARNS FOR $2.00 A SHARE AND OVER THE NEXT 8 MONTHS,
WHICH HAS TO BE SOME SORT OF CRAZY RECORD, I WROTE THIS
BOOK, INTERVIEWED HUNDREDS OF PEOPLE, REVIEWED
THOUSANDS OF DOCUMENTS AND FINISHED WRITING IT
ON DECEMBER 1, 2008, AND, OF COURSE, IN THE MEANTIME,
WHILE I WAS WRITING IT, NOT ONLY BEAR STEARNS BUT THE
REST OF WALL STREET MELTED DOWN IN SEPTEMBER AND OCTOBER OF
LAST YEAR AND PEOPLE WOULD SAY TO ME, WELL, BILL, YOU’RE
WRITING ABOUT BEAR STEARNS, DON’T YOU THINK YOU OUGHT TO
SWITCH GEARS AND, YOU KNOW, WRITE ABOUT LEHMAN BROTHERS, OR
AIG OR MERRILL LYNCH OR THE REST OF WALL STREET THAT COLLAPSED
AND I KNEW THAT FOR A LOT OF PEOPLE THAT MIGHT HAVE
BEEN TEMPTING TO SWITCH GEARS AND TRY SOMETHING ELSE, BUT
ACTUALLY I DETERMINED EVEN MORE SO THAT THE WAY TO REALLY
UNDERSTAND WHAT HAPPENED HERE IS BY UNDERSTANDING WHAT
HAPPENED AT BEAR STEARNS. IT WAS SORT OF THE CANARY IN THE
COAL MINE WHEREAS I LIKE TO SAY, THE ROSETTA STONE OF
THE FINANCIAL CRISIS. IF YOU CAN UNDERSTAND WHAT
HAPPENED AT BEAR STEARNS AND WHY, AND BY THE WAY I
DON’T THINK MANY PEOPLE DO, THEN YOU CAN UNDERSTAND
WHY WE’RE IN THIS FIX AND WHAT WE CAN TRY TO
DO TO GET OUT OF IT. AND SO WHEN I BEGAN TO
THINK ABOUT HOW TO TALK ABOUT THE BOOK, I WAS
ASKED TO SPEAK IN IDAHO IN A BEAUTIFUL PLACE
CALLED COEUR D’ALENE, IDAHO, WHICH IS ABOUT AS FAR AWAY
AS YOU CAN GET FROM MY HOME IN NEW YORK CITY AS POSSIBLE. IT’S IN NORTHERN
IDAHO, A BEAUTIFUL LAKE, AND I WAS SPEAKING TO
A CONVENTION OF STATE AND LOCAL LEGISLATORS WHO I WAS
VERY CONCERNED ABOUT, WOULD, MIGHT BE IN DANGER
OF LOSING THEIR JOBS BECAUSE OF WHAT HAD
HAPPENED ON WALL STREET AND IT WASN’T THEIR FAULT. IT WASN’T EVEN REMOTELY
THEIR FAULT AND I THOUGHT IF I CAN DO NOTHING ELSE
WHEN I SPEAK TO THESE FOLKS, I CAN TRY TO EXPLAIN TO THEM
HOW THIS HAPPENED AND WHY SO THAT THEY CAN
USE THIS AMMUNITION THAT I HOPEFULLY AM
GIVING THEM TO GO BACK AND TELL THEIR CONSTITUENTS
THAT, HEY, IT WASN’T MY FAULT. I KNOW THAT OUR STATE AND
LOCAL BUDGETS ARE BEING CUT MERCILESSLY, BUT HERE’S
WHAT HAPPENED AND WHY AND HOPEFULLY YOU’LL REELECT ME. NOW THAT WAS THE IDEA THAT I
USED TO TALK ABOUT THE BOOK AND I DON’T KNOW THE OUTCOME BECAUSE THE ELECTION
WAS JUST RECENTLY. I HOPE A LOT OF THEM USED WHAT
I TOLD THEM AND KEPT THEIR JOBS BUT I DON’T KNOW THAT, AND
SO I WANTED TO, YOU KNOW, THAT SAME LOGIC THAT I
USED FOR THESE FOLKS, I HOPE I CAN BRING HERE TONIGHT
AS WELL AND THAT IS TO TRY TO EXPLAIN TO YOU THE
DNA OF THIS CRISIS. HOW IT HAPPENED, WHY IT
HAPPENED AND, YOU KNOW, WHERE WE GO FROM
HERE AND, YOU KNOW, WHEN I FIRST STARTED WRITING THE
BOOK ON MARCH 17TH, YOU KNOW, I’D WORKED AT A LOT OF
PLACES ON WALL STREET. I WORKED AT LAZARD, WHICH IS
THE TOPIC OF MY FIRST BOOK. I WORKED AT MERRILL
LYNCH, WHICH, OF COURSE, IMPLODED LAST SEPTEMBER OF 08 AND WAS BOUGHT BY
BANK OF AMERICA. I WORKED AT WHAT BECAME
JPMORGAN CHASE WHICH WAS ONE OF THE SURVIVORS OF THIS CRISIS
IN RELATIVELY GOOD SHAPE. I HAD BEEN OFFERED A JOB AT BEAR
STEARNS BUT I DIDN’T TAKE IT WHICH I THINK MIGHT HAVE
BEEN A GOOD DECISION AND I DIDN’T REALLY KNOW A WHOLE
LOT OF PEOPLE AT BEAR STEARNS AND I HAVE TO CONFESS THAT WHEN
I FIRST STARTED WRITING THE BOOK I FELT A LITTLE BIT LIKE AN
AMBULANCE CHASER WHICH IS NOT AT ALL WHAT A JOURNALIST AND INVESTIGATIVE REPORTER
WANTS TO FEEL LIKE. BUT I KNEW I HAD A MISSION
AND I HAD TO TELL THIS STORY AND THAT MEANT SORT OF DIVING
IN, INTO THIS SITUATION WHERE BASICALLY WHEN I GOT
THERE, THERE WAS A BODY LYING ON THE GROUND WITH A KNIFE IN
ITS BACK AND THE LIGHTS WENT ON AND EVERYBODY’S POINTING
FINGERS AT EVERYBODY ELSE AND SO THIS VERY
QUICKLY FOR ME BECAME LIKE AN AGATHA CHRISTIE
NOVEL AND I HAD TO FIGURE OUT WHO DONE IT AND
WHY AND WITHIN WEEKS OF THE FIRM IMPLODING, ALLAN
SCHWARTZ, WHO WAS THE CEO OF BEAR STEARNS FROM JANUARY
OF 2008 TO MARCH OF 2008, WHICH PROBABLY THREE MONTHS
TENURE AS CEO HAS TO RANK AS ONE OF THE SHORTEST ON RECORD AND
BY THE TIME I STARTED WRITING IN EARLY APRIL HE
HAD APPEARED IN FRONT OF THE SENATE BANKING
COMMITTEE AND THE REASON FOR HIS APPEARANCE ALONG WITH
JAMIE DIMON WHO IS THE CEO OF JPMORGAN CHASE WHO WAS
THE BUYER OF BEAR STEARNS, AS WELL AS PEOPLE LIKE TIM
GEITHNER AND BOB STEEL, WHO IS THE DEPUTY TREASURY
SECRETARY, AND BEN BERNANKE, THE CHAIRMAN OF THE
FEDERAL RESERVE. THEY WERE THERE TO
TRY TO EXPLAIN TO THE SENATE HOW THIS
HAD HAPPENED AND WHY AND RIGHT AWAY ALLAN
SCHWARTZ, I THINK, CAME OUT WITH WHAT QUICKLY
BECAME THE CONVENTIONAL WISDOM ABOUT THIS CRISIS, WHICH
WAS THAT THIS WAS A ONCE IN A LIFETIME TSUNAMI THAT
BEAR STEARNS WAS A VICTIM OF. THERE WAS NOTHING HE
COULD DO ABOUT IT. IT WAS TOO LATE BY
THE TIME IT HAPPENED, BY THE TIME HE GOT THERE AS CEO WHICH OF COURSE MAY HAVE BEEN
TRUE BUT HE IGNORED THE FACT THAT HE HAD BEEN ON
THE EXECUTIVE COMMITTEE OF BEAR STEARNS FOR THE PREVIOUS
15 YEARS AND THAT, YOU KNOW, HE SAID HE WAS GOING TO
SPEND A LOT OF TIME THINKING ABOUT WHAT HE COULD
HAVE DONE DIFFERENTLY AND HIS CONCLUSION WAS THERE
WAS NOTHING HE COULD HAVE DONE DIFFERENTLY. AND BY THE WAY, THAT WAS THE
SAME LOGIC THAT DICK FULD USED, DICK FULD, BEING THE
CEO OF LEHMAN BROTHERS AND HE HAD A SIMILAR PUBLIC
DRESSING DOWN, YOU MAY REMEMBER, IN OCTOBER OF 2008, HE APPEARED
BEFORE A HOUSE COMMITTEE AFTER LEHMAN BROTHERS
HAD IMPLODED AND WENT INTO BANKRUPTCY AND
HE SAID A VERSION OF WHAT ALLAN SCHWARTZ HAD SAID
AND HE SAID SOMETHING LIKE, HE’LL GO TO HIS GRAVE
WONDERING HOW IT HAPPENED. AND SO VERY QUICKLY WALL
STREET DEFINED FOR ALL OF US AND I THINK IN A VERY
REPREHENSIBLE WAY, THE CONVENTIONAL WISDOM ABOUT
HOW THIS CRISIS HAPPENED AND WHY WHICH IS, HEY, WE’RE
JUST VICTIMS. WE DON’T KNOW HOW THIS HAPPENED. THIS IS A ONCE IN A CENTURY
EVENT AND WE JUST HAPPENED TO BE IN THE WRONG PLACE
AT THE WRONG TIME. IT ACTUALLY WASN’T UNTIL ABOUT A
MONTH OR SO AFTER ALLAN APPEARED IN FRONT OF THE SENATE
BANKING COMMITTEE THAT I MET A GUY
NAMED PAUL FRIEDMAN. NOBODY KNOWS WHO
PAUL FRIEDMAN IS, BUT PAUL FRIEDMAN WAS THE
CHIEF OPERATING OFFICER OF THE FIXED INCOME GROUP AT
BEAR STEARNS, BEAR STEARNS, THE FIXED INCOME GROUP AT BEAR
STEARNS WHICH WAS A BUSINESS THAT UNDERWROTE DEBT,
SECURITIES, WAS THE ENGINE OF THE FIRM. AROUND 90% OF THE REVENUE
AND 90% OF THE PROFITS CAME FROM THIS BUSINESS AND HE WAS
THE CHIEF OPERATING OFFICER AND HE’S SEEN ANY
NUMBER OF HEADS OF THE FIXED INCOME GROUP
COME AND GO AND HE TOLD ME, QUITE APART FROM WHAT
ALLAN SCHWARTZ HAD SAID, NOW YOUHAVE TO REMEMBER
PAUL WAS ONE LAYER DOWN FROM THE ALLAN
SCHWARTZ’S OF THE WORLD. PAUL SAID, THIS IS
SOMETHING WE DID TO OURSELVES. WE DID THIS TO OURSELVES. SO ALL OF A SUDDEN
I HAD MY MANTRA. WE DID THIS TO OURSELVES. I HAD TO THEN FIGURE OUT BASED ON WHAT PAUL FRIEDMAN HAD TOLD
ME ON THE RECORD I MIGHT ADD, WE DID THIS TO OURSELVES AND IT
BECAME MY DUTY AS A JOURNALIST AND AS A CHRONICLER OF THIS
EVENT, TO TRY TO FIGURE OUT WHAT HE MEANT, AND
SO THIS IS WHAT I FOUND OUT ABOUT WHAT PAUL
FRIEDMAN MEANT. WE HAVE TO GO INTO A LITTLE
BIT OF ANCIENT HISTORY IN AND AROUND 1970 TO
REALLY BEGIN TO THINK ABOUT THE ORIGINS
OF THIS CRISIS. THERE ARE MANY STRANDS OF THE
DNA OF THIS AND I’M GOING TO TRY TO ENUNCIATE THEM FOR YOU. THE FIRST THING YOU HAVE TO
REMEMBER ABOUT WALL STREET IS THAT ONCE UPON A TIME IT WAS A
SERIES OF PRIVATE PARTNERSHIPS WHERE THE CAPITAL OF THESE
FIRMS WAS THE PARTNER’S MONEY. THEY SHARED IN THE PROFITS
OF THE FIRM PRO RATA BASED ON WHATEVER DEALS THEY
COULD CUT AMONGST THEMSELVES AND THEY ALSO SHARED IN THE
LIABILITIES OF THESE FIRMS UP TO AND INCLUDING THEIR
ENTIRE NET WORTH. THEIR ENTIRE NET WORTH’S WERE
ON THE LINE EVERY TIME THEY WENT DOWN TO THEIR FIRMS
AND DID BUSINESS. NOW BY THE WAY THESE
ARE BASICALLY FIRMS THAT BASICALLY NOBODY
EVER HEARD OF. NOBODY IN THE REAL WORLD
DID MUCH BUSINESS WITH THEM. THAT WASN’T THE WAY
OUR COUNTRY FUNCTIONED, I MEAN THESE WERE SMALL
BUSINESSES, SMALL PARTNERSHIPS AND YOU ONLY INTERSECTED WITH
WALL STREET IF YOU WANTED TO RAISE SOME MONEY OR WANTED
SOME M&A ADVICE, MERGERS, ADVICE ON MERGERS AND
ACQUISITIONS BUT, YOU KNOW, BASICALLY THE BROKERAGE
BUSINESS WAS VERY SMALL, THE ASSET MANAGEMENT
BUSINESS WAS VERY SMALL AND WALL STREET WAS
ALWAYS A DANGEROUS PLACE. IT’S AN EXTREMELY DARWINIAN
PLACE AND FIRMS WENT IN AND OUT OF BUSINESS ALL THE TIME AND
SINCE IT WAS A RISKY PLACE, PEOPLE WERE VERY
CAREFUL ABOUT, YOU KNOW, THE KIND OF BUSINESSES
THEY GOT INTO. AND SO IF SOMETHING WENT WRONG OR IF YOUR PARTNER DID SOMETHING
STUPID AND COST YOU THE FIRM, YOU KNOW, MILLIONS OF
DOLLARS IT ALL CAME OUT OF EVERYONE’S POCKETS PRO
RATA AND THAT MADE PEOPLE VERY, VERY FOCUSED ON THE
KINDS OF DECISIONS THAT THEIR PARTNERS WERE
DOING AND THEY MADE SURE AS BEST THEY COULD THAT THEIR
PARTNERS WEREN’T ENGAGED IN ROGUE BEHAVIOR. NOW THAT DOESN’T MEAN
IT DIDN’T HAPPEN. IT HAPPENED ALL THE TIME
AND FIRMS WENT IN AND OUT OF BUSINESS ALL THE TIME
AND FIRMS, YOU KNOW, VERY NEARLY WENT OUT OF
BUSINESS ALL THE TIME. I WROTE ABOUT LAZARD AND
LAZARD ALMOST WENT BANKRUPT 2 OR 3 TIMES IN THE
20TH CENTURY ALONE. GOLDMAN SACHS, WHICH IS THE
SUBJECT OF MY NEXT BOOK, ALMOST WENT BANKRUPT, YOU
KNOW, 5 TIMES BY MY COUNT AT THE MOMENT ALONE AND
NOW WE THINK OF THEM AS THIS DOMINANT POWERHOUSE SO
ONE OF THE OVERRIDING THEMES BY THE WAY OF MY BOOK AND
OF THIS CRISIS IS THAT IT’S ABOUT PEOPLE, ITS ABOUT
PEOPLE MAKING DECISIONS, ITS ABOUT PEOPLE FAILING
TO MAKE DECISIONS, ITS ABOUT PEOPLE TAKING RISKS
THEY DIDN’T UNDERSTAND AND IN AND AROUND 1970 WALL STREET
BEGAN TO CHANGE FROM THE SERIES OF PRIVATE PARTNERSHIPS INTO,
OF COURSE, PUBLIC COMPANIES AND THE FIRST COMPANY TO DO THAT WAS A COMPANY CALLED
DONALDSON LUFKIN & JENRETTE. THEY HAD TO CHANGE THE NEW
YORK STOCK EXCHANGE RULES SO THAT DLJ COULD GO PUBLIC AND
OF COURSE THE FLOOD GATES OPENED AND MERRILL LYNCH WENT PUBLIC,
THEN MORGAN STANLEY WENT PUBLIC. BEAR STEARNS WENT
PUBLIC IN 1985. GOLDMAN SACHS WENT PUBLIC IN
1999 AND EVEN MY DEAR FRIENDS AT LAZARD WENT PUBLIC
IN MAY OF 2005 AND BASICALLY WALL STREET GOT
TRANSFORMED FROM THIS SERIES OF PRIVATE PARTNERSHIPS
THAT NO ONE EVER HEARD OF WHERE PEOPLE SHARED IN THE
PROFITS, RATABLY, BASED ON, YOU KNOW, THE DEALS THEY CUT
WITH THE SENIOR PARTNERS TO, AND HAD THEIR FULL NET
WORTH’S ON THE LINE FOR THEIR LIABILITIES TO A
SERIES OF PUBLIC COMPANIES THAT WE ALL NOW RECOGNIZE
AND SUPPOSEDLY ADMIRE AND WHAT HAPPENED THOUGH
AS A RESULT OF THAT AND THIS IS A VERY
IMPORTANT STRAND OF THE DNA, IS THAT YOU HAD PEOPLE
GOING FROM TAKING RISKS WITH THEIR OWN MONEY
AND BEING VERY CAREFUL ABOUT THE RISKS THEY WERE
TAKING WITH THEIR OWN MONEY TO TAKING RISKS WITH
OTHER PEOPLE’S MONEY. TAKING RISKS WITH THEIR
CREDITOR’S MONEY, TAKING RISKS WITH THEIR SHAREHOLDER’S
MONEY AND ALL OF THE SUDDEN ALL
THEY CARED ABOUT, INSTEAD OF THE LONG TERM
PROFITABILITY OF THE FIRM AND THE CAREFUL PRUDENT
RISK TAKING THAT THEIR FIRMS WERE ENGAGED
IN, THEY CARED ABOUT THEMSELVES, THEY CARED ABOUT
THEIR OWN BONUSES, THEY CARED ABOUT GETTING,
GENERATING AS MUCH REVENUE AS THEY POSSIBLY COULD
IN ANY GIVEN YEAR SO THAT THEN THEY COULD GO
TO THEIR BOSSES AND ARGUE ABOUT WHAT A BIG BONUS THEY
DESERVED AND WHAT OTHER BUSINESS ON THE FACE OF THE EARTH BY THE
WAY PAYS OUT BETWEEN 50 AND 60% OF EVERY DOLLAR OF REVENUE
IN THE FORM OF BONUSES IN COMPENSATION TO
THEIR EMPLOYEES. NO OTHER INDUSTRY IN
THIS COUNTRY DOES THAT BUT WALL STREET DOES THAT, SO ALL OF THE SUDDEN YOU HAVE
PEOPLE WHO FORGET THAT THEY’RE, YOU KNOW, HAVE GOT PARTNERS AND
THAT THEIR RESPONSIBILITIES LAY WITH INVESTING THEIR
SHAREHOLDERS AND THEIR CREDITOR’S MONEY
PRUDENTLY AND ALL THEY CARE ABOUT IS GETTING AS BIG A
BONUS AS THEY POSSIBLY CAN. YOU ASK NOW BILL, HOW
DO YOU KNOW ABOUT THIS, WHY ARE YOU SUCH AN
EXPERT ABOUT THIS? WELL, I KNOW ABOUT THIS BECAUSE
I SPENT 17 YEARS ON WALL STREET AND NOW, ADMITTEDLY 6 OF
THOSE YEARS WERE AT LAZARD AND BY THE WAY WHEN I WAS AT
LAZARD I GOT PAID A FRACTION OF WHAT I GOT PAID ELSEWHERE
BECAUSE THEY WERE MORE CONCERNED ABOUT THE MONEY GOING
INTO THE PARTNERSHIP’S, PARTNER’S POCKETS NOT
THEIR EMPLOYEE’S POCKETS BUT ON THE REST OF WALL STREET
EVERYBODY WAS FOCUSED ON GETTING AS BIG A BONUS AS THEY POSSIBLE
COULD EACH AND EVERY YEAR. IF IT TURNED OUT THAT THE
THINGS THAT THEY WERE SELLING TO GENERATE REVENUE WERE BOGUS,
WERE TOXIC, WELL THAT’S TOO BAD FOR EVERYONE ELSE BECAUSE
I’VE ALREADY GOT MY BONUS. IT’S IN MY POCKET AND
I’VE ALREADY TURNED IT INTO A FIFTH AVENUE COOP
OR A PLACE IN THE HAMPTONS OR A FERRARI OR WHATEVER IT
IS THAT I WANT AND, YOU KNOW, WHATEVER HAPPENS IS THE FUTURE AND I’M NOT GOING
TO WORRY ABOUT THAT. SO THE FIRST STRAND OF THE
DNA IS THIS TRANSFORMATION OF WALL STREET FROM PRIVATE
PARTNERSHIPS TO PUBLIC COMPANIES FROM A SERIES WHERE
PEOPLE WERE VERY FOCUSED ON THE RISKS THEY WERE
TAKING TO AN ENVIRONMENT WHERE PEOPLE WERE TAKING
RISKS WITHOUT ANY KIND OF IDEA WHAT KIND OF
RISKS THEY WERE TAKING. THEY WERE ONLY CONCERNED
ABOUT SELLING AND WALL STREET IS NOTHING
BUT A HUGE SELLING MACHINE. THE SECOND PART OF THIS
STRAND OF THIS DNA IS THAT WALL STREET IS VERY, VERY
GOOD AT FINANCIAL INNOVATION. WELL THAT SHOULDN’T BE ALL THAT SURPRISING CONSIDERING
THE AMOUNT OF MONEY THAT PEOPLE ARE PAID TO GO
THERE AND THE AMOUNT OF TALENT THAT WALL STREET IS ABLE TO
ATTRACT AS A RESULT MAYBE TO THE DETRIMENT OF MANY OTHER
INDUSTRIES IN OUR COUNTRY AND MANY OTHER WAYS
TO MAKE A LIVING. WALL STREET BECAME A BIT OF A
BLACK HOLE IN THE LAST 25 YEARS AND AS A RESULT THERE WAS A
LOT OF FINANCIAL INNOVATION. FOR EXAMPLE, JUST DOWN
THE STREET FROM HERE OR DOWN THE ROAD IN LOS ANGELES,
THERE’S A GUY BY THE NAME OF MIKE MILKEN WHO SAT
AT THE X-SHAPED DESK AND CREATED WHAT BECAME KNOWN
AS THE JUNK BOND MARKET, THE HIGH YIELD MARKET
AND, YOU KNOW, ORIGINALLY BEFORE HE
ENGAGED IN CRIMINAL BEHAVIOR AND BEFORE HE TOOK
OFF HIS HAIR PIECE. HE WAS ACTUALLY GREATLY ADMIRED BECAUSE WHAT HE DID WAS
ACTUALLY AN INCREDIBLE INSIGHT. HE MADE CAPITAL AVAILABLE TO
COMPANIES ACROSS THIS COUNTRY AND THE WORLD WHO OTHERWISE
WOULDN’T HAVE ACCESS TO IT IN ANY OTHER WAY. HE MADE CAPITAL AVAILABLE TO
SMALL AND MIDSIZE COMPANIES FOR WHOM THERE WAS NO OTHER WAY,
VIRTUALLY ANY PRICE FOR THEM TO GET CAPITAL WHICH OF COURSE
IS THE LIFE BLOOD OF CAPITALISM, WHICH IS THE LIFE BLOOD FOR
HOW THEY COULD GROW THEIR BUSINESSES, HIRE NEW PEOPLE,
EXPAND THEIR PLANT AND EQUIPMENT AND MIKE MILKEN WAS A GENIUS. HE REALLY WAS AND I THINK HE
STILL IS A GENIUS AND HE’S TO BE APPLAUDED FOR WHAT HE
CAME UP WITH BUT THIS KIND OF FINANCIAL INNOVATION
ALSO, YOU KNOW, EXTENDED TO INTERNET IPOS. YOU MAY REMEMBER THIS PHENOMENON
IN THE 1990S, THE LATE 1990S, IF YOU WERE A KID COMING
OUT OF COLLEGE LIKE THIS AND YOU DECIDED TO LIVE IN A
LOFT SOUTH OF MARKET STREET IN SAN FRANCISCO AND YOU
HAD A BUNCH OF YOUR BUDDIES AND YOU TALKED ABOUT
THE INTERNET AND EYEBALLS AND PARADIGM SHIFT. WELL WALL STREET GOT
VERY EXCITED ABOUT THAT AND CREATED INTERNET IPOS
AND NEXT THING YOU KNOW, PROFITS DIDN’T MATTER ALL THAT MATTERED WAS HOW
MANY PEOPLE WERE ATTRACTED TO YOUR WEBSITE AND THE
NEXT THING YOU KNOW, YOUR COMPANY WAS WORTH
BILLIONS OF DOLLARS AND WALL STREET GOT COMPLETELY
TAKEN AWAY BY THAT PHENOMENON AND I GUESS YOU COULD
SAY THAT WAS GOOD BECAUSE IT ALLOWED CAPITAL
TO FLOW INTO THESE COMPANIES AND INTO A PARADIGM
SHIFTING TECHNOLOGY WHICH WAS THE INTERNET WHICH OBVIOUSLY WE ALL KNOW
NOW IS EXTREMELY IMPORTANT TO OUR LIVES. BUT WALL STREET GOT CARRIED
AWAY WITH THAT AS WELL AND THEN, YOU KNOW, YOU’D HAVE TO REMEMBER THAT IN THE EARLY 1980S WE HAVE
THE GRANDFATHER, THE GODFATHER OF WHAT BECAME THIS CRISIS. A GUY BY THE NAME OF LOU
RANIERI WHO WAS A PARTNER AT SALOMON BROTHERS
WHO CAME UP WITH THE, AND BY THE WAY NOBODY KNOWS
WHO LOU RANIERI IS BUT I DO AND THAT’S BECAUSE HE
CREATED WHAT BECAME THE ASSET SECURITIZATION MARKET. HE CREATED THIS BUSINESS OF
TAKING STREAMS OF CASH FLOWS, WHETHER THEIR PEOPLE YOU AND
I PAYING OUR CREDIT CARD BILLS OR PAYING OUR AUTO
PAYMENTS, CAR LOANS OR, YES, OUR MORTGAGE PAYMENTS
ON OUR HOMES. YOU KNOW ONCE UPON A
TIME YOU’D GET A MORTGAGE FROM YOUR LOCAL BANKER
WHO WOULD SIZE YOU UP AND DECIDE WHETHER
YOU WERE CREDIT WORTHY AND MAKE YOU A LOAN FOR
A MORTGAGE FOR A HOUSE THAT YOU THOUGHT
YOU COULD, YOU KNOW, AFFORD BY CAREFULLY UNDERWRITING
YOUR ABILITY TO PAY HIM BACK AND HE WOULD MAKE
THAT MORTGAGE TO YOU AND THAT WAS A BET HE WAS
MAKING ON YOU AND HE WOULD KEEP THAT LOAN ON HIS BOOKS
AS AN ASSET OF THE BANK AND IF YOU PAID YOUR MORTGAGE,
WHICH HE HOPED YOU’D DO, THAT LOAN HAD VALUE AND IF YOU
DIDN’T THAT LOAN HAD NO VALUE AND THAT’S WHY HE WAS VERY, VERY
CAREFUL ABOUT SIZING YOU UP, MAKING SURE HE KNEW YOU AND MAKING SURE YOU WERE
GOING TO PAY IT BACK. WELL THANKS TO LOU RANIERI THAT
ALL CHANGED BECAUSE LOU RANIERI, WHO I THINK AS WELL WAS A
GENIUS, AND LIKE MY MIKE MILKEN, CREATED, EXPANDED THE
DEMOCRATIZATION OF CAPITAL AS I CALL IT, HE MADE CAPITAL
AVAILABLE TO PEOPLE WHO WANTED TO USE CREDIT CARDS, WHO WANTED
TO HAVE CAR LOANS AND YES, WHO WANTED TO BUY HOMES
WHICH WAS OF COURSE PART OF THE AMERICAN DREAM AND WANTED
TO, YOU KNOW, HAVE SOMETHING THAT EVERYBODY ELSE HAD AND HE
TOOK ALL OF THESE MORTGAGES, HE CAME UP WITH THIS SYSTEM OF
TAKING ALL OF THESE MORTGAGES FROM ALL OF THESE LOCAL
BANKS AND PACKAGING THEM UP INTO SECURITIES, SLICING
THEM UP INTO LITTLE PIECES AND SELLING THEM TO
INVESTORS ALL OVER THE WORLD. NOW THAT WAS A BRILLIANT
IDEA BECAUSE THAT, YOU KNOW, GOT CAPITAL INTO
THE HANDS OF PEOPLE THAT WOULDN’T OTHERWISE HAVE IT AND BY THE WAY IT LOWERED
MORTGAGE INTEREST RATES DRAMATICALLY AND SO YOU HAVE
TO SAY THAT WAS A GOOD THING BUT UNFORTUNATELY WHEN YOU
COMBINE THAT WITH THE FIRST PART OF THIS PUZZLE, THIS
CRAZY COMPENSATION SYSTEM THAT REWARDS PEOPLE TO SELL,
SELL, SELL AND GENERATE AS MUCH REVENUE AS THEY POSSIBLY
CAN SO THAT THEY CAN GET AS BIG A BONUS AS
THEY POSSIBLY CAN, WHEN YOU MARRY THESE FIRST
TWO THINGS TOGETHER YOU GET A DISASTER WHICH IS WHY THIS
ISN’T THE FIRST TIME WE’VE HAD A FINANCIAL CRISIS
IN THIS COUNTRY. IN FACT, SINCE I WENT TO WALL
STREET IN SEPTEMBER OF 87, WITHIN A MONTH OF ME GETTING
TO WALL STREET WE HAD THE CRASH OF OCTOBER OF 87 WHEN THE
MARKET FELL 2.6% IN ONE DAY. I SAW GROWN MEN CRY IN FRONT OF QUOTRON MACHINES
WONDERING HOW THIS COULD OF POSSIBLY HAPPENED AND
VOWING, YOU KNOW, PRAYING TO GOD THAT THIS WOULD NEVER
HAPPEN AGAIN AND WE HAD BIG REPORTS DONE
BY THE BRADY COMMISSION, A 2-INCH THICK DOCUMENT THAT I GUARANTEE YOU I’M
THE ONLY PERSON WHOSE READ IN ABOUT 20 YEARS, VOWING, DOING
WHAT WE COULD TO PREVENT THIS FROM NOT HAPPENING AGAIN
AND THIS IS UNFORTUNATELY ABOUT THE FIFTH TIME THIS HAS
HAPPENED IN THOSE 25 YEARS. THIS TIME IT WAS THE
WORST AND IT WAS THE WORST BECAUSE THE FIRMS
WERE SO MUCH BIGGER, THE CANCER THAT WAS CREATED WITH THESE MORTGAGE-BACKED
SECURITIES, IT WAS SPREAD ALL AROUND THE WORLD WAS SO
MUCH MORE EXTRAORDINARY AND, YOU KNOW, IN MANY WAYS, YOU
KNOW THERE ARE A LOT OF, OR A GOOD PORTION OF
THE BLAME HAS TO REST WITH THE PEOPLE UNFORTUNATELY
AND NOT THE MAJORITY OF THE BLAME BUT A GOOD CHUNK
OF IT, WITH THE PEOPLE WHO TOOK OUT MORTGAGES THAT THEY
COULDN’T AFFORD TO PAY BACK AND, YOU KNOW, THAT’S THE WHOLE STORY
THAT WE HAVE TO KEEP IN MIND. I SPENT A DAY DOWN, IN
THE WRITING OF THIS BOOK, DOWN IN BALTIMORE AT BASICALLY
A PLACE THAT WAS HALFWAY HOUSE, IF YOU WILL, FOR PEOPLE HAVING
TROUBLE PAYING THEIR MORTGAGES AND ALL DAY LONG EITHER ON
THE PHONE OR ONLINE OR COMING THROUGH THE DOOR OF THIS PLACE, PEOPLE WHO WERE HAVING TROUBLE
PAYING THEIR MORTGAGES WOULD COME IN AND TRY TO GET GUIDANCE
ABOUT HOW TO CONTACT THE BANK OR CONTACT, YOU KNOW,
A MORTGAGE BROKER, TO ANYBODY THAT COULD TALK
TO WHO WOULD HELP THEM WORK THROUGH THEIR MORTGAGES
AND AT THE END OF THE DAY AFTER I HAD WITNESSED THIS,
WHICH WAS REALLY EXTRAORDINARY, I WENT AND LOOKED AT A STACK
OF DOCUMENTS, LOAN DOCUMENTS, THE ORIGINAL LOAN DOCUMENTS
THAT PEOPLE, HAD BEEN FILLED OUT FOR PEOPLE AND OF COURSE
THIS IS NOT GOING TO COME AS ANY SURPRISE TO YOU ALL BECAUSE IT’S BE WELL
DOCUMENTED ELSEWHERE, BUT I SAW THESE LOAN DOCUMENTS
AND THERE WAS NOT ONE THING ON THE LOAN DOCUMENT ITSELF THAT
WAS ACCURATE, NOT THE AMOUNT OF MONEY IN THESE PEOPLE’S BANK
ACCOUNT, NOT THE CAR THEY DROVE, NOT THE JOB THEY HAD, NOT THE
CREDIT CARD BILL OUTSTANDINGS THAT THEY HAD PAID OR NOT
PAID, NOTHING, NOT ONE THING. NOW YOU OR I WOULD NEVER
SIGN SUCH A LOAN DOCUMENT, HOW COULD WE SIGN SOMETHING
THAT WAS COMPLETE FICTION, BUT IN FACT THE ONLY
THING THAT WAS ACCURATE ON THESE LOAN DOCUMENTS WAS
THE SIGNATURE OF THE BORROWERS AT THE BOTTOM OF
THE LOAN DOCUMENTS AND SO THEREFORE IT WAS
NOT REALLY A SURPRISE WHEN 2 MONTHS LATER THESE PEOPLE WHO HAD ALWAYS BEEN
RENTERS WERE NOW UNABLE TO PAY BACK THEIR MORTGAGES AND
UNFORTUNATELY WHEN YOU PACKAGE UP SECURITIES FROM ALL THESE
MORTGAGES INTO SECURITIES AND SELL THEM ALL AROUND
THE WORLD AS INVESTMENTS, WHEN PEOPLE WHO TOOK OUT THE
MORTGAGES CANNOT PAY THEM BACK, THE SECURITIES THAT WERE DERIVED
FROM THESE MORTGAGES BEGIN TO LOSE A TREMENDOUS
AMOUNT OF VALUE AND THAT’S IN LARGE PART WHAT HAPPENED SO THOSE ARE THE FIRST
2 STRANDS OF THIS. THE THIRD STRAND OF IT AGAIN
WILL COME AS NO SURPRISE TO YOU BECAUSE IT TAKES A LOT TO
MAKE DISASTER ALONG THE LINES THAT WE GOT HERE. IT’S PUBLIC POLICY. SO, THERE’S A LOT OF
PROBLEMS WITH OUR, YOU KNOW, GOVERNMENT PRIORITIES AND IT
REALLY BEGAN IN THE MIDDLE OF THE CLINTON ADMINISTRATION AND IT CONTINUED
THROUGHOUT THE END OF THE CLINTON ADMINISTRATION
AND THROUGH BOTH TERMS OF THE BUSH ADMINISTRATION,
YOU’LL BE GLAD TO KNOW, AND THAT IS A HIGH
PRIORITY THAT WAS PLACED BY BOTH THOSE ADMINISTRATIONS ON
HOME OWNERSHIP AND YOU CAN SAY TO YOURSELF, WELL THAT MAKES
SENSE, HOME OWNERSHIP IS PART OF THE AMERICAN DREAM AND, YOU
KNOW, IT’S GOOD PUBLIC POLICY OR GOOD POLITICS ANYWAY TO
ENCOURAGE HOME OWNERSHIP AND SO YOU CAN GO
ON THE INTERNET AND YOU CAN SEE CLINTON SPEAKING
IN FRONT OF HUGE AMERICAN FLAGS OR BUSH SPEAKING IN FRONT OF
HUGE AMERICAN FLAGS TALKING ABOUT THE BENEFIT AND THE
WISDOM OF HOME OWNERSHIP AND SO THEY TOOK IT ONE
STEP FURTHER AND IN ADDITION TO PROSELYTIZING ABOUT IT, CLINTON CHANGED SOMETHING CALLED
THE COMMUNITY REINVESTMENT ACT WHICH HE ACTUALLY REQUIRED
BANKS TO MAKE LOANS, HOME MORTGAGES AVAILABLE
TO PEOPLE WHO HAD PREVIOUSLY BEEN RENTERS AND WHO WOULDN’T NORMALLY
OTHERWISE HAVE ACCESS TO HOME MORTGAGES WITH THE IDEA
OF ENCOURAGING HOME OWNERSHIP. NOW, AGAIN, YOU KNOW, FROM PURELY 30,000 FEET YOU
CAN’T CRITICIZE THIS POLICY BUT IT’S IN THE PRACTICE
OF IT, IN THE DETAILS OF IT WHERE THINGS GET OUT OF HAND AS
WELL KNOW THESE NO INCOME LOANS, YOU KNOW, THE WHOLE ALPHABET
CITY OF LOANS THAT WERE MADE TO PEOPLE WHO COULDN’T
AFFORD THEM AND SHOULD NEVER HAVE TAKEN
THEM OUT IN THE FIRST PLACE BUT BASICALLY MONEY WAS
BEING THROWN AT THEM. THERE WAS BASICALLY
62% OF THE PEOPLE IN THIS COUNTRY WERE HOMEOWNERS
UNTIL THE CLINTONS CAME AROUND AND THEY DECIDED
THAT HOME OWNERSHIP AS I SAID WAS A GOOD
THING AND THEY PUSHED IT AND BY THE END OF, YOU KNOW, THE BUSH ADMINISTRATION WE HAD
SOMETHING LIKE 67% OF PEOPLE IN THIS COUNTRY WERE HOMEOWNERS. THAT 5 PERCENTAGE POINT
DIFFERENCE WAS SOMETHING LIKE 3 OR 4 MILLION NEW HOMEOWNERS. PEOPLE WHO HAD BEEN
RENTERS ONCE UPON A TIME AND WERE BASICALLY HAPPY BEING
RENTERS WERE NOW HOMEOWNERS AND FOR THEM, ALTHOUGH I
DON’T THINK THEY THOUGHT OF IT THIS WAY, IT
WAS A FREE OPTION. IF PEOPLE ARE GOING TO GIVE ME
ALL THIS MONEY BASICALLY FREE AND IF I CAN PARTICIPATE IN THE
AMERICAN DREAM BY OWNING A HOME AND IF I CAN PAY THE
MORTGAGE PAYMENTS GREAT, IF I CAN’T I’LL GIVE IN THE KEYS
AND I’LL BE A RENTER AGAIN JUST LIKE I WAS BEFORE, BUT IF THEY’RE TELLING ME IT’S
A GOOD THING AND I SHOULD DO IT, THEN WHY NOT, I’M
AMERICAN I WANT TO DO IT. SO YOU HAD THAT PROBLEM
WITH THE PUBLIC POLICY AND THEN YOU COMBINED THAT WITH
THE FEDS DECISION AFTER 9/11, ALAN GREENSPAN’S AFTER 9/11 TO DRAMATICALLY LOWER INTEREST
RATES RELATIVELY QUICKLY, WITHIN A YEAR ROUGHLY INTEREST
RATES, THE FED RATES WENT FROM ABOUT 6% DOWN TO ABOUT 1%. BY THE WAY NOW THEY’RE
EVEN LOWER WHICH IS A WHOLE OTHER SUBJECT
AND WE COULD BE CREATING YET ANOTHER BUBBLE VERY MUCH
LIKE THE ONE WE’VE JUST COME OUT OF BUT THE COMBINATION
OF PUSHING HOME OWNERSHIP, PUTTING ALL THESE MORTGAGES
OUT THERE THAT WERE THEN BOUGHT BY WALL STREET FIRMS WHO,
YOU KNOW, WHO HAD LATCHED ONTO THIS GREAT IDEA
THAT LOU RANIERI HAD, AND ONE THING YOU CAN BE SURE OF ABOUT WALL STREET IS WHETHER
IT’S MIKE MILKEN OR LOU RANIERI, WHEN SOMEBODY COMES UP
WITH A GREAT IDEA THE REST OF WALL STREET DECONSTRUCTS
IT AND THEN TRIES TO FIGURE OUT AS QUICKLY AS POSSIBLE HOW
THEY CAN MAKE MONEY FROM IT SO THAT, YOU KNOW,
THE LOU RANIERIS AND THE SALOMON BROTHERS OF THE
WORLD AND THE DREXEL BURNHAMS OF THE WORLD DON’T
MAKE ALL THE MONEY AND SO YOU’VE GOT THIS
EXTRAORDINARY DEVELOPMENT WHERE PEOPLE ARE, YOU KNOW,
BUYING UP ALL THESE MORTGAGES THAT ARE BEING PRINTED FASTER
THAN THEY CAN BE, YOU KNOW, MADE AND PACKAGING THEM UP INTO
MORTGAGE BACKED SECURITIES, GETTING THE RATING AGENCIES TO
RATE THEM AAA AND BY THE WAY, THEY ARE A HUGE CULPRIT IN THIS
AND WHAT EVERYBODY FORGETS IS THAT THE RATING AGENCIES
WERE PAID BY WALL STREET TO GET THE RATINGS
THAT THEY WANTED SO THEY COULD SLAP THESE
RATINGS ON THESE SECURITIES AND SELL THEM OFF TO INVESTORS
AROUND THE WORLD WHO A, HAD GOTTEN LAZY AND
FORGOT TO DO THEIR HOMEWORK AND FORGOT WHAT IT MEANT TO
TAKE RISKS AND BY THE WAY, WE’RE LOOKING FOR YIELD BECAUSE,
INTEREST YIELD, YOU KNOW, LOOKING FOR A PLACE TO PUT THEIR
MONEY TO GET A BETTER YIELD THAN THEY COULD, YOU KNOW,
IN TREASURY SECURITIES, WHICH THANKS TO GREENSPAN HAD, THE INTEREST RATES HAD BEEN
LOWERED ON SO DRAMATICALLY. SO, YOU HAVE THESE, YOU
KNOW, 3 PIECES OF THE PUZZLE IN A NICE STEW BUT THEY’D
BE NOTHING IF IT WEREN’T FOR MY FAVORITE REASON
WHICH IS, OF COURSE, GREED AND SHORTSIGHTEDNESS AND
YOU CAN’T HAVE A GOOD CRISIS WITHOUT THAT AND WALL STREET’S
GOT THAT IN ABUNDANCE I’M GLAD TO SAY AND BEAR STEARNS HAD IT
IN ABUNDANCE AS WELL AND THIS IS WHERE MY FRIEND JIMMY
CAYNE COMES IN. NOW, YOU KNOW, I’VE
TALKED SO FAR IN SORT OF DRY CLINICAL TERMS ABOUT
HOW THIS ALL CAME ABOUT BUT, YOU KNOW, THIS ISN’T
WHAT THE BOOK IS ABOUT, THE BOOK IS REALLY ABOUT
THE PEOPLE WHO WORKED AT BEAR STEARNS AND THE
KIND OF PEOPLE THEY WERE AND WHAT THEY EXPERIENCED AS
THIS CRISIS WAS DEVELOPING AND HOW THEY BUILT THIS FIRM
AND HOW THEY MADE IT WHAT IT WAS AND NO ONE WAS MORE CENTRAL
TO THAT THAN JIMMY CAYNE AND JIMMY CAYNE WAS LITERALLY,
IF I MAY USE THIS EXPRESSION, NORTH OF HOLLYWOOD, RIGHT
OUT OF CENTRAL CASTING. HE WAS BORN ON THE
NORTH SIDE OF CHICAGO. HIS FATHER WAS A PATENT ATTORNEY
AND I KNEW I WAS IN TROUBLE WITH JIMMY WHEN I MET HIM
AND STARTED INTERVIEWING HIM WHEN HE COMPLAINED TO ME
THAT HE WAS VERY DISAPPOINTED IN HIS FATHER BECAUSE HIS
FATHER ONLY MADE AS MUCH AS $75,000 A YEAR AND I’M
THINKING THIS IS 1940, 1950 AND YOU’RE COMPLAINING ABOUT YOUR FATHER
MAKING $75,000 A YEAR. I THINK THAT WAS A
SMALL FORTUNE BACK THEN, AND HE WAS A VERY
SUCCESSFUL PATENT ATTORNEY BUT JIMMY HAD NO
INTEREST IN THAT. JIMMY WENT TO PERDUE, DROPPED OUT OF PERDUE BEFORE HE
GOT HIS, HE COULD GRADUATE. BY THEN HE HAD ALREADY TAKEN UP BASICALLY PLAYING BRIDGE FULL
TIME INSTEAD OF CONCENTRATING ON HIS STUDIES AND HE
ACTUALLY BECAME A BRIDGE PLAYER OF SOME RENOWN, EVEN WHILE
HE WAS IN COLLEGE AND JUST AFTER COLLEGE AND HE DID
HIS STINT IN THE ARMY AND THEN HE CAME BACK AND
GOT MARRIED AND WORKED FOR HIS FATHER-IN-LAW WHO’S
A SCRAP IRON SALESMAN, ONE OF THE BIGGEST SCRAP
IRON BUSINESSES IN CHICAGO AND THEN EVEN AFTER HE DIVORCED
HIS WIFE HE KEPT WORKING FOR HIS FATHER-IN-LAW IN
THE SCRAP IRON BUSINESS WHICH I THINK, YOU KNOW, HAS
TO BE ONE OF THE VERY FEW TIMES THAT A DIVORCED SON-IN-LAW KEPT
WORKING FOR A FATHER-IN-LAW, YOU KNOW, IN THE ANNALS
OF BUSINESS HISTORY BUT WHAT JIMMY REALLY
WANTED TO DO. WELL THE FIRST THING
HE TOLD ME HE WANTED TO DO WAS TO BECOME A BOOKIE. THAT WAS HIS ASPIRATION
IN LIFE AND HE TELLS ME THAT HE DIDN’T SUCCEED AT THAT
BUT ACTUALLY I THINK HE DID. I THINK HE ENDED UP BECOMING
A BOOKIE AT BEAR STEARNS BUT HE DIDN’T REALIZE IT. BUT WHAT HE REALLY WANTED
TO DO WAS TO GO TO NEW YORK AND BECOME A PROFESSIONAL
BRIDGE PLAYER SO THAT’S EXACTLY WHAT HE DID. HE LEFT HIS WIFE
AND 2 KIDS BEHIND, THEY MOVED TO SPRINGFIELD,
ILLINOIS, SHE REMARRIED, HE CAME TO NEW YORK, BECAME A
BRIDGE PLAYER AND USED TO HANG OUT IN THE BRIDGE CLUBS THAT THEN WERE POPULATING THE
UPPER EAST SIDE OF MANHATTAN AND I LIKE TO SAY
THAT BRIDGE WAS SORT OF LIKE THE FACEBOOK
OF ITS TIME. IT WAS A SOCIAL NETWORKING, YOU
KNOW, OPPORTUNITY FOR PEOPLE WHO WORKED ON WALL STREET AND
SO JIMMY CAME HOPING TO MAKE LIKE $500 A WEEK PLAYING
BRIDGE IF HE WERE LUCKY AND MET ALL THESE
WALL STREET TITANS. PEOPLE LIKE LARRY TISCH WHO
WAS THE SINGLE LARGEST INVESTOR IN WALL STREET AND ENDED
UP OWNING CBS FOR A TIME AND LOWE’S CORPORATION AND
JIMMY PLAYED BRIDGE WITH HIM AND HE PLAYED BRIDGE WITH WARREN
BUFFET AND HE PLAYED BRIDGE WITH BILL GATES AND
FINALLY HE MET THE WOMAN WHO WOULD BECOME HIS SECOND
WIFE AND SHE INSISTED, AT THE BRIDGE CLUB,
AND SHE INSISTED THAT EITHER HE GET A REAL JOB
OR HE GET A NEW GIRLFRIEND AND SO HE DECIDED TO
USE THE CONNECTIONS THAT HE’D MADE PLAYING
BRIDGE TO GET INTERVIEWS AT LEHMAN BROTHERS, GOLDMAN
SACHS AND BEAR STEARNS AND WHEN HE WAS AT BEAR STEARNS
HE MET A GUY NAMED ACE GREENBERG WHO WAS FROM OKLAHOMA, WHOSE
FATHER HAD HAD A SERIES OF WOMEN’S CLOTHING STORES
IN OKLAHOMA AND WHO CAME TO NEW YORK TO GET A JOB ON WALL
STREET, ENDED UP AT BEAR STEARNS AND WAS THE HEIR APPARENT TO THE
SENIOR PARTNER OF BEAR STEARNS AT THAT TIME NAMED CY LEWIS AND WHEN JIMMY MET ACE GREENBERG
HE WAS THE HEIR APPARENT TO CY AND THEY HIT IT OFF IMMEDIATELY
BECAUSE ACE GREENBERG KNEW ABOUT JIMMY CAYNE’S
BRIDGE PLAYING PROWESS AND ACE GREENBERG HIMSELF
WAS AN ASPIRING BRIDGE PLAYER AND WANTED JIMMY CAYNE TO TEACH
HIM HOW TO PLAY BRIDGE BETTER SO THAT’S WHY ACE HIRED HIM
AT BEAR STEARNS AND JIMMY HAD, YOU KNOW, NO REAL KNOWLEDGE OF
WALL STREET OR HOW IT WORKED. HE’D BEEN A MUNICIPAL
BOND SALESMAN FOR A COUPLE HOURS A
DAY, PRIOR, YOU KNOW, TO GOING TO THE BRIDGE
CLUBS BUT HE BECAME A BROKER AT BEAR STEARNS AND HE
ENDED UP GETTING LARRY TISCH AS HIS CLIENT AND WAS
A SUCCESSFUL BROKER AT BEAR STEARNS BUT WHAT HE
REALLY WAS, WAS, OF COURSE, VERY EXPERT AT MANAGING HIS OWN
CAREER, MANAGING UPWARD AND, YOU KNOW, AND OF COURSE WHEN
YOU PLAY BRIDGE YOU HAVE TO KNOW WHERE THE CARDS ARE ON THE
TABLE THAT CAN HURT YOU AND JIMMY KNEW, HE WAS VERY
GOOD AT KNOWING WHERE THE CARDS, WHERE THE PEOPLE WERE AT
THE FIRM WHO COULD HELP HIM, YOU KNOW, GET TO
THE TOP OF THE FIRM AND THE PEOPLE WHO
COULD HURT HIM. THE PEOPLE WHO COULD HURT
HIM HE ELIMINATED SUMMARILY AND THE PEOPLE WHO COULD
HELP HIM HE PROMOTED THEM AND THEY PROMOTED HIM UNTIL
HE GOT TO THE TOP OF THE FIRM AND HE TOOK OVER THE FIRM
FROM ACE GREENBERG IN 1993 IN BASICALLY A COUP DE TAT AND,
YOU KNOW, THE INTERESTING THING ABOUT COUP DE TAT IS, YOU
KNOW, IF YOU’RE GOING TO DO IT, YOU’VE GOT TO GET RID OF THE
PREVIOUS KING, MAKE SURE HE’S OUT OF THE PICTURE, MAKE
SURE THAT HIS HEAD IS ON THE GUILLOTINE FLOOR, IT’S
ON THE FLOOR BY THE GUILLOTINE BUT WITH ACE GREENBERG HE DIDN’T
DO THAT, HE KEPT ACE AROUND AND, IN FACT, ACE REMAINED ON
THE EXECUTIVE COMMITTEE OF BEAR STEARNS UNTIL
THE VERY END. IN FACT ACE IS THE ONLY MEMBER OF THE BEAR STEARNS SENIOR
MANAGEMENT WHO’S STILL AT JPMORGAN CHASE NOW AND BUT WHEN JIMMY CAYNE
DID UNFORTUNATELY FOR BEAR STEARNS IS THAT HE
DIDN’T REALLY UNDERSTAND THE BUSINESS THAT BEAR WAS IN, WHICH
IS A FIXED INCOME BUSINESS, HE HAD BEEN A BROKER, HE DID
NOT UNDERSTAND HOW IT WORKED AND OVER TIME HE GOT COMPLETELY
INTOXICATED BY THE PROFITS THAT THAT PART OF THE BUSINESS
GENERATED AND WHEN HE TOOK OVER THE FIRM IN 1993 BEAR STOCK
WAS AROUND $33 BUCKS A SHARE. IT HAD GONE PUBLIC
AT $25 IN 1985 AND NOW 8 YEARS LATER IT
APPRECIATED ALL THE WAY TO $33 A SHARE. IN JANUARY OF 2007 WHEN
IT REACHED ITS PEAK, BEAR STEARNS STOCK WAS $172.69. THE FIRM WAS WORTH LIKE
$20 BILLION DOLLARS. JIMMY CAYNE WAS THE ONLY CEO
ON WALL STREET AT THAT TIME WHO WAS WORTH A BILLION
DOLLARS IN HIS OWN STOCK AND JIMMY CAYNE, WHO
DIDN’T GRADUATE FROM PERDUE, WAS QUITE PROUD OF THAT FACT AND
WAS VERY HAPPY TO LORD THAT OVER TO THE OTHER WALL STREET CEOS
AND I DON’T KNOW IF YOU REMEMBER OR NOT BUT THERE’S A CRISIS THAT
I DIDN’T MENTION THAT OCCURRED IN 1998, 1999 INVOLVING
LONG TERM CAPITAL MANAGEMENT AND A HEDGE FUND AND BEAR
STEARNS WAS THE CLEARING BANK FOR THE HEDGE FUND. THIS IS THE CRISIS
THAT ALMOST BROUGHT DOWN THE WORLD’S
FINANCIAL SYSTEM AGAIN BUT UNLIKE THIS TIME, THAT
TIME THE WALL STREET BANKS GOT TOGETHER TO RESCUE LONG
TERM CAPITAL MANAGEMENT AND SO A CRISIS WAS AVOIDED. THIS TIME YOU’LL NOTE THAT THE
WALL STREET BANKS DID NOT GET TOGETHER TO SOLVE THE CRISIS
AND SO WE HAD A CRISIS BUT JIMMY CAYNE REFUSED AND BEAR
STEARNS REFUSED TO PARTICIPATE IN THE BAILING OUT OF LONG
TERM CAPITAL MANAGEMENT, HE ALONE ON WALL STREET SAID NO, AND SO THAT WHEN HE WAS WORTH A
BILLION DOLLARS IN HIS OWN STOCK AND THE REST OF WALL STREET WAS
NOT AND THEY HAD SNUBBED HIM AND WERE VERY ANGRY
AT HIM FOR NOT, I CAN ASSURE YOU HE WAS VERY
CONTENT AND HAPPY WITH ALL OF HIS DECISION MAKING AND
DIDN’T QUESTION ANY OF THAT AND LORDED IT OVER THE
OTHER WALL STREET CEOS AND SO JIMMY WAS SO
CONFIDENT AND SO FILLED WITH UBEROUS [ASSUMED SPELLING] ABOUT HIS DECISION
MAKING PROWESS, EVEN THOUGH HE DIDN’T REALLY
UNDERSTAND THE KIND OF BUSINESS THAT BEAR STEARNS WAS IN
AND HOW IT MADE ITS MONEY AND THE PROFITS THAT IT WAS
MAKING AND HOW IT DID THAT AND THE RISKS IT WAS
TAKING, THAT HE ENGAGED IN A HUMUNGOUS AMOUNT
OF SHORTSIGHTEDNESS. HE FAILED TO DIVERSIFY THE FIRM. HE HAD CHANCES TO
BUY NEUBERGER BERMAN, AN ASSET MANAGEMENT BUSINESS
THAT LEHMAN EVENTUALLY BOUGHT. HE COULD OF BOUGHT IT AND ADDED TO BEAR’S TINY ASSET MANAGEMENT
BUSINESS, HE DIDN’T DO IT. HE COULD OF EXPANDED THE
INVESTMENT BANKING BUSINESS TO SMOOTH OUT SOME
OF THE ROUGH EDGES OF THE FIXED INCOME BUSINESS
AND HE DIDN’T DO THAT. HE COULD OF EXPANDED
OVERSEAS INTO EUROPE AND HE DIDN’T DO THAT. HE COULD OF BOUGHT A
BUSINESS CALLED PERSHING, WHICH IS A CLEARING BUSINESS THAT DONALDSON LUFKIN
& JENRETTE WAS SELLING AFTER THAT FIRM WAS
SOLD TO FIRST BOSTON AND THERE WOULD HAVE BEEN A
PERFECT FIT WITH HIS BUSINESS AND HE DIDN’T DO THAT. HE COULD HAVE DONE ANY NUMBER
OF THINGS TO DIVERSIFY HIS FIRM AND HE DIDN’T DO IT AND WHY
DIDN’T HE DO IT, HE DIDN’T DO IT BECAUSE THE EXECUTIVE COMMITTEE
AT BEAR STEARNS WAS PAID BASED ON A RETURN ON EQUITY
CALCULATION AND THAT’S JUST FANCY WALL
STREET TALK FOR GENERATING AS MUCH PROFIT AS YOU POSSIBLY
CAN USING AS LITTLE CAPITAL AS YOU HAVE TO, TO DO IT. HAD JIMMY BOUGHT
THESE OTHER FIRMS OR DIVERSIFIED THE BUSINESS OR
DONE ANY OF THESE OTHER THINGS THAT RATIO OF PROFITS TO
CAPITAL WOULD HAVE CHANGED, WOULD HAVE BEEN SMALLER AND
HE AND HIS FELLOW FOUR MEMBERS OF THE EXECUTIVE COMMITTEE
WOULD HAVE BEEN PAID LESS. HE COULD HAVE SOLD THE FIRM, HE
HAD ANY NUMBER OF OPPORTUNITIES TO SELL THE FIRM BUT ANY TIME
ANYBODY APPROACHED HIM HE ALWAYS RAISED THE BAR TO HIGHER AND
HIGHER LEVELS SO THAT, YOU KNOW, EVERYBODY WHO WAS A
POTENTIAL BUYER WALKED AWAY. SO YOU HAVE THE FOUR STRANDS OF
THIS DNA MOLECULE IF YOU WILL AND I APOLOGIZE TO ANY
SCIENTISTS IN THE ROOM BECAUSE I KNOW THAT’S NOT
THE WAY IT REALLY WORKS BUT GIVE ME POETIC LICENSE HERE. YOU’VE GOT THE TRANSFORMATION
OF THESE FIRMS FROM PRIVATE PARTNERSHIPS
TO PUBLIC COMPANIES. YOU’VE GOT THIS FOCUS
ON FINANCIAL INNOVATION WHEN MARRIED WITH THE NEW
COMPENSATION STRUCTURE ON WALL STREET, YOU
KNOW, ALLOWED THESE FIRMS TO JUST BECOME SELLING
MACHINES WITHOUT CONSEQUENCE TO WHAT THEY WERE SELLING
AND HAVING ANY ACCOUNTABILITY FOR WHAT THEY WERE SELLING. YOU HAVE PUBLIC POLICY WHERE
HOME OWNERSHIP WAS ENCOURAGED. INTEREST RATES WERE SO
LOW THAT THIS CREATION OF MORTGAGE BACKED SECURITIES
AS FLAWED AS THEY WERE, WERE SOLD ALL AROUND THE WORLD
WITHOUT REGARD TO THE QUALITY OF THE UNDERLYING ASSETS AND
YOU HAVE THIS BIZARRE SET OF GREEDY SHORTSIGHTEDNESS
BEHAVIOR IN THE MEN, MOSTLY MEN BECAUSE THAT’S
THE WAY WALL STREET IS, WHO WERE AT THE TOP
OF THESE FIRMS AND BY THE WAY THIS WAS THE
SAME THING THAT HAPPENED AT LEHMAN BROTHERS AND THE
SAME THING THAT HAPPENED AT MERRILL LYNCH AND THE
SAME THING THAT HAPPENED AT ALL THE FIRMS THAT
RAN INTO SERIOUS TROUBLE. IT WAS THE SHORTSIGHTEDNESS
AND THE GREED DRIVEN BY THE TOP MANAGEMENT. BUT WHAT REALLY DID, YOU KNOW, SO ALL THAT WOULD
HAVE BEEN BAD ENOUGH BUT REALLY DID BEAR
STEARNS IN THAT WEEK OF MARCH WAS THE MOST
EXTRAORDINARY THING OF ALL WHICH I HAD NO IDEA ABOUT WHEN I
FIRST STARTED WRITING THIS BOOK AND IN FACT IT’S SO ABSURD THAT
I’M GOING TO TRY TO SIMPLIFY IT FOR YOU AS BEST THAT I CAN
AND IT WAS SUCH A REVELATION TO ME EVEN THOUGH I’D WORKED
ON WALL STREET FOR 17 YEARS AND THAT IS HOW WALL
STREET FINANCED ITSELF, HOW BEAR STEARNS
FINANCED ITSELF. BEAR STEARNS FINANCED ITSELF IN WHAT WAS CALLED THE
OVERNIGHT REPO MARKET. NOW I KNOW YOU DON’T
UNDERSTAND WHAT THAT IS AND I DIDN’T UNDERSTAND
WHAT THAT WAS UNTIL I DUG INTO IT A LITTLE BIT,
BUT WHAT IT MEANS IS THAT THEY FINANCED THEMSELVES
WITH PEOPLE WHO LENT THEM MONEY ON AN OVERNIGHT BASIS USING
AS COLLATERAL SOME ASSETS ON THEIR BALANCE SHEET. SO EVERY NIGHT BEAR STEARNS
NEEDED $75 BILLION DOLLARS FROM THIS OVERNIGHT
FINANCING MARKET TO FINANCE THEIR BUSINESS. YOU KNOW, THEY HAD $18
BILLION DOLLARS IN CASH ON THEIR BALANCE SHEET WHICH
SURE SEEMS LIKE A LOT OF MONEY TO ME BUT IT WASN’T ENOUGH BECAUSE THEY NEEDED $75
BILLION DOLLARS A NIGHT TO FINANCE THEIR BUSINESS
AND THAT LAST WEEK OF MARCH OF ITS EXISTENCE, AS THE
RUMORS BEGAN FLYING, YOU KNOW, THAT WERE EXACERBATED BY
CNBC, THE 24/7, YOU KNOW, LOOP OF THESE CRAZY
PEOPLE GETTING ON THERE AND SPOUTING OFF AND RUMORS THAT
WERE CIRCULATING IN THE MARKET AND OH, BY THE WAY, IF
YOU’D ASKED A BANKER ON WALL STREET HOW, YOU KNOW,
MACY’S SHOULD FINANCE ITSELF OR NORTHROP GRUMMAN
SHOULD FINANCE ITSELF OR BOEING SHOULD FINANCE
ITSELF, THEY WOULD NEVER, EVER, EVER RECOMMEND TO
ONE OF THEIR CLIENTS THAT THEIR CLIENTS
FINANCE THEMSELVES IN THE OVERNIGHT REPO MARKET. IT’S JUST WHY IN THE WORLD
WOULD YOU GIVE A CREDITOR IN THE OVERNIGHT MARKET A VOTE
ON WHETHER YOU SHOULD STAY IN EXISTENCE FROM
ONE DAY TO THE NEXT. WHY DID BEAR STEARNS DO THIS? THEY WOULD NEVER RECOMMEND
TO THEIR CLIENTS TO DO THIS. THEY DID IT IN PART
BECAUSE OF THIS RETURN ON EQUITY CALCULATION,
THIS GREED, THIS WAY THAT THESE
GUYS WERE COMPENSATED. THEY WERE COMPENSATED TO
GENERATE AS HIGH OF PROFITS AS THEY POSSIBLE COULD
USING AS LITTLE CAPITAL AS THEY HAD NEEDED TO DO IT. IF YOU WERE FINANCING
YOUR BUSINESS IN THE OVERNIGHT REPO
MARKET YOU WERE PAYING VERY, VERY LITTLE EACH
NIGHT FOR THAT MONEY. IF YOU WENT INTO THE LONG-TERM
DEBT FINANCING MARKETS LIKE REAL COMPANIES DO, THAT
FINANCING COSTS A LOT MORE. YOUR PROFITS WOULD HAVE
BEEN A LOT LOWER, WELL, I DON’T THINK JIMMY CAYNE REALLY
UNDERSTOOD THIS BUT THE CFO OF BEAR STEARNS UNDERSTOOD
THIS AND THEY DECIDED TO FINANCE THEMSELVES IN
THIS OVERNIGHT MARKET. WELL, WHAT HAPPENED WHEN THE
RUMORS STARTED FLYING FAST AND FURIOUS AND PEOPLE
STARTED TAKING THEIR MONEY OUT OF THE FIRM AND CREDIT
RATING AGENCIES STARTED NERVOUS THESE OVERNIGHT LENDERS,
PEOPLE LIKE FIDELITY AND FEDERATED INVESTORS,
PEOPLE WHO HAD BEEN DOING THIS FOR THE PREVIOUS 20 YEARS
AT BEAR STEARNS EVERY NIGHT AND PAUL FRIEDMAN, MY FRIEND
FROM THE BEGINNING OF THIS STORY WHO TOLD ME THAT WE
DID THIS TO OURSELVES. PAUL FRIEDMAN WAS IN CHARGE OF
THE REPO DESK AT BEAR STEARNS AND EVERY NIGHT HE WOULD
GO TO THE REPO GUYS AND MAKE SURE THAT, YOU KNOW,
THE REPO LENDERS WERE ROLLING OVER THEIR MONEY EVERY NIGHT
AND THIS WORKED BEAUTIFULLY FOR 20 YEARS UNTIL THIS WEEK OF
MARCH WHEN IT NO LONGER WORKED AND ONE AFTER ANOTHER
THAT WEEK, DAY AFTER DAY IN THAT FINAL WEEK, THEY
ALL SAID NO, WE’RE NOT GOING TO TAKE THE RISK OF LENDING YOU
THIS MONEY ON AN OVERNIGHT BASIS AND WHY DID THEY
SUDDENLY GET SO FRIGHTENED ABOUT DOING BUSINESS
WITH BEAR STEARNS. BECAUSE THE COLLATERAL
THAT THEY WERE USING FOR THESE OVERNIGHT LOANS
WERE THE VERY MORTGAGE BACKED SECURITIES THAT BEAR STEARNS WAS
IN THE BUSINESS OF MANUFACTURING AND SELLING AND BY MARCH
OF 2008, AS WELL ALL KNOW, MANY MORTGAGE LENDERS
HAD FAILED. YOU COULDN’T GET THESE
NO DOC LOANS ANYMORE. THESE SECURITIES BEGAN LOSING
VALUE VERY RAPIDLY IN THE MARKET AND THESE OVERNIGHT LENDERS
DIDN’T WANT THAT COLLATERAL AS SECURITY FOR THESE
OVERNIGHT LOANS. THEY JUST SAID FORGET IT, WE DON’T KNOW WHAT
THESE THINGS ARE WORTH. THERE’S NO MARKET FOR THEM AND WE’RE NOT GOING
TO TAKE THE RISK. YOU CAN’T PAY US
ENOUGH TO TAKE THE RISK SO WE’RE NOT GOING TO DO IT. WELL, AS THE FRENCH
SAY, [INAUDIBLE], THE JIG WAS UP AFTER THAT
MOMENT AND BEAR STEARNS WHICH NEEDED $75
BILLION DOLLARS A NIGHT TO FINANCE ITSELF HAD ONLY $18
BILLION ON ITS BALANCE SHEET AND THE NUMBERS DON’T JUST, DON’T ADD UP NO MATTER WHAT
YOU DO AND IT WAS A CLASSIC, YOU KNOW, JIMMY STEWART
LIKE RUN ON THE BANK. SO IT WAS THE COMBINATION
OF THESE 5 THINGS THAT DID IN OUR FRIENDS AT BEAR
STEARNS AND OH, BY THE WAY, IT WAS THE SAME THING
THAT HAPPENED AT LEHMAN, DIFFERENT PERSONALITIES,
BUT THE SAME DYNAMICS. I COULD HAVE BEEN TALKING
ABOUT LEHMAN JUST AS EASILY AS TALKING ABOUT BEAR. SAME THING HAPPENED
AT MERRILL LYNCH. SAME THING ALMOST
HAPPENED AT MORGAN STANLEY AND THE SAME THING ALMOST
HAPPENED AT GOLDMAN SACHS. ONE THING IS FOR SURE, WALL
STREET WILL NEVER BE THE SAME. THERE REALLY IS NO
WALL STREET ANYMORE. WHAT WE USED TO THINK OF AS
WALL STREET SECURITIES FIRMS ARE EITHER OUT OF EXISTENCE OR HAVE
BECOME BANK HOLDING COMPANIES AND, YOU KNOW, WE’RE
STILL TRYING TO COME TO THE TERMS WITH THAT. SO BEFORE I END AND
WE GET TO THE PANEL, I DO HAVE TO JUST TELL
YOU A LITTLE BIT OF STUFF OUT OF SCHOOL BECAUSE
IT’S TOO MUCH FUN AND THAT INVOLVES JIMMY
CAYNE WHO REALLY I HAVE TO TELL YOU THE BOOK
WOULDN’T HAVE BEEN THE SAME AND I DON’T THINK NEARLY
AS READABLE OR AS FUN OR AS SUCCESSFUL WITHOUT HIM,
YOU KNOW, LITERALLY OPENING UP A VEIN AND POURING
IT ALL OUT TO ME AND I’M NOT QUITE SURE
WHAT HE WAS THINKING BUT I’M GLAD HE DID. HE HASN’T DONE THIS
WITH ANYBODY ELSE AND I’M GLAD HE DID IT WITH ME. SO, LITERALLY THE DAY OF
THE SHAREHOLDER MEETING AT BEAR STEARNS WHICH WAS
MAY 28TH OR 29TH OF 2008, I’D BEEN TRYING TO GET IN
TOUCH WITH JIMMY TO TALK TO HIM OBVIOUSLY AND I’D
HAD NO SUCCESS UNTIL THE DAY OF THAT SHAREHOLDER VOTE AND THE
SHAREHOLDER MEETING, BY THE WAY, WAS FOR INVESTORS ONLY, NO JOURNALISTS ALLOWED,
NO REPORTERS ALLOWED. NOW, AS ART SAID, HE MAY HAVE
MENTIONED IN THE INTRODUCTION THAT NOT ONLY DID I GO
TO JOURNALISM SCHOOL BUT I ALSO WENT TO
COLUMBIA BUSINESS SCHOOL AND I FIGURED WELL, I’M GOING
TO TAKE OFF MY JOURNALIST HAT TO SEE IF I CAN, BECAUSE
I CAN’T GO TO THE MEETING AS A JOURNALIST BUT LET’S SEE
IF I CAN GO AS AN INVESTOR. SO ABOUT A WEEK BEFORE THE
SHAREHOLDER VOTE I WENT AND BOUGHT 10 SHARES
OF BEAR STEARNS STOCK AND ACTUALLY MADE
MONEY ON IT AND I WENT TO THE SHAREHOLDER MEETING AS
A SHAREHOLDER OF BEAR STEARNS AND I WENT TO THE
MEETING AND I, OF COURSE, IT WAS A INCREDIBLY MOVING,
DRAMATIC EVENT THOUGH, YOU KNOW, EVEN I, YOU KNOW, WHO HAD
NO TIES TO THE FIRM AT ALL, I MEAN IT WAS VERY MOVING AND
JIMMY CAYNE WAS VERY SAD AND, YOU KNOW, STARTED LASHING
OUT AT GOLDMAN SACHS AND CONSPIRACY THEORIES
AND ALL OF THIS. IT WAS VERY INTERESTING AND THEN
RIGHT AFTER THAT I FOUND MYSELF UP IN HIS OFFICE WHERE
HE WAS CARRYING ON AND HAVING A GREAT TIME AS SORT OF LIKE AN IRISH
WAKE OR SOMETHING. I MEAN IT WAS REALLY AMAZING. PEOPLE WERE COMING IN LEFT AND
RIGHT AND TALKING TO HIM UNTIL, AND HE WAS SORT OF
HAVING A GREAT TIME UNTIL JAMIE DIMON CALLED FROM
ITALY, JAMIE DIMON BEING THE CEO OF JPMORGAN CHASE WHO HAD
JUST BOUGHT HIS COMPANY AND JIMMY STRAIGHTENED UP AND
BASICALLY SAID TO JAMIE DIMON, YOU KNOW, GOOD LUCK TO YOU, YOU
KNOW, I HOPE YOU CAN MAKE A GO OF IT AND THAT WAS THE
FIRST TIME I SPOKE TO JIMMY AND THAT LED TO ABOUT 10 OTHER
MEETINGS AND ABOUT 30 HOURS OF FULLY TRANSCRIBED
TAPED INTERVIEWS. SO, IN AROUND AUGUST OF 2008
BEAR WAS STILL THE ONLY FIRM THAT HAD IMPLODED, YOU KNOW,
FANNIE, FREDDIE, LEHMAN, AIG, MERRILL, THEY WERE ALL TO
COME IN THE NEXT FEW WEEKS. I HAD AGREED TO GO SEE JIMMY. I BASICALLY HAD BEEN MEETING
JIMMY AT HIS APARTMENT IN NEW YORK, BUT I HAD
BASICALLY AGREED TO GO SEE HIM AT HIS SUMMER HOUSE ON
THE COAST OF NEW JERSEY IN A TOWN CALLED
DEAL, NEW JERSEY, WHICH I JUST LOVED THE
FACT THAT THIS, YOU KNOW, CARD SHARK JIMMY CAYNE, HAD
A HOME IN DEAL, NEW JERSEY, WHICH WAS BY THE WAY AT THE TURN OF THE CENTURY A
VERY POPULAR SPOT FOR WALL STREETERS BEFORE
THE HAMPTONS CAME INTO VOGUE AND I HAD WRITTEN AN ARTICLE
IN FORTUNE MAGAZINE THAT CAME OUT IN AUGUST, THAT SAME DAY
THAT I WAS GOING TO SEE JIMMY, THAT BASICALLY WAS THE FIRST
TIME THAT JIMMY HAD, YOU KNOW, THROUGH ME AND THROUGH THIS
ARTICLE, WAS GOING TO EXPLAIN TO EVERYBODY WHO CARED TO
READ THE ARTICLE, YOU KNOW, HIS VERSION OF EVENTS AND
HOW THEY HAPPENED AND WHY. IT WAS SORT OF A CURTAIN RAISER
FOR THE BOOK AND A PRELUDE TO WHAT WOULD EVENTUALLY BE
COMING OUT IN MUCH MORE DETAIL IN THE BOOK AND I THOUGHT TO
MYSELF WELL I HAVE THIS MEETING WITH JIMMY ALREADY
SCHEDULED AND, YOU KNOW, HE KNOWS WHAT’S BASICALLY GOING
TO COME OUT IN THE ARTICLE, HE KNOWS THE QUOTES THAT I’M
GOING TO USE AND, YOU KNOW, I’M PRETTY, I’M GOOD WITH IT,
HE’S NOT GOING TO BE MAD AT ME, IT’S GOING TO BE FINE, HE KNOWS
WHAT’S COMING, SO I’M GOING TO KEEP THIS APPOINTMENT
AND I DROVE THE 90 MINUTES TO HIS HOUSE IN DEAL,
NEW JERSEY AND PREVIOUSLY WHEN I’D MET JIMMY HE’D GREET
ME AT THE DOOR OF HIS APARTMENT AND THEN HE WOULD GO, YOU
KNOW, HE HAS THIS BIG APARTMENT AND THIS BIG HOUSE, BUT HE
LIKED TO BE IN A VERY SMALL ROOM IN THE APARTMENT AND IN THE
HOUSE WHAT HE CALLS THE WOMB AND IT WAS THIS DARK
ROOM WHERE HE, YOU KNOW, CAN DRAW THE SHADES,
HE’S GOT CNBC GOING AND CHARLIE GASPARINO
GOING, YELLING AT HIM AND HE’S SMOKING HIS $140 CIGARS
AND WHATEVER ELSE HE’S SMOKING AND THIS IS WHERE HE LIKES TO BE
AND SO WHEN I COME AND VISIT HIM AT HIS APARTMENT WE’D
GO INTO THIS ROOM AND I’D BE ALMOST
ASPHYXIATED BY THE CIGAR SMOKE. I LOVED IT, HE DRANK CRANBERRY
JUICE AT THE SAME TIME THAT HE’S SMOKING CIGARS SO
HE’S THINKING THAT, YOU KNOW, ONE WOULD BALANCE OUT THE OTHER
FOR HEALTH PURPOSES I GUESS, SO I KNEW THAT WHEN I GOT DOWN
TO DEAL, NEW JERSEY, BIG HOUSE AND HE DOESN’T GREET
ME AT THE DOOR AND NOW I’M THINKING NOW
I’VE GOT SOME TROUBLE HERE BUT I GET SHOWN BACK TO THE WOMB
WHICH IS A LONG WAY BECAUSE IT’S SUCH A BIG HOUSE AND I GET THERE
AND HE GREETS ME, YOU KNOW, I WALK IN AND HE
DOESN’T REALLY SAY MUCH AND HE’S WEARING A POLO SHIRT
BUTTONED ALL THE WAY TO THE TOP, HE’S WEARING WHITE
SLACKS AND GUCCI LOAFERS, SMOKING HIS BIG CIGAR AND I’M
THINKING AM I IN NEW JERSEY OR AM I IN MIAMI BEACH. I WASN’T SURE EXACTLY. MAYBE I’D GOTTEN LOST ALONG THE
WAY AND I THOUGHT, YOU KNOW, HE DOESN’T SEEM TO BE
GREETING ME VERY WARMLY AND I SAY HEY JIMMY, WHAT’S
GOING ON AND HE JUST SORT OF LOOKS AT ME AND I SAID IS
EVERYTHING OK, AND HE LOOKS AT ME AND HE GOES
THIS, TWO THUMBS DOWN, AND I WAS THINKING WHAT IS HE
TALKING ABOUT, WHERE’S HE GOING WITH THIS AND HE SAYS TO ME, HE
SAYS, I GOTTA TELL YA, HE SAYS, THIS IS THE WORST THING THAT
HAS EVER HAPPENED TO ME. AND I’M THINKING WHAT IS
HE TALKING ABOUT, I MEAN, HERE’S A GUY WHOSE FIRM
HAS, YOU KNOW, IMPLODED, HE’S LOST A BILLION
DOLLARS IN HIS OWN STOCK, HIS 14,000 BEAR STEARNS ARE
OUT OF WORK OR STRUGGLING TO FIND WORK, HE’S VIRTUALLY,
HE’S THE LAUGHING STOCK OF WALL STREET BECAUSE
HIS FIRM HAS IMPLODED AND AGAIN IT’S BEFORE ALL THE
OTHERS DID AND HE’S TELLING ME THAT THIS ARTICLE THAT YOU WROTE
IS THE WORST THING THAT’S EVER HAPPENED TO ME AND HE SAID
THAT ALREADY BY THE TIME THAT I’D GOTTEN THERE, 15 PEOPLE
HAD CALLED HIM UP AND TOLD HIM, HOW COULD YOU LET THIS
GUY DO THIS TO YOU. THIS IS INCREDIBLE. AND I’M THINKING I’VE GOT TO
GET OUT OF HERE AND I’VE GOT TO GET OUT OF HERE FAST. [ LAUGHTER ] HE SAYS TO ME, SIT
DOWN, WE’RE GOING TO GO THROUGH THIS LINE BY LINE. I’M THINKING, OH GOD, I’VE
GOT TO GET OUT OF HERE. I STARTED THE PIECE BY TALKING
ABOUT JIMMY HAD ALMOST DIED, WHICH IS TRUE, JIMMY
DID ALMOST DIE. IN SEPTEMBER OF 2007 HE HAD LEFT FROM A PRIVATE AIRPORT
NEAR DEAL, NEW JERSEY ON A PRIVATE JET TO
CHINA AND HE HAD GONE TO CHINA TO TRY TO DO A STOCK SWAP
WITH A CHINESE INVESTMENT BANK AND THE IDEA WAS THAT BEAR
STEARNS WOULD INVEST A BILLION DOLLARS IN THEM AND THEY
WOULD INVEST A BILLION DOLLARS IN BEAR STEARNS AND
REMEMBER WHAT I TOLD YOU ABOUT THAT RETURN ON
EQUITY CALCULATION, IT WASN’T REAL CAPITAL
COMING IN, SO THAT RETURN ON EQUITY CALCULATION WOULDN’T
CHANGE SO HE WOULDN’T HAVE TO WORRY ABOUT THAT BUT IT
SORT OF HAD THE APPEARANCE OF, YOU KNOW, NEW EQUITY COMING INTO
THE FIRM WHICH, IN SEPTEMBER OF 07 PEOPLE WERE
ALREADY BEGINNING TO TALK ABOUT BECAUSE THESE
SECURITIES WERE LOSING VALUE AND THERE WAS GOING TO HAVE TO
BE WRITE DOWNS AND JIMMY TOLD ME THAT WHEN HE WENT
ON THIS MISSION, WHICH WAS A SECRET MISSION
THAT NOBODY KNEW ABOUT, THAT WE HAD FLOWN
UNDER THE RADAR AND OVER THE POLAR
ICE CAPS TO CHINA AND WHILE HE WAS
THERE HE ACTUALLY, HE’D BEEN TO CHINA QUITE OFTEN
BECAUSE HE WAS A BRIDGE PLAYER AND HE USED TO PLAY BRIDGE
WITH THE CHINESE LEADERS AND HE WOULD TELL ME ALL ABOUT
PLAYING BRIDGE WITH THEM, AND WHEN HE GOT BACK
FROM THIS TRIP, WHICH WAS ACTUALLY SUCCESSFUL, THEY DID ANNOUNCE THE DEAL
ALTHOUGH IT NEVER CLOSED BECAUSE BEAR STEARNS IMPLODED
BEFORE IT COULD CLOSE, HE WAS SOON THEREAFTER
RUSHED TO THE HOSPITAL WITH A SEPSIS INFECTION, WHICH
IS A URINARY TRACT INFECTION AND I WON’T GO INTO
DETAIL ON IT BUT SUFFICE IT TO SAY THIS IS SOMETHING MEN
DON’T WANT, NOBODY WANTS, AND IT’S VERY PAINFUL. BUT THEY DIDN’T ANNOUNCE THIS
TO THE PUBLIC, HE’S THE CEO OF A PUBLIC COMPANY AND
THEY DID NOT ANNOUNCE THIS. HE WAS TAKEN AWAY NOT IN AN
AMBULANCE BUT IN A BLACK SEDAN TO A NEW YORK HOSPITAL FROM
HIS APARTMENT ON PARK AVENUE AND HE WAS BASICALLY OUT
OF THE OFFICE FOR A MONTH WITHOUT ANYBODY KNOWING
ABOUT IT AT, BY THE WAY, A VERY CRUCIAL TIME. SO IN THIS ARTICLE, THE LEAD
OF THIS ARTICLE, I HAD WRITTEN THAT HE ALMOST DIED, WHICH
WAS TRUE, AND THAT HE WAS OUT OF OFFICE FOR A MONTH
AND THIS WAS THE FIRST TIME THAT THIS WAS GOING
TO BE REVEALED. NOW THE OTHER THING THAT I WROTE
WAS THAT HE HAD LOST 30 POUNDS WHEN HE WAS IN THE HOSPITAL. NOW 99,999 TIMES OUT OF
100,000 IF YOU ASK SOMEBODY IF THEY CAN SPEAK TO YOUR DOCTOR
BECAUSE YOU’RE WRITING A BOOK ABOUT THEM AND YOU WANT TO
WRITE ABOUT A SERIOUS ILLNESS THAT THEY’VE HAD, THEY WILL
SAY NO, I GUARANTEE IT, I PROMISE YOU THEY WILL SAY NO. JIMMY CAYNE IS THAT ONE
EXCEPTION WHO SAID YES, YOU CAN GO TALK TO MY DOCTOR, WHICH I THOUGHT WAS
ABSOLUTELY EXTRAORDINARY. NOW AT THIS TIME JIMMY WAS
74 YEARS OLD, HIS DOCTOR WAS IN HIS 80S AND HIS DOCTOR
WAS ONE OF THESE SORT OF PARK AVENUE TYPES, VERY
STUDIOUS, VERY REPUTABLE AND I WENT AND SAW HIM AND HE
PULLED OUT THE JIMMY CAYNE FILE AND HE DUSTED IT OFF IT’S LIKE
THAT SEINFELD EPISODE WHERE, YOU KNOW, ELAINE IS WORRIED
ABOUT HER MEDICAL FILE AND DOCTORS ARE CONSTANTLY
WRITING ALL THE NOTES ON THE MEDICAL FILE. SO THIS MEDICAL FILE HAS LOTS
OF NOTES ALL ABOUT JIMMY CAYNE AND IN THAT CONVERSATION HE
TELLS ME ALL THE ILLNESSES THAT JIMMY’S HAD WHICH
WERE EXTRAORDINARY AND I WON’T BORE YOU WITH THEM, BUT HE ALSO TOLD ME HOW JIMMY
CAYNE CAME INTO THE HOSPITAL AT ONE WEIGHT AND
WENT OUT AT THE OTHER AND BEING A COLUMBIA BUSINESS
SCHOOL GRADUATE I SUBTRACTED ONE NUMBER FROM THE OTHER AND GOT
TO 30 AND SO THIS WAS THE NUMBER THAT I PUT IN THE ARTICLE. SO WHEN JIMMY TELLS ME TO
SIT DOWN, WE’RE GOING TO GO THROUGH THIS LINE BY LINE, THE
FIRST THING THAT HE SAYS TO ME, HE SAYS WHAT IS THIS I LOST
30 POUNDS IN THE HOSPITAL? I DIDN’T LOSE 30 POUNDS IN
THE HOSPITAL AND I’M THINKING TO MYSELF, THIS IS
NUMBER 1 ON HIS LIST. THIS IS WHAT HE’S SO
UPSET ABOUT THAT I’D SAID THAT HE LOST 30 POUNDS
IN THE HOSPITAL. I SAID JIMMY, REMEMBER, YOU
KNOW, I TALKED TO YOUR DOCTOR. I WENT IN HE TALKED
ME THROUGH ALL THIS. HE SAID YOU CAME IN AT THIS
WEIGHT, WENT OUT AT THAT WEIGHT AND I SUBTRACTED ONE NUMBER FROM
THE OTHER AND I GOT 30 POUNDS. I SAID JIMMY, COME ON,
YOU KNOW, WHAT’S THE, THERE’S NO ISSUE HERE. HE SAID, NO, NO, I DIDN’T LOSE
30 POUNDS IN THE HOSPITAL. I SAID JIMMY I THINK YOU DID. HE SAID, NO, EVERYBODY’S
GOING TO THINK I WAS FAT. AND THERE WAS A LIST
OF 25 THINGS BY THE WAY BUT I’M ONLY GOING TO TELL
YOU ONE MORE AND THAT IS, I ALSO WROTE THAT HE
HAD MANEUVERED HIS WAY TO THE TOP OF BEAR STEARNS. NOW I WORKED ON WALL
STREET FOR 17 YEARS, THIS WAS SECOND BOOK
ABOUT WALL STREET. I GUESS I AM A STUDENT
OF WALL STREET ETHICS, WALL STREET MORAYS,
WALL STREET BEHAVIOR, WALL STREET POWER
PLAYS AND I THINK THAT BY DESCRIBING WHAT JIMMY
DID AS MANEUVERING HIS WAY TO THE TOP OF BEAR
STEARNS WAS VERY KIND. I DIDN’T WRITE THAT HE HAD KNEE
CAPPED ANYBODY WHO’D GOTTEN REMOTELY CLOSE TO HIM
IN TERMS OF POWER. I DIDN’T WRITE THAT HE HAD FIRED
WARREN SPECTOR WHO WAS THE HEAD OF FIXED INCOME AND THE
CO-PRESIDENT OF THE FIRM WITH ALLAN SCHWARTZ
IN AUGUST OF 2007. WHY DID HE FIRE WARREN SPECTOR, BECAUSE WARREN SPECTOR HIMSELF
WAS ALSO A NATIONAL BRIDGE CHAMPION AND BY THE WAY THIS IS
THE DOUBLE OR TRIPLE [INAUDIBLE] ON THE TITLE OF THE
BOOK, HOUSE OF CARDS. JIMMY AND WARREN HAD
BOTH BEEN PLAYING AT A NATIONAL BRIDGE
TOURNAMENT IN NASHVILLE, TENNESSEE IN JULY OF 2007. NOW THAT PROBABLY MEANS
NOTHING TO YOU ALL, BUT IN JULY OF 2007 THE TWO BEAR
STEARNS HEDGE FUNDS HAD BLOWN UP IN JUNE OF 2007 AND WERE
LIQUIDATED IN JULY OF 2007. YOU WOULD THINK THAT
THE SENIOR MANAGEMENT OF THE FIRM WOULD
NOT BE PLAYING BRIDGE AT A NATIONAL BRIDGE TOURNAMENT
DURING ALL OF THIS BUT THEY WERE AND BY THE WAY WHEN YOU PLAY AT THESE NATIONAL BRIDGE
TOURNAMENTS YOU’RE BASICALLY INCOMMUNICADO FOR
A WEEK TO 10 DAYS AND WHY DID JIMMY FIRE WARREN,
WELL PROBABLY HE FIRED HIM BECAUSE WARREN SHOULD HAVE BEEN IN NEW YORK MANAGING THE HEDGE
FUND CRISIS WHICH REPORTED TO HIM RATHER THAN PLAYING
BRIDGE BUT HE ALSO FIRED HIM BECAUSE HE THOUGHT THAT HE
HAD AN AGREEMENT WITH WARREN THAT THEY BOTH WOULDN’T
BE PLAYING BRIDGE AT THE SAME TOURNAMENT
AT THE SAME TIME AND THAT WARREN HAD
DEFIED HIM ON THAT AND OH BY THE WAY WARREN
WAS DOING BETTER IN THE TOURNAMENT THAN JIMMY. SO JIMMY COMES BACK
AND HE FIRES WARREN. AND YOU KNOW, THIS IS
WHY I LOVE JIMMY CAYNE, THIS IS WHY I LOVE
WRITING ABOUT WALL STREET, THIS IS WHY THE SUBTITLE OF
THE BOOK IS A TALE OF HUBRIS AND RETCHED EXCESS
ON WALL STREET BECAUSE WITHOUT MISSING A BEAT
TO THE ANSWER TO MY QUESTION OF WHAT WORD HE WOULD
HAVE USED INSTEAD OF MANEUVERED, HE SAID ASCENDED. [ LAUGHTER ] YOU SHOULD HAVE WRITTEN
THAT I ASCENDED TO THE TOP OF BEAR STEARNS SO
THAT’S MY LITTLE THEORY ON HOW THIS ALL HAPPENED AND
WHY AND I’M HAPPY TO MOVE ON TO THE QUESTION PART OF
THE SPEECH NOW, THANK YOU. [ APPLAUSE ] [ SILENCE ]>>ART LEVINE: THANK YOU. BILL’S STORY IS TO LEARN
HOW TO PLAY BRIDGE.>>[INAUDIBLE].>>ART LEVINE: LET’S ASK
IF YOU HAVE A QUESTION FROM THE AUDIENCE, IF YOU WRITE
IT DOWN ON THE CARD AND BRING IT OVER TO THE ISLES AND MAYBE
SOME OF THE USHERS OR SOME OF OUR STAFF CAN BRING THEM
UP HERE BUT WE’LL START WITH THE PANEL AND LET ME
FIRST INTRODUCE THE PANEL, CRAIG SMITH, A LONG TIME FACULTY
MEMBER HERE AT LONG BEACH STATE, FORMER TRUSTEE OF THE CSU
SYSTEM, FORMER SPEECH WRITER FOR PRESIDENT FORD
AND PROLIFIC AUTHOR, CRAIG, WELCOME TO OUR PANEL. MR. CHAVEZ IS THE PRESIDENT OF
THE ASSOCIATED STUDENTS HERE ON CAMPUS AND WE’RE DELIGHTED
TO HAVE CHRIS ON OUR PANEL AND MY BOSS, DEAN MIKE SOLT,
DEAN OF THE COLLEGE OF BUSINESS SO LET’S GIVE THE
PANEL A LITTLE HAND AND WE’LL START WITH
THE PANEL AND. [ APPLAUSE ] CRAIG, YOU’VE BEEN ON
OUR PANEL ALL 3 YEARS SO LET’S START WITH YOU.>>CRAIG SMITH: OK, ONE OF THE MOST FASCINATING
THINGS YOU TALKED ABOUT WAS THIS REPO BUSINESS
AND HOW THEY FINANCED THEMSELVES WITH $75 BILLION DOLLARS. IF THAT IS NOT REGULATED AND
IF REGULATORS DO NOT CATCH THAT AND IF THERE AREN’T
REGULATIONS TO CATCH IT, WHAT KIND OF REGULATION SHOULD
WE HAVE THAT WOULD CATCH IT?>>WILLIAM D. COHAN: YOU
KNOW I GUESS I DON’T THINK THAT THIS IS A MATTER
FOR REGULATION, YOU KNOW, JUST BECAUSE BEAR
STEARNS DID IT THIS WAY AND LEHMAN DID IT THIS WAY BECAUSE THEY WERE PROBABLY
SHORT-TERM GREEDY, YOU KNOW, LET’S JUST TAKE THE EXAMPLE OF
GOLDMAN SACHS, NOW, YOU KNOW, I’M NOT GOING TO
APOLOGIZE FOR GOLDMAN SACHS AS I MENTIONED I’M
WRITING A BOOK ABOUT THEM AND I’M SURE THEY’LL GET
THE BILL COHAN TREATMENT THAT BOTH LAZARD AND BEAR
STEARNS GOT, BUT YOU HAVE TO GIVE THEM CREDIT FOR NOT
MAKING THEMSELVES VULNERABLE THROUGH THIS SHORT-TERM
FINANCING IN THE SAME WAY THAT BEAR STEARNS DID AND
I ASKED THE CO-PRESIDENT OF GOLDMAN SACHS, A GUY NAMED
GARY COHN, WHY THAT WAS, WHY DID, YOU KNOW THEY HAD
MUCH MORE LONG-TERM DEBT AND IT COST THEM
A LOT MORE MONEY AND THEIR PROFITS WERE LOWER AS
HARD AS THAT MAY BE TO IMAGINE, THIS IS GOLDMAN SACHS,
A LOT LOWER AS A RESULT, THEY COULD HAVE MADE A LOT MORE
MONEY BY FINANCING THEMSELVES IN THE SHORT-TERM REPO MARKET, THEY CHOSE TO FINANCE
THEMSELVES MORE PRUDENTLY THROUGH LONG-TERM FINANCING
BECAUSE, AS THEY SAID, THEY ARE LONG-TERM GREEDY,
NOT SHORT-TERM GREEDY AND I DON’T KNOW WHETHER THAT’S
A GOOD THING OR A BAD THING BUT THAT’S WHY, THAT’S PRIMARILY
WHY THEY’RE STILL AROUND AND BEAR AND LEHMAN
AND MERRILL ARE NOT BECAUSE THEY WERE
ALL MUCH TOO EXPOSED TO THE SHORT-TERM FINANCING
MARKETS AND I SPENT A LOT OF TIME TALKING TO TIM GEITHNER,
WHO AT THAT TIME WAS OUR HEAD OF THE NEW YORK FED AND
NOW OUR TREASURY SECRETARY AND HE WAS AWARE OF THE RISKS
THAT THESE FIRMS WERE TAKING IN THE SHORT-TERM FINANCING
MARKETS AND IT’S ALWAYS EASY IN HINDSIGHT, HINDSIGHT
IS 20/20, TO REALIZE HOW BIG
A PROBLEM THAT WAS. YOU KNOW, THE THING IS THAT
THIS SHORT-TERM REPO MARKET HAD WORKED, YOU KNOW, VERY
WELL FOR 20 YEARS AND PART OF THE FAILURE HERE IN
THIS CRISIS WAS A FAILURE OF IMAGINATION. NOBODY COULD EVEN
CONCEIVE OF THE FACT THAT THE SHORT-TERM FINANCING
MARKETS WOULDN’T OPERATE PROPERLY IN THIS CRISIS
BUT, YOU KNOW, IF YOU THINK ABOUT IT WE HAVE THIS CAPITAL
MARKET SYSTEM IN THIS COUNTRY WHICH IS THE HEART
AND SOUL OF CAPITALISM THAT DEPENDS UPON THE CONFIDENCE
THAT WE PLACED IN THE SYSTEM BECAUSE WITHOUT THAT CONFIDENCE
YOU SEE HOW VULNERABLE THESE FIRMS ARE. I MEAN NOBODY COULD
HAVE CONCEIVED OF HOW VULNERABLE THESE FIRMS
WERE TO THIS LOSS OF CONFIDENCE AND IT’S BECAUSE OF THIS
SHORT-TERM FINANCING SO I THINK THEY GOT THE
MESSAGE BUT I’M SURE OVER TIME THAT THEY’LL GO BACK TO
IT BECAUSE IT’S SO CHEAP.>>ART LEVINE: IT KIND OF
REMINDS ME OF THE TITANIC THAT PEOPLE THOUGHT
WAS UNSINKABLE.>>WILLIAM D. COHAN:
VERY MUCH SO, IT’S VERY MUCH A
LACK OF IMAGINATION.>>ART LEVINE: DEAN
MIKE SOLT, WELCOME.>>DEAN MIKE SOLT:
THANK YOU ART. BACK IN LATE 2008 ONE OF
THE CNBC COMMENTATORS, RICK SANTELLI, WAS MORE ON SORT
OF A RANT AND HE WAS TALKING ABOUT GOVERNMENT IS
PROMOTING BAD BEHAVIOR. DO WE REALLY WANT TO SUBSIDIZE
THE LOSER’S MORTGAGES, THIS IS AMERICA. HOW MANY OF YOU PEOPLE
WANT TO PAY FOR YOUR NEIGHBOR’S MORTGAGE? PRESIDENT OBAMA,
ARE YOU LISTENING? HOW ABOUT WE ALL STOP PAYING OUR
MORTGAGES, IT’S MORAL HAZARD. HE GOT LOTS OF CHEERS FROM ALL
THE TRADERS IN THE PIT THAT DAY. HE CALLED FOR A NEW TEA PARTY
IN SUPPORT OF CAPITALISM. SO NOW I GUESS IF YOU
FOLLOW WHAT HE IS SAYING, HE’S SAYING THAT THE GOVERNMENT
SHOULD LEAVE THE MARKET ALONE, THE MARKET WILL CORRECT
ITSELF, SORTING OUT THE WINNERS AND LOSERS, ECONOMIC AGENTS
SHOULD BEAR THE CONSEQUENCES OF THEIR DECISIONS AND SHOULD
NOT EXPECT TO BE BAILED OUT OTHERWISE THIS COUNTRY
WILL SLIDE INTO SOCIALISM. PURE CAPITALISM SHOULD
RULE IN THAT VIEW. DO WE NEED REGULATION
AND BAILOUTS AND IF SO, HOW MUCH AND FOR HOW LONG?>>WILLIAM D. COHAN: YEAH,
WELL RICK CREATED QUITE A NAME FOR HIMSELF THERE FOR A WEEK
OR SO AS A RESULT OF THAT RANT. SO, I’VE GIVEN THIS A
LOT OF THOUGHT, YOU KNOW, IN THE WRITING OF THE BOOK
AND SINCE I PUBLISHED THE BOOK AND OTHER BOOKS HAVE
BEEN PUBLISHED AND I’VE LEARNED A LOT, ESPECIALLY FROM ANDREW ROSS
SORKIN’S BOOK, TOO BIG TO FAIL, WHICH I RECOMMEND TO YOU AS
WELL AND I GUESS NOW I’VE COME TO THE POINT WHERE I THINK
THAT WHILE I WOULDN’T HAVE HAD AS GOOD A STORY TO TELL, I THINK THAT THEY SHOULD HAVE LET
BEAR STEARNS FAIL AND I THINK, YOU KNOW, YES, WE
NEED REGULATION BECAUSE WHAT WE’VE SEEN IN
THE LAST 20 YEARS, 25 YEARS, IS THAT SORT OF THIS TENDENCY
TOWARDS HANDS OFF LAISSEZ-FAIRE WITH WALL STREET
SECURITIES FIRMS AND REPEAL OF GLASS-STEAGALL AND
FAILURE TO, YOU KNOW, THE SEC PUT INTO PLACE NEW
REGULATIONS IN JUNE OF 2004 THAT ALLOWED THESE FIRMS
TO LEVERAGE THEMSELVES UP FAR BEYOND WHAT THEY’VE DONE
PREVIOUSLY AND THE QUID PRO QUO FOR THAT WAS THAT
THEY WERE GOING TO REGULATE THEM MORE
CLOSELY AND HAVE ACTUAL PEOPLE FROM THE SEC IN THESE FIRMS
MONITORING WHAT THEY DID. UNFORTUNATELY THEY
FORGOT TO DO THAT PART AND SO THE FIRST TIME THE
SEC WAS AT BEAR STEARNS WAS IN THAT SAME AUGUST 2007 WEEKEND WHEN JIMMY CAYNE FIRED
WARREN FOR PLAYING BRIDGE. KKR WAS IN THERE THINKING ABOUT
PUTTING AN EQUITY INVESTMENT IN THE FIRM AND IN THE THIRD
ROOM WAS THE SEC REGULATORS FOR THE FIRST TIME SINCE
THIS REGULATION WAS PUT IN IN JUNE 2004 SO THAT IS,
YOU KNOW, THAT’S CRAZY, RIGHT. YOU KNOW, THE MORE
I THINK ABOUT IT, HAD THEY LET BEAR STEARNS
FAIL, HAD THEY NOT BAILED OUT THE CREDITORS, HAD THEY
NOT GIVEN SHAREHOLDERS $2.00 AND THEN $10.00 A SHARE, THE MARKET WOULD HAVE GOTTEN
A LOUD SIGNAL AND MESSAGE THAT YOU’RE ON YOUR OWN,
WE’RE NOT GOING TO HELP YOU, YOU’RE NOT TOO BIG TO FAIL, YOU’RE NOT SYSTEMICALLY
IMPORTANT AND I ASSURE YOU THAT AT THAT MOMENT MERRILL
LYNCH WOULD HAVE DONE WHAT WAS NECESSARY, LEHMAN BROTHERS WOULD
HAVE DONE WHAT WAS NECESSARY AND WE WOULDN’T OF HAD
THIS REGULATORY ARBITRAGE, THIS GUESSING GAME ABOUT WHETHER
PAULSON WAS GOING TO BAIL US OUT OR NOT AND UNFORTUNATELY THAT’S
WHAT HAPPENED AS A RESULT SO DICK FULD AT LEHMAN
THOUGHT HE WAS GOING TO GET THE BAIL OUT. HE PUT ALL HIS CHIPS ON THE
BAIL OUT AND HE GUESSED WRONG. HAD BEAR STEARNS GONE DOWN,
DICK FULD WOULD HAVE FIGURED OUT VERY QUICKLY HE HAD TO
SELL HIS FIRM OR, YOU KNOW, DO WHAT HE DID 6 MONTHS
TOO LATE, 6 MONTHS EARLIER. SO I WOULDN’T HAVE HAD AS
GOOD A STORY BUT I THINK THAT WOULD HAVE BEEN
BETTER FOR THE REST OF US, FOR EVERYONE ELSE.>>ART LEVINE: CHRIS,
YOU’RE THE PRESIDENT OF THE ASSOCIATED
STUDENTS AND THIS MELT DOWN HAS SUBSTANTIALLY IMPACTED
STUDENTS WITH 30% RAISES IN YOUR STUDENT FEES,
TOUGHER TO GET CLASSES. HOW DO YOU AND YOUR GENERATION
VIEW THIS WHOLE EPISODE.>>CHRIS CHAVEZ: WELL, FRANKLY,
THIS FOR A LOT OF STUDENTS CAME AS A LARGE SURPRISE
BECAUSE WE GREW UP HEARING ABOUT THESE FIRMS, ABOUT THESE
[INAUDIBLE] FIRMS, ABOUT, YOU KNOW, I REMEMBER
ONE TIME JOKING A COUPLE OF MONTHS BEFORE THE CLASS. I’D SAY WELL WE’LL
KNOW THINGS ARE BAD WHEN WASHINGTON MUTUAL GOES. SO, I THINK THERE’S A
DISCONNECT, NOT NECESSARILY BY CHOICE, BUT I THINK
A CULTURAL DISCONNECT, BETWEEN WHAT THESE
FIRMS ACTUALLY DO AND HOW MANY PEOPLE KNOW THAT THE DOW JONES INDUSTRIAL
COMPOSITE IS JUST A COLLECTION OF THE RELATIVE VALUE OF
30 COMPANIES, 30 COMPANIES OUT OF THE ENTIRE UNITED
STATES ECONOMY BUT WE ACT AS IF THE DOW JONES
IS EVERYTHING AND THE END-ALL BE-ALL,
OF THE U.S. ECONOMY. SO I THINK IT WAS A
RUDE AWAKENING CALL FOR MANY PEOPLE PARTICULARLY
MY GENERATION BECAUSE WE’RE IN THE SITUATION WHERE WE’RE
STARTING TO HAVE TO THINK ABOUT WHAT RETIREMENT, WEIGH
RETIREMENT, HOW WE’RE GOING TO PROVIDE FOR OURSELVES
ONCE WE GET OLDER SO.>>ART LEVINE: THANK YOU. BILL, LET’S TALK FOR A MOMENT
ABOUT THE ROLE OF GOVERNMENT OR THE LACK OF THE
ROLE OF GOVERNMENT. MANY FEEL THAT THE SEC AND
OTHERS WERE KIND OF ASLEEP AT THE SWITCH AND GREED IS
NOTHING NEW FOR WALL STREET. GREED’S BEEN AROUND FOREVER AND
EVEN CRIMINAL BEHAVIORS BEEN AROUND FOREVER BUT SHOULDN’T
GOVERNMENT HAVE A REGULATORY COMPLEX THAT STOPS
THIS FROM HAPPENING OR AT LEAST STOPS COMPANIES
FROM GETTING TOO BIG. WHY SHOULD ANY COMPANY IN
AMERICA BE TOO BIG TO FAIL?>>WILLIAM D. COHAN: NO COMPANY
SHOULD BE TOO BIG TO FAIL, I MEAN, AND I THINK FOR THE
GOOD OF THE SYSTEM WE HAVE TO LET COMPANIES, THAT’S WHY
WE HAVE BANKRUPTCY COURTS, THAT’S WHY WE HAVE
BANKRUPTCY LAWS, THAT’S WHY WE HAVE
REORGANIZATIONS AND, YOU KNOW, IT’S NOT PRETTY BUT
CAPITALISM OFTEN ISN’T PRETTY. I MEAN THE ECONOMIST
JOSEPH SCHUMPETER WROTE ABOUT CREATIVE DESTRUCTIONISM AS
BEING A KEY TENANT OF CAPITALISM AND SOMETIMES YOU JUST
HAVE TO LET, YOU KNOW, THE FORCES OF EXCESS AND
HUMAN NATURE, I MEAN, THIS ISN’T THE FIRST TIME, THIS
IS LIKE THE THOUSANDTH TIME THAT THIS HAS HAPPENED. BUT, YOU KNOW, IF YOU DON’T,
YOU CAN’T CONTROL HUMAN NATURE, YOU SHOULDN’T TRY BUT, YOU KNOW, YOU DO HAVE TO LET THE SYSTEM
WORK OTHERWISE PEOPLE AREN’T GOING TO LEARN OR THEY’RE
GOING TO GET THE WRONG MESSAGE. I MEAN ACTUALLY, YOU KNOW, PEOPLE TALK ABOUT HOW WHAT
A HORRIBLE THING IT WAS FOR LEHMAN BROTHERS TO FAIL BUT
ACTUALLY I DON’T REALLY LOOK AT IT THAT WAY, I LOOK AT IT
AS, AND I THINK THE GOVERNOR OF YOUR STATE WOULD APPRECIATE
THIS METAPHOR, LIKE THAT VILLAIN IN TERMINATOR II THAT’S MADE
OF SORT OF LIQUID MERCURY OR WHATEVER THE GUYS
MADE OF AND, YOU KNOW, HE GETS CANNONS SHOT THROUGH HIM
AND BAZOOKAS SHOT THROUGH HIM AND HE MELTS DOWN, HE LIQUIDATES
AND LIQUEFIES AND REFORMULATES AS SOME HORRIBLE NEW
VILLAIN AGAIN AND HE GOES ON, THAT’S WHAT, WHERE AM I GOING WITH THIS I BET YOU’RE
WONDERING, THAT’S WHAT HAPPENS WITH LEHMAN BROTHERS AND, YOU
KNOW, LEHMAN BROTHERS, YOU KNOW, MELTED DOWN BUT, YOU KNOW, ALL
THE PIECES SORT OF GOT BOUGHT. YOU KNOW, BARCLAYS BOUGHT THE
INVESTMENT BANKING BUSINESS IN THE U.S., NOMURA BOUGHT THE
INVESTMENT BANKING BUSINESS IN EUROPE, NEUBERGER
BERMAN IS ON ITS OWN NOW, THE PRIVATE EQUITY GUYS
ARE ON ITS OWN, YOU KNOW, THEN BY THE WAY THERE’S
THE CARCASS OF THE COMPANY, THE LEHMAN BROTHERS HOLDINGS
WHICH IS IN BANKRUPTCY WHERE THESE LAWYERS AND
BANKERS ARE SUCKING UP HUNDREDS OF MILLIONS OF FEES, YOU KNOW,
ANNUALLY TO SUSTAIN THIS THING. IF THIS COMPANY HAD ALL THESE
RESOURCES WHAT WAS IT DOING, YOU KNOW, IN BANKRUPTCY
IN THE FIRST PLACE. SO I THINK YOU HAVE TO,
YOU KNOW, IT’S A GOOD, I THINK THAT WE BEGAN TO GET
BETTER, AS HARD AS IT MAY SEEM, WHEN LEHMAN BROTHERS
WAS ALLOWED TO FAIL. AS I SAY THEY SHOULD HAVE LET
BEAR STEARNS FAIL SOONER I THINK PEOPLE WOULD HAVE
GOTTEN THE MESSAGE SO, ON THE ONE HAND I THINK YES, YOU HAVE TO LET THE
MARKETS DO THEIR THING WITHOUT GOVERNMENT
INTERVENTION, ON THE OTHER HAND, YOU DO HAVE TO, THERE ARE PLENTY
OF REGULATIONS ON THE BOOKS AND THEY NEED TO BE ENFORCED.>>ART LEVINE: SO IT’S NOT
THE LACK OF REGULATIONS, THE EXISTING ONES WERE
NOT PROPERLY ENFORCED.>>WILLIAM D. COHAN: IT’S
NOT THE LACK AND, YOU KNOW, TO SOME EXTENT IT’S NOT A
FAIR FIGHT AS WE WERE TALKING ABOUT BEFORE, I MEAN,
WALL STREET EXISTS TO EVADE THE REGULATIONS
THAT IT HELPS WRITE. THESE PEOPLE GET PAID
MILLIONS OF DOLLARS TO DO THAT AND YOU KNOW, YOU’VE GOT
REGULATORS WHO MAKE, YOU KNOW, A FRACTION OF THAT WHO DON’T
HAVE THE RESOURCES, YOU KNOW, IT DOESN’T HELP WHEN YOU HAVE
A CONGRESSMAN FROM JUST SOUTH OF HERE WHO I THINK WAS
BUSY SURFING THE WHOLE TIME WHEN HE SHOULD HAVE BEEN
REGULATING AND HEAD OF THE SEC, HE WAS COMPLETELY ASLEEP
AT THE SWITCH AND I’M SORRY FOR ALL THOSE CHRISTOPHER
COX SUPPORTERS OUT THERE, BUT THERE’S A GUY WHO
HAS NEVER COME FORWARD TO EXPLAIN WHAT THE HECK HE WAS
DOING THERE THAT WHOLE TIME.>>ART LEVINE: AGAIN WE INVITE
ANY OF YOU IN THE AUDIENCE THAT HAVE A QUESTION JUST TO
WRITE IT DOWN AND PASS IT OVER AND CRAIG WHY DON’T
YOU TAKE ANOTHER SHOT AT IT WHILE WE GET SOME
QUESTIONS FROM THE AUDIENCE.>>CRAIG SMITH: I’VE GOT A
QUESTION ABOUT WHAT SEEMS TO ME RIGHT NOW AN ANOMALY AND
THAT IS PRODUCTIVITY IS UP, WE’RE BACK TO ABOUT 6% ANNUALLY,
WE’RE VERY GOOD AT PRODUCTIVITY, THE MARKET’S BACK UP OVER 10,000
BUT UNEMPLOYMENT ISN’T BACK. HAVE WE REACHED A POINT WHERE
WE HAVE AN ECONOMY THAT’S GOING TO BE VERY PRODUCTIVE WHERE
WE’RE GOING TO HAVE GROWTH IN THE GDP AND EVERYTHING
ELSE AND WE’RE NEVER GOING TO GET BACK TO 4% UNEMPLOYMENT.>>WILLIAM D. COHAN: THE SO-CALLED JOBLESS
RECOVERY SCENARIO. NO I THINK THAT THE
REASON THAT UNEMPLOYMENT. FIRST OF ALL I HAD AN ARTICLE
IN THIS MONTH’S VANITY FAIR ABOUT LARRY SUMMERS WHO IS
AN INTERESTING FELLOW AND, YOU KNOW, I ENCOURAGE YOU TO
READ IT BUT ONE THING HE TALKS ABOUT AND TIM GEITHNER TALKS
ABOUT IS HOW, OF COURSE, AND THIS IS WHAT ECONOMISTS
TALK ABOUT, IS HOW JOBS AND NEW JOBS ARE A
LAGGING INDICATOR AND THE UNEMPLOYMENT
RATE IS GOING TO GET HIGHER BEFORE
IT GETS LOWER AND THAT’S A LAGGING INDICATOR. THE TRUTH OF THE MATTER IS THAT
THEY’VE SPENT ALL THIS TIME AND ENERGY TRYING TO FIX
THE TOP OF THE PYRAMID. THIS IS LIKE TRICKLE
DOWN ECONOMICS PART 2, I MEAN THEY’VE DECIDED WE
NEED TO FIX WALL STREET. WE NEED TO FIX THE
ENGINE ROOM OF CAPITALISM AND I’M NOT SAYING THEY’RE
WRONG BUT, YOU KNOW, THEY’VE POURED SOME 12 TRILLION
DOLLARS INTO THAT ENGINE ROOM AND TO GET IT BACK ON IT’S FEET
AGAIN AND THAT’S, YOU KNOW, IN PART WHY YOU SEE THE
DOW GOING FROM 6,500 TO ALMOST 11,000, THAT’S WHY YOU
SEE GOLDMAN SACHS MAKING RECORD PROFITS BECAUSE THEY HAVE
LESS COMPETITION, THEY’RE COST OF GOODS SOLD, I.E., CAPITAL,
THEIR ROCKET FUEL IS CHEAP. I LIKE TO SAY THAT THE
AIRLINES COULD MAKE MONEY TOO IF THE JET FUEL WAS FREE AND SO IT’S NO SECRET
THEY’RE MAKING MONEY BUT THEY’VE MADE THIS
DECISION AND THEY HOPE THAT BY FIXING THE
ENGINE ROOM OF CAPITALISM THAT THIS WILL SOMEHOW TRICKLE
OUT TO THE REST OF THE ECONOMY BUT THE FACT IS THAT JOBS
ARE CREATED IN THIS COUNTRY BY SMALL BUSINESS
AND NEW BUSINESS AND EXPANDING BUSINESSES
AND THESE SMALL BUSINESSES AND NEW BUSINESSES CAN NOT GET
CAPITAL, THEY ARE CHOKED OFF. IT’S JUST NOT WORKING AT THE
MOMENT AND UNTIL THAT LOOSENS UP AND THAT HAS TO DO WITH RISK,
YOU KNOW, THAT HAS TO DO WITH BANKERS WILLING TO
TAKE RISK AGAIN, YOU KNOW, AND ONCE AGAIN, THEY
GO FROM A SITUATION WHERE THEY COMPLETELY FORGET
THAT THERE ARE RISKS TO THINGS AND THAT THERE’S NO COST
TO RISK TO A SITUATION WHERE THERE’S NO
PRICE THAT YOU CAN PUT ON MAKING RISK AVAILABLE, SO,
YOU KNOW, WALL STREET JUST GOES THROUGH THESE CRAZY PENDULUMS
AND UNTIL THAT FIXES ITSELF AND IT PROBABLY WILL OVER
TIME, WE’RE GOING TO BE FACED WITH INCREASING JOB LOSSES. THE SCARIER FIGURE TO
ME IS THE, YOU KNOW, 17 TO 18% OF THE PEOPLE WHO
HAVE EITHER LOST THEIR JOBS WHO HAVE STOPPED
LOOKING FOR JOBS OR THE PEOPLE WHOSE JOBS HAVE,
YOU KNOW, BEEN ELIMINATED AND THERE’S NO WAY
TO GET ANYTHING LIKE THEM, YOU KNOW, BACK AGAIN. I MEAN PEOPLE IN SOME
ASPECTS OF FINANCIAL SERVICES OR IN THE AUTO INDUSTRIES
OR THESE OTHER INDUSTRIES, MANUFACTURING WHERE THESE JOBS
ARE JUST GONE AND HOW DO YOU, YOU KNOW, IF YOU’RE,
YOU KNOW, IN MIDDLE AGE AND YOU’VE BEEN DOING ONE
THING YOUR WHOLE LIFE, HOW DO WE REPROGRAM YOURSELF
TO, YOU KNOW, YOU CAN’T JUST, IF I’M BEEN, YOU KNOW LATHING
FURNITURE MY WHOLE LIFE, HOW DO I SUDDENLY, YOU
KNOW, MAKE SOLAR PANELS. I MEAN THAT DOESN’T,
THAT IS A MAJOR PROBLEM.>>ART LEVINE: BILL
WE HAVE A COUPLE OF QUESTIONS FROM THE AUDIENCE. I’LL GIVE YOU THREE AND YOU
CAN COMBINE THEM OR WHATEVER. SEVERAL PEOPLE WANTED TO
KNOW ABOUT GLASS-STEAGALL, SHOULD WE GET BACK TO THAT. ANOTHER WANTED TO KNOW
WHAT DO YOU THINK OF BANK OF AMERICA’S PURCHASE OF
MERRILL LYNCH AND THIRD, A RATHER MACRO [ASSUMED
SPELLING] QUESTION, IS THIS THE END OF
THE AMERICAN EMPIRE.>>WILLIAM D. COHAN: I’VE GIVEN
A LOT OF THOUGHT TO ALL THREE OF THOSE, YOU KNOW, I DON’T
WANT TO BE MR. GLOOM AND DOOM, BUT I DO, YOU KNOW,
I DON’T KNOW. [ LAUGHTER ] I SOMETIMES THINK ABOUT WRITING
A BOOK CALLED 1963 BECAUSE, MAYBE IT’S BECAUSE I’M
FROM MASSACHUSETTS BUT, YOU KNOW I THINK THAT
SOMETHING CHANGED IN THE COUNTRY AFTER NOVEMBER 1963 AND I JUST.>>ART LEVINE: THAT WOULD
BE KENNEDY ASSASSINATION.>>WILLIAM D. COHAN: THE
KENNEDY ASSASSINATION AND I THINK WE’RE SORT OF
STILL STRUGGLING WITH THAT. I MAY BE TOTALLY WRONG
ABOUT THAT AND, YOU KNOW, ON THE ONE HAND I THINK THAT THE
AMERICAN SPIRIT IS INDOMITABLE AND, YOU KNOW, IT’S GOING BE,
YOU KNOW, GET US OUT OF THIS AND I THINK TO SOME
EXTENT THAT’S RIGHT BUT I THINK WE’VE ALSO BECOME A
COUNTRY OF SLITHERERS WHO DON’T LIKE TO TAKE RESPONSIBILITY
FOR THEIR ACTIONS AND I THINK UNTIL WE TAKE RESPONSIBILITY
FOR OUR ACTIONS LIKE NOT SIGNING LOAN DOCUMENTS THAT ARE COMPLETELY FICTITIOUS
AND, YOU KNOW, TAKING OUT MONEY THAT WE CAN’T AFFORD
TO PAY BACK OR, I MEAN, NOT A SINGLE WALL STREET CEO
HAS COME FORWARD TO EXPLAIN TO THE AMERICAN PEOPLE HOW
THIS HAPPENED AND WHY, I MEAN, YOU KNOW, AND WHAT THE ROLE
OF WALL STREET WAS IN THIS. NO ONE HAS COME FORWARD
TO SAY THANK YOU TO THE AMERICAN TAXPAYER FOR
BAILING THEM OUT OF THIS AND, YOU KNOW, MAKING THEIR PERSONAL
FORTUNES BE WORTH HUNDREDS OF MILLIONS OF DOLLARS
AGAIN, YOU KNOW, UNTIL WE TAKE RESPONSIBILITY
FOR OUR ACTIONS, I THINK WE, AS A COUNTRY, ARE
GOING TO BE FLAWED. THAT’S JUST THE WAY I FEEL. I MEAN THIS COUNTRY WAS NOT
BUILT ON PEOPLE SLITHERING AWAY FROM RESPONSIBILITY,
IT WAS BUILT ON QUITE THE OPPOSITE
SO THAT’S THAT. AS FAR AS, YOU KNOW, GLASS-STEAGALL IS
CONCERNED I THINK THE REPEAL OF GLASS-STEAGALL MADE DE
FACTO WHAT WAS ALREADY DU JOUR, IN OTHER WORDS THAT IT
WAS ALREADY THE FACT THAT COMMERCIAL BANKS WERE
COMPETING WITH INVESTMENT BANKS. YOU KNOW, IT’S LIKE
UNSCRAMBLING THE EGG. JUST LIKE YOU’RE NOT GOING
TO MAKE GOLDMAN SACHS INTO A PRIVATE PARTNERSHIP
AGAIN, I THINK THERE ARE
WAYS TO, YOU KNOW, GET PEOPLE TO HAVE MORE SKIN IN
THE GAME AND WHILE I WOULDN’T, YOU KNOW, REINSTATE
GLASS-STEAGALL I FEEL VERY STRONGLY THAT WE NEED TO GET
BACK TO A TIME AS BEST WE CAN WHERE THE PEOPLE,
THE TOP 100 PEOPLE WHO WERE RUNNING THESE FIRMS,
WHO WERE MAKING MILLIONS OF DOLLARS A YEAR, WHO
WERE MAKING THE DECISIONS ABOUT WHERE CAPITAL IS DEPLOYED
AND WHAT BUSINESSES TO BE IN, SHOULD HAVE SKIN
IN THE GAME AGAIN AND SHOULD HAVE THEIR ENTIRE
NET WORTH’S ON THE LINE FOR THEIR DECISIONS THAT
THEY MAKE AND SO I PROPOSE, I WROTE THIS IN A JUNE 2009,
INCREDIBLE, I THOUGHT I’D DIED AND GONE TO HEAVEN, FULL PAGE
EDITORIAL IN THE NEW YORK TIMES IN THE SUNDAY NEW YORK TIMES. I DON’T KNOW WHAT THEY WERE
THINKING BY GIVING ME THAT KIND OF TERRITORY BUT
IN THERE I PROPOSED THAT ESSENTIALLY A NEW CLASS
OF SECURITY AT THE BOTTOM OF THESE CAPITALIST STRUCTURES
OF THESE BANKS GET CREATED THAT REPRESENTS THE
FULL NET WORTH OF THESE TOP HUNDRED PEOPLE
WHICH IS AN ARBITRARY NUMBER, TOP HUNDRED PEOPLE
AT THESE FIRMS SO THAT THEIR FULL NET
WORTH WAS ON THE LINE FOR THE DECISIONS
THEY WERE MAKING. NOW YOU’RE NEVER
GOING TO GO BACK TO THE PRIVATE PARTNERSHIPS
AGAIN BUT IF THEIR FULL
NET WORTH’S WERE ON THE LINE THEN BEFORE
THEY STARTED ENGAGING AND SELLING THESE
RISKY SECURITIES WITHOUT ACCOUNTABILITY, IF
THEY KNEW THAT THEY WERE GOING TO LOSE NOT ONLY THEIR BILLION
DOLLAR FORTUNE IN THE CASE OF JIMMY CAYNE, BUT ALSO
THE OTHER $400 MILLION THAT HE’D STASHED AWAY, HE WOULD
HAVE SPENT A LOT MORE TIME, LESS TIME PLAYING
BRIDGE AND SMOKING POT AND A LOT MORE TIME FOCUSING ON
THE RISKS THAT BEAR STEARNS HAD AND WHAT WAS THE THIRD ONE.>>ART LEVINE: I DON’T KNOW. [ LAUGHTER ]>>WILLIAM D. COHAN:
OK, CHRIS, YEAH.>>CHRIS CHAVEZ: YOU MENTIONED
THAT A LOT OF THE FIRMS THAT COMPRISE THE OLD WALL
STREET HAVE DISAPPEARED OR MORPHED INTO SOMETHING
MORE BENIGN OR NOT REALLY.>>WILLIAM D. COHAN: NO I DIDN’T
SAY MORE BENIGN BUT ANYWAY.>>CHRIS CHAVEZ: MORPHED
INTO SOMETHING DIFFERENT AND YOU ALSO, BUT AT THE
SAME TIME WHAT I GOT IS THAT EVEN THOUGH, AND
YOU MENTIONED THIS, THAT WE HAD THIS WHOLE
CRISIS, THE SAME TYPE OF MINDSET IS THERE,
IS STILL IN THERE.>>WILLIAM D. COHAN: YES.>>CHRIS CHAVEZ: IN THE
SENSE THAT IT’S STILL ALL ABOUT WHAT’S THE BOTTOM LINE,
HOW AM I GOING TO LOOK GOOD IN THE MAGAZINES, HOW AM I GOING
TO LOOK GOOD IN BUSINESS WEEKLY OR FORBES, WHOEVER, SO
IS THAT PERSONALITY, IS THAT MINDSET STILL FULLY
ENTRENCHED IN WALL STREET AND IF SO HOW AT RISK ARE WE OF SUFFERING ANOTHER
SITUATION LIKE WE’RE IN NOW.>>WILLIAM D. COHAN: YES
THE MINDSET IS EVERY BIT AS ENTRENCHED AS EVER. I DON’T THINK THERE’S
EVER ANY CONTRITION. I DON’T THINK THERE’S
ANY SELF AWARENESS ABOUT WHAT’S HAPPENED AND WHY. I JUST THINK THEY’RE TRYING
TO GET BACK TO THE STATUS QUO AS QUICKLY AS POSSIBLE. I THINK RAHM EMANUEL IS THE ONE THAT SAID YOU SHOULD NEVER WASTE
A GOOD CRISIS AND UNFORTUNATELY WITH THE DOW AT 6,500 IN MARCH
I REALLY THOUGHT WE WERE GOING TO GET SOME REFORMS
OF THE SYSTEM BUT NOW THAT THE DOW IS CLOSE TO 11,000
AGAIN EVEN THOUGH YOU’RE RIGHT, IT DOESN’T REPRESENT THE BROAD
ECONOMY AND IS JUST AN INDICATOR OF 30 STOCKS, I THINK
WE’RE LOSING THE MOMENT AND FOR ALL WE KNOW,
AND I’M, YOU KNOW, I COULD SEE SIGNS OF IT ALREADY. WE’RE CREATING, YOU KNOW,
ANOTHER ACID BUBBLE, ANOTHER BUBBLE AND, YOU
KNOW, WE DON’T KNOW. ONE THING’S FOR SURE, IT’LL
NEVER BE THE SAME AS IT WAS. THERE WILL NEVER
BE ANOTHER CRISIS IN MORTGAGE BACKED
SECURITIES, THAT I PROMISE YOU. THERE WILL NEVER ANOTHER CRISIS
IN HIGH YIELD SECURITIES, THERE WILL NEVER BE ANOTHER
CRISIS IN INTERNET IPOS. WALL STREET IS VERY GOOD
AT FIGHTING THE LAST WAR THAT THEY DO LEARN A LITTLE
BIT FROM THEIR MISTAKES IN THAT THEY’RE NOT GOING TO
REPEAT THE SAME KIND OF THINGS AS BEFORE BUT BECAUSE OF
THE COMPENSATION SYSTEM WHICH HASN’T CHANGED ONE IOTA
I MIGHT ADD DESPITE THE STEVEN FEINBERGS OF THE WORLD AND
ALL THAT TALK, YOU KNOW, AS LONG AS BANKERS AND TRADERS
ON WALL STREET ARE COMPENSATED WITH HUGE MILLIONS OF
DOLLARS OF BONUSES TO SELL AND GENERATE REVENUE, THAT’S
WHAT THEY’RE, THEY’RE GOING TO FIND OUT WHATEVER THE NEXT
NEW THING IS AND THEY’RE GOING TO SELL IT AND THEY’RE
PROBABLY ALREADY SELLING IT, WE JUST DON’T KNOW WHAT IT IS AND UNTIL YOU HAVE THEM PUT
THEIR SKIN IN THE GAME AGAIN, YOU KNOW, YES, I THINK WE’RE ON
THE PATH TO ANOTHER SITUATION. I MEAN, AGAIN, IT’S NOT SOME
GREAT WISDOM OR INSIGHT, I MEAN, IT’S JUST THAT THIS IS LIKE
THE TENTH CRISIS WE’VE HAD IN THE LAST 25 YEARS AND
TO ME IT ALL GETS BACK TO THE COMPENSATION SYSTEM.>>ART LEVINE: BILL, HERE’S
A FASCINATING QUESTION. PAULSON CLAIMED THAT THE
WORLD COULD GO INTO AN ABYSS IF WE DIDN’T BAIL OUT AIG
AND THE WALL STREET FIRMS. DO YOU BELIEVE THAT’S TRUE.>>WILLIAM D. COHAN:
WELL LET’S SEE, I WANT TO CORRECT THE QUESTIONER
A LITTLE BIT SO HE BAILED OUT BEAR STERNS, HE BAILED OUT
FANNIE MAE AND FREDDIE MAC. HE DIDN’T BAIL OUT
LEHMAN, HE BAILED OUT AIG, HE MADE WASHINGTON
MUTUAL, YOU KNOW, GOT SOLD AFTER IT WAS
TAKEN OVER BY THE FDIC AND THEY MADE WACHOVIA DO A
DEAL, SO THEIR STRATEGY WAS ALL OVER THE MAP, OK, AND, YOU
KNOW, WHO KNOWS REALLY. YOU KNOW WHAT I GUESS I’M
MORE AND MORE THINKING THAT IT WOULD HAVE BEEN UGLY. EVERYONE WOULD HAVE BEEN
INCREDIBLY FEARFUL JUST LIKE THEY WERE IN
SEPTEMBER AND OCTOBER. I MEAN WHEN THE CONGRESS
VOTED DOWN TARP 1, I THOUGHT THE COUNTRY WAS
GOING TO HAVE A COW, RIGHT, I MEAN IT WAS INCREDIBLE, I MEAN THE STOCK MARKET
DROPPED 700 POINTS. I THINK IT WAS THE
LARGEST SINGLE DAY DROP IN HISTORY THERE WAS
A HUGE AMOUNT OF FEAR. IF THEY HAD LET, I MEAN,
SO THEY DID LET LEHMAN GO AND IT BECAME THIS
TERMINATOR II KIND OF CHARACTER AND REFORMULATED ITSELF. AIG WOULD HAVE DONE
THE SAME THING. I MEAN AIG WOULD HAVE CAUSED
MORE PROBLEMS, I AGREE, BECAUSE IT HAD COUNTERPARTIES
ALL OVER THE WORLD BUT IT WOULD HAVE MEANT, YOU
KNOW, AND IT’S PROBABLY TRUE THAT MORGAN STANLEY WHICH WAS
CLOSE THE BRINK AND GOLDMAN WHICH WAS CLOSE TO THE BRINK
MAY HAVE FAILED IF AIG HAD GONE DOWN BECAUSE THEY
CERTAINLY WOULD HAVE BEEN OUT IN GOLDMAN’S CASE,
$13 BILLION DOLLARS THAT IT WOULDN’T HAVE
GOTTEN AND, YOU KNOW, AT A TIME WHEN THINGS
ARE NOT LOOKING GOOD, THEY’D GOTTEN $10 BILLION
DOLLARS IN THE WEEK BEFORE, THEN THEY GOT $13,
THE WEEK LATER AND THEN THEY GOT $13
BILLION THE WEEK BEFORE. THAT $23 BILLION DOLLARS
PROBABLY HELPED THEM A LOT AND MORGAN STANLEY GOT SOMETHING
SIMILAR SO, YOU KNOW, AIG WAS, I MEAN AND TALK ABOUT SOMETHING, A BLACK BOX NOBODY
KNEW ANYTHING ABOUT, I MEAN IT’S JUST EXTRAORDINARY
AND THE FACT THAT IT HAPPENED WITHIN HOURS OF LEHMAN BROTHERS,
IT’S JUST, IT’S MIND BOGGLING BUT I THINK THAT HAD AIG GONE
UNDER WE REALLY COULD HAVE BEEN INTO SOME SERIOUS FIREWORKS.>>ART LEVINE: MIKE, WE
TEACH ETHICS IN OUR COLLEGE OF BUSINESS AND WE HAVE THE
[INAUDIBLE] CENTER, OF COURSE, AND WE TRY AND IMPART
THE IMPORTANCE OF ETHICS IN BOTH PERSONAL AND
PROFESSIONAL ACTIVITIES, WHAT LESSONS CAN WE ALL DRAW
FROM THIS SORDID EXPERIENCE?>>MIKE SOLT: WELL IT SORT OF
GOES, I WAS THINKING ABOUT SOME OF THINGS THAT MR. COHAN HAD
SAID AND HE REFERRED BACK TO THE WAY MORTGAGES USED TO
BE MADE BEFORE SECURITIZATION. YOU’D GO TO YOUR BANKER,
THE BANK WOULD EVALUATE YOU AND IF YOU GOT THE
LOAN THEN THAT BANKER AND YOU HAD A LONG
TERM RELATIONSHIP. SO IT’S ABOUT RELATIONSHIPS
AND THEN WITH SECURITIZATION IT SEEMS
LIKE IT’S GONE FROM RELATIONSHIP TO TRANSACTIONS AND ONCE
A TRANSACTIONS COMPLETED AND I GET MY FEE THEN I’M
OUT OF THE GAME SO TO SPEAK. SO, YOU KNOW, THE WHOLE SYSTEM
IS CHANGED SO I’M JUST GOING TO BAT THE BALL OVER TO MR.
COHAN NOW AND SAY IN A WORLD WHERE IT SEEMS LIKE THE
COMPENSATIONS REALLY BASED ON TRANSACTIONS COMPLETED, HOW DO WE MAINTAIN THE ETHICAL
LEADERSHIP THAT’S NEEDED TO AVOID SOME OF THESE CRISES? THANK YOU ART.>>WILLIAM D. COHAN: YEAH, THAT
IS A SUPERB QUESTION AND GOES TO THE HEART OF THIS AND
IT GOES TO, YOU KNOW, THE HEART OF HUMAN NATURE, I
MEAN, YOU KNOW WALL STREET USED TO ABOUT THESE RELATIONSHIPS AND
THESE LONG TERM RELATIONSHIPS AND I THINK THAT ETHOS,
THE MORAYS OF WALL STREET AS I DISCUSSED CHANGED WHEN
THEY WENT PUBLIC AND, YOU KNOW, THEN ALL OF THE SUDDEN
THESE FIRMS HAD TO LIVE QUARTER TO QUARTER. THEY WERE EVALUATED BY RESEARCH
ANALYSTS WHO WERE SAYING, HEY, YOU KNOW, MORGAN
STANLEY’S DOING THAT AND THEY HAVE A HIGHER RETURN
ON EQUITY THAN GOLDMAN SACHS. WHAT’S YOUR PROBLEM? WHAT AREN’T YOU DOING
THIS AND YOU KNOW, SO, I THINK THAT YOU
DO HAVE TO GET BACK AND THE ONLY SOLUTION
I HAVE IS, YOU KNOW, TO HAVE ONE OF THE
LITMUS TESTS FOR A NEW CEO ON WALL STREET BE ETHICS AND
MORAL CHARACTER AND FIBER AND THE WILLINGNESS TO TAKE
RESPONSIBILITY FOR YOUR ACTIONS AND NOT BE A SLITHERER,
WHICH IS COMPLETELY ANATHEMA TO WALL STREET CULTURE BY THE
WAY, BUT BARRING THAT I THINK THAT IF YOU GOT BACK TO
THIS SKIN THE GAME CONCEPT WHERE THEY HAD THEIR ENTIRE
NET WORTH’S ON THE LINE, THOSE PEOPLE MAKING THE
DECISIONS, YOU WOULD GET THEM TO BE A LOT MORE FOCUSED. I MEAN, AGAIN, NOT TO COME TO
GOLDMAN SACH’S DEFENSE AGAIN, BUT IF YOU LOOK AT WHAT THEY
DID, UNLIKE EVERY OTHER FIRM ON WALL STREET, IN ADDITION
TO THIS LONG TERM FINANCING THAT I’VE DESCRIBED, IN
DECEMBER 2006 THEY DECIDED TO, THEY DECIDED THEY DIDN’T LIKE
THE RISKS THAT THEY THOUGHT WERE IN THE MORTGAGE MARKET AND
THEY DECIDED TO PULL BACK AND START BETTING AGAINST THE
MORTGAGE MARKET AND THEY DECIDED THAT IT WAS TOO RISKY
FOR THEM TO BE LONG. NOW OF COURSE THAT DIDN’T
THEM FROM CONTINUING TO UNDERWRITE MORTGAGE
BACKED SECURITIES WHICH THEY DID THROUGHOUT 2007,
WHICH IS AN ETHICAL DILEMMA THAT I THINK THEY FACE
AS A FIRM BUT THE BULK OF THEIR INVESTMENT THEY
HAD DECIDED TO PLACE ON THE MORTGAGE MARKET FAILING. NOW THE REASON THAT
THEY DID THAT IS BECAUSE THEY ACTUALLY
HAVE A PARTNER CLASS, WHICH IS A VESTIGE FROM
WHEN THEY WERE A PARTNERSHIP THAT LOOKS A LOT LIKE
WHAT I’M DESCRIBING WITH THIS SKIN IN
THE GAME SECURITY. THEY HAVE ABOUT 300 PARTNERS
AT THE FIRM WHO GET PAID OUT OF THE PRETAX
PROFITS OF THE FIRM. I MEAN IT’S INCREDIBLE,
IT’S LIKE THE BEST OF ALL POSSIBLE WORLDS
BECAUSE THEY GET PAID OUT OF THE PRETAX PROFITS OF
THE FIRM WHICH THEY’RE LOOKING TO MAXIMIZE BUT THEY DON’T HAVE
ANY OF THE PERSONAL LIABILITY BECAUSE IT’S A CORPORATION SO
THEY GET THESE PRETAX PROFITS BUT THEY DON’T HAVE THEIR
FULL NET WORTH’S ON THE LINE BUT BECAUSE THEY’RE TRYING TO MAXIMIZE THESE PRETAX
PROFITS THEY DECIDED THAT THEY WERE SUFFERING
TOO MANY LOSSES IN THE MORTGAGE MARKET ON THE
TRADING DESK AND SO THEY DECIDED TO CHANGE GEARS IN
DECEMBER OF 2006. BY THE WAY EVERYBODY ELSE ON WALL STREET WAS GOING GREAT
GUNS THE OTHER WAY SO, YOU KNOW, THIS WAS, THERE WAS SOME
GUTSINESS TO THIS CALL AND, YOU KNOW, THEY WERE ABLE TO DO
THAT SO THAT’S A SIMPLE EXAMPLE OF HOW, IF YOU DO HAVE, OR IF
YOU THINK LIKE A PARTNERSHIP, OR YOU THINK LIKE YOUR MONEY
IS ON THE LINE, YOU’RE GOING TO TAKE DIFFERENT STEPS THAN IF
YOU THINK IT’S OTHER PEOPLE’S MONEY SO SOME COMBINATION
OF SERIOUS ETHICAL TESTS AND CHARACTER TESTS COMBINED
WITH THEM HAVING REAL SKIN IN THE GAME IS THE ONLY
THINK I CAN THINK OF.>>ART LEVINE: BILL, THERE’S
A LOT OF ANGER OUT THERE. AS YOU KNOW TARP WAS NOT EASILY
VOTED AND A LOT OF FOLKS VOTED AGAINST IT BUT IT FINALLY
PASSED BUT PEOPLE SEEM TO GET IT THAT THESE GUYS WERE GAMBLING
ON THEIR MONEY AND THEY LOST AND NOW THEY’RE COMING
BACK FOR THE HAND OUT AND BEFORE YOU CAN BLINK THEY’RE
BACK TO BUSINESS AS USUAL WITH RAISING INTEREST
RATES AND ALL THAT AND A RELATED QUESTION IS HERE. HOW CAN YOU CHANGE THE FAT
CAT COMPENSATION METHOD TO MAKE THEM HAVE TO USE, YOUR
TERM, MORE SKIN IN THE GAME BECAUSE PEOPLE SEE THESE PEOPLE
GOING TO VACATIONS IN HAWAII AND HUGE, IT’S BARELY 12
MONTHS AND THEY’RE BACK AT IT, THERE THEY GO, LIKE REAGAN
WOULD SAY, THERE YOU GO AGAIN.>>WILLIAM D. COHAN:
THERE YOU GO AGAIN. WELL I’VE TALKED A LOT ABOUT
THIS AND I’M THE ONLY ONE, YOU KNOW, WHEN I
FIRST STARTED TALKING ABOUT THE COMPENSATION
SYSTEM ON WALL STREET AND HOW FLAWED IT WAS, I WENT
ON CNBC, I WROTE A COLUMN FOR THE FT ABOUT THIS IN LIKE
FEBRUARY OF 08 BEFORE ALL OF THIS CRISIS EVEN STARTED
HAPPENING AND I WENT ON CNBC AND THEY ATTACKED ME, LITERALLY,
YOU CAN GO LOOK AT THE TAPE.>>ART LEVINE: THEY BEING?>>WILLIAM D. COHAN: THEY, THE
OTHER ANCHOR, CHARLIE GASPARINO AND DENNIS NEAL AND THE CNBC
CAST OF CHARACTERS, YOU KNOW, HOW DARE I TALK ABOUT THE
COMPENSATION ON WALL STREET, YOU KNOW, BLAH, BLAH, BLAH
AND BECAUSE, YOU KNOW, I WAS, THOSE PEOPLE WERE ALL THEIR
SOURCES AND THEY DIDN’T LIKE THE FACT THAT I
WAS CRITICIZING THEM, SO I FEEL LIKE I’M KIND OF THE
ONLY ONE TALKING ABOUT THIS AND THAT DOESN’T MAKE ME POPULAR
BUT I REALLY THINK THIS IS AT ONE OF THE ROOTS OF THIS. THERE ARE OTHERS, I MEAN,
THERE’S THE RATING AGENCIES, THERE’S THE REGULATORY,
THERE’S CONGRESS, BUT, YOU KNOW, ONE THING THAT WALL STREET
CAN DO ITSELF IS FIX THIS COMPENSATION SYSTEM
AND YOU KNOW, WHAT YOU HAVE NOW IS YOU HAVE
THE KEN FEINBERG’S OF THE WORLD AND YOU HAVE ALL THESE,
YOU KNOW, SMOKING MIRRORS THAT THEY’RE DOING, LIKE CLAW
BACKS AND ALL THIS STUFF, IT’S ALL JUST, YOU KNOW,
[INAUDIBLE] TO AVOID THE REAL, CONFRONTING THE REAL PROBLEM
AND, YOU KNOW, WHAT CAN I, WRITE YOUR CONGRESS, I DON’T
EVEN KNOW, I DON’T KNOW, I DON’T KNOW WHAT THE
ANSWER IS BUT I’M GOING TO KEEP TALKING ABOUT IT.>>ART LEVINE: I DON’T WANT TO
END THIS ON A NEGATIVE NOTE.>>WILLIAM D. COHAN: NO.>>ART LEVINE: I HAVE
A FEW MORE QUESTIONS BUT THIS AUDIENCE MEMBER SAYS IN FEBRUARY PRESIDENT
OBAMA WARNED AMERICA THAT WE MAY FACE A
LOST DECADE LIKE JAPAN. WOULD YOU AGREE WITH THAT?>>WILLIAM D. COHAN: NO, I
ACTUALLY DON’T AGREE WITH THAT BECAUSE THIS IS ONE
OF THOSE SITUATIONS, AND I’M NOT ONLY SAYING
THIS BECAUSE YOU WANT TO END UP ON AN UPBEAT NOTE, BUT I
THINK THAT THE AMERICAN SPIRIT, YOU KNOW, IS ALIVE AND WELL. WE ARE AN INDUSTRIOUS
PEOPLE, I MEAN, YOU KNOW, UNLIKE JAPAN WE HAVE CONFRONTED
SOME OF THESE ISSUES EARLIER WITH SOME LEVEL OF
HONESTY AND INTEGRITY, NOT NEARLY WHERE I THINK IT
SHOULD BE, BUT, YOU KNOW, WE HAVE RECAPITALIZED THE BANKS,
THOSE THAT ARE LEFT, YOU KNOW, I THINK IT’S SAFE TO
SAY THAT SOME ASPECTS OF THE CAPITAL MARKETS
ARE WORKING WELL AGAIN. WE HAVE NOT PUSHED LOANS DOWN
TO SMALL AND NEW BUSINESSES THAT NEED THEM DESPERATELY
AND CAPITAL THAT’S NEEDED SO THAT THEY CAN GROW
SO AND I, YOU KNOW, I THINK WE AT LEAST
TALK ABOUT, YOU KNOW, BECOMING LESS ENERGY
DEPENDENT AND, YOU KNOW, DOING STEPS TO BECOME LEADERS IN
TECHNOLOGY, ETCETERA, ETCETERA. I THINK THIS DOES PUT US IN
AN ADVANTAGEOUS POSITION, VIS-…-VIS JAPAN
AND THE LOST DECADE BUT I MEAN WE HAVE DUG A
VERY DEEP HOLE FOR OURSELVES. WE’VE GOT HUGE BUDGET
DEFICITS, WE’VE GOT, YOU KNOW, WE’VE BECOME THE LARGEST
CREDITOR NATION IN THE WORLD. YOU KNOW WE’RE GOING TO HAVE
TO DO A LOT OF GROWING TO GET OUT OF ALL THIS AND I THINK
WE’RE ALL GOING TO HAVE TO PULL TOGETHER, I
MEAN, WE NEED SOME SORT OF POST 9/11 SPIRIT AGAIN TO PULL TOGETHER
AND GET OUT OF THIS.>>ART LEVINE: WE HAVE A
LOT OF STUDENTS OUT THERE AND WHAT WOULD YOU WANT
TO SAY TO OUR YOUNG PEOPLE ABOUT WHAT THE PREVIOUS
GENERATION HAS OR HAS NOT DONE. WE SEE A LOT OF FOLKS
INTERESTED IN THINGS OTHER THAN JUST MAKING
MONEY IN THIS TOWN.>>WILLIAM D. COHAN: SO WHAT
DO I SAY OTHER THAN PLASTICS? [ LAUGHTER ]>>ART LEVINE: THE
GRADUATE 1960 SOMETHING.>>9.>>WILLIAM D. COHAN: YOU KNOW,
I GUESS, YOU KNOW, I DON’T KNOW, I MEAN, I’M NOT A [INAUDIBLE]
BUT WHAT’S WORKED FOR ME IS TO REALLY FOLLOW YOUR
PASSIONS, YOU KNOW, DO WHAT REALLY MAKES YOU
HAPPY, I MEAN I SPENT 17 YEARS ON WALL STREET WHERE I SAID,
WHERE WE USED TO SAY TO PEOPLE THAT IT WAS ONLY
GOOD ONE DAY A YEAR, THE DAY I GOT PAID MY BONUS. OTHERWISE, IT WAS MISERABLE,
SO, I MEAN, DON’T DO THAT, YOU KNOW, STAY IN SCHOOL KIDS. [ LAUGHTER ] DON’T DO THAT, REALLY
DO WHAT YOU BELIEVE IN, DO WHAT YOU FEEL PASSIONATE
ABOUT AND I THINK IF YOU DO THAT YOU’LL BE HAPPY AND
THEN GOOD THINGS WILL COME. I MEAN I THINK, YOU KNOW,
I’M LIVING PROOF OF THAT. I HATE TO BE POLLYANNAISH
ABOUT IT BUT, YOU KNOW, MY FATHER WANTED ME TO GO INTO
BUSINESS AND GO TO WALL STREET, I DID THAT FOR 17 YEARS, I
ALWAYS WANTED TO BE A WRITER AND NOW I’M A WRITER,
SO THERE YOU GO.>>ART LEVINE: AND A
GOOD WRITER, YOU KNOW, LET ME JUST CLOSE ON THE NOTE
OF ADDRESSING ANY PROBLEM, THE FIRST THING YOU
HAVE TO DO IS FIND OUT WHAT THE PROBLEM IS
CAUSED BY BEFORE WE CAN FIX IT AND YOUR WORK, YOUR
BOOKS AND YOUR JOURNALISM AND YOUR TELEVISION
APPEARANCES HAVE HELPED CLARIFY TO SO MANY AMERICANS
WHAT THIS IS ALL ABOUT SO LET’S AGAIN THANK
OUR DISTINGUISHED SPEAKER FOR BEING WITH US TONIGHT.>>WILLIAM D. COHAN: THANK
YOU, THANK YOU VERY MUCH. [ APPLAUSE ]


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