>> > > Tonight on FRONTLINE, episode two.
of a four-hour unique examination. >> > > Unstable home mortgages are triggering.
anxieties of a financial crisis.
> >> > Inside Washington'' s struggle. to react to the crisis. > > The dow tumbled 200 … >> > > They were all very terrified of.
the possibility of a financial institution failure. They didn'' t know what it would result in>. > > Fears of a global liquidity. dilemma have magnified today. >> > > Inside the essential decisions. >> > > The policy manufacturers have.
sent out inconsistent signals so the marketplace doesn'' t recognize what to >> anticipate. > > Turmoil in markets around the globe. >> > > My god we may be administering.
over the 2nd wonderful clinical depression. >> > > The politics of a bailout. >> > > They needed to toss their principles.
out the door as well as conserve the economy.
>> > > America you need to be annoyed.
regarding Washington is concerning to do. >> > > And also the education of a future head of state. >> > > The economic climate is melting, the.
Shrub management is leaving and all eyes are currently on Barack.
Obama to transform it around. >> > > Obama obtains a genuine glance.
of the future catastrophes coming. >> > > Cash, Power as well as Wall surface Street: episode two. Tonight on FRONTLINE. >>> > It was on a chilly March day in 2008 that the.
concern of a meltdown would come true. >> > >– concerns of an economic disaster on Wall Road– > > repossessions increased to tape highs– > > After the real estate bubble.
burst, it would only be a matter of time before investors would certainly begin to shed.
self-confidence in Wall surface Street'' s greatest financial institutions.> > > It started with news that some.
Bear Stearns bush funds would certainly– > > The Case-Shiller residence consumer price index– > > Bear Stearns was the first to crack. >> > > Pretty typical morning. And afterwards suddenly,.
around 11:00 o'' clock, there ' s a shake.
The stock begins to go down.The CFO of. Bear starts invoking to his workdesks, to the repo guys, “the bond. guys, “Anybody hear anything? Any person recognize anything”? ” What is this?” “Yeah,'the report is that we ' re running out. of cash money and also that we could be in problem. >>” > >– leading this really sharp rally on Wall.
Road, with the exception of Bear Stearns– > > The rumors swirling around Bear had to do with.
its large investments in subprime home loans, what would certainly become referred to as “” harmful assets.” >>” > > They allowed in home loans..
They were big in packaging them and producing safety and securities out of them, purchasing them. >> > > The road to riches for Bear was straightforward, acquire hundreds of hundreds of subprime.
home mortgages, after that bundle as well as offer them to capitalists. And now the event was over,.
and also Bear was spiraling out of hand. >> > > You ' ve either obtained liquidity or you put on'' t,> so– > > It was absolutely nothing except unique. >> > > However those are the type of concerns.
in this market, issues of confidence– > > You'' re enjoying on CNBC, and so on, I.
mean, they'' re chatting regarding where>> you work. > > Well, the only financial institution in the red. right currently, primarily Bear Stearns, although it is dragging the remainder of. the monetary markets down, >> as well.
> > The supply remained in freefall, as well as. the cash books were diminishing. > > The supply started to decrease.
More. and more people called as well as claimed, “” I desire my cash out”” or “” I won'' t trade with
.” Bear Stearns.” As well as it just completely unwound. >> > > Almost insolvent, the leading brass at.
Bear called Wall surface Street Timothy Geithner, the Head of state of the New York Federal Reserve. Geithner was Bear'' s last opportunity. >> > > Tim Geithner goes to the Reserve bank.
of New York. It'' s the center of the financial system. He is supposed to be the Fed'' s front-line. basic, field marshal, in the monetary markets.> > >'He ' s 47 years of ages. He looks like he'' s about >> 32. > > Exceptionally wise, extremely knowledgeable about.
this things, very distinct, regulated.
>> > > Geithner realized he required to.
recognize exactly how bad Bear'' s publications looked. He dispatched a SWAT team of detectives from.
the Federal Book to Bear'' s head office. >> > > Tim Geithner is anxiously.
entailed in trying to find out what'' s mosting likely to take place if Bear thaws.
down, and also how you need to stop it from going right into freefall and dragging down.
the remainder of the monetary market with it. >> > > By twelve o’clock at night, by 1:00, 2:00 in the morning,.
everybody as well as their mommy has teams at Bear– Morgan, the Fed, the SEC– as well as they discover.
Bear is stuffed to the gills with harmful waste. >> > > Bear was celebration to challenging monetary deals. >> > > Nobody recognized just how subprime home mortgages had multiplied through these points.
called debt default swaps. And nobody understood just how they'' d type of. obtained into the blood of the monetary system.
>> > > Geithner learned that Bear had actually made credit score.
default swap offers worth trillions of bucks around Wall Road and also worldwide. >> > > Because Bear Stearns was so.
indebted to so lots of other individuals, their failing to repay their financial obligations, or pay their.
financial debts, would trigger a cascade of various other failures. >> > > Geithner saw what central.
bankers fear most, “” systemic risk.”” Bear was frighteningly interconnected.
with other banks up and also down Wall surface Road. >> > > Nobody knew what would.
be the ramifications, which various other establishments were exposed, which.
various other institutions would experience runs.
>> > > Bear Stearns, Geithner.
wrapped up, was “” also huge to fail.”” A bankruptcy might threaten confidence.
in every major Wall Street firm. >> > > They were all extremely scared of the possibility of a bank failing. They didn'' t. understand what it would cause >>. > > The sheer collapse of Bear Stearns had taken government regulators.
practically completely by surprise. >> > > What came to be clear, as you consider the document, is the extent to which the individuals that were.
charged with supervising our financial system truly didn'' t have a feeling of the threats. that were'installed because system. They didn ' t see the essential decaying in the. system that had materialized itself for many years. >> > > A year later on, Phil Angelides would certainly chair.
the Financial Crisis Query Compensation. In their record, the commission ended.
regulatory authorities at the Federal Book, the SEC and various other companies ignored proof.
that Wall Street was teasing with disaster.
>> > > You would think that the people.
who supervised of our monetary system would have a grip on.
the key risks that remained in it. And also if they did, they would certainly.
have relocated, in a sense, to handle those. They had purposely.
transformed a blind eye to those issues. >> > > For 3 years, Washington had steadily.
relocated to a hands-off attitude towards Wall surface Road. And with little oversight, inside.
these black boxes, Wall surface Street had actually developed a host of made complex.
but financially rewarding monetary items. >> > > We had no policy. No government or state public authorities had any.
idea what was going on in those markets.It was a dark
market. There was no transparency. >> > > They were making money, as well as they desire to.
proceed making cash. It was creating fees. Transparency drives profits down,.
drives down deal costs. The banks wear'' t want that due to the fact that they make their money from purchase.
expenses, as well as they such as lots of non-transparency. >> > > The story has actually continued to.
mushroom, and also there are worries among– > > Now, with Bear failing, those dark markets.
threatened to lower the American economic situation. At 4:00 AM, Tim Geithner picked up.
a phone and also called the chairman of the Federal Reserve in Washington, Ben Bernanke. >> > > Ben Bernanke is a very,.
very valued scholar, and also not just a scholar of economics.
but of the Great Anxiety. >> > > If he weren ' t chairman of the Fed, he'' d
be. top of the checklist of people you ' d be mosting likely to for guidance as well as understanding in all this things. >> > > Among the Depression specialist'' s. greatest worries was being realized. >> > > It was clear that this needed to be included. There was no doubt in his mind. He, more than anyone else, appreciated.
what would certainly take place if it obtained out of control.
>> > > Bernanke believed that.
equally as in the Clinical depression, a lack of self-confidence in the banks.
might reduce the whole economic climate. >> > > You could see the credit scores default swap spreads broadening. The market was.
informing you something was wrong. >> > > Well, below we are, 90 minutes in, as well as it looked– it.
looked like it was going to be a huge up day, however– > > The next morning, Bernanke advised President.
George W. Bush'' s treasury assistant, Hank Paulson, of systemic danger to the economic
. system if Bear collapsed. >> > > Paulson was picturing a 1,000.
to 2,000-point decline in the Dow that Monday, potentially the failing.
in very brief order of a number of various other financial investment financial institutions– Lehman.
Bro, Morgan Stanley, and so forth. >> > > Paulson believed he knew the.
markets well. Just two years previously, he had actually run Bear'' s biggest competitor. >> > > Paulson comes from the great types of masters.
of the universe that have actually originated from Wall surface Street. >> > > Henry Paulson originated from Goldman Sachs..
He was an extremely effective Wall Street number.
>> > > At Goldman, he had actually managed the development.
of those difficult monetary products, as well as was constantly a champion of the free market. >> > > Paulson does not have the attitude of a.
regulator, he has the way of thinking of an investment lender, that the market incentives and also the market.
punishes, so you put on'' t require a whole lot of >> law. > > A bailout of Bear Stearns was. not Paulson ' s style, however Bernanke and Geithner believed it was as well big to stop working..
As well as by that weekend, options were diminishing. >> > > It was an intestine check minute. Do we feel.
like we can take the danger of letting it go? They all took a look at each various other and also simply.
stated, “” I'' m not all set to take that risk.” >>” > > They would utilize $3 billion of.
federal government money to stay clear of a personal bankruptcy. Tim Geithner would certainly broker a fire.
sale of Bear Stearns to JP Morgan. >> > > The Federal Book made use of powers that it had had.
however had actually existed inactive since the Great Clinical depression. They basically took $30 billion, went.
to JP Morgan and also say, “” We'' ll offer you $30 billion if you get this Bear Stearns,.
so it doesn'' t have to go closed.” As well as they did.
>> > > What the New york city fed did was.
take all the negative things off the publications of Bear Stearns and permit JP Morgan.
to purchase the excellent part of it. It'' s type of like if Uncle Sam had.
been available in and taken all the vinegar and enabled JP Morgan to have the red wine. >> > > Bailing out a major economic organization in.
dilemma was something Tim Geithner had actually seen before.It was drawn from a playbook developed back in.
the 1990s, how to reply to a financial crisis. >> > > Tim Geithner, returning also to.
his days in the Clinton administration, is type of referred to as an amazing head in a situation, as well as in, you know, “” Exactly how do you handle.
a really troubled financial system?” >>” > > In the Clinton management,.
Robert Rubin was the treasury assistant. Larry Summers was his top replacement. And undersecretary Tim Geithner.
was always in the room. >> > > They had this bonding, unifying experience throughout the Clinton management.
producing these various situations, from Thailand to Japan to Indonesia. Geithner was among the people that.
was kind of part of that SWAT group that comprehended just how to.
react to an economic situation. >> > > They crafted massive bailouts when American banks were endangered.
by monetary chaos overseas. Dealing with the International Monetary Fund, they lent hundreds of billions in nations.
like Mexico, Thailand and also South Korea. Rubin as well as Summers, along with Federal.
Get chairman Alan Greenspan, ended up being superstars of the financial world.You had this notorious now Time. magazine cover with Bob Rubin, Larry Summers as well as Alan Greenspan, called. “The board to save the globe.
“” And also that just amounts up the.” perspective of the times perfectly. > > By the end of the Clinton> administration,. the individuals in the Treasury– Geithner, Summers, Rubin– really felt like there.
was a recognized playbook for taking care of a monetary crisis. The very first thing you had to do was.
can be found in and also flooding the financial institutions with cash to make sure that they would certainly keep loaning, as.
hard as that was to do politically. >> > > It was a method Geithner.
took with Bear Stearns, spending great deals of money to.
react to a financial situation. But Treasury Secretary Henry Paulson assumed Geithner'' s method might. send out an unsafe message. He began openly advising Wall surface Street of.
one of the a lot of standard tenets of the totally free market, moral hazard. >> >'> I ' m as aware as any person is of.
moral danger. I am likewise aware of– > > Ethical threat presents the concern, if you bail.
somebody out of an issue they themselves create, what reward will they have the next.
time to prevent making the same blunder? >> > > Paulson is out in public.
saying, “” It'' s all on you now.This was an one time just occasion,”” right? “” You'' re on your own currently.
We did it. with Bear, however now you ' re on your >> very own.” >'> There ' s information today of a government. bailout for a Wall surface Road investment– > > It'' s a fire sale for struggling Bear Stearns. >> > > The bailout of Bear Stearns landed.
in the middle of a political election year. >> > > Are you discharged up? Are you ready.
to go? Fired up! All set to go! >> > > Barack Obama had already.
made the economic climate a vital issue. >> > >– due to the fact that we'' ve got eight years.
of devastating financial plans. That'' s what we ' re going to alter when'I ' m. head of state of the USA of America! >> > > Obama extremely early recognized that.
things were only going to obtain worse. Therefore, Obama made this choice,.
“” Things I'' m mosting likely to run on is that there'' s an issue in our economy, my.
challenger doesn'' t see it,” >> and I can fix it.” > > And right after the Bear Stearns situation,
. he turned his interest to Wall surface Street. He had a within resource, the.
man in the pink striped tie.
>> > > We met for a little dinner, just him as well as.
I, and you recognize, I was hook, line and sinker. I seemed like below was a man that can.
actually bring this nation with each other. >> > > Robert Wolf was a Wall Road power broker, the chairman of UBS Americas,.
part of the giant Swiss bank. >> > > From that day on, we began speaking really,.
very frequently. I put on'' t recognize if it was as soon as a week, three times a week, 5 times. a week, emailing back and forth.But from that time on, we started talking. concerning the marketplaces and the economy nonstop. >> > > As well as with Wolf'' s sustain, Obama determined.
to confront the bankers on their own grass. >> > > I actually went down to the Cooper.
Union speech with him in his car. >> > >– Senator Barack Obama. >> > > He was speaking about the idea of.
seeing to it that the principles of Wall surface Road was pure which we were doing the.
business that we need to be doing. >> > > We allowed the unique rate of interests place.
their thumbs on the economic ranges. We'' ve excused and also even embraced a values of greed. >> > > The Cooper Union speech was basically Obama'' s effort to claim to the Democratic Party as well as to.
the nation that he believed that we needed to check Wall surface Road, we had to return to.
much more hostile law of Wall surface Road.
>> > > As opposed to developing a 21st century regulatory framework, we.
merely taken down the old one. In doing so, we encouraged a.
winner-take-all, anything-goes– > > In the audience, Wall surface Road'' s power. brokers were paying very close attention. >> > > He was being in the heart of the globe.
monetary facility, talking concerning law before we started speaking about policy. >> > > A free enterprise was never.
indicated to be a cost-free certificate to take whatever you can.
get, however you can obtain it.
>> > > I would certainly claim the response.
wasn'' t fantastic from Wall Road. However you understand, to the head of state'' s. credit report, that didn'' t stop him from outlining what he assumed.
was going to be necessary. >>> > The project continued. However over the next few months,.
the news didn'' t obtain any type of much better. > >> Earnings in the banking sector are diving– > > The out of work rate in America.
has currently risen to 6.1 percent– > > The marketplaces got on the edge. >> > > The Dow tumbled 240 points,.
while the NASDAQ sank 46. >> > > At the White House, Head of state Bush decided.
Secretary Paulson would certainly take care of the situation. >> > > Head of state Shrub, that ' s in the. final months of his presidency, was responsive to allow Paulson.
determine the ideal means to take care of the problem. In result, he claimed to Paulson, “” I'' ve got your
. back.'I ' m going to obtain you whatever you'need. But you''
re the front– you ' re.” >> the front-line basic here.” > > Paulson wished the failing of Bear Stearns was. a separated occasion. Wall surface Street was now on notice.And various other banks would have. to take treatment of themselves. > > He was reasonably sanguine. And also he believed, “well, this is”–. you know, “” This is a one-off.
They screwed up, yet you recognize, others. aren ' t mosting likely to be quite that
negative.'” > > It seemed like this was a dilemma” >>, yet not an unmanageable one. This. was something that could be stopped.
A finger in the dike would wind up working fine. > > Paulson told President Shrub what was required. >> now was to rebuild confidence in the economic climate.
Shrub ' s speech writer, Matt. Latimer, aided craft the message. > > The perspective was to emphasize how great. the economic climate was, exactly how things were improving. We ' d have various bullet factors and also. things we ' d stress in speeches.
And also gradually, a few of the bullet. points stopped mattering, or they were in fact negative indicators,. so we took them off the listing.
So the list of great information maintained decreasing down. >> > > I believe market conditions.
will certainly proceed to enhance. I am certain due to the fact that our economic climate is.
durable, as well as deep and also competitive.And I want Americans to
be certain, as well. > > Both Paulson as well as Bernanke >>. urged all was well.
> > We will certainly function our means. >> via these monetary storms. We will function our way with this. intermittent movement that we have.
And the economic situation will go back to excellent development. > > It ended up being called the summer season of assurances >>. > > When will the economy turn around? I ' m not an. financial expert, but I do think that we ' re expanding.
And also I can bear in mind, you know, this. press conference here where people shouting recession this, economic downturn. that, as if you ' re financial experts.
As well as I ' m an optimist.'You know, I think there'' s a whole lot. of positive points for our economic situation. >> > > But there were strong.
cautions of what was to come.
>> > > A bullet had been dodged with Bear,.
but I assume the even more analytical people on Wall surface Road identified that there.
were still a great deal of bullets coming. The diagnosis for the close to future was.
that there were still significant issues. >> > > That summer, as the economic.
dilemma became progressively apparent, there was no crucial action from those accountable. >> > > That ' s among one of the most striking parts of. the tale, is that, initially of all, exactly how little individuals that were in fee of our system recognized.
and/or carried out in the wake of this oncoming dilemma. And secondly, once the evidence was clear that.
the system itself was unstable and also unhealthy, exactly how there wasn'' t definitive and solid activity to try to.
suppress what was becoming a catastrophe for the country. >> > > When asked why the government.
did refrain from doing more that summer season, Assistant Treasury Assistant.
Michele Davis claimed she and also Paulson believed the federal government was powerless.
to avoid the impending dilemma. >> > > The American people expect the Federal.
government to have the authority to stop a disaster when they can see it coming.And we don ' t
have that authority. We likewise all understood it was June,. July of an election year.
There was not much reasonable chance of. in fact in some way establishing new authorities. So all we might do was look at the authorities. we had as well as attempt to identify what we can make use of. > > These are individuals who we charge. >> with the duty of tracking. They ' re the ones that are supposed to keep. out for systemic threat in our nation.
That ' s their work daily. Why didn ' t somebody stand as well as claim, “Wait a. min, this is a lot larger than “Bear Stearns?” > > By the autumn, in New York City, on Wall surface. Road,” >> there was an apparent feeling of anxiousness.
> >– is up, fuel ' s up, food rates. >> up, supplies going means, way, way, way down– > > But Wall Street didn'' t understand where.
or when the panic would strike following. >> > > Worries of a global liquidity.
crisis have heightened today– > > After that it hit. In the crosshairs, the globe'' s. fourth largest financial investment financial institution, Lehman Brothers. >> > >– real when it comes to Lehman.
Brothers, shares of which– > > Lehman is quaking.They ' re having to bring'. in a quarter of a trillion bucks a day, that goes out the following morning, simply to survive. >> > > When the mortgage organization was.
becoming the largest gambling establishment on Wall surface Street, Lehman was one of the highest possible rollers,.
wagering thousands of billions of bucks. Just like Bear Stearns, Lehman'' s wagers had actually gone.
negative. As well as all over Wall Street, they understood it. >> > >– supply price went down 45 percent Tuesday– > > Issues about the business seemed.
not likely to reduce whenever quickly. >> > >– and also lots of, lots of questions– > > They'' ve obtained zero utilize. They have.
to do something soon. It'' s obvious– > > Penis Fuld ran the firm. On Wall.
Road, they called him “” the gorilla.' >> ' > > It ' s like you poured a bull into a suit..
He just– he simply can'' t stop being Penis Fuld. And also the whole company came to be marked with that said.
>> > > Several believed Fuld'' s Lehman. Sibling was too huge to fail, and Fuld seemed to think neither Geithner.
nor Paulson would certainly ever before allow it go under. >> > > Prick Fuld is still relying on the orthodoxy. Also though Paulson is saying openly,.
“” You'' re by yourself,”” he'' s, “like, “What, are you kidding? If there'' s problem,.
the government'' s going to come and take us.They are mosting likely to come as well as.
do what we require to do because the world can'' t live without Lehman Brothers. at the center of the monetary'system. It ' ll be a complete headache.” > > And Fuld believed he had.
a feasible ally in Geithner. He was just one of their own. He'' d brokered the Bear offer. As well as he was a member of a very exclusive club.
>> > > The board of the New york city Fed is made.
up of much of the titans of finance. That'' s actually, in a method, the. supreme club on Wall Road.
They determine that the president. of'the New York Fed is. It ' s actually the >> ultimate experts ' establishment.
> > Currently on telephone call with. Hank Paulson and Ben Bernanke, Geithner argued they could have. to follow the bailout playbook. >> > > Geithner informs Paulson, “” I think we are.
mosting likely to need to put government money in. As well as you'' ll have no reputation if you.
state we'' re not mosting likely to do it and we are.”” So we understand there'' s that >> stress. > > So hank Paulson ' s sitting.
there, and also it ends up that we'' re having the largest dilemma Wall surface.
Road has seen considering that the Great Depression. And he'' s at the facility of it. As well as now.
the concern ends up being, “” What does hank Paulson do?” >>” > > Moral hazard appeared to be.
driving Paulson'' s choice
>>. > > At this moment, he makes an essential choice.
due to this concern of ethical danger, that Lehman will certainly be enabled to stop working. >> > > It was a really high-stakes video game.
of signaling that he was playing. He desired to show these guys, you know,.
every one of his old friends on Wall surface Road, that they were going to need to.
step up as well as do something themselves. >> > > Friday evening, September 12th,. 2008, after the marketplaces closed, the heads of Wall surface Street'' s biggest companies were.
mobilized to the Reserve bank in New York.This weekend break would be a vital. moment in the tale of the meltdown. > > Regarding 4:00 or 5:00 o ' clock, the. numerous officials from the Federal Get started telephoning the financial institution chiefs. Cell. phones started going off. As well as they
stated, “You need to be down here at 6:00. o ' clock. We wish to talk with you.
” >'> I got a call concerning 5:00 o ' clock saying,. “Go to the Fed at 6:00 o'' clock” that night. I was in Merrill Lynch ' s midtown centers. And also I reside in Westchester, so I was attempting to leave the city early since the. traffic is always negative on a Friday night. I went by myself.And for the many part, the Chief executive officers of the big financial investment financial institutions and business.
banks were all there on their own. > > So everybody converged. At that factor, it was simply the CEOs of. the major houses and also extremely >> senior advisors. > > You had regarding a dozen different Chief executive officers there. And also you have in there Tim from the Fed. >> You have Henry Paulson as the treasury assistant. > > Paulson provided the message. Lehman remained in a death spiral, and also. >> there would certainly be no federal government bailout. > > They ' d claimed to us we jointly. had to find a solution for this. >> And also this is the important component.
The federal government was not mosting likely to. offer any type of type of help. > > It didn ' t take wish for prospect. Obama to likewise hear the news.At the time, he had a secret inside source. > > I was talking with the senator
all along. When we started chatting Friday evening,. he was asking the tough question. >> > > UBS chairman Robert Wolf was marching. of the conferences to keep Obama up to speed up.
> > He ' s stating, “Barack, this is bad. Lehman can decrease, yet AIG is. right behind it, as well as Merrill.” He lays it out. > > I was clear that >>, “you. know, from my point of view, I believe immediately, we will certainly see the.” markets and funding begin to run out. You ' ll see a
lack of liquidity. As well as we ' re. going to be in a scenario of the unidentified. > > The various other Wall Street banks stated. they were not about to rescue Lehman, but Paulson was standing firm.There would be no bailout. Geithner and Bernanke >> would accompany. > > Geithner needs to have.
been investing the summer of 2008 figuring out what to. do if there was a Lehman. And they didn ' t do that. This is a historical failure. >> They should not have
been in a BlackBerry. situation setting in the autumn.
They ' re essentially not really prepared. > > By'Sunday evening, it. was over at Lehman Brothers. The lawyers invested the evening. preparing the personal bankruptcy documents. On Monday morning, Tim Geithner. began his day working the phones. >> His logs from the day show 8. telephone calls with Secretary Paulson. The early vibrations from.
Wall surface Street weren ' t excellent. > >– Lehman revealing early this early morning it will. apply for insolvency, validating all those reports.
> >– especially unsettling for Lehman. Brothers workers, 25,000 worldwide– > > Paulson headed to the >> White. House to comfort the markets. > > Good afternoon,
every person. And also I. hope you all had an enjoyable >> weekend.Yeah. Yeah. Well, as you understand– > > The Fed and also the Treasury assumed that. Lehman could go >> under without triggering a significant conflagration, and also that it would certainly be a. >> big event, however it wouldn ' t
trigger a catastrophe. > > However the American
individuals can. stay confident in the >> stability as well as the strength of our financial
system. Thanks significantly. > > Paulson had bet the marketplaces. would deal with themselves.
He would soon discover he was'incorrect. >> > > The supply market stopped by.
hundreds of factors right from the open — > > Every little thing ices up. As well as that ' s what creates the crisis.And it truly started due to the fact that Lehman. Bro entered into personal bankruptcy. > > Lehman collapses, as well as there are shock. waves via the globe financial system, all over the globe, massive panic.
> > No bank wishes to provide to any kind of various other financial institution since >> they ' re scared that'the various other.
bank won ' t be able to pay them back. > >– turmoil in markets around the globe– > > Why didn ' t the government save
Lehman. the manner in which it stepped in for Bear Stearns? > > At Paulson ' s office >>, the telephones lit. up, loads of phone calls from around the country. > > Hank was extremely nervous.
He was getting telephone calls from large. >> making companies that were struggling >> due to the fact that of the. credit markets being frozen
. The longer it went on, the much more. difficulty the economy> was going to'be in.– ruined by losses in home loan investments– > > I understand they ' re mosting likely to.
>> be asked to bail out AIG– > > It ' s a tough day, male. It ' s. a challenging day, yet much less is extra.
> > The system stopped. All kinds of settlement iced up when.
we got to the deepness of the panic. Financial institutions wouldn ' t lend cash to each various other. The very first money market mutual fund in the.
United States, quote, “broke the >> buck.” Industrial paper, the many'fundamental– among one of the most. basic instruments
>> in financing– that market fell short. > > Capitalists were drunk by.
Lehman ' s bankruptcy filing– > > Geithner ' s logs show 55 telephone call this. day.Many told him what he already recognized, the decision not to bail out Lehman was.” at the heart of the broadening crisis. > > The policy makers have. sent inconsistent signals. They saved Bear. >> They didn ' t save Lehman'. So the market doesn >> ' t recognize what to expect.
A nd there
' s no question that in the wake of. Lehman, there ' s real panic in the industry.
NARRATOR: Paulson had actually made the tough choice. as well as was currently liable for the repercussions. > > I ' m certain that Paulson is resting there–. and also'he doesn ' t strike me as the most reflective man always, but. he should have been resting there, everyone was sitting there', saying, “My God, we might be supervising. the 2nd Great Depression.” This is the utter headache of an economic. plan maker.You ' re resting >> there, and you might have just made the.
choice that'ruined the globe. Absolutely distressing moment.
> > Yes, we can! Yes, we can! > > Inside the project, “Barack Obama had. been reading about the meltdown in actual time, with continuous updates from his financial team. > > Senator Obama was engaged before Lehman. But'once Lehman struck, you understand, I. think he was throughout it, believing in a proactive and prospective method of. >> just how this was mosting likely to affect the economy. > > And also the candidate had another. inside resource, Hank Paulson. > > Assistant Paulson and the administration. are calling then prospect Obama, and also they ' re claiming, “Look, we assume. the world is close to coming to an end, and we actually require your assistance.” > > Obama was being briefed. >> concerning a brand-new dilemma.
AIG, the world '
>> s biggest. insurer, was collapsing. > > When Lehman declares bankruptcy, all'of an abrupt “,.
AIG says, “We ' re resting on this massive deficit. We just guaranteed to pay all these individuals millions. and also numerous dollars if Lehman declared bankruptcy, presuming that Lehman can.
never ever potentially go bankrupt. >> As well as currently Lehman has actually declared bankruptcy.” > > Obama was informed that the failing of AIG was far worse than Lehman and threatened. a full-blown globally anxiety. > > AIG has issues that make everyone. else ' s issues appear like youngster ' s play. > > AIG does not have the cash in the. financial institution to support the dedications it made” >>. > > AIG plunging– > > At one point, they were down 70 percent– > > They encounter the hammer of a credit scores.
ranking firm downgrade, which– > > When >> again, Geithner as well as Paulson.
were'just now discovering the information'regarding the >> surprise company ventures.
of a significant Wall surface Road establishment. >> > > Everyone was having to discover all. concerning AIG, you recognize, in actual time, find out >> concerning the institution at the. very same time that they ' re having> to choose, and not also having. time to find out that the large counterparties are because. you ' re confronted with
— it ' s Monday evening, as well as if you don '
>> t do something in 24 hrs,.
you ' re going to see the effects.
> > Right here ' s this– you understand, this massive establishment
. that turns out to have an massive hole in it. And again, policy manufacturers simply. concerned holds with the degree of the challenges and the problems. days before its impending collapse.
> > Geithner recognized that if AIG went down, the >>. effects would certainly be even worse than Lehman.
He suggested for another bailout. > > Tim Geithner assumed that if they. did refrain every little thing they needed to do to conserve AIG, as horrible as it was, that they would be endangering. the international economic climate. >> > > He certainly chats currently of. having stared right into the abyss after Lehman and also ended that that was. not mosting likely to take place >> again on his watch. > > Paulson, reeling,
changed training course once again. He ' d support Geithner ' s rescue of AIG. > > They swallow hard, and. they do what they have
to do. >> As well as so much for moral danger,
right? So much for ethical hazard. due to the fact that you can ' t allow AIG fall short.
> > They had to toss their concepts.
>> out the door and also conserve the economy. And also whatever objection there would certainly. be of federal government intervention was a little rate
to spend for the deluge that. would have happened if AIG had actually broken down. > > It was at this minute that.
Geithner encountered an eventful decision. >> One question was especially delicate.
Needs to he punish the financial institutions that. were celebrations in AIG ' s hazardous deals by making them take an economic hit? On. Wall Road, it ' s called a “haircut.” > > There ' s this really delicate. >> moment at that precise time when Geithner as well as others have the power to state, “OK, we ' re going to conserve AIG, yet the expense to.
you, Goldman Sachs,'or Citi or any person else, is that you need to take a haircut.You have to take a price cut. on your insurance coverage.” >> You recognize that you ' re mosting likely to go –.
you ' re going to claim your insurance policy, but rather of declaring one hundred percent of “it, I want you to concur today you ' re. just mosting likely to claim half of it. ” > > However that ' s not what Geithner chose. The U.S. government, he claimed, had no choice yet to settle the huge. financial institutions ' insurance claims against AIG at full value. > > Geithner ' s entire healing. plan depended on confidence. And if you suddenly began entering and. providing haircuts, individuals are going to obtain upset.” >> They ' re mosting likely to be stressed. Investors are mosting likely to draw back right. at the time when they needed investors to have enough self-confidence in these. >> banks to put their cash back in.
> > The choice suggested billions of dollars. would certainly move to Wall Road ' s biggest banks. > > If the government hadn ' t interfered, those counterparties would certainly have taken significant. losses, so there was some take advantage of there
. At the very least tell them, you understand,. “You ' re going to take 10 percent.
” That simply– that would have aided. >> Yet there was just readiness to kind.
of toss whole lots of money at the issue.
>> And also I put on ' t– I think we threw more cash at. the problem than we required to.
Absolutely. > > Geithner ' s bailout placed the federal government on. the hook for greater than
“$ 180 billion dollars.Goldman Sachs as well as the various other banks.” would each receive billions. > > Stocks dove once more. In the.
end, the Dow plunged 449 points– > > Geithner had actually coordinated the AIG rescue in. just a couple of days, however it did not quit the crisis. >> > >– plunging 504 point– > > This is DEFCON 4, whatever.
This was the total problem.
By Wednesday, you ' d generally had a complete. >> closure of the globe funding market. It ' s simply >>– no, this is outright horror. > > Ben Bernanke called Hank Paulson at Treasury. > > Bernanke generally contacts Paulson> and states,. “There ' s no end game in> view that looks good.Things just look like they ' re going to get even worse. We have to do something much more direct, a lot more straight.
participation of government in the financial industry.” > > Bernanke wanted Paulson. >> to aid encourage Congress to launch a large bailout of> Wall Street. > > Bernanke states to Paulson– very first of.
“all, he claims, “You have to go to Congress.
We can ' t do this any longer on a case-by-case basis.” At that factor, Paulson bowed to the unavoidable
. One thing Paulson said to me in an interview is,” >> “When the situation modifications,
you have to. be prepared to change with the scenario.” > > The ext day Paulson >> advertisement Bernanke traveled. to capitol hillside for an emergency situation conference. > > On Thursday, late mid-day,. they go'to Nancy Pelosi ' s workplace.” And also there ' s a conference of the senior lawmakers. from both events in both Home and Senate “. > > It was clearly a big conference.
I had no concept I was going to hear what I heard.” >> > > Secretary of the Treasury Paulson.
as well as the chairman of the Fed came in and >> sort of went down a bomb on the conference. > > They said they needed the authority to use.$ 700 billion to un-stop the credit markets. > > Resting in that room with Hank Paulson> saying. to us, in a very determined tones, no embellishment, no excessive >> adjectives, that, “Unless you act, the financial system of this nation and also the. world will certainly melt down in a matter> of days.” > > They was available in, described a financial.
meltdown of epic percentages. As well as when that was ended up>,. the chairman of the Fed stated, “If we do not act currently, we will. not have an economy by Monday.” > > There was literally a pause in. that space where the oxygen left. > > And they claimed to us they required it by.
Monday. We stated, “Well, that ' s not sensible. ' > > Harry Reid, the Us senate Democratic leader, stated, “This is. the united state Us senate.
We can ' t move that quickly “.” > > Paulson felt that he needed to move swiftly and also. virtually the financial matching> of “shock as well as awe.” > > We simply had what I think. was an extremely productive meeting, where>> we spoke with the administration — >
> It ' s as near a blank check as you can.' >> obtain without actually requesting for a blank check. > > Paulson wanted the $700. billion accredited right away. > > And >> naturally, the reaction. on Capitol Hillside was hazardous.
They raged. > > America, you ought to be furious.” >> concerning what Washington is about to do! > > It is unmatched and unaffordable as well as unacceptable growth of >>. federal power that our children– > > Traditional Republican politicians in. the Residence were in complete rebellion. >> > > However this is essentially Mr. Paulson ' s. expense to help his pals, as well as I can ' t acquire it! > > Numerous of us really felt like we were being. asked to select in between the> unsafe slope to socialism as well as the next Great Anxiety, not the sort of choice that you. wish to make at the snap of a finger. > > The expense was stuck, the marketplaces diving. Unexpectedly, governmental politics interfered. > > America today deals with a historical. dilemma in our economic
>> system. Tomorrow morning, I ' ll suspend my project. as well as go back to Washington after talking– > > Out of the full blue, John McCain
offers some speech stating he ' s suspending his. project and also he ' s involving Washington, and he ' s calling a summit conference and also was. >> mosting likely to address all these issues for us.There was a very fragile settlement taking place, as well as he was just throwing himself right into. the middle of it for no apparent reason. > > I ' m calling on the president'. to convene a leadership conference from both houses of Congress,. including >> Legislator Obama and myself. It ' s time for both parties to'come.
together to solve this trouble. > > He was kind of tossing a “Hailstorm Mary” pass to claim, “Well, let ' s just– I ' ll suspend my.
campaign as well as we ' ll all go back to the White Residence, and also we ' ll determine what to do. regarding this awful financial crisis. >>” >'> The head of state has actually welcomed Senators McCain. as well as Obama to the White Home on Thursday– >
>– tip that the economic dilemma affects. the political project, and also the project in turn– > > McCain >> is mosting likely to have this conference “, kind of a. summit today with the president and also Barack Obama– > > On September 25th, a hastily called'conference. at the White House.Paulson showed up initially.'Within 20 minutes, Barack Obama
, John McCain. as well as popular members of your home >> and Us senate. > > We go there to the White Residence. There is a department, with everybody. on one side, >> Residence and Us Senate Democrats, Us Senate Republicans as well as Treasury. > > We ' re in a significant financial dilemma in the >>. country if we put on ' t pass a piece of regulation. > > They rest around the Cupboard Space. table, as well as Head of state Shrub says, “If we put on ' t obtain the cash moving,. if we don ' t get the credit rating flowing, this sucker can decrease,”.
implying the economic situation as a whole. And afterwards he opens it up. >> > > McCain walks right into the conference with, like, a.
cue card with a couple things doodled on it.Obama doesn ' t even await McCain to begin.> He'simply moves right in. > > Legislator Obama has been chatting. to Paulson, has actually been speaking with Warren Buffett as well as Paul Volcker and also Larry Summers,. and also you know, a host of other economic consultants. > > Obama is prepared as well as he speaks about what.
requirements to occur, and also “We ' ll gather,” and he ' s been– he doesn”' t intend to take control of in a country which remains in depression >>, so he ' s exceptionally. helpful of this whole emergency situation bailout thing. > > Senator Obama said,'” Well,. I ' d truly like to learn through Legislator McCain due to the fact that he >> ' s the.
person that called for this conference. ” > > McCain is fumbling with his sign cards.He doesn ' t also barely
begin. Obama kind of buys him, claiming, “I. >> believe Senator McCain has something to say.
” McCain simply thaws on the “area. > > Obama took fee,” had authority. John McCain had no'plan, no technique. I don ' t assume he recognized what was happening, or didn ' t have a plan for. what he intended to accomplish. >> > > Head of state Bush murmured to Nancy.
Pelosi, who was resting following to him, when McCain was speaking, he stated, “You guys are going to miss me.” >>” As well as she sort of giggled. > > The conference winds up burglarizing–.'right into a cacophony of yelling and also– as well as screaming back and forth. And Shrub “stands up and also says, “Well, I ' ve plainly.” shed control of this meeting,” and also he >> leaves. > > And one more Republican at the table. joked to the person resting beside him, “Hereafter, also we ' re mosting likely to elect Obama.” That was the level of Obama ' s
. supremacy in this meeting. >> > > It becomes a transforming factor.
due to the fact that McCain started this. He suspended his campaign. Obama did not suspend his campaign. McCain assured some type of significant activity. He sent combined signals as well as did>> not appear to have the. authority that a commander-in-chief ought to have. And also I put on ' t believe he ever before actually. quite recouped from that.'> > It would certainly take another week,” however in the. >> end, Congress lastly passed Paulson '
s expense. > > Yeas are 263, the nays are 171. The motion “is adopted. >'> Paulson now had$ 700 billion, recognized. as TARP, Troubled Possession'Alleviation Program. > > TARPAULIN, like the >> AIG bailout, is simply a. symptom of the mad shuffle that has to take location to attempt to have the damage from years of overlook in Washington as well as. foolhardiness on Wall surface Road. I indicate, the expense lastly came due.
> > Which October, Paulson made a decision. to use the'money in a remarkable method. Secretary of the Treasury Paulson, the apostle. of the cost-free market and also follower
in ethical hazard, would certainly now initiate the >> largest government intervention in Wall surface Street. >> considering that the Great Anxiety.
> > He was placed in the placement of.
>> doing the last thing he wished to do, which was to step in straight with. government resources right into the financial system.For him, this is a step– this is.
a real crossing of the Rubicon.
>> > > On October 12th, he acted. >> > > I got a telephone call on Sunday from.
Secretary Paulson, as well as he generally said, “” Ken, I require you to be in Washington Monday.”” And also he claimed, “” I truly can'' t. inform you a great deal concerning it.' >> ' > > He “stated, “Go to the Treasury.”at 3:00 o ' clock tomorrow.
“” I said, “Well, what ' s the subject?”.” “You ' “ll figure out when you get there.
“” I said, “Well, that ' s coming?”. “You ' ll discover when you get there. >> See you at 3:00,” click. > > 7 other heads of the nation ' s. biggest banks received a similar summons. >> > > They show up at 3:00 o'' clock, and.
they all submit right into the meeting space, which is across the hall.
from Mr. Paulson'' s office. >> > > Paulson obtained right down to service. >> > > Since it'' s Paulson, who ' s not. a man that beats around the bush, it became clear relatively.
quickly what he was suggesting.
>> > > He says “,'” I ' ve got right here records.
that claim that the united state government is mosting likely to make a shot of funding.
into each one of your firms.” >>” > > Paulson was about to hand out billions bucks. >> > > He turned it over to Geithner. He said, “” OK, right here'' s
exactly how. a lot you ' re going to get.”” And he walked around the space, and he pertained to me.
as well as he claimed, “”$ 25 billion b– b– b– billion.”” As well as then the rest of them. And I virtually dropped out of my chair. >> > > They experience in a really, very fast manner in which each people is going to.
take this taxpayer cash, the TARP money. >> > > And he essentially says, “” You can'' t leave. this area up until you consent to take this money.” >> “” > >'” We ' re all mosting likely to do it for the great.
of the nation, for the good of the system.And it '
s not actually discretionary.” >>” > > It was unprecedented. In return for billions of bucks, the government.
would certainly take a possession risk in the banks. But despite the economic system in.
freefall, some bankers battled back. >> > > It was a very contentious meeting,.
great deals of questions, great deals of questions. >> > > Richard Kovacevich, chairman.
of Wells Fargo, led the charge. >> > > Kovacevich stood, stated, “” I wear'' t desire the money. I put on ' t need. the cash. I put on ' t desire the money. I desire to have absolutely nothing to do with this. ' >> > I don ' t know just how much better we went.
before I was interrupted by Hank, that claimed, “” Your regulator is sitting best next.
to me.And if you don'' t take this money, on Monday morning, you will be.
proclaimed capital-deficient.”” I was stunned. >> > > Paulson offered each man a single piece.
of paper punctuation out the problems. >> > > Before they needed to leave.
community that night, they were told, “” Return this document with your trademark on it.”” As well as all 9 of them did so. >> > > The terms were exceptionally generous. >> > > They don ' t have to modify any type of home loans. They don'' t have to put.
restrictions on their very own incomes or their own payment or their own bonuses. They wear'' t have to do anything in a different way than.
they were doing in the past. They put on'' t also have to consent to major governing changes. Primarily, they are resting.
fat as well as rather as well as pleased. >> > > Treasury Secretary Paulson had actually just provided.
$ 125 billion to the nation'' s richest financial institutions. As well as it was only the beginning. >>> > The actual story of this economic.
situation is probably not a lot whether the bailout was the right.
point to do or the wrong point to do. The actual inquiry is, how did it become that this nation found itself with two raw,.
agonizing options, among which was to wade in and devote trillions of bucks to conserve the.
monetary system, where we still end up losing countless jobs, millions.
of individuals lose their homes, trillions of dollars of wealth is cleaned away, and also the various other option is to face.
the danger of overall collapse.That ' s the real tale. Just how did policy manufacturers,. our federal government leaders,
the economic sector maneuver this country into that sort of corner?.