October 21, 2009

From Charlie Rose on PBS, Andrew Ross Sorkin discusses his new book Too Big to Fail. I highly recommend watching the entire interview if you've got an hour to spare. Wall Street has not learned their lessons even after as Sorkin puts it "they saw the world was about to fall off of its axis".

Watch the full interview here. Transcript here.

ANDREW SORKIN: And part of the thing that’s so interesting about them is they really were thinking ahead. It’s remarkable, at least to me, a board meeting in

Moscow in June -- not in September, in June -- where they are talking...

CHARLIE ROSE: Goldman Sachs.

ANDREW SORKIN: A Goldman Sachs board meeting where they were talking about whether they need to become a bank holding company. Do they need deposits?

At one point they talk about whether they should buy -- are you ready for this -- AIG for the deposits, because they’re thinking if the future keeps going this direction where you need deposits and you need to be the equivalent of a bank holding company, maybe we should buy a company like that. Obviously it doesn’t go anywhere.

CHARLIE ROSE: Is there anything wrong with the fact that when AIG got all that TARP money they had to -- they paid out about $12, $13 billion to Goldman Sachs as a counterpart.

ANDREW SORKIN: I’ve spent an inordinate amount of time asking that question and tracing those two days. And I hope when you read it you really get to feel like you’re there and understand and appreciate what was going on.

And just to give it a little perspective, it really had happened now 24 hours after Lehman and Merrill had gone down, or Merrill had been sold to Bank of America.

The decision to give AIG $85 billion happened in the course of -- the first meeting was 8:00 a.m. Tuesday morning and by noon they decided to do it.

CHARLIE ROSE: Why did they do it?

ANDREW SORKIN: I think they saw the world was about to fall off of its axis. And, in fact, probably -- we were really quite close. And that would have been a very difficult decision.

Now, what they didn’t do was sit around the table, the conversation that we’ve had since then and say "Do you really need to pay out the full amounts to these banks? Could we give them a hair cut?"

CHARLIE ROSE: It was what, $40, $50 million?

ANDREW SORKIN: An extraordinary amount of money to banks throughout the world. And what if we’d gone into restructuring and said we’re not going to give you all this money? They didn’t have time to do that. They never really thought through that process. That never came up.

I mean, the funny and sad part about this entire book is many of the conversations -- the time, the amount of time that they are talking and thinking about these issues are much shorter than the amount of time we’ve been sitting and talking around this table now.

CHARLIE ROSE: How do you explain? Because they didn’t have time?

ANDREW SORKIN: There was no time. They were moving from meeting to meeting. They were running. They were racing. It really is -- it’s not a marathon, it’s a sprint. And they’re running out of their minds.

CHARLIE ROSE: I think -- I don’t want to put words in anybody’s mouth, but a whole number of people you have mentioned in this conversation, those who are on Wall Street and those who live somewhere else have said, "I think under the circumstances in which there were no rules, there was no road map, there was no guidebook, under those circumstances, these people probably made most of the right decisions."

How would you phrase that?

ANDREW SORKIN: I think that that’s not an unfair think to say as long as...


ANDREW SORKIN: ... as long as you’re willing to accept that for all the problems they saved themselves from, they created.


ANDREW SORKIN: And that’s the other element of think that I think is.

CHARLIE ROSE: Explain that.

ANDREW SORKIN: And that’s why the American public is so frustrated.

CHARLIE ROSE: So Hank Paulson created the problem, Tim Geithner created the problem, Ben Bernanke created the problems, Jamie Diamond created the problems, Ken Lewis created the problems?

ANDREW SORKIN: The decisions made over the past decades sewed the seeds of this on Wall Street and in Washington. The regulators weren’t minding the store, the CEOs were taking on ungodly risks that they could not afford to take, and that’s what brought us to this moment.

You can spread the blame around, but you have to recognize that there is some blame to begin with. So did they save us? Absolutely. But they may have brought us to the brink, but they brought us back.

CHARLIE ROSE: But basically you’re saying the people who were running the system, some of them are still in power, were taking risks as traders and in other capacities that was unwarranted?

ANDREW SORKIN: Unwarranted.

CHARLIE ROSE: They learned nothing? Nothing?

ANDREW SORKIN: I’m afraid to say that the lessons learned is -- it’s not a long list. I do believe when you look at the type of lobbying efforts going on in Washington today, their preferences, as you would imagine, is less regulation rather than more.

CHARLIE ROSE: Leave us alone?

ANDREW SORKIN: Please leave us alone. And there’s an element -- in fact, because of the populist backlash that happened over the past year, they put their own backs up against the wall as well.

CHARLIE ROSE: What should be happening in Washington, and what should the people who lived this experience have learned, and what decisions should they be making now so that it doesn’t happen again?

ANDREW SORKIN: First, financial regulation. It’s now a year and a half later and there is no one iota on the books.

CHARLIE ROSE: The administration has proposed financial regulation?

ANDREW SORKIN: There are proposals. But as the economy gets better, as we start thinking again about health care and these other issues, it is very plausible this falls off the radar screen again.

But do we need a systemic regulator? Probably. When you think about what happened last time, the regulators weren’t talking to each other, they didn’t see problems coming. You need somebody watching the store, minding the store, A.

B, you probably need something called resolution authority. That’s what could have saved Lehman Brothers, the idea that the government could have decided that an investment bank, that they could take them over and resolve them a very different way than bankruptcy, which is what put us into this situation in some respects.

CHARLIE ROSE: OK, so what...

ANDREW SORKIN: The consumer protection agency, by the way, not a bad idea. It depends on how it’s implemented.

But you really do need all of these things to happen, and you need an appreciation by Wall Street to recognize what they did, what happened, and how to fix it, and how to fix it for everybody.

You know, one of the hardest parts for all of these guys is the person they’re answering to is the shareholder. They’re not answering to the community. And that’s a big issue. And it’s a huge challenge for them because a lot of them have reasonable conversation...

CHARLIE ROSE: Shareholders and employees both.

ANDREW SORKIN: And they have reasonable conversations about what’s right for the community. But what’s right for the community hay not always be good for the shareholder. And that is the paradox and the challenge that they face.

CHARLIE ROSE: You say, "Wall Street rumbles on in a search of new profits and risk is being reintroduced."

ANDREW SORKIN: It is. It is. When you look at profits being made, it’s from trading. It’s not from lending. It’s the old traditional banking that people have talked about for years, that’s not what’s going on today. It is risk.

Now, the good news is much less leverage in the system. For every dollar there’s no longer $30 of borrowed money. But there is still risk in the system. Zoom in.

CHARLIE ROSE: OK, it used to be 30 or 40 to one. Now it’s...

ANDREW SORKIN: its 10, 12.

CHARLIE ROSE: It’s restricted to what now?

ANDREW SORKIN: People are doing it voluntarily now.


ANDREW SORKIN: And the question is how long will that last? On Wall Street, memories, as you know, can often be quite short.

CHARLIE ROSE: Has Washington lost the opportunity? Was there a golden moment coming out of this -- famously, Rahm Emanuel said in crisis there’s opportunity -- to change the system for better?

ANDREW SORKIN: I think there was a moment and I don’t know if we will get it back. You know, when you think about what happened in March, you remember, just look at a stock chart. The markets almost fell off a cliff all over again.

And I think there was a moment to truly, fundamentally change the under girding of Wall Street. And it was not taken, and I think, as I said, as the economy gets better, it’s going to be harder and harder to press for changes because people are going to say, "Why do we need them?"

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