1 00:00:22,580 --> 00:00:47,319 the previous election 2012 special event 2 00:00:47,320 --> 00:00:53,300 money power and wall street the clouds are still hanging over the global 3 00:00:53,300 --> 00:00:55,860 economy and they're still filled with risk 4 00:00:55,860 --> 00:01:01,650 the epic story of a global financial crisis here we are three years plus 5 00:01:01,650 --> 00:01:04,989 after and very little has changed where we are now 6 00:01:04,989 --> 00:01:09,619 Wall Street got bailed out and Main Street did and how we got here that's 7 00:01:09,619 --> 00:01:13,240 put together a portfolio of credit risk of the bank to take these ideas in 8 00:01:13,240 --> 00:01:17,70 applying the way that they never expected once the seed was planted it 9 00:01:17,70 --> 00:01:23,59 there wasn't in it stopping it 10 00:01:23,60 --> 00:01:29,200 six billion dollars in bonuses this year this kind of cult of more more MORE grow 11 00:01:29,200 --> 00:01:34,890 grow grow the economy is melting the Bush administration is leaving Obama 12 00:01:34,890 --> 00:01:39,890 gets a real glimpse of the future disasters coming 13 00:01:39,890 --> 00:01:43,860 panic in the marketplace you may have just made the decision to destroy the 14 00:01:43,860 --> 00:01:46,250 world 15 00:01:46,250 --> 00:01:52,50 these bangs transfer risk across the Atlantic outside the purview of american 16 00:01:52,50 --> 00:01:56,759 regulators turn into a Frankenstein monster 17 00:01:56,760 --> 00:02:05,560 with bank robbery is the global financial system any safer this crisis 18 00:02:05,560 --> 00:02:06,830 really never ended 19 00:02:06,830 --> 00:02:20,100 money power and wall street 20 00:02:20,100 --> 00:02:26,780 made possible by contributions to your PBS station from viewers like you thank 21 00:02:26,780 --> 00:02:28,840 you 22 00:02:28,840 --> 00:02:33,330 by the corporation for public broadcasting 23 00:02:33,330 --> 00:02:37,100 major funding is provided by the John D and Catherine T macarthur foundation 24 00:02:37,100 --> 00:02:43,880 committed to building a more just and peaceful world and by Reva and David 25 00:02:43,880 --> 00:02:48,190 Logan committed to investigative journalism as the guardian of the public 26 00:02:48,190 --> 00:02:49,200 interest 27 00:02:49,200 --> 00:02:54,399 additional funding is provided by the park foundation dedicated to heightening 28 00:02:54,400 --> 00:02:59,440 public awareness of critical issues and by the front line journalism fine 29 00:02:59,440 --> 00:03:26,180 supporting investigative reporting and enterprise journalism 30 00:03:26,180 --> 00:03:31,620 workers make their way to wall street 31 00:03:31,620 --> 00:03:40,930 forbearance brokerages hedge funds insurance companies and mortgage lenders 32 00:03:40,930 --> 00:03:47,40 it is the largest single sector of the American economy and industry that is 33 00:03:47,40 --> 00:03:53,370 almost double the size of America's manufacturing sector 34 00:03:53,370 --> 00:03:59,60 business with enormous power and global reach 35 00:03:59,60 --> 00:04:04,319 it is the industry that let America and the world into its worst economic crisis 36 00:04:04,319 --> 00:04:16,250 since the Great Depression 37 00:04:16,250 --> 00:04:21,690 the banks say they exist to create wealth holding entrust our collective 38 00:04:21,690 --> 00:04:26,560 bourse promising to invest the trillions of dollars that stream in from 39 00:04:26,560 --> 00:04:34,240 businesses pension funds and savings accounts that belong to all of us 40 00:04:34,240 --> 00:04:43,190 morning in the fall of 2011 bankers arriving in lower Manhattan were caught 41 00:04:43,190 --> 00:04:44,330 by surprise 42 00:04:44,330 --> 00:04:55,340 the recession had destroyed 11 trillion dollars of Americans net worth of 43 00:04:55,340 --> 00:05:03,469 recoveries farm Occupy Wall Street wanted Bankers Hill responsible most 44 00:05:03,470 --> 00:05:07,560 americans think in with good reason that Wall Street got bailed out on Main 45 00:05:07,560 --> 00:05:13,919 Street we have very high we lost eight and a half million jobs in the recession 46 00:05:13,919 --> 00:05:19,280 people's houses are worth what they paid a lot of them don't have jobs their kids 47 00:05:19,280 --> 00:05:26,960 graduate from college and moving back in some protesters were calling for bankers 48 00:05:26,960 --> 00:05:33,419 to be prosecuted pretty clear actually that there was massive illegality going 49 00:05:33,419 --> 00:05:40,109 on and if somebody was subpoena power was intent on prosecuting that I don't 50 00:05:40,110 --> 00:05:43,659 think there's really much doubt that they would be quite successful in 51 00:05:43,659 --> 00:05:51,480 criminal prosecutions 52 00:05:51,480 --> 00:05:56,520 in a matter of weeks occupy demonstrations led to scores of cities 53 00:05:56,520 --> 00:06:02,799 across america and the world going for radical changes in the banking system 54 00:06:02,800 --> 00:06:09,650 bankers responded by saying that the answer is to move on and get back to 55 00:06:09,650 --> 00:06:17,90 business somewhere company made a series of bad mistakes and we all paid form 56 00:06:17,90 --> 00:06:25,219 including but what makes people upset is that a lot of the people that are on the 57 00:06:25,220 --> 00:06:31,40 streets demonstrating Occupy Wall Street is that the economy hasn't recovered but 58 00:06:31,40 --> 00:06:34,840 banks have if you want a strong economy you have to have financial services 59 00:06:34,840 --> 00:06:40,289 companies that are safe and sound in able to lyndon able to know if you want 60 00:06:40,290 --> 00:06:41,680 to have a recession 61 00:06:41,680 --> 00:06:46,600 go ahead and and and hammered the banks and make sure that there they fail 62 00:06:46,600 --> 00:06:52,960 because then you'll have another 63 00:06:52,960 --> 00:07:08,469 American people of accounting 64 00:07:08,470 --> 00:07:14,480 the meltdown of 2008 there have been dozens of hearings 65 00:07:14,480 --> 00:07:26,770 have lost money and it didn't work out well I would like to ask your opinion of 66 00:07:26,770 --> 00:07:30,60 the role that over-the-counter derivatives pointed questions have been 67 00:07:30,60 --> 00:07:34,230 asked the financial 68 00:07:34,230 --> 00:07:38,730 there have been few satisfying answers what goes on at Wall Street exactly what 69 00:07:38,730 --> 00:07:42,890 caused the crisis and how did we get we are it's difficult to understand even 70 00:07:42,890 --> 00:07:54,169 for professionals regulators and the industry to focus on complexity but at 71 00:07:54,170 --> 00:07:57,460 the end of the day people usually have a pretty good ability to tell when 72 00:07:57,460 --> 00:08:03,99 something's wrong somehow we just missed you know that home prices don't go up 73 00:08:03,100 --> 00:08:20,290 forever CD is a pool of anyone to understand together and then can be 74 00:08:20,290 --> 00:08:23,170 slight 75 00:08:23,170 --> 00:08:32,390 securities and managers of these large financial institutions in some ways have 76 00:08:32,390 --> 00:08:38,130 been given an impossible task they won't be able to comprehend what it is their 77 00:08:38,130 --> 00:08:52,360 institutions are doing and that is really really scary but never existed a 78 00:08:52,360 --> 00:09:00,100 few years ago who is the brilliant 79 00:09:00,100 --> 00:09:11,69 it's hard to pinpoint the origins of America's financial crisis but one 80 00:09:11,69 --> 00:09:15,550 weekend at this resort in Boca Raton Florida is a good place to start 81 00:09:15,550 --> 00:09:24,170 assembled here in June 1994 we're a group of young bankers from JPMorgan at 82 00:09:24,170 --> 00:09:37,819 the time it all seemed innocent enough was a gathering of global celebration in 83 00:09:37,819 --> 00:09:41,769 part is an opportunity to relax but perhaps much more importantly as an 84 00:09:41,769 --> 00:09:48,899 opportunity to get creative innovative people together in a room to discuss a 85 00:09:48,899 --> 00:09:54,380 variety of different topics and they were young mostly in their twenties and 86 00:09:54,380 --> 00:09:59,709 that there are plenty of money floating around in there any young bunch of kids 87 00:09:59,709 --> 00:10:00,899 would do 88 00:10:00,899 --> 00:10:12,120 drunk had parties you know this is a normal stuff happens at conferences as 89 00:10:12,120 --> 00:10:21,50 did my boss some people drank some people didn't they played hard but they 90 00:10:21,50 --> 00:10:26,449 also work hard they were striving to address an age old problem in banking 91 00:10:26,449 --> 00:10:34,939 how to reduce risk problems were unable to adequately deal with their own credit 92 00:10:34,939 --> 00:10:36,719 risks 93 00:10:36,720 --> 00:10:44,300 we're thinking about how to manage we were thoughtful and deliberate and 94 00:10:44,300 --> 00:10:49,849 careful we have a responsibility not just to make a profit for shareholders 95 00:10:49,850 --> 00:10:57,50 but to look after the financial system over two days of meetings and looked at 96 00:10:57,50 --> 00:11:02,599 whether they could find a way to make their lungs less risky the first 97 00:11:02,600 --> 00:11:07,79 journalist to tell the full story was Gillian Tett they were going to look for 98 00:11:07,79 --> 00:11:13,79 ways to enable financial institutions to path between them one way to do that was 99 00:11:13,79 --> 00:11:19,769 another way though was to separate out the risk of a loan going bad from the 100 00:11:19,769 --> 00:11:29,170 loan itself and out of that came this drive to develop credit-default swaps 101 00:11:29,170 --> 00:11:34,449 credit-default swaps are kind of derivative that insurers alone against 102 00:11:34,450 --> 00:11:40,800 default this was a very new concert traditionally derivatives were away to 103 00:11:40,800 --> 00:11:45,829 bet on the future value of something for hundreds of years farmers have traded 104 00:11:45,829 --> 00:11:51,400 derivatives to protect themselves against fluctuating crop prices 105 00:11:51,400 --> 00:11:55,189 it is this type of derivative that has been traded on the commodities exchange 106 00:11:55,190 --> 00:12:02,400 in Chicago along with the futures of fuels currencies and precious metals 107 00:12:02,400 --> 00:12:07,340 in book a return to JPMorgan team realized that they could use credit 108 00:12:07,340 --> 00:12:12,650 derivatives to trade their loan risks bankers borrowed one set of ideas that 109 00:12:12,650 --> 00:12:16,760 have been developed in the commodities market and applied it alone for the 110 00:12:16,760 --> 00:12:21,920 first time this idea was essentially created under the banner of making the 111 00:12:21,920 --> 00:12:26,150 financial system 112 00:12:26,150 --> 00:12:31,689 credit-default swap was engineered by Blythe masters and involved exon exon 113 00:12:31,690 --> 00:12:36,810 was the client to the bank and credit exposure associated with that 114 00:12:36,810 --> 00:12:48,89 relationship in the wake of the Exxon Valdez oil spill and a rash of lawyers 115 00:12:48,90 --> 00:12:58,360 exxon took out a multi-billion dollar letter of credit with JPMorgan credit 116 00:12:58,360 --> 00:13:02,410 creates credit risk if Exxon were to fail on their obligations that JPMorgan 117 00:13:02,410 --> 00:13:06,270 would have to step in and make good on those obligations on their behalf it was 118 00:13:06,270 --> 00:13:10,680 a large amount of exposure and there was a significant amount of risk associated 119 00:13:10,680 --> 00:13:23,170 with that and that risk is a big drain on a bank every time a bank to set aside 120 00:13:23,170 --> 00:13:29,709 certain reserves of capital so JPMorgan when they made the loans would have had 121 00:13:29,710 --> 00:13:35,200 to set aside from capitol JPMorgan has to hold certain capital relative to the 122 00:13:35,200 --> 00:13:39,470 size of that loan in the event the loan is not paid off a hundred percent as you 123 00:13:39,470 --> 00:13:45,380 expect of course if you don't have to do that in your bank you'd prefer not to do 124 00:13:45,380 --> 00:13:45,900 that 125 00:13:45,900 --> 00:13:51,870 finance more freely than take on more debt right 126 00:13:51,870 --> 00:13:55,820 John masters started looking at who could take on their loan risk and free 127 00:13:55,820 --> 00:14:08,40 up JP Morgan's capital European Bank for Reconstruction and Development EBRD EBRD 128 00:14:08,40 --> 00:14:12,949 could receive compensation from JPMorgan for taking on or sumin credit risks and 129 00:14:12,950 --> 00:14:18,220 felt that that was a good risk-reward proposition and so risk was essentially 130 00:14:18,220 --> 00:14:22,790 dispersed and why did JPMorgan do that because we wanted to free up our 131 00:14:22,790 --> 00:14:28,750 capacity to do more business this was a major financial innovation credit 132 00:14:28,750 --> 00:14:36,180 derivatives made it possible for a bank to skirt capital requirements of capital 133 00:14:36,180 --> 00:14:50,859 hold less and so banks became able to create more and more credit to shared 134 00:14:50,860 --> 00:14:59,660 the risk that they don't want to take that they would prefer to be exposed to 135 00:14:59,660 --> 00:15:03,550 the exxon deal was just the beginning 136 00:15:03,550 --> 00:15:09,279 demonstrating that risk could be off-loaded and capital freedom JPMorgan 137 00:15:09,279 --> 00:15:14,260 had struck gold in 1998 they decided ramp up their credit derivatives 138 00:15:14,260 --> 00:15:18,670 operation that year another young banker joined the team 139 00:15:18,670 --> 00:15:23,510 Terry doing all part of my job was to come in as a traitor and to build a 140 00:15:23,510 --> 00:15:27,100 credit derivative trading book including all the risk management around the more 141 00:15:27,100 --> 00:15:30,590 exotic products that was what I was brought in to do 142 00:15:30,590 --> 00:15:37,90 previously JPMorgan had written credit swaps on single companies like Exxon do 143 00:15:37,90 --> 00:15:42,650 young was asked to rate swaps on bundles of debt the idea was put together a 144 00:15:42,650 --> 00:15:49,949 portfolio of credit risk a portfolio of names first trade was a credit-default 145 00:15:49,950 --> 00:15:56,140 swap on 306 corporate names on JPMorgan's books and that list of three 146 00:15:56,140 --> 00:16:00,290 hundred and six entities they were very highly rated they had very low credit 147 00:16:00,290 --> 00:16:05,760 risk and the credit-default swap was ensuring JPMorgan against default by 148 00:16:05,760 --> 00:16:10,780 those three hundred and six entities Fortune 500 companies or it would have 149 00:16:10,780 --> 00:16:17,240 been some of your most well-known household names and so we were giving 150 00:16:17,240 --> 00:16:25,410 investors an opportunity to invest in our loan portfolio of work a lot of due 151 00:16:25,410 --> 00:16:29,860 diligence to assemble this portfolio of loans and you can get it in one easy 152 00:16:29,860 --> 00:16:36,260 bite sized piece the bank facilitated this by slicing up the portfolio into 153 00:16:36,260 --> 00:16:41,900 different risk levels or tranches investors could choose how much risk 154 00:16:41,900 --> 00:16:46,980 they were willing to take different levels of risk there was some investors 155 00:16:46,980 --> 00:16:52,230 that wanted on really risky stuff and there were some investors that wanted to 156 00:16:52,230 --> 00:16:55,80 earn a little skittle 157 00:16:55,80 --> 00:17:02,540 from there the bank look to expand their business even further this idea what if 158 00:17:02,540 --> 00:17:05,839 we can create a market where people were able to buy and sell freely 159 00:17:05,839 --> 00:17:09,399 independently of the companies themselves at risk associated with 160 00:17:09,400 --> 00:17:15,530 lending to those companies and so they began selling derivatives that were 161 00:17:15,530 --> 00:17:22,670 simply bets on any and all portfolios whether the bank owned them or not 162 00:17:22,670 --> 00:17:25,940 these products came to be known as synthetic collateralized debt 163 00:17:25,940 --> 00:17:33,330 obligations synthetic CDO's there were investors who were able to invest in 164 00:17:33,330 --> 00:17:38,419 some entities that they had not had access or by buying a credit-default 165 00:17:38,420 --> 00:17:41,790 swap by investing in a credit-default swap because it was a name that they 166 00:17:41,790 --> 00:17:45,920 hadn't previously had access to so there was a lot of a lot of very positive 167 00:17:45,920 --> 00:17:52,590 reinforcement of the market and it just grew and grew very naturally once the 168 00:17:52,590 --> 00:17:57,740 seed was planted there wasn't any stopping it it was the beginning of an 169 00:17:57,740 --> 00:18:04,830 unfettered brave new world of banking this was pretty new stuff 170 00:18:04,830 --> 00:18:10,850 incredibly new stuff it was amazing it was clearly a product that was in need 171 00:18:10,850 --> 00:18:15,919 we had identified a need most of the members of a global derivatives group at 172 00:18:15,920 --> 00:18:21,750 JPMorgan were in their twenties including masters and do your butt with 173 00:18:21,750 --> 00:18:27,780 the creation of the credit-default swaps market they had mean banking history in 174 00:18:27,780 --> 00:18:32,820 the long run this all men that credit which is a vital part of the lifeblood 175 00:18:32,820 --> 00:18:40,360 of any economy the global economy became a more readily available asset and that 176 00:18:40,360 --> 00:18:45,520 would be an unambiguously positive thing 177 00:18:45,520 --> 00:18:51,300 credit helped drive growth companies deploy capital 178 00:18:51,300 --> 00:18:59,510 wasn't any longer just an idea in a room in Florida it was the creation of an 179 00:18:59,510 --> 00:19:03,270 entire marketplace 180 00:19:03,270 --> 00:19:08,379 could now be easily treated 181 00:19:08,380 --> 00:19:16,240 fueled a worldwide credit 182 00:19:16,240 --> 00:19:25,210 other banks got excited about the money to be made writing credit derivatives 183 00:19:25,210 --> 00:19:30,679 was a derivative salesman at Morgan Stanley who remembers the pressure to 184 00:19:30,679 --> 00:19:36,260 get more deals done the volume of transactions who's just exploding and 185 00:19:36,260 --> 00:19:40,679 then I used to know all the statistics to talk about it every meeting how this 186 00:19:40,679 --> 00:19:51,980 is a growing market you have to get your car they can make money for us to focus 187 00:19:51,980 --> 00:20:04,820 and importantly it was a private market unregulated and out of you see on the 188 00:20:04,820 --> 00:20:09,129 banks can see all the positions is no public market for these derivatives you 189 00:20:09,130 --> 00:20:15,230 can't look at the newspaper private markets and nobody else on the market 190 00:20:15,230 --> 00:20:24,990 the spreads difference between what banks could charge for derivatives and 191 00:20:24,990 --> 00:20:30,130 what it costs to provide them could be HUGE how much with these things 192 00:20:30,130 --> 00:20:40,90 bankers the spreads on derivatives are several general rule and that's why the 193 00:20:40,90 --> 00:20:41,129 banks train them 194 00:20:41,130 --> 00:20:56,270 picture of the best referencing the spread the bank earned their gonna maybe 195 00:20:56,270 --> 00:21:08,610 make one percent 196 00:21:08,610 --> 00:21:32,949 you can do 197 00:21:32,950 --> 00:21:52,740 there was growing concern in Washington country $33.25 amount being traded and 198 00:21:52,740 --> 00:21:59,160 proprietary accounts of those banks that kind of risk overhanging the country one 199 00:21:59,160 --> 00:22:09,340 day with a proposal circulated to rein in the banks and to regulate derivatives 200 00:22:09,340 --> 00:22:17,820 we're trying to protect the money of the american public which is at risk in the 201 00:22:17,820 --> 00:22:21,590 more the head of the Commodity Futures Trading Commission 202 00:22:21,590 --> 00:22:27,360 oxley Bourn led the charge the regulator which has been 203 00:22:27,360 --> 00:22:35,929 authority to oversee the major derivatives group seaborn was absolutely 204 00:22:35,930 --> 00:22:39,980 right because what she said is if you don't have transparency and regulation 205 00:22:39,980 --> 00:22:44,180 of derivatives the risk of buildup and they're gonna lead to a financial crisis 206 00:22:44,180 --> 00:22:49,460 it's going to cause massive taxpayer Bill the banks lobbied hard for no 207 00:22:49,460 --> 00:22:54,410 derivative regulation the banks didn't want anyone to know how much risk they 208 00:22:54,410 --> 00:22:57,480 were taking on it it would have to quantify it on the balance sheet they 209 00:22:57,480 --> 00:23:00,710 wanted to be able to push it off and hide it and that was why they lobbied so 210 00:23:00,710 --> 00:23:04,340 hard to make sure that Swaps and Derivatives would be treated differently 211 00:23:04,340 --> 00:23:08,60 from other kinds of financial products 212 00:23:08,60 --> 00:23:12,370 others wanted them to be regulated like insurance one of the most heavily 213 00:23:12,370 --> 00:23:15,629 regulated products in the country 214 00:23:15,630 --> 00:23:19,450 insurance products for all the obvious reasons if you if your gonna write 215 00:23:19,450 --> 00:23:24,960 insurance you have to have enough money to pay off credit default swap you don't 216 00:23:24,960 --> 00:23:29,330 have to have that same amount of money on hand or anything else including 217 00:23:29,330 --> 00:23:33,820 importantly no disclosure so you saying it's a kind of under the table insurance 218 00:23:33,820 --> 00:23:38,450 agreement that avoids regulation it's an insurance product designed not to be 219 00:23:38,450 --> 00:23:42,670 regulated as an insurance product and designed to avoid regulation at all one 220 00:23:42,670 --> 00:23:45,200 thing we do know is that when a product of any type 221 00:23:45,200 --> 00:23:50,750 is designed with minimal regulation capital inactivity moved into that area 222 00:23:50,750 --> 00:24:01,250 and expand dramatically privately negotiated by professionals unnecessary 223 00:24:01,250 --> 00:24:08,779 the chairman of the fed alan greenspan sided with the bank's alan greenspan was 224 00:24:08,779 --> 00:24:14,250 coming from very libertarian tradition keep your hands off everything the 225 00:24:14,250 --> 00:24:19,59 markets will sort themselves out if there's a problem then we'll clean up 226 00:24:19,59 --> 00:24:24,360 afterwards and that really was the way the Federal Reserve operated under under 227 00:24:24,360 --> 00:24:33,549 his leadership for almost 20 years on capitol hill supporters of bank 228 00:24:33,549 --> 00:24:39,190 deregulation need urgent stark please share of America's dominance is the 229 00:24:39,190 --> 00:24:42,179 financial center of the world is at stake 230 00:24:42,179 --> 00:24:46,630 before them legislation to lift restrictions on how banks could do 231 00:24:46,630 --> 00:24:53,70 business we could find London or Frankfurt Shanghai becoming the 232 00:24:53,70 --> 00:24:57,379 financial capital of the world this bill is going to make America more 233 00:24:57,380 --> 00:25:01,480 competitive on the world market and that's important and legislation to 234 00:25:01,480 --> 00:25:06,909 prevent oversight of credit derivatives job not just on Wall Street in New York 235 00:25:06,909 --> 00:25:09,730 City what 236 00:25:09,730 --> 00:25:17,160 in America and it benefits every consumer in America and we do it by 237 00:25:17,160 --> 00:25:24,150 repealing glass steagle the campaign to roll back glass steagle a depression-era 238 00:25:24,150 --> 00:25:30,510 set of reforms was led by the country's biggest bank citicorp they felt it was 239 00:25:30,510 --> 00:25:37,90 in that way and persuaded lawmakers both Democratic and Republican that glass 240 00:25:37,90 --> 00:25:43,189 steagle should be repealed it also symbolizes when everything really 241 00:25:43,190 --> 00:25:48,590 started to go wrong is the most important example of our efforts here in 242 00:25:48,590 --> 00:25:54,230 washington to maximize the possibilities of the new information age global 243 00:25:54,230 --> 00:26:05,190 economy in the end banks would get larger and derivatives would remain in 244 00:26:05,190 --> 00:26:11,40 the shadows the derivatives market went into darkness almost no transparency in 245 00:26:11,40 --> 00:26:16,659 no regulation and what you see is this explosion in the growth of derivatives 246 00:26:16,660 --> 00:26:25,20 in the United States and throughout the world banks had won the day 247 00:26:25,20 --> 00:26:32,520 credit-default swap would now be introduced to new markets the next 248 00:26:32,520 --> 00:26:37,129 application of the same technology was two portfolios of consumer credit risk 249 00:26:37,130 --> 00:26:42,820 and in particular mortgage-related credit risk 250 00:26:42,820 --> 00:26:49,120 and the higher the risk the better what everyone is trying to create is 251 00:26:49,120 --> 00:26:57,590 something that has a high rating and a high yield that's the Holy Grail that's 252 00:26:57,590 --> 00:27:03,49 the goal is to mix together assets in some way so you come out with a triple A 253 00:27:03,49 --> 00:27:08,80 and a bit richer 254 00:27:08,80 --> 00:27:15,639 and so Wall Street discovered the rewards of funding the American dream 255 00:27:15,640 --> 00:27:21,389 just as they had bundled corporate loans bankers now bundled mortgages 256 00:27:21,389 --> 00:27:27,949 by these big pools of mortgages and credit default swaps stuff together 257 00:27:27,950 --> 00:27:37,960 bringing in a house or to get ready to put through the securities 258 00:27:37,960 --> 00:27:42,360 bankers bread they're investing dollars across the country but especially in 259 00:27:42,360 --> 00:27:47,620 states in historic levels of population growth places like Florida Nevada 260 00:27:47,620 --> 00:28:00,729 California and here in Georgia Atlanta was Roy Barnes is the former governor of 261 00:28:00,730 --> 00:28:03,120 Georgia 262 00:28:03,120 --> 00:28:09,169 the fourth fastest growing state at the turn of this century and the fastest 263 00:28:09,170 --> 00:28:16,110 growing state east this is a hot market to start I put my house on the market 264 00:28:16,110 --> 00:28:18,70 and to the bank and it was gone 265 00:28:18,70 --> 00:28:25,820 elected in 1998 bonds is renowned for having taken on wall street over 266 00:28:25,820 --> 00:28:32,340 subprime lending market the street had traditionally avoided subprime lending 267 00:28:32,340 --> 00:28:40,428 has been around for long and is supposed to be lending done the people whose 268 00:28:40,429 --> 00:28:48,559 credit is inferior and in the eighties there was no place for subprime nobody 269 00:28:48,559 --> 00:28:58,309 wanted the banks wouldn't bad because there was a high res credit that's no 270 00:28:58,309 --> 00:29:01,240 problem 271 00:29:01,240 --> 00:29:08,620 the subprime market was originally a niche market 272 00:29:08,620 --> 00:29:12,809 originally it was not the major banks it was the mortgage brokers who are 273 00:29:12,809 --> 00:29:15,590 specialists in this market 274 00:29:15,590 --> 00:29:29,870 what really changed for subprime mortgage securities and you could sell 275 00:29:29,870 --> 00:29:34,739 it 276 00:29:34,740 --> 00:29:39,870 tranches and then they wrap it up 277 00:29:39,870 --> 00:29:51,770 so they could be packaged together and have an overall is in the south 278 00:29:51,770 --> 00:30:04,850 50,000 a month and coarse mode is triple A 279 00:30:04,850 --> 00:30:14,620 is just a feeding frenzy for subprime the economy strong home buyers are 280 00:30:14,620 --> 00:30:21,590 willing and able to spend double what they did just two decades ago and you 281 00:30:21,590 --> 00:30:34,300 could just bad pay back very loose very lives but what big banks on Wall Street 282 00:30:34,300 --> 00:30:40,730 did not or would not see what was happening on the ground around the us- a 283 00:30:40,730 --> 00:30:45,950 wave of lending abuses its a Fraser likely to hear in the future 284 00:30:45,950 --> 00:30:56,620 predatory lending mortgage companies we say that we was going to the state of 285 00:30:56,620 --> 00:31:09,750 bankruptcy the Wild West experience and home mortgages was well underway her 286 00:31:09,750 --> 00:31:17,60 mother of three agreed to a second mortgages 27% we were creating mortgages 287 00:31:17,60 --> 00:31:20,810 had never seen before and they were being created 288 00:31:20,810 --> 00:31:28,690 faster and faster on the house was as high as 40% we saw borrow worst given 289 00:31:28,690 --> 00:31:32,550 loans that were greater than the value of their home 290 00:31:32,550 --> 00:31:37,80 homebuyers who owns that had no income 291 00:31:37,80 --> 00:31:41,990 the borrower particularly the elderly or the low-income had no clue as to what 292 00:31:41,990 --> 00:31:47,660 they saw and there was a tremendous growth of mortgages that we knew made no 293 00:31:47,660 --> 00:31:52,410 sense financially when you have a higher interest rate than you have high points 294 00:31:52,410 --> 00:31:56,290 you have prepayment penalties when your balloon payments when you have 295 00:31:56,290 --> 00:32:02,120 adjustable-rate mortgages in later those bad practices on top of high interest 296 00:32:02,120 --> 00:32:07,550 rate it becomes predatory atlanta has become such frequent targets of 297 00:32:07,550 --> 00:32:15,419 unscrupulous lenders and counselors regularly hold community meetings why 298 00:32:15,420 --> 00:32:20,210 did they sell them to people they were not good for they did it because they 299 00:32:20,210 --> 00:32:28,830 could housing advocates around the country took on predatory lenders but 300 00:32:28,830 --> 00:32:33,40 one of the fiercest fights was here in georgia over what was called the Georgia 301 00:32:33,40 --> 00:32:37,840 fair lending out we don't need rhetoric the bill sponsored by state senator 302 00:32:37,840 --> 00:33:03,139 bentsen for now people are 303 00:33:03,140 --> 00:33:15,800 more money than they could ever dream back and others are making a last-ditch 304 00:33:15,800 --> 00:33:22,100 targeted high-cost loans and predatory lenders with a series of rules and 305 00:33:22,100 --> 00:33:35,800 prohibitions the mortgage lenders and the bank's struck back you would have 306 00:33:35,800 --> 00:33:42,450 thought I had recommended that we the plan of salvation 307 00:33:42,450 --> 00:33:58,820 why were they so opposed to me there were threats the residents in georgia 308 00:33:58,820 --> 00:34:03,300 wouldn't be able to get mortgages because investors were not by the 309 00:34:03,300 --> 00:34:11,80 mortgages in Georgia no bank would create a mortgages despite the efforts 310 00:34:11,80 --> 00:34:20,819 of the mortgage Robbie Burns in Fort got the bill passed in April 2002 predatory 311 00:34:20,820 --> 00:34:28,120 lending law nation that similar legislation could pass in other markets 312 00:34:28,120 --> 00:34:35,370 like California they opposed Barnes reelection they funded his challengers 313 00:34:35,370 --> 00:34:41,710 and lobby to rescind the law right after governor defeat in november 1 that top 314 00:34:41,710 --> 00:34:46,360 legislative priorities for the new governor and the new legislature to God 315 00:34:46,360 --> 00:34:56,700 the Georgia think it was about two weeks for a seven-month period predatory 316 00:34:56,699 --> 00:35:02,210 lending in Georgia declined it may have been the last chance to slow the housing 317 00:35:02,210 --> 00:35:15,390 nastradamus that the world was going to come to an end but I could never have 318 00:35:15,390 --> 00:35:22,859 foreseen the difficulty that exists now perhaps I think we still would have seen 319 00:35:22,860 --> 00:35:27,930 it unrealistic but it wouldn't have gone up as fast and it would have collapsed 320 00:35:27,930 --> 00:35:39,359 as deep a hole if we hadn't had these products 321 00:35:39,360 --> 00:35:53,720 a big banks continued to package and sell or mortgage portfolios and more and 322 00:35:53,720 --> 00:35:59,919 more of these videos contained high risk subprime debt to keep the rating 323 00:35:59,920 --> 00:36:05,880 agencies on board more credit-default swaps were sold I have a pool of 324 00:36:05,880 --> 00:36:10,910 mortgages have a thousand words from california and I wanna packages up but I 325 00:36:10,910 --> 00:36:16,49 decide well some of these mortgages baby subprime and I want to buy a little bit 326 00:36:16,50 --> 00:36:21,180 of credit-default insurance and by doing that you improve the profile in theory 327 00:36:21,180 --> 00:36:30,129 yes waiting for it I have laid off two percent of the risk on this portfolio 328 00:36:30,130 --> 00:36:35,300 should I get a better rating than if I just sold the pool has it was so you 329 00:36:35,300 --> 00:36:41,620 take a lot of crap that's kind of mortgages that are ok but you weren't 330 00:36:41,620 --> 00:36:44,980 sure it and the credit agency says hey that's a good idea 331 00:36:44,980 --> 00:36:50,840 yes yes and it seems it in the housing market many investors began to take more 332 00:36:50,840 --> 00:36:59,800 risks precisely because they have bought protection with credit-default swaps 333 00:36:59,800 --> 00:37:08,870 the team at JPMorgan was also dabbling in mortgage but they weren't sure it 334 00:37:08,870 --> 00:37:17,750 made good sense we had some mortgages on our books we certainly understood 335 00:37:17,750 --> 00:37:25,980 mortgage-backed securities market but we had a lot of trouble getting comfortable 336 00:37:25,980 --> 00:37:36,840 with the Big Data we had years of historical data about how corporate 337 00:37:36,840 --> 00:37:42,320 performed during business cycles but we didn't have that much data about how 338 00:37:42,320 --> 00:37:54,160 retail mortgages performed during different business cycles had 339 00:37:54,160 --> 00:38:03,60 securitized products and we have not figured out how to lay off some of these 340 00:38:03,60 --> 00:38:08,360 risks and I couldn't figure out what we never imagined doing anything at all 341 00:38:08,360 --> 00:38:14,740 they were just taking the risk and sitting with it the first wave of 342 00:38:14,740 --> 00:38:19,620 JPMorgan bankers who had developed these original ideas in the nineteen nineties 343 00:38:19,620 --> 00:38:26,140 when they thought what was thought to have them other bad for taking a plane 344 00:38:26,140 --> 00:38:31,970 wave of their never expected to get very worried 345 00:38:31,970 --> 00:38:38,950 we were just about to say done on a transaction global phone call and we 346 00:38:38,950 --> 00:38:42,990 were discussing the risk that we were about to do and we had discussed it over 347 00:38:42,990 --> 00:38:53,729 and over and over and finally someone on that phone call we almost had stopped 348 00:38:53,730 --> 00:39:05,720 thinking and stopped reassessing the risk as we went along and every little 349 00:39:05,720 --> 00:39:18,660 tweak among the way we'd all said ok we all looked up and it's not ok problems 350 00:39:18,660 --> 00:39:25,279 other banks were not so cautious aggressively sold subprime CDO's to 351 00:39:25,280 --> 00:39:30,730 customers all over the world london became the second pitcher for their 352 00:39:30,730 --> 00:39:38,960 trading and sales operations the City of London actually did yeoman service 353 00:39:38,960 --> 00:39:44,119 creating some of the next year structures they did this offshore is why 354 00:39:44,119 --> 00:39:48,589 not register deals whose role private placement so they were going through 355 00:39:48,589 --> 00:39:54,710 legal loopholes 356 00:39:54,710 --> 00:39:59,000 a group of state-run banks in Germany known as lenders banks were among the 357 00:39:59,000 --> 00:40:05,119 biggest customers disarray Pixlr who worked at JPMorgan said she was amazed 358 00:40:05,119 --> 00:40:09,930 by these banks appetite for subprime mortgages you knew that a core group of 359 00:40:09,930 --> 00:40:14,830 banks in Germany with buying we strongly believe they were very naive we were 360 00:40:14,830 --> 00:40:22,319 amazed that they would bias I mean every single person every salesperson was 361 00:40:22,320 --> 00:40:26,770 envious of that particular salesperson at was able to cover the line is banks 362 00:40:26,770 --> 00:40:31,780 in ITB because you were in one of the hottest seats globally you're going to 363 00:40:31,780 --> 00:40:40,570 generate tremendous profit margin they were big buyers of US one of the 364 00:40:40,570 --> 00:40:47,440 strongest running around telling people how good they are investing 365 00:40:47,440 --> 00:40:51,950 multinational Deutsche Bank did several deals right Kb 366 00:40:51,950 --> 00:40:56,700 did you think at the time that your products were helping I kitty good 367 00:40:56,700 --> 00:40:58,419 things for them to buy 368 00:40:58,420 --> 00:41:05,170 otherwise we wouldn't have manufactured product and children were bullish on 369 00:41:05,170 --> 00:41:07,940 subprime mortgages in the us- 370 00:41:07,940 --> 00:41:13,339 bullish on the mortgage market in general and subprime which was element 371 00:41:13,339 --> 00:41:20,580 of it not overly aggressive part of the absolute 372 00:41:20,580 --> 00:41:28,230 2005 the total outstanding value of credit-default swaps around the world 373 00:41:28,230 --> 00:41:38,570 was measured in trillions of dollars and was doubling every year did top 374 00:41:38,570 --> 00:41:45,260 management at JPMorgan understand credit derivatives yes absolutely they did at 375 00:41:45,260 --> 00:41:51,140 other banks no other banks certainly not the regulators understand them I don't 376 00:41:51,140 --> 00:41:56,730 think I don't think the credit ratings agencies the bankers for the regulators 377 00:41:56,730 --> 00:42:03,70 fully understood all of the kinds of credit instruments in other words some 378 00:42:03,70 --> 00:42:08,500 big banks simply didn't know what they had in terms of risk certainly they 379 00:42:08,500 --> 00:42:12,530 didn't they don't know some of the forms of risk that's exactly right 380 00:42:12,530 --> 00:42:24,630 housing prices continue to soar banks packaged more and more CEOs 381 00:42:24,630 --> 00:42:30,390 theoretically there was no limit on investor didn't need to own any actual 382 00:42:30,390 --> 00:42:36,299 mortgages so-called synthetic CDO's allowed investors to bet many times over 383 00:42:36,300 --> 00:42:41,190 on someone else's portfolio or dead 384 00:42:41,190 --> 00:42:49,560 allowed participants to the market to to take their positions without being 385 00:42:49,560 --> 00:42:54,599 constrained by the size of the underlying market 386 00:42:54,599 --> 00:42:59,549 and synthetic CDO's all you had to do was make a side bad based on what would 387 00:42:59,549 --> 00:43:04,559 happen to this group of mortgages and have that be the basis of the CDO the 388 00:43:04,559 --> 00:43:08,539 fact that someone had done it one time wouldn't stop you from doing it again 389 00:43:08,539 --> 00:43:14,79 and again and again to how is that different than betting on the outcome of 390 00:43:14,79 --> 00:43:20,759 the Super Bowl or a horse race or a craps table there is no difference it's 391 00:43:20,759 --> 00:43:24,239 just a pure bet by somebody who has no economic interest in what they're 392 00:43:24,239 --> 00:43:28,160 betting on the outcome of the Super Bowl you can bet on the outcome of horse race 393 00:43:28,160 --> 00:43:31,190 while you're at the craps table you're betting on which way the days you're 394 00:43:31,190 --> 00:43:40,229 gonna go decade you have the most phenomenal machine anybody's ever seen 395 00:43:40,229 --> 00:44:04,58 everyone seems to be brilliant combination of free market innovation 396 00:44:04,59 --> 00:44:14,710 and globalization appeared to delivered is incredibly heady cocktail of between 397 00:44:14,710 --> 00:44:21,950 2003 and 2006 the average CEO of Wells Fargo remembers attending meetings with 398 00:44:21,950 --> 00:44:25,968 bankers and regulators 399 00:44:25,969 --> 00:44:36,109 what happened and there might be bankers and they would often go around the room 400 00:44:36,109 --> 00:44:37,900 and say 401 00:44:37,900 --> 00:44:54,150 concerned about how I would say toxic waste building above the likely outcome 402 00:44:54,150 --> 00:44:58,30 what is your fellow bankers say to you when you told them that you thought this 403 00:44:58,30 --> 00:44:59,70 stuff was toxic 404 00:44:59,70 --> 00:45:05,250 well the ones that were in it so I was wrong and everything that everything's 405 00:45:05,250 --> 00:45:23,420 fine we don't see any losses this was absolutely wrong for customers ever been 406 00:45:23,420 --> 00:45:29,30 wrong for us because we think that there's a great set of attitudes on wall 407 00:45:29,30 --> 00:45:33,60 street about where risk will flow and if you ask people they're basically split 408 00:45:33,60 --> 00:45:37,900 between two camps one says that risk will flow to the smartest person the 409 00:45:37,900 --> 00:45:41,170 person who best understands it and the other says that risk will flow to the 410 00:45:41,170 --> 00:45:45,350 dumbest person the person who leased understands it and at least based on my 411 00:45:45,350 --> 00:45:48,860 experience in my understanding of what has been happening in the derivatives 412 00:45:48,860 --> 00:45:56,370 market it's the latter I was amazed at the interest on the part of investors to 413 00:45:56,370 --> 00:46:03,710 invest in a product that was highly complex and very risky on top of it so 414 00:46:03,710 --> 00:46:09,770 let me get this straight to the party you develop this trudging of stuff 415 00:46:09,770 --> 00:46:14,840 credit-default swaps on it but now everybody else has jumped into the game 416 00:46:14,840 --> 00:46:19,860 everybody wants to do it but you were team decided to stop why did so many 417 00:46:19,860 --> 00:46:27,300 others keep going marching towards the cliff 418 00:46:27,300 --> 00:46:36,790 i mean there are certainly some investors some banks and borrowers who 419 00:46:36,790 --> 00:46:46,330 are greater than they should be no one wanted the party to end most banks 420 00:46:46,330 --> 00:46:53,569 believed housing prices would never go down let alone crash to imagine losses 421 00:46:53,570 --> 00:46:58,370 of that severity required very significant assumptions about the path 422 00:46:58,370 --> 00:47:02,319 of the economy which were just not in people's mind so it required things like 423 00:47:02,320 --> 00:47:07,000 assuming that house prices in the United States fell by 25% people were thinking 424 00:47:07,000 --> 00:47:10,940 that way as long as house prices never fail then these risk would never come 425 00:47:10,940 --> 00:47:27,369 home to roost and that ultimately was obviously very flawed logic home sales 426 00:47:27,369 --> 00:47:36,480 the unraveling began in late 2006 when housing prices started to drop only a 427 00:47:36,480 --> 00:47:44,820 very few bankers could see the bubble they were trapped 428 00:47:44,820 --> 00:47:53,820 2007 2008 all the smart money all the banks tried to effectively repackage 429 00:47:53,820 --> 00:48:07,840 what as quickly as possible and get it off the books but there was a second one 430 00:48:07,840 --> 00:48:11,240 of the Wall Street banks that took advantage of a declining market was 431 00:48:11,240 --> 00:48:16,220 Goldman Sachs according to a congressional investigation the bank 432 00:48:16,220 --> 00:48:21,609 created a series of CDO's containing toxic subprime and then sold them to 433 00:48:21,610 --> 00:48:34,420 customers using credit-default swaps bet against them they bet against their own 434 00:48:34,420 --> 00:48:38,860 clients so their clients Goldman was making money 435 00:48:38,860 --> 00:48:43,470 Coleman has a little slogan clients come first no they didn't not in these 436 00:48:43,470 --> 00:48:44,700 transactions 437 00:48:44,700 --> 00:48:50,750 came first second and third I think the only major bank which made money when 438 00:48:50,750 --> 00:48:56,860 the housing bubble burst in a settlement with the SEC Goldman admitted that some 439 00:48:56,860 --> 00:49:01,600 of their marketing materials did not disclose important information but 440 00:49:01,600 --> 00:49:05,569 Goldman claimed that their investors were highly sophisticated institutions 441 00:49:05,570 --> 00:49:18,660 customer was that German Bundesbank even when there is a downturn in the market 442 00:49:18,660 --> 00:49:24,509 they were still in the market is telling them it's on the screen there headlines 443 00:49:24,510 --> 00:49:29,90 everywhere danger but they still wanted to go ahead did you feel there was an 444 00:49:29,90 --> 00:49:32,90 obligation on your part to tell them 445 00:49:32,90 --> 00:49:37,890 wake up the markets are going down maybe should stop buying this crap those 446 00:49:37,890 --> 00:49:46,770 discussions discussions actually happened but they felt that it was just 447 00:49:46,770 --> 00:49:52,740 a temporary glitch in an overall bull market it will recover it has to recover 448 00:49:52,740 --> 00:50:03,270 in July 2007 the German bank IKB stuffed with subprime the first bank to fail 449 00:50:03,270 --> 00:50:08,410 thousands of homeowners are do it was only a matter of time before the crisis 450 00:50:08,410 --> 00:50:13,430 came back to wall street value of homes nationwide we knew that the housing 451 00:50:13,430 --> 00:50:15,600 bubble had burst 452 00:50:15,600 --> 00:50:20,670 we'd been reassured that the problem had been contained but by the beginning of 453 00:50:20,670 --> 00:50:27,250 2008 it was becoming clear that this was a much much bigger problem than anybody 454 00:50:27,250 --> 00:50:33,940 anticipated there was a broad misperception of the risk in housing 455 00:50:33,940 --> 00:50:40,380 prices that widespread view that we could have a regional decline in housing 456 00:50:40,380 --> 00:50:45,480 prices but never a national decline in housing prices proved to be horribly 457 00:50:45,480 --> 00:50:51,260 wrong 458 00:50:51,260 --> 00:51:05,310 were trying to unload what they could but there was confusion Citigroup they 459 00:51:05,310 --> 00:51:07,410 were running in circles 460 00:51:07,410 --> 00:51:12,529 incredible things about Citigroup we now know was tossing these risks up its 461 00:51:12,530 --> 00:51:16,910 balance sheet this risk came right back almost like a boomerang without knowing 462 00:51:16,910 --> 00:51:23,920 they had set up one business to offload risk and then completely reversed that 463 00:51:23,920 --> 00:51:30,400 business taking those risks back onto its balance she was quite clear to me 464 00:51:30,400 --> 00:51:38,520 that a number of large financial institutions had not had that kind of 465 00:51:38,520 --> 00:51:43,309 management information systems which allowed them even to know what all their 466 00:51:43,309 --> 00:51:56,619 risks were that was astounding to you it was it would all come down to those 467 00:51:56,619 --> 00:52:01,670 credit-default swaps would they pay off as they were designed to do we have 468 00:52:01,670 --> 00:52:08,270 known for generations banks are susceptible to run banks can't function 469 00:52:08,270 --> 00:52:20,000 everybody comes he wants their money at the same this time it would be a run on 470 00:52:20,000 --> 00:52:26,10 an insurance company AIG was on the hook for 440 billion dollars worth of 471 00:52:26,10 --> 00:52:32,130 credit-default swaps remember an insurance contract is only as good as 472 00:52:32,130 --> 00:52:36,630 the credit quality of the insurer to have to pay and if they can't pay you 473 00:52:36,630 --> 00:52:42,630 for whatever reason that this whole process of transfer breaks down 474 00:52:42,630 --> 00:52:54,359 September 18 2008 conference of IEEE CEOs and CEOs traditionally don't read 475 00:52:54,359 --> 00:52:57,779 their libraries during meetings but I kept looking around noticing that a 476 00:52:57,779 --> 00:53:03,549 number of them were so I turned 21 we researched and you looked like the world 477 00:53:03,549 --> 00:53:21,259 is in a MTG could not conceivably have paid off all of those credit derivatives 478 00:53:21,259 --> 00:53:29,119 because it had miss understood the risks and did not have what we call a balanced 479 00:53:29,119 --> 00:53:33,370 bark or nearly enough capital to back their losses 480 00:53:33,370 --> 00:53:38,29 didn't everybody know that he was holding a lot of CTS know there was no 481 00:53:38,30 --> 00:53:44,220 disclosure but that's the whole point 482 00:53:44,220 --> 00:53:52,100 reported this to anyone else other dealers have no idea what's going on 483 00:53:52,100 --> 00:53:59,299 the other banks don't know the banks turned as market into their own private 484 00:53:59,300 --> 00:54:07,710 game it was in fact a financial show where we were manipulating banking by 485 00:54:07,710 --> 00:54:12,650 moving the risk out to one door but bringing it back into the banking system 486 00:54:12,650 --> 00:54:24,420 by another do the risk was not leaving the banking system 487 00:54:24,420 --> 00:54:30,280 everybody connected to these changes 488 00:54:30,280 --> 00:54:34,740 any part of the chain breaks down because they cut back on track 489 00:54:34,740 --> 00:54:49,290 the entire system 490 00:54:49,290 --> 00:54:53,850 the idea dreamed up by a group of young JPMorgan bankers at a weekend retreat 491 00:54:53,850 --> 00:55:01,910 many years ago was supposed to reduce risk their original idea being taken and 492 00:55:01,910 --> 00:55:07,620 turn into a Frankenstein monster would come too big and spin out of control 493 00:55:07,620 --> 00:55:15,460 that degree it was a very scary time we were in totally new territory and the 494 00:55:15,460 --> 00:55:20,380 notion that Lehman Brothers could be filing for bankruptcy could be at risk 495 00:55:20,380 --> 00:55:28,450 of the same fate was absolutely unprecedented and the implications 496 00:55:28,450 --> 00:55:32,859 thinking through the implications of that for the health not just the US 497 00:55:32,860 --> 00:55:38,240 economy but the wild I mean it wasn't it wasn't really conceivable to do that I 498 00:55:38,240 --> 00:55:43,870 couldn't get my mind around it I know others couldn't we never thought coming 499 00:55:43,870 --> 00:55:49,460 we never saw that coming and I was disappointed hugely disappointed I mean 500 00:55:49,460 --> 00:55:56,420 I was part of a market that I believed was doing the right thing and maybe I 501 00:55:56,420 --> 00:56:01,40 was idealistic maybe I was young maybe I I didn't fully appreciate where we were 502 00:56:01,40 --> 00:56:06,400 going but there's a whole system going on all the way from the borrower of the 503 00:56:06,400 --> 00:56:11,160 mortgage all the way through to the investor there's a whole system of of 504 00:56:11,160 --> 00:56:17,569 people who maybe we're turning a blind eye maybe were you know just I don't 505 00:56:17,570 --> 00:56:26,940 know it's frustrating to see certainly 506 00:56:26,940 --> 00:56:35,960 it should have happened most of our financial crisis oil disruption wore 507 00:56:35,960 --> 00:56:46,599 this was caused by a few institutions about 20 who in my opinion lost all 508 00:56:46,599 --> 00:56:52,910 credibility relative to managing their risk and sad thing is that should never 509 00:56:52,910 --> 00:56:53,670 happen 510 00:56:53,670 --> 00:56:57,880 the management should have stopped before it got too big and too poor 511 00:56:57,880 --> 00:57:07,730 suffering today the fallout is felt mostly in places that had seen the 512 00:57:07,730 --> 00:57:17,490 highest growth Georgia ground zero of the subprime crisis local neighborhoods 513 00:57:17,490 --> 00:57:24,359 city streets cities throughout the united states are seeing a rise in 514 00:57:24,360 --> 00:57:31,980 vacant and abandoned properties and that's where the neighbors as neighbors 515 00:57:31,980 --> 00:57:36,170 were concerned not so much with the complexities of the subprime mortgage 516 00:57:36,170 --> 00:57:43,350 market and direct these things will hardly ever understand what we feel on 517 00:57:43,350 --> 00:57:48,920 the street is the fact that the house next to us is vacant abandoned partially 518 00:57:48,920 --> 00:57:53,500 burned and we wonder how long its gonna be there how long we will pay the price 519 00:57:53,500 --> 00:58:00,150 for that abandoned neighborhood cannot survive long when it has a growing 520 00:58:00,150 --> 00:58:04,610 inventory of properties 521 00:58:04,610 --> 00:58:06,710 sometimes 522 00:58:06,710 --> 00:58:10,700 no one even knows who owns the properties 523 00:58:10,700 --> 00:58:16,509 it's hard to know because it's been sliced and diced so many ways that could 524 00:58:16,510 --> 00:58:27,810 be somebody you have security where investors on the investors are around 525 00:58:27,810 --> 00:58:33,630 the world literally and so it's just you know persons lands of vacant properties 526 00:58:33,630 --> 00:58:38,260 mostly vandalized and just sits here and we can do anything with it and the 527 00:58:38,260 --> 00:58:43,950 reality is that that plays out across this neighborhood hundreds of types that 528 00:58:43,950 --> 00:58:52,89 house has a loan that is somewhere lost in a huge financial be put together by 529 00:58:52,89 --> 00:58:59,279 Sam Young Turks on wall street its laws and that billion dollar package goes 530 00:58:59,280 --> 00:59:05,349 there's nobody to to look after and their whole subdivisions like this by 531 00:59:05,349 --> 00:59:13,530 the way they are just lost in this great and so it affects main story because 532 00:59:13,530 --> 00:59:19,829 Wall Street was to the greed of Wall Street broker Mangere