Bethany McLean & Joe Nocera

  • Aired:  11/16/10
  •  | Views: 53,987

Bethany McLean and Joe Nocera talk about what they would have done differently to prevent the financial collapse. (7:36)

>> Jon: WELCOME BACK.

MY GUESTS TONIGHT ONE WRITES FOR

VANITY FAIR ONE WRITES FOR THE

FORECAST IN.

THEY'VE COAUTHOR A NEW BOOK

CALLED "ALL THE DEVILS ARE HERE:

THE HIDDEN HISTORY OF FINANCIAL

CRISIS."

PLEASE WELCOME BACK TO THE SHOW

BETHANY MCLEAN AND JOE NOCERA.

[CHEERS AND APPLAUSE]

NICE TO SEE YOU.

COME AND SIT.

COME, COME, COME.

[ APPLAUSE ]

THANK YOU GUYS BOTH FOR COMING

BACK TO SEE US.

THE BOOK IS CALLED "ALL THE

DEVILS ARE HERE.

MENT THE HIDDEN -- THE HIDDEN

HISTORY OF THE FINANCIAL CRISIS.

I HAVE TO SAY TO YOUR CREDIT THE

HISTORY OF FINANCIAL KRAOEUS

SKWREUS NO LONGER HIDDEN.

YOU HAVE LAID IT OUT IN ALMOST

EXCRUCIATING DETAIL FROM START

TO FINISH IN A REALLY CONCISE

AND CLARIFYING MANNER.

WHAT IS IT LIKE TO STARE INTO

THE HEART OF DARKNESS?

>> IT WASN'T THAT BAD.

[LAUGHTER]

>> Jon: ALL RIGHT, THE LUNG OF

DARKNESS.

>> IT GOT US MAD.

YOU KNOW, WE WERE KIND OF MAD

BEFORE AND WE DID THIS REPORTING

AND FOUND OUT ABOUT THE

SUBPRIME, LOUSY SUBPRIME STUFF,

THE WAY WALL STREET EGGED THEM

ON.

I WAS A LOT MADDER WHEN I FINISH

ED THAN WHEN I STARTED.

>> Jon: I WAS A LOT MADDER

WHEN I FINISHED AS WELL.

>> I THOUGHT IT WAS ALL A BIG

ACCIDENT.

AFTER I FINISH THE REPORTING I

DIDN'T THINK IT WAS ALL A BIG

ACCIDENT.

>> Jon: TIME MACHINE, BETHANY

MCLEAN, YOU FIRST THING DO YOU,

GO BACK AND KILL HITLER, SECOND

THING.

[LAUGHTER]

WHAT IS THE ONE RECIPE, ONE

INGREDIENT IN THE RECIPE FOR

FINANCIAL DISASTER THAT YOU

CHANGE, THE MOST CRUCIAL

INGREDIENT THAT YOU THINK

TRIGGERED THIS FINANCIAL

COLLAPSE?

>> I WOULD HAVE THE FED LISTEN

TO THE CONSUMER ADVOCATES WHO

STARTED WARNING IN THE 1990'S

THAT PEOPLE ARE GETTINGEN WILLS

THEY COULD NEVER AFFORD TO PAY

BACK AND I WOULD HAVE HAD

REGULATORS IN WASHINGTON DO

SOMETHING ABOUT THAT.

>> I WOULD HAVE REGULATED DERIVE

ACTIVES AND MAYBE NOT ALLOWED

CREDIT DEFAULT.

>> Jon: SUBPRIME HAS BEEN THE

BIG CRIMINAL HERE.

BUT CREDIT DEFAULT SLOTS.

THAT TURNED WHAT WAS YOUR

STANDARD RUN OF THE MILL

TERRIBLE FINANCIAL DECISIONS

INTO A GLOBAL CATASTROPHE BUT

ALLOWING PEOPLE TO -- WE TALKED

ABOUT THIS EARLIER.

CREDIT DEFAULT SWAPS ALLOWED

PEOPLE TO MAKE BETSES ON LOANS

THAT HAVE NOTHING TO DO WITH

THEM.

MY PREMISE TO YOU GUYS IS THAT

THIS WASN'T A FAILURE OF PEOPLE

UNDERSTANDING THE FINANCIAL

INSTITUTIONS, THIS WAS A FAILURE

OF PEOPLE NOT UNDERSTANDING

GAMBLING, THAT THE REASON THAT

WE FAILED IS BECAUSE THE

FINANCIAL INDUSTRY, THEIR BAD

GAMBLERS.

>> MOST ARE THEM ARE AS IT TURNS

OUT.

MERRILL LUNCH -- LYNCH WAS BAD.

THERE WAS ONLY ONE GOLDMAN SACHS

WHICH FIGURED OUT THAT, YOU

KNOW, THEY WERE ON THE WRONG

SIDE OF THE BET AND GOT ON THE

RIGHT SIDE IN TIME.

THEY DID IT BY SCREWING THEIR

OWN CLIENTS BUT THAT'S A WHOLE

OTHER STORY.

>> Jon: SO THE HERO IN THIS

CASE --

>> EXACTLY.

[LAUGHTER]

>> Jon: EXPLAIN THAT FURTHER.

THE CREDIT DEFAULT SWAPS ARE

PEOPLE BASICALLY BETTING ON

WHETHER OR NOT THESE LOANS WILL

BE SUCCESSFUL OR NOT.

>> CORRECT.

>> Jon: AND THE CENTRAL THESIS

WAS REAL ESTATE WILL NEVER GO

DOWN.

>> HAD NEVER HAPPENED SINCE THE

GREAT DEPRESSION, CAN NEVER

HAPPEN, END OF STORY.

>> Jon: THEY CREATED A SIDE

BET WHERE THE MONEY WENT TO THE

OVER.

>> CORRECT.

>> Jon: SPEAKING OF SOMEONE

WHO HAS DABBLED IN THE GAMBLING

ARTS?

>> REALLY.

>> Jon: NO BOOKIE IN THE WORLD

LAYS OFF ALL HIS BETS ON ONE

SIDE WITHOUT SPREADING A LITTLE

BIT OF THIS OR LAYS OUT SO MUCH

MONEY THAT IF THE CALL COMES HE

CAN'T PAY IT.

HOW DOES THAT GROUP THINK TAKE

HOLD?

IS IT THAT THEY DON'T UNDERSTAND

IT'S GAMBLING?

>> THAT'S WHY OUR FAVORITE LINE

IN THE BOOK IS A MERRILL LYNCH

RISK MANAGER SAYING WE FELL FOR

OUR OWN SCAM.

THEY THOUGHT THEY WERE KEEPING

THE GOOD STUFF AND SECOND THE

BAD STUFF TO OTHER PEOPLE.

THAT HE THOUGHT WHEN THE

CALAMITY CAME IT WOULD BE OTHER

PEOPLE PAYING THE PRICE NOT

THEM.

WALL STREET DIDN'T UNDERSTAND

THEY WOULD PAY THE PRICE TOO.

>> Jon: WHO DID THEY THINK

WOULD PAY THE PRICE?

>> THE IDIOTIC CLIENTS THEY WERE

SELLING THIS STUFF.

>> Jon: THAT WOULD BE ACTUALLY

US.

>> YEAH.

>> Jon: IF THEY ARE JUST

MIDDLEMEN MOVING AROUND MONEY

WHY ISN'T THEIR PROFIT JUST THE

VIG?

WHY IS IT THAT THEY ARE MAKING

MONEY THAT IS NOT JUST

TRANSACTIONAL MONEY?

>> WELL BECAUSE AT A CERTAIN

POINT.

THIS IS WHY SOME OF THE FIRMS

BLEW UP.

AT A CERTAIN POINT THEY RAN OUT

OF CLIENTS TO SILT TOO.

THE ONLY WAY TO KEEP THE MACHINE

GOING, THIS IS WHAT THE AAA, THE

SAFEST, SAFEST TRIPLE AS.

THEY HAD TO PUT THEM ON THEIR

OWN BOOKS.

>> Jon: THEY INFECTED

THEMSELVES.

AT THE END OF IT THEY BECAME --

>> THE TRIPLE B'S WILL LOSE

MONEY BUT THE TRIPLE A'S WILL BE

SAFE.

NOTHING WILL HAPPEN TO THEM.

WE'LL BE INSULATED FROM THE

PROBLEM.

>> Jon: THIS THEORY ON THE

FINANCIAL CRISIS IT OCCURRED

BECAUSE OF AN IDIOT SHORTAGE.

IF IF WE HAD ONLY BEEN ABLE

TO -- LET ME TAKE THE ROLE OF

THE FED HERE.

IF I'M THE FED I JUST PRINT MORE

IDIOTS.

>> IF YOU COULD FIND MORE PEOPLE

WHO WOULD HAVE BOUGHT ALL THE

STUFF WALL STREET WAS PRODUCING

THEY COULD HAVE KEPT KEEPING THE

FEES OR THE VIG THEN THE BAD

STUFF WOULD HAVE GONE TO US.

>> Jon: ULTIMATELY WHIT HIT

THE FAN -- BUT SEE THE CREDIT

DEFAULT SWAPS THAT ONLY BECAME

LEGAL IN THE 1990'S, YES?

>> THEY WERE INVENTED IN THE

90s.

>> Jon: IN THE OLD DAYS ITS

BUCKET SHOPS IN THE 20s AND

THINGS WALL STREET USED TO HAVE

SIDE BETS.

AND THEY MADE THAT ILLEGAL IN

THE 20s.

>> ALONG WITH OTHER STUFF THEY

DID.

>> Jon: RIGHT.

DOESN'T CREDIT DEFAULT SWAP

BRING BACK THE LEGALITY OF SIDE

BETS?

>> SURE, YES.

>> BUT IT'S INNOVATION.

>> Jon: IN TODAY'S PARLANCE

GAMBLING IS ACTUALLY INNOVATION.

>> YES, THAT'S RIGHT.

>> Jon: AND CLIENTS ARE

ACTUALLY IDIOTS.

[ LAUGHTER ]

IF I MAY --

[CHEERS AND APPLAUSE]

NO?

>> PRETTY MUCH.

>> Jon: WILL YOU DO ME A FAVOR

BECAUSE THIS IS -- IT MUST BE --

THIS IS A COMPLEX WORLD AND TO

HAVE SOMEBODY OUTSIDE OF IT

LAYING OUT THEORIES COULD BE

FRUSTRATING.

DO YOU HAVE A COUPLE OF MINUTES

TO HANG AROUND.

WE'LL TAKE A COMMERCIAL BREAK.

WE'LL PUT THE REST OF THE

DISCUSSION ON THE WEB FOR TEN

MINUTES.

I WANT TO FIND OUT IF I'M

MISSING SOMETHING.

I FEEL LIKE I MUST BE MISSING

SOMETHING BECAUSE IF I'M NOT,

AND I HAVE A WORD THAT I'VE

ACTUALLY JOINED CALLED CLUSTER

(bleep).

[LAUGHTER]

ALL THE DEVILS ARE HERE.

YOU HAVE TO GET THIS.

IT JUST LAYS OUT IN EXCRUCIATING

DETAIL EXACTLY.

YOU WILL READ IT AND LIKE THE

AUTHORS, YOU WILL

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