Financial Friction

" I'm gonna boarded this young man not to watch CNN Davie some -- in between. The White House and democratic senator Chris Dodd Dodd wants to strip the -- of its authority to regulate banks and -- new agency countywide as adviser today saying. It is better to stick with the Fed now here's an idea have a -- no agency no fed. Just let bad banks now it might not be that simple but here's someone who knows the intricacies telling us -- Says that that is the only way the only way they'll ultimately learn their lesson there are no assurances. Novak stuffs. -- is the author of a new book on this whole saga that was decades in the making."

" You see anybody thanks for having me big fan on so this is really -- when I read this I love these books and this whole period. And normally I like the this is you go way back. Right and I try to show that means a lot of books about greedy bankers and listen I got a lot of greedy bankers stuff in there but what I try to show is that. It's not just pure greedy bankers its government enticing and needle and agreed along the way. Do various mechanisms bailing these guys on the past and by the way there with three bond market blow ups. Before what happened in 20072008. Was one in 8687. And Larry -- almost closest career at the movies that when the kings of Wall Street running black rock. 94 when -- went Orange County blew up to members and other bond market. Well up and then 1998 he's a really big one around the long term capital hedge fund blowing up -- Lehman Brothers show went down that. But it but that -- the -- what they did except that they step pain they broke thieves throw money at it and every time I noticed this because we went back we looked at the the statistics every time. They threw money at it these guys didn't say oh we learned a lesson in basic cooking for more risk until you had. The mother of risk taking between 1999 and 2000 and it 1998 and 2008 where you had so much. Systemic inherited risk in the system I -- trillions of dollars. I think I saw a number 100 Schilling doesn't derivatives and risky securities in the system that it was -- it was based in the system was gonna -- what do you. It is still when you hit the the people to -- big mortgages and got it over that they were victims and that what do you think. Half and half somewhere someone not I believe smart have to understand the ramifications what -- but you know this very -- comes a time and this is with the book try to show. That there needs to be a certain amount of personal responsibility up and down the -- Wall Street. Needs to be -- person responsible. Thank Goldman Sachs as I have no problem Goldman Sachs making a lot of money twenty billion dollars in bonus money but they are as a result of this they -- called a commercial bank. Can you get a debit card from coal exacts but they lend any of that money out they are protected by the federal government that in the company's decision the other day gun was within. He said we're doing God's work in it but if he's written to was really doing God's -- can be lending to small businesses because he's not he's trading. And that's canceled a Christmas -- well that's that's that's that's nice I guess I won't be invited that I."

" Well I don't what you is that I think that's a -- what I think he's that we -- of the petroleum briefly in the break one of the favorite lines in the book is. It's easy to forget the perils of risk and leverage when you're making so much money and I think -- that one sentence I cut to the gist."

" Of what happened. Right I mean it's scary just how much money they made -- if you look at that the year. And I'm not one of these -- warfare guys and you read this book you know that I'm a guy that believes that greed. Is is he's been it has been enticed by government it's itself."

" It's a lot this is a lot more complicated than just wearing a wet start and you go to community reinvest that -- that's just aren't going on. The Clinton administration and and you know you I thought you must feel it you know Barney Frank today rally against this when he was one of the big dot distributors to a Chris -- would joke that is so it's okay here Chris Dodd today with this of what do you say well."

" It's so absurd I it's almost funny to listen to that Chris Dodd one of these sort of enabling us in government for so many years of Fannie and Freddie is now saying. I wanna re regulate the financial system and one point of people aren't making anything about what you want to do. He wants to centralize everything in treasury. Say what you want about the Fed it was independent he didn't do the job regularly but it was independent treasury is now gonna have power regulatory power directly over the banks. It's it's it's a recipe for the big issue peaked out that's also part of what's going on new bigger more regulating government being so don't always take for instance you know which is leading right and you know -- I'm also that doesn't believe in the book shows us a regulation really -- work that well I mean Bernie -- believe enough was regulated. He was caught by the SE CA times or something like that each time they let him go bureaucrats just aren't that smart. I really needs is something well we -- a month was a much -- do nothing I'm just saying that if you really -- regulate these guys in 1998 -- let Lehman Brothers failed they were going to fail in 98. Merrill Lynch was probably gonna -- in ninety and 98 as well during that long term -- let them all go. This time. There are no atheists in the fox so you know that's. This time that would have been really scary I mean the problem is so when they did do what they did save everyone but Lehman you know here's is that wise I think so and his wife and you don't by bailing them out so many times and this is the sort of crux of the book. You created a situation by 2008. Where there was so much risk in the system thirty time thirty to one leverage and to borrow thirty times more than -- capital. By the way was probably bigger than that those at the end of quarter numbers in these this was lots of borrowing lots of really security look -- it triggered. Mean and everyone had their hands. But the problem is how we got cash for clunkers though we don't banks are only a few banks. What we send it -- and they were gonna need Citigroup was gonna go. They were all gonna go -- JP and it is that might as a guy and a big of a bank America. It's on the blog now I think it's about time to cut the umbilical we -- about yeah I mean let Goldman Sachs if they wanna like you know roll the dice with partners number money Gulfport maybe. The bottom line. -- this could happen again you know if unemployment goes up to 11%. You talked to a lot of talk to some -- we -- gonna have another banking crisis Citigroup. He's gonna -- need to go back to the government for simple reasons they -- consumer loans the losses on those consumer loans. Will the sort of outweighed you know bill -- overcome the amount of money to make it on their traits I mean that's that's gonna happen. There isn't. These are very report these not for the -- the book Charles desperate as the guy. Thank you have been scary stuff thank you casino -- thank you very much or we come back here."