- 7 months ago
How the 2008 financial crisis developed, why investment banks went under or had to be bailed out, and what the US Treasury Secretary and Federal Reserve Chairman could and could not fix.
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01:02In the past seven months, they had bailed out one bank and let another one fail, nationalized
01:08three of the nation's largest companies and watched in horror as the credit markets froze.
01:13It was obviously a big meeting. I had no idea I was going to hear what I heard.
01:18We turned it right over to Ben Bernanke and Hank Paulson.
01:25And they said they needed authority to use $700 billion to unstop the credit market.
01:30I'm sitting in that room with Hank Paulson saying to us in a very measured tones, no hyperbole, no excessive adjectives,
01:39that unless you act, the financial system of this country and the world will melt down in a matter of days.
01:45Ben Bernanke said, if we don't do this tomorrow, we won't have an economy on Monday.
01:52There was literally a pause in that room where the oxygen left.
02:00Tonight, from the boardrooms on Wall Street to the backrooms in Washington,
02:05Frontline goes inside the meltdown.
02:08The story begins in the spring of 2008, after the housing bubble had burst.
02:34Home prices were at a record high just two years ago.
02:36Wall Street had gambled heavily on home mortgages, especially risky ones.
02:42As the housing market crashed, fear crept in.
02:46Reports for closure filings on 303,400.
02:49What if there were a run on any of the Wall Street houses?
02:53Home mortgages are triggering fears of a financial meltdown on Wall Street.
02:57Then on Monday, March 10th, a rumor about Bear Stearns.
03:02It's a pretty normal morning, and then suddenly around 11 o'clock, there's a tremor.
03:10The stock starts to go down.
03:13The CFO of Bear starts calling down to his desks, to the repo guys, the bond guys.
03:20Anybody hear anything? Anybody know anything?
03:22What is this?
03:24Yeah, the rumor is that we're running out of cash and that we might be in trouble.
03:34Bear's former chairman, Alan Ace Greenberg, had seen it happen before.
03:39Rumors are such that they just complain, put you out of business.
03:43People that you have been doing business with for years, all of a sudden, they just say,
03:48no, we don't want to touch it.
03:52On the street, they say rumors, even unfounded rumors,
03:56are a contagion that can kill a company in just a few days.
04:00Causing the stock the most activity.
04:02Bear Stearns suffering from, well, what you can do with any of these stocks these days,
04:07namely start a rumor.
04:08CNBC is ubiquitous on trading desks.
04:11It's ubiquitous on Wall Street.
04:13People watch it absolutely all day long.
04:15They tune into it.
04:16When there are flash lines up on the screen, they want to tune in immediately.
04:20So they have a profound impact on what's happening.
04:24It was nothing short of surreal.
04:28You're watching on CNBC, etc.
04:30I mean, they're talking about where you work.
04:33The only bank in the red right now basically bears Stearns,
04:36although it is dragging the rest of the financial markets down as well.
04:40Bear's stock was in free fall.
04:42Once it traded as high as 171.
04:45Now it hovered around 60.
04:48When people get nervous, they want the money out
04:50because you don't want to be the last person when there's a run in the bank.
04:54The stock started to go down.
04:56More and more people called up and said,
04:57I want my money out or I won't trade with Bear Stearns.
05:00And it just completely unwound.
05:02And it happens because those who do business with a firm such as that lose confidence.
05:08And when they lose confidence, they pull their lines.
05:10And that's it.
05:10It's done.
05:11Pack your bags.
05:12Inside Bear, they knew they needed to reassure the market.
05:16They turned to former chairman Ace Greenberg.
05:19Somebody came over to me and said,
05:20you've got to make a statement.
05:22We're in trouble.
05:23I called the chief financial officer.
05:25I said, are we in trouble?
05:26He said, no, everything's fine.
05:28They had nearly $18 billion in cash reserves.
05:32Ace Greenberg, legendary former CEO.
05:35Ace called CNBC.
05:37So I said, it's ridiculous.
05:39Everything's fine, which it was.
05:41He says, this is ridiculous,
05:43which then kind of, as they say, put pants on the problem
05:46because CNBC then starts running a crawler.
05:49You know, Ace Greenberg calls rumors of imminent demise ridiculous,
05:53which is a little bit, you know, like screaming,
05:55I'm really not beating my wife, honest.
05:57It's a very sharp rally on Wall Street.
05:59With the exception of Bear Stearns, it has been a roller coaster.
06:02The rumors swirling around Bear
06:03were about its massive investments in subprime mortgages,
06:07what would become known as toxic assets.
06:10They were big in mortgages.
06:12They were big in packaging them
06:14and creating securities out of them, buying them.
06:18The road to riches for Bear was simple.
06:21Buy hundreds of thousands of mortgages
06:23and bundle them into securities and sell them to investors.
06:2830 years ago, if you get a mortgage,
06:30you went to a bank and that bank frisked you pretty good
06:33before giving you the money
06:34because the bank expected you to pay the bank back.
06:38In 2005, a mortgage lender lends money
06:41to a lot of people
06:42and does not expect to be repaid by them
06:45but bundles up the right to be repaid by them
06:48and sells it to a lot of other people.
06:50The bigger the housing market grew,
06:52the more Bear and other investment banks bought.
06:55Accelerating housing prices created a mentality
06:59among everybody involved in the mortgage industry
07:02from the buyer of the house
07:04to the broker, the mortgage broker,
07:06to the bank, to Wall Street,
07:08that housing prices could only go up.
07:12Everybody did this.
07:13You know, everybody made tons of money in 05, 06.
07:18By 07, the party was over.
07:21People started to see that foreclosures were rising.
07:25Certainly the home price appreciation
07:26that we had enjoyed for many years during the bubble
07:29was stopping.
07:30They were stuck with these investments
07:32that were rapidly declining in value.
07:35It was a formula for disaster.
07:37It was a traditional game of hot potato, hot potato.
07:42And as it turned out,
07:43everybody ended up with a potato.
07:47As the smallest investment bank on Wall Street,
07:51Bear Stearns looked vulnerable.
07:54Wednesday, two days into the crisis,
07:56they needed to do something to restore confidence.
08:01If you're a Wall Street firm beset by rumors,
08:04the best you can do is bring out the CEO to say,
08:07well, this is really nothing serious.
08:09And by Wednesday morning, that's where Bear had come to.
08:12I called over to their head of PR,
08:15talked to them about it,
08:17saying, you know, your stock just keeps getting hammered.
08:21I think I talked to a lot of people.
08:23I think they would want to hear from Alan.
08:28Alan Schwartz, Bear's CEO,
08:31decided to give Faber the interview.
08:34Joining me now first on CNBC is Alan Schwartz.
08:37He is Bear Stearns' president and CEO.
08:39Mr. Schwartz, thanks so much for being here this morning.
08:42Everything went quiet on the trading floor
08:44as we listened to the interview.
08:46Everyone very focused on listening
08:49because we knew this would be the nexus point
08:53for how the rest of the week would play out.
08:55So when I'm told by a hedge fund that I know well
08:58that last night they tried to close out
09:00a mortgage credit protection...
09:02Faber's first question was a tough one.
09:05He raised the specter
09:07that one of Bear's most important trading partners,
09:11Goldman Sachs, might be deserting them.
09:13You're saying you're not aware that that would be the case?
09:15I'm not aware, you know, on a specific trade
09:19from one counterparty to another.
09:21You're just living out in Schenectady.
09:23That doesn't sound all that bad.
09:24In fact, that is a kiss of death.
09:27He has all but driven the spear through Schwartz's heart
09:30because he's saying that Bear Stearns
09:32is not trustworthy in the eyes of those it trades with.
09:36For Bear, it turns out to be a big blow
09:39because it's a public acknowledgement
09:42of what sounds like a specific example,
09:44and Alan looks to some people like he's not on the ball.
09:48And I think the situation with time will stabilize.
09:52Well, Alan Schwartz, thank you so much
09:54for being here this morning. Appreciate it.
09:57Bear had borrowed heavily to invest in toxic assets
10:01and other high-risk securities.
10:03To survive, it would have to find more lenders
10:06willing to loan it money.
10:08Bear Stearns rolls over his loans every night
10:11or every few nights in what's known as the repo market.
10:14And that gives its lenders an opportunity each night,
10:17if they want to, to call in some of their loans
10:20or to demand more collateral.
10:21What this amounts to effectively
10:23is that investment banks,
10:25there's a vote of confidence every night
10:26on whether they survive or not.
10:30And that night,
10:31the markets were voting no confidence in Bear Stearns.
10:35Their stock was dropping
10:37and the cash reserves were beginning to dwindle.
10:39This stuff became a self-fulfilling prophecy.
10:43You know, a lot of people that perhaps
10:44would not have acted
10:45in listening to some of the things that were going on
10:47said, I can't leave my assets there anymore
10:49and I have to take them out.
10:53You're sitting in the middle of an avalanche.
10:55What can you do if you're on the side of a mountain
10:57and an avalanche comes at you?
10:59An avalanche goes, what, 60 miles an hour?
11:02You can't outrun it, right?
11:03So, what can you do?
11:09The story has continued to mushroom.
11:11There are concerns amongst perhaps some foreign banks...
11:13On Thursday, Bear's stock continued to fall
11:16and the reserve was almost completely gone.
11:21By 6 o'clock, it's very clear
11:23that they do not have enough money
11:25to open the next day.
11:27They have 12 to 14 hours
11:30to do something unprecedented
11:33in terms of raising emergency capital
11:36or go under.
11:41They had one last chance.
11:43The Federal Reserve Bank in New York.
11:47Tim Geithner was in charge.
11:50Geithner is a Larry Summers protégé from Treasury
11:53and worked his way up during the summer's years at Treasury.
11:57He's 47 years old.
11:58He looks like he's about 32.
12:01Universally liked and respected.
12:03Extremely smart, extremely aware of the stuff.
12:06Very discreet, controlled.
12:10And he sort of serves as an intermediary
12:12between Washington and Wall Street
12:14because he sits in Manhattan,
12:16but he works for the Federal Reserve System.
12:19That night, Bear Stearns' fate
12:23would be in Tim Geithner's hands.
12:30Geithner's people went to Bear's headquarters
12:32and started to look through all the accounts.
12:37Geithner told me he initially thought
12:39that they should let Bear go under.
12:43By midnight, by 1, 2 in the morning,
12:46everybody and their mother has teams at Bear.
12:48They found billions in hidden subprime mortgage loans.
13:02And something worse.
13:04Credit default swaps, a form of insurance.
13:08Bear had promised if bonds it insured failed,
13:12they would pay.
13:12They were really very mysterious instruments
13:16that only the sort of financial wizards understood.
13:21Credit default swap is basically just an agreement
13:24that I have with you
13:25where I sell you insurance on some bond you own.
13:31If the bond goes belly up, I promise to pay you.
13:34And as long as the bond doesn't go belly up,
13:37you pay me for selling you insurance.
13:39Geithner's investigators told him
13:43that Bear had made credit default swap deals
13:46worth hundreds of billions of dollars
13:48all over Wall Street and around the world.
13:52Through the night, things changed
13:53as the people in the Fed discovered the positions
13:56that Bear was in
13:57and discovered what would happen if they did go under.
14:01Because Bear Stearns was so indebted
14:03to so many other people,
14:04their failure to repay their debts
14:07or pay their debts
14:08would cause a cascade of other failures.
14:12Every single part of Wall Street at this point
14:15is plugged into another part of Wall Street.
14:18And if I go down,
14:19I can now drag down that guy,
14:21and if he goes down,
14:22he can drag down that guy,
14:23and he can drag down that guy,
14:25and this is a huge web
14:26that connects everyone
14:27in these completely unforeseen ways.
14:30They then reported back to Geithner
14:33that, look, you know,
14:34this is a lot more complicated than it appears.
14:37Geithner saw what central bankers fear most,
14:40systemic risk.
14:42Bear was frighteningly interconnected
14:44with other banks up and down Wall Street.
14:48Geithner picked up a phone at 4 in the morning
14:50and called his boss at the Federal Reserve,
14:53Ben Bernanke.
14:55Ben Bernanke is a highly, highly respected scholar,
14:58and not only a scholar of economics,
15:02but of the Great Depression.
15:04If he weren't chairman of the Fed,
15:06he'd be top of the list of people
15:09you'd be going to for advice
15:11and understanding and all this stuff.
15:13On this night,
15:15one of the Depression experts' darkest fears
15:17was being realized.
15:20Ben Bernanke felt that the risk to the system,
15:24the financial system as a whole,
15:26would be too great
15:27if Bear Stearns were allowed to go bankrupt.
15:31It was clear that this had to be contained.
15:36There was no doubt in his mind.
15:38He, more than anyone else,
15:41appreciated what would happen
15:42if he'd get out of control.
15:43He was absolutely determined
15:47to be an activist Fed governor,
15:51that when the crisis came along,
15:53his Fed would throw every weapon it had
15:56at the problem.
15:58But the Federal Reserve was prohibited
16:01from directly lending cash to Bear,
16:04an unregulated investment bank.
16:07Bernanke was prepared to get around the rules,
16:10and he did.
16:11Very early in the morning,
16:13the Federal Reserve has a conference call.
16:15Ben Bernanke's on it,
16:16Tim Geithner's on it, among others.
16:19They eventually came up with this idea
16:21of giving a loan to J.P. Morgan,
16:24which was Bear's clearing bank,
16:26and having J.P. Morgan pass on the cash to Bear,
16:29so indirectly lending to them via J.P. Morgan.
16:32We have important news to share with you
16:34about Bear Stearns,
16:35a company that I've been reporting on all week.
16:37It was about 8.30 that they announced the deal.
16:40Let me share with you this press release
16:42that has just hit.
16:43The Federal Reserve Bank and J.P. Morgan Chase
16:46announced that they have agreed to provide
16:48secured funding to Bear Stearns as necessary.
16:52Make no mistake,
16:53the Federal Reserve is bailing out Bear Stearns,
16:56and they're using J.P. Morgan as a conduit to do it.
16:59But Bernanke's unprecedented plan
17:01almost immediately backfired.
17:04Because Bear Stearns was the only one to get that treatment.
17:07Obviously, the Fed was sending a message,
17:09this is an institution that's about to fail.
17:12So to single them out, in a sense,
17:14was to virtually assign them to a death sentence.
17:17People are starting to trade this company
17:19as if its entire fate is totally in question at this point.
17:21At the opening at 9.30,
17:24you promptly had basically a 50% sell-off in the stock.
17:28At 10 o'clock Eastern time,
17:30and Bear Stearns hit $30,
17:32and people sort of gasped as it hit $30.
17:34Two things that was going around.
17:35Number one, Bear Stearns now has a market cap of $3.7 billion.
17:39In Washington, at the Treasury Department,
17:42the secretary, Henry Paulson,
17:44was also beginning to worry about systemic risk.
17:48Paulson was picturing a 1 to 2,000 point drop
17:51in the Dow that Monday,
17:53possibly the failure in very short order
17:55of a number of other investment banks,
17:57Lehman Brothers, Morgan Stanley, and so on.
18:00Paulson just thought that the uncertainty was too great.
18:04Paulson thought he knew the markets well.
18:06Only two years before,
18:08he had run Bear's largest competitor.
18:11Henry Paulson came from Goldman Sachs.
18:13He was the chief executive officer,
18:16came up through the investment banking world.
18:19He's a true Wall Street nuts-and-bolts guy,
18:23not the most articulate man,
18:25very smart, very, very intense.
18:30The loan to save Bear was not Henry Paulson's idea or style.
18:35It was the Fed's call.
18:37From now on, though, Paulson would get involved.
18:41He and Ben Bernanke would face the crisis together.
18:44It helps me to think about this crisis
18:47as a patient that's going through spasms.
18:49And each time, the spasms seem to be getting worse.
18:55And it helps me to think about Bernanke and Paulson
18:57as the two doctors in the room
18:59trying to settle the patient down.
19:04Saturday morning,
19:05hundreds of lawyers and accountants
19:07from Bear's competitors
19:08descended to examine the books.
19:10It was like being picked over in a cemetery.
19:16The body was dead or dying,
19:19so there were people picking over the caucus.
19:21It's just really the ugliest thing I've ever seen.
19:24In the end,
19:25no one wanted to take on Bear Stearns' death.
19:28But on Sunday morning,
19:30Bernanke pushed back,
19:32creating a shotgun marriage
19:33between Bear and J.P. Morgan.
19:35Paulson went along
19:38as Bernanke guaranteed the deal
19:40with a $30 billion dowry
19:42to cover Bear's toxic assets.
19:45I'd say it was certainly
19:47the lending of $30 billion
19:49against those securities
19:51made it palatable
19:53for J.P. Morgan to go ahead.
19:56Without that,
19:57there wouldn't have been a deal.
19:58But Paulson still had misgivings.
20:03He immediately issued a warning to Wall Street.
20:06This was not going to happen again.
20:09He invoked a central precept
20:10of the catechism of the free market,
20:13moral hazard.
20:14I'm as aware as anyone is of moral hazard.
20:17I'm also aware...
20:18Moral hazard poses the question,
20:21if you bail somebody out
20:23of a problem they themselves cause,
20:26what incentive will they have the next time?
20:28To avoid making the same mistake.
20:31As a hard-bitten veteran of Wall Street,
20:34Paulson had personally made
20:36hundreds of millions of dollars
20:37believing the best government
20:39was no government.
20:41He's an unapologetic free marketeer.
20:44He's a Republican.
20:46He has that deregulatory mindset
20:48that the Bush administration has.
20:50That's why he was chosen.
20:52And that same Sunday afternoon,
20:54as the very last details
20:56of the deal were being ironed out,
20:58Paulson decided to starkly make
21:00the moral hazard point.
21:02He picked up the phone
21:03and called J.P. Morgan's CEO.
21:07Paulson wanted to send a message
21:09that this is not going to be a bailout
21:12that you're going to like
21:14if you're Bear Stearns.
21:16You know, you did dumb things
21:18and you're going to be punished.
21:1930% of Bear's stock was held by its own employees.
21:24At the end of the week,
21:26that stock was selling for $30 a share.
21:29J.P. Morgan was offering $4.
21:32Paulson says, no, I want you to do it for $2 a share.
21:38We don't want anyone in America,
21:41particularly on Wall Street,
21:42to think that the government
21:43has a safety net for you whenever you need it.
21:47I want it to be so, so painful
21:50for any Bear Stearns shareholder
21:52that it's almost as if they went out of business.
21:55At 6 o'clock,
21:59the Bear employees received the word.
22:02A lot of the price talk
22:03that we had been hearing
22:04was, you know, in the $20 range,
22:06maybe $15.
22:07So when they announced
22:09that we were being sold to J.P. Morgan
22:12for the princely sum of $2 per share,
22:15it was a shock.
22:17There were people that actually cried.
22:21People thought it was a misprint.
22:23They thought it must have been
22:24a couple of zeros left off.
22:26They were wrong.
22:27It was $2.
22:29You know, how could this possibly have happened?
22:32You know, total denial.
22:33No responsibility.
22:36It had taken seven days.
22:38Bear Stearns was gone.
22:45They're saying that the bubble will not burst.
22:47There's plenty of real...
22:48July was still the strongest housing sales month.
22:50Bear Stearns had not been alone betting on housing.
22:54Until the market collapsed,
22:55the entire country had been encouraged
22:57to do the same thing.
22:59Flying along for years.
23:00You could see that people were taking mortgages
23:02that they obviously couldn't afford.
23:05Go to a cocktail party
23:06or you'd go to a barbecue,
23:08and two or three of the people that were there
23:10were telling you how wealthy they were
23:12because the value of their home had gone so high.
23:16Nobody cared if they could afford the payments
23:18because the act of buying the house itself
23:21meant that you were going to get rich.
23:24The government's attitude towards homeowners was
23:26they did it to themselves.
23:28That's the way it goes.
23:30The government's attitude towards Wall Street was
23:33these are a bunch of smart, sophisticated people.
23:36Yeah, they made some mistakes,
23:38but the system is fine and we'll be okay.
23:40I have the greatest confidence
23:42in the resiliency, flexibility,
23:44and strength of our economy
23:46and our capital markets.
23:48Both Paulson and Bernanke
23:50continued to insist all was well
23:52in the face of mounting evidence
23:54that the housing market had turned toxic.
23:57The impact of the problems
23:58in the subprime market
24:00seems likely to be contained.
24:02Contained.
24:03That was their word, contained.
24:06And meaning that it was not going to spread.
24:09It wasn't going to infect the rest of the economy.
24:12When will the economy turn around?
24:13Yes.
24:14I'm not an economist,
24:15but I do believe that we're growing.
24:17And I can remember, you know,
24:20this press conference here,
24:21people yelling recession this,
24:23recession that,
24:24as if you're economists.
24:26And I'm an optimist.
24:29You know, I believe there's a lot
24:31of positive things for our economy.
24:32Profits in the banking industry
24:36are plunging.
24:37...rate in America
24:38has now soared to 6.1%.
24:40...240 points while the Nasdaq...
24:42Throughout the summer of 2008,
24:45the toxic mortgages continued to eat away
24:47at every major Wall Street firm.
24:50The losses on housing are real.
24:53The losses on subprime mortgages are real.
24:56And there is something like a trillion dollars
24:59of losses to the financial system
25:02that are going to show up
25:04one way or another.
25:05Nervous investors were dumping shares
25:07of the mortgage giants
25:08Fannie Mae and Freddie Mac.
25:09The next crisis wouldn't be on Wall Street.
25:12Fannie Mae and Freddie Mac,
25:14the largest mortgage lenders in the world.
25:16Freddie Mac and Freddie Mac are in big trouble.
25:19A crisis of confidence started,
25:20and in two weeks,
25:22two of the most powerful,
25:24largest companies on Earth
25:26lost 60% of their stock value.
25:30Created by the government
25:31to promote affordable housing,
25:34the failure of these publicly traded,
25:36privately run companies
25:37was almost unthinkable.
25:39They held $5 trillion in mortgages.
25:43They're enormous.
25:45Every institutional investor owns
25:46either Fannie and Freddie shares
25:48or, more importantly,
25:49Fannie and Freddie debt.
25:50Their possible failure
25:52would be the very definition
25:53of systemic risk.
25:56Bernanke and Paulson feared
25:58this could be a major catastrophe,
26:00and, you know,
26:01they had to do something about it.
26:03Henry Paulson swallowed hard
26:05and nationalized Fannie and Freddie.
26:08Good morning, everyone.
26:09We have determined
26:10that it is necessary to take action.
26:14The government fired the management
26:16and took over the day-to-day operations.
26:19Clearly, Bernanke and Paulson
26:21didn't want to nationalize Fannie and Freddie.
26:24That was the last thing they wanted.
26:25But the sort of logic of events
26:27just led them down there.
26:29We examined all options available
26:31and determined that FHFA,
26:34the Federal Reserve,
26:34and Treasury
26:35have moved to address
26:36this difficult issue.
26:39It sent this huge confidence shockwave
26:42through the entire economy.
26:44Because all of a sudden,
26:45people are saying,
26:46if two of the largest companies
26:47on Earth can fail,
26:49that means anyone can fail.
26:51At that point,
26:53there is no company too large
26:55to not fail from the housing bubble.
27:00Welcome back.
27:01One day later,
27:02Monday, September 8th,
27:03the toxic mortgage contagion
27:05was loose again.
27:06That statement certainly true
27:08in the case of Lehman Brothers,
27:09shares of which have been down
27:10as much as 18% this morning.
27:13This time,
27:13it was the investment bank Lehman Brothers.
27:15It's chief,
27:18Dick Fold,
27:19was a fixture on Wall Street.
27:21He was Wall Street's
27:22longest-serving CEO.
27:24My impression is
27:25most people would associate
27:26Dick Fold and Lehman Brothers
27:27as one.
27:31He was an aggressive trader,
27:32and he ran the company
27:34with an aggressive direction.
27:37He not only commanded
27:38and demanded loyalty,
27:39I think he inspired loyalty.
27:40Fould had been with Lehman
27:49for so long
27:49that a certain type
27:51of arrogance
27:52had crept into
27:53how Lehman did business.
27:54They had drunk
27:55their own Kool-Aid.
27:59Fould had taken Lehman
28:00deeply into the high-risk
28:01real estate mortgage market.
28:03The employees in the trenches
28:05saw it firsthand.
28:07We kept pushing the envelope
28:08on acceptable loan terms.
28:11There were fixed-rate
28:1230-year loans.
28:13Then we had these
28:13alternative A loans.
28:15Then we had 40-year loans.
28:17Then we had loans
28:18where people only
28:19paid the interest
28:19and have to pay principal
28:20back for 10 years.
28:22Then we had option arms
28:23that had very low rates,
28:25and in fact,
28:26not only were you
28:26not paying back principal,
28:27in fact,
28:28your principal grew over time.
28:31I think in hindsight,
28:32it's easy to see
28:33there was a bubble,
28:35but when you're at a party
28:36having a good time,
28:37sometimes it's hard
28:38to stop and leave the party.
28:39Now, in the wake
28:42of Fannie and Freddie,
28:43those toxic investments
28:45that had made Lehman billions
28:46were dragging it under.
28:48When there are rumors spread
28:50or uncertainties
28:52about the sanctity
28:54of the financial institutions,
28:57that liquidity
28:58can dry up very quickly.
29:00It was melting.
29:02It was painful.
29:03The stock price
29:05was going lower every day.
29:07You didn't get a lot
29:08of good news on CNBC.
29:10That is a new low
29:11for Lehman Brothers,
29:12the embattled investment bank.
29:14Lehman Brothers stock
29:16has been plummeting
29:17along with confidence
29:18in its ability
29:18to survive this afternoon.
29:20At the Treasury,
29:21Secretary Paulson
29:22was watching
29:22the Lehman meltdown.
29:24So Hank Paulson's sitting there
29:25and it turns out
29:28that we're having
29:29the largest crisis
29:30Wall Street has seen
29:31since the Great Depression
29:31and he's at the center of it.
29:34And at this point,
29:35the question becomes,
29:36what does Hank Paulson do?
29:39Hank Paulson started
29:41to show signs
29:42of bailout exhaustion.
29:44He had literally
29:44just finished resolving
29:47the Fannie Mae,
29:47Freddie Mac problem.
29:48And Paulson was
29:52under immense
29:52political pressure.
29:55You had a conservative
29:56Secretary of the Treasury
29:57and a conservative
29:58administration.
29:59There was a lot
29:59of right-wing criticism
30:00over Bear Stearns.
30:01I had the Republican
30:02members of the Committee
30:03on Financial Services
30:04wanting to tear into
30:05Paulson and Bernanke
30:06for what they did
30:07at Bear Stearns.
30:08Do you really think
30:09we can believe
30:10exactly what you're saying,
30:12Secretary Paulson?
30:14I was sort of
30:15defending them
30:16against their own
30:17Republican
30:18colleagues.
30:20You had people saying,
30:21hey, look,
30:22this is the market.
30:22If you don't let
30:23some people go belly up,
30:25then you lose
30:26the discipline
30:27of the market.
30:29Paulson really thought
30:30somebody's got to go down.
30:31We can't keep putting
30:32the finger in the dike.
30:35When he'd run
30:36Goldman Sachs,
30:38Hank Paulson
30:38had vigorously
30:39competed with Dick Fold.
30:42Now, in a series
30:43of tough telephone
30:44conversations,
30:45Paulson insisted
30:46that Fold find
30:47a buyer
30:48for Lehman Brothers.
30:50Fold and Paulson
30:50were in regular contact
30:52over the course
30:52of the summer.
30:53Paulson was warning
30:54Fold that the firm
30:56ran the risk of failure
30:57if it didn't act
30:57very quickly.
30:59But it appears
31:00Fold never thought
31:01the government
31:02would let Lehman fail.
31:05There must have been
31:06a sense inside
31:07that it, too,
31:08would somehow survive,
31:10be merged,
31:12some shotgun marriage.
31:13I thought it would be
31:15something similar
31:15to the Bear Stearns.
31:16There would be some
31:17arranged merger acquisition.
31:20If Bear was a problem,
31:22Lehman was certainly
31:23more of a problem,
31:24larger firm,
31:25more interconnected.
31:27It's just they never
31:27thought,
31:28how could they not,
31:29they're going to figure out
31:30a way to save them.
31:32Now, moral hazard
31:34seemed to be driving
31:35Paulson's decision.
31:37If Fold didn't sell
31:38his company,
31:39he would pay
31:40for Lehman's greed.
31:42When I interviewed
31:43the Secretary of the Treasury,
31:45I was really astounded
31:47at the vehemence
31:48of his reaction
31:49towards Dick Fold.
31:51He was very angry.
31:54And whether that predated
31:56him being Treasury Secretary
31:57or not, I don't know.
31:59But he was very, very angry.
32:00He said, you know,
32:01I told Dick Fold
32:02to sell the firm
32:03or to look for a buyer
32:05because he had a problem.
32:06And he wouldn't do it.
32:07And he's just, you know,
32:08practically pounding the table
32:09with his fist.
32:11At this point,
32:12he makes a critical decision
32:13because of this issue
32:16of moral hazard
32:17that Lehman will be
32:19allowed to fail.
32:22It was a very high-stakes
32:24game of signaling
32:25that he was playing.
32:26He wanted to show
32:27these guys, you know,
32:29all of his old buddies
32:30on Wall Street,
32:31that they were going to need
32:32to step up
32:32and do something themselves.
32:33Friday night,
32:40after the markets closed,
32:42Paulson and Bernanke
32:43summoned the heads
32:44of Wall Street's largest firms
32:45to the Federal Reserve Bank
32:47in New York.
32:49They walked through
32:50the main foyer,
32:51past this giant bronze statue,
32:53through this stone hallway
32:55and into a large conference room.
32:59They wanted to make sure
33:01the message from the federal government
33:03was clear.
33:04There would be no bailout.
33:06Bernanke told them
33:08that now is the time
33:09for collective action.
33:11They couldn't spend their time
33:12this weekend looking out
33:13for their individual interests.
33:15They had to find a way
33:16to resolve the problem
33:18for all of Wall Street.
33:19Tim Geithner says,
33:20somebody needs to buy Lehman.
33:24You need to figure out
33:24how to rescue Lehman
33:25because otherwise
33:27they're going to go bankrupt.
33:29Geithner pointed out
33:30to the group
33:31that there was no political will
33:33for a bailout in Washington.
33:37That weekend,
33:38a now familiar sight.
33:40Lehman's books
33:41opened up to their competitors.
33:44Now, Dick Fold
33:45was desperate to do a deal.
33:47On that last weekend,
33:49they really did think
33:50they had a deal lined up
33:51with either Bank of America
33:52or Barclays.
33:53But neither Bank of America
33:55nor Barclays
33:56were willing to do the deal
33:57without the same kind
33:59of government guarantees
34:01that Bear Stearns got.
34:03And this time,
34:04unfortunately for Lehman,
34:06unfortunately for Mr. Fold,
34:08this time the government
34:08said no.
34:11Moral hazard trumped
34:12systemic risk.
34:14The government
34:15would not intervene.
34:17There were no options left.
34:19Bankruptcy was now a certainty.
34:24Good afternoon, everyone,
34:25and I hope you all
34:26had an enjoyable weekend.
34:31Yeah, yeah.
34:33Well...
34:33The Fed and the Treasury
34:34thought that Lehman
34:36could go under
34:36without causing
34:37a major conflagration.
34:39It would be a big event,
34:40but it wouldn't cause
34:41a cataclysm.
34:42But the American people
34:43can remain confident
34:45in the soundness
34:46in the resilience
34:47of our financial system.
34:49Thank you very much.
34:50As soon as he left this room,
34:53Paulson would be told
34:54the markets were crashing.
34:56The stock market
34:58dropped by hundreds of points
34:59right from the open...
35:00Lehman Brothers
35:00had been far more interconnected
35:02than Paulson believed.
35:04Systemic risk
35:05became a reality.
35:07No bank wants to lend
35:09to any other bank
35:10because they're afraid
35:11that the other bank
35:13won't be able
35:13to pay them back,
35:14even though this interbank lending
35:16is at the very, very heart
35:17of the banking system,
35:18of the worldwide banking system.
35:20Devastated by losses...
35:21Banks stopped lending.
35:23The credit markets froze.
35:25We're no longer
35:26just talking about mortgages
35:28and talking about car loans,
35:30loans to small businesses,
35:32commercial paper borrowing
35:33by large banks.
35:34Commercial banks are now infected.
35:37This is like a disease spread.
35:39It's a tough tape, man.
35:40It's a tough tape unless...
35:41There's nobody able
35:42to get a loan,
35:44these short-term loans.
35:45No...
35:45The safest companies
35:47in the world,
35:47the most rock-solid banks
35:49in the world,
35:50unable to borrow money.
35:53Everything freezes,
35:55and that's what causes the crisis.
35:58And it really started
35:59because Lehman Brothers
36:00went into bankruptcy.
36:01No one forecasted
36:02that this was going to happen,
36:04but it turns out
36:04that this one decision
36:05made all the difference.
36:07Investors were shaken
36:08by Lehman's bankers...
36:09The meltdown was happening.
36:11Commerce in America
36:12was grinding to a halt.
36:15I'm sure that Paulson
36:16is sitting there,
36:17and he doesn't strike me
36:18as the most reflective guy,
36:20necessarily,
36:21but he must have been sitting there.
36:22Everybody was sitting there
36:23saying,
36:23my God,
36:23we may be presiding
36:24over the Second Great Depression.
36:28This is the utter nightmare
36:30of an economic policymaker.
36:32You're sitting there,
36:32and you may have just made
36:33the decision
36:33that destroyed the world.
36:35Absolutely terrifying moment.
36:43With the credit markets frozen,
36:45there was soon
36:46a new big company at risk.
36:48AIG plunging at one point...
36:51The world's largest
36:52insurance company,
36:53AIG,
36:54had invested tens of billions
36:56of their insurance profits
36:57in risky investments
36:58tied to the housing market.
37:00AIG has problems
37:03that make everybody else's problems
37:06look like child's play.
37:07AIG does not have the money
37:09in the bank
37:10to support
37:12the commitments it made.
37:13They face the hammer
37:15of a credit ratings agency,
37:17a downgrade,
37:17which would force them
37:18to go up with...
37:19AIG had sold hundreds
37:20of billions of dollars
37:21of unregulated credit default swaps,
37:23insurance policies
37:25based on the bet
37:26that companies like Lehman Brothers
37:28would never go bankrupt.
37:30Now the unthinkable had happened.
37:33Lehman was bankrupt.
37:34When Lehman goes bankrupt,
37:36all of a sudden AIG says,
37:39we're sitting on
37:40this huge deficit.
37:42We just promised to pay
37:43all these people
37:44millions and millions of dollars
37:45if Lehman went bankrupt,
37:47assuming that Lehman
37:47could never possibly go bankrupt,
37:49and now Lehman has gone bankrupt.
37:52AIG can't raise $20 billion.
37:54They'll have their announced
37:55bankruptcy tonight.
37:56AIG desperately needed cash,
37:59but now the credit markets
38:00were frozen.
38:02No one was lending money.
38:05Paulson and Bernanke
38:06were their only hope.
38:08AIG was the biggest
38:09insurance company
38:10in the country.
38:11It had sold trillions
38:12of dollars' worth
38:13of credit default swaps.
38:15It did business
38:15with every big bank
38:17and institution
38:18in the world, basically.
38:20For there to be
38:21such a global,
38:22precipitous failure
38:24of an organization
38:25like AIG, I think,
38:26would have been
38:26very, very disruptive.
38:28I think everybody
38:29realized that.
38:31They swallow hard
38:32and they do
38:32what they have to do,
38:33and so much
38:34for moral hazard, right?
38:36So much for moral hazard,
38:37because you can't let AIG fail.
38:41They had to throw
38:42their principles
38:43out the door
38:44and save the economy.
38:45And whatever criticism
38:49there would be
38:50of government intervention
38:52was a small price
38:54to pay
38:54for the deluge
38:57that would have occurred
38:58if AIG had collapsed.
39:01Key members of Congress,
39:04many of whom still knew
39:05few specifics,
39:06were called.
39:08Paulson and Bernanke
39:09asked us to meet with them
39:10and said,
39:11we're giving them
39:11$85 billion.
39:12I said to Bernanke,
39:14do you have $85 billion?
39:15He said,
39:15I got $800 billion.
39:17Bernanke lent AIG
39:19$85 billion.
39:21The United States government
39:22now controlled
39:23the world's largest
39:24insurance company.
39:26We have effectively
39:28a full nationalization
39:29and the government
39:30taking an 80%
39:31ownership stake in AIG.
39:36As the system crumbled
39:38and one firm after another
39:40faced uncertainty,
39:41a strong feeling
39:43began to sweep
39:44over Wall Street.
39:45Maybe the government,
39:47maybe Paulson and Bernanke
39:49had lost control
39:51of the situation.
39:53There's been a sense
39:54that there isn't
39:55an overarching plan.
39:58That, I think,
39:59contributed to a sense
40:01that there wasn't
40:03someone in control
40:04and that the government
40:05was reacting
40:06instead of acting.
40:08and that was damaging
40:10to confidence.
40:13The stock market
40:14suffered one of its
40:15worst days in years.
40:16The Dow Jones
40:16industrial average
40:17lost more than 4%.
40:18Wednesday.
40:18It's been just two days
40:20since Lehman collapsed.
40:22All hell is broken loose.
40:25And by that time,
40:27Bernanke,
40:27at the Fed,
40:28is looking at
40:29the Great Depression
40:30and all he's learned
40:31about what should
40:32have been done
40:33to save
40:34the American public
40:35from the Great Depression.
40:38Bernanke was nearly
40:39out of ammunition.
40:42There's only a limit
40:43to what the Federal Reserve
40:44can do.
40:45Indeed,
40:46many people would think
40:47they've gone beyond
40:48the normal limits
40:50of what a central bank
40:51should do.
40:54Bernanke decided
40:55to try something new.
40:57To do it,
40:57he'd have to get Paulson
40:59on board.
41:00Bernanke basically
41:01calls up Paulson
41:02and says,
41:03there's no endgame
41:04in sight that looks good.
41:06Things only look like
41:07they're going to get worse.
41:08We have to do something
41:10more direct,
41:11more direct involvement
41:12of government
41:12in the banking sector.
41:15Bernanke told
41:16the Republican
41:17Secretary of the Treasury
41:18they needed to initiate
41:20a full-scale bailout
41:22of the nation's
41:23financial system.
41:25Bernanke says
41:26to Paulson,
41:27you have to go
41:27to Congress.
41:28We can't do this anymore
41:30on a case-by-case basis.
41:32What was different
41:33about this call
41:34is that you have
41:34this fairly mild-mannered
41:36Princeton professor
41:37who speaks
41:39in a more demanding
41:40and assertive tone
41:41than he usually does,
41:43telling Paulson
41:44that they really
41:45had to do something.
41:47They had to turn
41:48to Congress
41:48and get Congress
41:49involved in
41:50a broader rescue.
41:51At that point,
41:54Paulson bowed
41:55to the inevitable.
41:57One thing Paulson
41:58said to me
41:59in an interview
42:00is,
42:01when the situation
42:02changes,
42:03you have to be willing
42:04to change
42:05with the situation.
42:07The next day,
42:08Paulson and Bernanke
42:09headed to Capitol Hill
42:11for that meeting
42:12with the Congressional
42:12leadership.
42:13I had no idea
42:15I was going to hear
42:16what I heard.
42:18Sitting in that room
42:19with Hank Paulson
42:20saying to us
42:21in a very measured tone
42:22that unless you act,
42:24the financial system
42:25of this country
42:26and the world
42:27will melt down
42:27in a matter of days.
42:30There was literally
42:31a pause in that room
42:32where the oxygen left.
42:36Paulson carried
42:37an emergency plan
42:38his staff had drafted.
42:40The plan was
42:41a $700 billion request
42:43for that money
42:44from the taxpayer
42:45to be used
42:46to buy the kinds
42:48of toxic mortgage
42:49securities
42:49that were creating
42:51so many problems
42:52for the banks.
42:54And they needed it.
42:55They said to us
42:56they needed it up
42:56by Monday.
42:58We said,
42:58well, that's not reasonable.
43:01Harry Reid,
43:02the Senate Democratic
43:03leader, said,
43:04this is the U.S. Senate.
43:05We can't move that fast.
43:07Paulson felt
43:08that he needed
43:09to move swiftly
43:10and almost
43:12the economic equivalent
43:13of shock and awe.
43:15Hank has never been
43:16in this culture before.
43:17And the Wall Street culture
43:18is obviously different
43:19than a Washington culture.
43:20So you end up
43:21sending up
43:21a three-and-a-half-page bill
43:23saying,
43:24give me $700 billion.
43:25And by the way,
43:25no agency can intervene
43:27and no court can intervene.
43:28I mean,
43:29that's rather remarkable.
43:30We just had
43:31what I believe
43:31was a very productive meeting.
43:34It's as close
43:35to a blank check
43:36as you can get
43:37without actually
43:39asking for a blank check.
43:41Paulson said
43:42he wanted the money
43:43in order to buy
43:44the toxic assets
43:45from the banks.
43:47And predictably,
43:48the reaction
43:49on Capitol Hill
43:50was toxic.
43:51They were furious.
43:52America,
43:53you should be outraged
43:54about what Washington
43:55is about to do.
43:56It is an unprecedented
43:57and an affordable
43:57and unacceptable
43:58expansion of federal power
44:00that our kids...
44:01Conservative Republicans
44:02in the House
44:02were in full revolt.
44:03In the history
44:04of this country,
44:05but this is essentially
44:06Mr. Paulson's bill
44:07to help his friends.
44:10And I can't buy it.
44:11It became increasingly
44:12like the bonfire
44:13of the vanities
44:14just in terms
44:15of the extreme,
44:16extreme craziness.
44:18And all the people
44:19going before the camera
44:21to pontificate,
44:22I mean,
44:23it was an insane environment
44:25to operate under.
44:26Please,
44:27please don't betray
44:29this nation's
44:30great history.
44:32On September 29,
44:34the House of Representatives
44:35voted on the bill.
44:38I was in the cloakroom
44:39of the Senate
44:40watching that vote,
44:41and I didn't have
44:43a good feeling about it.
44:46The House Republicans,
44:48who had initially
44:49voiced support
44:50for the bailout package,
44:52pull their support.
44:54Everything falls apart.
44:55We're literally sitting
44:56in the newsroom.
44:57Everyone expects
44:57the bill to pass.
44:59Then they have the vote.
45:00Break the water!
45:01And the bill fails.
45:02They didn't pass it.
45:05They did not pass it.
45:06And I see that
45:07the Dow traders
45:08are standing there
45:09watching in amazement,
45:10and I don't blame them.
45:11Look at the Dow Jones
45:12Industrial Average.
45:13And the market right now
45:14is down 521 points.
45:1695 Democrats
45:17also voted
45:18against the measure.
45:20It's a shock
45:21of the fact
45:21that it wasn't going
45:22to pass on the first go there.
45:23It was amazing
45:24to people.
45:25Oh, my God.
45:26These guys don't know
45:27what they're doing.
45:29We're in really deep trouble.
45:32I thought it was
45:32one of those moments
45:33where you could not
45:36actually see the bottom.
45:37I wasn't sure
45:38where the market
45:39was going to stop,
45:40and I had a very bad feeling
45:42that forces had been unleashed
45:45that we couldn't control.
45:48A history-making
45:49777-point nosedive...
45:52plunged to the single
45:53greatest point loss
45:54in the Dow average
45:55in one day ever.
45:58With the market crashing,
46:00Congress felt intense pressure
46:02to reconsider Paulson's plan
46:04to buy the toxic assets.
46:07At the same time,
46:08behind closed doors,
46:10another idea was in play.
46:12This one involved
46:13even more government intervention,
46:16capital injection.
46:18The Fed wanted to do it
46:20the way the Swedes did it,
46:21do it the way
46:22the Japanese did it,
46:23do it the way
46:23Franklin Roosevelt did it,
46:24and do capital injections.
46:27Some insiders
46:28wanted to inject
46:29billions of dollars
46:31into ailing banks
46:32in order to boost confidence
46:33and unfreeze credit.
46:36But Paulson didn't like
46:37the idea of capital injections.
46:40I think there was
46:40just a general distaste
46:42for the idea
46:43that we're going to have
46:44anything that looks like
46:45a partial nationalization
46:46of the financial system.
46:48It was just so alien
46:49to where he and his administration
46:51were coming from.
46:53Publicly,
46:54Bernanke stood by Paulson,
46:56supporting the announced plan
46:57to purchase toxic assets.
47:00Maybe if Bernanke
47:01had been in office longer,
47:02he would have been able
47:04to say to Paulson,
47:05we don't want this
47:06to be a game of chicken,
47:07but if you go with this plan,
47:08I'm going to say,
47:08I'm going to publicly disagree.
47:10You don't want responsibility
47:11for that.
47:12He probably couldn't do that.
47:13As Paulson held his ground,
47:17others quietly inserted
47:19six lines of text
47:20into the bill,
47:22authorizing capital injections.
47:24If the secretary determines
47:26that use of a market mechanism
47:27under...
47:28If you weren't looking for it,
47:29if you didn't know
47:30exactly where to go
47:32in this many hundred-page document,
47:34you would simply
47:36have missed it entirely.
47:37The secretary shall pursue
47:38additional methods to ensure...
47:40By the end of the week,
47:42under intense pressure,
47:44a revised bill
47:45finally cleared the house.
47:47The yeas are 263,
47:49the nays are 171.
47:51The motion is adopted.
47:53But even before
47:54the toxic asset plan
47:56could get on track,
47:57systemic risk had gone global.
48:00We had a contagion
48:01that operated
48:03almost around the globe.
48:05The panic from Lehman
48:07spreads to AIG,
48:08spreads to Morgan Stanley,
48:09spreads to Goldman Sachs.
48:11Suddenly, Ireland
48:12is having problems.
48:15Suddenly,
48:16the Bank of England
48:17is bailing out banks.
48:19Suddenly, Iceland is bankrupt.
48:22The government...
48:23The state of Iceland,
48:24it's bankrupt.
48:25An entire country.
48:27Suddenly, China
48:28has gone from being
48:30one of the world's
48:32highest-growth countries
48:33to almost a no-growth country
48:34in the flash of an eye.
48:36That's contagion.
48:43By October,
48:45Paulson decided
48:45he had no choice.
48:47He would have to use
48:48that provision in the law
48:50for capital injections.
48:52And he was put
48:53in the position
48:54of doing the last thing
48:55he wanted to do,
48:56which was to step in directly
48:59with government capital
49:00into the banking system.
49:03For him,
49:03this is a step,
49:05this is a true crossing
49:06of the Rubicon.
49:09Then on Sunday,
49:10October 12th,
49:12something extraordinary.
49:14Paulson personally called
49:15the CEOs
49:16of the nation's
49:17nine largest banks
49:18and told them
49:19to come to his office
49:20the next day
49:21at the Treasury Building.
49:23Sheila Baer
49:33from the FDIC
49:34was there.
49:36The meeting
49:36was at Treasury.
49:38Treasury was being pretty,
49:39holding it close
49:40as to what they wanted
49:41to talk about
49:42at the meeting.
49:43They were all
49:44just summoned,
49:45show up,
49:47and I'm not sure
49:48any of them
49:49had any idea
49:50of what was to come.
49:51The nine CEOs
49:52sat in alphabetical order
49:54across the table
49:55from Paulson and Bernanke.
49:57You have Wells Fargo
49:59all the way at the end
50:00and you have
50:00Bank of America
50:01more towards another end.
50:03And you have basically
50:05the icons of Wall Street
50:06who are showing up.
50:09Paulson said
50:09the entire banking system
50:11was in deep trouble.
50:13That has to have been
50:14an extraordinary moment
50:15and a difficult moment
50:16for Paulson as well.
50:18You can only imagine
50:20how it must have felt
50:21to sit across a table
50:23from not only the man
50:24who replaced you
50:25at Goldman Sachs,
50:26but most of the guys
50:29that you competed against
50:30in your professional career.
50:33It was serious.
50:34It was somber.
50:35And the government
50:37did most of the talking.
50:39It was made clear
50:41to these nine
50:42very powerful CEOs
50:43when they sat down
50:45at the table
50:45that this wasn't
50:47a negotiation.
50:48Paulson hoped
50:50one bold act
50:52would boost
50:52the nation's confidence
50:53in the banks
50:54and get them lending again,
50:57a direct infusion of cash.
50:59And then he basically
51:01came out and said it.
51:02We want to take
51:03a stake
51:04in the largest banks
51:05in the country.
51:07Paulson and Bernanke
51:08were offering
51:09each of the banks
51:10tens of billions.
51:12The government
51:13would become
51:13a major stockholder.
51:15And that then set off
51:18a pretty lively discussion.
51:20Some of them were like,
51:21I don't want the money.
51:22But he's like,
51:23you're taking the money.
51:24The government
51:24was very assertive.
51:25Treasury was very assertive
51:26on why the program
51:28was there,
51:28why they needed to take it
51:29with all the conditions.
51:31Here's the plan.
51:32Here's what we're doing.
51:33Here's what we need you to do.
51:36You'll get the money
51:37in a few weeks.
51:37Paulson gave each man
51:41a single piece of paper
51:43spelling out the conditions.
51:45Before they had to leave town
51:47that night,
51:48they were told,
51:49return this document
51:50with your signature on it.
51:52And all nine of them did so.
51:57Paulson would spend
51:58$125 billion that day.
52:02Moral hazard
52:03was a thing of the past.
52:04You could almost see
52:06the regret in his face
52:08as he stepped
52:09to the microphone.
52:11Good morning.
52:14Today,
52:14we are taking
52:15decisive actions
52:16to protect
52:17the U.S. economy.
52:19We regret
52:20having to take
52:21these actions.
52:23Today's actions
52:24are not
52:25what we ever
52:25wanted to do,
52:27but today's actions
52:28are what we must do
52:29to restore confidence
52:31in our financial system.
52:32In a way,
52:35he had to overcome
52:36an ideological aversion
52:38to the government
52:40taking a central role
52:41in the financial system.
52:43Government owning a stake
52:45in any private U.S. company
52:47is objectionable
52:48to most Americans,
52:50me included.
52:52So it's been
52:52a very difficult
52:54journey for him.
52:55Without access
52:56to financing,
52:57it's totally unacceptable.
52:58So Hank Paulson,
53:03the happy capitalist warrior
53:05who spent his life
53:07pursuing and defending
53:08free markets,
53:09is now the
53:10biggest interventionist
53:13treasury secretary
53:14we've had
53:15since the Great Depression.
53:19We start 2009
53:20in the midst
53:21of a crisis...
53:21Last month,
53:23Henry Paulson
53:24was replaced
53:25by President Obama's choice,
53:27Tim Geithner.
53:30Ben Bernanke
53:30will stay on
53:31at the Federal Reserve
53:32until at least 2010.
53:37So far,
53:37they have spent
53:38$350 billion
53:39to save
53:40the financial system.
53:42Two major banks
53:43sank...
53:43They have said
53:44they will spend
53:45trillions more.
53:46And still,
53:49nobody knows
53:50if it will be enough.
53:51And all eyes
53:52are now on
53:52Barack Obama
53:53to turn it around.
54:10Explore more
54:11at our website.
54:12I mean,
54:12that's rather remarkable.
54:13Watch the full program
54:15again online.
54:16You don't let some people
54:17go belly up?
54:18Read Frontline's
54:19interviews
54:19with insiders
54:20and policy makers.
54:21Like the bonfire
54:22of the vanities.
54:23Explore the analysis
54:24of Alan Greenspan's
54:25legacy,
54:26the decision
54:27to let Lehman Brothers go,
54:29Paulson's conversion,
54:30plus a timeline
54:31of how the crisis unfolded.
54:33Then join the discussion
54:34at pbs.org.
54:45Next time on Frontline,
54:46Frontline's Inside the Meltdown
54:59is available on DVD.
55:12To order,
55:14visit shoppbs.org
55:16or call
55:171-800-PLAY-PBS.
55:19Frontline is made possible
55:43by contributions
55:44to your PBS station
55:45from viewers like you.
55:48With major funding
55:50from the John D.
55:51and Catherine T.
55:52MacArthur Foundation
55:53committed to building
55:54a more just,
55:55verdant,
55:55and peaceful world.
55:57With additional funding
55:59from the Park Foundation.
56:00This is PBS.
56:14This is PBS.
56:18needs a bit of satisfaction.
56:20This is PBS.
56:20from this point,
56:21and the broad
56:22ones inside that
56:23show the
56:39download and
56:42into the
56:44geldi.
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