1、.Inside JobIceland is a stable democracy with a high standard of living - and, until recently -and government debt.We had the complete infrastructure of a modern society.Clean energy, food production.Fisheries with a quota system to manage them.Good healthcare, education, clean air.Not much crime.It
2、s a good place for families to live.We had almostend-of-history status.But in 2000, Icelands government began a broad policy of deregulation -disastrous consequences -and then for the economy.They started by allowing multinational corporations like Alcoa -aluminum-smelting plants - and exploit lcela
3、nds geothermal and hydroelectric energy sources.Many of the most beautiful areas in the highlands -are geothermal.So nothing comes without consequence.At the same time - Icelands three largest banks.The result was one of the purest experiments -ever conducted.We have had enough. How could all of thi
4、s happen?Finance took over and more or less wrecked the place.In a five-year period, these three tiny banks -outside of lceland - borrowed 1 20 billion dollars - - 1 0 times the size of Icelands economy.The bankers showered moneyon themselves -There was a massive bubble.Stock prices went up by a fac
5、tor of nine.House prices more than doubled.Icelands bubble gave rise to people like Jon Asgeir Johannesson.He borrowed billions to buy up high-end retail businesses in London.He also bought a pinstriped private jet - a 40-million-dollar yacht -Newspapers always had the headline:This millionaire boug
6、ht this company -or in France or wherever - instead of saying:This millionaire tooka billion-dollar loan - to buy this company, and he took it from your local bank.“The banks set up money market funds -deposit-holders to withdraw money -in the money market funds.The Ponzi scheme needed everything it
7、 could.American accounting firms like KPMG -and investment firms -And American credit-rating agencies said lceland was wonderful.In February 2007 -to the highest possible rate, triple-A.It went so far as the government here traveling with the bankers -When Icelands banks collapsed at the end of 2008
8、 -in six months.There is nobody unaffected in Iceland.A lot of people lost their savings.Yes, thats the case.Government regulators who shouldve been protecting the citizens -You have two lawyers from the regulator going down to a bank -When they approach the bank - they would see 1 9 SUVs outside th
9、e bank.You enter the bank - and you have the 1 9 lawyers sitting in front of you, right - very well prepared, ready to kill any argument you make.And then, if you do really well, theyll offer you a job.One-third of Icelands financial regulators -But this is a universal problem, huh?In New York, you
10、have the same problem, right?What do you think of Wall Street incomes these days?Excessive.Ive been told its extremely difficult for the lMF -I wouldnt say that.We deeply regret our breaches of U.S. law.Theyre amazed at how much cocaine these Wall Streeters can use -and go to work the next day.I did
11、nt know what credit default swaps are.Im a little bit old-fashioned.Has Larry Summers ever expressed remorse?I dont hear confessions.The governments just writing checks.Thats plan A, thats plan B and thats plan C.Would you support legal controls on executive pay?I would not.Are you comfortable with
12、the level of compensation in financial services?If theyve earned it, yes, I am.-Do you think theyve earned it?And so youve helped these people blow the world up?You could say that.They were having massive private gains at public loss.When you think you can create something out of nothing - its diffi
13、cult to resist.Im concerned people want to go back to the old way -prior to the crisis.I was getting a lot of anonymous e-mails from bankers saying:You cant quote me,but Im really concerned.Why do you think there isnt -being undertaken?Because then youll find the culprits.You think Columbia Business
14、 School has any conflict-of-interest problem?I dont see that we do.The regulators didnt do their job.They had the power to do every case that I made. They just didnt want to.Lehman Brothers, one of the most venerable - and biggest investment banks, was forced to declare itself bankrupt.Another, Merr
15、ill Lynch, was forced to sell itself today.World financial markets are way down, following dramatic developments - .In September 2008 -investment bank Lehman Brothers - and the collapse of the worlds largest insurance company, AIG -Fears gripped markets overnight - .Stocks fell off a cliff.The large
16、st single point drop in history.Share prices continued to tumble -of the Lehman collapse.The result was a global recession -tens of trillions of dollars - rendered 30 million people unemployed -of the United States.With the destruction of equity and housing wealth - the destruction of income, of job
17、s - 50 million people globally could end up below the poverty line again.This is just a hugely, hugely expensive crisis.This crisis was not an accident.It was caused by an out-of-control industry.Since the 1 980s -has led to a series -financial crises.Each crisis has caused more damage -more and mor
18、e money.After the Great Depression - the United States had 40 years of economic growth -The financial industry was tightly regulated.Most regular banks were local businesses - prohibited from speculating - with depositors savings.lnvestment banks, which handled stock and bond trading -In the traditi
19、onal investment banking model - the partners put the money up -very carefully.They wanted to live well - but they didnt want to bet the ranch on anything.Paul Volcker served in the Treasury Department -Federal Reserve from 1 979 to 1 987.Before going into government -at Chase Manhattan Bank.When I l
20、eft Chase to go in the Treasury in 1 969 -of $45,000 a year.Forty-five thousand dollars a year.Morgan Stanley, in 1 972 -1 1 0 total personnel - one office, and capital of 1 2 million dollars.Now Morgan Stanley has 50,000 workers - and has capital of several billion -in the 1 980s, the financial ind
21、ustry exploded.The investment banks went public -of stockholder money.People on Wall Street started getting rich.I had a friend who was a bond trader - at Merrill Lynch in the 1 970s.He had a job as a train conductor at night -and couldnt support them -By 1 986,he was making millions of dollars -it
22、was because he was smart.The highest order of business before the nation -our economic prosperity.In 1 981 , President Ronald Reagan chose as Treasury secretary -Merrill Lynch, Donald Regan.Wall Street and the president see eye to eye.Ive talked to leaders of Wall Street.They say, “Were behind the p
23、resident 1 00 percent.“The Reagan administration -and financial lobbyists - started a 30-year period of financial deregulation.in 1 982, the Reagan administration -savings-and-loan companies -investments with depositors money.By the end of the decade -companies had failed.This crisis cost taxpayers
24、$1 24 billion -their life savings.It may be the biggest bank heist in our history.Thousands of executives went to jail for looting their companies.One of the most extreme cases was Charles Keating.Mr. Keating, got a word?In 1 985, when federal regulators began investigating him -named Alan Greenspan
25、.In this letter to regulators - Greenspan praised Keatingssound business plans and expertise -Keating to invest customers money.Keating reportedly paid Greenspan $40,000.Keating went to prison shortly afterwards.As for Alan Greenspan -chairman of Americas central bank -Greenspan was reappointed -and
26、 George W. Bush.During the Clinton administration -under Greenspan -Robert Rubin -investment bank Goldman Sachs - and Larry Summers, a Harvard economics professor.The financial sector, Wall Street being powerful - having lobbies, lots of money - step by step, captured the political system.Both on th
27、e Democratic and the Republican side.By the late 1 990s, the financial sector had consolidated - into a few gigantic firms, each of them so large -the whole system.And the Clinton administration helped them grow even larger.ln 1 998, Citicorp and Travelers merged - to form Citigroup -company in the
28、world.The merger violated the Glass-Steagall Act -after the Great Depression -with consumer deposits -risky investment-banking activities.It was illegal to acquire Travelers.Greenspan said nothing.The Federal Reserve gave them an exemption for a year -ln 1 999, at the urging of Summers and Rubin -th
29、e Gramm-Leach-Bliley Act -as the Citigroup Relief Act.It overturned Glass-Steagall -for future mergers.Why do you have big banks?Because banks like monopoly power, lobbying power.Because banks know that when theyre too big -Markets are inherently unstable.Or at least potentially unstable.An appropri
30、ate metaphor is the oil tankers.They are very big - and therefore, you have to put in compartments -the sloshing around of oil -The design of the boat has to take that into account.And after the Depression -these very watertight compartments.And deregulation has led to the end of compartmentalizatio
31、n.The next crisis came at the end of the 90s.The investment banks fueled a massive bubble in lnternet stocks -in 2001 - that caused $5 trillion in investment losses.The Securities and Exchange Commission, the federal agency -to regulate investment banking -In the absence of meaningful federal action
32、 -of self-regulation - its become necessary for others to step in -Eliot Spitzers investigation revealed the investment banks -they knew would fail.Analysts were being paid based onhow much business they brought in.What they said publicly was quite different from what they said privately.Infospace,
33、given the highest possible rating -as a “piece of junk.“Excite, also highly rated,called “such a piece of crap.“The defense that was proffered by many of the investment banks - was not “youre wrong“ - it was, “Everybodys doing it, everybody knows its going on.Nobody should relyon these analysts anyw
34、ay.“ln December, 2002 - 1 0 investment banks settledthe case for a total of $1 .4 billion -to change their ways.Scott Talbott is the chief lobbyist for the Financial Services Roundtable - one of Washingtons most powerful groups -worlds largest financial companies.Are you comfortable with the fact th
35、at several of your member companies -in large-scale criminal activity?-l- Youll have to be specific.And first of all, criminal activity shouldnt be accepted, period.Since deregulation began, the worlds biggest financial firms -money, defrauding customers -again and again and again.Credit Suisse help
36、ed funnel moneyfor Irans nuclear program - and for lrans Aerospace Industries Organization -Any information that would identify it as lranian would be removed.The bank was fined $536 million.Citibank helped funnel $1 00 million of drug money out of Mexico.Did you comment that she should, quote:Lose
37、any documents connectedwith the account?I said that in a kidding manner.I did not mean it seriously.Between 1 998 and 2003 -by more than $1 0 billion.These accounting standards are complex -over which experts often disagree.CEO Franklin Raines, who used to be President Clintons budget director - rec
38、eived over $52 million in bonuses.When UBS was caught helping wealthy Americans evade taxes -with the government.Would you be willing to supply the names?-lf theres a treaty framework.Youve agreed you participated in a fraud.But while the companies face unprecedented fines -have to admit any wrongdo
39、ing.When dealing with this many products, this many customers, mistakes happen.The financial services industry seems to have a level of criminality -You know, when was the last time that Cisco - or lntel or Google or Apple or IBM, you know-?I agree about high-tech versus financial services-High-tech
40、 is a creative business - where the value generation -actually creating something new.Beginning in the 1 990s -and advances in technology -financial products called derivatives.Economists and bankers claimed they made markets safer.But instead, they made them unstable.Since the end of the Cold War -
41、 a lot of former physicists, mathematicians - decided to apply their skills - not on, you know, Cold War technology -And together with investment bankers-You know, as Warren Buffett said,weapons of mass destruction.Regulators, politicians, business people -the threat of innovation -of the financial
42、system.Using derivatives -on virtually anything.They could bet on the rise or fall of oil prices - the bankruptcy of a company, even the weather.By the late 1 990s - derivatives were a 50-trillion-dollar unregulated market.ln 1 998, someone tried to regulate them.Brooksley Born graduated first in he
43、r class at Stanford Law School -to edit a major law review.After running the derivatives practice at Arnold & Porter - Born was appointed by Clinton -Trading Commission -the derivatives market.Brooksley Born asked me if l would come work with her.We decided that this was a serious, potentially desta
44、bilizing market.In May of 1 998, the CFTC issued a proposal to regulate derivatives.Clintons Treasury Department had an immediate response.I happened to go into Brooksleys office -the receiver on her telephone -from her face.And she looked at me and said, That was Larry Summers.He had 1 3 bankers in
45、 his office.He conveyed it in a very bullying fashion -Banks were now reliant for earnings on these activities.And that led to a titanic battleto prevent this from being regulated.Shortly after the phone call from Summers - Greenspan, Rubin, and SEC chairman Arthur Levitt -condemning Born -to keep d
46、erivatives unregulated.Regulation of derivatives transactions -by professionals is unnecessary.She was overruled, unfortunately. First by the Clinton administration -In 2000, Senator Phil Gramm took a major role in getting a bill passed -derivatives from regulation.They are unifying markets, reducin
47、g regulatory burden.I believe we need to do it.It is our very great hope -to move this year - on legislation that,in a suitable way -for OTC derivatives.I wish to associate myself -of Secretary Summers.ln December of 2000, Congress passed -Modernization Act.Written with the help of financial-industr
48、y lobbyists -of derivatives.After that, it was off to the races.Use of derivatives and financial innovation - exploded dramatically after 2000.By the time George W. Bush took office in 2001 -was vastly more profitable -than ever before.Dominating this industry were five investment banks - two financ
49、ial conglomerates - companies -And linking them all together was the securitization food chain.A new system which connected trillions of dollars -with investors all over the world.Thirty years ago, if you went to get a loan for a home -expected you to pay him or her back.You got a loan from a lender who wanted to be paid back.Weve since developed securitization, whereby people who make the loan -if they fail to repay.In the old system, when a homeowner paid their mortgage eve
