CONNELL:
WELL, SOMETIMES SEEMS LIKE
YESTERDAY, BUT IT WAS TEN YEARS
AGO THIS WEEK THAT LEHMAN
BROTHERS COLLAPSED, AND THE
FINANCIAL CRISIS FOLLOWED WITH
THE U.S. ECONOMY TANKING.
DESPITE A STRONG JOBS MARKET AND
WE'RE READY FOR THE NEXT CRISIS.
WE HAVE TIM ROAD WITH US
TODAY -- TIM ROOD WITH US, D.R.
NEWSROOM.
NOT THAT YOU GUYS AREN'T AMONG
THE ALL-TIME GREATS, BUT JUST
THAT E. MAC WAS A FIRST BALLOT
HALL OF FAMMER --
[LAUGHTER]
TIM, WE DO THESE SEGMENTS ALL
THE TIME, BUT NOW IT'S THIS
ROUND NUMBER OF TEN YEARS THAT
WE'VE REMOVED OURSELVES FROM
LEHMAN BROTHERS COLLAPSING.
HAVE WE FIXED A LOT ABOUT THE
SYSTEM?
>> YEAH, IT'S CERTAINLY A LOT
DIFFERENT.
IF YOU THINK BACK TO 2007, THE
CRISIS, YOU HAD A COPFUL TO
THINGS -- COPPING OF THINGS
GOING ON.
YOU HAD BANKS THAT WERE
OVERLEVERAGED.
YOU HAD A LOT OF PRIVATE CAPITAL
COME ANYTHING AND REPLACING THE
GOVERNMENT IN TERMS OF THE
TAKEOUT FOR MORTGAGE-BACKED
SECURITIES.
YOU HAD A LOT OF CREATIVE,
THAT'S A EUPHEMISM FOR MORTGAGE
PRODUCTS, NO DOCUMENTATION,
SUBPRIME MORTGAGES, AND YOU HAD
COMPANIES LIKE FANNIE MAE AND
FREDDIE MAC THAT HAD
HISTORICALLY BACKSTOPPED THE
U.S. HOUSING MARKET TAKING A
BACKSEAT THE PRIVATE CAPITAL.
YET THEY WERE STILL REASONABLY
WELL CAPITALIZED.
FAST FORWARD TO TODAY, FANNIE
MAE AND FREDDIE MAC, YOU KNOW,
HAVE BEEN IN CONSERVATORSHIP FOR
TEN YEARS.
THEY WENT FROM 50 TO 1 LEVERAGE
TO NOW ABOUT 700 TO 1.
IF WE HAD A LONGER SHOW, I'D
TAKE A LONG PAUSE.
THAT'S A BIG DIEGO.
THE BIG BANKS HAVE ACTUALLY
GROWN TWO TO THREE TIMES SINCE
STEP -- CAPITAL HAS STEPPED
BACK, AND YOU'RE SEEING BANKS
STEP ASIDE AND LETTING
INDEPENDENT MORTGAGE COMPANIES
TAKE THEIR PLACE.
SO NOW THESE NEW COUNTERPARTIES
ARE NOT THE BIG DEPOSITORIES BUT
INDEPENDENT -- LAST BUT NOT
LEAST, MORTGAGE PRODUCTS HAVE
ACTUALLY BEEN LEGISLATED OUT OF
EXISTENCE.
CONNELL: THE CREATIVE ONES.
WHERE DOES THAT LEAVE US, LIZ?
IS WOULD YOU BE CONFIDENT IN
TELLING SOMEONE AT A PARTY OR
SOMETHING HAPPENS THIS WEEKEND,
THEY SAY COULD THIS EVER HAPPEN
AGAIN, WOULD YOU BE CONFIDENT IN
TELLING THEM NO?
>> I WOULDN'T BE CONFIDENT.
YES, THE U.S. REGULATED BANKING
SYSTEM AND EUROPE AND OVERSEAS,
THEY HAVE CLEANED UP THEIR ACTS,
WE KNOW THAT.
BUT IT'S AN IMPORTANT POINT
THAT'S MADE THAT, YOU KNOW,
ASSETS OR SO AND, I MEAN, HOW --
WHAT'S GOVERNMENT OVERSIGHT
THERE?
I'M NOT ASKING FOR GOVERNMENT
JUNK BOND DEBT HAS EASILY
DOUBLED SINCE THE CRISIS.
WE KNOW BIG PROBLEMS OVERSEAS,
COUNTRIES LIKE TURKEY AND
ARGENTINA WHO CONTINUE TO
BASICALLY NOT HAVE THEIR
ECONOMIC GROWTH AND CONTINUE TO
BORROW U.S. DOLLARS AS U.S.
DOLLARS STRENGTHEN.
SO THERE'S ALWAYS THAT FEAR OF A
DEBT CRISIS, OF COURSE.
I THINK THAT, YOU KNOW, THE
OTHER PROBLEM THAT WE STILL HAVE
IS THIS THINKING IN GOVERNMENTS
A HOME AND TO RELAX STANDARDS.
CONNELL: RIGHT.
>> THAT TYPE OF ATTITUDE, EVEN
THOUGH THAT HAS CHANGED, THAT
TYPE OF ATTITUDE THAT THE
GOVERNMENT CAN FIX THINGS LIKE
THAT AND IS STEP IN AND MAKE
THINGS WORSE, I FEAR IT'S STILL
OUT THERE AS I JUST WAS POINTING
OUT ABOUT COUNTRIES LIKE TURKEY
AND ARGENTINA NOT RIGHT-SIZING
THEIR ECONOMIES.
CONNELL: D.R., PUT THAT ALL
TOGETHER.
IF WHAT BOTH TIM AND LIZ SAID IS
CORRECT, IS THERE A NEXT TYPE OF
EXACT REPLICA OF THE LAST ONE
THAT YOU'RE WORRIED ABOUT?
>> WELL, I THINK YOU'RE RIGHT
THERE, CONNELL, THAT IT'S NOT
GOING TO TO BE AN EXACT REPLICA.
AND TIM AND LIZ BOTH MADE GREAT
POINTS ABOUT A LOT OF THE THINGS
THAT WE'VE CLEANED UP.
AND I THINK TIM USED ONE WORD,
THAT WAS LEVERAGE, THAT'S REALLY
THE MARKETS HAVE HAD AND WE LOOK
BASIS BUT ON A CAPITALIZATION
BASIS BASED ON WHERE WE ARE WITH
THE MARKET, WE HAD MUCH, MUCH
HIGHER LEVERAGE BACK IN 2006, 7
AND 8 THAN WE HAVE NOW.
WE'RE NOT AS LEVERAGED.
I THINK THE PLACES THAT WE'RE
GOING TO HAVE TO LOOK FOR ANY
SIGNS OF CRISIS ARE LIZ'S POINTS
THAT SHE MADE.
AND I'LL SAY EVEN ONE MORE
SPECIFIC, AND THAT'S CHINA'S
DEBT.
CONNELL: RIGHT.
>> THEIR DEBT RATIOS HAVE
CONTINUED TO GO UP, AND THAT'S
>> OH, YEAH.
CONNELL: THAT'S ACTUALLY NOT A
BAD POINT AT ALL, ESPECIALLY
WITH ALL THE TALK ABOUT TRADE
AND HOW MUCH PRESSURE'S BEING
PUT ON THE CHINESE ECONOMY AS A
RESULT OF THAT.
FINAL POINT, I'M NOT SURE IF WE
GET INTO -- WE TALK ABOUT ALL
THE FOOTBALL INSTRUMENTS THAT
MAY OR -- FINANCIAL INSTRUMENTS
THAT MAY OR MAY NOT HAVE LED US
DOWN THAT ROAD, IT HAD AN EFFECT
ON THE POLITICS AND CULTURE AND
THE WAY PEOPLE DON'T TRUST WALL
STREET OR ELITES IN GENERAL?
WHAT IMPACT DO YOU THINK '08 HAD
ON ALL OF THAT?
>> YOU KNOW, IT'S A GREAT POINT
AND A GREAT QUESTION YOU POSE
THERE.
TO MY MIND, IT STARTED EARLIER
WITH THE IDEA THAT LONG-TERM
CAPITAL MANAGEMENT, A BIG HEDGE
FUND WOULD GET BAILED OUT BY THE
FEDERAL RESERVE IN 1998.
AND, YOU KNOW, THE FIRST
RESPONDERS IN THE CRISIS WAS THE
I'M NOT SURE THAT ATTITUDE HAS
CHANGED.
IN OTHER WORDS, WILL WE LET
COMPANIES COLLAPSE?
RISKY FINANCIAL INSTITUTION
AND, YOU KNOW, STOP A BANK FROM
IMPLODING, BUT, YOU KNOW, I'M
NOT SURE --
CONNELL: I DON'T THINK IT HAS.
I DOUBT IT HAS.
TRUE?
WE WOULD STILL BAIL PEOPLE OUT?
>> YEAH, ONE QUICK POINT ON THAT
TO LIZ'S POINT, FROM THESE
CREDIT BUBBLES, ASSET BUBBLES,
THERE'S ONLY THREE WAYS OUT; YOU
CAN GROW YOUR WAY OUT, YOU CAN
DEFAULT YOUR WAY OUT WHICH THE
ECONOMY OR THE GOVERNMENT HASN'T
REALLY SHOWN THAT IT'S GOT AN
APPETITE FOR THAT, OR YOU
INFLATE YOUR WAY OUT, AND WE'RE
DARN EXCITED ABOUT INFLATING OUR