MARIA: JAMES HERMAN OUT WITH A
NEW BOOK CHRONICLING THE HISTORY
CONGRATULATIONS ON THE BOOK ARE
SO HAPPY YOU'RE HERE TO TALK
ABOUT IT.
TELL US TO TAKE THE WEIGHT YOU
HAVE BEEN BORROWED TIME.
>> GOVERNMENT SUPPORT THROUGH
HISTORY DOESN'T WORK.
WE LOOK AT A BANK THAT'S BEEN
HERE TWO CENTURIES.
THE FIRST CENTURY IS AN
INDEPENDENT ORGANIZATION.
THERE IS NO FEDERAL BACKSTOP, NO
RUNNING A VERY STRONG BANK.
MOST AMERICANS HAVE NEVER HEARD
OF.
MOSES TAYLOR, JAMES STILLMAN
BOUGHT THE LARGEST BANK IN THE
COUNTRY AND WASN'T NECESSARILY
FUN TO WORK THERE.
HE ROOMED BY ABSOLUTE FEAR.
HE WAS A MANIAC ABOUT EXAMINING
THEIR CREDIT RISK IN DEMANDING
INFORMATION FOR PEOPLE THEY WERE
GOING TO LEND TO.
SUCH A STRONG BANK, SO I
RECAPITALIZE THAT THEY RESCUED A
COUPLE TIMES IN THE 1890s.
THE SAFETY NET COMES THAN
WITHIN YEARS OF THE FEDERAL
RESERVE BEEN CREATED, CITIES
THAT ARE BORROWING HEAVILY FROM
THE NEW YORK FED.
WE WOULD LOVE TO KNOW ALL THE
DETAILS ABOUT THAT, BUT THE
DOCUMENTS HAVE PROBABLY BEEN
THIS GOOD.
THIS IS KIND OF AN ONGOING
PROBLEM WITH THE FEDERAL RESERVE
THEN DESTROYS DOCUMENT RELATED
TO SUPERVISION OF BANKS.
DURING THE FINANCIAL CRISIS.
>> THE WEAKEST OF THE BANKS, THE
BIGGEST BANK BAILOUT.
AND VARIOUS OTHER SYSTEM AND IT
WAS A COMPLETE FAILURE AND I
THINK IT IS THE GOVERNMENT ACTS
UP, WHICH IS THE ROOT OF IT.
GAMBLING WAS THE CAUSE.
WE WERE ABLE TO PULL ONE
DOCUMENT OUT OF THE FDIC.
FINANCIAL INSTRUMENTS IN WALL
STREET TRADING TO THE MOST
SIMPLE LOAN.
IT WAS AN UNDERLYING PROBLEM IS
THE GOVERNMENT SAFETY NET, WHICH
ENCOURAGES RISK-TAKING AND
GOVERNMENT POLICIES DRIVING
PEOPLE IN HOUSING.
>> CONGRATULATIONS ON THE BOOK.
I SAW THE TITLE BORROWED TIME I
THOUGHT IT WAS ON MEDICAL
REPORTS.
I THINK YOUR BOOK IS MORE A
MESSAGE THAN JUST A BOOK.
THE MESSAGE IS WHEN BANKS
OPERATE WITH PRUDENCE IN THE
OPERATE THE OLD-FASHIONED WAY
AND STAND UP FOR THEMSELVES AND
ARE RESPONSIBLE TO STOCKHOLDERS
AND CUSTOMERS FROM ABOUT THE
SOLID BANK.
WHEN THEY START DEPENDING UPON
THE GOVERNMENT AND OF THE
GREED THAT YOU EXPOSE IN THIS
BOOK.
IT'S AN INCREDIBLY POWERFUL
MESSAGE THAT I HOPE PEOPLE IN
GOVERNMENT WILL READ BECAUSE
POLITICIANS NEED TO NOT MAKE
THIS MISTAKE AGAIN BY PROVIDING
ALL OF THIS SAFETY NET FOR THESE
BANKS OPERATE LIKE THESE GUYS
OPERATED.
>> THANKS.
I'M HOPING THIS IS MAYBE A
MOMENT FOR THE GOOD TIME.
BANKS ARE HEALTHY AND STRONG IN
MAKING MONEY RETURNING CAPITAL
TO SHAREHOLDERS WHICH MAYBE
WOULD MAKE TAXPAYERS A LITTLE
NERVOUS.
IT'S A GOOD TIME TO SAY LET'S
START PEELING BACK THE SAFETY
NET.
>> I UNDERSTAND THAT THE
GOVERNMENT SAID TOMORROW,
EVERYTHING IS CHANGED WHEN WILL
IT EVER WOULD FAIL.
IT'D BE A LITTLE CHAOTIC GOOD
YOU START MAKING IT CLEAR THAT
WE ARE GOING TO LET PEOPLE FAIL
AGAIN.
YOU KNOW, OBVIOUSLY BANKRUPTCY
WAS NOT AN OPTION.
BUT THE BEAUTY OF GOD AS IT DOES
ALLOW NEW COMPETITORS, MORE
INNOVATIVE COMPETITORS TO ARISE
AND ALLOWS PEOPLE TO SUFFER --
INVESTORS TO SUFFER CONSEQUENCES
OF THEIR DECISIONS.
OBVIOUSLY YOU CAN HAVE YOUR
DEPOSIT INSURANCE.
>> JUST QUICKLY IS THAT THERE'S
PROBLEM ACROSS THE BOARD THAT
ARE QUITE OBVIOUS.
WHY DO YOU THINK THE GOVERNMENT
DEALT THEM OUT?
>> EVEN SOME OF THE PEOPLE DOING
BAILOUTS, SHEILA BAIR WAS KIND
OF SAYING, YOU KNOW, WHERE'S THE
ANALYSIS AND THE REAL ARGUMENT
WE REALLY SHOULD RESCUE THE
SKIES.
IT WAS JUST KIND OF PRESENT.
ONE OF THE REASONS WE WROTE THE
BOOK IS TO SHOW THIS TO BIG TO
FAIL MENTALITY WAS BUILT OVER
DECADES.
IT WASN'T JUST SOMEONE DECIDED A
BANK LIKE CITY HAS TO BE SAVED.
IT WAS JUST PRESENT.
HANK PAULSON SAID IF IT'S NOT
TOO BIG TO FAIL, I DON'T KNOW
WHAT IS GOOD BUT THERE'S NO
ANALYSIS TO SAY WE COULDN'T LIVE
WITHOUT.
LOOK AT THIS ECONOMY.
A LOT OF INSTITUTIONS WE
PROBABLY COULD DO WITHOUT.
>> SOMEONE AGAINST T.A.R.P., ONE
OF THE FEW REPUBLICANS WHO
OPENLY WAS AGAINST IT AND STILL
THE ONION BACK A LITTLE BIT AND
LETTING PEOPLE REALIZED THIS
WASN'T THE ABSOLUTE IF WE DON'T
WOULD IT HAVE BEEN DISASTROUS?
YES.
THE END OF THE WORLD?
PROBABLY NOT.
JUST THE MSM VERY BAD THINKING
IT WENT WELL BEYOND CITY HAS TO
PLAY NOW.
GO BACK TO MARCH OF ZERO REPRINT
THE GOVERNMENT DECIDED TO RESCUE
THE CREDITORS OF BEAR STEARNS.
MAYBE THE 17th LARGEST
INSTITUTION IN THE FINANCIAL
INDUSTRY.
MARIA: IS IT BECAUSE WE WERE
INTERESTED IN A MOMENT IN TIME
THAT THEY WOULD GO OUT OF GEN
THINGS ARE COMING TO A HALT
GIVEN THAT THE VELCRO?
>> THERE WAS DEFINITELY A LOT OF
FEAR BASED ON GUT INSTINCTS MORE
THAN MATH I WOULD SAY.
I UNDERSTAND IT WAS DIFFICULT
BECAUSE I THINK ONLY THE
GOVERNMENT CAN CREATE A PROBLEM
THAT BIG FOR ONE REASON IT WAS
SO CHALLENGING US TO LOOK
ROUGHLY 20 YEARS BEFORE THEN.
THE BIG INVESTMENT BANKS FAILED,
GOVERNMENT PUSHING EVERYBODY IN
THE HOUSING INVESTMENT FROM HER
WORDING VAGUE HAD THE SAME
PROBLEM ACROSS THE INDUSTRY.
I UNDERSTAND THE FEAR OF LETTING
ALL OF THESE INSTITUTIONS TAKE A
HIT AND HAVE TO RECOGNIZE THEIR
LOSSES.
CERTAINLY THE BAILOUT CULTURE
WAS BUILDING OVER TIME WHEREAS
THE GOVERNOR SAID DOMINGO IN THE
LEVERAGE.
>> AND IT WAS AN ELECTION YEAR.