William Hunt (banker)

Transcription

[ BACKGROUND NOISE ] >> ART LEVINE: GOOD EVENING EVERYONE AND WELCOME TO THE THIRD ANNUAL CSULB DISTINGUISHED SPEAKER SERIES. I'M ART LEVINE, THE DIRECTOR OF THE SERIES AND WE'RE DELIGHTED THAT YOU'RE JOINING US TONIGHT. HERE TO WELCOME YOU ON BEHALF OF CSULB IS OUR PRESIDENT, DR. F. KING ALEXANDER. >> DR. F. KING ALEXANDER: THANK YOU ART AND WELCOME EVERYBODY TO THIS THIRD ANNUAL SPEAKER SERIES. THIS IS A VERY INTERESTING NIGHT FOR US BECAUSE I REMEMBER, IF YOU PAID ATTENTION TO PBS LATELY, THERE'S A STORY THAT WAS WRITTEN IN 1857 ABOUT A PONZI SCHEME, A BANKER WHO RAN A PONZI SCHEME THROUGHOUT LONDON AND BASICALLY PUT HALF OF LONDON UNDER AND SENT MANY PEOPLE TO DEBTOR'S PRISON. HE EVENTUALLY, MR. MERDLE WAS HIS NAME AND HE EVENTUALLY LEAD TO THE COLLAPSE OF THE GREAT MERDLE BANK IN LONDON. FORTUNATELY, FORTUNATELY, THIS IS A CHARLES DICKENS PIECE AND IT'S JUST FICTIONAL AND IT CAN'T EVER HAPPEN TO US. ON BEHALF OF THE FACULTY, ON BEHALF OF OUR GREAT STAFF AND ON BEHALF OF OUR 36,000 STUDENT BODY STRONG, I'D LIKE TO WELCOME YOU TO OUR CAMPUS. WELCOME MANY OF YOU BACK. THIS IS A VERY INTERESTING NIGHT THAT I HOPE WE'LL TAKE A LOT AWAY FROM AS WE GO THROUGHOUT THE EVENING AND THERE'S A LOT TO BE LEARNED FROM WHAT HAS HAPPENED. WE'RE ALL LIVING WITH THE REALITY OF WHAT WAS CAUSED ON WALL STREET AND LIVING WITH THE REALITY IN OUR STATE GOVERNMENTS AS WELL AS THROUGHOUT OUR CAMPUSES AS YOU SEE THE DAILY EVENTS UNFOLD, WHETHER IT'S THE PROTESTS AT UCLA OR OTHER TYPE RAMIFICATIONS THAT GO ON THROUGHOUT THE COUNTRY. SO WE'RE VERY GLAD THAT YOU'RE HERE. WE HOPE YOU ENJOY THIS EVENING AND GO BEACH. >> ART LEVINE: BEFORE INTRODUCING OUR SPEAKER LET ME MENTION THAT WE'LL BE HAVING A PANEL DISCUSSION THAT WILL FOLLOW HIS REMARKS. IT'S AN IMPORTANT PART OF THE EVENING. WE'LL ALSO BE INVITING QUESTIONS FROM THE AUDIENCE AND PLEASE WRITE YOUR QUESTIONS ON THE INDEX CARDS THAT ARE INCLUDED IN THE PROGRAM AND WRITE LEGIBLY, PLEASE KEEP THEM SHORT AND PASS THEM TO THE ISLES AND USHERS WILL BRING THEM UP AND WE WILL ADDRESS YOUR QUESTIONS TO THE SPEAKER. WE ALSO WILL HAVE AUDIO TAPES OF THE PRESENTATION AND THE PANEL DISCUSSION AVAILABLE FOR SALE AND THE SPEAKER WILL BE SIGNING BOOKS AT THE CONCLUSION OF THE PRESENTATION. IT'S NOW MY PLEASURE TO INTRODUCE YOU TO OUR 2009 CSULB DISTINGUISHED SPEAKER WILLIAM D. COHAN. MR. COHAN HAS WRITTEN TWO BEST SELLERS ABOUT WALL STREET. HE'S A TRAINED JOURNALIST AND HE SPENT 17 YEARS ON THE STREET AS AN INVESTMENT BANKER. HE IS PERHAPS UNIQUELY QUALIFIED TO TALK ABOUT THE MELT DOWN AND SUGGEST WAYS TO AVOID ONE IN THE FUTURE. LADIES AND GENTLEMAN, PLEASE JOIN ME IN WELCOMING OUR DISTINGUISHED SPEAKER, WILLIAM D. COHAN. [ APPLAUSE ] >> WILLIAM D. COHAN: HELLO EVERYONE. THERE, IT'S WORKING. I WANT TO THANK DR. ALEXANDER AND ART LEVINE BECAUSE LET ME TELL YOU SOMETHING, THIS IS A VERY WELL OILED MACHINE AND A VERY CLASSY ORGANIZATION AND I AM PRIVILEGED TO BE HERE TONIGHT TO TALK TO YOU ALL ABOUT WHAT I THINK IS A VERY IMPORTANT TOPIC AND THAT IS, HOW THIS FINANCIAL CRISIS HAPPENED AND WHY IT HAPPENED AND MAYBE IF WE LEARN THAT STORY WE CAN PREVENT IT FROM HAPPENING AGAIN. YOU KNOW WHEN I FIRST STARTED TO THINK ABOUT HOW TO TALK ABOUT THIS BOOK, WHICH I ACTUALLY STARTED WRITING ON MARCH 17, 2008, WHICH MANY OF YOU WILL THINK OF AS ST. PATRICK'S DAY. I LIKE TO THINK OF IT AS THE DAY THAT JPMORGAN CHASE BOUGHT BEAR STEARNS FOR $2.00 A SHARE AND OVER THE NEXT 8 MONTHS, WHICH HAS TO BE SOME SORT OF CRAZY RECORD, I WROTE THIS BOOK, INTERVIEWED HUNDREDS OF PEOPLE, REVIEWED THOUSANDS OF DOCUMENTS AND FINISHED WRITING IT ON DECEMBER 1, 2008, AND, OF COURSE, IN THE MEANTIME, WHILE I WAS WRITING IT, NOT ONLY BEAR STEARNS BUT THE REST OF WALL STREET MELTED DOWN IN SEPTEMBER AND OCTOBER OF LAST YEAR AND PEOPLE WOULD SAY TO ME, WELL, BILL, YOU'RE WRITING ABOUT BEAR STEARNS, DON'T YOU THINK YOU OUGHT TO SWITCH GEARS AND, YOU KNOW, WRITE ABOUT LEHMAN BROTHERS, OR AIG OR MERRILL LYNCH OR THE REST OF WALL STREET THAT COLLAPSED AND I KNEW THAT FOR A LOT OF PEOPLE THAT MIGHT HAVE BEEN TEMPTING TO SWITCH GEARS AND TRY SOMETHING ELSE, BUT ACTUALLY I DETERMINED EVEN MORE SO THAT THE WAY TO REALLY UNDERSTAND WHAT HAPPENED HERE IS BY UNDERSTANDING WHAT HAPPENED AT BEAR STEARNS. IT WAS SORT OF THE CANARY IN THE COAL MINE WHEREAS I LIKE TO SAY, THE ROSETTA STONE OF THE FINANCIAL CRISIS. IF YOU CAN UNDERSTAND WHAT HAPPENED AT BEAR STEARNS AND WHY, AND BY THE WAY I DON'T THINK MANY PEOPLE DO, THEN YOU CAN UNDERSTAND WHY WE'RE IN THIS FIX AND WHAT WE CAN TRY TO DO TO GET OUT OF IT. AND SO WHEN I BEGAN TO THINK ABOUT HOW TO TALK ABOUT THE BOOK, I WAS ASKED TO SPEAK IN IDAHO IN A BEAUTIFUL PLACE CALLED COEUR D'ALENE, IDAHO, WHICH IS ABOUT AS FAR AWAY AS YOU CAN GET FROM MY HOME IN NEW YORK CITY AS POSSIBLE. IT'S IN NORTHERN IDAHO, A BEAUTIFUL LAKE, AND I WAS SPEAKING TO A CONVENTION OF STATE AND LOCAL LEGISLATORS WHO I WAS VERY CONCERNED ABOUT, WOULD, MIGHT BE IN DANGER OF LOSING THEIR JOBS BECAUSE OF WHAT HAD HAPPENED ON WALL STREET AND IT WASN'T THEIR FAULT. IT WASN'T EVEN REMOTELY THEIR FAULT AND I THOUGHT IF I CAN DO NOTHING ELSE WHEN I SPEAK TO THESE FOLKS, I CAN TRY TO EXPLAIN TO THEM HOW THIS HAPPENED AND WHY SO THAT THEY CAN USE THIS AMMUNITION THAT I HOPEFULLY AM GIVING THEM TO GO BACK AND TELL THEIR CONSTITUENTS THAT, HEY, IT WASN'T MY FAULT. I KNOW THAT OUR STATE AND LOCAL BUDGETS ARE BEING CUT MERCILESSLY, BUT HERE'S WHAT HAPPENED AND WHY AND HOPEFULLY YOU'LL REELECT ME. NOW THAT WAS THE IDEA THAT I USED TO TALK ABOUT THE BOOK AND I DON'T KNOW THE OUTCOME BECAUSE THE ELECTION WAS JUST RECENTLY. I HOPE A LOT OF THEM USED WHAT I TOLD THEM AND KEPT THEIR JOBS BUT I DON'T KNOW THAT, AND SO I WANTED TO, YOU KNOW, THAT SAME LOGIC THAT I USED FOR THESE FOLKS, I HOPE I CAN BRING HERE TONIGHT AS WELL AND THAT IS TO TRY TO EXPLAIN TO YOU THE DNA OF THIS CRISIS. HOW IT HAPPENED, WHY IT HAPPENED AND, YOU KNOW, WHERE WE GO FROM HERE AND, YOU KNOW, WHEN I FIRST STARTED WRITING THE BOOK ON MARCH 17TH, YOU KNOW, I'D WORKED AT A LOT OF PLACES ON WALL STREET. I WORKED AT LAZARD, WHICH IS THE TOPIC OF MY FIRST BOOK. I WORKED AT MERRILL LYNCH, WHICH, OF COURSE, IMPLODED LAST SEPTEMBER OF 08 AND WAS BOUGHT BY BANK OF AMERICA. I WORKED AT WHAT BECAME JPMORGAN CHASE WHICH WAS ONE OF THE SURVIVORS OF THIS CRISIS IN RELATIVELY GOOD SHAPE. I HAD BEEN OFFERED A JOB AT BEAR STEARNS BUT I DIDN'T TAKE IT WHICH I THINK MIGHT HAVE BEEN A GOOD DECISION AND I DIDN'T REALLY KNOW A WHOLE LOT OF PEOPLE AT BEAR STEARNS AND I HAVE TO CONFESS THAT WHEN I FIRST STARTED WRITING THE BOOK I FELT A LITTLE BIT LIKE AN AMBULANCE CHASER WHICH IS NOT AT ALL WHAT A JOURNALIST AND INVESTIGATIVE REPORTER WANTS TO FEEL LIKE. BUT I KNEW I HAD A MISSION AND I HAD TO TELL THIS STORY AND THAT MEANT SORT OF DIVING IN, INTO THIS SITUATION WHERE BASICALLY WHEN I GOT THERE, THERE WAS A BODY LYING ON THE GROUND WITH A KNIFE IN ITS BACK AND THE LIGHTS WENT ON AND EVERYBODY'S POINTING FINGERS AT EVERYBODY ELSE AND SO THIS VERY QUICKLY FOR ME BECAME LIKE AN AGATHA CHRISTIE NOVEL AND I HAD TO FIGURE OUT WHO DONE IT AND WHY AND WITHIN WEEKS OF THE FIRM IMPLODING, ALLAN SCHWARTZ, WHO WAS THE CEO OF BEAR STEARNS FROM JANUARY OF 2008 TO MARCH OF 2008, WHICH PROBABLY THREE MONTHS TENURE AS CEO HAS TO RANK AS ONE OF THE SHORTEST ON RECORD AND BY THE TIME I STARTED WRITING IN EARLY APRIL HE HAD APPEARED IN FRONT OF THE SENATE BANKING COMMITTEE AND THE REASON FOR HIS APPEARANCE ALONG WITH JAMIE DIMON WHO IS THE CEO OF JPMORGAN CHASE WHO WAS THE BUYER OF BEAR STEARNS, AS WELL AS PEOPLE LIKE TIM GEITHNER AND BOB STEEL, WHO IS THE DEPUTY TREASURY SECRETARY, AND BEN BERNANKE, THE CHAIRMAN OF THE FEDERAL RESERVE. THEY WERE THERE TO TRY TO EXPLAIN TO THE SENATE HOW THIS HAD HAPPENED AND WHY AND RIGHT AWAY ALLAN SCHWARTZ, I THINK, CAME OUT WITH WHAT QUICKLY BECAME THE CONVENTIONAL WISDOM ABOUT THIS CRISIS, WHICH WAS THAT THIS WAS A ONCE IN A LIFETIME TSUNAMI THAT BEAR STEARNS WAS A VICTIM OF. THERE WAS NOTHING HE COULD DO ABOUT IT. IT WAS TOO LATE BY THE TIME IT HAPPENED, BY THE TIME HE GOT THERE AS CEO WHICH OF COURSE MAY HAVE BEEN TRUE BUT HE IGNORED THE FACT THAT HE HAD BEEN ON THE EXECUTIVE COMMITTEE OF BEAR STEARNS FOR THE PREVIOUS 15 YEARS AND THAT, YOU KNOW, HE SAID HE WAS GOING TO SPEND A LOT OF TIME THINKING ABOUT WHAT HE COULD HAVE DONE DIFFERENTLY AND HIS CONCLUSION WAS THERE WAS NOTHING HE COULD HAVE DONE DIFFERENTLY. AND BY THE WAY, THAT WAS THE SAME LOGIC THAT DICK FULD USED, DICK FULD, BEING THE CEO OF LEHMAN BROTHERS AND HE HAD A SIMILAR PUBLIC DRESSING DOWN, YOU MAY REMEMBER, IN OCTOBER OF 2008, HE APPEARED BEFORE A HOUSE COMMITTEE AFTER LEHMAN BROTHERS HAD IMPLODED AND WENT INTO BANKRUPTCY AND HE SAID A VERSION OF WHAT ALLAN SCHWARTZ HAD SAID AND HE SAID SOMETHING LIKE, HE'LL GO TO HIS GRAVE WONDERING HOW IT HAPPENED. AND SO VERY QUICKLY WALL STREET DEFINED FOR ALL OF US AND I THINK IN A VERY REPREHENSIBLE WAY, THE CONVENTIONAL WISDOM ABOUT HOW THIS CRISIS HAPPENED AND WHY WHICH IS, HEY, WE'RE JUST VICTIMS. WE DON'T KNOW HOW THIS HAPPENED. THIS IS A ONCE IN A CENTURY EVENT AND WE JUST HAPPENED TO BE IN THE WRONG PLACE AT THE WRONG TIME. IT ACTUALLY WASN'T UNTIL ABOUT A MONTH OR SO AFTER ALLAN APPEARED IN FRONT OF THE SENATE BANKING COMMITTEE THAT I MET A GUY NAMED PAUL FRIEDMAN. NOBODY KNOWS WHO PAUL FRIEDMAN IS, BUT PAUL FRIEDMAN WAS THE CHIEF OPERATING OFFICER OF THE FIXED INCOME GROUP AT BEAR STEARNS, BEAR STEARNS, THE FIXED INCOME GROUP AT BEAR STEARNS WHICH WAS A BUSINESS THAT UNDERWROTE DEBT, SECURITIES, WAS THE ENGINE OF THE FIRM. AROUND 90% OF THE REVENUE AND 90% OF THE PROFITS CAME FROM THIS BUSINESS AND HE WAS THE CHIEF OPERATING OFFICER AND HE'S SEEN ANY NUMBER OF HEADS OF THE FIXED INCOME GROUP COME AND GO AND HE TOLD ME, QUITE APART FROM WHAT ALLAN SCHWARTZ HAD SAID, NOW YOUHAVE TO REMEMBER PAUL WAS ONE LAYER DOWN FROM THE ALLAN SCHWARTZ'S OF THE WORLD. PAUL SAID, THIS IS SOMETHING WE DID TO OURSELVES. WE DID THIS TO OURSELVES. SO ALL OF A SUDDEN I HAD MY MANTRA. WE DID THIS TO OURSELVES. I HAD TO THEN FIGURE OUT BASED ON WHAT PAUL FRIEDMAN HAD TOLD ME ON THE RECORD I MIGHT ADD, WE DID THIS TO OURSELVES AND IT BECAME MY DUTY AS A JOURNALIST AND AS A CHRONICLER OF THIS EVENT, TO TRY TO FIGURE OUT WHAT HE MEANT, AND SO THIS IS WHAT I FOUND OUT ABOUT WHAT PAUL FRIEDMAN MEANT. WE HAVE TO GO INTO A LITTLE BIT OF ANCIENT HISTORY IN AND AROUND 1970 TO REALLY BEGIN TO THINK ABOUT THE ORIGINS OF THIS CRISIS. THERE ARE MANY STRANDS OF THE DNA OF THIS AND I'M GOING TO TRY TO ENUNCIATE THEM FOR YOU. THE FIRST THING YOU HAVE TO REMEMBER ABOUT WALL STREET IS THAT ONCE UPON A TIME IT WAS A SERIES OF PRIVATE PARTNERSHIPS WHERE THE CAPITAL OF THESE FIRMS WAS THE PARTNER'S MONEY. THEY SHARED IN THE PROFITS OF THE FIRM PRO RATA BASED ON WHATEVER DEALS THEY COULD CUT AMONGST THEMSELVES AND THEY ALSO SHARED IN THE LIABILITIES OF THESE FIRMS UP TO AND INCLUDING THEIR ENTIRE NET WORTH. THEIR ENTIRE NET WORTH'S WERE ON THE LINE EVERY TIME THEY WENT DOWN TO THEIR FIRMS AND DID BUSINESS. NOW BY THE WAY THESE ARE BASICALLY FIRMS THAT BASICALLY NOBODY EVER HEARD OF. NOBODY IN THE REAL WORLD DID MUCH BUSINESS WITH THEM. THAT WASN'T THE WAY OUR COUNTRY FUNCTIONED, I MEAN THESE WERE SMALL BUSINESSES, SMALL PARTNERSHIPS AND YOU ONLY INTERSECTED WITH WALL STREET IF YOU WANTED TO RAISE SOME MONEY OR WANTED SOME M&A ADVICE, MERGERS, ADVICE ON MERGERS AND ACQUISITIONS BUT, YOU KNOW, BASICALLY THE BROKERAGE BUSINESS WAS VERY SMALL, THE ASSET MANAGEMENT BUSINESS WAS VERY SMALL AND WALL STREET WAS ALWAYS A DANGEROUS PLACE. IT'S AN EXTREMELY DARWINIAN PLACE AND FIRMS WENT IN AND OUT OF BUSINESS ALL THE TIME AND SINCE IT WAS A RISKY PLACE, PEOPLE WERE VERY CAREFUL ABOUT, YOU KNOW, THE KIND OF BUSINESSES THEY GOT INTO. AND SO IF SOMETHING WENT WRONG OR IF YOUR PARTNER DID SOMETHING STUPID AND COST YOU THE FIRM, YOU KNOW, MILLIONS OF DOLLARS IT ALL CAME OUT OF EVERYONE'S POCKETS PRO RATA AND THAT MADE PEOPLE VERY, VERY FOCUSED ON THE KINDS OF DECISIONS THAT THEIR PARTNERS WERE DOING AND THEY MADE SURE AS BEST THEY COULD THAT THEIR PARTNERS WEREN'T ENGAGED IN ROGUE BEHAVIOR. NOW THAT DOESN'T MEAN IT DIDN'T HAPPEN. IT HAPPENED ALL THE TIME AND FIRMS WENT IN AND OUT OF BUSINESS ALL THE TIME AND FIRMS, YOU KNOW, VERY NEARLY WENT OUT OF BUSINESS ALL THE TIME. I WROTE ABOUT LAZARD AND LAZARD ALMOST WENT BANKRUPT 2 OR 3 TIMES IN THE 20TH CENTURY ALONE. GOLDMAN SACHS, WHICH IS THE SUBJECT OF MY NEXT BOOK, ALMOST WENT BANKRUPT, YOU KNOW, 5 TIMES BY MY COUNT AT THE MOMENT ALONE AND NOW WE THINK OF THEM AS THIS DOMINANT POWERHOUSE SO ONE OF THE OVERRIDING THEMES BY THE WAY OF MY BOOK AND OF THIS CRISIS IS THAT IT'S ABOUT PEOPLE, ITS ABOUT PEOPLE MAKING DECISIONS, ITS ABOUT PEOPLE FAILING TO MAKE DECISIONS, ITS ABOUT PEOPLE TAKING RISKS THEY DIDN'T UNDERSTAND AND IN AND AROUND 1970 WALL STREET BEGAN TO CHANGE FROM THE SERIES OF PRIVATE PARTNERSHIPS INTO, OF COURSE, PUBLIC COMPANIES AND THE FIRST COMPANY TO DO THAT WAS A COMPANY CALLED DONALDSON LUFKIN & JENRETTE. THEY HAD TO CHANGE THE NEW YORK STOCK EXCHANGE RULES SO THAT DLJ COULD GO PUBLIC AND OF COURSE THE FLOOD GATES OPENED AND MERRILL LYNCH WENT PUBLIC, THEN MORGAN STANLEY WENT PUBLIC. BEAR STEARNS WENT PUBLIC IN 1985. GOLDMAN SACHS WENT PUBLIC IN 1999 AND EVEN MY DEAR FRIENDS AT LAZARD WENT PUBLIC IN MAY OF 2005 AND BASICALLY WALL STREET GOT TRANSFORMED FROM THIS SERIES OF PRIVATE PARTNERSHIPS THAT NO ONE EVER HEARD OF WHERE PEOPLE SHARED IN THE PROFITS, RATABLY, BASED ON, YOU KNOW, THE DEALS THEY CUT WITH THE SENIOR PARTNERS TO, AND HAD THEIR FULL NET WORTH'S ON THE LINE FOR THEIR LIABILITIES TO A SERIES OF PUBLIC COMPANIES THAT WE ALL NOW RECOGNIZE AND SUPPOSEDLY ADMIRE AND WHAT HAPPENED THOUGH AS A RESULT OF THAT AND THIS IS A VERY IMPORTANT STRAND OF THE DNA, IS THAT YOU HAD PEOPLE GOING FROM TAKING RISKS WITH THEIR OWN MONEY AND BEING VERY CAREFUL ABOUT THE RISKS THEY WERE TAKING WITH THEIR OWN MONEY TO TAKING RISKS WITH OTHER PEOPLE'S MONEY. TAKING RISKS WITH THEIR CREDITOR'S MONEY, TAKING RISKS WITH THEIR SHAREHOLDER'S MONEY AND ALL OF THE SUDDEN ALL THEY CARED ABOUT, INSTEAD OF THE LONG TERM PROFITABILITY OF THE FIRM AND THE CAREFUL PRUDENT RISK TAKING THAT THEIR FIRMS WERE ENGAGED IN, THEY CARED ABOUT THEMSELVES, THEY CARED ABOUT THEIR OWN BONUSES, THEY CARED ABOUT GETTING, GENERATING AS MUCH REVENUE AS THEY POSSIBLY COULD IN ANY GIVEN YEAR SO THAT THEN THEY COULD GO TO THEIR BOSSES AND ARGUE ABOUT WHAT A BIG BONUS THEY DESERVED AND WHAT OTHER BUSINESS ON THE FACE OF THE EARTH BY THE WAY PAYS OUT BETWEEN 50 AND 60% OF EVERY DOLLAR OF REVENUE IN THE FORM OF BONUSES IN COMPENSATION TO THEIR EMPLOYEES. NO OTHER INDUSTRY IN THIS COUNTRY DOES THAT BUT WALL STREET DOES THAT, SO ALL OF THE SUDDEN YOU HAVE PEOPLE WHO FORGET THAT THEY'RE, YOU KNOW, HAVE GOT PARTNERS AND THAT THEIR RESPONSIBILITIES LAY WITH INVESTING THEIR SHAREHOLDERS AND THEIR CREDITOR'S MONEY PRUDENTLY AND ALL THEY CARE ABOUT IS GETTING AS BIG A BONUS AS THEY POSSIBLY CAN. YOU ASK NOW BILL, HOW DO YOU KNOW ABOUT THIS, WHY ARE YOU SUCH AN EXPERT ABOUT THIS? WELL, I KNOW ABOUT THIS BECAUSE I SPENT 17 YEARS ON WALL STREET AND NOW, ADMITTEDLY 6 OF THOSE YEARS WERE AT LAZARD AND BY THE WAY WHEN I WAS AT LAZARD I GOT PAID A FRACTION OF WHAT I GOT PAID ELSEWHERE BECAUSE THEY WERE MORE CONCERNED ABOUT THE MONEY GOING INTO THE PARTNERSHIP'S, PARTNER'S POCKETS NOT THEIR EMPLOYEE'S POCKETS BUT ON THE REST OF WALL STREET EVERYBODY WAS FOCUSED ON GETTING AS BIG A BONUS AS THEY POSSIBLE COULD EACH AND EVERY YEAR. IF IT TURNED OUT THAT THE THINGS THAT THEY WERE SELLING TO GENERATE REVENUE WERE BOGUS, WERE TOXIC, WELL THAT'S TOO BAD FOR EVERYONE ELSE BECAUSE I'VE ALREADY GOT MY BONUS. IT'S IN MY POCKET AND I'VE ALREADY TURNED IT INTO A FIFTH AVENUE COOP OR A PLACE IN THE HAMPTONS OR A FERRARI OR WHATEVER IT IS THAT I WANT AND, YOU KNOW, WHATEVER HAPPENS IS THE FUTURE AND I'M NOT GOING TO WORRY ABOUT THAT. SO THE FIRST STRAND OF THE DNA IS THIS TRANSFORMATION OF WALL STREET FROM PRIVATE PARTNERSHIPS TO PUBLIC COMPANIES FROM A SERIES WHERE PEOPLE WERE VERY FOCUSED ON THE RISKS THEY WERE TAKING TO AN ENVIRONMENT WHERE PEOPLE WERE TAKING RISKS WITHOUT ANY KIND OF IDEA WHAT KIND OF RISKS THEY WERE TAKING. THEY WERE ONLY CONCERNED ABOUT SELLING AND WALL STREET IS NOTHING BUT A HUGE SELLING MACHINE. THE SECOND PART OF THIS STRAND OF THIS DNA IS THAT WALL STREET IS VERY, VERY GOOD AT FINANCIAL INNOVATION. WELL THAT SHOULDN'T BE ALL THAT SURPRISING CONSIDERING THE AMOUNT OF MONEY THAT PEOPLE ARE PAID TO GO THERE AND THE AMOUNT OF TALENT THAT WALL STREET IS ABLE TO ATTRACT AS A RESULT MAYBE TO THE DETRIMENT OF MANY OTHER INDUSTRIES IN OUR COUNTRY AND MANY OTHER WAYS TO MAKE A LIVING. WALL STREET BECAME A BIT OF A BLACK HOLE IN THE LAST 25 YEARS AND AS A RESULT THERE WAS A LOT OF FINANCIAL INNOVATION. FOR EXAMPLE, JUST DOWN THE STREET FROM HERE OR DOWN THE ROAD IN LOS ANGELES, THERE'S A GUY BY THE NAME OF MIKE MILKEN WHO SAT AT THE X-SHAPED DESK AND CREATED WHAT BECAME KNOWN AS THE JUNK BOND MARKET, THE HIGH YIELD MARKET AND, YOU KNOW, ORIGINALLY BEFORE HE ENGAGED IN CRIMINAL BEHAVIOR AND BEFORE HE TOOK OFF HIS HAIR PIECE. HE WAS ACTUALLY GREATLY ADMIRED BECAUSE WHAT HE DID WAS ACTUALLY AN INCREDIBLE INSIGHT. HE MADE CAPITAL AVAILABLE TO COMPANIES ACROSS THIS COUNTRY AND THE WORLD WHO OTHERWISE WOULDN'T HAVE ACCESS TO IT IN ANY OTHER WAY. HE MADE CAPITAL AVAILABLE TO SMALL AND MIDSIZE COMPANIES FOR WHOM THERE WAS NO OTHER WAY, VIRTUALLY ANY PRICE FOR THEM TO GET CAPITAL WHICH OF COURSE IS THE LIFE BLOOD OF CAPITALISM, WHICH IS THE LIFE BLOOD FOR HOW THEY COULD GROW THEIR BUSINESSES, HIRE NEW PEOPLE, EXPAND THEIR PLANT AND EQUIPMENT AND MIKE MILKEN WAS A GENIUS. HE REALLY WAS AND I THINK HE STILL IS A GENIUS AND HE'S TO BE APPLAUDED FOR WHAT HE CAME UP WITH BUT THIS KIND OF FINANCIAL INNOVATION ALSO, YOU KNOW, EXTENDED TO INTERNET IPOS. YOU MAY REMEMBER THIS PHENOMENON IN THE 1990S, THE LATE 1990S, IF YOU WERE A KID COMING OUT OF COLLEGE LIKE THIS AND YOU DECIDED TO LIVE IN A LOFT SOUTH OF MARKET STREET IN SAN FRANCISCO AND YOU HAD A BUNCH OF YOUR BUDDIES AND YOU TALKED ABOUT THE INTERNET AND EYEBALLS AND PARADIGM SHIFT. WELL WALL STREET GOT VERY EXCITED ABOUT THAT AND CREATED INTERNET IPOS AND NEXT THING YOU KNOW, PROFITS DIDN'T MATTER ALL THAT MATTERED WAS HOW MANY PEOPLE WERE ATTRACTED TO YOUR WEBSITE AND THE NEXT THING YOU KNOW, YOUR COMPANY WAS WORTH BILLIONS OF DOLLARS AND WALL STREET GOT COMPLETELY TAKEN AWAY BY THAT PHENOMENON AND I GUESS YOU COULD SAY THAT WAS GOOD BECAUSE IT ALLOWED CAPITAL TO FLOW INTO THESE COMPANIES AND INTO A PARADIGM SHIFTING TECHNOLOGY WHICH WAS THE INTERNET WHICH OBVIOUSLY WE ALL KNOW NOW IS EXTREMELY IMPORTANT TO OUR LIVES. BUT WALL STREET GOT CARRIED AWAY WITH THAT AS WELL AND THEN, YOU KNOW, YOU'D HAVE TO REMEMBER THAT IN THE EARLY 1980S WE HAVE THE GRANDFATHER, THE GODFATHER OF WHAT BECAME THIS CRISIS. A GUY BY THE NAME OF LOU RANIERI WHO WAS A PARTNER AT SALOMON BROTHERS WHO CAME UP WITH THE, AND BY THE WAY NOBODY KNOWS WHO LOU RANIERI IS BUT I DO AND THAT'S BECAUSE HE CREATED WHAT BECAME THE ASSET SECURITIZATION MARKET. HE CREATED THIS BUSINESS OF TAKING STREAMS OF CASH FLOWS, WHETHER THEIR PEOPLE YOU AND I PAYING OUR CREDIT CARD BILLS OR PAYING OUR AUTO PAYMENTS, CAR LOANS OR, YES, OUR MORTGAGE PAYMENTS ON OUR HOMES. YOU KNOW ONCE UPON A TIME YOU'D GET A MORTGAGE FROM YOUR LOCAL BANKER WHO WOULD SIZE YOU UP AND DECIDE WHETHER YOU WERE CREDIT WORTHY AND MAKE YOU A LOAN FOR A MORTGAGE FOR A HOUSE THAT YOU THOUGHT YOU COULD, YOU KNOW, AFFORD BY CAREFULLY UNDERWRITING YOUR ABILITY TO PAY HIM BACK AND HE WOULD MAKE THAT MORTGAGE TO YOU AND THAT WAS A BET HE WAS MAKING ON YOU AND HE WOULD KEEP THAT LOAN ON HIS BOOKS AS AN ASSET OF THE BANK AND IF YOU PAID YOUR MORTGAGE, WHICH HE HOPED YOU'D DO, THAT LOAN HAD VALUE AND IF YOU DIDN'T THAT LOAN HAD NO VALUE AND THAT'S WHY HE WAS VERY, VERY CAREFUL ABOUT SIZING YOU UP, MAKING SURE HE KNEW YOU AND MAKING SURE YOU WERE GOING TO PAY IT BACK. WELL THANKS TO LOU RANIERI THAT ALL CHANGED BECAUSE LOU RANIERI, WHO I THINK AS WELL WAS A GENIUS, AND LIKE MY MIKE MILKEN, CREATED, EXPANDED THE DEMOCRATIZATION OF CAPITAL AS I CALL IT, HE MADE CAPITAL AVAILABLE TO PEOPLE WHO WANTED TO USE CREDIT CARDS, WHO WANTED TO HAVE CAR LOANS AND YES, WHO WANTED TO BUY HOMES WHICH WAS OF COURSE PART OF THE AMERICAN DREAM AND WANTED TO, YOU KNOW, HAVE SOMETHING THAT EVERYBODY ELSE HAD AND HE TOOK ALL OF THESE MORTGAGES, HE CAME UP WITH THIS SYSTEM OF TAKING ALL OF THESE MORTGAGES FROM ALL OF THESE LOCAL BANKS AND PACKAGING THEM UP INTO SECURITIES, SLICING THEM UP INTO LITTLE PIECES AND SELLING THEM TO INVESTORS ALL OVER THE WORLD. NOW THAT WAS A BRILLIANT IDEA BECAUSE THAT, YOU KNOW, GOT CAPITAL INTO THE HANDS OF PEOPLE THAT WOULDN'T OTHERWISE HAVE IT AND BY THE WAY IT LOWERED MORTGAGE INTEREST RATES DRAMATICALLY AND SO YOU HAVE TO SAY THAT WAS A GOOD THING BUT UNFORTUNATELY WHEN YOU COMBINE THAT WITH THE FIRST PART OF THIS PUZZLE, THIS CRAZY COMPENSATION SYSTEM THAT REWARDS PEOPLE TO SELL, SELL, SELL AND GENERATE AS MUCH REVENUE AS THEY POSSIBLY CAN SO THAT THEY CAN GET AS BIG A BONUS AS THEY POSSIBLY CAN, WHEN YOU MARRY THESE FIRST TWO THINGS TOGETHER YOU GET A DISASTER WHICH IS WHY THIS ISN'T THE FIRST TIME WE'VE HAD A FINANCIAL CRISIS IN THIS COUNTRY. IN FACT, SINCE I WENT TO WALL STREET IN SEPTEMBER OF 87, WITHIN A MONTH OF ME GETTING TO WALL STREET WE HAD THE CRASH OF OCTOBER OF 87 WHEN THE MARKET FELL 2.6% IN ONE DAY. I SAW GROWN MEN CRY IN FRONT OF QUOTRON MACHINES WONDERING HOW THIS COULD OF POSSIBLY HAPPENED AND VOWING, YOU KNOW, PRAYING TO GOD THAT THIS WOULD NEVER HAPPEN AGAIN AND WE HAD BIG REPORTS DONE BY THE BRADY COMMISSION, A 2-INCH THICK DOCUMENT THAT I GUARANTEE YOU I'M THE ONLY PERSON WHOSE READ IN ABOUT 20 YEARS, VOWING, DOING WHAT WE COULD TO PREVENT THIS FROM NOT HAPPENING AGAIN AND THIS IS UNFORTUNATELY ABOUT THE FIFTH TIME THIS HAS HAPPENED IN THOSE 25 YEARS. THIS TIME IT WAS THE WORST AND IT WAS THE WORST BECAUSE THE FIRMS WERE SO MUCH BIGGER, THE CANCER THAT WAS CREATED WITH THESE MORTGAGE-BACKED SECURITIES, IT WAS SPREAD ALL AROUND THE WORLD WAS SO MUCH MORE EXTRAORDINARY AND, YOU KNOW, IN MANY WAYS, YOU KNOW THERE ARE A LOT OF, OR A GOOD PORTION OF THE BLAME HAS TO REST WITH THE PEOPLE UNFORTUNATELY AND NOT THE MAJORITY OF THE BLAME BUT A GOOD CHUNK OF IT, WITH THE PEOPLE WHO TOOK OUT MORTGAGES THAT THEY COULDN'T AFFORD TO PAY BACK AND, YOU KNOW, THAT'S THE WHOLE STORY THAT WE HAVE TO KEEP IN MIND. I SPENT A DAY DOWN, IN THE WRITING OF THIS BOOK, DOWN IN BALTIMORE AT BASICALLY A PLACE THAT WAS HALFWAY HOUSE, IF YOU WILL, FOR PEOPLE HAVING TROUBLE PAYING THEIR MORTGAGES AND ALL DAY LONG EITHER ON THE PHONE OR ONLINE OR COMING THROUGH THE DOOR OF THIS PLACE, PEOPLE WHO WERE HAVING TROUBLE PAYING THEIR MORTGAGES WOULD COME IN AND TRY TO GET GUIDANCE ABOUT HOW TO CONTACT THE BANK OR CONTACT, YOU KNOW, A MORTGAGE BROKER, TO ANYBODY THAT COULD TALK TO WHO WOULD HELP THEM WORK THROUGH THEIR MORTGAGES AND AT THE END OF THE DAY AFTER I HAD WITNESSED THIS, WHICH WAS REALLY EXTRAORDINARY, I WENT AND LOOKED AT A STACK OF DOCUMENTS, LOAN DOCUMENTS, THE ORIGINAL LOAN DOCUMENTS THAT PEOPLE, HAD BEEN FILLED OUT FOR PEOPLE AND OF COURSE THIS IS NOT GOING TO COME AS ANY SURPRISE TO YOU ALL BECAUSE IT'S BE WELL DOCUMENTED ELSEWHERE, BUT I SAW THESE LOAN DOCUMENTS AND THERE WAS NOT ONE THING ON THE LOAN DOCUMENT ITSELF THAT WAS ACCURATE, NOT THE AMOUNT OF MONEY IN THESE PEOPLE'S BANK ACCOUNT, NOT THE CAR THEY DROVE, NOT THE JOB THEY HAD, NOT THE CREDIT CARD BILL OUTSTANDINGS THAT THEY HAD PAID OR NOT PAID, NOTHING, NOT ONE THING. NOW YOU OR I WOULD NEVER SIGN SUCH A LOAN DOCUMENT, HOW COULD WE SIGN SOMETHING THAT WAS COMPLETE FICTION, BUT IN FACT THE ONLY THING THAT WAS ACCURATE ON THESE LOAN DOCUMENTS WAS THE SIGNATURE OF THE BORROWERS AT THE BOTTOM OF THE LOAN DOCUMENTS AND SO THEREFORE IT WAS NOT REALLY A SURPRISE WHEN 2 MONTHS LATER THESE PEOPLE WHO HAD ALWAYS BEEN RENTERS WERE NOW UNABLE TO PAY BACK THEIR MORTGAGES AND UNFORTUNATELY WHEN YOU PACKAGE UP SECURITIES FROM ALL THESE MORTGAGES INTO SECURITIES AND SELL THEM ALL AROUND THE WORLD AS INVESTMENTS, WHEN PEOPLE WHO TOOK OUT THE MORTGAGES CANNOT PAY THEM BACK, THE SECURITIES THAT WERE DERIVED FROM THESE MORTGAGES BEGIN TO LOSE A TREMENDOUS AMOUNT OF VALUE AND THAT'S IN LARGE PART WHAT HAPPENED SO THOSE ARE THE FIRST 2 STRANDS OF THIS. THE THIRD STRAND OF IT AGAIN WILL COME AS NO SURPRISE TO YOU BECAUSE IT TAKES A LOT TO MAKE DISASTER ALONG THE LINES THAT WE GOT HERE. IT'S PUBLIC POLICY. SO, THERE'S A LOT OF PROBLEMS WITH OUR, YOU KNOW, GOVERNMENT PRIORITIES AND IT REALLY BEGAN IN THE MIDDLE OF THE CLINTON ADMINISTRATION AND IT CONTINUED THROUGHOUT THE END OF THE CLINTON ADMINISTRATION AND THROUGH BOTH TERMS OF THE BUSH ADMINISTRATION, YOU'LL BE GLAD TO KNOW, AND THAT IS A HIGH PRIORITY THAT WAS PLACED BY BOTH THOSE ADMINISTRATIONS ON HOME OWNERSHIP AND YOU CAN SAY TO YOURSELF, WELL THAT MAKES SENSE, HOME OWNERSHIP IS PART OF THE AMERICAN DREAM AND, YOU KNOW, IT'S GOOD PUBLIC POLICY OR GOOD POLITICS ANYWAY TO ENCOURAGE HOME OWNERSHIP AND SO YOU CAN GO ON THE INTERNET AND YOU CAN SEE CLINTON SPEAKING IN FRONT OF HUGE AMERICAN FLAGS OR BUSH SPEAKING IN FRONT OF HUGE AMERICAN FLAGS TALKING ABOUT THE BENEFIT AND THE WISDOM OF HOME OWNERSHIP AND SO THEY TOOK IT ONE STEP FURTHER AND IN ADDITION TO PROSELYTIZING ABOUT IT, CLINTON CHANGED SOMETHING CALLED THE COMMUNITY REINVESTMENT ACT WHICH HE ACTUALLY REQUIRED BANKS TO MAKE LOANS, HOME MORTGAGES AVAILABLE TO PEOPLE WHO HAD PREVIOUSLY BEEN RENTERS AND WHO WOULDN'T NORMALLY OTHERWISE HAVE ACCESS TO HOME MORTGAGES WITH THE IDEA OF ENCOURAGING HOME OWNERSHIP. NOW, AGAIN, YOU KNOW, FROM PURELY 30,000 FEET YOU CAN'T CRITICIZE THIS POLICY BUT IT'S IN THE PRACTICE OF IT, IN THE DETAILS OF IT WHERE THINGS GET OUT OF HAND AS WELL KNOW THESE NO INCOME LOANS, YOU KNOW, THE WHOLE ALPHABET CITY OF LOANS THAT WERE MADE TO PEOPLE WHO COULDN'T AFFORD THEM AND SHOULD NEVER HAVE TAKEN THEM OUT IN THE FIRST PLACE BUT BASICALLY MONEY WAS BEING THROWN AT THEM. THERE WAS BASICALLY 62% OF THE PEOPLE IN THIS COUNTRY WERE HOMEOWNERS UNTIL THE CLINTONS CAME AROUND AND THEY DECIDED THAT HOME OWNERSHIP AS I SAID WAS A GOOD THING AND THEY PUSHED IT AND BY THE END OF, YOU KNOW, THE BUSH ADMINISTRATION WE HAD SOMETHING LIKE 67% OF PEOPLE IN THIS COUNTRY WERE HOMEOWNERS. THAT 5 PERCENTAGE POINT DIFFERENCE WAS SOMETHING LIKE 3 OR 4 MILLION NEW HOMEOWNERS. PEOPLE WHO HAD BEEN RENTERS ONCE UPON A TIME AND WERE BASICALLY HAPPY BEING RENTERS WERE NOW HOMEOWNERS AND FOR THEM, ALTHOUGH I DON'T THINK THEY THOUGHT OF IT THIS WAY, IT WAS A FREE OPTION. IF PEOPLE ARE GOING TO GIVE ME ALL THIS MONEY BASICALLY FREE AND IF I CAN PARTICIPATE IN THE AMERICAN DREAM BY OWNING A HOME AND IF I CAN PAY THE MORTGAGE PAYMENTS GREAT, IF I CAN'T I'LL GIVE IN THE KEYS AND I'LL BE A RENTER AGAIN JUST LIKE I WAS BEFORE, BUT IF THEY'RE TELLING ME IT'S A GOOD THING AND I SHOULD DO IT, THEN WHY NOT, I'M AMERICAN I WANT TO DO IT. SO YOU HAD THAT PROBLEM WITH THE PUBLIC POLICY AND THEN YOU COMBINED THAT WITH THE FEDS DECISION AFTER 9/11, ALAN GREENSPAN'S AFTER 9/11 TO DRAMATICALLY LOWER INTEREST RATES RELATIVELY QUICKLY, WITHIN A YEAR ROUGHLY INTEREST RATES, THE FED RATES WENT FROM ABOUT 6% DOWN TO ABOUT 1%. BY THE WAY NOW THEY'RE EVEN LOWER WHICH IS A WHOLE OTHER SUBJECT AND WE COULD BE CREATING YET ANOTHER BUBBLE VERY MUCH LIKE THE ONE WE'VE JUST COME OUT OF BUT THE COMBINATION OF PUSHING HOME OWNERSHIP, PUTTING ALL THESE MORTGAGES OUT THERE THAT WERE THEN BOUGHT BY WALL STREET FIRMS WHO, YOU KNOW, WHO HAD LATCHED ONTO THIS GREAT IDEA THAT LOU RANIERI HAD, AND ONE THING YOU CAN BE SURE OF ABOUT WALL STREET IS WHETHER IT'S MIKE MILKEN OR LOU RANIERI, WHEN SOMEBODY COMES UP WITH A GREAT IDEA THE REST OF WALL STREET DECONSTRUCTS IT AND THEN TRIES TO FIGURE OUT AS QUICKLY AS POSSIBLE HOW THEY CAN MAKE MONEY FROM IT SO THAT, YOU KNOW, THE LOU RANIERIS AND THE SALOMON BROTHERS OF THE WORLD AND THE DREXEL BURNHAMS OF THE WORLD DON'T MAKE ALL THE MONEY AND SO YOU'VE GOT THIS EXTRAORDINARY DEVELOPMENT WHERE PEOPLE ARE, YOU KNOW, BUYING UP ALL THESE MORTGAGES THAT ARE BEING PRINTED FASTER THAN THEY CAN BE, YOU KNOW, MADE AND PACKAGING THEM UP INTO MORTGAGE BACKED SECURITIES, GETTING THE RATING AGENCIES TO RATE THEM AAA AND BY THE WAY, THEY ARE A HUGE CULPRIT IN THIS AND WHAT EVERYBODY FORGETS IS THAT THE RATING AGENCIES WERE PAID BY WALL STREET TO GET THE RATINGS THAT THEY WANTED SO THEY COULD SLAP THESE RATINGS ON THESE SECURITIES AND SELL THEM OFF TO INVESTORS AROUND THE WORLD WHO A, HAD GOTTEN LAZY AND FORGOT TO DO THEIR HOMEWORK AND FORGOT WHAT IT MEANT TO TAKE RISKS AND BY THE WAY, WE'RE LOOKING FOR YIELD BECAUSE, INTEREST YIELD, YOU KNOW, LOOKING FOR A PLACE TO PUT THEIR MONEY TO GET A BETTER YIELD THAN THEY COULD, YOU KNOW, IN TREASURY SECURITIES, WHICH THANKS TO GREENSPAN HAD, THE INTEREST RATES HAD BEEN LOWERED ON SO DRAMATICALLY. SO, YOU HAVE THESE, YOU KNOW, 3 PIECES OF THE PUZZLE IN A NICE STEW BUT THEY'D BE NOTHING IF IT WEREN'T FOR MY FAVORITE REASON WHICH IS, OF COURSE, GREED AND SHORTSIGHTEDNESS AND YOU CAN'T HAVE A GOOD CRISIS WITHOUT THAT AND WALL STREET'S GOT THAT IN ABUNDANCE I'M GLAD TO SAY AND BEAR STEARNS HAD IT IN ABUNDANCE AS WELL AND THIS IS WHERE MY FRIEND JIMMY CAYNE COMES IN. NOW, YOU KNOW, I'VE TALKED SO FAR IN SORT OF DRY CLINICAL TERMS ABOUT HOW THIS ALL CAME ABOUT BUT, YOU KNOW, THIS ISN'T WHAT THE BOOK IS ABOUT, THE BOOK IS REALLY ABOUT THE PEOPLE WHO WORKED AT BEAR STEARNS AND THE KIND OF PEOPLE THEY WERE AND WHAT THEY EXPERIENCED AS THIS CRISIS WAS DEVELOPING AND HOW THEY BUILT THIS FIRM AND HOW THEY MADE IT WHAT IT WAS AND NO ONE WAS MORE CENTRAL TO THAT THAN JIMMY CAYNE AND JIMMY CAYNE WAS LITERALLY, IF I MAY USE THIS EXPRESSION, NORTH OF HOLLYWOOD, RIGHT OUT OF CENTRAL CASTING. HE WAS BORN ON THE NORTH SIDE OF CHICAGO. HIS FATHER WAS A PATENT ATTORNEY AND I KNEW I WAS IN TROUBLE WITH JIMMY WHEN I MET HIM AND STARTED INTERVIEWING HIM WHEN HE COMPLAINED TO ME THAT HE WAS VERY DISAPPOINTED IN HIS FATHER BECAUSE HIS FATHER ONLY MADE AS MUCH AS $75,000 A YEAR AND I'M THINKING THIS IS 1940, 1950 AND YOU'RE COMPLAINING ABOUT YOUR FATHER MAKING $75,000 A YEAR. I THINK THAT WAS A SMALL FORTUNE BACK THEN, AND HE WAS A VERY SUCCESSFUL PATENT ATTORNEY BUT JIMMY HAD NO INTEREST IN THAT. JIMMY WENT TO PERDUE, DROPPED OUT OF PERDUE BEFORE HE GOT HIS, HE COULD GRADUATE. BY THEN HE HAD ALREADY TAKEN UP BASICALLY PLAYING BRIDGE FULL TIME INSTEAD OF CONCENTRATING ON HIS STUDIES AND HE ACTUALLY BECAME A BRIDGE PLAYER OF SOME RENOWN, EVEN WHILE HE WAS IN COLLEGE AND JUST AFTER COLLEGE AND HE DID HIS STINT IN THE ARMY AND THEN HE CAME BACK AND GOT MARRIED AND WORKED FOR HIS FATHER-IN-LAW WHO'S A SCRAP IRON SALESMAN, ONE OF THE BIGGEST SCRAP IRON BUSINESSES IN CHICAGO AND THEN EVEN AFTER HE DIVORCED HIS WIFE HE KEPT WORKING FOR HIS FATHER-IN-LAW IN THE SCRAP IRON BUSINESS WHICH I THINK, YOU KNOW, HAS TO BE ONE OF THE VERY FEW TIMES THAT A DIVORCED SON-IN-LAW KEPT WORKING FOR A FATHER-IN-LAW, YOU KNOW, IN THE ANNALS OF BUSINESS HISTORY BUT WHAT JIMMY REALLY WANTED TO DO. WELL THE FIRST THING HE TOLD ME HE WANTED TO DO WAS TO BECOME A BOOKIE. THAT WAS HIS ASPIRATION IN LIFE AND HE TELLS ME THAT HE DIDN'T SUCCEED AT THAT BUT ACTUALLY I THINK HE DID. I THINK HE ENDED UP BECOMING A BOOKIE AT BEAR STEARNS BUT HE DIDN'T REALIZE IT. BUT WHAT HE REALLY WANTED TO DO WAS TO GO TO NEW YORK AND BECOME A PROFESSIONAL BRIDGE PLAYER SO THAT'S EXACTLY WHAT HE DID. HE LEFT HIS WIFE AND 2 KIDS BEHIND, THEY MOVED TO SPRINGFIELD, ILLINOIS, SHE REMARRIED, HE CAME TO NEW YORK, BECAME A BRIDGE PLAYER AND USED TO HANG OUT IN THE BRIDGE CLUBS THAT THEN WERE POPULATING THE UPPER EAST SIDE OF MANHATTAN AND I LIKE TO SAY THAT BRIDGE WAS SORT OF LIKE THE FACEBOOK OF ITS TIME. IT WAS A SOCIAL NETWORKING, YOU KNOW, OPPORTUNITY FOR PEOPLE WHO WORKED ON WALL STREET AND SO JIMMY CAME HOPING TO MAKE LIKE $500 A WEEK PLAYING BRIDGE IF HE WERE LUCKY AND MET ALL THESE WALL STREET TITANS. PEOPLE LIKE LARRY TISCH WHO WAS THE SINGLE LARGEST INVESTOR IN WALL STREET AND ENDED UP OWNING CBS FOR A TIME AND LOWE'S CORPORATION AND JIMMY PLAYED BRIDGE WITH HIM AND HE PLAYED BRIDGE WITH WARREN BUFFET AND HE PLAYED BRIDGE WITH BILL GATES AND FINALLY HE MET THE WOMAN WHO WOULD BECOME HIS SECOND WIFE AND SHE INSISTED, AT THE BRIDGE CLUB, AND SHE INSISTED THAT EITHER HE GET A REAL JOB OR HE GET A NEW GIRLFRIEND AND SO HE DECIDED TO USE THE CONNECTIONS THAT HE'D MADE PLAYING BRIDGE TO GET INTERVIEWS AT LEHMAN BROTHERS, GOLDMAN SACHS AND BEAR STEARNS AND WHEN HE WAS AT BEAR STEARNS HE MET A GUY NAMED ACE GREENBERG WHO WAS FROM OKLAHOMA, WHOSE FATHER HAD HAD A SERIES OF WOMEN'S CLOTHING STORES IN OKLAHOMA AND WHO CAME TO NEW YORK TO GET A JOB ON WALL STREET, ENDED UP AT BEAR STEARNS AND WAS THE HEIR APPARENT TO THE SENIOR PARTNER OF BEAR STEARNS AT THAT TIME NAMED CY LEWIS AND WHEN JIMMY MET ACE GREENBERG HE WAS THE HEIR APPARENT TO CY AND THEY HIT IT OFF IMMEDIATELY BECAUSE ACE GREENBERG KNEW ABOUT JIMMY CAYNE'S BRIDGE PLAYING PROWESS AND ACE GREENBERG HIMSELF WAS AN ASPIRING BRIDGE PLAYER AND WANTED JIMMY CAYNE TO TEACH HIM HOW TO PLAY BRIDGE BETTER SO THAT'S WHY ACE HIRED HIM AT BEAR STEARNS AND JIMMY HAD, YOU KNOW, NO REAL KNOWLEDGE OF WALL STREET OR HOW IT WORKED. HE'D BEEN A MUNICIPAL BOND SALESMAN FOR A COUPLE HOURS A DAY, PRIOR, YOU KNOW, TO GOING TO THE BRIDGE CLUBS BUT HE BECAME A BROKER AT BEAR STEARNS AND HE ENDED UP GETTING LARRY TISCH AS HIS CLIENT AND WAS A SUCCESSFUL BROKER AT BEAR STEARNS BUT WHAT HE REALLY WAS, WAS, OF COURSE, VERY EXPERT AT MANAGING HIS OWN CAREER, MANAGING UPWARD AND, YOU KNOW, AND OF COURSE WHEN YOU PLAY BRIDGE YOU HAVE TO KNOW WHERE THE CARDS ARE ON THE TABLE THAT CAN HURT YOU AND JIMMY KNEW, HE WAS VERY GOOD AT KNOWING WHERE THE CARDS, WHERE THE PEOPLE WERE AT THE FIRM WHO COULD HELP HIM, YOU KNOW, GET TO THE TOP OF THE FIRM AND THE PEOPLE WHO COULD HURT HIM. THE PEOPLE WHO COULD HURT HIM HE ELIMINATED SUMMARILY AND THE PEOPLE WHO COULD HELP HIM HE PROMOTED THEM AND THEY PROMOTED HIM UNTIL HE GOT TO THE TOP OF THE FIRM AND HE TOOK OVER THE FIRM FROM ACE GREENBERG IN 1993 IN BASICALLY A COUP DE TAT AND, YOU KNOW, THE INTERESTING THING ABOUT COUP DE TAT IS, YOU KNOW, IF YOU'RE GOING TO DO IT, YOU'VE GOT TO GET RID OF THE PREVIOUS KING, MAKE SURE HE'S OUT OF THE PICTURE, MAKE SURE THAT HIS HEAD IS ON THE GUILLOTINE FLOOR, IT'S ON THE FLOOR BY THE GUILLOTINE BUT WITH ACE GREENBERG HE DIDN'T DO THAT, HE KEPT ACE AROUND AND, IN FACT, ACE REMAINED ON THE EXECUTIVE COMMITTEE OF BEAR STEARNS UNTIL THE VERY END. IN FACT ACE IS THE ONLY MEMBER OF THE BEAR STEARNS SENIOR MANAGEMENT WHO'S STILL AT JPMORGAN CHASE NOW AND BUT WHEN JIMMY CAYNE DID UNFORTUNATELY FOR BEAR STEARNS IS THAT HE DIDN'T REALLY UNDERSTAND THE BUSINESS THAT BEAR WAS IN, WHICH IS A FIXED INCOME BUSINESS, HE HAD BEEN A BROKER, HE DID NOT UNDERSTAND HOW IT WORKED AND OVER TIME HE GOT COMPLETELY INTOXICATED BY THE PROFITS THAT THAT PART OF THE BUSINESS GENERATED AND WHEN HE TOOK OVER THE FIRM IN 1993 BEAR STOCK WAS AROUND $33 BUCKS A SHARE. IT HAD GONE PUBLIC AT $25 IN 1985 AND NOW 8 YEARS LATER IT APPRECIATED ALL THE WAY TO $33 A SHARE. IN JANUARY OF 2007 WHEN IT REACHED ITS PEAK, BEAR STEARNS STOCK WAS $172.69. THE FIRM WAS WORTH LIKE $20 BILLION DOLLARS. JIMMY CAYNE WAS THE ONLY CEO ON WALL STREET AT THAT TIME WHO WAS WORTH A BILLION DOLLARS IN HIS OWN STOCK AND JIMMY CAYNE, WHO DIDN'T GRADUATE FROM PERDUE, WAS QUITE PROUD OF THAT FACT AND WAS VERY HAPPY TO LORD THAT OVER TO THE OTHER WALL STREET CEOS AND I DON'T KNOW IF YOU REMEMBER OR NOT BUT THERE'S A CRISIS THAT I DIDN'T MENTION THAT OCCURRED IN 1998, 1999 INVOLVING LONG TERM CAPITAL MANAGEMENT AND A HEDGE FUND AND BEAR STEARNS WAS THE CLEARING BANK FOR THE HEDGE FUND. THIS IS THE CRISIS THAT ALMOST BROUGHT DOWN THE WORLD'S FINANCIAL SYSTEM AGAIN BUT UNLIKE THIS TIME, THAT TIME THE WALL STREET BANKS GOT TOGETHER TO RESCUE LONG TERM CAPITAL MANAGEMENT AND SO A CRISIS WAS AVOIDED. THIS TIME YOU'LL NOTE THAT THE WALL STREET BANKS DID NOT GET TOGETHER TO SOLVE THE CRISIS AND SO WE HAD A CRISIS BUT JIMMY CAYNE REFUSED AND BEAR STEARNS REFUSED TO PARTICIPATE IN THE BAILING OUT OF LONG TERM CAPITAL MANAGEMENT, HE ALONE ON WALL STREET SAID NO, AND SO THAT WHEN HE WAS WORTH A BILLION DOLLARS IN HIS OWN STOCK AND THE REST OF WALL STREET WAS NOT AND THEY HAD SNUBBED HIM AND WERE VERY ANGRY AT HIM FOR NOT, I CAN ASSURE YOU HE WAS VERY CONTENT AND HAPPY WITH ALL OF HIS DECISION MAKING AND DIDN'T QUESTION ANY OF THAT AND LORDED IT OVER THE OTHER WALL STREET CEOS AND SO JIMMY WAS SO CONFIDENT AND SO FILLED WITH UBEROUS [ASSUMED SPELLING] ABOUT HIS DECISION MAKING PROWESS, EVEN THOUGH HE DIDN'T REALLY UNDERSTAND THE KIND OF BUSINESS THAT BEAR STEARNS WAS IN AND HOW IT MADE ITS MONEY AND THE PROFITS THAT IT WAS MAKING AND HOW IT DID THAT AND THE RISKS IT WAS TAKING, THAT HE ENGAGED IN A HUMUNGOUS AMOUNT OF SHORTSIGHTEDNESS. HE FAILED TO DIVERSIFY THE FIRM. HE HAD CHANCES TO BUY NEUBERGER BERMAN, AN ASSET MANAGEMENT BUSINESS THAT LEHMAN EVENTUALLY BOUGHT. HE COULD OF BOUGHT IT AND ADDED TO BEAR'S TINY ASSET MANAGEMENT BUSINESS, HE DIDN'T DO IT. HE COULD OF EXPANDED THE INVESTMENT BANKING BUSINESS TO SMOOTH OUT SOME OF THE ROUGH EDGES OF THE FIXED INCOME BUSINESS AND HE DIDN'T DO THAT. HE COULD OF EXPANDED OVERSEAS INTO EUROPE AND HE DIDN'T DO THAT. HE COULD OF BOUGHT A BUSINESS CALLED PERSHING, WHICH IS A CLEARING BUSINESS THAT DONALDSON LUFKIN & JENRETTE WAS SELLING AFTER THAT FIRM WAS SOLD TO FIRST BOSTON AND THERE WOULD HAVE BEEN A PERFECT FIT WITH HIS BUSINESS AND HE DIDN'T DO THAT. HE COULD HAVE DONE ANY NUMBER OF THINGS TO DIVERSIFY HIS FIRM AND HE DIDN'T DO IT AND WHY DIDN'T HE DO IT, HE DIDN'T DO IT BECAUSE THE EXECUTIVE COMMITTEE AT BEAR STEARNS WAS PAID BASED ON A RETURN ON EQUITY CALCULATION AND THAT'S JUST FANCY WALL STREET TALK FOR GENERATING AS MUCH PROFIT AS YOU POSSIBLY CAN USING AS LITTLE CAPITAL AS YOU HAVE TO, TO DO IT. HAD JIMMY BOUGHT THESE OTHER FIRMS OR DIVERSIFIED THE BUSINESS OR DONE ANY OF THESE OTHER THINGS THAT RATIO OF PROFITS TO CAPITAL WOULD HAVE CHANGED, WOULD HAVE BEEN SMALLER AND HE AND HIS FELLOW FOUR MEMBERS OF THE EXECUTIVE COMMITTEE WOULD HAVE BEEN PAID LESS. HE COULD HAVE SOLD THE FIRM, HE HAD ANY NUMBER OF OPPORTUNITIES TO SELL THE FIRM BUT ANY TIME ANYBODY APPROACHED HIM HE ALWAYS RAISED THE BAR TO HIGHER AND HIGHER LEVELS SO THAT, YOU KNOW, EVERYBODY WHO WAS A POTENTIAL BUYER WALKED AWAY. SO YOU HAVE THE FOUR STRANDS OF THIS DNA MOLECULE IF YOU WILL AND I APOLOGIZE TO ANY SCIENTISTS IN THE ROOM BECAUSE I KNOW THAT'S NOT THE WAY IT REALLY WORKS BUT GIVE ME POETIC LICENSE HERE. YOU'VE GOT THE TRANSFORMATION OF THESE FIRMS FROM PRIVATE PARTNERSHIPS TO PUBLIC COMPANIES. YOU'VE GOT THIS FOCUS ON FINANCIAL INNOVATION WHEN MARRIED WITH THE NEW COMPENSATION STRUCTURE ON WALL STREET, YOU KNOW, ALLOWED THESE FIRMS TO JUST BECOME SELLING MACHINES WITHOUT CONSEQUENCE TO WHAT THEY WERE SELLING AND HAVING ANY ACCOUNTABILITY FOR WHAT THEY WERE SELLING. YOU HAVE PUBLIC POLICY WHERE HOME OWNERSHIP WAS ENCOURAGED. INTEREST RATES WERE SO LOW THAT THIS CREATION OF MORTGAGE BACKED SECURITIES AS FLAWED AS THEY WERE, WERE SOLD ALL AROUND THE WORLD WITHOUT REGARD TO THE QUALITY OF THE UNDERLYING ASSETS AND YOU HAVE THIS BIZARRE SET OF GREEDY SHORTSIGHTEDNESS BEHAVIOR IN THE MEN, MOSTLY MEN BECAUSE THAT'S THE WAY WALL STREET IS, WHO WERE AT THE TOP OF THESE FIRMS AND BY THE WAY THIS WAS THE SAME THING THAT HAPPENED AT LEHMAN BROTHERS AND THE SAME THING THAT HAPPENED AT MERRILL LYNCH AND THE SAME THING THAT HAPPENED AT ALL THE FIRMS THAT RAN INTO SERIOUS TROUBLE. IT WAS THE SHORTSIGHTEDNESS AND THE GREED DRIVEN BY THE TOP MANAGEMENT. BUT WHAT REALLY DID, YOU KNOW, SO ALL THAT WOULD HAVE BEEN BAD ENOUGH BUT REALLY DID BEAR STEARNS IN THAT WEEK OF MARCH WAS THE MOST EXTRAORDINARY THING OF ALL WHICH I HAD NO IDEA ABOUT WHEN I FIRST STARTED WRITING THIS BOOK AND IN FACT IT'S SO ABSURD THAT I'M GOING TO TRY TO SIMPLIFY IT FOR YOU AS BEST THAT I CAN AND IT WAS SUCH A REVELATION TO ME EVEN THOUGH I'D WORKED ON WALL STREET FOR 17 YEARS AND THAT IS HOW WALL STREET FINANCED ITSELF, HOW BEAR STEARNS FINANCED ITSELF. BEAR STEARNS FINANCED ITSELF IN WHAT WAS CALLED THE OVERNIGHT REPO MARKET. NOW I KNOW YOU DON'T UNDERSTAND WHAT THAT IS AND I DIDN'T UNDERSTAND WHAT THAT WAS UNTIL I DUG INTO IT A LITTLE BIT, BUT WHAT IT MEANS IS THAT THEY FINANCED THEMSELVES WITH PEOPLE WHO LENT THEM MONEY ON AN OVERNIGHT BASIS USING AS COLLATERAL SOME ASSETS ON THEIR BALANCE SHEET. SO EVERY NIGHT BEAR STEARNS NEEDED $75 BILLION DOLLARS FROM THIS OVERNIGHT FINANCING MARKET TO FINANCE THEIR BUSINESS. YOU KNOW, THEY HAD $18 BILLION DOLLARS IN CASH ON THEIR BALANCE SHEET WHICH SURE SEEMS LIKE A LOT OF MONEY TO ME BUT IT WASN'T ENOUGH BECAUSE THEY NEEDED $75 BILLION DOLLARS A NIGHT TO FINANCE THEIR BUSINESS AND THAT LAST WEEK OF MARCH OF ITS EXISTENCE, AS THE RUMORS BEGAN FLYING, YOU KNOW, THAT WERE EXACERBATED BY CNBC, THE 24/7, YOU KNOW, LOOP OF THESE CRAZY PEOPLE GETTING ON THERE AND SPOUTING OFF AND RUMORS THAT WERE CIRCULATING IN THE MARKET AND OH, BY THE WAY, IF YOU'D ASKED A BANKER ON WALL STREET HOW, YOU KNOW, MACY'S SHOULD FINANCE ITSELF OR NORTHROP GRUMMAN SHOULD FINANCE ITSELF OR BOEING SHOULD FINANCE ITSELF, THEY WOULD NEVER, EVER, EVER RECOMMEND TO ONE OF THEIR CLIENTS THAT THEIR CLIENTS FINANCE THEMSELVES IN THE OVERNIGHT REPO MARKET. IT'S JUST WHY IN THE WORLD WOULD YOU GIVE A CREDITOR IN THE OVERNIGHT MARKET A VOTE ON WHETHER YOU SHOULD STAY IN EXISTENCE FROM ONE DAY TO THE NEXT. WHY DID BEAR STEARNS DO THIS? THEY WOULD NEVER RECOMMEND TO THEIR CLIENTS TO DO THIS. THEY DID IT IN PART BECAUSE OF THIS RETURN ON EQUITY CALCULATION, THIS GREED, THIS WAY THAT THESE GUYS WERE COMPENSATED. THEY WERE COMPENSATED TO GENERATE AS HIGH OF PROFITS AS THEY POSSIBLE COULD USING AS LITTLE CAPITAL AS THEY HAD NEEDED TO DO IT. IF YOU WERE FINANCING YOUR BUSINESS IN THE OVERNIGHT REPO MARKET YOU WERE PAYING VERY, VERY LITTLE EACH NIGHT FOR THAT MONEY. IF YOU WENT INTO THE LONG-TERM DEBT FINANCING MARKETS LIKE REAL COMPANIES DO, THAT FINANCING COSTS A LOT MORE. YOUR PROFITS WOULD HAVE BEEN A LOT LOWER, WELL, I DON'T THINK JIMMY CAYNE REALLY UNDERSTOOD THIS BUT THE CFO OF BEAR STEARNS UNDERSTOOD THIS AND THEY DECIDED TO FINANCE THEMSELVES IN THIS OVERNIGHT MARKET. WELL, WHAT HAPPENED WHEN THE RUMORS STARTED FLYING FAST AND FURIOUS AND PEOPLE STARTED TAKING THEIR MONEY OUT OF THE FIRM AND CREDIT RATING AGENCIES STARTED NERVOUS THESE OVERNIGHT LENDERS, PEOPLE LIKE FIDELITY AND FEDERATED INVESTORS, PEOPLE WHO HAD BEEN DOING THIS FOR THE PREVIOUS 20 YEARS AT BEAR STEARNS EVERY NIGHT AND PAUL FRIEDMAN, MY FRIEND FROM THE BEGINNING OF THIS STORY WHO TOLD ME THAT WE DID THIS TO OURSELVES. PAUL FRIEDMAN WAS IN CHARGE OF THE REPO DESK AT BEAR STEARNS AND EVERY NIGHT HE WOULD GO TO THE REPO GUYS AND MAKE SURE THAT, YOU KNOW, THE REPO LENDERS WERE ROLLING OVER THEIR MONEY EVERY NIGHT AND THIS WORKED BEAUTIFULLY FOR 20 YEARS UNTIL THIS WEEK OF MARCH WHEN IT NO LONGER WORKED AND ONE AFTER ANOTHER THAT WEEK, DAY AFTER DAY IN THAT FINAL WEEK, THEY ALL SAID NO, WE'RE NOT GOING TO TAKE THE RISK OF LENDING YOU THIS MONEY ON AN OVERNIGHT BASIS AND WHY DID THEY SUDDENLY GET SO FRIGHTENED ABOUT DOING BUSINESS WITH BEAR STEARNS. BECAUSE THE COLLATERAL THAT THEY WERE USING FOR THESE OVERNIGHT LOANS WERE THE VERY MORTGAGE BACKED SECURITIES THAT BEAR STEARNS WAS IN THE BUSINESS OF MANUFACTURING AND SELLING AND BY MARCH OF 2008, AS WELL ALL KNOW, MANY MORTGAGE LENDERS HAD FAILED. YOU COULDN'T GET THESE NO DOC LOANS ANYMORE. THESE SECURITIES BEGAN LOSING VALUE VERY RAPIDLY IN THE MARKET AND THESE OVERNIGHT LENDERS DIDN'T WANT THAT COLLATERAL AS SECURITY FOR THESE OVERNIGHT LOANS. THEY JUST SAID FORGET IT, WE DON'T KNOW WHAT THESE THINGS ARE WORTH. THERE'S NO MARKET FOR THEM AND WE'RE NOT GOING TO TAKE THE RISK. YOU CAN'T PAY US ENOUGH TO TAKE THE RISK SO WE'RE NOT GOING TO DO IT. WELL, AS THE FRENCH SAY, [INAUDIBLE], THE JIG WAS UP AFTER THAT MOMENT AND BEAR STEARNS WHICH NEEDED $75 BILLION DOLLARS A NIGHT TO FINANCE ITSELF HAD ONLY $18 BILLION ON ITS BALANCE SHEET AND THE NUMBERS DON'T JUST, DON'T ADD UP NO MATTER WHAT YOU DO AND IT WAS A CLASSIC, YOU KNOW, JIMMY STEWART LIKE RUN ON THE BANK. SO IT WAS THE COMBINATION OF THESE 5 THINGS THAT DID IN OUR FRIENDS AT BEAR STEARNS AND OH, BY THE WAY, IT WAS THE SAME THING THAT HAPPENED AT LEHMAN, DIFFERENT PERSONALITIES, BUT THE SAME DYNAMICS. I COULD HAVE BEEN TALKING ABOUT LEHMAN JUST AS EASILY AS TALKING ABOUT BEAR. SAME THING HAPPENED AT MERRILL LYNCH. SAME THING ALMOST HAPPENED AT MORGAN STANLEY AND THE SAME THING ALMOST HAPPENED AT GOLDMAN SACHS. ONE THING IS FOR SURE, WALL STREET WILL NEVER BE THE SAME. THERE REALLY IS NO WALL STREET ANYMORE. WHAT WE USED TO THINK OF AS WALL STREET SECURITIES FIRMS ARE EITHER OUT OF EXISTENCE OR HAVE BECOME BANK HOLDING COMPANIES AND, YOU KNOW, WE'RE STILL TRYING TO COME TO THE TERMS WITH THAT. SO BEFORE I END AND WE GET TO THE PANEL, I DO HAVE TO JUST TELL YOU A LITTLE BIT OF STUFF OUT OF SCHOOL BECAUSE IT'S TOO MUCH FUN AND THAT INVOLVES JIMMY CAYNE WHO REALLY I HAVE TO TELL YOU THE BOOK WOULDN'T HAVE BEEN THE SAME AND I DON'T THINK NEARLY AS READABLE OR AS FUN OR AS SUCCESSFUL WITHOUT HIM, YOU KNOW, LITERALLY OPENING UP A VEIN AND POURING IT ALL OUT TO ME AND I'M NOT QUITE SURE WHAT HE WAS THINKING BUT I'M GLAD HE DID. HE HASN'T DONE THIS WITH ANYBODY ELSE AND I'M GLAD HE DID IT WITH ME. SO, LITERALLY THE DAY OF THE SHAREHOLDER MEETING AT BEAR STEARNS WHICH WAS MAY 28TH OR 29TH OF 2008, I'D BEEN TRYING TO GET IN TOUCH WITH JIMMY TO TALK TO HIM OBVIOUSLY AND I'D HAD NO SUCCESS UNTIL THE DAY OF THAT SHAREHOLDER VOTE AND THE SHAREHOLDER MEETING, BY THE WAY, WAS FOR INVESTORS ONLY, NO JOURNALISTS ALLOWED, NO REPORTERS ALLOWED. NOW, AS ART SAID, HE MAY HAVE MENTIONED IN THE INTRODUCTION THAT NOT ONLY DID I GO TO JOURNALISM SCHOOL BUT I ALSO WENT TO COLUMBIA BUSINESS SCHOOL AND I FIGURED WELL, I'M GOING TO TAKE OFF MY JOURNALIST HAT TO SEE IF I CAN, BECAUSE I CAN'T GO TO THE MEETING AS A JOURNALIST BUT LET'S SEE IF I CAN GO AS AN INVESTOR. SO ABOUT A WEEK BEFORE THE SHAREHOLDER VOTE I WENT AND BOUGHT 10 SHARES OF BEAR STEARNS STOCK AND ACTUALLY MADE MONEY ON IT AND I WENT TO THE SHAREHOLDER MEETING AS A SHAREHOLDER OF BEAR STEARNS AND I WENT TO THE MEETING AND I, OF COURSE, IT WAS A INCREDIBLY MOVING, DRAMATIC EVENT THOUGH, YOU KNOW, EVEN I, YOU KNOW, WHO HAD NO TIES TO THE FIRM AT ALL, I MEAN IT WAS VERY MOVING AND JIMMY CAYNE WAS VERY SAD AND, YOU KNOW, STARTED LASHING OUT AT GOLDMAN SACHS AND CONSPIRACY THEORIES AND ALL OF THIS. IT WAS VERY INTERESTING AND THEN RIGHT AFTER THAT I FOUND MYSELF UP IN HIS OFFICE WHERE HE WAS CARRYING ON AND HAVING A GREAT TIME AS SORT OF LIKE AN IRISH WAKE OR SOMETHING. I MEAN IT WAS REALLY AMAZING. PEOPLE WERE COMING IN LEFT AND RIGHT AND TALKING TO HIM UNTIL, AND HE WAS SORT OF HAVING A GREAT TIME UNTIL JAMIE DIMON CALLED FROM ITALY, JAMIE DIMON BEING THE CEO OF JPMORGAN CHASE WHO HAD JUST BOUGHT HIS COMPANY AND JIMMY STRAIGHTENED UP AND BASICALLY SAID TO JAMIE DIMON, YOU KNOW, GOOD LUCK TO YOU, YOU KNOW, I HOPE YOU CAN MAKE A GO OF IT AND THAT WAS THE FIRST TIME I SPOKE TO JIMMY AND THAT LED TO ABOUT 10 OTHER MEETINGS AND ABOUT 30 HOURS OF FULLY TRANSCRIBED TAPED INTERVIEWS. SO, IN AROUND AUGUST OF 2008 BEAR WAS STILL THE ONLY FIRM THAT HAD IMPLODED, YOU KNOW, FANNIE, FREDDIE, LEHMAN, AIG, MERRILL, THEY WERE ALL TO COME IN THE NEXT FEW WEEKS. I HAD AGREED TO GO SEE JIMMY. I BASICALLY HAD BEEN MEETING JIMMY AT HIS APARTMENT IN NEW YORK, BUT I HAD BASICALLY AGREED TO GO SEE HIM AT HIS SUMMER HOUSE ON THE COAST OF NEW JERSEY IN A TOWN CALLED DEAL, NEW JERSEY, WHICH I JUST LOVED THE FACT THAT THIS, YOU KNOW, CARD SHARK JIMMY CAYNE, HAD A HOME IN DEAL, NEW JERSEY, WHICH WAS BY THE WAY AT THE TURN OF THE CENTURY A VERY POPULAR SPOT FOR WALL STREETERS BEFORE THE HAMPTONS CAME INTO VOGUE AND I HAD WRITTEN AN ARTICLE IN FORTUNE MAGAZINE THAT CAME OUT IN AUGUST, THAT SAME DAY THAT I WAS GOING TO SEE JIMMY, THAT BASICALLY WAS THE FIRST TIME THAT JIMMY HAD, YOU KNOW, THROUGH ME AND THROUGH THIS ARTICLE, WAS GOING TO EXPLAIN TO EVERYBODY WHO CARED TO READ THE ARTICLE, YOU KNOW, HIS VERSION OF EVENTS AND HOW THEY HAPPENED AND WHY. IT WAS SORT OF A CURTAIN RAISER FOR THE BOOK AND A PRELUDE TO WHAT WOULD EVENTUALLY BE COMING OUT IN MUCH MORE DETAIL IN THE BOOK AND I THOUGHT TO MYSELF WELL I HAVE THIS MEETING WITH JIMMY ALREADY SCHEDULED AND, YOU KNOW, HE KNOWS WHAT'S BASICALLY GOING TO COME OUT IN THE ARTICLE, HE KNOWS THE QUOTES THAT I'M GOING TO USE AND, YOU KNOW, I'M PRETTY, I'M GOOD WITH IT, HE'S NOT GOING TO BE MAD AT ME, IT'S GOING TO BE FINE, HE KNOWS WHAT'S COMING, SO I'M GOING TO KEEP THIS APPOINTMENT AND I DROVE THE 90 MINUTES TO HIS HOUSE IN DEAL, NEW JERSEY AND PREVIOUSLY WHEN I'D MET JIMMY HE'D GREET ME AT THE DOOR OF HIS APARTMENT AND THEN HE WOULD GO, YOU KNOW, HE HAS THIS BIG APARTMENT AND THIS BIG HOUSE, BUT HE LIKED TO BE IN A VERY SMALL ROOM IN THE APARTMENT AND IN THE HOUSE WHAT HE CALLS THE WOMB AND IT WAS THIS DARK ROOM WHERE HE, YOU KNOW, CAN DRAW THE SHADES, HE'S GOT CNBC GOING AND CHARLIE GASPARINO GOING, YELLING AT HIM AND HE'S SMOKING HIS $140 CIGARS AND WHATEVER ELSE HE'S SMOKING AND THIS IS WHERE HE LIKES TO BE AND SO WHEN I COME AND VISIT HIM AT HIS APARTMENT WE'D GO INTO THIS ROOM AND I'D BE ALMOST ASPHYXIATED BY THE CIGAR SMOKE. I LOVED IT, HE DRANK CRANBERRY JUICE AT THE SAME TIME THAT HE'S SMOKING CIGARS SO HE'S THINKING THAT, YOU KNOW, ONE WOULD BALANCE OUT THE OTHER FOR HEALTH PURPOSES I GUESS, SO I KNEW THAT WHEN I GOT DOWN TO DEAL, NEW JERSEY, BIG HOUSE AND HE DOESN'T GREET ME AT THE DOOR AND NOW I'M THINKING NOW I'VE GOT SOME TROUBLE HERE BUT I GET SHOWN BACK TO THE WOMB WHICH IS A LONG WAY BECAUSE IT'S SUCH A BIG HOUSE AND I GET THERE AND HE GREETS ME, YOU KNOW, I WALK IN AND HE DOESN'T REALLY SAY MUCH AND HE'S WEARING A POLO SHIRT BUTTONED ALL THE WAY TO THE TOP, HE'S WEARING WHITE SLACKS AND GUCCI LOAFERS, SMOKING HIS BIG CIGAR AND I'M THINKING AM I IN NEW JERSEY OR AM I IN MIAMI BEACH. I WASN'T SURE EXACTLY. MAYBE I'D GOTTEN LOST ALONG THE WAY AND I THOUGHT, YOU KNOW, HE DOESN'T SEEM TO BE GREETING ME VERY WARMLY AND I SAY HEY JIMMY, WHAT'S GOING ON AND HE JUST SORT OF LOOKS AT ME AND I SAID IS EVERYTHING OK, AND HE LOOKS AT ME AND HE GOES THIS, TWO THUMBS DOWN, AND I WAS THINKING WHAT IS HE TALKING ABOUT, WHERE'S HE GOING WITH THIS AND HE SAYS TO ME, HE SAYS, I GOTTA TELL YA, HE SAYS, THIS IS THE WORST THING THAT HAS EVER HAPPENED TO ME. AND I'M THINKING WHAT IS HE TALKING ABOUT, I MEAN, HERE'S A GUY WHOSE FIRM HAS, YOU KNOW, IMPLODED, HE'S LOST A BILLION DOLLARS IN HIS OWN STOCK, HIS 14,000 BEAR STEARNS ARE OUT OF WORK OR STRUGGLING TO FIND WORK, HE'S VIRTUALLY, HE'S THE LAUGHING STOCK OF WALL STREET BECAUSE HIS FIRM HAS IMPLODED AND AGAIN IT'S BEFORE ALL THE OTHERS DID AND HE'S TELLING ME THAT THIS ARTICLE THAT YOU WROTE IS THE WORST THING THAT'S EVER HAPPENED TO ME AND HE SAID THAT ALREADY BY THE TIME THAT I'D GOTTEN THERE, 15 PEOPLE HAD CALLED HIM UP AND TOLD HIM, HOW COULD YOU LET THIS GUY DO THIS TO YOU. THIS IS INCREDIBLE. AND I'M THINKING I'VE GOT TO GET OUT OF HERE AND I'VE GOT TO GET OUT OF HERE FAST. [ LAUGHTER ] HE SAYS TO ME, SIT DOWN, WE'RE GOING TO GO THROUGH THIS LINE BY LINE. I'M THINKING, OH GOD, I'VE GOT TO GET OUT OF HERE. I STARTED THE PIECE BY TALKING ABOUT JIMMY HAD ALMOST DIED, WHICH IS TRUE, JIMMY DID ALMOST DIE. IN SEPTEMBER OF 2007 HE HAD LEFT FROM A PRIVATE AIRPORT NEAR DEAL, NEW JERSEY ON A PRIVATE JET TO CHINA AND HE HAD GONE TO CHINA TO TRY TO DO A STOCK SWAP WITH A CHINESE INVESTMENT BANK AND THE IDEA WAS THAT BEAR STEARNS WOULD INVEST A BILLION DOLLARS IN THEM AND THEY WOULD INVEST A BILLION DOLLARS IN BEAR STEARNS AND REMEMBER WHAT I TOLD YOU ABOUT THAT RETURN ON EQUITY CALCULATION, IT WASN'T REAL CAPITAL COMING IN, SO THAT RETURN ON EQUITY CALCULATION WOULDN'T CHANGE SO HE WOULDN'T HAVE TO WORRY ABOUT THAT BUT IT SORT OF HAD THE APPEARANCE OF, YOU KNOW, NEW EQUITY COMING INTO THE FIRM WHICH, IN SEPTEMBER OF 07 PEOPLE WERE ALREADY BEGINNING TO TALK ABOUT BECAUSE THESE SECURITIES WERE LOSING VALUE AND THERE WAS GOING TO HAVE TO BE WRITE DOWNS AND JIMMY TOLD ME THAT WHEN HE WENT ON THIS MISSION, WHICH WAS A SECRET MISSION THAT NOBODY KNEW ABOUT, THAT WE HAD FLOWN UNDER THE RADAR AND OVER THE POLAR ICE CAPS TO CHINA AND WHILE HE WAS THERE HE ACTUALLY, HE'D BEEN TO CHINA QUITE OFTEN BECAUSE HE WAS A BRIDGE PLAYER AND HE USED TO PLAY BRIDGE WITH THE CHINESE LEADERS AND HE WOULD TELL ME ALL ABOUT PLAYING BRIDGE WITH THEM, AND WHEN HE GOT BACK FROM THIS TRIP, WHICH WAS ACTUALLY SUCCESSFUL, THEY DID ANNOUNCE THE DEAL ALTHOUGH IT NEVER CLOSED BECAUSE BEAR STEARNS IMPLODED BEFORE IT COULD CLOSE, HE WAS SOON THEREAFTER RUSHED TO THE HOSPITAL WITH A SEPSIS INFECTION, WHICH IS A URINARY TRACT INFECTION AND I WON'T GO INTO DETAIL ON IT BUT SUFFICE IT TO SAY THIS IS SOMETHING MEN DON'T WANT, NOBODY WANTS, AND IT'S VERY PAINFUL. BUT THEY DIDN'T ANNOUNCE THIS TO THE PUBLIC, HE'S THE CEO OF A PUBLIC COMPANY AND THEY DID NOT ANNOUNCE THIS. HE WAS TAKEN AWAY NOT IN AN AMBULANCE BUT IN A BLACK SEDAN TO A NEW YORK HOSPITAL FROM HIS APARTMENT ON PARK AVENUE AND HE WAS BASICALLY OUT OF THE OFFICE FOR A MONTH WITHOUT ANYBODY KNOWING ABOUT IT AT, BY THE WAY, A VERY CRUCIAL TIME. SO IN THIS ARTICLE, THE LEAD OF THIS ARTICLE, I HAD WRITTEN THAT HE ALMOST DIED, WHICH WAS TRUE, AND THAT HE WAS OUT OF OFFICE FOR A MONTH AND THIS WAS THE FIRST TIME THAT THIS WAS GOING TO BE REVEALED. NOW THE OTHER THING THAT I WROTE WAS THAT HE HAD LOST 30 POUNDS WHEN HE WAS IN THE HOSPITAL. NOW 99,999 TIMES OUT OF 100,000 IF YOU ASK SOMEBODY IF THEY CAN SPEAK TO YOUR DOCTOR BECAUSE YOU'RE WRITING A BOOK ABOUT THEM AND YOU WANT TO WRITE ABOUT A SERIOUS ILLNESS THAT THEY'VE HAD, THEY WILL SAY NO, I GUARANTEE IT, I PROMISE YOU THEY WILL SAY NO. JIMMY CAYNE IS THAT ONE EXCEPTION WHO SAID YES, YOU CAN GO TALK TO MY DOCTOR, WHICH I THOUGHT WAS ABSOLUTELY EXTRAORDINARY. NOW AT THIS TIME JIMMY WAS 74 YEARS OLD, HIS DOCTOR WAS IN HIS 80S AND HIS DOCTOR WAS ONE OF THESE SORT OF PARK AVENUE TYPES, VERY STUDIOUS, VERY REPUTABLE AND I WENT AND SAW HIM AND HE PULLED OUT THE JIMMY CAYNE FILE AND HE DUSTED IT OFF IT'S LIKE THAT SEINFELD EPISODE WHERE, YOU KNOW, ELAINE IS WORRIED ABOUT HER MEDICAL FILE AND DOCTORS ARE CONSTANTLY WRITING ALL THE NOTES ON THE MEDICAL FILE. SO THIS MEDICAL FILE HAS LOTS OF NOTES ALL ABOUT JIMMY CAYNE AND IN THAT CONVERSATION HE TELLS ME ALL THE ILLNESSES THAT JIMMY'S HAD WHICH WERE EXTRAORDINARY AND I WON'T BORE YOU WITH THEM, BUT HE ALSO TOLD ME HOW JIMMY CAYNE CAME INTO THE HOSPITAL AT ONE WEIGHT AND WENT OUT AT THE OTHER AND BEING A COLUMBIA BUSINESS SCHOOL GRADUATE I SUBTRACTED ONE NUMBER FROM THE OTHER AND GOT TO 30 AND SO THIS WAS THE NUMBER THAT I PUT IN THE ARTICLE. SO WHEN JIMMY TELLS ME TO SIT DOWN, WE'RE GOING TO GO THROUGH THIS LINE BY LINE, THE FIRST THING THAT HE SAYS TO ME, HE SAYS WHAT IS THIS I LOST 30 POUNDS IN THE HOSPITAL? I DIDN'T LOSE 30 POUNDS IN THE HOSPITAL AND I'M THINKING TO MYSELF, THIS IS NUMBER 1 ON HIS LIST. THIS IS WHAT HE'S SO UPSET ABOUT THAT I'D SAID THAT HE LOST 30 POUNDS IN THE HOSPITAL. I SAID JIMMY, REMEMBER, YOU KNOW, I TALKED TO YOUR DOCTOR. I WENT IN HE TALKED ME THROUGH ALL THIS. HE SAID YOU CAME IN AT THIS WEIGHT, WENT OUT AT THAT WEIGHT AND I SUBTRACTED ONE NUMBER FROM THE OTHER AND I GOT 30 POUNDS. I SAID JIMMY, COME ON, YOU KNOW, WHAT'S THE, THERE'S NO ISSUE HERE. HE SAID, NO, NO, I DIDN'T LOSE 30 POUNDS IN THE HOSPITAL. I SAID JIMMY I THINK YOU DID. HE SAID, NO, EVERYBODY'S GOING TO THINK I WAS FAT. AND THERE WAS A LIST OF 25 THINGS BY THE WAY BUT I'M ONLY GOING TO TELL YOU ONE MORE AND THAT IS, I ALSO WROTE THAT HE HAD MANEUVERED HIS WAY TO THE TOP OF BEAR STEARNS. NOW I WORKED ON WALL STREET FOR 17 YEARS, THIS WAS SECOND BOOK ABOUT WALL STREET. I GUESS I AM A STUDENT OF WALL STREET ETHICS, WALL STREET MORAYS, WALL STREET BEHAVIOR, WALL STREET POWER PLAYS AND I THINK THAT BY DESCRIBING WHAT JIMMY DID AS MANEUVERING HIS WAY TO THE TOP OF BEAR STEARNS WAS VERY KIND. I DIDN'T WRITE THAT HE HAD KNEE CAPPED ANYBODY WHO'D GOTTEN REMOTELY CLOSE TO HIM IN TERMS OF POWER. I DIDN'T WRITE THAT HE HAD FIRED WARREN SPECTOR WHO WAS THE HEAD OF FIXED INCOME AND THE CO-PRESIDENT OF THE FIRM WITH ALLAN SCHWARTZ IN AUGUST OF 2007. WHY DID HE FIRE WARREN SPECTOR, BECAUSE WARREN SPECTOR HIMSELF WAS ALSO A NATIONAL BRIDGE CHAMPION AND BY THE WAY THIS IS THE DOUBLE OR TRIPLE [INAUDIBLE] ON THE TITLE OF THE BOOK, HOUSE OF CARDS. JIMMY AND WARREN HAD BOTH BEEN PLAYING AT A NATIONAL BRIDGE TOURNAMENT IN NASHVILLE, TENNESSEE IN JULY OF 2007. NOW THAT PROBABLY MEANS NOTHING TO YOU ALL, BUT IN JULY OF 2007 THE TWO BEAR STEARNS HEDGE FUNDS HAD BLOWN UP IN JUNE OF 2007 AND WERE LIQUIDATED IN JULY OF 2007. YOU WOULD THINK THAT THE SENIOR MANAGEMENT OF THE FIRM WOULD NOT BE PLAYING BRIDGE AT A NATIONAL BRIDGE TOURNAMENT DURING ALL OF THIS BUT THEY WERE AND BY THE WAY WHEN YOU PLAY AT THESE NATIONAL BRIDGE TOURNAMENTS YOU'RE BASICALLY INCOMMUNICADO FOR A WEEK TO 10 DAYS AND WHY DID JIMMY FIRE WARREN, WELL PROBABLY HE FIRED HIM BECAUSE WARREN SHOULD HAVE BEEN IN NEW YORK MANAGING THE HEDGE FUND CRISIS WHICH REPORTED TO HIM RATHER THAN PLAYING BRIDGE BUT HE ALSO FIRED HIM BECAUSE HE THOUGHT THAT HE HAD AN AGREEMENT WITH WARREN THAT THEY BOTH WOULDN'T BE PLAYING BRIDGE AT THE SAME TOURNAMENT AT THE SAME TIME AND THAT WARREN HAD DEFIED HIM ON THAT AND OH BY THE WAY WARREN WAS DOING BETTER IN THE TOURNAMENT THAN JIMMY. SO JIMMY COMES BACK AND HE FIRES WARREN. AND YOU KNOW, THIS IS WHY I LOVE JIMMY CAYNE, THIS IS WHY I LOVE WRITING ABOUT WALL STREET, THIS IS WHY THE SUBTITLE OF THE BOOK IS A TALE OF HUBRIS AND RETCHED EXCESS ON WALL STREET BECAUSE WITHOUT MISSING A BEAT TO THE ANSWER TO MY QUESTION OF WHAT WORD HE WOULD HAVE USED INSTEAD OF MANEUVERED, HE SAID ASCENDED. [ LAUGHTER ] YOU SHOULD HAVE WRITTEN THAT I ASCENDED TO THE TOP OF BEAR STEARNS SO THAT'S MY LITTLE THEORY ON HOW THIS ALL HAPPENED AND WHY AND I'M HAPPY TO MOVE ON TO THE QUESTION PART OF THE SPEECH NOW, THANK YOU. [ APPLAUSE ] [ SILENCE ] >> ART LEVINE: THANK YOU. BILL'S STORY IS TO LEARN HOW TO PLAY BRIDGE. >> [INAUDIBLE]. >> ART LEVINE: LET'S ASK IF YOU HAVE A QUESTION FROM THE AUDIENCE, IF YOU WRITE IT DOWN ON THE CARD AND BRING IT OVER TO THE ISLES AND MAYBE SOME OF THE USHERS OR SOME OF OUR STAFF CAN BRING THEM UP HERE BUT WE'LL START WITH THE PANEL AND LET ME FIRST INTRODUCE THE PANEL, CRAIG SMITH, A LONG TIME FACULTY MEMBER HERE AT LONG BEACH STATE, FORMER TRUSTEE OF THE CSU SYSTEM, FORMER SPEECH WRITER FOR PRESIDENT FORD AND PROLIFIC AUTHOR, CRAIG, WELCOME TO OUR PANEL. MR. CHAVEZ IS THE PRESIDENT OF THE ASSOCIATED STUDENTS HERE ON CAMPUS AND WE'RE DELIGHTED TO HAVE CHRIS ON OUR PANEL AND MY BOSS, DEAN MIKE SOLT, DEAN OF THE COLLEGE OF BUSINESS SO LET'S GIVE THE PANEL A LITTLE HAND AND WE'LL START WITH THE PANEL AND. [ APPLAUSE ] CRAIG, YOU'VE BEEN ON OUR PANEL ALL 3 YEARS SO LET'S START WITH YOU. >> CRAIG SMITH: OK, ONE OF THE MOST FASCINATING THINGS YOU TALKED ABOUT WAS THIS REPO BUSINESS AND HOW THEY FINANCED THEMSELVES WITH $75 BILLION DOLLARS. IF THAT IS NOT REGULATED AND IF REGULATORS DO NOT CATCH THAT AND IF THERE AREN'T REGULATIONS TO CATCH IT, WHAT KIND OF REGULATION SHOULD WE HAVE THAT WOULD CATCH IT? >> WILLIAM D. COHAN: YOU KNOW I GUESS I DON'T THINK THAT THIS IS A MATTER FOR REGULATION, YOU KNOW, JUST BECAUSE BEAR STEARNS DID IT THIS WAY AND LEHMAN DID IT THIS WAY BECAUSE THEY WERE PROBABLY SHORT-TERM GREEDY, YOU KNOW, LET'S JUST TAKE THE EXAMPLE OF GOLDMAN SACHS, NOW, YOU KNOW, I'M NOT GOING TO APOLOGIZE FOR GOLDMAN SACHS AS I MENTIONED I'M WRITING A BOOK ABOUT THEM AND I'M SURE THEY'LL GET THE BILL COHAN TREATMENT THAT BOTH LAZARD AND BEAR STEARNS GOT, BUT YOU HAVE TO GIVE THEM CREDIT FOR NOT MAKING THEMSELVES VULNERABLE THROUGH THIS SHORT-TERM FINANCING IN THE SAME WAY THAT BEAR STEARNS DID AND I ASKED THE CO-PRESIDENT OF GOLDMAN SACHS, A GUY NAMED GARY COHN, WHY THAT WAS, WHY DID, YOU KNOW THEY HAD MUCH MORE LONG-TERM DEBT AND IT COST THEM A LOT MORE MONEY AND THEIR PROFITS WERE LOWER AS HARD AS THAT MAY BE TO IMAGINE, THIS IS GOLDMAN SACHS, A LOT LOWER AS A RESULT, THEY COULD HAVE MADE A LOT MORE MONEY BY FINANCING THEMSELVES IN THE SHORT-TERM REPO MARKET, THEY CHOSE TO FINANCE THEMSELVES MORE PRUDENTLY THROUGH LONG-TERM FINANCING BECAUSE, AS THEY SAID, THEY ARE LONG-TERM GREEDY, NOT SHORT-TERM GREEDY AND I DON'T KNOW WHETHER THAT'S A GOOD THING OR A BAD THING BUT THAT'S WHY, THAT'S PRIMARILY WHY THEY'RE STILL AROUND AND BEAR AND LEHMAN AND MERRILL ARE NOT BECAUSE THEY WERE ALL MUCH TOO EXPOSED TO THE SHORT-TERM FINANCING MARKETS AND I SPENT A LOT OF TIME TALKING TO TIM GEITHNER, WHO AT THAT TIME WAS OUR HEAD OF THE NEW YORK FED AND NOW OUR TREASURY SECRETARY AND HE WAS AWARE OF THE RISKS THAT THESE FIRMS WERE TAKING IN THE SHORT-TERM FINANCING MARKETS AND IT'S ALWAYS EASY IN HINDSIGHT, HINDSIGHT IS 20/20, TO REALIZE HOW BIG A PROBLEM THAT WAS. YOU KNOW, THE THING IS THAT THIS SHORT-TERM REPO MARKET HAD WORKED, YOU KNOW, VERY WELL FOR 20 YEARS AND PART OF THE FAILURE HERE IN THIS CRISIS WAS A FAILURE OF IMAGINATION. NOBODY COULD EVEN CONCEIVE OF THE FACT THAT THE SHORT-TERM FINANCING MARKETS WOULDN'T OPERATE PROPERLY IN THIS CRISIS BUT, YOU KNOW, IF YOU THINK ABOUT IT WE HAVE THIS CAPITAL MARKET SYSTEM IN THIS COUNTRY WHICH IS THE HEART AND SOUL OF CAPITALISM THAT DEPENDS UPON THE CONFIDENCE THAT WE PLACED IN THE SYSTEM BECAUSE WITHOUT THAT CONFIDENCE YOU SEE HOW VULNERABLE THESE FIRMS ARE. I MEAN NOBODY COULD HAVE CONCEIVED OF HOW VULNERABLE THESE FIRMS WERE TO THIS LOSS OF CONFIDENCE AND IT'S BECAUSE OF THIS SHORT-TERM FINANCING SO I THINK THEY GOT THE MESSAGE BUT I'M SURE OVER TIME THAT THEY'LL GO BACK TO IT BECAUSE IT'S SO CHEAP. >> ART LEVINE: IT KIND OF REMINDS ME OF THE TITANIC THAT PEOPLE THOUGHT WAS UNSINKABLE. >> WILLIAM D. COHAN: VERY MUCH SO, IT'S VERY MUCH A LACK OF IMAGINATION. >> ART LEVINE: DEAN MIKE SOLT, WELCOME. >> DEAN MIKE SOLT: THANK YOU ART. BACK IN LATE 2008 ONE OF THE CNBC COMMENTATORS, RICK SANTELLI, WAS MORE ON SORT OF A RANT AND HE WAS TALKING ABOUT GOVERNMENT IS PROMOTING BAD BEHAVIOR. DO WE REALLY WANT TO SUBSIDIZE THE LOSER'S MORTGAGES, THIS IS AMERICA. HOW MANY OF YOU PEOPLE WANT TO PAY FOR YOUR NEIGHBOR'S MORTGAGE? PRESIDENT OBAMA, ARE YOU LISTENING? HOW ABOUT WE ALL STOP PAYING OUR MORTGAGES, IT'S MORAL HAZARD. HE GOT LOTS OF CHEERS FROM ALL THE TRADERS IN THE PIT THAT DAY. HE CALLED FOR A NEW TEA PARTY IN SUPPORT OF CAPITALISM. SO NOW I GUESS IF YOU FOLLOW WHAT HE IS SAYING, HE'S SAYING THAT THE GOVERNMENT SHOULD LEAVE THE MARKET ALONE, THE MARKET WILL CORRECT ITSELF, SORTING OUT THE WINNERS AND LOSERS, ECONOMIC AGENTS SHOULD BEAR THE CONSEQUENCES OF THEIR DECISIONS AND SHOULD NOT EXPECT TO BE BAILED OUT OTHERWISE THIS COUNTRY WILL SLIDE INTO SOCIALISM. PURE CAPITALISM SHOULD RULE IN THAT VIEW. DO WE NEED REGULATION AND BAILOUTS AND IF SO, HOW MUCH AND FOR HOW LONG? >> WILLIAM D. COHAN: YEAH, WELL RICK CREATED QUITE A NAME FOR HIMSELF THERE FOR A WEEK OR SO AS A RESULT OF THAT RANT. SO, I'VE GIVEN THIS A LOT OF THOUGHT, YOU KNOW, IN THE WRITING OF THE BOOK AND SINCE I PUBLISHED THE BOOK AND OTHER BOOKS HAVE BEEN PUBLISHED AND I'VE LEARNED A LOT, ESPECIALLY FROM ANDREW ROSS SORKIN'S BOOK, TOO BIG TO FAIL, WHICH I RECOMMEND TO YOU AS WELL AND I GUESS NOW I'VE COME TO THE POINT WHERE I THINK THAT WHILE I WOULDN'T HAVE HAD AS GOOD A STORY TO TELL, I THINK THAT THEY SHOULD HAVE LET BEAR STEARNS FAIL AND I THINK, YOU KNOW, YES, WE NEED REGULATION BECAUSE WHAT WE'VE SEEN IN THE LAST 20 YEARS, 25 YEARS, IS THAT SORT OF THIS TENDENCY TOWARDS HANDS OFF LAISSEZ-FAIRE WITH WALL STREET SECURITIES FIRMS AND REPEAL OF GLASS-STEAGALL AND FAILURE TO, YOU KNOW, THE SEC PUT INTO PLACE NEW REGULATIONS IN JUNE OF 2004 THAT ALLOWED THESE FIRMS TO LEVERAGE THEMSELVES UP FAR BEYOND WHAT THEY'VE DONE PREVIOUSLY AND THE QUID PRO QUO FOR THAT WAS THAT THEY WERE GOING TO REGULATE THEM MORE CLOSELY AND HAVE ACTUAL PEOPLE FROM THE SEC IN THESE FIRMS MONITORING WHAT THEY DID. UNFORTUNATELY THEY FORGOT TO DO THAT PART AND SO THE FIRST TIME THE SEC WAS AT BEAR STEARNS WAS IN THAT SAME AUGUST 2007 WEEKEND WHEN JIMMY CAYNE FIRED WARREN FOR PLAYING BRIDGE. KKR WAS IN THERE THINKING ABOUT PUTTING AN EQUITY INVESTMENT IN THE FIRM AND IN THE THIRD ROOM WAS THE SEC REGULATORS FOR THE FIRST TIME SINCE THIS REGULATION WAS PUT IN IN JUNE 2004 SO THAT IS, YOU KNOW, THAT'S CRAZY, RIGHT. YOU KNOW, THE MORE I THINK ABOUT IT, HAD THEY LET BEAR STEARNS FAIL, HAD THEY NOT BAILED OUT THE CREDITORS, HAD THEY NOT GIVEN SHAREHOLDERS $2.00 AND THEN $10.00 A SHARE, THE MARKET WOULD HAVE GOTTEN A LOUD SIGNAL AND MESSAGE THAT YOU'RE ON YOUR OWN, WE'RE NOT GOING TO HELP YOU, YOU'RE NOT TOO BIG TO FAIL, YOU'RE NOT SYSTEMICALLY IMPORTANT AND I ASSURE YOU THAT AT THAT MOMENT MERRILL LYNCH WOULD HAVE DONE WHAT WAS NECESSARY, LEHMAN BROTHERS WOULD HAVE DONE WHAT WAS NECESSARY AND WE WOULDN'T OF HAD THIS REGULATORY ARBITRAGE, THIS GUESSING GAME ABOUT WHETHER PAULSON WAS GOING TO BAIL US OUT OR NOT AND UNFORTUNATELY THAT'S WHAT HAPPENED AS A RESULT SO DICK FULD AT LEHMAN THOUGHT HE WAS GOING TO GET THE BAIL OUT. HE PUT ALL HIS CHIPS ON THE BAIL OUT AND HE GUESSED WRONG. HAD BEAR STEARNS GONE DOWN, DICK FULD WOULD HAVE FIGURED OUT VERY QUICKLY HE HAD TO SELL HIS FIRM OR, YOU KNOW, DO WHAT HE DID 6 MONTHS TOO LATE, 6 MONTHS EARLIER. SO I WOULDN'T HAVE HAD AS GOOD A STORY BUT I THINK THAT WOULD HAVE BEEN BETTER FOR THE REST OF US, FOR EVERYONE ELSE. >> ART LEVINE: CHRIS, YOU'RE THE PRESIDENT OF THE ASSOCIATED STUDENTS AND THIS MELT DOWN HAS SUBSTANTIALLY IMPACTED STUDENTS WITH 30% RAISES IN YOUR STUDENT FEES, TOUGHER TO GET CLASSES. HOW DO YOU AND YOUR GENERATION VIEW THIS WHOLE EPISODE. >> CHRIS CHAVEZ: WELL, FRANKLY, THIS FOR A LOT OF STUDENTS CAME AS A LARGE SURPRISE BECAUSE WE GREW UP HEARING ABOUT THESE FIRMS, ABOUT THESE [INAUDIBLE] FIRMS, ABOUT, YOU KNOW, I REMEMBER ONE TIME JOKING A COUPLE OF MONTHS BEFORE THE CLASS. I'D SAY WELL WE'LL KNOW THINGS ARE BAD WHEN WASHINGTON MUTUAL GOES. SO, I THINK THERE'S A DISCONNECT, NOT NECESSARILY BY CHOICE, BUT I THINK A CULTURAL DISCONNECT, BETWEEN WHAT THESE FIRMS ACTUALLY DO AND HOW MANY PEOPLE KNOW THAT THE DOW JONES INDUSTRIAL COMPOSITE IS JUST A COLLECTION OF THE RELATIVE VALUE OF 30 COMPANIES, 30 COMPANIES OUT OF THE ENTIRE UNITED STATES ECONOMY BUT WE ACT AS IF THE DOW JONES IS EVERYTHING AND THE END-ALL BE-ALL, OF THE U.S. ECONOMY. SO I THINK IT WAS A RUDE AWAKENING CALL FOR MANY PEOPLE PARTICULARLY MY GENERATION BECAUSE WE'RE IN THE SITUATION WHERE WE'RE STARTING TO HAVE TO THINK ABOUT WHAT RETIREMENT, WEIGH RETIREMENT, HOW WE'RE GOING TO PROVIDE FOR OURSELVES ONCE WE GET OLDER SO. >> ART LEVINE: THANK YOU. BILL, LET'S TALK FOR A MOMENT ABOUT THE ROLE OF GOVERNMENT OR THE LACK OF THE ROLE OF GOVERNMENT. MANY FEEL THAT THE SEC AND OTHERS WERE KIND OF ASLEEP AT THE SWITCH AND GREED IS NOTHING NEW FOR WALL STREET. GREED'S BEEN AROUND FOREVER AND EVEN CRIMINAL BEHAVIORS BEEN AROUND FOREVER BUT SHOULDN'T GOVERNMENT HAVE A REGULATORY COMPLEX THAT STOPS THIS FROM HAPPENING OR AT LEAST STOPS COMPANIES FROM GETTING TOO BIG. WHY SHOULD ANY COMPANY IN AMERICA BE TOO BIG TO FAIL? >> WILLIAM D. COHAN: NO COMPANY SHOULD BE TOO BIG TO FAIL, I MEAN, AND I THINK FOR THE GOOD OF THE SYSTEM WE HAVE TO LET COMPANIES, THAT'S WHY WE HAVE BANKRUPTCY COURTS, THAT'S WHY WE HAVE BANKRUPTCY LAWS, THAT'S WHY WE HAVE REORGANIZATIONS AND, YOU KNOW, IT'S NOT PRETTY BUT CAPITALISM OFTEN ISN'T PRETTY. I MEAN THE ECONOMIST JOSEPH SCHUMPETER WROTE ABOUT CREATIVE DESTRUCTIONISM AS BEING A KEY TENANT OF CAPITALISM AND SOMETIMES YOU JUST HAVE TO LET, YOU KNOW, THE FORCES OF EXCESS AND HUMAN NATURE, I MEAN, THIS ISN'T THE FIRST TIME, THIS IS LIKE THE THOUSANDTH TIME THAT THIS HAS HAPPENED. BUT, YOU KNOW, IF YOU DON'T, YOU CAN'T CONTROL HUMAN NATURE, YOU SHOULDN'T TRY BUT, YOU KNOW, YOU DO HAVE TO LET THE SYSTEM WORK OTHERWISE PEOPLE AREN'T GOING TO LEARN OR THEY'RE GOING TO GET THE WRONG MESSAGE. I MEAN ACTUALLY, YOU KNOW, PEOPLE TALK ABOUT HOW WHAT A HORRIBLE THING IT WAS FOR LEHMAN BROTHERS TO FAIL BUT ACTUALLY I DON'T REALLY LOOK AT IT THAT WAY, I LOOK AT IT AS, AND I THINK THE GOVERNOR OF YOUR STATE WOULD APPRECIATE THIS METAPHOR, LIKE THAT VILLAIN IN TERMINATOR II THAT'S MADE OF SORT OF LIQUID MERCURY OR WHATEVER THE GUYS MADE OF AND, YOU KNOW, HE GETS CANNONS SHOT THROUGH HIM AND BAZOOKAS SHOT THROUGH HIM AND HE MELTS DOWN, HE LIQUIDATES AND LIQUEFIES AND REFORMULATES AS SOME HORRIBLE NEW VILLAIN AGAIN AND HE GOES ON, THAT'S WHAT, WHERE AM I GOING WITH THIS I BET YOU'RE WONDERING, THAT'S WHAT HAPPENS WITH LEHMAN BROTHERS AND, YOU KNOW, LEHMAN BROTHERS, YOU KNOW, MELTED DOWN BUT, YOU KNOW, ALL THE PIECES SORT OF GOT BOUGHT. YOU KNOW, BARCLAYS BOUGHT THE INVESTMENT BANKING BUSINESS IN THE U.S., NOMURA BOUGHT THE INVESTMENT BANKING BUSINESS IN EUROPE, NEUBERGER BERMAN IS ON ITS OWN NOW, THE PRIVATE EQUITY GUYS ARE ON ITS OWN, YOU KNOW, THEN BY THE WAY THERE'S THE CARCASS OF THE COMPANY, THE LEHMAN BROTHERS HOLDINGS WHICH IS IN BANKRUPTCY WHERE THESE LAWYERS AND BANKERS ARE SUCKING UP HUNDREDS OF MILLIONS OF FEES, YOU KNOW, ANNUALLY TO SUSTAIN THIS THING. IF THIS COMPANY HAD ALL THESE RESOURCES WHAT WAS IT DOING, YOU KNOW, IN BANKRUPTCY IN THE FIRST PLACE. SO I THINK YOU HAVE TO, YOU KNOW, IT'S A GOOD, I THINK THAT WE BEGAN TO GET BETTER, AS HARD AS IT MAY SEEM, WHEN LEHMAN BROTHERS WAS ALLOWED TO FAIL. AS I SAY THEY SHOULD HAVE LET BEAR STEARNS FAIL SOONER I THINK PEOPLE WOULD HAVE GOTTEN THE MESSAGE SO, ON THE ONE HAND I THINK YES, YOU HAVE TO LET THE MARKETS DO THEIR THING WITHOUT GOVERNMENT INTERVENTION, ON THE OTHER HAND, YOU DO HAVE TO, THERE ARE PLENTY OF REGULATIONS ON THE BOOKS AND THEY NEED TO BE ENFORCED. >> ART LEVINE: SO IT'S NOT THE LACK OF REGULATIONS, THE EXISTING ONES WERE NOT PROPERLY ENFORCED. >> WILLIAM D. COHAN: IT'S NOT THE LACK AND, YOU KNOW, TO SOME EXTENT IT'S NOT A FAIR FIGHT AS WE WERE TALKING ABOUT BEFORE, I MEAN, WALL STREET EXISTS TO EVADE THE REGULATIONS THAT IT HELPS WRITE. THESE PEOPLE GET PAID MILLIONS OF DOLLARS TO DO THAT AND YOU KNOW, YOU'VE GOT REGULATORS WHO MAKE, YOU KNOW, A FRACTION OF THAT WHO DON'T HAVE THE RESOURCES, YOU KNOW, IT DOESN'T HELP WHEN YOU HAVE A CONGRESSMAN FROM JUST SOUTH OF HERE WHO I THINK WAS BUSY SURFING THE WHOLE TIME WHEN HE SHOULD HAVE BEEN REGULATING AND HEAD OF THE SEC, HE WAS COMPLETELY ASLEEP AT THE SWITCH AND I'M SORRY FOR ALL THOSE CHRISTOPHER COX SUPPORTERS OUT THERE, BUT THERE'S A GUY WHO HAS NEVER COME FORWARD TO EXPLAIN WHAT THE HECK HE WAS DOING THERE THAT WHOLE TIME. >> ART LEVINE: AGAIN WE INVITE ANY OF YOU IN THE AUDIENCE THAT HAVE A QUESTION JUST TO WRITE IT DOWN AND PASS IT OVER AND CRAIG WHY DON'T YOU TAKE ANOTHER SHOT AT IT WHILE WE GET SOME QUESTIONS FROM THE AUDIENCE. >> CRAIG SMITH: I'VE GOT A QUESTION ABOUT WHAT SEEMS TO ME RIGHT NOW AN ANOMALY AND THAT IS PRODUCTIVITY IS UP, WE'RE BACK TO ABOUT 6% ANNUALLY, WE'RE VERY GOOD AT PRODUCTIVITY, THE MARKET'S BACK UP OVER 10,000 BUT UNEMPLOYMENT ISN'T BACK. HAVE WE REACHED A POINT WHERE WE HAVE AN ECONOMY THAT'S GOING TO BE VERY PRODUCTIVE WHERE WE'RE GOING TO HAVE GROWTH IN THE GDP AND EVERYTHING ELSE AND WE'RE NEVER GOING TO GET BACK TO 4% UNEMPLOYMENT. >> WILLIAM D. COHAN: THE SO-CALLED JOBLESS RECOVERY SCENARIO. NO I THINK THAT THE REASON THAT UNEMPLOYMENT. FIRST OF ALL I HAD AN ARTICLE IN THIS MONTH'S VANITY FAIR ABOUT LARRY SUMMERS WHO IS AN INTERESTING FELLOW AND, YOU KNOW, I ENCOURAGE YOU TO READ IT BUT ONE THING HE TALKS ABOUT AND TIM GEITHNER TALKS ABOUT IS HOW, OF COURSE, AND THIS IS WHAT ECONOMISTS TALK ABOUT, IS HOW JOBS AND NEW JOBS ARE A LAGGING INDICATOR AND THE UNEMPLOYMENT RATE IS GOING TO GET HIGHER BEFORE IT GETS LOWER AND THAT'S A LAGGING INDICATOR. THE TRUTH OF THE MATTER IS THAT THEY'VE SPENT ALL THIS TIME AND ENERGY TRYING TO FIX THE TOP OF THE PYRAMID. THIS IS LIKE TRICKLE DOWN ECONOMICS PART 2, I MEAN THEY'VE DECIDED WE NEED TO FIX WALL STREET. WE NEED TO FIX THE ENGINE ROOM OF CAPITALISM AND I'M NOT SAYING THEY'RE WRONG BUT, YOU KNOW, THEY'VE POURED SOME 12 TRILLION DOLLARS INTO THAT ENGINE ROOM AND TO GET IT BACK ON IT'S FEET AGAIN AND THAT'S, YOU KNOW, IN PART WHY YOU SEE THE DOW GOING FROM 6,500 TO ALMOST 11,000, THAT'S WHY YOU SEE GOLDMAN SACHS MAKING RECORD PROFITS BECAUSE THEY HAVE LESS COMPETITION, THEY'RE COST OF GOODS SOLD, I.E., CAPITAL, THEIR ROCKET FUEL IS CHEAP. I LIKE TO SAY THAT THE AIRLINES COULD MAKE MONEY TOO IF THE JET FUEL WAS FREE AND SO IT'S NO SECRET THEY'RE MAKING MONEY BUT THEY'VE MADE THIS DECISION AND THEY HOPE THAT BY FIXING THE ENGINE ROOM OF CAPITALISM THAT THIS WILL SOMEHOW TRICKLE OUT TO THE REST OF THE ECONOMY BUT THE FACT IS THAT JOBS ARE CREATED IN THIS COUNTRY BY SMALL BUSINESS AND NEW BUSINESS AND EXPANDING BUSINESSES AND THESE SMALL BUSINESSES AND NEW BUSINESSES CAN NOT GET CAPITAL, THEY ARE CHOKED OFF. IT'S JUST NOT WORKING AT THE MOMENT AND UNTIL THAT LOOSENS UP AND THAT HAS TO DO WITH RISK, YOU KNOW, THAT HAS TO DO WITH BANKERS WILLING TO TAKE RISK AGAIN, YOU KNOW, AND ONCE AGAIN, THEY GO FROM A SITUATION WHERE THEY COMPLETELY FORGET THAT THERE ARE RISKS TO THINGS AND THAT THERE'S NO COST TO RISK TO A SITUATION WHERE THERE'S NO PRICE THAT YOU CAN PUT ON MAKING RISK AVAILABLE, SO, YOU KNOW, WALL STREET JUST GOES THROUGH THESE CRAZY PENDULUMS AND UNTIL THAT FIXES ITSELF AND IT PROBABLY WILL OVER TIME, WE'RE GOING TO BE FACED WITH INCREASING JOB LOSSES. THE SCARIER FIGURE TO ME IS THE, YOU KNOW, 17 TO 18% OF THE PEOPLE WHO HAVE EITHER LOST THEIR JOBS WHO HAVE STOPPED LOOKING FOR JOBS OR THE PEOPLE WHOSE JOBS HAVE, YOU KNOW, BEEN ELIMINATED AND THERE'S NO WAY TO GET ANYTHING LIKE THEM, YOU KNOW, BACK AGAIN. I MEAN PEOPLE IN SOME ASPECTS OF FINANCIAL SERVICES OR IN THE AUTO INDUSTRIES OR THESE OTHER INDUSTRIES, MANUFACTURING WHERE THESE JOBS ARE JUST GONE AND HOW DO YOU, YOU KNOW, IF YOU'RE, YOU KNOW, IN MIDDLE AGE AND YOU'VE BEEN DOING ONE THING YOUR WHOLE LIFE, HOW DO WE REPROGRAM YOURSELF TO, YOU KNOW, YOU CAN'T JUST, IF I'M BEEN, YOU KNOW LATHING FURNITURE MY WHOLE LIFE, HOW DO I SUDDENLY, YOU KNOW, MAKE SOLAR PANELS. I MEAN THAT DOESN'T, THAT IS A MAJOR PROBLEM. >> ART LEVINE: BILL WE HAVE A COUPLE OF QUESTIONS FROM THE AUDIENCE. I'LL GIVE YOU THREE AND YOU CAN COMBINE THEM OR WHATEVER. SEVERAL PEOPLE WANTED TO KNOW ABOUT GLASS-STEAGALL, SHOULD WE GET BACK TO THAT. ANOTHER WANTED TO KNOW WHAT DO YOU THINK OF BANK OF AMERICA'S PURCHASE OF MERRILL LYNCH AND THIRD, A RATHER MACRO [ASSUMED SPELLING] QUESTION, IS THIS THE END OF THE AMERICAN EMPIRE. >> WILLIAM D. COHAN: I'VE GIVEN A LOT OF THOUGHT TO ALL THREE OF THOSE, YOU KNOW, I DON'T WANT TO BE MR. GLOOM AND DOOM, BUT I DO, YOU KNOW, I DON'T KNOW. [ LAUGHTER ] I SOMETIMES THINK ABOUT WRITING A BOOK CALLED 1963 BECAUSE, MAYBE IT'S BECAUSE I'M FROM MASSACHUSETTS BUT, YOU KNOW I THINK THAT SOMETHING CHANGED IN THE COUNTRY AFTER NOVEMBER 1963 AND I JUST. >> ART LEVINE: THAT WOULD BE KENNEDY ASSASSINATION. >> WILLIAM D. COHAN: THE KENNEDY ASSASSINATION AND I THINK WE'RE SORT OF STILL STRUGGLING WITH THAT. I MAY BE TOTALLY WRONG ABOUT THAT AND, YOU KNOW, ON THE ONE HAND I THINK THAT THE AMERICAN SPIRIT IS INDOMITABLE AND, YOU KNOW, IT'S GOING BE, YOU KNOW, GET US OUT OF THIS AND I THINK TO SOME EXTENT THAT'S RIGHT BUT I THINK WE'VE ALSO BECOME A COUNTRY OF SLITHERERS WHO DON'T LIKE TO TAKE RESPONSIBILITY FOR THEIR ACTIONS AND I THINK UNTIL WE TAKE RESPONSIBILITY FOR OUR ACTIONS LIKE NOT SIGNING LOAN DOCUMENTS THAT ARE COMPLETELY FICTITIOUS AND, YOU KNOW, TAKING OUT MONEY THAT WE CAN'T AFFORD TO PAY BACK OR, I MEAN, NOT A SINGLE WALL STREET CEO HAS COME FORWARD TO EXPLAIN TO THE AMERICAN PEOPLE HOW THIS HAPPENED AND WHY, I MEAN, YOU KNOW, AND WHAT THE ROLE OF WALL STREET WAS IN THIS. NO ONE HAS COME FORWARD TO SAY THANK YOU TO THE AMERICAN TAXPAYER FOR BAILING THEM OUT OF THIS AND, YOU KNOW, MAKING THEIR PERSONAL FORTUNES BE WORTH HUNDREDS OF MILLIONS OF DOLLARS AGAIN, YOU KNOW, UNTIL WE TAKE RESPONSIBILITY FOR OUR ACTIONS, I THINK WE, AS A COUNTRY, ARE GOING TO BE FLAWED. THAT'S JUST THE WAY I FEEL. I MEAN THIS COUNTRY WAS NOT BUILT ON PEOPLE SLITHERING AWAY FROM RESPONSIBILITY, IT WAS BUILT ON QUITE THE OPPOSITE SO THAT'S THAT. AS FAR AS, YOU KNOW, GLASS-STEAGALL IS CONCERNED I THINK THE REPEAL OF GLASS-STEAGALL MADE DE FACTO WHAT WAS ALREADY DU JOUR, IN OTHER WORDS THAT IT WAS ALREADY THE FACT THAT COMMERCIAL BANKS WERE COMPETING WITH INVESTMENT BANKS. YOU KNOW, IT'S LIKE UNSCRAMBLING THE EGG. JUST LIKE YOU'RE NOT GOING TO MAKE GOLDMAN SACHS INTO A PRIVATE PARTNERSHIP AGAIN, I THINK THERE ARE WAYS TO, YOU KNOW, GET PEOPLE TO HAVE MORE SKIN IN THE GAME AND WHILE I WOULDN'T, YOU KNOW, REINSTATE GLASS-STEAGALL I FEEL VERY STRONGLY THAT WE NEED TO GET BACK TO A TIME AS BEST WE CAN WHERE THE PEOPLE, THE TOP 100 PEOPLE WHO WERE RUNNING THESE FIRMS, WHO WERE MAKING MILLIONS OF DOLLARS A YEAR, WHO WERE MAKING THE DECISIONS ABOUT WHERE CAPITAL IS DEPLOYED AND WHAT BUSINESSES TO BE IN, SHOULD HAVE SKIN IN THE GAME AGAIN AND SHOULD HAVE THEIR ENTIRE NET WORTH'S ON THE LINE FOR THEIR DECISIONS THAT THEY MAKE AND SO I PROPOSE, I WROTE THIS IN A JUNE 2009, INCREDIBLE, I THOUGHT I'D DIED AND GONE TO HEAVEN, FULL PAGE EDITORIAL IN THE NEW YORK TIMES IN THE SUNDAY NEW YORK TIMES. I DON'T KNOW WHAT THEY WERE THINKING BY GIVING ME THAT KIND OF TERRITORY BUT IN THERE I PROPOSED THAT ESSENTIALLY A NEW CLASS OF SECURITY AT THE BOTTOM OF THESE CAPITALIST STRUCTURES OF THESE BANKS GET CREATED THAT REPRESENTS THE FULL NET WORTH OF THESE TOP HUNDRED PEOPLE WHICH IS AN ARBITRARY NUMBER, TOP HUNDRED PEOPLE AT THESE FIRMS SO THAT THEIR FULL NET WORTH WAS ON THE LINE FOR THE DECISIONS THEY WERE MAKING. NOW YOU'RE NEVER GOING TO GO BACK TO THE PRIVATE PARTNERSHIPS AGAIN BUT IF THEIR FULL NET WORTH'S WERE ON THE LINE THEN BEFORE THEY STARTED ENGAGING AND SELLING THESE RISKY SECURITIES WITHOUT ACCOUNTABILITY, IF THEY KNEW THAT THEY WERE GOING TO LOSE NOT ONLY THEIR BILLION DOLLAR FORTUNE IN THE CASE OF JIMMY CAYNE, BUT ALSO THE OTHER $400 MILLION THAT HE'D STASHED AWAY, HE WOULD HAVE SPENT A LOT MORE TIME, LESS TIME PLAYING BRIDGE AND SMOKING POT AND A LOT MORE TIME FOCUSING ON THE RISKS THAT BEAR STEARNS HAD AND WHAT WAS THE THIRD ONE. >> ART LEVINE: I DON'T KNOW. [ LAUGHTER ] >> WILLIAM D. COHAN: OK, CHRIS, YEAH. >> CHRIS CHAVEZ: YOU MENTIONED THAT A LOT OF THE FIRMS THAT COMPRISE THE OLD WALL STREET HAVE DISAPPEARED OR MORPHED INTO SOMETHING MORE BENIGN OR NOT REALLY. >> WILLIAM D. COHAN: NO I DIDN'T SAY MORE BENIGN BUT ANYWAY. >> CHRIS CHAVEZ: MORPHED INTO SOMETHING DIFFERENT AND YOU ALSO, BUT AT THE SAME TIME WHAT I GOT IS THAT EVEN THOUGH, AND YOU MENTIONED THIS, THAT WE HAD THIS WHOLE CRISIS, THE SAME TYPE OF MINDSET IS THERE, IS STILL IN THERE. >> WILLIAM D. COHAN: YES. >> CHRIS CHAVEZ: IN THE SENSE THAT IT'S STILL ALL ABOUT WHAT'S THE BOTTOM LINE, HOW AM I GOING TO LOOK GOOD IN THE MAGAZINES, HOW AM I GOING TO LOOK GOOD IN BUSINESS WEEKLY OR FORBES, WHOEVER, SO IS THAT PERSONALITY, IS THAT MINDSET STILL FULLY ENTRENCHED IN WALL STREET AND IF SO HOW AT RISK ARE WE OF SUFFERING ANOTHER SITUATION LIKE WE'RE IN NOW. >> WILLIAM D. COHAN: YES THE MINDSET IS EVERY BIT AS ENTRENCHED AS EVER. I DON'T THINK THERE'S EVER ANY CONTRITION. I DON'T THINK THERE'S ANY SELF AWARENESS ABOUT WHAT'S HAPPENED AND WHY. I JUST THINK THEY'RE TRYING TO GET BACK TO THE STATUS QUO AS QUICKLY AS POSSIBLE. I THINK RAHM EMANUEL IS THE ONE THAT SAID YOU SHOULD NEVER WASTE A GOOD CRISIS AND UNFORTUNATELY WITH THE DOW AT 6,500 IN MARCH I REALLY THOUGHT WE WERE GOING TO GET SOME REFORMS OF THE SYSTEM BUT NOW THAT THE DOW IS CLOSE TO 11,000 AGAIN EVEN THOUGH YOU'RE RIGHT, IT DOESN'T REPRESENT THE BROAD ECONOMY AND IS JUST AN INDICATOR OF 30 STOCKS, I THINK WE'RE LOSING THE MOMENT AND FOR ALL WE KNOW, AND I'M, YOU KNOW, I COULD SEE SIGNS OF IT ALREADY. WE'RE CREATING, YOU KNOW, ANOTHER ACID BUBBLE, ANOTHER BUBBLE AND, YOU KNOW, WE DON'T KNOW. ONE THING'S FOR SURE, IT'LL NEVER BE THE SAME AS IT WAS. THERE WILL NEVER BE ANOTHER CRISIS IN MORTGAGE BACKED SECURITIES, THAT I PROMISE YOU. THERE WILL NEVER ANOTHER CRISIS IN HIGH YIELD SECURITIES, THERE WILL NEVER BE ANOTHER CRISIS IN INTERNET IPOS. WALL STREET IS VERY GOOD AT FIGHTING THE LAST WAR THAT THEY DO LEARN A LITTLE BIT FROM THEIR MISTAKES IN THAT THEY'RE NOT GOING TO REPEAT THE SAME KIND OF THINGS AS BEFORE BUT BECAUSE OF THE COMPENSATION SYSTEM WHICH HASN'T CHANGED ONE IOTA I MIGHT ADD DESPITE THE STEVEN FEINBERGS OF THE WORLD AND ALL THAT TALK, YOU KNOW, AS LONG AS BANKERS AND TRADERS ON WALL STREET ARE COMPENSATED WITH HUGE MILLIONS OF DOLLARS OF BONUSES TO SELL AND GENERATE REVENUE, THAT'S WHAT THEY'RE, THEY'RE GOING TO FIND OUT WHATEVER THE NEXT NEW THING IS AND THEY'RE GOING TO SELL IT AND THEY'RE PROBABLY ALREADY SELLING IT, WE JUST DON'T KNOW WHAT IT IS AND UNTIL YOU HAVE THEM PUT THEIR SKIN IN THE GAME AGAIN, YOU KNOW, YES, I THINK WE'RE ON THE PATH TO ANOTHER SITUATION. I MEAN, AGAIN, IT'S NOT SOME GREAT WISDOM OR INSIGHT, I MEAN, IT'S JUST THAT THIS IS LIKE THE TENTH CRISIS WE'VE HAD IN THE LAST 25 YEARS AND TO ME IT ALL GETS BACK TO THE COMPENSATION SYSTEM. >> ART LEVINE: BILL, HERE'S A FASCINATING QUESTION. PAULSON CLAIMED THAT THE WORLD COULD GO INTO AN ABYSS IF WE DIDN'T BAIL OUT AIG AND THE WALL STREET FIRMS. DO YOU BELIEVE THAT'S TRUE. >> WILLIAM D. COHAN: WELL LET'S SEE, I WANT TO CORRECT THE QUESTIONER A LITTLE BIT SO HE BAILED OUT BEAR STERNS, HE BAILED OUT FANNIE MAE AND FREDDIE MAC. HE DIDN'T BAIL OUT LEHMAN, HE BAILED OUT AIG, HE MADE WASHINGTON MUTUAL, YOU KNOW, GOT SOLD AFTER IT WAS TAKEN OVER BY THE FDIC AND THEY MADE WACHOVIA DO A DEAL, SO THEIR STRATEGY WAS ALL OVER THE MAP, OK, AND, YOU KNOW, WHO KNOWS REALLY. YOU KNOW WHAT I GUESS I'M MORE AND MORE THINKING THAT IT WOULD HAVE BEEN UGLY. EVERYONE WOULD HAVE BEEN INCREDIBLY FEARFUL JUST LIKE THEY WERE IN SEPTEMBER AND OCTOBER. I MEAN WHEN THE CONGRESS VOTED DOWN TARP 1, I THOUGHT THE COUNTRY WAS GOING TO HAVE A COW, RIGHT, I MEAN IT WAS INCREDIBLE, I MEAN THE STOCK MARKET DROPPED 700 POINTS. I THINK IT WAS THE LARGEST SINGLE DAY DROP IN HISTORY THERE WAS A HUGE AMOUNT OF FEAR. IF THEY HAD LET, I MEAN, SO THEY DID LET LEHMAN GO AND IT BECAME THIS TERMINATOR II KIND OF CHARACTER AND REFORMULATED ITSELF. AIG WOULD HAVE DONE THE SAME THING. I MEAN AIG WOULD HAVE CAUSED MORE PROBLEMS, I AGREE, BECAUSE IT HAD COUNTERPARTIES ALL OVER THE WORLD BUT IT WOULD HAVE MEANT, YOU KNOW, AND IT'S PROBABLY TRUE THAT MORGAN STANLEY WHICH WAS CLOSE THE BRINK AND GOLDMAN WHICH WAS CLOSE TO THE BRINK MAY HAVE FAILED IF AIG HAD GONE DOWN BECAUSE THEY CERTAINLY WOULD HAVE BEEN OUT IN GOLDMAN'S CASE, $13 BILLION DOLLARS THAT IT WOULDN'T HAVE GOTTEN AND, YOU KNOW, AT A TIME WHEN THINGS ARE NOT LOOKING GOOD, THEY'D GOTTEN $10 BILLION DOLLARS IN THE WEEK BEFORE, THEN THEY GOT $13, THE WEEK LATER AND THEN THEY GOT $13 BILLION THE WEEK BEFORE. THAT $23 BILLION DOLLARS PROBABLY HELPED THEM A LOT AND MORGAN STANLEY GOT SOMETHING SIMILAR SO, YOU KNOW, AIG WAS, I MEAN AND TALK ABOUT SOMETHING, A BLACK BOX NOBODY KNEW ANYTHING ABOUT, I MEAN IT'S JUST EXTRAORDINARY AND THE FACT THAT IT HAPPENED WITHIN HOURS OF LEHMAN BROTHERS, IT'S JUST, IT'S MIND BOGGLING BUT I THINK THAT HAD AIG GONE UNDER WE REALLY COULD HAVE BEEN INTO SOME SERIOUS FIREWORKS. >> ART LEVINE: MIKE, WE TEACH ETHICS IN OUR COLLEGE OF BUSINESS AND WE HAVE THE [INAUDIBLE] CENTER, OF COURSE, AND WE TRY AND IMPART THE IMPORTANCE OF ETHICS IN BOTH PERSONAL AND PROFESSIONAL ACTIVITIES, WHAT LESSONS CAN WE ALL DRAW FROM THIS SORDID EXPERIENCE? >> MIKE SOLT: WELL IT SORT OF GOES, I WAS THINKING ABOUT SOME OF THINGS THAT MR. COHAN HAD SAID AND HE REFERRED BACK TO THE WAY MORTGAGES USED TO BE MADE BEFORE SECURITIZATION. YOU'D GO TO YOUR BANKER, THE BANK WOULD EVALUATE YOU AND IF YOU GOT THE LOAN THEN THAT BANKER AND YOU HAD A LONG TERM RELATIONSHIP. SO IT'S ABOUT RELATIONSHIPS AND THEN WITH SECURITIZATION IT SEEMS LIKE IT'S GONE FROM RELATIONSHIP TO TRANSACTIONS AND ONCE A TRANSACTIONS COMPLETED AND I GET MY FEE THEN I'M OUT OF THE GAME SO TO SPEAK. SO, YOU KNOW, THE WHOLE SYSTEM IS CHANGED SO I'M JUST GOING TO BAT THE BALL OVER TO MR. COHAN NOW AND SAY IN A WORLD WHERE IT SEEMS LIKE THE COMPENSATIONS REALLY BASED ON TRANSACTIONS COMPLETED, HOW DO WE MAINTAIN THE ETHICAL LEADERSHIP THAT'S NEEDED TO AVOID SOME OF THESE CRISES? THANK YOU ART. >> WILLIAM D. COHAN: YEAH, THAT IS A SUPERB QUESTION AND GOES TO THE HEART OF THIS AND IT GOES TO, YOU KNOW, THE HEART OF HUMAN NATURE, I MEAN, YOU KNOW WALL STREET USED TO ABOUT THESE RELATIONSHIPS AND THESE LONG TERM RELATIONSHIPS AND I THINK THAT ETHOS, THE MORAYS OF WALL STREET AS I DISCUSSED CHANGED WHEN THEY WENT PUBLIC AND, YOU KNOW, THEN ALL OF THE SUDDEN THESE FIRMS HAD TO LIVE QUARTER TO QUARTER. THEY WERE EVALUATED BY RESEARCH ANALYSTS WHO WERE SAYING, HEY, YOU KNOW, MORGAN STANLEY'S DOING THAT AND THEY HAVE A HIGHER RETURN ON EQUITY THAN GOLDMAN SACHS. WHAT'S YOUR PROBLEM? WHAT AREN'T YOU DOING THIS AND YOU KNOW, SO, I THINK THAT YOU DO HAVE TO GET BACK AND THE ONLY SOLUTION I HAVE IS, YOU KNOW, TO HAVE ONE OF THE LITMUS TESTS FOR A NEW CEO ON WALL STREET BE ETHICS AND MORAL CHARACTER AND FIBER AND THE WILLINGNESS TO TAKE RESPONSIBILITY FOR YOUR ACTIONS AND NOT BE A SLITHERER, WHICH IS COMPLETELY ANATHEMA TO WALL STREET CULTURE BY THE WAY, BUT BARRING THAT I THINK THAT IF YOU GOT BACK TO THIS SKIN THE GAME CONCEPT WHERE THEY HAD THEIR ENTIRE NET WORTH'S ON THE LINE, THOSE PEOPLE MAKING THE DECISIONS, YOU WOULD GET THEM TO BE A LOT MORE FOCUSED. I MEAN, AGAIN, NOT TO COME TO GOLDMAN SACH'S DEFENSE AGAIN, BUT IF YOU LOOK AT WHAT THEY DID, UNLIKE EVERY OTHER FIRM ON WALL STREET, IN ADDITION TO THIS LONG TERM FINANCING THAT I'VE DESCRIBED, IN DECEMBER 2006 THEY DECIDED TO, THEY DECIDED THEY DIDN'T LIKE THE RISKS THAT THEY THOUGHT WERE IN THE MORTGAGE MARKET AND THEY DECIDED TO PULL BACK AND START BETTING AGAINST THE MORTGAGE MARKET AND THEY DECIDED THAT IT WAS TOO RISKY FOR THEM TO BE LONG. NOW OF COURSE THAT DIDN'T THEM FROM CONTINUING TO UNDERWRITE MORTGAGE BACKED SECURITIES WHICH THEY DID THROUGHOUT 2007, WHICH IS AN ETHICAL DILEMMA THAT I THINK THEY FACE AS A FIRM BUT THE BULK OF THEIR INVESTMENT THEY HAD DECIDED TO PLACE ON THE MORTGAGE MARKET FAILING. NOW THE REASON THAT THEY DID THAT IS BECAUSE THEY ACTUALLY HAVE A PARTNER CLASS, WHICH IS A VESTIGE FROM WHEN THEY WERE A PARTNERSHIP THAT LOOKS A LOT LIKE WHAT I'M DESCRIBING WITH THIS SKIN IN THE GAME SECURITY. THEY HAVE ABOUT 300 PARTNERS AT THE FIRM WHO GET PAID OUT OF THE PRETAX PROFITS OF THE FIRM. I MEAN IT'S INCREDIBLE, IT'S LIKE THE BEST OF ALL POSSIBLE WORLDS BECAUSE THEY GET PAID OUT OF THE PRETAX PROFITS OF THE FIRM WHICH THEY'RE LOOKING TO MAXIMIZE BUT THEY DON'T HAVE ANY OF THE PERSONAL LIABILITY BECAUSE IT'S A CORPORATION SO THEY GET THESE PRETAX PROFITS BUT THEY DON'T HAVE THEIR FULL NET WORTH'S ON THE LINE BUT BECAUSE THEY'RE TRYING TO MAXIMIZE THESE PRETAX PROFITS THEY DECIDED THAT THEY WERE SUFFERING TOO MANY LOSSES IN THE MORTGAGE MARKET ON THE TRADING DESK AND SO THEY DECIDED TO CHANGE GEARS IN DECEMBER OF 2006. BY THE WAY EVERYBODY ELSE ON WALL STREET WAS GOING GREAT GUNS THE OTHER WAY SO, YOU KNOW, THIS WAS, THERE WAS SOME GUTSINESS TO THIS CALL AND, YOU KNOW, THEY WERE ABLE TO DO THAT SO THAT'S A SIMPLE EXAMPLE OF HOW, IF YOU DO HAVE, OR IF YOU THINK LIKE A PARTNERSHIP, OR YOU THINK LIKE YOUR MONEY IS ON THE LINE, YOU'RE GOING TO TAKE DIFFERENT STEPS THAN IF YOU THINK IT'S OTHER PEOPLE'S MONEY SO SOME COMBINATION OF SERIOUS ETHICAL TESTS AND CHARACTER TESTS COMBINED WITH THEM HAVING REAL SKIN IN THE GAME IS THE ONLY THINK I CAN THINK OF. >> ART LEVINE: BILL, THERE'S A LOT OF ANGER OUT THERE. AS YOU KNOW TARP WAS NOT EASILY VOTED AND A LOT OF FOLKS VOTED AGAINST IT BUT IT FINALLY PASSED BUT PEOPLE SEEM TO GET IT THAT THESE GUYS WERE GAMBLING ON THEIR MONEY AND THEY LOST AND NOW THEY'RE COMING BACK FOR THE HAND OUT AND BEFORE YOU CAN BLINK THEY'RE BACK TO BUSINESS AS USUAL WITH RAISING INTEREST RATES AND ALL THAT AND A RELATED QUESTION IS HERE. HOW CAN YOU CHANGE THE FAT CAT COMPENSATION METHOD TO MAKE THEM HAVE TO USE, YOUR TERM, MORE SKIN IN THE GAME BECAUSE PEOPLE SEE THESE PEOPLE GOING TO VACATIONS IN HAWAII AND HUGE, IT'S BARELY 12 MONTHS AND THEY'RE BACK AT IT, THERE THEY GO, LIKE REAGAN WOULD SAY, THERE YOU GO AGAIN. >> WILLIAM D. COHAN: THERE YOU GO AGAIN. WELL I'VE TALKED A LOT ABOUT THIS AND I'M THE ONLY ONE, YOU KNOW, WHEN I FIRST STARTED TALKING ABOUT THE COMPENSATION SYSTEM ON WALL STREET AND HOW FLAWED IT WAS, I WENT ON CNBC, I WROTE A COLUMN FOR THE FT ABOUT THIS IN LIKE FEBRUARY OF 08 BEFORE ALL OF THIS CRISIS EVEN STARTED HAPPENING AND I WENT ON CNBC AND THEY ATTACKED ME, LITERALLY, YOU CAN GO LOOK AT THE TAPE. >> ART LEVINE: THEY BEING? >> WILLIAM D. COHAN: THEY, THE OTHER ANCHOR, CHARLIE GASPARINO AND DENNIS NEAL AND THE CNBC CAST OF CHARACTERS, YOU KNOW, HOW DARE I TALK ABOUT THE COMPENSATION ON WALL STREET, YOU KNOW, BLAH, BLAH, BLAH AND BECAUSE, YOU KNOW, I WAS, THOSE PEOPLE WERE ALL THEIR SOURCES AND THEY DIDN'T LIKE THE FACT THAT I WAS CRITICIZING THEM, SO I FEEL LIKE I'M KIND OF THE ONLY ONE TALKING ABOUT THIS AND THAT DOESN'T MAKE ME POPULAR BUT I REALLY THINK THIS IS AT ONE OF THE ROOTS OF THIS. THERE ARE OTHERS, I MEAN, THERE'S THE RATING AGENCIES, THERE'S THE REGULATORY, THERE'S CONGRESS, BUT, YOU KNOW, ONE THING THAT WALL STREET CAN DO ITSELF IS FIX THIS COMPENSATION SYSTEM AND YOU KNOW, WHAT YOU HAVE NOW IS YOU HAVE THE KEN FEINBERG'S OF THE WORLD AND YOU HAVE ALL THESE, YOU KNOW, SMOKING MIRRORS THAT THEY'RE DOING, LIKE CLAW BACKS AND ALL THIS STUFF, IT'S ALL JUST, YOU KNOW, [INAUDIBLE] TO AVOID THE REAL, CONFRONTING THE REAL PROBLEM AND, YOU KNOW, WHAT CAN I, WRITE YOUR CONGRESS, I DON'T EVEN KNOW, I DON'T KNOW, I DON'T KNOW WHAT THE ANSWER IS BUT I'M GOING TO KEEP TALKING ABOUT IT. >> ART LEVINE: I DON'T WANT TO END THIS ON A NEGATIVE NOTE. >> WILLIAM D. COHAN: NO. >> ART LEVINE: I HAVE A FEW MORE QUESTIONS BUT THIS AUDIENCE MEMBER SAYS IN FEBRUARY PRESIDENT OBAMA WARNED AMERICA THAT WE MAY FACE A LOST DECADE LIKE JAPAN. WOULD YOU AGREE WITH THAT? >> WILLIAM D. COHAN: NO, I ACTUALLY DON'T AGREE WITH THAT BECAUSE THIS IS ONE OF THOSE SITUATIONS, AND I'M NOT ONLY SAYING THIS BECAUSE YOU WANT TO END UP ON AN UPBEAT NOTE, BUT I THINK THAT THE AMERICAN SPIRIT, YOU KNOW, IS ALIVE AND WELL. WE ARE AN INDUSTRIOUS PEOPLE, I MEAN, YOU KNOW, UNLIKE JAPAN WE HAVE CONFRONTED SOME OF THESE ISSUES EARLIER WITH SOME LEVEL OF HONESTY AND INTEGRITY, NOT NEARLY WHERE I THINK IT SHOULD BE, BUT, YOU KNOW, WE HAVE RECAPITALIZED THE BANKS, THOSE THAT ARE LEFT, YOU KNOW, I THINK IT'S SAFE TO SAY THAT SOME ASPECTS OF THE CAPITAL MARKETS ARE WORKING WELL AGAIN. WE HAVE NOT PUSHED LOANS DOWN TO SMALL AND NEW BUSINESSES THAT NEED THEM DESPERATELY AND CAPITAL THAT'S NEEDED SO THAT THEY CAN GROW SO AND I, YOU KNOW, I THINK WE AT LEAST TALK ABOUT, YOU KNOW, BECOMING LESS ENERGY DEPENDENT AND, YOU KNOW, DOING STEPS TO BECOME LEADERS IN TECHNOLOGY, ETCETERA, ETCETERA. I THINK THIS DOES PUT US IN AN ADVANTAGEOUS POSITION, VIS-...-VIS JAPAN AND THE LOST DECADE BUT I MEAN WE HAVE DUG A VERY DEEP HOLE FOR OURSELVES. WE'VE GOT HUGE BUDGET DEFICITS, WE'VE GOT, YOU KNOW, WE'VE BECOME THE LARGEST CREDITOR NATION IN THE WORLD. YOU KNOW WE'RE GOING TO HAVE TO DO A LOT OF GROWING TO GET OUT OF ALL THIS AND I THINK WE'RE ALL GOING TO HAVE TO PULL TOGETHER, I MEAN, WE NEED SOME SORT OF POST 9/11 SPIRIT AGAIN TO PULL TOGETHER AND GET OUT OF THIS. >> ART LEVINE: WE HAVE A LOT OF STUDENTS OUT THERE AND WHAT WOULD YOU WANT TO SAY TO OUR YOUNG PEOPLE ABOUT WHAT THE PREVIOUS GENERATION HAS OR HAS NOT DONE. WE SEE A LOT OF FOLKS INTERESTED IN THINGS OTHER THAN JUST MAKING MONEY IN THIS TOWN. >> WILLIAM D. COHAN: SO WHAT DO I SAY OTHER THAN PLASTICS? [ LAUGHTER ] >> ART LEVINE: THE GRADUATE 1960 SOMETHING. >> 9. >> WILLIAM D. COHAN: YOU KNOW, I GUESS, YOU KNOW, I DON'T KNOW, I MEAN, I'M NOT A [INAUDIBLE] BUT WHAT'S WORKED FOR ME IS TO REALLY FOLLOW YOUR PASSIONS, YOU KNOW, DO WHAT REALLY MAKES YOU HAPPY, I MEAN I SPENT 17 YEARS ON WALL STREET WHERE I SAID, WHERE WE USED TO SAY TO PEOPLE THAT IT WAS ONLY GOOD ONE DAY A YEAR, THE DAY I GOT PAID MY BONUS. OTHERWISE, IT WAS MISERABLE, SO, I MEAN, DON'T DO THAT, YOU KNOW, STAY IN SCHOOL KIDS. [ LAUGHTER ] DON'T DO THAT, REALLY DO WHAT YOU BELIEVE IN, DO WHAT YOU FEEL PASSIONATE ABOUT AND I THINK IF YOU DO THAT YOU'LL BE HAPPY AND THEN GOOD THINGS WILL COME. I MEAN I THINK, YOU KNOW, I'M LIVING PROOF OF THAT. I HATE TO BE POLLYANNAISH ABOUT IT BUT, YOU KNOW, MY FATHER WANTED ME TO GO INTO BUSINESS AND GO TO WALL STREET, I DID THAT FOR 17 YEARS, I ALWAYS WANTED TO BE A WRITER AND NOW I'M A WRITER, SO THERE YOU GO. >> ART LEVINE: AND A GOOD WRITER, YOU KNOW, LET ME JUST CLOSE ON THE NOTE OF ADDRESSING ANY PROBLEM, THE FIRST THING YOU HAVE TO DO IS FIND OUT WHAT THE PROBLEM IS CAUSED BY BEFORE WE CAN FIX IT AND YOUR WORK, YOUR BOOKS AND YOUR JOURNALISM AND YOUR TELEVISION APPEARANCES HAVE HELPED CLARIFY TO SO MANY AMERICANS WHAT THIS IS ALL ABOUT SO LET'S AGAIN THANK OUR DISTINGUISHED SPEAKER FOR BEING WITH US TONIGHT. >> WILLIAM D. COHAN: THANK YOU, THANK YOU VERY MUCH. [ APPLAUSE ]