& Henry Paulson (U.S. Treasury secretary): You’re saying, with the full weight of the United States Treasury behind me, all I can do is call Warren Buffett?.. Hi, Warren. It’s Hank.
& Richard Fuld (CEO of Lehman Brothers): People act like we’re crack dealers. Nobody put a gun to anybody’s head and said, “Hey, nimrod, buy a house you can’t afford. And you know what? While you’re at it, put a line of credit on that baby and buy yourself a boat.”
& Paulson: I spoke to Greenspan.
Ben Bernanke (Federal Reserve Chairman): Really?!
Paulson: He says there’s too much housing supply. That’s the problem. So we should buy up all the vacant houses and burn them.
& Paulson: Barclays is sniffing around again, now that they think it’s a fire sale.
Bernanke: That’s promising.
Paulson: I don’t know. The British, they do a lot of talking. They never close.
& Bernanke: You want me to allow them to raise their leverage so they can buy a bank that’s about to fail because it was over leveraged?
Paulson: You got a better idea?
& Timothy Geithner (Federal Reserve Bank CEO): They don’t want this deal.
Paulson: The deal is hanging by a thread because the closer they get to Lehman, the more it looks like a toxic waste dump.
Geithner: Which is why at the end of the day we may have to help them, which would be a lot easier if we didn’t publicly state that...
Paulson: We can’t, Tim! Legally, we can’t!
Geithner: Legally, we haven’t figured out how... yet.
& Paulson: Lehman is a trading partner for every bank in this room. Their failure will be a massive blow to all of you. This is your problem. We can all argue about how we got here. Deregulation, derivatives, Dick Fuld made bad decisions... We’re all responsible. It’s a catastrophic mess. The government’s done whatever it can do.
It’s on you now. You need to fix it and you need to pay for it. Let me be clear... We will remember anyone who is not helpful.
& Chris Flowers: Guys, you got a second? I was at AIG yesterday. Next Wednesday, they got a $5 billion hole, minimum. I called Warren Buffett. He wouldn’t touch it with a stick.
& Dan Jester: AIG’s a huge problem. The books are a mess. But from what I can tell, half the banks in the world are in bed with these guys. Everyone who had a piece-of-crap mortgage security bought insurance on their risk from AIG, and I mean everyone.
Paulson: How could they let this happen?
Jester: They must have figured real estate would never go down, ever.
& Wendy Paulson: You can’t take all this on. There’s a lot of other people involved.
Paulson: It’s on me. I’m Treasury secretary and the fourth-largest investment bank in the country failed on my watch. I mean... I don’t know what’s gonna happen.
& Jeffrey Immelt (CEO of General Electric Co): You gotta know what’s going on out here. We’re having trouble funding our day-to-day operations. Our finance division is infecting the rest of our business.
Paulson: General Electric?
Immelt: This thing is spreading way past Wall Street. I get that nobody wants to touch mortgages, but we’re making planes and engines, light bulbs... We’re a healthy company. If we can’t finance our day-to-day operations, every business in America’s gonna be shutting down.
& Paulson: Tim thinks we need to do something big. Ben agrees, and so do I.
Michele Davis (Assistant Secretary for Public Affairs and Director of Policy Planning in the U.S. Department of Treasury): What can we do? AIG’s not even a bank.
Paulson: The Fed can lend to non-banks under unusual and exigent circumstances... We’re thinking of taking over 80% of the company.
Jim Wilkinson (Chief of Staff in the U.S. Department of Treasury): Hank, we can’t! This morning we were lecturing the entire country on moral hazard.
Paulson: AIG has collateral. They have assets. Lehman didn’t...
Wilkinson: It’s another bailout with no legislation. The Hill’s gonna go crazy. The country’s gonna go crazy!
Paulson: The plane that we flew in on this morning, leased from AIG. Construction downtown... AIG. Life insurance, 81 million policies with a face value of 1.9 trillion, billions of dollars in teachers’ pensions, it’s everywhere. You want too big to fail? Here it is.
& Davis: I hate to do this right now, but I’m gonna have to have a press call first thing, and I really don’t know what I’m gonna tell them.
Neel Kashkari (Interim Assistant Secretary of the Treasury for Financial Stability in the U.S. Department of the Treasury): Tell them Lehman exacerbated AIG. The simultaneous payouts of CDOs and credit default swaps put catastrophic pressure on...
Paulson: Go back further.
Wilkinson: The global pool of investment capital...
Paulson: She has to do this in English! Start with the homeowners.
Wilkinson: Okay, okay, here’s how you explain it. Wall Street started bundling home loans together, mortgage-backed securities, and selling slices of those bundles to investors. And they were making big money, so they started pushing the lenders, saying, “Come on, we need more loans.”
Paulson: The lenders had already given loans to borrowers with good credit, so they go bottom-feeding. They lower their criteria.
Kashkari: Before, you needed a credit score of 620 and a down payment of 20%. Now, they’ll settle for 500, no money down.
Wilkinson: And the buyer, the regular guy on the street, assumes that the experts know what they’re doing. He’s saying to himself, “If the bank’s willing to loan me money, I must be able to afford it.” So he reaches for the American dream. He buys that house.
Kashkari: The banks knew securities based on shitbag mortgages were risky.
Paulson: You’ll work on “shitbag.”
Kashkari: So to control their downside, the banks started buying a kind of insurance. If mortgages default, insurance company pays, default swap. The banks insure their potential losses to move the risk off their books so they can invest more, make more money.
Paulson: And while a lot of companies insured this stuff, one was dumb enough to take on an almost unbelievable amount of risk.
Davis: AIG.
Wilkinson: And you’ll work on “dumb.”
Davis: And when they ask me why they did that?
Wilkinson: Fees.
Kashkari: Hundreds of millions in fees.
Paulson: AIG figured the housing market would just keep going up, but then the unexpected happens.
Wilkinson: Housing prices go down.
Kashkari: The poor bastard who bought his dream house, the teaser rate on his mortgage runs out. His payments go up. He defaults.
Paulson: Mortgage-backed securities tank. AIG has to pay off the swaps, all of them, all over the world, at the same time.
Kashkari: AIG can’t pay. AIG goes under. Every bank they insure books massive losses on the same day. And then they all go under. It all comes down.
Davis: The whole financial system?! ... And what do I say when they ask me why it wasn’t regulated?
Paulson: No one wanted to. We were making too much money.
Wilkinson: ............ You’ll work on “We were making too much money.”
& Bernanke: This situation demands an endgame that does not rely on unilateral action from the Fed. This is a democracy. We cannot be men behind the curtain pulling the strings. We need some kind of an overall solution that heals the entire system. And it has to be legitimate.
& Wendy: You can’t put this all on your own shoulders.
Paulson: We’re running out of options.
Wendy: Then you just keep trying. That’s what you do. Eventually something’s gonna work.
& Geithner: We gotta do something today.
Paulson: Like what?
Geithner: The market doesn’t like investment banks, right? The money’s saying “fuck you” to the whole business model.
Paulson: Yeah.
Geithner: Yeah, so merge them with commercial banks, turn them into regular banks regulated by the Fed. They can use depositors’ cash. It will give them access to the discount window. It’s cheap government cash.
Paulson: You wanna make them bigger?
Geithner: It’s a trade-off, Hank. The upside is it’ll stabilize them. The downside is... yeah, they’ll be really fucking big.
& Davis: You want them to write a piece of legislation based on three pages?!
Jester: Look, guys, buying toxic assets is gonna be a nightmare. Nobody knows what the stuff’s worth. It’ll take forever to untangle. These banks are going down now.
Paulson: So what do we do?
Jester: You wanna unfreeze credit, right? You want the banks to lend people money?
Paulson: That’s the goal.
Jester: So give them money to lend.
Paulson: Capital injections?
Kashkari: Dan, come on.
Wilkinson: I can’t believe you’re pulling out the “N” word.
Jester: I’m not saying nationalize the banks. I’m saying isolate the ones that are really in trouble and make an investment.
Wilkinson: It’s un-American.
Davis: It’s sure un-Republican.
Paulson: You’d make the government a stockholder. What, do we tell them how to manage themselves, what to buy and sell?
Wilkinson: Run them like the post office? ’Cause that works like a dream.
Jester: We make it temporary. We make ourselves non-voting stockholders.
Wilkinson: You can’t just hand the banks massive piles of cash. Nobody’s gonna go for it. To the Republicans it’s nationalization. To the Democrats it’s a bailout. And the banks are gonna go ballistic.
Paulson: Sorry, Dan, not gonna happen. Kudos for out-of-the-box thinking.
& Bernanke: I spent my entire academic career studying the Great Depression. The Depression may have started because of a stock market crash, but what hit the general economy was a disruption of credit, average citizens unable to borrow money to do anything, to buy a home, start a business, stock their shelves. Credit has the ability to build a modern economy, but lack of credit has the power to destroy it, swiftly and absolutely. If we do not act boldly and immediately, we will replay the Depression of the 1930s, only this time it will be far, far worse. We don’t do this now, we won’t have an economy on Monday.
& Wilkinson: He’s not threatening the Republican presidential nominee, is he?
& Paulson: Can we move on?
Jester: So maybe we can talk about capital injections.
Wilkinson: Dan, we really can’t.
Bernanke: I think we’re gonna have to. Even if Neel could expedite the process, which seems... unlikely, the system is crumbling. The banks need money now. If cash injections are the most efficient way to stabilize them, then we can’t back off because we’re uncomfortable being the men who nationalized a few American banks.
& Paulson: Warren, it’s Hank. I’m sorry. It’s late. Am I waking you?
Warren Buffett: ... No, not at all.
Paulson: Can I pick your brain for a minute?
Warren Buffett: Sure. What’s the problem?
Paulson: How do you get a healthy bank to accept a capital injection?
& Paulson: We give you money. You lend it out. It will unfreeze credit, stabilize the banks, restore confidence. Everyone will be better off with more capital in the system. And that is why all nine of you will participate in the program.
& Davis: Maybe we just beef up the restrictions on how they spend the money, something to take the stink off.
Paulson: Put more restrictions on it, they won’t take it.
Wilkinson: One thing too many for today.
Davis: They almost bring down the US economy as we know it, but we can’t put restrictions on how they spend the $125 billion we’re giving them because they might not take it!..
& Bernanke: I certainly hope that they...
Paulson: What?
Bernanke: I hope they use the money the way we’re asking them to... They will lend it out, won’t they?
Paulson: ...Of course they will. Of course they will...
--
+ quotes on the Imdb.
Σ A diving bomber chronicle.
Crisis'2008 on at your fingertips.
Economics for Dummies.
& Richard Fuld (CEO of Lehman Brothers): People act like we’re crack dealers. Nobody put a gun to anybody’s head and said, “Hey, nimrod, buy a house you can’t afford. And you know what? While you’re at it, put a line of credit on that baby and buy yourself a boat.”
& Paulson: I spoke to Greenspan.
Ben Bernanke (Federal Reserve Chairman): Really?!
Paulson: He says there’s too much housing supply. That’s the problem. So we should buy up all the vacant houses and burn them.
& Paulson: Barclays is sniffing around again, now that they think it’s a fire sale.
Bernanke: That’s promising.
Paulson: I don’t know. The British, they do a lot of talking. They never close.
& Bernanke: You want me to allow them to raise their leverage so they can buy a bank that’s about to fail because it was over leveraged?
Paulson: You got a better idea?
& Timothy Geithner (Federal Reserve Bank CEO): They don’t want this deal.
Paulson: The deal is hanging by a thread because the closer they get to Lehman, the more it looks like a toxic waste dump.
Geithner: Which is why at the end of the day we may have to help them, which would be a lot easier if we didn’t publicly state that...
Paulson: We can’t, Tim! Legally, we can’t!
Geithner: Legally, we haven’t figured out how... yet.
& Paulson: Lehman is a trading partner for every bank in this room. Their failure will be a massive blow to all of you. This is your problem. We can all argue about how we got here. Deregulation, derivatives, Dick Fuld made bad decisions... We’re all responsible. It’s a catastrophic mess. The government’s done whatever it can do.
It’s on you now. You need to fix it and you need to pay for it. Let me be clear... We will remember anyone who is not helpful.
& Chris Flowers: Guys, you got a second? I was at AIG yesterday. Next Wednesday, they got a $5 billion hole, minimum. I called Warren Buffett. He wouldn’t touch it with a stick.
& Dan Jester: AIG’s a huge problem. The books are a mess. But from what I can tell, half the banks in the world are in bed with these guys. Everyone who had a piece-of-crap mortgage security bought insurance on their risk from AIG, and I mean everyone.
Paulson: How could they let this happen?
Jester: They must have figured real estate would never go down, ever.
& Wendy Paulson: You can’t take all this on. There’s a lot of other people involved.
Paulson: It’s on me. I’m Treasury secretary and the fourth-largest investment bank in the country failed on my watch. I mean... I don’t know what’s gonna happen.
& Jeffrey Immelt (CEO of General Electric Co): You gotta know what’s going on out here. We’re having trouble funding our day-to-day operations. Our finance division is infecting the rest of our business.
Paulson: General Electric?
Immelt: This thing is spreading way past Wall Street. I get that nobody wants to touch mortgages, but we’re making planes and engines, light bulbs... We’re a healthy company. If we can’t finance our day-to-day operations, every business in America’s gonna be shutting down.
& Paulson: Tim thinks we need to do something big. Ben agrees, and so do I.
Michele Davis (Assistant Secretary for Public Affairs and Director of Policy Planning in the U.S. Department of Treasury): What can we do? AIG’s not even a bank.
Paulson: The Fed can lend to non-banks under unusual and exigent circumstances... We’re thinking of taking over 80% of the company.
Jim Wilkinson (Chief of Staff in the U.S. Department of Treasury): Hank, we can’t! This morning we were lecturing the entire country on moral hazard.
Paulson: AIG has collateral. They have assets. Lehman didn’t...
Wilkinson: It’s another bailout with no legislation. The Hill’s gonna go crazy. The country’s gonna go crazy!
Paulson: The plane that we flew in on this morning, leased from AIG. Construction downtown... AIG. Life insurance, 81 million policies with a face value of 1.9 trillion, billions of dollars in teachers’ pensions, it’s everywhere. You want too big to fail? Here it is.
& Davis: I hate to do this right now, but I’m gonna have to have a press call first thing, and I really don’t know what I’m gonna tell them.
Neel Kashkari (Interim Assistant Secretary of the Treasury for Financial Stability in the U.S. Department of the Treasury): Tell them Lehman exacerbated AIG. The simultaneous payouts of CDOs and credit default swaps put catastrophic pressure on...
Paulson: Go back further.
Wilkinson: The global pool of investment capital...
Paulson: She has to do this in English! Start with the homeowners.
Wilkinson: Okay, okay, here’s how you explain it. Wall Street started bundling home loans together, mortgage-backed securities, and selling slices of those bundles to investors. And they were making big money, so they started pushing the lenders, saying, “Come on, we need more loans.”
Paulson: The lenders had already given loans to borrowers with good credit, so they go bottom-feeding. They lower their criteria.
Kashkari: Before, you needed a credit score of 620 and a down payment of 20%. Now, they’ll settle for 500, no money down.
Wilkinson: And the buyer, the regular guy on the street, assumes that the experts know what they’re doing. He’s saying to himself, “If the bank’s willing to loan me money, I must be able to afford it.” So he reaches for the American dream. He buys that house.
Kashkari: The banks knew securities based on shitbag mortgages were risky.
Paulson: You’ll work on “shitbag.”
Kashkari: So to control their downside, the banks started buying a kind of insurance. If mortgages default, insurance company pays, default swap. The banks insure their potential losses to move the risk off their books so they can invest more, make more money.
Paulson: And while a lot of companies insured this stuff, one was dumb enough to take on an almost unbelievable amount of risk.
Davis: AIG.
Wilkinson: And you’ll work on “dumb.”
Davis: And when they ask me why they did that?
Wilkinson: Fees.
Kashkari: Hundreds of millions in fees.
Paulson: AIG figured the housing market would just keep going up, but then the unexpected happens.
Wilkinson: Housing prices go down.
Kashkari: The poor bastard who bought his dream house, the teaser rate on his mortgage runs out. His payments go up. He defaults.
Paulson: Mortgage-backed securities tank. AIG has to pay off the swaps, all of them, all over the world, at the same time.
Kashkari: AIG can’t pay. AIG goes under. Every bank they insure books massive losses on the same day. And then they all go under. It all comes down.
Davis: The whole financial system?! ... And what do I say when they ask me why it wasn’t regulated?
Paulson: No one wanted to. We were making too much money.
Wilkinson: ............ You’ll work on “We were making too much money.”
& Bernanke: This situation demands an endgame that does not rely on unilateral action from the Fed. This is a democracy. We cannot be men behind the curtain pulling the strings. We need some kind of an overall solution that heals the entire system. And it has to be legitimate.
& Wendy: You can’t put this all on your own shoulders.
Paulson: We’re running out of options.
Wendy: Then you just keep trying. That’s what you do. Eventually something’s gonna work.
& Geithner: We gotta do something today.
Paulson: Like what?
Geithner: The market doesn’t like investment banks, right? The money’s saying “fuck you” to the whole business model.
Paulson: Yeah.
Geithner: Yeah, so merge them with commercial banks, turn them into regular banks regulated by the Fed. They can use depositors’ cash. It will give them access to the discount window. It’s cheap government cash.
Paulson: You wanna make them bigger?
Geithner: It’s a trade-off, Hank. The upside is it’ll stabilize them. The downside is... yeah, they’ll be really fucking big.
& Davis: You want them to write a piece of legislation based on three pages?!
Jester: Look, guys, buying toxic assets is gonna be a nightmare. Nobody knows what the stuff’s worth. It’ll take forever to untangle. These banks are going down now.
Paulson: So what do we do?
Jester: You wanna unfreeze credit, right? You want the banks to lend people money?
Paulson: That’s the goal.
Jester: So give them money to lend.
Paulson: Capital injections?
Kashkari: Dan, come on.
Wilkinson: I can’t believe you’re pulling out the “N” word.
Jester: I’m not saying nationalize the banks. I’m saying isolate the ones that are really in trouble and make an investment.
Wilkinson: It’s un-American.
Davis: It’s sure un-Republican.
Paulson: You’d make the government a stockholder. What, do we tell them how to manage themselves, what to buy and sell?
Wilkinson: Run them like the post office? ’Cause that works like a dream.
Jester: We make it temporary. We make ourselves non-voting stockholders.
Wilkinson: You can’t just hand the banks massive piles of cash. Nobody’s gonna go for it. To the Republicans it’s nationalization. To the Democrats it’s a bailout. And the banks are gonna go ballistic.
Paulson: Sorry, Dan, not gonna happen. Kudos for out-of-the-box thinking.
& Bernanke: I spent my entire academic career studying the Great Depression. The Depression may have started because of a stock market crash, but what hit the general economy was a disruption of credit, average citizens unable to borrow money to do anything, to buy a home, start a business, stock their shelves. Credit has the ability to build a modern economy, but lack of credit has the power to destroy it, swiftly and absolutely. If we do not act boldly and immediately, we will replay the Depression of the 1930s, only this time it will be far, far worse. We don’t do this now, we won’t have an economy on Monday.
& Wilkinson: He’s not threatening the Republican presidential nominee, is he?
& Paulson: Can we move on?
Jester: So maybe we can talk about capital injections.
Wilkinson: Dan, we really can’t.
Bernanke: I think we’re gonna have to. Even if Neel could expedite the process, which seems... unlikely, the system is crumbling. The banks need money now. If cash injections are the most efficient way to stabilize them, then we can’t back off because we’re uncomfortable being the men who nationalized a few American banks.
& Paulson: Warren, it’s Hank. I’m sorry. It’s late. Am I waking you?
Warren Buffett: ... No, not at all.
Paulson: Can I pick your brain for a minute?
Warren Buffett: Sure. What’s the problem?
Paulson: How do you get a healthy bank to accept a capital injection?
& Paulson: We give you money. You lend it out. It will unfreeze credit, stabilize the banks, restore confidence. Everyone will be better off with more capital in the system. And that is why all nine of you will participate in the program.
& Davis: Maybe we just beef up the restrictions on how they spend the money, something to take the stink off.
Paulson: Put more restrictions on it, they won’t take it.
Wilkinson: One thing too many for today.
Davis: They almost bring down the US economy as we know it, but we can’t put restrictions on how they spend the $125 billion we’re giving them because they might not take it!..
& Bernanke: I certainly hope that they...
Paulson: What?
Bernanke: I hope they use the money the way we’re asking them to... They will lend it out, won’t they?
Paulson: ...Of course they will. Of course they will...
--
+ quotes on the Imdb.
Σ A diving bomber chronicle.
Crisis'2008 on at your fingertips.
Economics for Dummies.
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