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Week of 1.30.09

Billions in Bogus Bonuses?

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President Obama has issued a scathing critique of Wall Street following news that Wall Street employees were paid more than $18 billion in bonuses last year as the financial sector melted down. What should his administration do to crack down on banks, given that some experts are suggesting an additional $1 trillion to $2 trillion may be needed to bail them out?

This week, David Brancaccio sits down with financial reporter Bethany McLean —who broke the Enron story —to look at options on the table for stabilizing the country's financial system. Is nationalizing our banks a viable solution?

Almost everyone agrees that our banks need federal money to avoid even more calamity, but how much is too much, and who's watching how they spend it?

Related Links

Vanity Fair: Fannie Mae's Last Stand, article by Bethany McLean in which she examines "Fannie's deeply dysfunctional relationships with Congress, the White House, and Wall Street" and tells of "the long, vicious war—involving most of Washington's top players—that helped propel one of the world's most successful companies off a cliff."

Associated Press: Obama calls $18B in Wall St. bonuses 'shameful'

Associated Press: Administration says big reforms coming to bailout

CNBC: Plan for Banks' Toxic Debt May Be Unveiled Next Week

The Economist: The spectre of nationalization

International Herald Tribune: Rescue of U.S. banks hints at nationalization

New York Times: Geithner Sets Limits on Lobbying for Bailout Money

New York Times: Nationalization Gets a New, Serious Look

Wall Street Journal: New Bank Bailout Could Cost $2 Trillion

Viewer Comments

Commenter: Bali
If you are dumb enough to have taken out a subprime you shouldn't be helped. Only laid off people (which was caused by twits like subprimers and Wallstreet crashing the economy) deserve help.

Commenter: Roxann Barri
I am one of those subprime homeowners facing foreclosue from NJ. My mortgage company is not trying to work with me and they will not let me in the Hope for Homeowners Program. I do not know how the stimulus will help me.

Commenter: Colin in Riverview Mi.
We have been house hunting for a year now for a comparable home to replace what we sold in Plano Texas. We have passed thru the uncertainty of changing jobs, possible layoffs, and my wife not being able to land a job after a year of searching dilligently here. We are waiting now for lower interest rates like the rates given to the homeowners that can't afford their payments. The taxes in this area are double of what we paid in Plano. It is very frustrating to locate the right house but not being able to afford the tax payment that doubles the mortgage payment. All the forclosed homes either have been flooded in the basement because the power was turned off or stripped of all appliances, kitchen cabinets, light fixtures ,locks, doors and even carpet and then trashed by the former owners. It is sickening.

Commenter: Ronald Wilhite
I would like to know why any bonuses were paid to people who bankrupted the companies they work for. I would also like to know why a bank or any other company that recieves federal funding are not accountable for their actions. When some greedy fat cat ruins the American economy they should be treated like the terroist that they are and hanged in public.That goes for any utility company that delibertly causes a blackout.

Commenter: William
I watched your program interviewing Bethany McLean. I was exceedingly impressed. After many hours of listening and reading to countless television shows and articles I finally found a person (i.e. Ms. McLean) who was able to explain what really happended in plain, common language. I greatly appreciate your efforts, and Ms. McLean's, to bring to us a common sense understanding of this economic storm we find ourselves in.

What I think would be a great subject for one of your NOW programs would be the subject of Regulation/Deregulation in general, and specifically United States banks. I don't purport to have a complete understanding of this subject, but it seems to me to be a very important thread in this economic mess our nation is in. It seems to me that we can go back to the Reagan and Carter administrations for the beginnings of the deregulation craze. We had the deregulation of the airline industry followed by deregulation of the AT

Commenter: Steve G.
As to the blame, well I would agree to both. But if these programs or loans were much more sound and not pushed by greed. We would be speaking another tune. Brokers and banks put people and business into loans because of the amount of pay they would receive not if the loan would be good or not. That is why you have seen so many of these have been backed by CDS’s. they knew at sometime these would fail and what it may cause. No one looked at well this family only makes X amount and if anything happens they will fall into foreclosure. I remember all the ads companies and brokers taken on both TV and paper.

So only about 5% goes to the borrowers. Because I don’t see homes under foreclosure within my area causing my investments ($$$) and 401K to go down it never did. What about job and company loss? Your neighbor allowed GM, Ford and Toyota to report lower sales because he can’t pay for his house? Foreclosures have been happening for years always will.

But the exotic loans and false balance statements by banks/Wall St have! So who is really to blame ???

Think about that!

Commenter: Steve G
Answer to Anonymous about borrowers, even if someone lied about income and/or credit. Who are the ones that approved it? who are the ones that when someone making $50k a year get the home? I mean I remember going to a bank and asking for 250k loan for my business and they told me no, but we will give you $600k for a 1 point more or interest only for 1.5%.
So who did not me or most the homeowners out there. How about the flippers or investors, have you not seen that most of the homes are empty. That would send you a sign of either someone hoping to flip or someone moving up to a larger home. Which of course some lender/broker

Commenter: Paladin
Guess you guys missed Ms. McLean's dark past as a captured reporter working in cahoots with hedge funds exposed at Deep Capture from documents unsealed in a court case...

So much for her credibility...

How about getting Gary Aguirre back on (highly rated show from last year). Or Harry Markopolos? Or Dr. Patrick Byrne to discuss the causes of the financial meltdown (he did, after all, call it way back in 2005).

Commenter: LLoyd P.
Rather than bail out bankers contemptuous of the common people, Obama should divide the bankers' stimulus payment among the taxpayers. It makes more sense that giving the many to bankers and hoping it will trickle down to us.

Commenter: Banjo MacAteer
Can't help but be stupefied by the comments 'dissing' Beth McLean for making it clear that the borrowers were the LEAST of the villains. Come on get off your soap box! She is ABSOLUTELY correct. People CANNOT just borrow money that they want (someone suggested 50k income to buy 750k house) if the borrowed too much it was because an 'expert adviser' says 'Hey, yes, you can have that'. Borrowers RELY on lenders to agree loans...they don't just 'take what they want'!

There is NOONE but the banks and their irresponsible, exploitative, profiteering lending policies and 'creative financing' strategies, that are to blame for this whole catastrophe. NO ONE!

And lookee now...they decided to get their hands in the cookie jar for that one last cookie before the jar was finally empty! Problem is they already ate everyone else's cookies!

Come on! The system SHOULD be able to claw back 'bonuses' - and put the cash back where it belongs. There must be legally applicable definitions of what bonuses are, and when they become actionable...and if those definitions can STILL have been applied after the travesties of the last years actions and performances - then this is ridiculous in the extreme.

One things for sure - rather than 'calling' Ms McLean, and trying to lay more blame back on the borrowers - many of those borrowers are now homeless...whereas the 'fat cats' with their grubby hands clutching their 18 billion will be sitting in their luxury homes..feeling 'very sorry for themselves' - Won't They? HAH!

You short-sighted people infuriate me for your lack of perspective and feeble grasp of reality!

Commenter: 09voter
As on other blogging sites, I would like to repeat myself by mentioning how all our worldly problems can be solved… solving the national deficit and freeing the country from being held hostage by the downside of capitalism: GET RID OF if not at least limit the powers of fractional interest and the political powers of international banking and our pseudo-governmental institution of the Federal Reserve Bank (the facts are in history: or visit their web site: regarding the recent Wall Street bailouts.

Also, include the underreporting of how the U.S. government(both parties) encourages and is in collaboration of outsourcing not only U.S. manufacturing jobs but is now working its way into eliminating white collar and upper levels of employment: “On February 2, 2009, NumbersUSA with the Coalition for the Future American Worker launched the above "elevator ad" in an extended nationwide educational campaign on cable TV. The purpose of the ad is to inform the public of two government statistics that, when placed together, show an outrageous participation of our federal government in increasing the numbers of unemployed Americans”:

Commenter: Jake
The "bonus" issue for the supposed "top-performers" makes no sense because their performance did not save the company. Let them go to another firm that has performed well enough to pay them what they demand. They can become self-employed consultants instead of employees. The reallocation of resources to the strongest companies is what is supposed to happen in capitalism anyway. Companies that make bad decisions forfeit their ability to attract top talent. The larger issue is that the supposed cheerleaders of capitalism reveal themselves to be socialist/communist when they must suffer from their own mismanagement.

Commenter: Anonymous

And what's up poor Bethany? Did you take out a subprime mortgage too? I mean really, what's your excuse for (rightfully) skewering the execs while completely blowing off the deadbeat borrowers who bought more house than they could afford.

Really, it's just a matter of scale. When a family making $50K/year buys a $750K house, they are guilty too. As a collective whole, the deadbeat borrowers are just as much to blame as the crooks on Wall Street.

Commenter: Anonymous
Bethany makes a lot of very good points, especially about the big-shots not deserving the bonuses. But for the life of me, I can't figure out why she's dropped the ball on the responsibility of the borrowers.

Many people borrowed far more money than they could afford, spent far more than they could ever pay back for a home. Why Bethany is letting them off the hook is beyond me.

I wish she would recognize that the blame lies in both places--at the feet of the villians she outlines here AND at the feet for the irresponsible borrowers who are failing to make good on their loans.

Commenter: Terrence Finnerty Burke
Its a class thing, stupid. "So many hands on the steering wheel..." is just a way of saying that the majority has been ripped off by a very conspicuously obvious upper class. The fact is that the upper 1-5% of US citizens own somewhere around 65%-80% of all the assets in the nation. These are the responsible parties. They are the "smartest guys in the room" who engineered the failure and now seek to mitigate it on the backs of the losers, the majority of US citizens who had no hand in the designing of the mess nor did they benefit materially from the heist. The solution: Take back what society needs and quit whining about it. From whom? From those with the obscenely over bloated portfolios stuffed with property and cash. Simple.

Commenter: Tony
Where are the perp-walks. The "illusory" profits Bethany McLean speaks of has another synonym - FRAUD. Bernie Ebbers, Dennis Kozlowski, Joe Nacchio, Jeff Skilling - prosecuted for their crimes to clean the system and restore faith. Where is the current crew? The heads of these financial institutions learned what many individuals did during the bubble about using heavy margin. The only difference is, those individuals did not get a handout from the government. As for Wall Street bonuses for the "superstars", your company is bankrupt. If you don't like getting nothing, take your gripe up with your boss, not the taxpayer.

Commenter: Gary Bryant
Ms. McLean actually defended the $18B payment of bonuses to Wall Street employees. According to her the money used to pay these bonuses was not part of the bailout funds received from the government, and therefore should not be a concern to the government.

If I'm following her logic correctly, this is how it works:

All governnment bailout money received by a Wall Street firm is placed in a separate account, and only used to conduct the company's legitimate day to day business operations.

All other money earned/received by the firm is kept in a separate account, and can be used for any purpose deemed appropriate by the firm's management. Although this money was/is desperately needed to maintain the company's survival, management elected to use it to pay promised bonuses. These non-government funds are also used on a daily basis to ensure the firm's most important empoyees do not have to mingle with the peons in society. This is accomplished by transporting these folks around in limousines, and private jets. These non-government funds also need to be utilized to pay for occasional employee "retreats" at exotic resorts, in order to reward them for a job-well-done and provide them an opportunity to "refresh their batteries."

According to the logic presented by Ms. McLean and her comrads on Wall Street, the use of non-government funds to pay for "promised bonuses," as well as the other types of expenses mentioned above are perfectly justified, and we peons just need to shut-up and accept our fate as inferior citizens.

These jerks need to be taught a lesson. Will they? Probably not. However, our government has a golden opportunity to show these punks who really rules the universe.

Commenter: Ron Rodd
I am fiscally conservative and during the last few years I have noticed neighbors, friends, others spending freely on vacations, house improvements, cars that I could not afford. Although I made more money, much of what I earned had to be saved to pay for taxes over the last 8 years where I saw my taxes jump to astronomical levels.

Recently layed off, I am now using my pension to stay afloat but not without a 20% cut by the govt. This, on top of the taxes I owe this April. Much of what I was able to save over the years will, and has been paid into paying my taxes although I am unemployed and am at the mercy of the govt for paying penalties for dipping into my pension just to stay alive. Oh, do not forget that I lost 50% of my 401K. I am middle class and the Joe Biden Middle class initiative is too late for me. And I suspect for most of the middle class. Bidens effort is unfortunately political posturely to lure the middle class that something is being done for them. It is a shame I fear and again too late.

Commenter: Anonymous
CFR? Devaluate the dollar:peso for advancing the NAU.

Repeal of Glass-Steagall, why it's a revolution in finance.
Commodity Futures Modernization Act
Enron "oops"
Goldman Sachs oil speculation
Goldman Sachs chairman Henry Paulson
The continuing series of unfortunate events

"US is engaged in an economic pearl harbor".

The not-federal reserve;
Perhaps it is time to put these powers back into the congress where it belongs, accountable to we the people.

Commenter: Tom Johnson
I am a 20 year veteran of the financial services industry and a partner in an investment management firm. Bethany is a breath of fresh air - she is the first person I have seen interviewed that has a solid 360 degree grasp of the issues. She is able to articulate the flaws of the industry along with putting the issues in a broader context. I enjoyed this interview as much as any I have seen in a very long time.

Commenter: tim breen
Excellent interview David.
Bethany is the best.
This piece should be required viewing for every high school/college Civics, Economics, and Political Science course.
Keep up the good work!
Tim Breen

Commenter: Eric Pelto
Outstanding interview...Bethany is smart and eloquent. She simplified it so that even I could make sense of the events taking place in the past couple of years. Not that I have any answer now that I understand the facts a little better. But isn't that the conundrum...things are so screwed up that their really isn't any one man or woman that can unscrew them? Good luck Obama.

Commenter: John Cosgrove
The Bethany McLean interview on NOW was the most insightful of any I have read or seen on the causes and options available on the current economic crisis.

What is most surprising is that despite only being a young journalist, she seemed to understand the issues better than any of the leading pundits or Nobel Laureate's that have opined on the subject.

Commenting as an old codger, I couldn't help but notice that she is also a very beautiful young woman. That fact must have mistakenly led many of her fellow journalist-colleagues to dismiss her as being only a pretty face without paying close attention to her as a professional.

I look forward to her upcoming book.

Commenter: Amanda
This interview was so educational and interesting! I liked how it addressed the complexity of the economic crisis and how critical it is to explore all of the difference angles, rather than making quick judgments.

Commenter: Steve Pasek
The point made in the McLean interview that resonates most to me is that all incentives in the current financial system favor short-term gains over longer-term, sustainable gains. We need to look at sustainability not only in our energy policies, but in our financial ones as well. If that means no huge windfalls for investors or financial industry workers, so be it. The engine of our economy should be sound investment, not something akin to high-stakes gambling that leaves negative fallout in its wake that doesn't impact the gamblers. Accountability is always a difficult problem, but it is made nearly impossible when profits are distributed in a fashion that is at odds with sustainable finance.

Commenter: Steven S
Many thanks to David Brancaccio and Bethany McLean for responsibly and reasonably discussing the complex financial questions we currently face. We count on such fine journalism to help us digest and consider our news, especially in the face of the usual strident, sensationalist or all too brief news coverage many of us rely upon.

Since some in Congress are now calling for a hasty response to the Wall St. crisis "to restore investor confidence", we may be condemned to a return to more of the same behavior on Wall St., with little or no consequences for those whose greed has so hurt our economy. But we cannot be expected to restore our confidence in the financial industry unless its compensation system has been revised to focus more responsibly on the long term health of its instruments and institutions.

In addition, Wall St. profiteers should be required to defer bonuses and reduce compensation until the bailout money equals a significant portion of the profits they received over the last five years. At the very least, the bailout money should be paid back once the financial industry is restored, though it should not be restored to the same state. As Ms. McLean pointed out, the crisis has largely been (and will continue to be) fueled by the irresponsibility of extravagant compensation based on short-term corporate gain - without any retroactive accountability if the corporate profits they claim to have achieved turn out to be bogus – and bogus they were.

If the average citizen was not a party to the billions in bonuses and compensations handed out, we should not be a party to the bailout without major strings attached. We small investors whose pension plans, mortgages, businesses, and lives have been so negatively affected must seek consequences and significant industry revision before we will regain our confidence in the financial world.

Commenter: Anonymous
Ken Lewis bought 1.2 million in BAC shares the morning after it was announced that BAC would recieve 25 billion in additional TARP funds to show his confidence in the Financial system. Doesn't that smack of "insider trading". Geez!

Commenter: Darryl
Ms McLean, you are the smartest one in the room. As a rank and file financial executive I have been studying this mess for years prior and have never heard it articulated better! Your insights are appreciated and needed! Thank you so much!

Commenter: Richard Belzil
The one piece of regulation that would be very effective is to let a failing company fail. The loss by the shareholders would ripple through the economy and cause shareholders of every other enterprise to 'regulate' their managers.

The problem is that we are embracing the notion that businesses must not fail. Rather like forest fires, the smaller occassional fires act to prevent cataclysmic fires. Everytime we prop up a bank that has betrayed its shareholders, we fuel the future collapse.

Ms. McLean is correct in pointing out that while we are hunting for the right 'thing' to do, the underlying Wall Street attitude hasn't changed, and will seed the next collapse that we won't be able to stop.

Commenter: Kurt Hannula
Bethany presented one of the most best overviews of the financial landscape I've heard till this point. Has she been vetted for any posts in the White House??

Commenter: Bill Lingard
Excellent program with Bethany McLean last evening. She is someone we shopuld all be listening to. if ever in the Boston area, I would welcome the opportunity to assemble a group of bankers to discuss the issues with her.

Bill Lingard

Commenter: Dave Hicks
Until legislation can be passed to prevent this bogus fraud on the American taxpayer. The next time these
brain trust of American finance come before the government for a handout - just deduct the amount of money given by the amount of bogus bonus paid out.
Use the K.I.S.S. system of regulations.

Commenter: Edward J. Dodson
Back in the late 1990s, I met with the then President of Fannie Mae, primarily to discuss an idea I had for an affordable housing initiative that would have encouraged the formation of community land trusts with land parcels scattered throughout a geography as large as a city.

What I had come to understand after several decades of work on public/private housing initiatives was that wrong-headed public policies and the availability of low-cost credit combined to create inherently dysfunctional land markets all across the United States (and elsewhere).

I expressed my views to the present of our company that we were providing an accelerant to credit-fueled land speculation by constantly increasing our maximum loan amounts in response to rising land prices. The result was that as each year in the land market cycle brought us closer to a market collapse, the mortgage loans we were purchasing and securitizing were collateralized by less and less housing and more and more land. Research by some very astute economists forecasted an 18-20 year land market cycle. The last one had occurred in 1988-89.

By the early part of this decade, zooming land costs were being pushed thru the economy, and speculators poured huge sums (as much as possible borrowed from the banks) into land and real estate with an expectation of selling out within a short period of time to others who were convinced prices would continue to climb. Businesses faced with rising leasing expenses on office space or retail space began to see profit margins fall. And, as they always do, they initiating measures to reduce their costs.

In the residential markets, the GSEs, FHA and the FHLBs lowed down payment requirements because U.S. households simply did not have sufficient savings to make even a 5% down payment on the median priced property in most markets. These secondary market players -- supported by the private mortgage insurance companies and FHA -- also had to adopt greater creditworthiness flexibilities (e.g., allowing a higher monthly ratio of housing expenses to total monthly income than had traditionally been considered appropriate). The ALT-A type of mortgage loan was also created to provide financing to somewhat less qualified borrowers but reward investors for the additional degree of default risk associated with these loans.

All of these "innovations" were prompted by escalating land prices, most evident in the high growth markets. And, as we have seen, it is in the markets where land prices were climbing the fastest -- and where land speculation drove investor entry -- that the market collapses generally have been the most severe.

Other residential communities have been devastated the aggressive and often fraudulent marketing of high cost, complex mortgage loans designed to ensure borrower default, foreclosure and profits to lenders who acquired the residential properties for resale in markets they assumed with continue to rise in value. The principals of the mortgage firms turned their brokers lose on a financially illiterate segment of consumers desperate to deal with various financial problems. What they did not understand is that a critical mass of this type of business concentrated in neighborhoods would bring on a chain reaction of collapsing land values.

I did what I could to bring these issues to the attention of decision-makers, without success. A few years ago I even met with one of the senior members in the U.S. House of Representatives to lay out what was coming and offer some insight into what might be done to mitigate the worst of the consequences.

We are far too far down the path of economic crisis for our government to prevent a full-blown depression. At issue is whether our elected representatives will have the intestinal fortitude to pass the legislation and regulatory reforms demanded. From what I have heard to date, I am not optimistic.

Commenter: Jeff
That was a remarkable analysis by Bethany McLean. She covered the details of what happened and the relevant questions we still face and just as importantly, she brought a rare and invaluable perspective on the larger human motivational and inherent weaknesses that were part of this crisis and that are enduring. David did an excellent job as interviewer. This is the finest thing I've ever seen on Now.

Commenter: Abe Frankel

If your guest last night is right, we are screwed. Nationalization wont work“although its being tried by other countries; regulators will become
patsies“although we used to have strict regulators and banks were accountable; those in finance disagree with the rest of us and believe they
are entitled to billion dollar bonuses because they are not at fault and, besides, the bonuses are in their contracts. And, its not simple, like we,
the public, think. Its banking, and thats really complex. Well, all of that may be true. And that means, we have to fix it. We have to find somebody
with the guts to take on the system. Who will say, if its too complex, THATS THE PROBLEM. We need to make it simpler. We have to make basic changes. If the people running the banks have no feelings for the
millions of people in this country who are suffering and will suffer because of their actions and/or contributions to actions, while taking huge bonuses,
they need to be forced to take something I would call Morality Management Training. Yes, thats a good idea! When will judges begin issuing this sentence in our fair country? And when these addicted
individuals have undergone psychologic help, they will emerge and say, in interviews on the evening news. There are things in life more important
than money. An open, caring heart is one of them. Therefore, I and the bank I help run are donating over one half of all our bonuses for the last
three years to a special fund set up in this country to care for needy people. Of course, they could not do this--and we can continue as were headed: until things get so bad in this land of plenty that people get angry enough to make some REAL changes.


Commenter: Paul Cote
Wow. David Broncaccio's interview with Bethany McLean was a knockout blow to Wall Street. (And she's a knockout too.)

Commenter: G Weiss
Not "criminal" but "unethical"...yeah right... sounds like a lawyer appologist.
Go figure...........

Commenter: Florine Writesel
Thank you so much for this the excellent, intelligent guests David Brancaccio consistently has on his shows. I was especially informed with this segment with his guest, Bethany McLean. Thank you so much for your informative shows. Friday nights I choose to watch your presentations with great favor and interest. Also, not least, thank you for your Treasure........Bill Moyers, my must see, along with Gwen Ifill, Jim Lehr and on and on. Thanks again.

Commenter: LWRellim
Your title on this piece is misleading (and a gross understatement of it's wonderful content -- you're selling Ms McClean short! [pun intended])

This interview is NOT just about bailout bonuses, but a significant part of the current situation.

And it was *definitely* worth the 1/2 hour spent watching (if only for the fact that it helps one feel there is SOMEONE sane out there) -- this young woman (Bethany McClean, co-author of Enron:Smartest Guys book) gives an amazingly WISE set of answers to Brancaccio

Commenter: David Fox
I have an issue with Ms. Mclean's comment about the hedge funds not being part of the problem. Many hedge funds invested heavily in credit default swaps, so the hedge funds are getting much of the bail-out money. It's the hedge funds that are bankrupting the banks. The bailout of AIG may turn out to be the worst decision of the Bush administration, as they were totally reckless in insuring all this debt that they hadn't capitalized. I personally think that Joseph Cassano, CEO of AIG, should spend a lot of time in jail.

It's a big, long argument, but this story makes it:

Commenter: Brian Blanchard
There is evidence that a group of international bankers, including those who run the Federal Reserve anonymously, in cahoots with the Council on Foriegn Relations,(CFR) are responsible for the economic situation that America and most of the nations in the world find themselves in. We are being guided into total economic collapse on purpose. That purpose is found in a discussions found when doing a search on CFR's website using national sovereignty

"Globalization makes national currencies obsolete"
Author: Benn Steil, Senior Fellow and Director of International Economics

We are being steamrolled into a ten region, One World Government that will usurp national sovereignty not just of America, but any country you care to name. They want to destroy all currencies and use an international system very similar to the Euro with ten regional currencies only as icons. Actual buying and selling by an individual would only be done only through implanted RFID chips and networked super computers, allowing complete control by a Fascist Corporatist system. At least Rockefeller has been open about it. This is the mark of the beast we have been warned against in the Bible.

Commenter: Shailesh
Great stories PBS. There is one argument that I wish PBS could focus on. It is said that current financial crisis is born out of EASY CREDIT made available during BUBBLE years. The solution so far given is for Government to put more money and provide more EASY CREDIT. How can EASY CREDIT be the solution, if that was the root cause of current issue?

Also, what will be impact of all the new Debt being taken out by US government? Will US become like Argentina?

Commenter: familyguy
Great interview with Bethany McLean, I'm one of those middle class hard working tax paying chumps that are bailing out these unscrupulous wall street fat cats. This melt down, which at its core is a moral crisis, fueled by unchecked raw greed, can only be ultimately remedied by old fashioned "love thy neighbor" values in the financial sector.
These wall street elites create phantom profits with fancy stock options that are executed in miliseconds and as we see bear no underlying real value.
And where is the punishment, a few will be brought to justice but for the most part these bums will be on the beach enjoying their millions at the expense of taxpayers .
Let's bring back 17th century justice and put some of these wall street fat cats in stocks on the public square!

Commenter: Ken Nelson
Ms McLean is a breath of fresh air, and oh so articulate on a complicated subject. If only the pundits on MSNBC, the congressional leadership,the fair weather capitalists, and the like could have a fraction of her clearity.

Commenter: Tom Daren
Almost everyone agrees that our banks need Federal Funds to avoid more calamity. Herein lies the problem that no one in the world seem to be able to figure out to date. The answer is the worlds financial system needed to FAIL and it still might. The moronic US Executive and Legislative branches are still having trouble grasping what the Fed chairman Bernanke hinted at six months are, in that, until they bail out all of the upside down mortgages and stop all foreclosures by refinancing and adjusting all home values back to 1997 levels NOTHING ELSE IS GOING TO WORK IN A TIMELY ENOUGH MANOR TO AVOID A DARK DEPRESSION. They made two really stupid mistakes already: Bush's really ignorant stimulus checks and The Wall Street hand out to the crooks who laughed all the way to their individual offshore bank accounts with the money.
I am telling you we are very close to three strikes and we are out.

Commenter: John Gelles
We have the example of 1933 to 1940, when the New Deal did not yet use vast government contracts (and central bank complete cooperation) to defeat unemployment and win the struggle for the arsenal of democracy to overcome resistance to a full employment attack on scarcity and inadequate monetized demand to finance the public interest and the contradictions inherent in profit and loss accounting for capitalism's paradoxes of thrift and market pricing. From 1941 to 1946 the War deal did it right--and government financed need for the triumph of democracy. What are we waiting for?

Commenter: Jim Sykes
The enlightening discussion with Bethany McLean was excellent. I hope Pres. Obama was listening. I wonder what Ms. McLean would think of a "transfer tax" on stock sales, which would help Wall Street pull itself up by its bootstraps.

A follow-up question on Nationalization of banks. Why not give some money directly to homeowners to pay banks who would then lend? Why not have the government do the lending itself, as a National bank, for a few years and then sell the assets and to private companys after recovery? I just don't see how giving money to banks without some assurance that they will move the money into loans and economic activity is a good deal. I'm not an economist, but the TARP just doesn't make sense to me!

Commenter: Twister
McLean for president!

Perhaps the only person in the country who really understands "the economy."

Commenter: Timray
As a senior on my way out i always cherish these glimpses of younger adults who make me believe we will be leaving our way of life to such wonderful people as Bethany......

Commenter: Nancy Briney
Let's have her on again!

What made you choose her?

Commenter: rusty from tucson
bethany mclean in her whole interview on the wall street bonus fiasco never once said this is also a very MORAL issue..
The Boys on Wall Street not once had a second MORAL thought about stealing our tax money for Their own use over and over again!!!!

Commenter: Gordon Uber
I appreciate the thoughtful discussion on the Bethany McLean interview.

Commenter: piotr wengovsky
I am watching at this moment.
This quote stands out as being particularly offensive:
"There may well be talented people out there who are willing to work for a government salary."

what arrogance!

Commenter: Jay Rais
Loved the show. Bethany McLean was was very enlightening with her knowledge of the banking system.
She's my hero. Thanks.

Commenter: Pat King
I appreciate Ms McLean's comments and suggest you also include those who saw this coming years ago. One such person is Chris Martenson []. Chris has make it his mission to educate people about the relationship of the economy/environment/energy and foresaw current events some time ago. I urge you to include voices such as his in your reporting.

Commenter: Gary
The culpability of the financial fiasco lies among a host of culprits, but the financial institutions (in concert with previous and present government officials) are the most liable for turning a bad situation into one of Armageddon-like proportions. No one told them to collectively request an increase in leverage from the 2004 Chairman of the SEC so that they could margin-up on their bets in the subprime market, sometimes at 40:1. They purposely placed themselves in a position to receive the equivalent of an institutional "margin-call". That the "swaps" they were using were named swaps and not "insurance" (which would have required satisfactory reserves to meet defaults, per regulation) could not have been an oversight by those who self-proclaim to be "the best and brightest". The CEO's and Boards of these companies have not yet been called to account. Further, the ratings agencies from which the FBI gathered e-mails stating "Let's hope we're rich and retired by the time this blows up" have also yet to be prosecuted for fraud. If the criminal behaviour of these companies is traced back to the "ratings-shopping" done on those deals, will it lead to the CEO's who originally requested the additional leverage for their respective firms? What this debacle has shown is that as long as there are financial companies that are "too big to fail", the entire financial structure has an inherent fatal flaw and is not viable. Viability has been a demand of Detroit automakers that received government loans, and it obvious that it is an even greater imperative for the financial industry. The "large, aggregation" model has proven itself to not work. It is unfortunate that hard-working middle-level employees on Wall Street will have to pay the price for their bosses' stupidity, but it is no different on Main Street when someone in charge makes bad and costly decisions.

Commenter: Arnold Heiber
While the banks played a significant role in the failure,they are little needed for the best solution.
There are many individuals and entities that are capable of qualifying loan applicants. The government should make many of them agents to establish and service loans on behalf of a government agency. Some banks can also be such agents. Credit is immediately made fluid and the banks are forced to compete for loans or risk losing their customers. That is the beginning of a strategy that will expedite the recovery.

Commenter: Chris
This was brilliant. I wish her book about the crisis were already out, because unlike most people who critically examine the assumptions and behavior of the Street, she actually knows what she's talking about, and unlike most people who know what they're talking about, she hasn't drunk the kool aid.

Commenter: Buff
Bethany's comment on difference between ethical and legal points to America's fundamental problem. If one was ethical rarely would he/she have to ask: "Is it legal?". The reverse is never true. Anything that is legal needs to have the second question asked: Is it ethical?"

Commenter: Richard Canfield
Forget you David, I am floored by your guest what's her name this Friday. I want to hear more from her. Man o man we need more of this kind of reporting.

I am a former CEO retired when my official title was President and General Manger of a subsidiary of a major Swiss Pharmaceutical giant.

I love this woman ... we need more like her.

Keep up the great work.

Commenter: Nathan
President Obama needs to invite Ms./Mrs. Bethany McLean for a sit down and also have her give input at the table with all those knuckleheads including the new treasury sec. during his meetings on handling this crisis. Good luck with your book Ms./Mrs. McLean.

Commenter: Dave in Milwaukee

Moral Hazard is being ignored in this conversation when this is coupled with a rich CEO's sense of entitlement and his unwillingness to to look at money as something other than a resource. Resource money is saved for a retirement fund. saved for a house. Money is not a thing you show off Money is for the things we need and make the lives of our children and those around us better. Moral Hazard can be enforced by making this bad for all of the people who did something wrong.

Poor little Bethany she's whiled away the hours conferring with the flowers for a little to long; (if I only had a brain (as the song says)). We suffer from the consequences of these greedy behavior and actions. What are the wealthy neo-cons getting by way of consequences. If there is a well spring of socialism coming then it those on the right that complain the most about it and their blindness and zealotry that are to blame.

Dave from Milwaukee

Commenter: Karl Pozmann
I have to disagree with Ms. McLean's contention that hedge funds have no role in the bailouts. I believe they are at the core. They purchased many of the derivatives and reveived much of the bailout money when their "bets" paid off. One possible solution is to tax this "derivative income" at 90% or more - the bailout money boommerangs right back. I believe (although I haven't researched it enought) junk bonds were resolved in a smiliar manner. If the government taxes derivatives at 90 %, hopefully investors will be weary investing in similar vehicles in the future - the so called "smart people" always looking for a quick buck.

Commenter: Q. Ajaqer
Why are Money Market rates so low when there is such a shortage of money for the commercial paper market? If rates went up for commercial paper I would take some of my money sitting in CD and Savings acc't to help increase so called liquidity. Why isn't supply/demand working in the commercial paper/money market arena??

Commenter: Pam Niedermayer
Why don't we simply demand that those firms/banks who accepted TARP funds and gave huge bonuses return funds equal to the bonuses up to the amount of the TARP funds issued?

Billions in Bogus Bonuses?

David Korten: Let Wall Street Fail

Show Me the TARP Money

Bailed-Out Banks: Where They Spent

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