The anger that grew on how the banks were dealt with, along with the amount of money being spent and everything else, came back to haunt the Obama administration. The midterms came about, and, I mean, what was the reality that they found themselves in?
Well, I think by 2010, of course, what people had seen was massive assistance to the financial sector. Yet at the same time, homeowners, people without jobs were left in many respects to fend for themselves. So, you know, there was anger that had built up, and that always accrues to the detriment of those that are in power. But I do think there was a golden opportunity lost in the wake of this crisis to bring in fresh ideas, a fresh team essentially, to examine what we had done over the last two decades and to talk about how we could reverse the damage and remake the economy so that we had a financial system that could support real growth in this country.
And, you know, it really is striking. Take a look, for just a minute, about what we did for banks and what we did for homeowners. Trillions of dollars going to the banks -- 24 separate programs of financial assistance, TARP obviously being the crown jewel or the centerpiece of that program, $700 billion.
For homeowners, we had a series of anemic efforts to try to help people stay in their homes. Less than a million people have been helped by HAMP [Home Affordable Modification Program], which is the main program to help people modify their mortgages. So we are now in a place today where 11 million households owe more on their mortgages than their homes. The first wave of foreclosures in this country were in the people that got all those loans that probably never should have been made. The second wave happened when millions of people lost their job. And now the third wave that is happening are millions of people who are underwater so badly that they just know that there is no hope that they will ever have equity in their homes, and they are beginning to walk away. Those homeowners, those underwater homeowners, are underwater by about $700 billion, and not enough has been done to help them.
It's striking that we did so much for the banks. Yet what we haven't done is lowered the principal amount for homeowners so they could stay in their homes so we could restart the housing market. And it really is kind of a striking dichotomy between what the most powerful banks got and what tens of millions of homeowners got.
So it was a success.
In that sense it was a success. I believe that it is by far the least expensive financial rescue in world history. Now, that said, we saved these guys' bacon at a moment of great crisis. We gave them a precious, precious insurance policy, where the U.S. government through the FDIC [Federal Deposit Insurance Corp.], the Fed and others guaranteed their liabilities to save their lives, and the reason we did that was because we didn't want the economy to collapse. It wasn't because they're our heroes or we wanted to be their friends or anything of the sort.
So to be saved in that kind of environment, and then to turn around and say, "We're going to invest hundreds of millions of dollars in lobbying to block any regulations," is almost unbelievable. I mean, I don't know how you get out of that box, but that's the democratic process, so they have every right to do it. It's just, you just can't believe that that is what it came to.
People are angry at the banks. People feel like the banks got us into this trouble, and you say it's the regulators. ...
It's not just the regulators, and it's not just the banks. There's an underlying sociological phenomenon which is what really got us to think there would be a crisis, and that's this: Middle-class America has been totally left behind for the last 15 or so years. Median income, adjusted for inflation, has gone nowhere.
But everybody wants to live a little bit better each year than they did before, and the solution that American families found to that dilemma was to borrow more. Along about '04 and '05, which is when the securitization of mortgages really took off, there would've otherwise been a big problem with other forms of credit.
What happened was, what would've been a medium-sized problem then got rolled into a gigantic problem because of the securitizations, the pop up in real estate values, and the change in loan-to-value.
People didn't run up credit card debt, they just used their houses as ATMs.
Yeah, and there were literally dozens and dozens of instances in each of the banks we bought where what was the reason the guy took out a mortgage? He wanted to buy a new car. Or he wanted to do something else, buy a boat, buy a vacation home, take a trip. Those are strange reasons for putting a mortgage on your house, but the people didn't feel they had an alternative.
And they were marketed that.
They were marketed that way, but they were receptive because it's natural to want to live a little better each year than you did the year before.
What got us going on the subprime thing was we said, wait a minute. House prices can't go up forever. They've already been spiking way above the long-term trend.
Second, the family indebtedness is getting out of proportion. Then with all these teaser rates, that was an accident waiting to happen. That's again something where government could've stepped in.
What's your opinion of the Occupy Wall Street movement? They are vilifying bankers. You have said here that banks caused this crisis, investment banks caused this crisis. Occupy Wall Street says the same thing.
Well, they really put all banks into this. There are 6,000 commercial banks, insured deposit banks. And add another few hundred for investment banks and S&Ls and so on. And again, about 20 of them sinned. And yet everyone's being equally vilified, demonized and, quite frankly, regulated for something they really didn't do.
Why do you think that is?
Oh, I think, first of all, it's political. I think that's being done in Washington, D.C., by Congress and the politicians in Washington, D.C. And I think a lot of other people are just uninformed, and they're angry, and they're suffering. And they should be angry. And it's unfortunate that they're suffering. But I think they're putting the blame, a blanket blame that's, quite frankly, undeserved. In fact, those institutions that didn't participate in this lost market share, lost potential profitability during that period because they knew it was wrong and said, "We're not going to participate in it." I mean, they did the right thing, and they're being -- we've socialized the punishment and put it against everyone, when, again, about 20 institutions are the ones that really caused this.
And so I don't -- I mean, I blame them for not being informed, but I can certainly understand why they think it's everybody, because that's been the mantra coming out of Washington, D.C., and, quite frankly, the media. I don't know what happened to investigative journalism. The media has let people say things that are totally untrue and have not done a very good job of describing who is guilty and who is innocent. They just repeated what politicians and others have said.
So when you say, "We caused this crisis," you're in a sense standing shoulder to shoulder with other bankers across the financial industry. So there's a view that you bear therefore, whether it was Wells or not, you bear collectively some responsibility for the crisis. But on the other hand, you're saying that it was Washington; it was regulators at fault here for failing to listen to people like yourself. So where is the blame here? Is it equal parts banks and Washington? Where do you lay it?
I'd state it this way. There has always been abhorrent behavior by financial institutions. We can go back centuries, we can go back decades, whatever it is, by some financial institutions. There always will be, and regulators seem to be incapable of stopping it. In fact, it even leads to bank failures. So I'm just assuming that's always going to be the case.
What happened here, no question, is why did it get so big? It's management. You know, you may have a few problems and issues, but it doesn't turn into the worst and longest recession we've had since the Depression. Why did that occur? That's the question.
Well, the first statement is that yes, it occurred, but primarily with 20 institutions who were investment banks and S&Ls mostly, not commercial banks. And then why did it get so big if it was only between 20 institutions?
Because of the failures of regulators is your view.
Well, five institutions. Rating agencies is not a regulator.
But they're part of the checks and balances.
Right. The SEC who regulated the investment banks did nothing about their liquidity and leverage, the federal banking regulators who had all the authority they needed to reign in, say, Citicorp. Congress -- this crisis could never have occurred [if it] hadn't been for Fannie [Mae] and Freddie [Mac]. Seventy percent of all subprime mortgages, all pay mortgages and other risky mortgages, were guaranteed by Fannie, Freddie or some other government agency. For 20 years -- I'm not exaggerating; look in the record -- I've been warning members of Congress that the portfolios and the risk at Fannie and Freddie were to such an extent that one day they were going to blow up and cost taxpayers $100 billion or more.
To date, it's cost $150 billion. I believe it's going to at least double. Three hundred billion dollars of taxpayers [money] is more than all the costs of banks, automobile companies and insurance companies by a factor of 10.
The taxpayer costs of $300 billion, the estimate of TARP is about $30, so it's going to cost 10 times more. Where's the outrage with Congress? Every administration for the last 20 years has told Congress that Fannie and Freddie are risky. Every regulator has told them.
I think people have given up on Congress.
So why aren't we occupying Washington, D.C.?
... You feel that Lehman was mishandled. ... Should they not have let it fail? What else could have been done in that situation?
The issue of what to do with banks, financial institutions that owe more money than they can repay is obviously a vexing one, and we're supposed to prevent the problem occurring by having tight regulation, by close supervision. ...
When those two things that are supposed to protect us fail, in most democratic societies when you have large institutions what you do is you have to save the institution. But that doesn't mean that you save bondholders and you save shareholders. ...
The preservation of the institution is important, but not of those shareholders and bondholders. They didn't do their job of managing, monitoring, and they have to pay the price. They get the returns when things are well, and they have to pay the price when things go badly.
That's what we should have done in the case of Lehman Brothers, especially given that we didn't know what would happen if it fully failed. In that cloud of uncertainty, if the supervisors had done their job and our regulators had done their job and we knew the consequences, then you might say maybe we can have an orderly failure. But they didn't know, and that was irresponsible. ...
That was the fundamental mistake that was made by both Bush and Obama. They repeatedly saved the shareholders and the bondholders, and that's what causes moral hazard. Not only did we save the shareholders and the bondholders, we also saved the bankers. Many of these people still got their bonuses.
That's where there's such anger on the part of the American people, because they see their taxpayer money in effect protecting bonuses while they face the problem of unemployment and losing their home.
There's anger in the streets, and there's this feeling that Wall Street was bailed out but Main Street wasn't. What was the attitude about how do we deal with this perception? And ... they weren't dealing with one of the hearts of the issue, which is the problem of housing and the mortgages under water. What is the debate within the halls of the Treasury building and White House?
There was no question it was incredibly frustrating that so shortly after repaying the government that compensation started going up as quickly as it did. I thought that showed poor judgment on the part of the banks. ...
We did not bail out Wall Street and leave Main Street hanging. Everything we did, we did with the purpose of helping Main Street, we did with the purpose of preventing the economy from turning into the second Great Depression. And some of the things that we had to do were terribly unpopular, and our predecessors, terribly unpopular. We knew it was going to be, but it was necessary.
We all had that recent experience with Lehman Brothers, where on the day that event happened, everyone's 401(k), everyone's IRA, businesspeople saw their businesses freeze; home values went tumbling. Every citizen of this country was deeply, negatively impacted by that event.
So if you're going to take steps to prevent that kind of pain for the country, the unfortunate fact is that you have to do certain things which are going to stabilize the financial institutions. If there had been a way to prevent the economic pain and the pain to households and businesses without taking these steps to stabilize those institutions, we would have done it. No one could figure out a way to do that.
What was your role in the whole debate? It seems that you were a little bit more reform-minded. You were more interested in -- for instance, the tax on big banks was a debate that took place. Take us a little bit into that debate and why you thought that was necessary and why we didn't go in that direction.
Well, we did propose a tax on the big banks. It didn't pass. But, you know, look -- in the heart of my University of Chicago soul, you are required as a card-carrying member of the Chicago School to oppose corporate welfare in all its forms. And I could understand that we've got to save the financial system from collapse, but that doesn't mean we need to be happy about it, and that doesn't mean we need to pretend like it didn't happen after we've dodged the bullet.
I think the president was probably the most annoyed in the moment after the rescue when the U.S. government has guaranteed the liabilities of all the major financial players to prevent a collapse. Because it guaranteed their liabilities, the spread between what they can borrow at and what they are lending at is the biggest it's ever been, and that returns them to profitability. And based on their profitability, they begin paying themselves big bonuses and saying: "Look at how profitable we are. We deserve these bonuses."
So in one meeting in the Oval Office I said: "Look, Mr. President, let me get this straight. We guaranteed their liabilities, which is what made them profitable, and now their bonuses are going to go back to the levels they were before the crisis when they had this profitability." And I said: "The thing is, a lot of these guys are wanting to be paid like rock stars. They are just lip-synching music that the government is playing for them. That doesn't make you Mick Jagger. That makes you Milli Vanilli. And even Milli Vanilli had to give back the Grammy. I think this is worth paying attention to."
The president is out there now campaigning, and he's a got big problem to some extent because of course the economy and the handling of the crisis is what everybody is focused on. There's a lot of anger, and there's a lot of frustration out there. Part of the anger and part of the frustration is this feeling that the banks got taken care of, but Main Street did not, that individuals did not get a plan that is designed to help them. Why are we at that point, and how difficult does it make the president's role in the re-election?
So I think the first thing -- and I'm sure the president will tell voters this time and again -- everything he did was about the average person; it's not about the banks. Even when we were doing things for the banks, it was about the collateral damage, all of the people that would be hurt if the banks went down.
And if you think about the things that he's done, from the Recovery Act to the various extensions of unemployment insurance and the extensions of the payroll tax cut to health care reform to financial regulatory reform, all of those things are designed to help this economy be stronger, more stable, and to create jobs.
So I think the thing that people can rightly say is, "I wish you'd done even more." But [if they] say that what you did was not aimed at job creation and aimed at dealing with the fundamental problem, I think that's deeply wrong. That was always the focus. That was always the thing that he cared most about.
Let's begin with Occupy Wall Street. What impact do you think they're having and [what] do you feel that they will spawn these ideas into the next few years?
I really don't think Occupy Wall Street is having much of an impact, and I'm not sure that it will. …
One of the problems is that the Occupy Wall Street movement tapped into a vein of emotion that just wasn't going to last forever. It lasted for a brief period of time and it didn't result in a change in policy. I think Wall Street was very effective in waiting out that surge of emotion. And so, I'm not optimistic that there will be changes in the long term.
But haven't they tapped into something fundamental, that 1 percent of this country are really going to continue to exploit and benefit from the wealth of this country, and 99 percent will be stuck?
I think that is true and it is fundamental. But what also is fundamental is that the power structure of the way that we're governed is set up to benefit those 1 percent. And the way that campaigns are financed, the way that money is spent on lobbying and politicians is such that the 99 percent really doesn't have much of a chance, particularly when it comes to Wall Street. There just isn't an aggregation of interests that has been able to match the really focused, concentrated efforts by Wall Street to lobby and influence really both political parties.
The anger out in the country is palpable, and it has been for a long time, with good reason. Did Obama's team assess it correctly? Did they handle it appropriately? Did they understand the anger that is out there about the financial situation?
Yeah, there's still a big question as to whether or not the big banks, the financial institutions that leveraged way beyond their means were taking these risks like never before were held accountable. There's still this perception that they came down to Congress, got the bailout and have gone about their way. And bottom line, Americans would like those entities to be held accountable for the decisions that they made, because they know that no one else would be able to go to Congress and get the bailout like they did.
Let's talk about why Occupy Wall Street has captured so many people's imaginations.
I think it reflected a sense of dissatisfaction with the way our economic system had worked, but [it] was more than that.
After the crisis in 2008, Americans and people in other countries assumed, hoped, that the political system would rectify the problem, would figure out what was wrong and deal with it.
But then they saw that not only wasn't our economic system working, neither was our political system. What they saw was something that was viewed to be totally unfair. ...
There's a slogan that they chant: "They got bailed out, we got sold out."
I think that's to a large extent true, and you see it both in labor markets and housing markets. What I found so disturbing was many people in the administration were people who believe fundamentally in markets working well. ...
The question of bonuses and compensation. This has a lot of people, rightly perhaps, very upset. How do bankers justify these bonuses in your view?
To some extent the bonuses are justified and can be justified if they reflect someone's contribution to the company.
The problem is with the incentive compensation schemes -- which I think the regulators have focused on like a laser beam in the last couple years -- which encourage immediate profitability without regard to longer-tail or even shorter-tail risk.
I would argue that the system was flawed in the sense of not tying compensation to risk and ... not having clawback provisions. ...
Tell me about your theories then on how financialization has sort of changed everything.
... Money originally was something very simple. It was a mechanism for exchange. So I gave you money, you gave me some real things like food, water, or whatever. ...
Somehow in the last 30 or 40 years, ... what we did was we take money but use it in a different way. Money in the form of debt in particular we used as a way to drive economies. And it's a different level. So individual lives, we basically borrow money to buy things which we can't afford. And that whole rise of debt was very much a phenomenon from the '70s onward. ...
The second element about that, which is really quite important, is if you actually look at the way we use money, speculation and debt certainly drive the economy on an individual level, but on a global level, countries get financialized as well. ...
So they start to drive countries in terms of as an industry. But most importantly, it also looks at how trade takes place. There's quite a lot of controversy in the relationship between China and America, but one essential element of that is a financial element. China sends goods to the United States, but the United States doesn't have money to pay for them.
What happens is when the payment is made, China lends the money back to the United States in the form of buying government bonds and other forms of debt. The entire cycle is very much like what we call vendor financing, where the seller of the goods actually finances the purchase.
That's happened between America and China, but it's also happened in Europe between Germany and ... the Southern European countries. That's essentially a part of what we do. Every transaction now has a financial element. ...
That's how entirely the world changed, and finance started to become a way to drive economies. And there's nothing wrong with debt. Within limits, debts are very sensible, because all we do with debt is basically accelerate consumption, so instead of saving over a period of time to have the money to buy something, we buy it today and pay it back over time.
But essentially that depends on two criteria which are crucial. One, when we borrowed the money, we need to have the capacity to pay it back. In other words, we have to have the income to pay it back. And the second is that if we bought something with it, that has value, and that value is maintained over time relative to the value of debt. Those two rules are pretty simple, basic rules of lending.
Fundamentally we've forgot all about that, because what was happening as we were accelerating consumption because we could borrow it to buy today, the economy kept growing; the prices of everything like houses and assets kept going up. So we somehow mysteriously assumed that we didn't need to worry about how to repay this debt, because what we'd bought with it would get more valuable and we could select to pay it off, except it was just a Ponzi game, because the game would go on and prices would go on as long as we could keep borrowing to pay that back.
Basically we were borrowing from the future, and unfortunately, there is no more future. We are at the future, and we don't have the income to pay back the debt. The things we bought with the debt are no longer worth as much as the debt, and that's a fundamental problem of financialization. ...
And one of the fundamental aspects of financialization was it sort of propelled a small group of people into positions of enormous power and authority: bankers. You know, when I started life in banking, banking wasn't exactly a glamorous profession. It was basically a simple profession, very much like being an executive at an electrical company or some sort of utility. You provided some sort of essential services.
But then as finance became crucial to driving the economy, banking became a much more esteemed profession and much better-rewarded profession. But bankers also gained enormously in terms of power. ... They became almost the only people with the knowledge and the power to drive the economy.
And to some extent we believed in that, and it was quite an extraordinary shift from what I call real engineering to financial engineering. We originally drove the economy by real businesses, you know -- productivity, innovation, all those types of things which we understood.
We now somehow believe that finance sort of drives everything. And curiously, in the crisis, our answer to this was not to go back for financial engineering to real engineering. It was more financial engineering. So we have different money games of printing money, quantitative easing and so forth.
It's as if our taste for finance has completely changed the way we think about the world. There is no way for us to seemingly go back. And we've got this strange economy. Eisenhower talked in the 1950s about the military-industrial complex. In the last 20 years, we've created the governmental-finance complex in running the economy. And fundamentally, this crisis was an opportunity, in my view, to change that, to revisit that question, ask questions like, how much debt is good? What is the role of finance in our economy? What is the role of banks in our economy? Do we want them to be more like utilities, matching borrowers and savers, providing safe payments mechanisms, providing rudimentary risk management tools?
It was a historical opportunity to revisit that, instead of which we haven't revisited any of that. Basically we continue to go down this path of assuming that financialization is the answer to everything, which in my judgment it's not. But the problem is, the only way we can do that is we have to accept that much of our growth is being driven by this financialization.
All the evidence is that roughly half the growth in the United States over the 10 years to 2007, 2008 was driven by debt. And that's probably true of many countries in the world; certainly in Europe we're seeing the same thing. We have to accept lower growth; we have to accept lower living standards; and nobody, it seems, can confront that reality. And we lack the political leadership to do that.
But I suspect it's very hard. And Fyodor Dostoyevsky in The Possessed has this wonderful line, which I always recall: "It's very difficult to change gods." And in the modern age, our god was finance, except it's turned out to be a very cruel and destructive god.
... There are various hearings that took place in 2010 on [Capitol] Hill. Many bankers were brought in and read the riot act. How has Wall Street reacted to that?
I think Wall Street reacted with a mixture of both shock that they are seen as such villains, but in a number of the senior bankers who really think this through, after the initial shock wears off, begin to understand what the causes of the indignation, the outrage are. ...
People are angry at the whole financial system. They call it Wall Street, and they hold Wall Street responsible for engaging in risky trading, in building up lots of leverage, and then taking us all down.
They do. It's a widespread view.
It's not accurate?
I don't believe that the major banks can be held solely responsible for what happened. They played a role. So did housing policy in this country, which made no sense. So did various governmental policies, which in retrospect at least were ill-thought-through.
You don't wind up with a crisis of this magnitude because of one subset of the economy. There had to be many contributing pieces. ...
So later in March, March 27 is this famous meeting of all the CEOs coming to Washington and meeting with the president. And the president makes a pretty stark sort of statement in the front, saying, "We're the only ones between you and the pitchforks." Were you involved in that meeting?
So you were there. What was it like? Were the bankers in some ways afraid of exactly what might happen? Give us the feeling of that meeting and the lessons learned on both sides from it.
I think in general in this period, I think the president by that point was in a tough position, right, because the banks had been a part of why we'd gotten into the mess that we were in. We were certainly having to do the Federal Reserve and the TARP, all of that, in the Bush administration; we'd had to do just extraordinary things. And there's a lot of anger at the financial system when the president comes into office.
And frankly, he was angry at the banks, too. I mean, look, he had all these things he wanted to do with health care and education and energy, and he was having to clean up this god-awful mess that had been created by a financial system that had absolutely gone a little bit crazy.
And to have bankers come and whine about "How can you be doing these things to us?," and whatever, that's definitely going to try anyone's patience. And I think the president was trying to convey that: "Listen, we understand the financial system is really important, and we understand no matter how much we want to hold our noses, we have to do this, because I care about the rest of the economy, and it's going to go down if you guys go down. But don't give me this junk of your life's so hard, because, for heaven's sakes, you're the reason we're in this mess."
So on that meeting, the way it's been told is there's a back-and-forth, and that's being discussed, and finally the president says, "Hey, I'm going to get a haircut or go to dinner," or whatever. And then after that there was a focus on Citigroup. What happened during that evening?
Well, you know, it's funny, because I remember that meeting very vividly. I'd been on, I think, Meet the Press. I'd originally been supposed to go to California that day, because it was my son's spring break. We were going to take him home for a few days and let him see his friends. And then they put me on Meet the Press that Sunday morning, so I couldn't go. And then they called this meeting, but I was on a 6:00 flight. And I was like, no problem, the meeting started at 1:00; it's going to be fine.
And it gets to be 4:00, and we're still meeting. And finally at 5:00, the president says, "All right, we're nowhere. I'm going to go get a haircut and dinner. You all keep working," at which point I called my husband saying: "I don't think I'm coming. You guys have fun in California without me."
But certainly the first half of that meeting was sort of summarizing this debate with the president, sort of there are these two ways we could go. There's how aggressive do you want to be, because an important part, the more aggressive you are, if you really are going to talk about "Let's make these financial institutions realize their losses," these things that right now look like they might be bad loans, just have them, what's often [called] the "rip the Band-Aid off" [approach] and just say, "They're going to lose these; that's going to leave a capital hole." The only way you could really do that is if you have a lot of money; that if they can't raise private capital, you, the government, are willing to say, "OK, we're going to put our capital in and make sure that you're sound and secure."
And the trouble is there was a certain amount of money left in TARP [Troubled Asset Relief Program], but not a lot. So anything -- a very aggressive strategy would mean you'd have to go back to Congress and get basically another TARP if you were actually going to do something very aggressive.
And it was actually when the president left -- so we were having this fight of, do we want to do something aggressive, understanding that it would mean going back, convincing Congress that we need some more public money to recapitalize these banks? And when the president left, [then-Chief of Staff] Rahm [Emanuel] said: "You understand that's never happening, because AIG just paid these bonuses. There is no way anyone is going to give public money to the banking system again."
And that's really what changed the discussion, of saying, OK, well, we were having this nice, important discussion about what's the absolute, the possible ways, the best ways you might deal with this. Now political reality just was imposed on us, of "Ain't no way you're going to get more money to stabilize the banking system."
So then, very much the discussion turned to, all right, what can we do with the money we have? And that's when the discussion was, well, let's do the stress tests. Let's make the stress tests as rigorous and strong as they can be. And if there's some institutions that turn out to be weak and need public capital, well, we've at least got enough there.
And there were certain institutions that were more likely candidates to do less well on the stress tests, and that's what a lot of the discussion was about.
We've just come through another year and seen bonus pools up, lots of compensation for bankers. People are bitter. They're not seeing any results on Main Street, but yet the bankers seem to be doing just fine and making huge bonuses. And those bonuses don't do anything to quell the risky behavior of the past.
... The major point is that in large part due to the banking agencies, but also due in some part to self-discipline, these bonuses now are much more closely tied to risk, and in particular clawback arrangements, whereby if it turns out that the bonuses were earned and the work turns out after a year or two or three, to have been less profitable or actually incurred losses, there can be clawbacks of the bonuses.
There is much more attention being paid to the relationship between the risk incurred and the size of the bonus. I'm sure it is far from perfect, but I think there are major efforts being made.
Why not have a compensation system that gets rid of bonuses and just ties people's income to their performance?
The irony here is that's the way it largely used to be, and Congress in its infinite wisdom decided that if you did it that way, it would be subject to a much higher tax level. That really is what led to the bonus system being a far greater component of total compensation. ...
... Right now, we have people camping out all over the country proclaiming themselves the 99 percent. You're part of the 1 percent, clearly. Who should we be helping here?
I think the 99 percent need help, and I'll tell you what my biggest worry is now. ... Our educational system is failing the middle class and lower middle class and below people. The only way for people to close gaps and to, more importantly, bring the lower people up, is education. ...
We're moving into a world that's more and more complicated, more and more technologically oriented. Our kids are falling farther and farther behind. That's the real tragedy in what's going on in America. ...
Are you sympathetic with Occupy Wall Street?
I'm very sympathetic with the causes of it. I think it's extreme hyperbole to blame Wall Street for all the ills of the world, but I'm sympathetic with what caused it, which is they are in a warp that they can't really get out of very effectively. But I lay that at the feet of the educational system. ...
The Occupy Wall Street movement is a scream for fairness. What they see is a bonus system, high levels of compensation in the financial industry, and a financial collapse, and the epicenter of that was Wall Street.
I understand that they should be angry with parts of Wall Street, but I think the politicians have done a very clever job deflecting the share of the blame that should belong to them over to be just Wall Street. That's the part that I object to.
Also, if you look at the signs the Occupy Wall Street people are carrying, a lot of them say, "I need a job." That's what they really want, and that's what they deserve. But if you're not qualified to get a job because your school system has failed you, that's not a Wall Street creature. Wall Street didn't wreck the school system. ...
But yet there's a view out in Main Street -- I know you did, but did the administration completely understand the anger of Main Street that the banks got their bailouts but Main Street didn't?
Look, not only did they understand it, the president was running in the campaign in the fall of 2008. The president is really upset about that subject. We're having discussions about the subject of how tough can we be? What conditions can we impose? We saved these guys' bacon, and for them to turn around and sort of flout the rules or say, "We don't want you to re-regulate us," or, "We don't want to have any special responsibilities," is outrageous, is unbelievable.
But the thing you've got to remember is, we're taking over. and much of the TARP [Troubled Asset Relief Program] money is already out the door. They already have that money. And so we're constantly fighting the battle of trying to impose conditions for the use of TARP money that they already got at the end of the last administration.
Now, if you look at the auto companies, I think here is an example where, in order to get money, they are forced to satisfy some really brutal conditions. They are forced through bankruptcy. They have to dramatically cut their costs. They fire a large group of the senior management of these companies, and they are able to turn that around. Those are the kind of conditions that we're in some sense always wanting to apply. And the two things that were constantly in tension with that were [that with] money that was already out, it's hard to attach the conditions to, and going so far that you blow up the financial system would bring about exactly the thing we are trying to avoid.
So I don't know that every single thing is always exactly striking the right balance, but I do know that that wasn't lost on people at the time.
And when this TARP goes up before Congress, there's an enormous amount of anger, and it doesn't even pass the first time. I mean, what does that say?
Well, you know, I think the anger is partly born out of the fact that here we are in this crisis, and now policy-makers are asking for a large blank check, having previously underscaled, undersized and really underrepresented the scale of the challenge that our financial system faced. I think that was the real problem with TARP. But I think it is interesting. TARP gets a lot of attention because it was the one piece of this that actually went through the deliberative legislative process.
But it was just the tip of the iceberg. TARP was $700 billion. And it was just a piece of what ended up being trillions of dollars of assistance to the financial sector, much of which was not known [to] or seen [by] the public at large.
"The FRONTLINE Interviews" tell the story of history in the making. Produced in collaboration with Duke University’s Rutherfurd Living History Program. Learn more...