September 2011, you're writing Mathbabe. You're working at another job.
And so you come --
Yeah. So I was told about Occupy Wall Street relatively soon because a good friend of mine who also works in finance lives right there, and he would walk through the park every day on the way to and from work. Actually, his name [on my blog] is FogOfWar, and he made the first post about Occupy on my blog, took a bunch of pictures.
You know, it was really fantastic and inspired me to go down and check it out. So I went down with my 11-year-old son actually, and I just loved it. It was really exciting and interesting. And I had great conversations about how the system was not working.
I didn't really I guess invest in it for a couple more weeks. And what happened there was, I was listening to a reporter interviewing one of the occupiers, and the reporter asked that person, "What would you change about the financial system?" And that person said, "I would ban short selling, for one."
And I remember thinking, "What?!" I had just posted about how short selling shouldn't be banned. My opinion about short selling is, banning short selling is something like a doctor turning off a heart monitor. You know, this is not my -- this is Andrew Lo, a friend at MIT's phrase, but I think it's a great one: "Don't you want to know whether your patient is alive?"
You know, short selling means people can bet against things. It's a good -- it's information. It really is information in that situation on the stock market. And just banning it on bank stocks because you don't want to know how bad the situation is just seems really silly. So my impression was, this person is really ignorant. And then I talked to myself: Well, what should I do about it? Should I dismiss Occupy Wall Street, or should I go educate Occupy Wall Street, like, go talk to them?
And by educate, I mean have that conversation, like, have that discussion, try to convince them, because, as I said, I hate the idea of saying: "I'm an expert. I know better. Just listen to me." I don't want to be that person. But I do want to go have that conversation and convince them that actually short selling is OK.
But there are other things that are really, really not OK. And I want to address those things so that the next time a reporter asks that person, "What should we change?," they have a list of things to change, because there is a list of things to change.
So the first thing was, I thought, I'm not going to dismiss them; I'm going to join them. And the second thing I thought about was the idea that they were being criticized. Occupy Wall Street was criticized from the get-go that they didn't understand the issues.
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.
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. ...
... 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. ...
What was your intention when you bought BankUnited? What were you looking at?
What we felt was important was several things. One, people were afraid Florida would become the lost continent of Atlantis. We didn't think so. We'd thought it was a question of how long it would take to turn it around, not whether or not it couldn't.
Second, we felt that the new management would do a very good job with it, and they did. It ended up making more earnings sooner than we had thought, went public a lot sooner than we had thought. So everybody won from that point of view. ...
There are a lot of other funds that have been pulled together to invest in failing banks. Some of these are looking to turn banks around pretty quickly.
We think that's a very hard thing to do. A bank is by its nature a very broadly based, community based activity. It's a lot of little decisions that have to be made within the institution to get it fixed, so we don't believe we can do it very quickly, unless you're very lucky.
How long do you intend to hold onto a bank when you buy?
We had originally thought it would be at least three- to five-year holding period.
This is BankUnited or in general?
Any of the banks.
How many banks do you currently have money in?
When I say "we have," we have investments in. We don't actually control any of the banks.
We're in BankUnited. We're in Sun Bancorp, the second biggest bank in New Jersey. We're in Talmer, which is a very big Midwestern bank. We're in Cascade in the Pacific Northwest, and we're awaiting regulatory approval for Amalgamated, a union controlled bank.
That's the Occupy Wall Street bank.
It turns out it happens to be the Occupy Wall Street bank.
So you're a banker to Occupy Wall Street.
We are, and while that's not a movement that I particularly identify with, given the nature of the bank -- that it's meant to be a progressive bank, it's a sort of underdog bank if you will -- I think it's perfectly appropriate that the management not only is the bank for Occupy Wall Street, the CEO of the bank marched with Occupy Wall Street. ...
Income inequality is one of the focus points of Occupy Wall Street. But it's also fraud, malfeasance and morality on the part of people who were in positions of responsibility.
I think on the fraud part and the immorality part, they have 100 percent good case, and I think those people really should be prosecuted. Not just civil penalties, but really criminal.
Why aren't we seeing anybody go to jail?
I don't understand it to tell you the truth. ...
... One of the criticisms of the bankers is that they're tone deaf to the suffering of millions of Americans.
That may be true of some bankers. It's not true of all bankers, and it's certainly not true in our case. ...
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.
OK. So there was another thing?
Yeah. You know, Occupy Wall Street from the very beginning was being criticized. The people in Zuccotti Park, the occupiers were being criticized for not really knowing how the system works. And what I realized was, you know what? Nobody knows how the system works. Even the people in finance don't understand the system.
They understand their little corner of the system. If it's securitized products, they understand how that works. If it's, you know, arbing [arbitraging] the equities market, they understand how that works. But very few people would come forward and say: "I'm an expert on the financial system. I know how everything works."
And most people who have been working there for 10 years only know what they know. So really, I just don't think it's a valid criticism at all. And I feel like, you know, in terms of what they do know, the occupiers, they know that the result of this system is not working for them. That's enough.
It's a huge black box, in other words, and they are seeing the output of that black box. What is the output of that black box? You know, a lot of them are college-educated. They have enormous student loans, and they don't have a job. And that is the output, them and all the people around them who also are hopeless, don't have jobs and are in huge debt.
And it's not just the actual circumstances of their lives that they're in huge debt. It's this feeling that they have been disenfranchised, that they are not part of the system. They don't have the power in fact to address the system and to question it. So for that reason I felt like the occupiers should be appreciated, that in spite of the fact that they don't understand it, they're willing to come out and say, "This isn't working; the system isn't working." And I completely agree with that.
The reason I'm interested in this is because this is what people that are marching down there with Occupy Wall Street will bring up all the time. These banks are getting away with fines, getting a slap on the wrist, $300 million here, $400 million there. It doesn't amount to anything for them, and we're never allowed to take these things through the courts and figure out what really happened.
Well, that could be fair. And if what we really want is a Truth and Reconciliation Committee a la South Africa, that's a social objective. It's not a regulatory or a market objective. If that's what as a country we want to do, I'd be up for that.
I think the Occupy Wall Street tribe might be a little bit disappointed by the outcome of that, but I could be wrong. ...
What's your bet?
My bet is that if an objective process was gone through, it would be very hard to pin guilt for all this bad stuff that happened on any one party, but rather you'd find that pretty much everybody that was involved in the process contributed to it, of course including bankers. Bankers contributed to it substantially.
I feel like I contributed to it substantially for a number of reasons. One is that there was stuff going on that I didn't ring an alarm bell on, and I was as aware as anybody of what was going on. ... I didn't understand everything that was going on. In fact I missed some pretty big things in terms of the risk that was building up on banks' balance sheets.
But we saw product that we thought was probably being mis-sold. We saw risk that we thought was misunderstood by investors and where we reached that conclusion ourselves. It's not to say we had no lapses, because of course we did in our 30,000-person organization. But we treated those lapses very seriously, and we had quite a bureaucratic process, as it were, to screen those things out.
But when I saw what I believed to be other firms that were behaving in an irresponsible manner, I didn't ring alarm bells. I didn't come and speak to you on a documentary about the terrible things that are going wrong in our world, and I feel responsible for that today.
... If you had to do it over again, what would you do differently?
... I think I would have had more strength in my own convictions about what was really going on, and not only acted on it to defend my own firm but taken a bolder or broader stand in public and in private.
So you would have blown the whistle on other banks?
A bad practice, yeah. I can make all sorts of excuses for my own behavior, but the reason that I didn't blow the whistle was that I didn't have a high level of confidence that I was right. ...
"The FRONTLINE Interviews" tell the story of history in the making. Produced in collaboration with Duke University’s Rutherfurd Living History Program. Learn more...