>> The following is a PBS Election 2012 special event.

>> Tonight on Frontline, part two of a four-hour special investigation.

>> The economy is melting, the Bush administration is leaving.

Obama gets a real glimpse of the future.

Disaster is coming.

>> The epic story of the global meltdown continues.

>> The American people are angry.

>> Those banks needed to be held accountable.

>> Inside the politics of the financial crisis... >> Why do we not fire the CEO of some of these companies that got into terrible trouble?

>> Taking on banks "too big to fail."

>> How can we not demand from the banks some conditions upon getting bailed out?

>> There was almost two faces of Obama.

Publicly he wanted to tell you that these were the fat cat bankers.

Privately he wanted to get them onboard.

>> A global crisis... >> The bankers were fanning out across Europe.

Investment banks such as Goldman Sachs were eager to lend to risky places such as Greece.

>> Even convents are being sold derivatives.

>> And a culture of greed.

>> It's actually known as "casino banking."

>> One loophole after another.

>> They came down here like sharks to raw meat in the water.

>> Have I got a deal for you.

>> "Money, Power and Wall Street" part two, tonight on Frontline.

>> So much for that election day euphoria... >> The economy has now lost 650,000 jobs just in the past three months... >> NARRATOR: The inauguration was 76 days away.

>> This was the most eventful and consequential presidential transition in American history.

>> All eyes are now on Barack Obama to turn it around... >> NARRATOR: In Chicago, President-elect Barack Obama was watching the economy continue to collapse.

>> This is like watching a train wreck in slow motion... >> The S&P 500 in an 11-year low... >> He had to start thinking about this the da after he was elected.

>> And the losses just snowballed... >> NARRATOR: At the start of his presidential quest, Obama had chosen a dream team of reform-minded economists.

>> And that team, for the most part, gathers around Barack Obama as he rises.

And who have you got?

You've got Robert Reich, the liberal labor secretary under Bill Clinton.

You've got Joe Stiglitz, who, of course, called the crisis earlier than anyone.

And at the center of it all, you've got all 6'8" of him, Paul Volcker.

>> NARRATOR: They had been advising him for months-- warning, really.

>> Obama at that moment gets a real glimpse of the future: disaster is coming.

>> NARRATOR: And in those first weeks after the election, his entire economic team was stunned by the bad news.

>> We were all worried about what we were seeing.

We knew that the credit system was pretty quickly headed towards something that looked a lot like seizure.

>> NARRATOR: Unemployment was nearly 7% and climbing, the stock market was down more than 6,000 points.

>> There was a growing sense of calamity.

This could be the most climactic economic crisis in all of American history, that we were that close to a complete meltdown.

>> At the end of the conversation, there's basically no bright spots.

And I say to the then-president-elect, "Wow, that had to have been the worst economic briefing a new president's had in, you know, almost a century."

And the president says, "That's not even my worst briefing this week."

>> Citigroup, which crumbled 26% today, was one of the biggest... >> NARRATOR: Just then, overleveraged and filled with toxic mortgage assets, the megabank Citigroup was failing.

>> Every option from a merger to a possible fail is on the table.

Citigroup stock fell 23%.

>> It's a very dynamic situation, because the economy is melting.

The Bush administration is left or rapidly leaving the stage-- "This is beyond our kin to manage.

We're going to be out of here in January."

Meanwhile, there's no one really to manage it.

>> The federal government plans to pump billions of dollars into Citigroup.

>> The government rescued Citigroup from the brink.

>> NARRATOR: George W. Bush's treasury secretary, Henry Paulson, had already spent $125 billion bailing out Wall Street's largest banks.

And now during the transition he would spend another $20 billion to keep superbank Citigroup afloat.

But it wouldn't stem the unfolding disaster.

>> That period, when we go back and look at the history books, I think is going to be one of those periods where you look and go, "What were they doing?

"Why did nothing happen?

Why was there no political will to do anything?"

And the reason was very simple: there was nobody in charge.

There really was nobody in charge.

>> Profits in the banking industry are plunging.

>> There's news today of a federal bailout for a Wall Street investment firm... >> NARRATOR: The economic meltdown had begun eight months before, in the middle of the election.

>> Are you fired up?

Are you ready to go?

Fired up!

>> NARRATOR: Candidate Barack Obama had made the econom a key issue.

>> We've got eight years of disastrous economic policies, that's what we're going to change when I'm president of the United States of America.

>> Obama very early realized that things were only going to get worse.

And so, Obama made this decision: "The thing I'm going to run on "is that there is a problem in our economy, my opponent doesn't see it, and I can fix it."

>> NARRATOR: And early in the campaign, he had traveled to New York to push for Wall Street to change its ways.

>> I actually went down to the Cooper Union speech with him in his car.

>> Senator Barack Obama... (applause) >> He was talking about the idea of making sure that the ethics of Wall Street was pure and that we were doing the business that we should be doing.

>> Thank you very much.

Thank you.

We let the special interests put their thumbs on the economic scales.

We've excused and even embraced an ethic of greed.

>> The Cooper Union speech was essentially Obama's effort to say to the Democratic Party and to the countr that he believed that we had to rein in Wall Street, we had to resume more aggressive regulation of Wall Street.

>> Instead of establishing a 21st century regulatory framework, we simply dismantled the old one.

In doing so we encouraged... >> NARRATOR: In the audience, Wall Street's power brokers were paying close attention.

>> He was sitting in the heart of the world financial center, talking about regulation before we started talking about regulation.

>> A free market was never meant to be a free license to take whatever you can get, however you can get it.

>> I would say the reaction wasn't great from Wall Street.

But to the president's credit, that didn't stop him from laying out what he thought was going to be necessary.

(applause) >> Thank you.

Thank you.

Thank you.

>> NARRATOR: But now, during the transition in Chicago, President-Elect Obama faced a crucial decision about the economy: what team would he put together to carry out his agenda?

>> The rumors were swirling.

"So, who's going to be secretary of the treasury?

"Who's going to be the head of the NEC?

Who's going to be what?"

>> NARRATOR: The decision would be an early signal.

Was the new president going to ally himself with those who wanted to reform Wall Street, or those who wanted to rebuild it?

>> There's people on the left who are saying that Obama should appoint someone who represents a tough-on-Wall-Street regulator, someone who's going to take Wall Street to the wood house on behalf of the treasury.

>> Paul Volcker is extremely close to Obama... >> NARRATOR: Their first choice was Paul Volcker.

>> A kind of adviser in chief during this financial... >> NARRATOR: Feared on Wall Street, he was the reformers' guru, a former Federal Reserve chairman, a pro-regulation advocate, and an outspoken critic of the Wall Street banks.

>> Volcker was the main force for a historic change that has brought inflation rates down for 30 years now, and interest rates have been declining for 30 years.

>> NARRATOR: Picking Volcker would deliver on his campaign promises to reform the banks and get tough on Wall Street.

But inside his transition team, there was also a more moderate faction-- veterans of the Clinton administration.

They had their own candidate.

>> You could not afford to have anybody but the best, most knowledgeable person on the job with their hand on the wheel.

Tim Geithner was the perfect person.

>> NARRATOR: Tim Geithner, the president of the New York Federal Reserve.

During the financial crisis, he had led the Bush administration's response on Wall Street.

>> He's 47 years old, he looks like he's about 32.

>> Extremely smart, extremely aware of the stuff, very discrete, controlled.

>> NARRATOR: Geithner's career took off in the Clinton administration, a protégé of treasury secretary Robert Rubin.

>> I knew he was a protégé of Bob Rubin.

And I knew that he was, therefore, of and by and from Wall Street.

He sees the economy as a practical matter, the way Wall Street sees the economy.

And, therefore, Tim Geithner is going to reflect what Wall Street ultimately wants.

>> NARRATOR: And during the meltdown, he had engineered the bailout of Bear Stearns, had gone along with letting Lehman go bankrupt.

But then pushed for a more than $180 billion bailout of the insurance giant AIG.

>> Tim Geithner thought that if they did not do everything they had to do to save AIG, as distasteful as it was, that they would be jeopardizing the global economy.

>> He certainly talks now of having stared into the abyss after Lehman and concluded that that was not going to happen again on his watch.

>> NARRATOR: For Obama, adding Geithner, a key player during the Bush administration, would be an unusual choice.

But the two men had formed a personal connection the first time they met, just before the election.

>> The meeting was secret because they didn't want things coming out about who might or might not be in the Obama cabinet.

>> People tell me it was like-- men tell me, who know about this-- "It was love at first sight."

And I got this from both sides.

People close to Geithner said he was "smitten."

>> NARRATOR: They were almost exactly the same age, born just two weeks apart.

>> Geithner is an Obama kind of guy.

He's a no-drama guy himself.

I mean, their personalities sort of meshed, to some extent.

>> They had an almost immediate mind meld.

They'd both grown up partly abroad.

They both had a parent who worked for the Ford Foundation.

And they had a similar worldview.

>> NARRATOR: According to Geithner's official calendar, the meeting lasted only one hour.

By now the financial crisis that started on Wall Street was going global.

>> On the trading floors, turmoil.

>> The global financial meltdown comes to Iceland.

>> Today's was the nightmare scenario.

>> We had a contagion that operated almost around the globe.

The panic from Lehman spreads to AIG, spreads to Morgan Stanley, spreads to Goldman Sachs.

Suddenly Ireland is having problems.

Suddenly the Bank of England is-is bailing out banks.

Suddenly Iceland is bankrupt.

The govern... the state of Iceland, it's bankrupt.

An entire country!

Suddenly China has gone from being one of the world's highest growth countries to almost a no-growth countr in the flash of an eye.

That's contagion.

>> Wall Street will once again be keeping a close eye on the incoming administration... >> NARRATOR: Back in Chicago, Obama had news he hoped would reassure the markets.

>> Timothy Geithner... >> NARRATOR: Tim Geithner would be his treasury secretary.

>> This is the guy who's going to be the point man in leading us out of the worst economic period since the Great Depression.

>> NARRATOR: Then, another insider-- former Clinton treasury secretary Larry Summers-- would be the president's chief economic adviser.

>> Old hands from the Clinton era.

>> Obama called him one of the great economic minds of our time.

>> Obama was always looking for establishment guys.

He was looking for establishment input, even sort of establishment affirmation.

He definitely was a gu for whom credibility with the establishment was something that he cared about.

>> NARRATOR: Summers had been president of Harvard and had made millions working at a hedge fund.

>> Well, he was told that appointing this team would present a problem.

People will see it as reflecting the interests of the banks.

"You're bringing in the same plumber that caused the problem.

"Why do we believe that they're going to be fixing it, "at least fixing it in the interest of the American people and not the interests of the bank?"

>> NARRATOR: But to Obama's team, the choice signaled they intended to hit the ground running.

>> I think the president's view was, "I got to have some people who can come in "and are going to know what they're doing right awa because it's such a dangerous moment."

>> NARRATOR: Two-and-half months after he was elected... >> It's the inauguration da of the nation's first African American president.

>> Hundreds of thousands of people already... >> NARRATOR: The president and his economic team arrived at the White House.

>> I, Barack Hussein Obama, do solemnly swear... >> NARRATOR: Now the financial crisis was theirs.

>> It's like you're moving into a new house and the roof's on fire and the basement is flooded and there's gas in the kitchen, there's a dog in the back yard.

The question is, how do you make this house livable?

>> NARRATOR: Next door at the Treasury Department, Tim Geithner was also just moving in.

He hadn't yet hired a staff.

>> When you go to the website for treasur and you try and figure out who holds what position, and it says, "Vacant, vacant, vacant, vacant, vacant."

They're still learning, like, which keys go to which locks and how to get around the offices.

And they're being asked to provide the plan that will save the world.

>> NARRATOR: One of Geithner's top deputies, Lee Sachs, was there.

>> Our piece of it was, how do you stabilize the financial system?

It was all about making sure that we stopped things from going off a cliff.

You need a functioning banking system to have a functioning economy, and so we were charged with coming up with the plans to deal with that problem.

>> NARRATOR: Just a few months before, Geithner had been in and out of these rooms when the Bush administration was spending billions of dollars to save the banks.

But it hadn't been enough and the Obama White House was under pressure to do something immediately.

>> The White House tells Geithner, "Look, we've got to tell the American people something, "we've got to tell the financial markets something.

"You know, ready or not, you guys are going to have to take this show public."

>> I know how much pressure the president was feeling to produce, to show action, to do as much as possible to get out there with some appreciation of the magnitude of the problem and some sense of-of direction.

>> NARRATOR: On February 9, the president tried to do just that.

He promised Geithner would deliver a plan to rescue the financial system.

>> My secretary of the treasury, Tim Geithner, working with Larry Summers, my national economic adviser, and others, are coming up with the best possible plan... >> President Obama set a high level of expectations.

The impression from watching that press conference was, "Tomorrow, Secretary of Treasury Tim Geithner is going to tell us what the plan is to save the world."

>> And so tomorrow my treasury secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.

>> The White House announces that Tim Geithner's got the plan to fix the banks, and he's going to present it.

>> I'm trying to avoid preempting my secretary of the treasury.

I want all of you to show up at his press conference as well.

He's going to be terrific.

>> The president said, "Tim Geithner is going to come with a plan and that plan is going to contain the magic bullet."

>> NARRATOR: But inside treasury, Geithner wasn't ready.

His speech was still not finished.

And Larry Summers, the president's chief economic adviser, was not satisfied.

>> The moment of reckoning is coming, and they're sending copies to Larry Summers.

And Summers writes back, "Well, this doesn't sound like language "a treasury secretary would use.

"You know, it sounds, you know, it sounds a little amateurish.

"It doesn't quite have the gravitas.

"You know, I don't think this is going to inspire confidence when you deliver."

So they-they get very nervous and they tear that draft up and they're frantically reworking it.

>> NARRATOR: The next day, Secretary Geithner's time was up.

>> You have everything set up-- a VIP audience, cameras, all the press.

Markets are expecting something big, and they're expecting details.

So the secretary walks out and frankly looked nervous.

And he comes to the podium and there are two teleprompters there.

>> Thanks to all of you for coming here today.

>> He starts his speech, but he's just not good at this yet.

And so his head's turning from one teleprompter to the next, and he gave the whole speech going like this.

>> Our plan will help restart the flow of credit.

It will help clean up and strengthen our banks.

>> At that point, Geithner had never given a national press conference.

This was the country's first view of this guy who was, you know, put in place to rescue the country from this crisis.

>> Geithner was very inexperienced before, you know, the public eye.

Before he became treasury secretary, had never once appeared on television.

>> Geithner looked like he was about 12 years old.

He is not a good public speaker, and he just seemed like he wasn't ready for prime time.

>> First, we're going to require... >> NARRATOR: Geithner's plan centered on what he called a stress test... >> ...comprehensive stress test.

This borrows the medical term.

We want their balance sheets cleaner and stronger, and we are going to help this process by providing a new program of capital support for those institutions that need it.

>> NARRATOR: Under the stress test, the government would examine the health of the country's biggest banks, and if necessary bail out those that were in the most trouble.

>> They're going to go through and get some hard data, make as much of it public as possible and it'll be a confidence- building exercise for the banks.

>> NARRATOR: To many watching, however, Geithner's plan seemed inadequate.

>> It's a pretty bad flop.

Every cable network is showing the Dow just collapsing hundreds of points as he's speaking.

>> Thank you very much.

Thank you for coming.

(applause) >> He gives his speech, he turns and walks away.

And you could tell, even the VIPs, Ben Bernanke and everyone else are, "Okay, well, I guess we leave now."

There was a little bit of clapping, and it's over.

>> The market responds by dropping almost 400 points the day he announces it.

Over 4% it drops that day.

>> This is the guy who's going to be our secretary of the treasury... >> It did not go as well as anyone had hoped... >> NARRATOR: In the wake of Geithner's speech, the financial markets were near a ten-year low and still falling.

>> This guy brings no credibility.

>> Maybe he doesn't understand it well enough to explain it to the rest of us.

>> The markets reacted in a wa that none of us would have hoped.

Expectations got way out of control.

We shouldn't have let that happen, frankly.

>> NARRATOR: They'd been in office three weeks.

Already Obama was being pressured to replace his young secretary of the treasury.

>> There was instantly chatter in Washington, "How long would he last?

Is he going to be the first one out the door?

Is Obama going to have to find somebody else?"

>> People start saying that this guy is in over his head and is just not the right guy for the job.

>> Everybody's calling for blood, right?

They want this sacrificial lamb, and it's going to be Geithner.

>> NARRATOR: But in the Oval Office, Geithner mounted a spirited defense.

He stood by his strategy for stress tests.

>> The guy people describe is a different gu than the one we all saw on TV.

And he was very convinced that this was the way to go, and he was very resolute.

>> He was unflappable.

If you think about what was going on in the markets, what was going on in the economy, the pressure that you can imagine, he didn't miss a beat.

>> NARRATOR: Geithner walked Obama through the details.

>> The stress test, which is ultimately Geithner's solution to this problem, kind of grows out of that idea that if you can just convince the markets that these guys are going to be okay, that the hole isn't as bad as everyone's worst-case scenario suggests, then the panic will subside, confidence will come back, prices of securities will rise, things will just level off.

>> NARRATOR: Critics doubted the stress tests would be enough.

But for now the president would stick with Geithner.

>> Obama couldn't back off of Tim Geithner at this point.

You're in the honeymoon stage of an administration, you can't dump one of your guys.

So he stands by Tim Geithner.

>> The president stuck with the secretary.

And he was under tremendous pressure to change course.

I've got to believe that this decision was one of the hardest decisions he had to make at that time.

(shouting) >> Firms gave out $18.4 billion in bonuses... >> NARRATOR: For months there had been public anger at Wall Street.

>> The same year the Dow Jones... >> The sixth highest total on record... >> NARRATOR: The focus was CEOs like the chairman of Lehman Brothers, Dick Fuld.

>> You belong in jail.

>> You blame it on the people who want housing.

>> You belong in jail.

>> ...growing backlash against Wall Street... >> ...frustration with the economy... >> ...anger from the U.S. public... >> NARRATOR: And in cities across the nation, protests erupted... >> Banks got bailed out; we got sold out.

>> NARRATOR: In Chicago, Bank of America CEO Ken Lewis was seen as one of the villains.

>> ...story the Obama administration doesn't need... >> NARRATOR: In Washington, outrage at Wall Street and the bailouts pushed the anger to the edge.

>> We're on the sidewalk.

And now you're on the sidewalk too.

(coughing) >> Other one.

Other one.

>> NARRATOR: And the anger was not just confined to the streets.

On Capitol Hill, Congress responded to the public anger.

They summoned the heads of the nation's biggest banks.

>> Let me be frank, my constituents in Illinois are angry and so am I.

>> What did the banks do with the taxpayers' money?

>> I cannot believe no one's prosecuted you on this.

>> It was chilling to watch that.

I mean, just to see them all lined up next to each other.

I think most Americans, when they saw that, thought of the heads of tobacco.

That's where we're at.

We have an industry that's just vilified to that point and the frustration is so high.

>> The whole thing, frankly, had a bit of political theater element to it, that particular hearing.

There seemed to be a little bit of a contest to who could get these guys by the scruff of the neck and slap 'em around the most.

>> As of matter of fact, Bank of America, you paid yourself $30 dollars in fees just to accept our TARP money.

>> I don't know what you're talking about.

>> NARRATOR: Bank of America's CEO Ken Lewis was in the spotlight.

His bank had taken more than $45 billion in government bailouts.

>> It was clear we were there to take a public whipping, you know, and we did.

I just tried to think of it that way and think of it as, "This too will pass" and just get through it.

>> There has been wide speculation that some of our larger banks around the nation may end up being nationalized.

Do you feel that your bank should be considered one of those banks at risk?

>> Are you talking to me?

>> Yeah.

>> Absolutely not.

I don't know why you would ask the question.

>> This was a grilling that lasted all day.

>> Bank of America has to explain this to Congress... >> Growing public anger aimed at banks... >> Do the banks need to be held accountable for their part... >> NARRATOR: At the White House, the political team worried it was just a matter of time before the anger would be aimed at the president.

They wanted to make an example of one of the CEOs.

>> David Axelrod, Obama's top political adviser, very much wanted some scalps.

Robert Gibbs, who was the press secretary, but also very senior political aide, wanted scalps.

And even Larry Summers thought there should be a scalp.

And that was when the talk drifted toward, do you fire, you know, the CEO of the Bank of America?

>> NARRATOR: Summers and the political team thought that maybe it was time for a CEO like Ken Lewis to lose his job.

It would send the banks and the public a message: those responsible for the financial crisis would pay a price.

>> Summers thought that maybe they needed to have a change in management, at least one bank, and that they needed to send a signal that, you know, poor performance was going to lead to consequences.

>> Royal Bank of Scotland is almost twice as big as Citigroup.

You know what the British government did?

They took it over and fired the CEO.

Guess what?

When we had the problem with car dealers, car companies, we went out there, we fired the CEO.

Why do we not fire the CEOs of some of these companies that have gotten into terrible trouble?

>> NARRATOR: It would have been a bold step for Obama, but Tim Geithner warned the president against it.

He wasn't going to participate in what he called "Old Testament justice."

>> Geithner didn't want to do it because it would kind of create this risk.

It would create this conception that the government was going to come in and mess with these banks, and that would frighten off private investors.

>> NARRATOR: Geithner believed the banking system was still fragile.

>> This notion that the financial system was so fragile that you couldn't do anything that might hurt confidence, it becomes very formative and very important to understanding Geithner.

He is very afraid to do anything to roil the market and to create fear.

It becomes this very delicate, "Let's tiptoe around the situation."

>> NARRATOR: He saw the banks as an ailing patient in critical condition.

He had taken to invoking the first principal of medicine.

>> The first rule is, to borrow from medicine, the Hippocratic oath-- first, do no harm.

And there were a lot of ideas out there, frankly, that some of us thought might do harm.

>> NARRATOR: Geithner insisted now was not the time to reform Wall Street.

But inside the White House he had a powerful opponent: Larry Summers.

>> The hard part about Larry Summers is, (a) Larry Summers wanted to be treasury secretary, still acts in some cases, depending on who you talk to, like he's treasury secretary.

>> Summers is very smart, very experienced and has very sharp elbows.

>> NARRATOR: Summers, a highly regarded economist, believed Wall Street was fundamentally broken; aggressive reform was necessary.

>> He thought that there was perhaps trillions of dollars in losses.

And that, you know, you were going to need to do something really bold and aggressive to solve that problem.

>> NARRATOR: Summers had a bold idea.

>> He wants to restructure the major "too big to fail" banks.

>> NARRATOR: Summers wanted to take on and break up at least one of the "too big to fail" banks.

>> Larry says, "What if we don't bail out these institutions?

"What if we restructure them?

"There's going to be blood on Wall Street, a lot of it.

"Wall Street won't exist the way it has existed up to now, it going to be restructured."

>> NARRATOR: Summers was concerned about "too big to fail" banks like Citi, Wells Fargo, Bank of America-- the new breed of superbanks.

>> They bought and bought and bought.

And they would buy one bank and then they'd buy another bank and get bigger and bigger and bigger.

Even if they got bought by someone else, they were the ones who ended up taking over the show.

>> NARRATOR: But in the crisis, the banks were so large and interconnected, the government felt it had to bail them out because their failure could bring down the entire economy.

They are "too big to fail."

>> The financial system is too dependent on them.

And, therefore, the taxpayers, we have in effect decided that we will not allow them to fail.

>> NARRATOR: And Summers now believed some of the "too big to fail" banks might be on the verge of collapse.

The time was right to do something dramatic about it.

>> His thought was, "Well, we need to take over, to shut down, to nationalize the weakest of the banks."

And, (a), that would set a good example.

You know, Wall Street would see that if you gamble with your own fortunes, if you gamble with the country's fortunes, and you fail, you're going to get shut down, you're going to lose.

That supposed to be one of the basic lessons of capitalism.

>> NARRATOR: And Summers had a formidable ally-- Christina Romer, a Berkeley economist who had been picked as one of Obama's top advisers.

>> Larry Summers and I were both on the side of we needed a more definitive cleanup of the financial system.

And, the question was if somebody, you know, really wasn't solvent, do you need the government to put in capital, realize the losses, clean it up and then put it back into private hands?

>> NARRATOR: But Geithner completely disagreed.

He thought the banks were vulnerable, and that Summers was playing with fire.

>> If you're going to take over one of these institutions, that's like pushing a boulder off a... down a hill.

You have to make sure that you have enough firepower to stop that boulder from rolling all the way down.

>> NARRATOR: On March 15, they all gathered with the president.

Summers versus Geithner-- a showdown.

>> It was an extraordinary meeting.

It was literally a six-hour murder board in which you had the president of the United States, sometimes aided by Larry Summers, really asking the hardest questions, raising every criticism that was being raised from the outside.

>> NARRATOR: Summers and his allies argued that Geithner's stress test plan was not aggressive enough.

>> The stress tests are a part of a confidence game.

Many people in the administration, and out of the administration, were worried that the stresses that the system would be put through were not real stresses.

>> I was one who was critical of the stress tests and worried that the scale was going to be tilted in a way that you get the result you want.

You know, it's not that hard to cook a stress test and make it look like you're in much better shape than you are.

>> NARRATOR: Geithner would not back down.

>> Tim says the stress tests are enough.

It's real action.

Summers says, "No, it's not.

It's watchful waiting."

Tim is livid-- "It's not watchful waiting.

It's not just waiting around.

It's real."

And Larry said, you know, "What you're doing is not action that's needed.

You need to pull off the Band-Aid."

>> NARRATOR: Hour after hour, in front of the president of the United States, Tim Geithner stood up to Larry Summers.

>> The secretary just kept methodically, but clearly, making the case that the plan we had laid out had the best chance of success with the least downside risk.

And he just, every time someone would raise another point, he would just, again, go through it.

>> NARRATOR: Obama listened.

Should they take on a major bank?

Were Geithner's stress tests the best way to go?

For now, he'd keep his own counsel.

>> For the economy, this is what free fall feels like... >> When will the recession end?

>> NARRATOR: Two weeks later, the nation's top bankers were summoned to the White House.

>> ...after leveling some very harsh words at bankers... >> NARRATOR: The president wanted to talk to them.

>> Looking for accountabilit from the nation's banking leaders, today President Obama... >> Thirteen bankers were called into a room to meet with the president of the United States.

They were told they were going to be chastised, that this was going to be the opportunity for the president to vent the public's anger.

>> NARRATOR: The bankers feared they could be forced to accept dramatic reforms: a ban against "too big to fail," a limit on executive compensation, and a requirement that they refinance mortgages for underwater homeowners.

>> Walking into that meeting, these guys have not been this nervous since they were in nursery school.

They're ultimately powerful, sovereign men, atop their institutions.

But now they know that they really could get whacked.

>> NARRATOR: No one knew what to expect-- Summers' "Old Testament justice" or Geithner's cautious encouragement.

Now they'd find out what he thought.

>> Obama comes in, and he's all business.

>> NARRATOR: There were few pleasantries exchanged.

The president spoke first.

>> The president made it pretty clear when he talked to us, you know, "We're between you and the pitchforks, guys, and you need to just acknowledge that."

>> The bankers have essentially made a decision that they're prepared to go along with what needs to be done to resolve this problem, to get the public back on the side of corporate America.

>> NARRATOR: But as the meeting progressed, to their astonishment, it became clear the president was in no mood for confrontation.

>> What's interesting is that the next statements and the rest of the meeting essentially is Obama skinning back as fast as he can on that pitchforks punch.

And he says, right after that, "What we have, gentlemen, is a public relations disaster "that's turning into a political disaster.

And I'm here to help."

>> I interpreted it as a kind of a watershed time.

Banks are the catalyst to get us out of this morass that we are in.

You can talk so long about the past, but at some point you've got to look at the present and the future.

And I felt that's what he was saying.

>> I think the president sees himself as a pragmatist, and I do too.

"Let's get through this.

"Let's be pragmatic.

"Let's not shoot for the moon and miss.

"Let's accomplish as much as we can, but let's do it "with the certainty that we know we can produce by taking this a little more cautiously."

>> NARRATOR: The president required no firm commitments from the bankers.

>> I think it was clear it was an opportunity lost.

He had a room full of very frightened CEOs.

He was in a position then to make demands and he didn't.

>> He didn't want to disturb the banks.

He wanted them on their side so that things were as calm as possible.

There would be basically business as usual.

>> NARRATOR: The president had decided-- Geithner had prevailed.

That day there would be no aggressive action to take on Wall Street.

>> There was almost two faces of Obama.

Publicly, he wanted to tell you that these were the fat cat bankers.

But privately, when he was with the bankers, he wanted to get them on board.

>> Good afternoon.

I'm John Stumpf with Wells Fargo... >> NARRATOR: The bankers made it clear the president had let them off.

>> We had a wonderful meeting today with the president.

The basic message is we're all in this thing together.

>> We're quite pleased with the cooperation that's evidenced with the group and with the White House.

>> I think the bankers came out of that meeting realizing that they had dodged a bullet, and that was what was required of the was to go out, stand before the cameras and speak as though everyone were in harmony, that they and the president were on board, to make this great expression of confidence and reassurance.

>> We, all of us, walked out of there knowing full that we're all in it together.

And we're all looking forward to promoting a recovery-- economic recovery.

Thank you.

>> NARRATOR: The bankers who left the meeting that da had already received more than $180 billion from the federal government with almost no conditions.

>> No strings attached?

I mean, everybody else-- homeowners, everybody else who's trying to get a loan, everybody on Main Street, small businesses-- not only are they not able to get loans, but if they get anything there are huge strings attached.

How, in good conscience, in good faith, can we not ask the banks-- demand from the banks-- some conditions upon getting bailed out?

That just seemed incredible.

>> NARRATOR: Unknown at that time, many of these banks had been drawing on a vast reservoir of cash from the Federal Reserve in order to keep their daily operations from freezing up.

It had started more than a year before, during the Bush administration.

>> Now we know that these banks were not successful.

These banks were on the brink of failure.

What we found out was that the biggest banks in the United States borrowed a heck of a lot more mone than anybody had imagined.

>> NARRATOR: The details of the loans became public only after Bloomberg News took the case all the wa to the Supreme Court.

>> So what we found out, really, was that Wall Street was in much, much deeper problems, they were in much deeper trouble, than we ever imagined.

On the peak day in 2008, it was December 5, 2008, the banks had taken loans of $1.2 trillion.

And that's one day.

And out of that $1.2 trillion, not necessarily on the same day, Morgan Stanley alone took out $107 billion, had $107 billion in loans out in a single day.

Citigroup-- over $99 billion on a single day.

Bank of America-- $91 billion on a single day.

Royal Bank of Scotland, UBS, all the biggest banks in the world, had borrowed way more than we ever thought.

>> NARRATOR: The loans were part of an unprecedented intervention in the financial system.

In all, the Federal Reserve made available more than $7.7 trillion in loans, commitments and guarantees to financial institutions around the world.

>> The data shows the Fed was lending not just to American banks but to banks all over the world, and in amounts that were really astonishing.

>> Another big bank is in the black... >> People starting to get comfortable that maybe these banks can earn through their problems... >> NARRATOR: But in that spring of 2009, in New York, the public was hearing good news about the banks.

>> Bailed out banks reporting billions in first quarter profits... >> So should we be outraged or enthused?

>> NARRATOR: Just in time for Tim Geithner's stress tests.

>> They sent all these supervisors from the Fed to kind of look up and down the banks and to see if they have enough capital.

>> It was a three-month process.

All the bank supervisors working together in an unprecedented fashion, digging into the books of each one of these banks.

>> The government today officially announces the results of the financial stress tests... >> Today was report card day... >> NARRATOR: By May 7, the government was read to reveal the results.

>> Today, we got the official findings... >> These actions today are going to bring an unprecedented level of transparency and clarit to the health of the nation's banking system.

They're going to replace... >> NARRATOR: According to Geithner's stress tests, the nation's 19 largest banks were fundamentally healthy, and soon they would repay their loans.

>> Replace the government's investments with private capital as soon as possible... >> None of the 19 banks are at risk of insolvency... >> Tim Geithner feels like he saved the financial system and that he did so at extraordinarily low cost.

>> NARRATOR: And Geithner took a victory lap.

>> When those stress test results come in and the news is quite good, he goes over to the White House and actually shows the president some of the reports, sort of his moment of, "You see, Mr. President, I was right."

>> NARRATOR: The president and even some of Geithner's White House critics seemed pleased.

His position as secretary of treasury was secure.

>> Looking back, I actually think they were pretty effective.

And if anything, the financial sector is highly profitable again.

I think the problem is that they're about the only ones that are highly profitable right now.

And so, that leads to, I think, very justifiable anger at bailouts that didn't help the middle class enough.

>> We're mad as hell and we're not going to take it any more.

>> Hundreds of rallies in all 50 states today... >> They came to vent their outrage in big gatherings and small groups... >> NARRATOR: August 2009-- the Wall Street bailouts stoked new anger from a new movement: the Tea Party.

>> Runaway government spending... >> They want to send a message to bailed out companies... >> Stop spending my kid's money.

>> NARRATOR: The anger was over health care, taxes and especially the bank bailouts.

>> There was a lot of anger, a lot of incredible concern about what was going on.

The American people were angry to a person.

They were just angry.

>> No!

No!

>> Hardworking Americans all across this country, you know, they have a right to be offended, to be frustrated by what they saw happen.

Those banks needed to be held accountable.

>> NARRATOR: Much of the anger was directed personall at President Obama.

>> ...at President Obama's stimulus package and budget in particular... >> Obama's a Marxist, socialist... >> We are the people and we have finally awoken and we are not going to stop until we take down this government.

>> You work for us!

You work for us!

>> It was this new force in American politics.

And the White House did not have a plan to counter this.

It kind of caught them by surprise.

And on the communications front, they were flatfooted.

>> NARRATOR: At the White House, chief of staff Rahm Emanuel had been worried about the growing public anger for months, telling the president he should act.

>> Rahm Emanuel, he recognized that you cannot inject hundreds of billions of dollars into the banking system without reassuring the American people that this is not going to happen again.

>> Rahm Emanuel is quite forceful.

Now Emanuel is usually a guy for favoring do no harm, favoring Wall Street, says, "Now is the time, Mr. President, for Old Testament justice."

>> NARRATOR: Now the president decided to revive a central theme of his campaign: reforming Wall Street.

>> President Obama visits New York toda to deliver a major address to Wall Street... >> One year to the day after the fall of Lehman Brothers... >> NARRATOR: That September, on the one-year anniversar of the meltdown, the president headed to Wall Street to again make the case for reform.

He would push for legislation to reform the banks.

>> Calling for immediate action to reform financial regulation... >> We've seen bailouts, stress tests, an alphabet soup of treasury and Fed programs... >> He decides to have a meeting that's literally steps from Wall Street, right?

I mean, Federal Hall is... you can walk down to the Exchange floors.

>> NARRATOR: Washington's power brokers were there-- Congressional leaders, Tim Geithner, even Paul Volcker.

>> Ladies and gentlemen, the president of the United States... >> NARRATOR: But many of the titans of Wall Street didn't show up.

>> Essentially, none of the big figures from Wall Street show up to hear the speech.

They all... they all just stay in their offices and do their work.

>> They don't even show up to the speech.

Jamie Dimon and Lloyd Blankfein... it wasn't like the speech was scheduled, you know, without notice.

They just had better things to do that day.

>> NARRATOR: None of the bank CEOs had been fired or prosecuted.

>> That's why we need strong rules of the road to guard against the kind of systemic risks that we've seen.

>> Those who attend from Wall Street, you know, they're checking their watches.

You know, they're talking about their summer vacations.

Somehow they have survived this disaster of their own making, and it is back to business as usual.

>> If you go have a speech on Wall Street and people from Wall Street don't even show up for your speech, and you're the president of the United States, what more public display can you make, to try and force these guys to come and participate?

And they apparently just felt like they could just wash their hands and walk away.

>> It's a very difficult day for Barack Obama.

>> We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.

>> Once everything's calmed down, once the banks have gotten what they want, once revenues have gone up again, once things seem stable... >> Thank you very much, everybody.

>> ...they just completely disengaged.

And there was no way for the White House to force them to the table.

There was nothing that the White House could do.

(applause) >> 52% of the American people disapprove of President Obama's handling of the economy... >> Rising doubt about his approach on domestic issues... >> NARRATOR: Back in Washington, the president's efforts to reform the financial system were competing with another priority.

>> It was clear from the start that there were two options that Obama could choose, but he could only choose one of them, because they were both huge, huge accomplishments.

He could either reform the entire financial system, or he could get health care through.

And they chose health care.

>> NARRATOR: And the health care battle was all-consuming.

>> Between the economy and health care reform, the president's approval rating is tumbling.

>> You're tied down in this disaster of a public fight over health care.

All the energy of the political people in the White House are fighting this health care campaign.

>> There was no interest, no incentive inside the White House, for doing structural reform to the banking system before health care was passed.

>> NARRATOR: As the health care debate heated up, reforming Wall Street was left to Congress.

>> The problem was the timing.

It was 2010.

And by 2010, the banks had recovered.

They were much more aggressive.

They were no longer under the thumb of the government.

And they-they could, you know, water down big parts of the bill, buy off senators, and have more of their way.

>> NARRATOR: Armies of bank lobbyists descended on Congress.

>> What you had was a financial system, individual banks, that were really rescued by the U.S. government and the Fed, then using some of that money to influence the U.S. government to make the rules less strict on them going forward.

>> The vast majority of money that was spent for lobbying was being spent by Wall Street.

And they're hiring the very, very best people to do it.

>> The lobbying effort has just been incredible.

The banks have thrown every weapon they have on Washington.

And it's, you know, this is what we've gotten as a result.

It's like one loophole after another.

>> The one thing that's been demonstrated by this is, if you leave the smallest hole, the littlest hole, very, very smart people on Wall Street will figure out how to slip through that hole.

>> NARRATOR: Key Congressional proposals to break up those "too big to fail" banks were kept out of the bill by Wall Street lobbyists.

>> Almost two years after the entire banking system almost collapsed... >> It's designed to prevent another economic meltdown... >> Today, President Obama signed into law the Wall Street Reform and Consumer Protection Act... >> NARRATOR: On July 21, 2010, President Barack Obama signed what became known as the Dodd-Frank bill.

>> And finally, because of this law, the American people will never again be asked to foot the bill for Wall Street's mistakes.

There will be no more tax-funded bailouts.

Period.

>> NARRATOR: The bill included some rules against risk taking by banks, limited consumer protections, and new powers for regulators.

But even some at the White House admitted the reforms may not be enough.

>> I think the weakness is that in order to get it over legislative hurdles, there were so many Is and Ts left undotted and crossed that big decisions that are actually of great importance are still being made.

And they're being made in a climate where they're not necessarily under public scrutiny, where the lobbyists have a chance to get in and sway things their way.

I very much worry that we haven't learned the lessons that this crash should have taught us.

In an era of this level of interconnectedness, yeah, I worry, I worry that we haven't learned the lessons.

>> NARRATOR: The president's supporters say his greatest accomplishment has been to save the financial system from complete collapse.

>> The problem for Obama is the thrust of his case right now to the American public is it could have been worse, you know?

And that's a hard bumper sticker-- "It could have been worse"-- on the back of your car.

I think... that's not something that you run for president on.

>> That's an abstraction that can't be proven, that you prevented something that didn't happen.

And it's a much harder sell to say to the American people, as he's doing in this election, "It could have been worse."

It's true, but it's not a very good... a very strong political argument.

>> NARRATOR: And many worry the serious problems are still out there.

>> What we have done, again, is institutionalize "too big to fail."

And in many respects, one crisis sows the seeds of the next crisis, and I'm afraid the next one could be even larger.

>> Three pieces that we really had to get right-- "too big to fail," risky investments, derivatives-- it isn't a matter of opinion, those are three things that we really haven't solved and therefore until those are solved, we haven't dealt with the problem.

>> Here we are three years plus after and very little has changed.

In many respects, the financial crisis never ended.

It never ended.

People seemed to think about this financial crisis as one in which there was a run up to September 2008, a bailout, and then the crisis passed.

But, in fact, those clouds are still hanging over the global economy.

And they're still filled with risk.

This crisis really never ended.

>> We are the 99%!

>> Coming up next, "Money, Power and Wall Street" continues.

>> Occupy everything!

>> Occupy everything!

>> The anger of the 99%... >> Nobody knows how the system works, but the Occupiers know the result of the system is not working for them.

That's enough.

>> The culture of high finance... >> This cult of more, more, more, grow, grow, grow.

>> Being antagonistic to your client took on a significant life on Wall Street.

>> A global crisis... >> Investment banks such as Goldman Sachs were eager to lend to risky places such as Greece.

>> And an epidemic of greed.

>> They came down here like sharks to raw meat in the water.

>> Have I got a deal for you.

>> Can the system be reformed?

>> We can absolutely reform banks.

We just have to care enough about it, and we have to trust that the world won't collapse in the meantime.

>> The dramatic conclusion of "Money, Power and Wall Street" begins right now.