DAN RATHER REPORTING U.S. FINANCIAL MELTDOWN

I saw this on HDNet last night, it was pretty shocking about the changes the government has allowed in corporate banking and how many U.S. citizens funds are at risk.

YOU WOULD THINK THAT IN THE WAKE OF THE BIGGEST FINANCIAL MELTDOWN SINCE THE GREAT DEPRESSION, WITH FINGER POINTING FROM WASHINGTON TO WALL STREET AND A POPULIST OUTCRY ON MAIN STREETS ACROSS THE COUNTRY, THAT SOME MAJOR OVERHAUL OF THE AMERICAN BANKING SYSTEM WAS INEVITABLE. BUT LITTLE HAS BEEN DONE SO FAR. AND EVEN THOUGH THE POLITICAL PROCESS FOR REFORM IS IN MOTION, IF THE DEBATE OVER HEALTH CARE IS ANY GUIDE, TURNING LOUD ARGUMENTS INTO LAW WILL BE DIFFICULT, ESPECIALLY WITH BIG MONEY LOBBYIST HEAVY IN THE MIX. BUT BEFORE WE MAP OUT THE FUTURE, IT'S IMPORTANT TO UNDERSTAND HOW WE GOT TO WHERE WE ARE IN THE FIRST PLACE. WE TALKED WITH CHARLES GASPARINO, A JOURNALIST AND AUTHOR WHO NOW WORKS FOR THE FOX BUSINESS NETWORK. HE RECENTLY WROTE THE CRITICALLY ACCLAIMED BESTSELLER, THE SELLOUT, ABOUT HOW OUR CURRENT ECONOMIC MESS WAS DECADES IN THE MAKING. WELL FIRST OF ALL, THANK YOU VERY MUCH FOR DOING THIS. THANKS FOR HAVING ME. WELL, THE TITLE OF YOUR BOOK IS SELL OUT. WHO SOLD OUT? LET'S TALK ABOUT ACCOUNTABILITY. WALL STREET HAS ALWAYS BEEN A NECESSARY EVIL, AS FAR AS I'M CONCERNED. AND, YOU KNOW, IT'S A PLACE THAT PEOPLE FORGET. YOU KNOW, THEY THINK THEIR STOCK BROKER IS THEIR FRIEND. AND THEY'RE NOT. YOU KNOW, THEY JUST SELL YOU STUFF. WELL, YOU DESCRIBE IT AS BASICALLY BOOK MAKERS. THEY ARE. THEY ARE. AND SOME OF 'EM MIGHT BE NICE GUYS. AND THEY MAY GIVE YOU A GOOD INVESTMENT. BUT I THINK PEOPLE FORGET THAT THESE GUYS ACTUALLY ARE THERE TO SELL YOU STUFF. AND I THINK THE CULT-- THAT CULTURE OF SELLING YOU STUFF, EVEN STUFF THAT'S BAD, THROUGHOUT THE YEARS, GOT WORSE AND WORSE. AND I TRIED TO SHOW HOW THAT HAPPENED. AND HOW THE CULTURE OF TAKING RISK WAS BEHIND THAT, YOU KNOW? MAKING AS MUCH MONEY AS YOU CAN IN THE SHORTEST AMOUNT OF TIME. AND THEN YOU GOTTA ASK YOURSELF, "WELL, WHAT WAS THE SORT OF ULTIMATE INDUCEMENT TO DO THAT? I MEAN, BECAUSE PEOPLE JUST DON'T DO THAT." YOU KNOW, WHEN YOU TAKE RISK, YOU CAN ALSO LOSE A LOT OF MONEY. AND THE ULTIMATE INDUCEMENT I-- I BELIEVE, AND I TRIED TO SHOW IN THIS BOOK WAS THE GOVERNMENT. THE GOVERNMENT BAILING THESE GUYS OUT, YOU KNOW EVERY STEP OF THE WAY. WELL, YOU TALK ABOUT, AND YOU'VE WRITTEN ABOUT, A-- QUOTE "A NEW BUSINESS MODEL." THAT WALL STREET EMBRACED. WHAT WAS IT? WELL, THAT WAS THE RISK MODEL. YOU SEE IN THE OLD DAYS, THE GOOD OLD DAYS, RIGHT? WALL STREET-- I MEAN, WHAT DID WALL STREET DO? YOU WENT TO YOUR-- IF YOU'RE AN INDIVIDUAL, YOU GO TO YOUR STOCK BROKER AND HE SELLS YOU STOCK. A STOCK, A BOND, A MUTUAL FUND. IF YOU'RE A CORPORATION YOU GO TO GOLDMAN SACHS. AND THEY WOULD SAY, "WELL, DO YOU WANT TO MERGE WITH SOMEBODY ELSE? DO YOU WANT TO BUY SOMETHING? OR IF YOU'RE A BIG INVESTOR, LIKE A PENSION FUND, YOU GO TO WALL STREET AND YOU SAY, "YOU KNOW, CAN YOU GIVE ME SOME RESEARCH ON WHERE I SHOULD PUT MY MONEY." AND IT WAS AN ADVISORY BUSINESS. IN THE LATE '70S, EARLY '80S, IT CHANGED. AND IT-- IT BECAME A BUSINESS PRIMARILY BASED ON RISK. AND THERE WERE LOTS OF FORCES. AND THERE'S NEVER ANY ONE REASON WHY SOMETHING HAPPENS. ONE REASON WAS THAT-- THAT THEY FOUND THEY COULD MAKE MUCH MORE MONEY ON RISK, RIGHT? THE ADVISORY BUSINESS WASN'T-- WASN'T TOO GLAMOROUS. THEY ALL BECAME PUBLIC COMPANIES. SO, THEY WERE PLAYING NOT WITH HOUSE MONEY. REMEMBER WALL STREET FIRMS ARE GENERALLY PARTNERSHIPS IN THE PAST. THEY WENT FROM PLAYING WITH HOUSE MONEY TO PLAYING WITH SHAREHOLDER'S MONEY. SO, THEY'RE A LITTLE MORE WILLING TO-- TO ROLL THE DICE. AND THEN YOU HAD A CERTAIN AMOUNT OF GOVERNMENT INDUCEMENTS, EARLY. AND IT KEPT-- IT KEPT BUILDING OVER THE YEARS. THEIR MORTGAGE-BACKED SECURITIES BECAME ONE OF THE PRIME WAYS THEY TOOK RISKS. ONE OF THE REASONS WHY IS BECAUSE THE GOVERNMENT MADE IT EASY TO CREATE THESE THINGS AND SELL THEM. AND FOR PEOPLE TO BUY THEM. AND THEN WHEN I THINK IT WAS PRETTY KEY, THEY ALSO KNEW THAT AS WALL STREET STARTED GROWING IN SIZE, THE GOVERNMENT WAS THERE A LOT OF TIMES TO-- TO LESSEN THE PAIN, WHEN THEY -- WHEN THEY ROLLED THE DISC, WHEN THEY ROLLED THE DICE AND LOST. THERE IS THIS MOOD IN THE COUNTRY, IF I'M ANY JUDGE. AND I'M SOMETIMES WRONG ABOUT THESE THINGS. THAT PRESIDENT OBAMA HAS FAVORED WALL STREET AND THE BANKS. HE'S TAKEN CARE OF THEM, AT THE EXPENSE OF PEOPLE IN THE MIDDLE INCOME RANGE AND THE LOWER INCOME RANGE AND THE POOR. ANYTHING TO THAT? IT'S NOT JUST OBAMA. IT'S A GROUP THINK OF PEOPLE THAT ARE RUNNING GOVERNMENT. AND ESPECIALLY THE POLICYMAKING PARTS OF GOVERNMENT, INVOLVING FINANCE. THE FED AND THE TREASURY. IS THAT EVERY TIME WALL STREET GETS BAILED, GETS IN TROUBLE, WE GOTTA BAIL 'EM OUT, BECAUSE THEY'RE TOO BIG TO FAIL. AND ONE OF THE THINGS I SHOWED IN MY BOOK IS THAT IF YOU LOOK AT 2008-2007, WHEN THEY MADE THE-- THE HUGE LOSSES, AND OBVIOUSLY THEY GOT-- THE MASSIVE BAILOUT IN 2008. IT WAS A BIG BAIL OUT IN 1998. THERE WAS A BIG BAILOUT IN 1994. AND THERE WAS ONE IN 1986 OVER BONDS, BELIEVE IT OR NOT. NOT STOCKS, BONDS, WHICH ARE ALWAYS MORE TOXIC AND CAUSE MORE LOSSES. AND THE BAILOUT GENERALLY INVOLVES GIVE 'EM FREE MONEY, TAKING' INTEREST RATES DOWN. IN 1990, IT WAS A LITTLE DIFFERENT. THEY ACTUALLY DIRECTLY INTERVENED AND BAILED OUT A HEDGE FUND WHERE ALL THE WALL STREET FIRMS ARE CONNECTED TO. EXCUSE ME. ARE YOU TELLING ME THAT THROUGH THE REAGAN, BUSH I, CLINTON ADMINISTRATIONS, AS WELL AS THE BUSH II ADMINISTRATION? ABSOLUTELY. ALL THIS WAS BUILDING? IT WAS BUILDING FOR YEARS. AND IT WAS 30 YEARS OF RISK TAKING. AND WHAT-- WHAT YOU DO IS WHEN YOU BAILOUT WALL STREET, BESIDES THE FACT THAT YOU'RE BAILING OUT, YOU KNOW, WALL STREET, (LAUGH) AND YOU'RE NOT BAILING OUT MAIN STREET. IS YOU'RE CREATING SOMETHING CALLED MORAL HAZARD. YOU'RE-- ESSENTIALLY, YOU'RE-- YOU'RE TELL-- TELLING THEM THERE'S NO REPERCUSSIONS FOR DOING STUPID THINGS, FOR GAMBLING. THAT'S WHAT YOU MEAN WHEN YOU WROTE ABOUT MORAL HAZARD? THAT'S IT. THAT'S-- RIGHT THERE. MORAL HAZARD IS WHEN I-- WHEN I GIVE YOU SO MUCH-- WHEN I BAIL YOU OUT EVERY TIME, YOU TAKE MORE RISK. BECAUSE YOU KNOW THERE'S NOT A REPERCUSSION TO YOUR-- TO TAKING RISKS. SO, YOU ROLL THE DICE IN EVEN WORSE WAYS. AND THAT'S WHAT WALL STREET DID UNTIL 2008. IF THEY DIDN'T BAIL 'EM OUT THAT TIME, I MEAN, YOU KNOW, I HAVE NUMBERS IN MY BOOK. $100 TRILLION OF DERIVATIVES AND MORTGAGE BACKS. I MEAN, WHOEVER HEARD OF THAT? $100 TRILLION. BY THE WAY, CAN YOU DEFINE A DERIVATIVE? A DERIVATIVE IS-- A SECURITY THAT'S-- IT'S -- IT'S DERIVED FROM ANOTHER SECURITY. IT'S NOT QUITE THAT SECURITY, BUT IF YOU KIND OF FIN-- FINAGLE THE INCOME STREAMS, AND, YOU KNOW, YOU CAN CREATE A CONTRACT OUT OF THAT WHERE I CAN BASICALLY OWE YOU SOME MONEY IF CERTAIN THINGS HAPPEN. AND YOU DO IT BASED OFF A SECURITY. I BUY IBM, I BUY PUTS IN IBM. THAT'S AN OPTION TO-- TO SELL IBM AT A CERTAIN PRICE. SO, THAT-- THAT SECURITY, THAT OPTION IS DERIVED OFF THE-- THE-- THE STOCK ITSELF. WELL, THAT'S JUST DIRECT-- DEFINITION AS I'VE EVER HEARD. BUT TO A LOT OF PEOPLE, DERIVATIVES-- STRIKES YOU AS JUST SO MUCH FINANCIAL WALL STREET GOBBLEDYGOOK. WELL, IT IS GOBBLEDYGOOK, IN THE SENSE THAT, YOU KNOW, IT'S HARD TO EXPLAIN. LISTEN, THESE GUYS ARE SMART. THEY WEREN'T TOO SMART THAT THEY-- THEY CREATED THIS HUGE DERIVATIVES MARKET, WHERE IF YOU HAD THE SLIGHTEST SORT OF-- BUMP IN THE ROAD IT ALL SORT OF FAULTED. AND-- WE HAD MORE THAN A SLIGHT BUMP IN 2007. WE HAD A MAJOR BUMP. AND THAT'S WHY THE WHOLE THING IMPLODED. BUT GETTING BACK TO YOUR ORIGINAL QUESTION, IF YOU LOOK AT WALL STREET, THEY GET BAILED OUT ALL THESE TIMES. THEY GET BAILED OUT LAST YEAR IN A MASSIVE WAY. AND MAIN STREET NEVER GETS BAILED OUT. BUT YEAH, EXACTLY. IF YOU HAVE A CLEANING ESTABLISHMENT OR A CONVENIENCE STORE. YOU'RE DONE. YOU DON'T GET BAILED OUT. NO. AND IF YOU LOOK AT WHAT'S GOING' ON. YOU HAVE THE BANKS, THE TRADITIONAL BANKS, CITIGROUP, J.P. MORGAN, BANK OF AMERICA, WELLS FARGO MAYBE. JUST-- THOSE ARE THE MAIN-- THE BIG ONES. THOSE ARE THE TRADITIONAL BANKS. THEY ACTUALLY HAVE DEPOSITS. THEY HAVE,THEY LEND, SOMETIMES (LAUGHS). NOT-- NOT ENOUGH, OBVIOUSLY. ON THE OTHER HAND, YOU HAVE THE INVESTMENT BANKS, THE REMAINING ONES. YOU HAVE MORGAN STANLEY AND GOLDMAN SACKS. LOOK AT THE INVESTMENT BANKS, THEY ARE CONSIDERED COMMERCIAL BANKS. THE MINUTE THEY GOT BAILED OUT, IN ORDER TO SAVE THEM, BECAUSE THEY WERE ABOUT TO IMPLODE, TOO BECAUSE THEY TOOK-- THEY DID ALL THIS RISK TAKING. THEY WERE ALLOWED-- ABOUT TO IMPLODE LIKE BEAR STEARNS DID, LIKE LEHMAN BROTHERS DID, LIKE MERRILL LYNCH DID BEFORE IT WAS-- YOU KNOW, IT WAS-- IT WAS ON THE VERGE BEFORE IT WAS SOLD TO BANK OF AMERICA. THEY DECLARED THEM COMMERCIAL BANKS. OKAY? IT WAS A STOP GAP MEASURE. RIGHT? IT TOOK THE INVESTMENT BANKS TO COMMERCIAL BANKS. RIGHT. NOW, WHY DOES THAT MATTER? WELL, WHEN YOU ARE A COMMERCIAL BANK, YOU ARE AUTOMATICALLY BACKED UP BY THE FEDERAL RESERVE. YOU CAN BORROW FROM THE FEDERAL RESERVE. INVESTMENT BANKS CAN'T REALLY DO THAT. YOU GET ALL THESE SORT OF LENDING'S. YOU KNOW, EASY LENDING. AND SO, IN THAT-- SO, THAT'S WHAT HELPED SAVE THEM. THE FACT OF THE MATTER IS THEY WERE BEING TOO BIG TO FAIL WITH THE GOVERNMENT BACKING THEM UP. CREDITORS EXTENDING THEM LINES OF MONEY, LINES OF CREDIT. THEY WERE ABLE TO SURVIVE. ALSO, IT -- IT GIVES THEM OPPORTUNITY TO GET CHEAP FINANCING, BOTH FROM THE FED AND THE MARKET, BECAUSE IF SOMEONE KNOWS YOU'RE BACKED UP BY THE FED, THEY CAN LEND TO YOU, AT FAVORABLE RATES. WELL GUESS WHAT? THEY'RE STILL COMMERCIAL BANKS. IF YOU THINK ABOUT, GOLDMAN SACHS IS-- SHOULD NOT BE A COMMERCIAL BANK RIGHT NOW, RIGHT? WE ARE ALLOWING THEM TO MAKE MONEY, HAND OVER FIST, YOU KNOW, WITH A GOVERNMENT SUBSIDY. IT MAKES NO SENSE. MORGAN STANLEY SHOULDN'T BE-- A COMMERCIAL BANK RIGHT NOW. THEY'RE GETTING THE TAXPAYER'S MONEY AT VIRTUALLY ZERO INTEREST. ABSOLUTELY. INVESTING IT AT TWO PERCENT INTEREST. IF YOU THINK ABOUT IT -- IT'S-- IT'S KIND OF WHAT THEY DID IN THE PAST, ONLY NOW IT'S-- HOPEFULLY THEY'RE NOT INVESTING IT IN MORTGAGE-BACKED SECURITIES THAT ARE ABOUT TO BLOW UP. IT-- IT'S A SUBSIDY, WHEN YOU'RE DEEMED A COMMERCIAL BANK, WHEN YOU'RE BACKED UP. AND BY THE WAY, IF YOU REALLY SCREW UP, YOU CAN BORROW FROM THE FED, IF YOU WANT. BUT THAT SUBSIDY ALLOWS YOU TO GO OUT AND BASICALLY EARN THAT TWO PERCENT WITH NO RISK. AND IT'S SCARY. AND IT'S ON THE TAXPAYER BACK. THE OTHER HAND IS YOU HAVE THE BANK BANKS. NOW, SHOULD THEY BE CONSIDERED TOO BIG TO FAIL? AND THAT'S AN INTERESTING QUESTION. I MEAN, THAT'S ONE THAT-- IT'S HARD FOR PEOPLE TO GET THEIR ARMS AROUND. I MEAN, YOU KNOW THE, SORT-- THE-- THE FREE MARKETERS, I MEAN, HE SAYS, "NO WAY." BUT, YOU KNOW-- IF WE DON'T HAVE A FUNCTIONING BANKING SYSTEM IN THIS COUNTRY, THEN WE'RE IN DEEP TROUBLE. WELL, YOU SAY THE FREE MARKET CHAMPIONS. BUT THESE SAME FREE MARKET CHAMPIONS ARE GETTING THESE SUBSIDIES ARE THEY NOT? YES AND NO. THE ODDITY IS WALL STREET WAS NEVER A PURE-- THEY NEVER BELIEVED IN REAL FREE MARKET. YOU KNOW, THEY ALWAYS-- WALL STREET ALWAYS LOVED THE INSIDE GAME. I MEAN, LISTEN, THERE'S-- THERE'S A LAW THAT I THINK IS A KEY PART OF-- OF THE REASON WHY WE'RE IN WHAT WE'RE IN RIGHT NOW. IT'S-- IT'S-- ACTUALLY, THE-- THE LAW WAS GOOD, GETTING RID OF THE LAW WAS BAD. IT WAS CALLED GLASS-STEAGALL. IT SEPARATED COMMERCIAL BANKING ACTIVITIES, LENDING TO SMALL BUSINESSES. YOU KNOW, HOLDING DEPOSITS, CHECKING ACCOUNTS, FROM RISK-TAKING INVESTMENT BANKING. THEY DID IT FOR-- FOR A LONG TIME. THAT GREW OUT OF THE-- THE GREAT DEPRESSION OF THE '30S. RIGHT. RIGHT. THEY SAID, "LISTEN, BANKS OUGHT TO BE BANKS. AND INVESTMENT HOUSES OUGHT TO BE INVESTMENT HOUSES." RIGHT. 'CAUSE YOU DON'T WANT TO MIX RISK-TAKING WITH, YOU KNOW, GRANDMA MILLIE'S CHECKING ACCOUNT. AND IN 1999, CORRECT ME IF I'M WRONG-- THE POWERS THAT BE ON WALL STREET, WORKING WITH THE POWERS THAT BE IN WASHINGTON SAID, "WELL, LET-- THAT LAW'S OLD THINKING. WE SHOULD LET INVESTMENT BANKS ALSO DO COMMERCIAL BANKING." YEAH, THEY CALLED IT FINANCIAL MODERNIZATION. AND BEFORE THAT LAW WAS ACTUALLY KILLED, RIGHT? THERE WAS THIS MAJOR MERGER THAT BROUGHT COMMERCIAL BANKING AND INVESTMENT BANKING TOGETHER. IT WAS CALLED CITIGROUP. I WAS ALWAYS CRITICAL OF IT BECAUSE, SAY YOU WANTED TO BUY A STOCK FROM-- FROM YOUR BROKER AT-- AT CITIGROUP. HE HAD SO MANY CONFLICTS. HE WOULD HAVE TO PROMOTE THE STOCK TO YOU, RIGHT? HE WOULD SAY, "WORLDCOM, ENRON, GREAT STOCK." AND THE REASON WHY IS BECAUSE CITIGROUP HAD SO MANY MULTIPLE RELATIONSHIPS WITH-- WITH ENRON. AND THE FOLLY WASN'T, UNFORTUNATELY, JUST THE FACT THAT CONSUMERS WHO WENT THERE AND TRIED TO BUY STOCKS GOT A RAW DEAL. AND BY THE WAY, CITIGROUP PAID MANY, MANY, MANY MILLIONS IN FINES, BECAUSE OF THOSE CONFLICTS OF INTEREST LATER ON, AS THE SCANDALS-- CAME OUT IN 2002-2003. BUT THE REAL PROBLEM ACTUALLY BECAME A BALANCE SHEET PROBLEM. THAT YOU ACTUALLY MIXED-- THINK ABOUT THIS, RISK WITH AVERAGE BANKING-- ACTIVITIES. WHERE YOU SOMEHOW INFECTED DEPOSITS WITH THIS INSANE BOND TRADING ON THE SIDE, AND THAT'S ESSENTIALLY WHAT HAPPENED. AND HERE'S WHY THE FREE MARKETERS WERE SO WRONG. JUST THINK ABOUT IT. WE-- IN THIS COUNTRY, WE'VE TAKEN THE POSITION, WHETHER YOU AGREE WITH IT OR NOT, THAT -- THAT DEPOSITS SHOULD BE INSURED. THAT WE NEED BANKS. THAT THE F.D.I.C. SHOULD BACK UP BANKS. SO, WHAT FREE MARKETERS FORGOT IS THAT WHEN YOU COMBINE RISK TAKING WITH -- WITH THIS, WITH -- WITH DEPOSITS, YOU BASICALLY STARTED TO GUARANTEE, AND COVER, AND MAKE -- MAKE RISK TAKING SORT OF PROTECTED BY THE FEDERAL GOVERNMENT IT'S A SORT OF TAILS I WIN. HEADS, I WIN. YEAH. BUT THINK ABOUT IT. WHAT'S SO FREE MARKET ABOUT CITIGROUP? IT CAN LOSE ALL THIS MONEY, AND BECAUSE ITS DEPOSITS ARE BACKED UP BY THE FEDERAL GOVERNMENT, THE FEDERAL GOVERNMENT WILL MAKE GOOD ON THE DEPOSITS IF IT GOES UNDER. FEDERAL GOVERNMENT BEING MY TAX MONEY OR YOURS. YOUR TAX MONEY. BECAUSE IT'S SO BIG, THE FEDERAL GOVERNMENT'S GONNA COME IN AND BAIL THEM OUT. CITIGROUP IS -- IS A BASKET CASE. IT'S NOW DIRECTLY OWNED BY THE FEDERAL GOVERNMENT. SO, AS A TAXPAYER, I OWN PART OF IT. YOU DO OWN PART OF IT. I DON'T KNOW IF YOU WANT IT, BUT YOU OWN IT. BUT WHAT I'M SAYING IS THAT IT WAS THE LEAST FREE MARKET LAW IN THE WORLD. WELL, WHAT YOU'VE LAID OUT, AND CORRECT ME IF THIS PERCEPTION IS WRONG, BUT IT SEEMS TO LAID OUT THAT BIG BUSINESS, WALL STREET, IS IN BED WITH BIG GOVERNMENT. HAS BEEN FOR YEARS AND STILL IS. AT THE EXPENSE OF THE REST OF US. YEAH. I MEAN, THE EXPENSE KEEPS BUILDING UP. I MEAN, WE'VE HAD 30 YEARS OF THE-- I GUESS THE CASH REGISTER GOING ON THIS THING. AND-- YOU KNOW, IT'S SCARY, BECAUSE, YOU KNOW, NINE-- AFTER 2008, AFTER THE OBAMA ADMINISTRATION CAME IN THERE, THERE WAS A POINT WHERE YOU THOUGHT MAYBE SOMETHING RADICAL MIGHT CHANGE. AND I DON'T MEAN RADICAL IN TERMS OF, YOU KNOW, A REVOLUTION. I MEAN, SOMETHING THAT-- THAT MIGHT SORT OF BREAK UP THIS-- THIS SORT OF NEXUS-- REAL REFORM. YEAH, REAL REFORM. AND YOU KIND OF KNEW IT WASN'T GOING TO HAPPEN WHEN HE DIDN'T DISBAND THE SECURITIES AND EXCHANGE COMMISSION. AND I'LL TELL YOU WHAT, IF THERE WAS ONE ENTITY THAT FELL DOWN ON THE JOB IN A MAJOR WAY OVER THE LAST 30 YEARS OF SCANDALS, IT'S THE S.E.C. I MEAN THERE'S NO DOUBT... WELL, THE S.E.C., THE SECURITIES AND EXCHANGE COMMISSION, IS SUPPOSED TO BE LOOKING AFTER MY INTERESTS AND THE INTERESTS OF OTHER INDIVIDUAL AND COLLECTIVE INVESTORS. RIGHT. AND NOT ONLY THAT, THEY WERE SUPPOSED TO MONITOR THE CAPITAL LEVELS OF THE INVESTMENT BANKS, WHICH THEY-- THEY MIXED UP-- THEY MISSED ON THAT. BUT WHEN THE BERNIE MADOFF SCANDAL, THE MASSIVE PONZI SCHEMER WAS EXPOSED, I GOT A REPORT FROM A HEDGE FUND, DUE DILIGENCE FIRM THAT ACTUALLY LOOKED INTO MADOFF AND TOLD HIS CLIENTS NOT TO-- NOT TO INVEST WITH HIM. BECAUSE HERE ARE THE FIVE REASONS WHY THEY-- YOU SHOULDN'T. THEY WERE PRETTY COMPELLING REASONS. YOU KNOW, THE GUY KEEPS SAYING HE NEEDS 12 PERCENT A YEAR FOR 20 YEARS. THAT NEVER REALLY HAPPENS. HE WAS EXAMINED BY THE S.E.C. EIGHT TIMES, EVEN THOUGH THEY DIDN'T CATCH ANYTHING, THAT'S A HUGE RED FLAG, THAT HE KEEPS COMING' UP ON THEIR-- ON THEIR LIST. AND I SAID, "YOU KNOW, THIS IS INTERESTING." HE WAS EXAMINED BY THE S.E.C. EIGHT TIMES AND THEY NEVER CAUGHT HIM. AND IF THERE WAS EVER A RATIONALE-- AND BY THE WAY, THEY-- THEY DIDN'T CATCH HIM, BECAUSE THEY DIDN'T SAY, "LET ME SEE YOUR TRADING RECORDS. LET ME MAKE SURE YOU DID ONE TRADE." IF THERE WAS EVER A TIME WHEN TO GET RID OF THE S.E.C., IT WAS THEN, BECAUSE THEY WERE OBVIOUSLY AN INCOMPETENT ORGANIZATION THAT WAS INCOMPETENT BECAUSE OF CONFLICTS. I MEAN A LOT OF THOSE GUYS AT THE S.E.C. WANT TO GO WORK FOR THE BERNIE MADOFFS IN THE WORLD. LET ME TALK ABOUT THE FEDERAL RESERVE. LAY OUT FIRST WHAT THE FEDERAL RESERVE HAS BECOME. WELL, THEY ARE KIND OF LIKE, YOU KNOW, A SORT OF REFEREE FOR WALL STREET. AND WHAT THEY'VE DONE IS THEY'VE GONE IN AND BY BAILING OUT-- BY THE WAY WHEN-- WHEN THE FED-- WHEN I SAY BAILOUT, WHAT DOES THAT MEAN? THE FED GOES IN AND SLASHES INTEREST RATES. IT CREATES FREE MONEY. THERE'S NO SUCH THING AS FREE MONEY. WELL, IT IS IF YOU WORK ON WALL STREET. IF YOU CAN BORROW FROM THE FED AT ZERO, THAT'S PRETTY FREE, OR NEXT TO ZERO. THAT'S PRETTY FREE. AND THAT'S ESSENTIALLY WHAT'S GOING ON. AND THERE'S A HISTORY OF THAT. AND THAT'S-- THAT-- THAT IS THE-- THE MORAL HAZARD THAT WAS CREATED. IF YOU KNOW YOU COULD-- THE FED IS ALWAYS THERE. IS GONNA BAIL YOU OUT. I MEAN, THE FEDERAL RESERVE WAS NOT CREATED TO BAILOUT WALL STREET, YOU KNOW? BUT THAT'S WHAT THEY'VE DEVELOPED INTO. THE LAST 30 YEARS THEY HAVE. LET'S GO BACK TO THE WORST DAYS OF LAST YEAR. I REMEMBER THOSE. PRETTY SCARY FOR EVERYBODY. WERE WE CLOSER THAN WE THOUGHT TO THE GREATEST DEPRESSION? NOT JUST GREAT DEPRESSION? OR LOOKING BACK ON IT, DID THAT TURN OUT TO BE A LITTLE OVERSTATED? NO, I THINK WE WERE. YOU KNOW, I'VE SAT HERE FOR AWHILE TELLING YOU WHY WE SHOULD CUT OFF THE UMBILICAL CORD AND NOT BAIL THESE GUYS OUT. WE NEEDED TO BAIL THEM OUT IN 2008. JUST BECAUSE WE BAILED THEM OUT SO MANY TIMES IN THE PAST, THE AMOUNT OF RISK EMBEDDED IN THE SYSTEM, THAT $100 TRILLION OF DERIVATIVES AND BONDS AND ALL THE GARBAGE THAT'S ON THE BALANCE SHEET, THAT WAS ABOUT TO BLOW. SO, YOU THINK IT WAS EVERY BIT AS BAD AS WE ALL THOUGHT IT WAS. IT WAS HAPPENING. I SAW IT. MAYBE WORSE AND THIS TIMEFRAME WAS WHEN? WAS THAT SEPTEMBER? IT WAS SEPTEMBER 5TH; IT WAS RIGHT AFTER LEHMAN'S BANKRUPTCY. DAYS AFTER LEHMAN BANK. SO, MORGAN AND-- AND GOLDMAN WERE ABOUT TO IMPLODE. THAT'S A HUGE THING, 'CAUSE THESE GUYS, THEY TRADE STOCKS. I MEAN, WHY DOES IT MATTER THAT PEOPLE TRADE STOCKS? WELL, YOU HAVE A PENSION FUND, RIGHT? YOU'RE-- YOU'RE A NEW YORK CITY SCHOOL TEACHER, PENSION FUND, DO YOU WANT IT TO GO TO ZERO? I MEAN, THAT'S A POSSIBILITY, IF PEOPLE AREN'T TRADING. THE FINANCIAL SYSTEM WAS SEIZING UP IN SUCH A MAJOR WAY, WHERE NOTHING WAS BEING TRADED. WHERE BANKS WERE GONNA HORDE CASH, WHICH THEY ARE RIGHT NOW. COULD YOU IMAGINE AS BAD AS THINGS ARE RIGHT NOW HOW-- HOW MUCH WORSE THEY WOULD HAVE BEEN IF WE JUST LET IT ALL FALL-- FALL IN, IMPLODE? WELL, THAT BRINGS UP THE QUESTION, IF BEN BERNANKE, HEAD OF THE FEDERAL RESERVE, WERE HERE, HE MIGHT SAY, "LISTEN, DAN RATHER, YOU TALKED TO THIS TERRIFIC INVESTIGATIVE REPORTER. BUT IN THE END, WE SAVED THE COUNTRY FROM GOING INTO POSSIBLY THE GREATEST DEPRESSION. OKAY, MAYBE WE DIDN'T HANDLE LEHMAN BROTHERS AS WELL AS WE SHOULD. MAYBE WE HELD OUR NOSES AND DID WHAT WE HAD TO DO WITH A.I.G. IF YOU LOOK BACK ON IT, WE PULLED THE COUNTRY BACK FROM THE PRECIPICE." DOES HE HAVE A POINT? YEAH, I AGREE. HE HAS A POINT. I THINK THEY WERE TOO SLOW TO DO IT. BUT IT-- BUT THE QUESTION IS, "WHY DID THEY HAVE TO DO ALL THIS?" AND THAT'S WHAT MY BOOK ATTEMPTS TO ANSWER. I MEAN, THIS WAS A HUGE THING. WELL, MY BOOK SAYS, "THEY HAD TO DO IT." IS BECAUSE THEY DID IT IN SMALL FORM SO MANY TIMES IN THE PAST THAT IF YOU DIDN'T DO IT NOW, IT WAS ALL OVER. WELL, AS WE SIT HERE TODAY, HAS WALL STREET LEARNED ITS LESSON? I DON'T THINK SO. AND THE REASON WHY IS BECAUSE WHEN YOU-- WHEN YOU SUBSIDIZE THEIR STUPIDITY, AS WE CONTINUE TO DO, YOU KNOW GOLDMAN, THERE'S NO REASON -- I KEEP HARPING BACK TO GOLDMAN SACHS, IT'S SUCH AN OBVIOUS EXAMPLE. IF YOU'RE GONNA ALLOW GOLDMAN SACHS TO OPERATE WITH SUBSIDIES. THEN YOU'RE GONNA-- THEN WHAT YOU'RE TELLING THE WORLD IS THAT THERE'S NO CONSEQUENCE. YOU'VE WRITTEN SELL OUT, THIS BOOK. IT WAS SOME WONDERFUL REPORTING IN THE BOOK. WHAT'S THE SINGLE MOST IMPORTANT THING YOU WANT PEOPLE TO KNOW? I BELIEVE GREED WAS AT THE CENTER OF THE IMPLOSION. BUT THERE'S A REASON FOR THAT. AND THE REASON FOR THAT IS BECAUSE WHAT WE HAD ON WALL STREET WASN'T JUST SIMPLE GREED. WE HAD SUBSIDIZED GREED. AND IT'S A BIPARTISAN SUBSIDY. IT WASN'T DEMOCRATS OR REPUBLICANS. YOU KNOW, THERE WAS A LOT OF FINGER POINTING IN WASHINGTON. YOU KNOW WHO WAS RESPONSIBLE FOR THIS. THIS WAS LARGELY BIPARTISAN. THERE'S THIS SORT OF PARTNERSHIP BETWEEN WALL STREET AND BIG GOVERNMENT. BIG WALL STREET, AND BIG GOVERNMENT, WHICH I BELIEVE IS DETRIMENTAL TO THE -- TO THE AVERAGE AMERICAN. AND I DON'T KNOW WHAT YOU CAN DO ABOUT IT. YOU CAN VOTE PEOPLE IN OFFICE THAT MIGHT WANT TO CHANGE THAT. BUT JUST KNOW THAT IT'S THERE. AND IF THERE'S ANY OUTRAGE IN MY BOOK, THAT'S THE OUTRAGE. CHARLES, THANK YOU.