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now and talk to former trading floor executive marquee williams's wrote the
book uncontrolled risk the lessons of women brothers and our suspect risk is
still bring down the world financial system mark welcome liam
yeah greeter great adhere so
of first most important thing is
what really caused the collapse of women brothers i know there were a number of
factors but what was the principal crops
recognition last read this project a year ago looking at i thought to be a
simple saying he was one executive
overcompensate it's going to take greater risk to make a profit
but on poetry was very quickly was there a lot of other complicate components
wind
my jury actually moved very quickly from wall street to wash in defeat
that's interesting l y
wildly tripping on wetland look more at a guy fall that policy in oversight
had been eroded over a period three decades
so in essence
it's very clear that we meant
should take responsibility for the risk
and it altered bankruptcy but
in sent the environment in which renin operated
with allowed to happen
and read all the black dover straightened lax policy
okay so let's flesh that out what was this specific oversight or or regulation
that they did not do
which allowed women to do what
right prolific thereby paid employees return to the f_e_c_
under the f_t_c_ was
relief we predict which we
we've fallen even in particular which uh... was very competent lawyers fee and
deb
really didn't have a lot of people that would roll their sleeves
in goin examined
organizations ah... even by two thousand seven for example the f_t_c_
being regulated over
a hundred and forty
broker-dealers which lean with part of
imag your alone they only
did a report first
pick for the over a hundred and forty broker-dealers
so in essence what he saw very quickly what this is an a_b_c_ which just didn't
do their job in it
they had a copy every corner
that would reduce the probability of shops legally menorah merrill lynch ur
bear stearns taking the risk that
they took silky lenny dennis ml mark where were they thinking the rest
because the what should the s_e_c_ have done if they had a common every corner
station stop women from doing
what rate
what would it would copy but lean and mean and what we've gotten back but
in essence what it really was
with a hedge fund
accident each very quickly inspected the of the real estate comp very quickly
removed from wall street to login and update to a very large back in if you'd
like walking into a in florida
in they became a very large speculators in real estate many investors won't even
realize it
but this investment had turned into realistic that
okay that's insane so then d were apparently betting on the sub-prime
mortgages obviously and
how did they make those threats was is just be brought up a lot more business
or do they make their respects on those
sub-prime like this
what would put lemay was it was fattening attempted alistair healing
layer look union backer
you learned a lot about their culture and what happened was we made first just
put it on the water
they got involved initially with residential mortgages
most of what we call
all today
which means alternative
the agency for that
they were prime mortgages which were the highest quality
but they weren't yet sub-prime
food stepped into that market by the nineteen nineties
and it was possible
in very quickly what they really liked what they can make more profits
by taking figure bat
though at the market
improved in the nineteen nineties going in two thousand
they made money
so they just continue to put more and more from capitol
at risk
in commercial been eventually capital
commute investment firm
and i think that's really where the problem
happened within the mandate
they lost later really there is a specialty
in the became a real estate hedge fund
but have much to do the leverage those figures if you make that bats if you got
the money to back them up then i got a lot of there on the problems but not
devastating problems lately mended
will write a letter do you expect
right i think the lesson here agree question that we learn
hit that leverage killed
you know overwriting financial overall i think every congressman should have a
bumper sticker that that's just that leverage kills
yelling at the end with up to thirty thirty two percent
thirty times leverage meaning that for just a three percent moved down in value
about that
equity position would be completely wiped out so it would fit quite a
speckled with that
so if they're levers thirty to one
was that throughs just
buying a tremendous amount of sub-prime mortgages or was a through derivatives
that they got there
thirty-one
well entropy have become initially
the perception the marketplace commitment
cut too heavily involved in sub-prime but when you really sort of dug down
deep in you looked at their investment in real estate they had put here chill
investment in things like mcallister ranch locate in california
rate not for example bakersfield area
in buchanan tightly controlled for commercial real estate investment they
worked sub-prime
but even better keep themselves eventually represented three to four
times their equity but they were betting the shop farm
three or four times
of what the act we had in
cushioning capital so if you are the s_e_c_ and you see lemans clever stuff
thirty to one
what how would you have stopped
well enter cannot baki we need to go back in history and kick out of work
the market was roaring
individuals head through investor banks such as
hank paulson
at the time with head of
goldman fax
was really petitioning
and lobbying the f_e_c_ hard to relax leverage
caps that were placed on the best banks such as corn factory mina merrill lynch
so in essence the f_e_c_ relaxed the rules
by two thousand warrant
that opened up the ability for investment bank like leamington
bomb attack bear stearns you can take conditional ripken that's exactly what
they did
so that that you know i've gone back to that point many times
so it your remove me that two thousand four decision by the s_e_c_
was absolutely critical because that's what ticked a mile from the leverage of
ten or twelve the one
ballpark of thirty to want to set
at that that's correct and the f_e_c_ will come back if not what we did
but now i think that's what happened to be looked at really at the fact of
artifacts
weekly the investment banks but two thousand greek
two thousand four in particular moving two thousand five can creep their
leverage dramatically so has that been sticks now or can they still be levers
of the thirty to walk
note have meant picked up billy which we can by the markets will in effect the
investment bank
it harder for them to get
lever up
yeah i i don't really believe that mean i i asked a of course i do in that
limited sense the short term sense
and you know people of course after the bid the buckle in the collapse are going
to be a little bit more gun shy about giving money to these banks
but at the same time they're bragging about having just got a hundred and
forty billion dollars in equity in their gut that
they raise that money because the government's really backing them up and
they're getting money almost for free observers that interest rate
so obviously somebody's giving a money in my guess is as soon as they have the
money
videotape as much rest as possible
to make as much money as possible destroyed
well they it really icky it's a wonderful period to be
p wall street bank
that we call for example j_p_ morgan yesterday and now first-quarter earnings
with three point three billion dollars
it really is in contrast to the rest of america bursting unemployment nine-point
seven int
them up till i head shaking you know how can walk to be doing so well on main
street don't fill poorly
and what's esther mark
well i think the entries that we really have the guilt pip netted at the top
five or ten bankamerica himself
had become very profitable at the expense of main street and the lack of
controls
that need to be in place to make sure that we have
a better balance
wayzata mn are twins is author of uncontrolled rest
mark even if they're not leveraged up to the field right now and we don't and
craig wintom long we don't really know because for example they won't telus
what the rarest razor making him so
if they're not now if there is no long place
is a logical that they would then at some point have the financial incentive
to get to the over levers again
yep yep but with the learned about the financial crisis jeff
that mad at that
banks will do
what they need to do seek profit
and what they need to be at controlled so inept in i think part of the
challenge here is to take a look at not just
wall street
take new career expert
inept at the recovery if we're not even on the court and as a result these banks
were able to do what they do that
seek profit and equipped
so uh... is it your prediction that this wheat and right now the finance reform
doesn't package has nothing to control efforts
as in again correct me if i'm wrong
is that is that how you helped build senate bill themselves barry
ineptness the focus has been more on
on the capital positions and actually what sort of treating activities
that the large banks can do
for example up the bulk oldest senate bill in particular says that
large banks themselves cannot engage in proprietary trading with a health bill
which was passed last december
really doesn't speak to that proprietary trading
so that's i think that's a step in the right direction but it doesn't really
address the chorus
and the core issues leverage
and diapers on the record as saying no we should not have any regulation of
leverage
if that's the case
isn't given the profit seeking motive that is you know obvious to at least
some of us
that the banks will crash again just the same exact way they did in a way
whether that the keep reading for my book and that is that systemic risk
he could be a
it has not changed completely failed make a month ago
left we have
meatballs finance reform including
restriction on leverage in including creaking capital including
requiring better liquidity requirements and also
addressing compensation issues
until we do all for the thing
but we actually have to democrats we have a
an opportunity
chant unfortunately for another lima to happen again
finally martin let me ask you about hope
make a credit default swaps
these appear to be
you know best where you don't have any of the underlying equity as or if you
don't have an interest in
the corner of the oil or whatever their original derivative was a realistic
so
why do we even allow those me what what what
purposely they serve society
fell out of these giant bank city enormous that's against one another
what's their point or should today actually in reality be better
reichheld sent the mid two thousand the f_e_c_ specifically
had a band supposedly on what we call
naked position that it that
that you could go into a naked short me not owning
the commodity or even the ability to buy it back but yet you actually still sell
it
inducted to boil it down
what deposition meant was that
greater speculation could be taken that it
theoretically you could shorten stock
greater than the value of the number of shares outstanding so you can exceed the
preface stock
higher than what
typically should be done
good yesterday very much i've got a lot of pressure and in prep that after
bear stearns molina msc locks in the in the summary with uh...
make it short should be stopped in any commodity into the f_ lee
the accident
it's two thousand five supposedly has been policing that
yet what we did fema reality that the f_e_c_ acting with sitting on the pilot
you know and i i was who want more questions i'm obsessed about the
starving in marks pocus uncontrolled race the lessons of women brothers and
our systemic risk can still bring down
the world financial system you know they say that we have a six hundred and five
trillion dollar dura bismarck
with all the entire world economy is only sixty trillion dollars
so
how does that up
no one's ever been able to explain it to me
right to it's what we call notional
so what happened
the value of these tourism self
the mark to market value if much weapon six hundred trillion
did to the notion about a fifth theoretical value but what we do know at
this market shoot the private a riveted market with private meeting it that it's
not open
to lie today
and that is a negative for the market
the market itself is weakened by the fact that there is always
five deals
crib fault walk fifty i'd cheap
got involved in
they were not on exchange places one central theme for the total war right
now
it's gotta be hashed out in the planet
in the house representatives and that is
derivative these wasn't send over six hundred trillion of private riveted need
to be brought on exchanges though
we can see them in the light of day and we can't keep right transparency in the
market can get stronger as a result
alleged adamantly against
for one reason
property of canada three times
for the trim taxes are all exchange that art open to learn today
and that is the debate and so
there is a fierce battle going on right now
so deceitful i still don't get busted notional value a six hundred trillion
dollars but the real values less
law it would have i'd and brent bozell promotional it's really chup people
theoretical value i'll have a plop arrangement cannot be the notional value
that it appear radical familia
but the amount of cash that changes hands
will be fraction that notion about you
right so it is a six on the silly in our market
they just don't have this isn't really in the back it up because their leverage
leverages he could reduce marketing in
bucket we started this
discussion evening leverage kill it should be a bumper sticker on every
congressman car
but will it be
wonder
alright yeah uh... support bottom line is even if it passes so-called
tell finance reform that overall is pushing for the republicans are fighting
against it's not actually tough it that leverage kills leverage is not
controlled and
and then it'll grow
but we have
we have three ha drip but could meet thirty institution globally that are
considered demic institution
and quite frankly what that means it's any one of them
go belly up
that'll set abdominal effect globally
leaving showed us september fifteenth that with the burden of our nine eleven
financial nine eleven
we have four institutions in america
that are considered part of that cop thirty global left
that meters twenty fix
elsewhere
it's a significant problem democrat yes
not only in america but also in egypt europe
it as a result you need to be a draft at this point it looks like we are not
addressing this problem significantly
alright at this but you weren't that staring up by my program and i said this
yellow marked spoke control dress
so mark williams thanks for your resume writer x we appreciate your time