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PBS Frontline Investigation Into Financial Crisis Suggests Another Disaster On Horizon

Posted: 04/24/2012 1:18 pm

Watch Money, Power and Wall Street: Part One on PBS. See more from FRONTLINE.

Frontline's new documentary about the financial crisis probably doesn't say much you didn't already know, at least if you've followed the story. But it's a story worth telling again anyway, because memories on Wall Street and in Washington are dangerously short.

On Tuesday night PBS will air the first two parts of a four-part documentary on the crisis, called "Money, Power and Wall Street," with the second two parts to air next Tuesday, May 1.

The first hour tells the history of the credit derivatives at the heart of the crisis, while the second hour tells the blow-by-blow of the crisis itself, culminating with the bank bailouts in the fall of 2008.

Viewers familiar with all of this material -- and there's not much new in the first two hours, which could probably have been condensed to one hour without losing much -- might be confused about the point of rehashing what is by now old history. The trailer for the whole series suggests Frontline is slowly building a case, maybe to be hammered home in the final two hours next week, that the financial system is still just as primed for disaster as it was four years ago.

The second part of the documentary, airing in the second hour tonight, is more entertaining than the first, but mainly in the way oft-told horror stories are fun to hear around the campfire. Stop me if you've heard any of this before: Bear Stearns goes down because of toxic mortgage debt early in 2008. Policy makers take the summer off. Treasury Secretary Hank Paulson decides to let Lehman Brothers die, to teach Wall Street a lesson. Oops! AIG and the rest of Wall Street get hundreds of billions of dollars to keep the financial system from going down the drain.

The first hour is far drier and again won't come as much of a shock to people who have been paying attention. But it's probably the more important part. It puts credit derivatives in their rightful position as the ultimate cause of the financial crisis -- not the selling of houses to poor people, not super-low Federal Reserve interest rates, not a surplus of savings from China or Japan.

It also puts the blame on this situation squarely where it belongs: on the banks that cooked up these derivatives (though the JPMorganites who started it all get off surprisingly easy), and the regulators who aggressively paid no attention to what was happening until it was far too late.

Derivatives -- bundles of securities that sliced and diced mortgages and sold them to investors, and credit default swaps that helped investors pretend they'd bought insurance against those bundles going bad -- fueled what Frontline calls "an unfettered brave new world of banking," spreading credit liberally throughout the land, feeding the housing boom and exposing the banking system to nightmarish risk.

And this all happened far, far away from the oversight of regulators, who bought the arguments of Alan Greenspan, the Thomas Friedman of finance, that any fetters on the free market would block the free flow of credit.

"The regulation of derivatives transactions that are privately negotiated by professionals is unnecessary," rasped the Ayn Rand acolyte, who seems to grow more monstrous with hindsight. "It hinders the efficiency of markets."

Banks, meanwhile, whined that they would lose their ability to compete in the global financial system if the government didn't immediately break down the Depression-era rules that prevented them from getting too big to fail. Okey-doke, said both Congress and the Clinton administration. You got it.

Meanwhile, the mortgage industry strained against regulations on predatory lending, Frontline reminds us, which helped generate so much of the subprime garbage that ended up getting crammed into mortgage backed securities.

Again, stop me if you've heard this one before, but the banking industry, while getting bigger and more systemically important, managed to sell increasingly toxic, complicated derivatives in ballooning numbers to investors all over the world. And regulators willfully ignored warnings, from Harvard economist Martin Feldstein, then-Wells Fargo CEO Richard Kovacevich, Commodity Futures Trading Commission chief Brooksley Born and others who pop into the documentary for cameos, that the system was at risk of collapse.

And that's one of the big services the Frontline documentary does: It reminds us that, contrary to the slackjawed expressions of disbelief by regulators and Wall Street chieftains that they could not possibly have known this could all go horribly wrong, there were plenty of warnings along the way. Even in typically clueless Congress, then-Senator Byron Dorgan (D-N.D.) warned in a 1999 speech that credit derivatives, "one day, with a thud, will wake everyone up."

Hopefully the last two hours of the Frontline series will focus on how little has really changed since Dorgan's warning. The banks, having been bailed out with no requirements that they change their ways, are bigger now than they ever have been. Derivatives are still under-regulated, and the banks are lobbying as hard as they can to keep them that way, while trying to roll back whatever other regulations they can spend money to defeat. And they seem to be winning.

As Columbia professor Joseph Stiglitz points out in the second part of the documentary, banks hate transparency in markets because the darkness is where they can make the easiest killing, as they did just ahead of the financial crisis. Wall Street, pushing against regulation as hard as it can, gives every sign that it is just waiting for the next opportunity to make another killing, putting the global economy at risk in the process.

Which is why this oft-told scary story probably can't be told often enough.

Correction: An earlier version of this post incorrectly identified Harvard economist Martin Feldstein as Milton Friedman.

 
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HUFFPOST SUPER USER
Kyle10
those who sharpen perception tend to be antisocial
01:19 PM on 04/26/2012
Any correlation between exposes such as this and PBS's defunding of late?

Nah, couldn't be...
HUFFPOST SUPER USER
sanfran55
11:47 PM on 04/26/2012
Interesting connection - I didn't think about that. Fav'd.
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09:26 PM on 04/27/2012
Just in general, the PBS shows are at such a high level of credibility that it is devastating to GOPT shameless and deceptive talking points -- even when the public media programs are totally objective and non-partisan.

FoxNews and right wing talk radio are like cartoon shows compared to PBS and NPR. So generally, the right is always out to defund and get rid of these public supported broadcast networks.
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12:25 PM on 04/26/2012
Very scary probabilities facing us for sure. As the docu showed, the bailouts had to come lest our economy and that of the entire world collapse. This time, where will the bailout money come from?

The GOP is against bailouts anyway. And they are the ones who have been fighting tooth and nail against any regulatory reform. So if they are in power with a Romney Admin and control of Congress when this happens, what we face is a disaster beyond imagination.

The Frontline piece also showed the outrageous posturing of McCain when he "suspended" his campaign to go to Washington to resolve the crisis. Once there, he had no understanding of any of this and had nothing to say. He looked like a total fool, even to the Republicans present. By contrast, Obama made an outstanding impression on everyone present (with his deep understanding and preparedness, and his calm and cool). McCain was doomed from this point.

And now the Rove slime machine is out with an ad trashing BO for his "cool". Sort of like trashing Kerry for his military heroism.

What will we see from the Mitt in the face of the next banking crisis? I don't think we want to find out.
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sanfran55
11:48 PM on 04/26/2012
I agree completely.
10:54 AM on 04/26/2012
The next disaster, the last disaster, I see a pattern here... The financial system is engineered to be an ongoing disaster, from time to time is just gets bad enough that we all have to take notice.
This is our shared nightmare, wake up.
HUFFPOST SUPER USER
scvblwxq
10:32 AM on 04/26/2012
While the housing boom was going on most of our non-food consumer manufacturing was moved to China to take advantage of China's currency devaluations which made everything in China 1/4 to now 1/2 the cost in US dollars. That is the cause of our current unemployment, the jobs were moved overseas.

We have fought all of our big wars against China's friends and proxies since communist/socialist(by their constitution) China was founded in 1949:Korea, Vietnam, Iraq, Afghanistan, Libya, and now they have our consumer manufacturing which seems foolish at best, treasonous at worst.

The communists said "the capitalists are so greedy that they will sell us the rope to hang them",
the rope is our consumer manufacturing, the payment was their currency devaluations.

The communists also said that "they would use capitalism to defeat the capitalists", it sure looks like their plans are working. They can always tax those factories into their hands, raise taxes on exports to the point where we can't afford to buy them and Europe is in a similar predicament.
HUFFPOST SUPER USER
scvblwxq
09:50 AM on 04/26/2012
Maybe it's time for the government to go back to creating its own currency, instead of having the Fed and the big banks do it and then borrowing it with interest.

see http://monetary.org for a plan and a bill to return money creation to the government, pay off the national debt without causing recessions and limit the Fed to controlling interest rates.
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06:16 AM on 04/26/2012
  Americans often confuse modern leadership with traditional leadership and  vice versa  May I set the record straight?
   Modern leadership derives its authority and purpose from the mission statement and established policies and procedures that is placed in the hands of a CEO and overseen by a board of directors.  The modern leader articulates goals, plans and strategies towards meeting the mission statement. With the Board's approval he hires line and staff  of the highest capability and fidelity to the mission  and membership. His every move, operation, performance is fulfilling the role of his job description.  He carries out those policies and procedures approved by the board of directors and rational legislative process.
   Traditional leadership derives its authority from beyond the constrained  rights and duties of the CEO and the board of directors.  Board members and the CEO utilize responsibility and authority for the  power and privilege of  exceptional individuals and groups and their own personal goals and  advantage.  Personality  considerations dominate the agenda.  The mission, mandates and goals are pushed aside as self-interests, special interests and personal power aims  prevail.
   In our Republic the Preamble and Constitution is presided over by the Congress (board of directors), the President (executive)  and a  Supreme Court that protects the basis of rational decision making and the inclusion of the best thinking of all elected members.
   The modern leader representing all the membership,  heads the American Republic under the Constitution.  The traditional leader heads the American oligarchy of predestined position and privilege for unwonted power, ownership and special interests  while  forcing servitude, aimlessness and atrophy on to the generalized membership.
   The destiny of our nation is not in our ideologies or some right-to-left imaginary organizational continuum that is everywhere made contentious in useless writing and talk. Our destiny will be written by the faith we place in ourselves and our shared interests  in  preserving and revitalizing those sacred processes of  self-government  and a challenging, selfless, and working membership that has no limit in our journey east of Eden.
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10:05 PM on 04/26/2012
   When I write of leadership that is everything in human existence, I rarely receive a single response.  The minds  of our readers have already been conditioned.  No new knowledge of the nature of  administration is admissible.  Actually, leadership is not everything that the loco TML claims.  After all there are psychological, economic, financial and religious forces that are far beyond our poor power to control or event to understand.
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HUFFPOST SUPER USER
Sherrie Heckendorn
02:56 AM on 04/27/2012
I guess i sorta always thought that to be a government for the people by the people, that it meant that all people come together to choose people to represent them in a government that is set up to be for all the people. Was i wrong?
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ALL OK HERE ON PLANET X
Roberts, We Hardly Knew Ya'!
01:59 AM on 04/26/2012
Should be required viewing for anyone voting this year.
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10:49 PM on 04/25/2012
we're all hamsters on neocon "financially engineered" and "financially innovated" wheels

now back to your mindless staged reality tv programming - just like your staged American justice

the supreme court has been bought and paid for,

they set the the standard of justice for being "above the law,"

http://www.huffingtonpost.com/2012/01/05/chief-justice-john-roberts-supreme-court-ethics_n_1184780.html

much like the banksters and the 1% neocons causing our second depression,

"engineering" their private government bailouts,

being flush with Trillions in cash they invest in China and hide in offshore havens,

"engineering" taxfree offshore stash "repatriation" holidays,

begged by the white house to buy the assets they destroyed, our homes and assets, for pennies on the dollar,

with complete government guarantees against any losses,

the true definition of socialism of losses,

privatized gains,

while destroying any accumulated wealth, social programs and educational opportunities for hundreds of millions of Americans,

the 1% neocons own the game, the supreme court, the administration, the media,

we are their disposable pawns,

questioning and critical thinking are not allowed for us mere worker drones,

of course they are "above the law,"

checkmate,

back to dancing with the pseudo-stars
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HUFFPOST SUPER USER
Joseph Scott
Micro bio? Are you making fun of little dogs?
12:51 AM on 04/26/2012
Preach it!!

Seriously, a fine poem.
Yes, it reads that way to me, the lines can be scanned, most of them.

I'm afraid, when I look sometimes at the impressive way they have made off with the loot from the treasury, getting tax breaks while boys die in foreign lands (a first for governments anywhere -- tax breaks for the rich during way!), packing the court, finally conceding that the gloves are off and enacting Citizens United...so that we Americans can behold from our little hamlets, the sight of these Godzilla Super-Pacs, their slow thighs moving toward Bethlehem to be borne....

fanned, I would be remiss not to.
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09:18 AM on 04/26/2012
we're all hamsters on neocon "financially engineered" and "financially innovated" wheels

I would call it brazen rapacious gluttony as opposed to impressive.

"The selfish spirit of commerce..­. knows no country, and feels no passion or principle but that of gain." -Thomas Jefferson to Larkin Smith, 1809. ME 12:272

http://whatreallyhappened.com/RANCHO/POLITICS/DOCUMENTS/JEFFERSON/jeff5.html

"I hope we shall... crush in its birth the aristocracy of our moneyed corporations, which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country." --Thomas Jefferson to George Logan, 1816. FE 10:69

http://en.wikipedia.org/wiki/Corporate_capitalism

"The bank mania... is raising up a moneyed aristocracy in our country which has already set the government at defiance, and although forced at length to yield a little on this first essay of their strength, their principles are unyielded and unyielding. These have taken deep root in the hearts of that class from which our legislators are drawn, and the sop to Cerberus from fable has become history." --Thomas Jefferson to Josephus B. Stuart, 1817. ME 15:112

http://chrisbelchamber.com/cb1/quot/tj.asp

"To give a sop to Cerberus" means "to give a bribe" - Cerberus was the three-headed dog who guarded the entrance to the River Styx -- the Ancient Greeks suggested you take a small bag of honey cakes, known as a "sop" with you, to bribe the snarling dog to let you pass.
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HUFFPOST SUPER USER
Joseph Scott
Micro bio? Are you making fun of little dogs?
12:52 AM on 04/26/2012
typo: tax breaks during way!
or was it, during war?
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Fit2betied
Give Peace a Chance ☮
09:18 PM on 04/25/2012
Alan Greenspan is too arrogant to admit that his foolish policies nearly destroyed the US economy.

Any financial system that is not regulated and closely monitored is bound to fail due to greed.

Without rules there is only chaos.
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EdCorner
Now what - more of the same...
09:34 PM on 04/25/2012
And without justice there will be tyranny
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12:04 AM on 04/26/2012
Tyranny will continue until there are investigations, and if needed, criminal prosecutions.
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HUFFPOST SUPER USER
DeceptionIsReality
Ignorance is bliss, go back to sleep
11:35 PM on 04/25/2012
It isn't just Mr. Greenspan. This neo-liberal economic theory of which most people at high levels in government, business, and economic theory are on board with. This is what globalization looks. How do you like it?
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EdCorner
Now what - more of the same...
09:11 PM on 04/25/2012
This was excellent last night and the 2nd part is on in a week.

The most suprising part to me was Obama being present at those talks, wholeheartedly supporting TARP because he didn't want to inherit a great depression. I mean, that was his biggest concern? It sure looks that way. He's always been on the banksters side, despite his rhetoric. If I'd known this then, he'd never have gotten my vote !!
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HUFFPOST SUPER USER
GettingOutNow
powered by people
09:37 PM on 04/25/2012
Obama had no choice. Paulson and Bush knew it. The trap was set. Prop up a sure loser (McCain) for President, and hand the Democrats the worst financial crisis in history. 2012 was the goal all along. Count on low info voters forgetting in 3.5 years that this was mainly (I said mainly not all) a Republican affair.
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HUFFPOST SUPER USER
ChasG
Unborn, unchanging, undying Universe
10:00 PM on 04/25/2012
If TARP had not passed, we would not be casually commenting on Huff Post this evening
08:37 PM on 04/25/2012
The most terrifying omission of this spectacular show is that no one has realized that if any of these institutions failed, the goverment, upon the liquidation of an institution's assets, would have been forced to redeem billions of dollars in treasury paper. This in turn could have led to the collaspe of the American currency. As of 2009 all excess bank deposits held by the Federal Reserve are used to buy Treasury notes.
These are very trying times.
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EdCorner
Now what - more of the same...
09:17 PM on 04/25/2012
Billions, not trillions
12:39 AM on 04/27/2012
Excess reserves at FED used to buy Treasury notes?
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Heartlight3
Every act is an act of self-definition.
08:27 PM on 04/25/2012
Of course there will be another disaster. If we haven't fixed any of the things that caused it or removed any of the people that caused it, so everything is still in place, it can only happen again.
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HUFFPOST SUPER USER
DeceptionIsReality
Ignorance is bliss, go back to sleep
11:36 PM on 04/25/2012
Do you think this is an accident?
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Heartlight3
Every act is an act of self-definition.
04:38 AM on 04/26/2012
No.
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HUFFPOST SUPER USER
jinjinpinti
"I used to be disgusted, now I'm just amused."
08:24 PM on 04/25/2012
My gawd, can't anyone do anything??
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HUFFPOST SUPER USER
oldwolf49
Religion is a tool of the evil.
07:43 PM on 04/25/2012
No kidding,
07:43 PM on 04/25/2012
July 15, 2011 The former boss of the Federal Reserve, Alan Greenspan, said the reason Gen-Xers are unemployed and suffering from a lower standard of living is because they are lazy, stupid, and unproductive. U.S. companies would be better off hiring immigrants.


Bet July 2011 was not the first time these words have left his lips.. His suggested remedies are visible starting early 2003 to the American People, if not earlier.