Inside Job Page #10

CHARLES FERGUSON: Why didn't you try looking?

01:
59:32.16

FREDERIC MISHKIN: I think that people did. We had people looking at, a whole group

of people looking at this, for whatever reason –

Inside Job transcript – Sony Pictures – September 2010

45

CHARLES FERGUSON: Excuse me, you can't be serious. If you would have looked,

you would have found things.

FREDERIC MISHKIN: Uh, you know, that's very, very easy to always say that you can

always find it.

01:
59:44.15

NARRATOR:
As early as 2004, the FBI was already warning about an epidemic of

mortgage fraud. They reported inflated appraisals, doctored loan documentation, and

other fraudulent activity.

In 2005, the IMF's chief economist, Raghuram Rajan, warned that dangerous incentives

could lead to a crisis.

02:
00:06.19 Then came Nouriel Roubini's warnings in 2006; Allan Sloan's articles in

Fortune magazine and the Washington Post in 2007; and repeated warnings from the

IMF.

02:
00:18.02

{DOMINIQUE STRAUSS-KAHN

MANAGING DIRECTOR

INTERNATIONAL MONETARY FUND (IMF)}

DOMINIQUE STRAUSS-KAHN: I said it, and on behalf of the institution: ah, the crisis

which is in front of us is a huge crisis –

CHARLES FERGUSON: Who did you talk to?

DOMINIQUE STRAUSS-KAHN: The government, Treasury, s-, Fed, everybody.

02:
00:27.21

NARRATOR:
In May of 2007, hedge fund manager Bill Ackman circulated a

presentation called "Who's Holding the Bag?", which described how the bubble would

unravel.

And in early 2008, Charles Morris published his book about the impending crisis.

02:
00:46.27

FREDERIC MISHKIN: You're just not sure, what do you do? And you, you might have

some suspicions that underwriting standards are being weakened; but then the question

is, should you do anything about it?

Inside Job transcript – Sony Pictures – September 2010

46

NARRATOR:
By 2008, home foreclosures were skyrocketing, and the securitization

food chain imploded. Lenders could no longer sell their loans to the investment banks;

and as the loans went bad, dozens of lenders failed.

02:
01:13.24

GEORGE SOROS:
Chuck Prince, of Citibank, famously said that, uh, uh, we have to

dance until the music stops. Actually, the music had stopped already when he said that.

NARRATOR:
The market for CDOs collapsed, leaving the investment banks holding

hundreds of billions of dollars in loans, CDOs, and real estate they couldn't sell.

NOURIEL ROUBINI:
When the crisis started, uh, both the budha-, uh, Bush

administration and uh, and the Federal Reserve were totally behind the curve. They did

not understand the extent of it.

02:
01:47.27

CHARLES FERGUSON: At what point do you remember thinking, for the first time, this

is dangerous, this is bad?

CHRISTINE LAGARDE: I remember very well, uh, one, uh, I think it was a G7 meeting,

of February 2008. And I remember discussing the issue with, with Hank Paulson. And I

clearly remember telling Hank: we are watching this tsunami coming. And you just –

proposing that we ask which swimming costume we are going to put on.

CHARLES FERGUSON: What was his response, what was his feeling?

CHRISTINE LAGARDE: Things are pretty much under control. Yes, we are looking at,

uh, this situation carefully, and uh – yeah, it's under control.

02:
02:30.11

{G7 MEETING, TOKYO

FEBRUARY 9, 2008}

HENRY PAULSON:
We're gonna keep growing, okay? And obviously, I’ll, I'll say it: if, if

you kee-, keep, if you're growing, you're not in recession, right? I mean, we, w-, we all

know that.

{THE RECESSION HAD ACTUALLY STARTED

FOUR MONTHS BEFORE PAULSON MADE THIS STATEMENT.}

02:
02:45.01

Inside Job transcript – Sony Pictures – September 2010

47

{MARCH 16, 2008}

WOMAN REPORTER:
In a matter of days, one of the pillars of Wall Street sold to rival –

NARRATOR:
In March of 2008, the investment bank Bear Stearns ran out of cash, and

was acquired for two dollars a share by JP Morgan Chase. The deal was backed by 30

billion dollars in emergency guarantees from the Federal Reserve.

{SIMON JOHNSON

PROFESSOR, MIT

FORMER CHIEF ECONOMIST

INTERNATIONAL MONETARY FUND}

SIMON JOHNSON:
That was the time when the administration could have come in, and

put in place, you know, various kinds of measures that would have reduced system risk.

02:
03:11.05

{JULY 10, 2008}

REP. PAUL KANJORSKI (D-PA): The information that I'm receiving from some entities

is the end is not here; that there are other shoes to fall.

HENRY PAULSON:
I, I, eh, well, I've seen those investment banks, uh, working with

the, uh, the, the Fed and the SEC to strengthen their liquidity, to strengthen their, uh,

the, the, the, their capital positions.

I get reports all the time. Our re-, our regulators are, are, are very vigilant.

02:
03:36.01

NARRATOR:
On September 7th, 2008, Henry Paulson announced the federal takeover

of Fannie Mae and Freddie Mac, two giant mortgage lenders on the brink of collapse.

HENRY PAULSON:
Nothing about our actions today in any way reflects a changed view

of the housing correction or the strength of other U.S. financial institutions.

02:
03:56.02

NARRATOR:
Two days later, Lehman Brothers announced record losses of 3.2 billion

dollars, and its stock collapsed.

02:
04:03.26

Inside Job transcript – Sony Pictures – September 2010

48

CHARLES FERGUSON: The effects of Lehman and AIG in September still came as a

surprise. I mean, this is even after July, and Fannie and Freddie. So clearly, there was

stuff that as of September — major stuff — that nobody knew about.

DAVID McCORMICK:
I think that's, I think that's fair.

02:
04:23.22

CHARLES FERGUSON: Bear Stearns was rated AAA, like, a month before it went

bankrupt?

JEROME FONS:
Uh, more likely A2.

CHARLES FERGUSON: A2.

JEROME FONS:
Yeah.

CHARLES FERGUSON: Okay.

JEROME FONS:
Yeah.

CHARLES FERGUSON: A2 is still not bankrupt.

JEROME FONS:
No no no. No. That's, that's a high investment grade; solid

investment-grade rating. Lehman Brothers; A2, within days of failing. Um, AIG, AA,

within days of being bailed out. Um, uh, Fannie Mae and Freddie Mac were AAA when

they were rescued. Um, Citigroup, Merrill; all, all of 'em had investment-grade ratings.

CHARLES FERGUSON: How can that be?

02:
04:55.06

JEROME FONS:
Well, that's a good question. {LAUGHTER} That's a great question.

CHARLES FERGUSON: At no point did the administration ever go to all the major

institutions, and say, you know: this is serious; tell us what your positions are; you know,

uh, no bullshit; where are you?

DAVID McCORMICK:
Um-hm.

CHARLES FERGUSON: Um –

DAVID McCORMICK:
Well, first, that's what the regulators, that's their job, right? Their

job is to understand the exposure across these different institutions, and they have a

very refined, uh, understanding that I think became more respon-, more refined as the

crisis, um, proceeded. So –

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