Inside Job Page #7

The title of the paper was, essentially: Is Financial Development Making the World

Riskier? And the conclusion was, uh, it is.

01:
40:55.15

NARRATOR:
Rajan's paper focused on incentive structures that generated huge cash

bonuses based on short-term profits, but which imposed no penalties for later losses.

Rajan argued that these incentives encouraged bankers to take risks that might

eventually destroy their own firms, or even the entire financial system.

01:
41:18.29

RAGHURAM RAJAN:
It's very easy to generate performance by taking on more risk.

And so what you need to do is compensate for risk-adjusted performance. And that's

where all the bodies are buried.

{KENNETH ROGOFF

PROFESSOR OF ECONOMICS, HARVARD}

01:
41:30.12

KENNETH ROGOFF:
Rajan wa-, you know, hit the nail on the head. What he

particularly said was, you guys have claimed you have found a way to make more profits

with less risk. I say you've found a way to make more profits with more risk, and there's

a big difference.

01:
41:45.26

RAGHURAM RAJAN:
Summers was, was vocal. He basically thought that I was

criticizing the change in the financial world, and was worried about, uh, you know,

regulation which would reverse this whole change. So essentially, he accused me of

Inside Job transcript – Sony Pictures – September 2010

32

being a Luddite. He wanted to make sure that we didn't bring in a whole new set of

regulations to constrain the financial sector at that point.

{LARRY SUMMERS DECLINED

TO BE INTERVIEWED FOR THIS FILM.}

01:
42:18.08

FRANK PARTNOY:
You're gonna make an extra 2 million dollars a year — or 10 million

dollars a year — for putting your financial institution at risk. Someone else pays the bill,

you don't pay the bill. Would you make that bet?

Most people who worked on Wall Street said, sure, I'd make that bet.

01:
42:31.26

{MUSIC CUE}

{THE HAMPTONS

2 HOURS FROM NEW YORK CITY}

01:
43:15.21

ROBERT GNAIZDA:
It never was enough. They don't want to own one home; they

want to own five homes, and they want to have an expensive penthouse on Park

Avenue; and they want to have their own private jet.

01:
43:29.10

CHARLES FERGUSON: You think this is an industry where high, very high

compensation levels are justified?

SCOTT TALBOTT:
Well I think I would, I would take caution, or take heed, or take

exception at your word very high. I mean, it's all relative.

01:
43:40.20

REP. HENRY WAXMAN: You have a 14-million-dollar oceanfront home in Florida; you

have a summer vacation home in Sun Valley, Idaho; you and your wife have an art

collection filled with million-dollar paintings.

{RICHARD FULD

CEO, LEHMAN BROTHERS}

01:
43:50.11

Inside Job transcript – Sony Pictures – September 2010

33

{LAWRENCE McDONALD

FORMER VICE PRESIDENT

LEHMAN BROTHERS}

LAWRENCE McDONALD: Richard Fuld never appeared on the trading floor. There

was art advisors up there all the time. You know, he had his own private elevator. The-,

the, he went out of his way to be disconnected.

I mean, his elevator – they hired technicians to program it, you know, so that his driver

would call in in the morning, and a security guard would hold it. And there's only like a

two- or three-second window where he actually has to see people. And he hops into this

elevator, and goes straight to 31.

01:
44:16.10

CHARLES FERGUSON: Lehman owned a bunch of corporate jets. Do you know about

this?

{HARVEY MILLER

LEHMAN'S BANKRUPTCY LAWYER}

HARVEY MILLER:
Yes.

CHARLES FERGUSON: How many were there?

HARVEY MILLER:
Well, there were six, including the 767s. They also had a helicopter.

CHARLES FERGUSON: I see. Isn't that kind of a lot of planes to have, for –

01:
44:32.11

{JEFFREY LANE

VICE CHAIRMAN:

LEHMAN BROTHERS (2003-2007)}

JEFFREY LANE:
You're dealing with Type A personalities, and uh, uh, Type A

personalities know everything in the world.

WILLEM BUITER:
Banking became a pissing contest, you know; m-, mine's bigger than

yours; that kind of stuff. It was all men that ran it, incidentally.

JEFFREY LANE:
Fifty-billion-dollar deals were not large enough, so we do hundredbillion-

dollar deals.

01:
44:48.07

Inside Job transcript – Sony Pictures – September 2010

34

JONATHAN ALPERT:
These people are risk-takers; they're impulsive.

{JONATHAN ALPERT IS A THERAPIST WHOSE CLIENTS

INCLUDE MANY HIGH-LEVEL WALL STREET EXECUTIVES.}

It's part of their behavior, it's part of their personality. And that manifests outside of work

as well.

It's quite typical for the guys to go out, to go to strip bars, to use drugs. I see a lot of

cocaine use, a lot of use of prostitution.

{–THE OWNER OF THE V.I.P. CLUB IN CHELSEA, WHO ESTIMATES

THAT ABOUT 80 PERCENT OF HIS CLIENTS ARE WALL STREET TYPES.}

01:
45:18.17

{ANDREW LO

PROFESSOR & DIRECTOR

MIT LABORATORY FOR FINANCIAL ENGINEERING}

ANDREW LO:
Recently, neuroscientists have done experiments where, uh, they've, uh,

taken individuals and put them into an MRI machine. And they have them play a game

where the prize is money. And they noticed that when these subjects earn money, the

part of the brain that gets stimulated is the same part that cocaine stimulates.

01:
45:38.24

JONATHAN ALPERT:
A lot of people feel that they need to really participate in that

behavior to make it, to get promoted, to get recognized.

NARRATOR:
According to a Bloomberg article, business entertainment represents 5

percent of revenue for New York derivatives brokers, and often includes strip clubs,

prostitution, and drugs. A New York broker filed a lawsuit in 2007 against his firm,

alleging he was required to retain prostitutes to entertain traders.

01:
46:05.24

JONATHAN ALPERT:
There's just a blatant disregard for the impact that their actions

might have on, on society, on family. They have no problem using a prostitute, uh, and

going home to their wife.

01:
46:18.10 {MUSIC CUE}

Inside Job transcript – Sony Pictures – September 2010

35

{KRISTIN DAVIS RAN AN ELITE PROSTITUTION RING

FROM HER HIGH-RISE APARTMENT.

IT WAS LOCATED A FEW BLOCKS FROM

THE NEW YORK STOCK EXCHANGE.}

01:
46:27.19

CHARLES FERGUSON: How many customers?

KRISTIN DAVIS:
About 10,000 at that point in time.

01:
46:36.01

CHARLES FERGUSON: What fraction were from Wall Street?

KRISTIN DAVIS:
Of the higher-end clients, probably – 40 to 50 percent.

CHARLES FERGUSON: And were all the major Wall Street firms represented?

Goldman Sachs.

KRISTIN DAVIS:
Lehman Brothers; yeah, they’re all in there.

JONATHAN ALPERT:
Morgan Stanley was a little less of that. Uh, I think Goldman

was, was pretty, pretty big with that.

01:
46:57.03

KRISTIN DAVIS:
A lot of clients would call me, and say, can you get me a Lamborghini

for the night for the girl?

These guys were spending corporate money; I had many black cards from, you know,

the various financial firms.

JONATHAN ALPERT:
What's happening is services are being charged to computer

repair.

01:
47:14.19

KRISTIN DAVIS:
Trading research; you know; consulting for market compliance. [They],

I just usually gave them a piece of letterhead, and said, make your own invoice.

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