Too Big to Fail Page #7

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I hate to do this right now,

but I'm gonna have to have

a press call first thing,

and I really don't know

what I'm gonna tell them.

Tell them Lehman exacerbated AIG.

The simultaneous payouts of CDOs

and credit default swaps

put catastrophic pressure on...

Go back further.

The global pool of investment capital...

She has to do this in English.

Start with the homeowners.

Okay, okay, here's how you explain it.

Wall Street started bundling home loans

together, mortgage-backed securities,

and selling slices

of those bundles to investors.

And they were making big money,

so they started pushing the lenders, saying,

"Come on, we need more loans."

The lenders had already given loans

to borrowers with good credit,

so they go bottom-feeding.

They lower their criteria.

Before, you needed a credit score of 620

and a down payment of 20%.

Now, they'll settle for 500, no money down.

And the buyer, the

regular guy on the street,

assumes that the experts

know what they're doing.

He's saying to himself,

"If the bank's willing to loan me money,

"I must be able to afford it."

So he reaches for the American dream.

He buys that house.

The banks knew securities based on

shitbag mortgages were risky.

You'll work on "shitbag."

So to control their downside, the banks

started buying a kind of insurance.

If mortgages default,

insurance company pays,

default swap.

The banks insure their potential losses

to move the risk off their books

so they can invest more, make more money.

And while a lot of companies

insured this stuff,

one was dumb enough to take on

an almost unbelievable amount of risk.

- AIG.

- And you'll work on "dumb."

And when they ask me why they did that?

- Fees.

- Hundreds of millions in fees.

AIG figured the housing market

would just keep going up,

but then the unexpected happens.

Housing prices go down.

The poor bastard

who bought his dream house,

the teaser rate on his mortgage runs out.

His payments go up. He defaults.

Mortgage-backed securities tank.

AIG has to pay off the swaps,

all of them, all over the world,

at the same time.

AIG can't pay. AIG goes under.

Every bank they insure

books massive losses on the same day.

And then they all go under.

It all comes down.

The whole financial system?

And what do I say

when they ask me why it wasn't regulated?

No one wanted to.

We were making too much money.

You'll work on

"We were making too much money."

Hey, Hank.

These are really mild, but they work.

I know the whole Christian Scientist thing,

that you don't take medicine.

But you need to sleep.

- Jim...

- Hank, not just for your own sake. Okay?

You don't look so good.

Just minutes ago, CNN has confirmed

that the Federal Reserve is negotiating

to rescue insurance giant AIG.

The negotiations could include

an $85 billion temporary loan

to stave off AIG's imminent collapse.

This is a blockbuster, folks.

About this time last night,

many on Wall Street

were fearing total disaster today.

So, another federal bailout

of another Wall Street giant.

Again, as we mentioned,

big, big financial news.

And this affects almost everyone

out there who has a 401(k).

The news comes about three and a half hours

after the stock exchange closed on...

Motherf***er.

We wanna go straight right now to Ali Velshi

to kind of give us a bottom line on this, Ali.

And then we're gonna get

a lot more in depth...

AIG securing an 85...

The credit markets are still frozen solid.

We keep dumping money

into these companies

so the markets will stabilize,

and nothing helps.

We can't keep doing this.

We rescued Bear with no legislation,

AIG with no legislation.

People think Fannie and Freddie

was a bait-and-switch.

I don't like it any more than you do,

but they were exceptional situations.

This situation demands an endgame

that does not rely on

unilateral action from the Fed.

This is a democracy.

We cannot be men behind the curtain

pulling the strings.

We need some kind of an overall solution

that heals the entire system.

And it has to be legitimate.

We've been putting off going to Congress.

It's two months before an election.

They can't vote yes to a massive bailout

of the entire banking system.

- They'd never get reelected.

- Hank...

We go to Congress,

publically state we don't have the firepower

to control this anymore,

and then they say no,

that is really the nightmare scenario.

The nightmare scenario's

already here, my friend.

We're in it.

P.

You can't put this all

on your own shoulders.

We're running out of options.

Then you just keep trying.

That's what you do.

Eventually something's gonna work.

I'm not sure that that is true anymore.

There's not a bank in the world

that has enough money in its vault

to pay its depositors.

It's all built on trust.

And, Wendy, we are so very close.

Morgan Stanley, Goldman are an inch away.

If the other banks stop trusting them,

if they pull back on interbank lending,

it's over in a matter of hours.

And from there it goes

too fast to stop, a run,

and not just on one bank,

I mean on the whole system.

And average people wondering,

"Is my money safe?"

They start pulling their cash.

And after that, lines outside the banks,

smashed ATMs.

A couple of weeks,

there's no milk in the store.

For the second time this week,

there was a massive sell-off on Wall Street,

the Dow Jones Industrial's

freefalling some 450 points

on news of a taxpayer-funded bailout

of the AIG insurance company.

Three of the five investment banks are gone.

The country's biggest

mortgage lender is gone.

Fannie Mae, Freddie Mac,

brought under government control.

The financial system is holding right now,

but for how long?

All the king's horses and all the king's men

are being brought to bear

to keep this thing together.

- Hi, Tim.

- I'm on the Street, Hank,

and people are just

going about their business.

They have no idea the whole thing

is about to fall down.

We're gonna have to go to Congress.

We don't have a choice anymore.

Okay.

How fast do you think

you can get them to move?

It's gonna be at least a couple days.

Goldman and Morgan Stanley

are going down now.

We gotta do something today.

Like what?

The market doesn't like

investment banks, right?

The money's saying "f*** you"

to the whole business model.

Yeah.

Yeah, so merge them with commercial banks,

turn them into regular banks

regulated by the Fed.

They can use depositors' cash.

It will give them access

to the discount window.

It's cheap government cash.

- You wanna make them bigger?

- It's a trade-off, Hank.

The upside is it'll stabilize them.

The downside is,

yeah, they'll be really f***ing big.

Do it, Tim.

Godspeed.

Get me Blankfein.

Lloyd, call Vikram Pandit,

talk to him about a merger.

Tim, we're looking at all our options.

You don't have options, Lloyd.

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