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Former Lehman Brothers vice president Larry McDonald on the state of the U.S. economy and what we've learned from Lehman's collapse.
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When that will we recover joining me now is former Lehman Brothers fight president.
And the author of a colossal failure of common sense the inside story of the collapse of Lehman Brothers Larry McDonald good to see you back here -- Go back of four years ago -- there that fateful weekend.
Where you one of those guys in their carrying out your boxes.
I -- left just before we we went belly but.
In looking around the world today.
I'm shocked that with so much systemic risks it's facing us from Spain and Europe.
In the in the markets have had a nice run here but there really isn't problem lurking in Spain that hasn't come hasn't -- -- probably gonna come back right in.
But here we are all these years later and we still don't have in the regulatory framework.
The enough talent to really protect us.
It.
Did you just say basically that the regulators.
Are Smart enough to figure out what -- the guys and -- -- wall Streeter doing.
Let's from the not Smart enough but it's it's like sports baseball you know.
Everybody is certain accounts and risk takers that -- -- -- money say he ran a billion dollar portfolio at any hedge fund.
Those type of people have a very good mindset for managing risk analyzing risk.
In and taking and taking -- If you look at the regulatory framework that -- lot of Smart academics there but have they are actually been in the game had been in the major leagues.
In the problem is the all that if you look at it has studied it they read about it but they haven't ever been on the field they really haven't and what's happened.
You know the most scary thing is if you look at the last twenty years.
-- this 21 century financial products become more more more sophisticated.
So.
-- look at the long term capital crisis and look at the S and L crisis in the eighty's and ninety's long term capital was ten times bigger than the S and L crisis.
And little Lehman crisis globally was a hundred times bigger than long term capital.
So.
But but we have Dodd-Frank.
We have Dodd-Frank did did what do you do you laugh about it.
I'm really passionate about this because I talk about this my book the cost their common sense in this for you thank you.
This is a grave threat to our country because.
We came so close close to -- really depression.
We came out of it.
And here we are were not learning the lessons that the that the financial products this -- is so moving so fast is it is it statistic.
-- the fact that that once the investment banks and the commercial banks were able to merge together they started coming up with products that were never.
-- before they created new.
Things synthetic things in a lot of people that are better watch -- going.
-- but I -- I don't know what those things are.
I can -- a lot of people on Wall Street the don't even know what it is that they're currently.
Absolutely and you look at the Federal Reserve.
You know today we're talking about QE3 QE3.
It's almost two and a half trillion dollars of experimental drugs.
That have been injected into the economy to the system to try to get us out of the Lehman kind of -- over yeah 2.5.
Trillion dollars.
In our tax -- sitting home watching us right now.
Are still exposed.
To new risks.
That worked -- coming from the old risks.
What that so.
Is this.
This is not the right what about say it anyway -- I know what the answers will there be another collapse.
There's no question I mean every.
-- the last hundred years of panic in 1907 pending in 1917.
Panic in 1929 with the crash in nineteen trying to you had.
In this 1970s -- had Richard Nixon being impeached the market lost 50% we're gonna have another.
Crisis 9/11 we had a crisis in the in the dotcom bust.
So well the last hundred years we have every ten or fifteen years another crisis here we are.
Four years after Lehman there's one coming -- us and I'm just digging people in Washington to bring talented people into the regulatory -- framework we -- example.
If you remember 2008.
Back in 2006.
Hank Paulson left Goldman Sachs.
To join the treasury thank god because we had someone from Wall Street that was actually in the -- right managing all those risks he was a player he was -- player.
But the executive branch in the United States government has -- tax incentive so.
If you leave fox after twenty years and you go work for.
The executive branch you get to see your stock their tax benefits that he basically avoid a lot of taxes right on your stock right.
Which a lot of people think Hank Paulson went to become treasury secretaries -- he could avoid the taxation.
On the wealth that he -- built up to Goldman he had 200 million dollars for the stocks and all right NASA this all right so if we're gonna do this it.
Not and everybody makes 200 million -- -- Wall Street but.
They make a million or two were five.
Not uncommon for about -- -- successful trader.
Are we gonna have saved to the securities and exchange commission and the Irish you've got to pay your your agents 2345.
Million dollars nobody government.
Whatever say that's the problem exactly it's a brilliant really put.
The problem is the -- of people Wall -- making 510 million dollars in the SEC they're never gonna pay their people from ten million dollars a year but.
But would you could do is take this tax incentive that the executive branch can give out.
In May be have the SEC the Commodity Futures Trading Commission if TSE have that -- integrity and -- From the players and get them to come over.
Exempt them from the taxation on the on their built -- wealth order -- so you get the people in on the regulator side to know what they're doing.
Exactly and they're not saying all regulators are bad -- being nice to have a group of Wall Street people they've actually been in the game.
On their team analyzing the risks that are facing because -- people like you hear them now like guy guy Gary audience they're going -- but that's the fox guarding the chicken -- Not not when they're not what they're a team of academics and and that it is -- mean look at Hank Paulson.
I mean he.
You know I have to say in the book he took Lehman Brothers -- put it under water he watched for the bubbles the mean he really as Lehman shareholder you know I should be man of the guy but.
He really did a wonderful job.
Getting us out of the crisis he did a lot of really Smart things that if we -- we didn't have and they are no -- We have been trouble if you look into the crisis it looks like behind the scenes he was really calling most of the shots.
-- fascinating so the risk is still.
It's not only still -- British bigger today than it was four years ago as a meteor coming at us as we do nothing.
Larry McDonald.
Great book thanks for.
