The Mistake of Blaming Dick Fuld
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Andrew Ross Sorkin tackles the future of financial regulation, the push-pull of policy and politics, and how John Mack could have easily suffered the same fate as Lehman’s CEO.
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Andrew Ross Sorkin:
Andrew Ross Sorkin is The New York Times’s chief mergers and acquisitions reporter and a columnist. He is also the author of the 2009 book, "Too Big To Fail." Mr. Sorkin, a leading voice about Wall Street and corporate America, is also the editor of DealBook, an online daily financial report he started in 2001. In addition, Mr. Sorkin is an assistant editor of business and finance news, helping guide and shape the paper’s coverage.Mr. Sorkin, who has appeared on NBC's “Today” show and on “Charlie Rose” on PBS, is a frequent guest host of CNBC’s “Squawk Box.” He won a Gerald Loeb Award, the highest honor in business journalism, in 2004 for breaking news. He also won a Society of American Business Editors and Writers Award for breaking news in 2005 and again in 2006. In 2007, the World Economic Forum named him a Young Global Leader. Mr. Sorkin began writing for The Times in 1995 under unusual circumstances: he hadn’t yet graduated from high school. Mr. Sorkin lives in Manhattan.
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TRANSCRIPT:
Question: How will current financial regulation proposals dealing with systemic risk change the business?
Andrew Ross Sorkin: I think it's very unclear what type of regulatory reform we're really going to see over the next 12 months. There's a couple of things that have to happen that could change the business materially. The first is actually a piece of legislation that will really prevent the next crisis, hopefully, which is this idea of resolution authority, this idea that we can actually unwind in an orderly way an investment banking insurance company, like an AIG or a hedge fund. And we've never had that ability. The bankruptcy process doesn't work very well to make that happen. But the larger reforms that have to happen -- things like bigger capital requirements, the idea of having a bigger safety net, a rainy day fund -- that could change the business materially, because it would mean that the banks would be safer and less risky; there would be less leverage and therefore debt in the system; and it would actually mean that the firms themselves would be less profitable. So to the extent there are profits, and they're being given out as bonuses, those bonuses would come back inside the firm, and you'd put it into the rainy day fund. So all of those things sound very good. The flip side of all that is that if you think banks aren't lending today, if you tell them they need to keep more money in the bank on any given day, they would argue to you that they will be lending even less tomorrow. And what does that mean for the economy? So it's a very complicated picture, and the solutions, while some seem very attractive -- and it's very easy to say increase capital requirements, and long-term that's probably what you need to do -- given the economy, it's unclear whether you want to do that tomorrow.
Question: How has GSE policy changed since the crisis?
Andrew Ross Sorkin: Well, the funny thing about the GSEs now is they're probably not as well capitalized as you'd want them to be, but it almost doesn't matter, because there is this implicit guarantee that the government is now -- it's not even implicit; it's explicit that there's a guarantee behind them. So whether they're capitalized properly or not is probably not the issue. Longer-term we're going to have to deal with that, because you would hope that the government is going to have to extricate itself from that relationship. And that itself is going to be a long-term challenge.
Question: What do you expect the government’s involvement in the housing sector to be in five or ten years?
Andrew Ross Sorkin: I imagine over the next five years it's going to be very difficult for the government to truly extricate itself from being in the business of supporting the mortgage market in some way or another. The goal longer-term has to be to get out. Can that be accomplished in 10 years, given the way the economy is today? I don't know. But I would imagine that the Fannie and Freddies of the world would end up getting broken up and privatized in some way, or at least that would be the goal.
Question: You chronicle several instances of chief executives (Dick Fuld included) willfully ignoring bad news. How did these executives justify such decisions?
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