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HowWallStreetMadeTheCrisisWorse
Anonymous.MorningEditionWashington,D.C.:NPR.(Aug27,2010)

Abstract
Noneavailable.
RENEEMONTAGNE,host:
It'shardtofindanexactdatetomarktheanniversaryofthestartofthefinancialcrisis,buttodayisperhaps
asgoodasany.Itwasthreeyearsago,onAugust27th,thattheNationalAssociationofRealtorsannounced
amajordropinexistinghomesales.Thatsentstockpricesfallingandyouknowtherest.NPR'sPlanet
MoneypartneredwiththeinvestigativereportersatProPublicatolookatwhythecrisisbecamesobad.NPR's
AdamDavidsonhasthisstory.
ADAMDAVIDSON:I'mgoingtocuttothechase,andtellyouourconclusionfirst.Webelievewecanshow
thatsomefolksonWallStreethadevidence,ayearortwobeforethecrisishit,thattherewereserious
problemswithsubprimemortgageinvestments.Ratherthanwinddownthisbusiness,theyspeditupusing
financialtrickery.Thesefolksearnedhugebonusesfortheiractions.Theyalsomadethecrisislargerandmore
damaging.
Allright,let'ssetthescene.Thefolkswe'retalkingaboutworkintheCDOdepartmentofbig,WallStreet
banks.
Mr.JAKEBERNSTEIN(ProPublicaReporter):TheCDOdepartmentinabankwasthesexiestplacetoworkon
WallStreet.
DAVIDSON:That'sJakeBernstein,oneofthetwoProPublicareporterswhohelpeduncoverthisstory.CDOs
collateralizeddebtobligations,bytheirofficialandconfusingnameweretheprimarywaythatbigbanks
turnedthosesubprimemortgagesintowhatwenowthinkofastoxicassets.Butbackin2006,theywere
justthehot,newpartofthefinanceindustry.
Mr.BERNSTEIN:Itattractedayounggroupofpeople,peoplewhowereenamoredwithcomputermodelsand
believedthattheyhadcreatedaperpetualmoneymachine,thatthepartywouldneverend.Theyworked
hardandwhenbonustimecame,theymadealotofmoney.
DAVIDSON:Theycouldmakebonusesinthemillionsofdollars.ItalldependedonhowmanyCDOstheysold.
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IthinkofaCDOasabitlikeasausage.Youtakemeatnobodywants,tossitinagrinder.Outcomes
somethingdelicious.WithCDOs,youbuyabunchofunattractive,subprimemortgagebackedbonds,put
themalltogether,thenselloffpiecesofthisnewstructure.AndlikesausagesinadineronSundaymorning,
CDOswereincrediblypopular.
Mr.JESSEEISINGER(ProPublicaReporter):CDOs,theyaretheheartoftheAmericanboom.Everyonewants
thempensionfunds,insurancecompanies,smallbanksaroundtheworldeverybodywantsit.Theycan't
makethemfastenough.
DAVIDSON:That'sJesseEisinger,theotherProPublicareporteronthisstory.Hesaysthatforfourorfive
years,CDOsgrewdramatically.
Mr.EISINGER:Then,inthesummerof2006,itseemslikethejoyridemightbecomingtoanend.
DAVIDSON:Whathappenedwasforthefirsttime,lotsofcustomersstartedsayingnotothebankersselling
CDOscustomerslikePeterNowell,withtheRoyalBankofScotland.
Mr.PETERNOWELL(RoyalBankofScotland):Therewerealotofthingsthatwerebeingrelaxed,onacredit
perspective,overthattime,aspeoplewantedtopushoutmoreandmoredeals.ToomanyCalifornia
mortgages,toolowcreditscores.
DAVIDSON:Customerskeptsaying:We'llbuythegoodpartsoftheCDOs,butnottheworst10or15
percent.JesseEisinger.
Mr.EISENGER:ThisisabigproblemforWallStreet,'causeWallStreethastheassemblylinegoing.Andany
hitchisgoingtobeabigproblem.It'sgoingtostopthefeesandthosebonusesattheendoftheyear.
DAVIDSON:Atfirst,Nowellsays,CDOsalespeopletriedtoconvincehim:Don'tleavebuysomeCDOs.
Mr.NOWELL:Itwasdefinitelythehardsell:frequentcalls,wantingtotakeyououttodinnerand,youknow,
encouragingyoutoinvestearlyandinvestoften.
DAVIDSON:Thehardsellwasn'tworking.Eisengersaysthatnomatterwhattheydid,theinvestmentbanks
werestuckwiththeleastattractivebitsoftheirCDOs.
Mr.EISINGER:What'shappeningis,it'spilingupandpilingupandpilingup.Andsotheyhaveabigproblem.
They'vegotitallcominginthroughoneend,andit'sharderandhardertogetitoutthedoor.Sotheyneedto
figureouthowtosellthis,howtomoveitoutofthere.
DAVIDSON:Thisiswherethetrickerycomesin.Toexplainit,let'sgobacktothesausageanalogy.I'mgoing
tobeasausagemaker.Here'smyhandymeatgrinderI'llturnthaton.
(Soundbiteofmeatgrinder)
DAVIDSON:Mysausageissellinggreat.Untiloneday,mycustomersstarttosay,youknowwhat?Welike
thenicebitsinthemiddle,butwedon'tlikethosenasty,knottypartsattheend.Prettysoon,I'vegotall
theseendbitspilinguponmycounter.Nobodywantsit,andI'mworriedmycustomersaregoingtobe
turnedofftothewholesausagebusiness.I'mlosingmoney.SowhatdoIdo?Ishovethosenastyendbits
backinthegrinder...
(SoundbiteofmeatGrinder)
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DAVIDSON:...andmakenewsausages.Brilliant.Ofcourse,customersdon'twantthenastyendbitsofthose
newsausages,either.So,Itakethose,throwthembackinthegrinder.Yougetthepicturethisworksfora
while.Buteventually,I'mmakingsausagesthataremadeupalmostentirelyofnastyendbits.
Mr.BERSTEIN:SothisisexactlywhathappenedwithsubprimeCDOs.Theinvestmentbankstaketheworst
partsoftheCDO,andtheyputitintonewCDOs,recyclingitagainandagainuntilprettysoon,theCDOsthat
you'releftwitharemadeupoftheworstpartsofthestuff.
DAVIDSON:WithWallStreet,whentheyrecycleaCDO,whentheyshovethosenastybitsbackinthe
grinder,theymarkitasasale,asiftheyfoundarealcustomer.
Mr.EISENGER:Fromtheoutside,itlookslike,ohmyGod,thebusinessisbooming.Infact,alotofthe
businessisanillusion.TheCDOguysareorchestratingthedemand.
DAVIDSON:Whatwe'redescribingheredidnotcausethecrisis.Bymid2006,wealreadywerewellintoa
housingbubblethatwassurelygoingtoburstandcausefinancialpain.Butbydelayingtheonsetofthecrisis
andallowinganotheryearofbubbleexpansion,thisfinancialtrickerymadethecrisisbiggerandmorepainful.
Weaskedthebanksinvolvedforcomment.AspokesmanforMerrillLynchsaidthecompanyhasanew
owner,BankofAmerica,andthey'renotgoingtocommentonactionstakenunderthepreviousownership.A
CitigroupspokespersontoldProPublicathattheycannotcommentbecausetheSecuritiesandExchange
Commissionisinvestigating.
AdamDavidson,NPRNews.
MONTAGNE:ToreadProPublica'saccountofexactlyhowWallStreetbankscreatedfakedemand,visit
propublica.org.Andyoucanfindalinkatnpr.org/money.You'llalsofindPlanetMoneyandProPublica's
collaborationwiththeGregoryBrotherstheguysknownfortheirmusicalspoofs.Theytookrealtapeofbank
executivesandusingaudiotrickery,createdasong.
SojoiningtheGregoryBrothers,there'sBrianMoynihan,CEOofBankofAmerica,andRobertRubin,former
TreasurysecretaryandchairmanofCitigroup.Here'sanexcerpt.
(Soundbiteofmusic)
GREGORYBROTHERS(Musicgroup):(Singing)...seeitcoming,welldidyouseeitcoming?Didanybodyseeit
coming?Nooneinvolvedinthehousingsystemforesawadramaticandrapiddepreciationinhomeprices.No
one?Lenders.Nobody?Ratingagencies.Anybody?Investors.Somebody?Insurers,consumers,regulators
andpolicymakers.Soyoudidn'tseeitcomingatall?Andthenwhenyoulookback,youalwayslookback,
andyoulookbacklookback.Andyousay,well,thesewerewarningsigns.Andthenwelookback...
129454550
((c)2010NationalPublicRadio,Inc.AllRightsReserved.)

Title

HowWallStreetMadeTheCrisisWorse

Author

Anonymous

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Publicationtitle

MorningEdition

Publicationyear

2010

Publicationdate

Aug27,2010

Year

2010

Publisher

NPR

Placeofpublication

Washington,D.C.

Countryofpublication

UnitedStates

Publicationsubject

GeneralInterestPeriodicalsUnitedStates

Sourcetype

OtherSources

Languageofpublication

English

Documenttype

News

ProQuestdocumentID

748098292

DocumentURL

http://search.proquest.com/docview/748098292?
accountid=63064

Copyright

((c)2010NationalPublicRadio,Inc.AllRightsReserved.)

Lastupdated

20150725

Database

ProQuestResearchLibrary

Copyright2016ProQuestLLC.Allrightsreserved.TermsandConditions

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