The Big Lie on CNBC Squawkbox

Apparently, the financial industry was not deregulated:

Kudos to Becky Quick for at least trying to push back against this nonsense. And Austan Goolsbee is too nice a guy to call someone out for their bullshit

If I were on, I would have decapitated the talking points of this BBT guy.

Transcript after the jump


Do you think there is a — i look at all these places, whether it’s food, medical, or transportation or energy. part of what we’re concerned about is the horizon. within the government there is a lot of activity to really write constraining regulations that go substantially further than where we’re at. one of the factors we’re concerned about, when you’re trying to create a business, you look at what the horizon looks like. and with that trying to create a business, you look at what the horizon looks like. and with that regulatory climate that is in virtually every department in the administration, how do we get at or don’t you think that is having real impact on our economy? well, i think two things. one, if they’re making — if any agency is making mistaken regulations, if we got things that are either inefficient or impairing the growth of small businesses, we ought to go look at that and we ought to get rid of the regulations that aren’t working. i think, though, a mentality that says the only things that good for business is getting rid of all regulations and ripping up the rules of the road, i kind of think if you look at the financial system and what havoc it’s reeked on the economy from ripping up the rules of the road so that we lost public trust in financial markets, i think that mentality took a heavy blow in the financial crisis. it doesn’t mean that what replaced it is exactly perfect. the issue is not deregulating or misregulated. we passed three major laws under bush, privacy act, patriot act and sovereign act. we misregulated the system. the call to the financial crisis wasn’t a mistake on wall street although a number of firms should have failed. it was government policy that goes all the way back — i disagree. you’re wrong. , no i’m not wrong. to try to create affordable housing. because i saw this over my 30-year career. we grow — we can point a lot of fingers. freddie mac and fannie mae — i understand freddie and fannie. a business model where guys get to pocket profits for years and then when everything goes wrong dump it on the government. that was a recipe for failure and it failed. but to try to blame that is like you remember the year detroit lions were 0-16. they had a bad kicker. you can’t blame them being 0-16 on them having a bad kicker. there were a lot of blame to go around. you have $2.5 trillion — but there were a lot of problems. borrowing more than they should have. but we didn’t decide it was wall street. i believe wall street absolutely was — fannie and freddie were not the majority of subprime mortgages. yes, they were. no, they were not. the worst performing subprime mortgages have nothing to do with fannie and freddie. that is not mathematically true. yes, it is mathematically true. i’ll get data for you. i already looked at the data. i was in the mortgage business. i saw this. government policy put intense pressure on the banking ministry going all the way back to the aerly ’70s to do subprime lending. the banks were not prepared to do it. fair housing and then bill clinton — that act has been in place for decades. we had a financial crisis after they deregulated and allowed these entities to go into business. increased pressure under bill clinton set a goal for freddie and fannie to have half of the mortgage portfolio in subprime lending. that drove everybody down because — republicans and democrats. and republicans contributed. to allow investment banks to massively leaver up to a greater agree than they did before, that allows to put an unbelievable risk on to the system that blows up. who took the big losses? have you figured out the losses that fannie and freddie already have? the taxpayers. okay. the taxpayers. it’s going to be over a trillion dollars before it’s over. they were the driver. they were awful. i’ve never been a fan of and no economist is a big fan of a business model of socialized r your losses and keep all your profits. but to try to say that that is the cause of the financial crisis, it was just — do the math. mathematically certain that banks were not involved? no! no! no! it is one leg of the crisis. one leg, absolutely. wall street was another leg. yes. it was the primary driver. i don’t agree with that. i was in the mortgage business and saw them driving down the standards. we didn’t do it. we didn’t get in trouble because we didn’t do it. but they were driving down the standards. and they were also incentivizing people like country dsz wiwide mutual to provide affordable housing. they were bad. they were in search of — the financial sector and activities got well beyond what they should have been doing. the pure size of the banks made them systemic so they could — we had to subsidize all that private risk. and connectedness. but we still do. right? do we need to break them up? see, i don’t think it was — it’s an interesting idea. i wonder what your view is. if we let them fail — i don’t think it was just size. you can take bank of america and say you were a person that said let’s break up the banks. can you break bank of america into six pieces and every one of the pieces would be bigger than bear stearns. right. it wasn’t the size that made bear stearns dangerous. it’s how connected it is. so that’s why i think on addressing too big to fail, they have to work on the connectedness. a siegel thing? that is a separate issue. like the derivatives and counter parties. isn’t everything levered? it goes to rhine heart. can you have as many factors as you want on the stage doing as many bad things, regulators, bankers, everything, but as long as there is not enough leverage in the system, you can’t start a fire. this is a huge mistake thinking this is a bad actor. it was multiple in this. the bush administration was proudest of the fact that homeownership reached the highest possible — highest level in u.s. history under the bush administration which is based on these practices. it is linked. zbh don’t think the construction industry doesn’t like what was happening. absolutely. as long as pricing went up on housing, it was a social virtue in every context. but andrew, if you — if your company goes under and you lose all your stock and all your employees, you don’t leverage next time. but they didn’t go under. i think andrew is right. it was predominantly an equity bubble. it wasn’t leverage. so when it popped, the damage to the entire credit system in the united states is quite limited. so i do think if you did — and if you look across countries, those that had more equity in their system, those that had the lower loans to value ratios i think that’s quite true. but i think there’s more than just that. yes, you could have somewhat solved the problem if you had less leverage. but we had a whole lot of things going wrong at the same time. and so i just think — it was almost a societal, you know, motivation to increase homeownership. how about this — who that owned a house didn’t like what was happening, too? the flipper. everybody. everybody owned a house. but it’s not just the — it’s not just to be blamed on the homeowners. there are multiple legs on this stool. just saying, hey, it was fannie and freddie and the government encouraging homeownership, they have been encouraging homeowner shp for a long time. it was muplied with something ee that leads it to blow up. but nobody should have been surprised by the private sector trying to maximize profits if given the chance. and then you throw aig in. you could pretend to be triple-a with those credit default swaps. you’re totally right. yeah, you’re totally right. i think the system, understanding it from inside the system, it is grossly exaggerated. we’ve been doing business with bear stearns for 7 ayears. if they would have failed, we would have said so what. we had a lot of contracts. we managed our derivative contracts. we required to have cash collateral. not everybody did this. no. that was relatively safe. if you looked at the — the implication of saving bear is much worse than letting them fail. if you look at what happened, lehman doubled their bets. why not? if a government is going to bail you out and you got a down side, you’re going to double your bet. as soon as bear got — lehman didn’t double the bets from — no. from the time that bear stearns went under to the time they ultimately collapsed, they were reducing their leverage. they were reducing leverage. but they were doubling a lot of the debts in the market because they had no down side risk. and also they weren’t prepared for bankruptcy. why weren’t they prepared for bankruptcy? they thought they were going to get saved. that’s why the bankruptcy is so — i think that is — we didn’t trust the government so we covered our loem position. a lot of people did trust the government and expanded derivatives because they thought the government was going to bail lehman out. very wrong. lehman is so much more important than bear. i do think that this important dynamic, that the thing that is hard to understand is after bear, the fed announces we’re going to open the discount window to investment banks. you saw the bear stearns people say wait a minute! why didn’t do you that before we ended? and so the question always was, well why didn’t lehman just go to the discount window? and the auns was thnswer was th have the collateral. sure. but one of the things the psychologyst market, remember, there was a lot of perception that paulsen didn’t like lehman and that was why he let him fail. whether that’s true or not, i don’t know. but the psychology in the market is terrible when you have government leaders making what appear to be very arbitrary decisions. they save citigroup, they let wachovia fail. a lot of the down fall was in. this i went through the ’80s and early ‘9 o’s, a long time ceo. we didn’t have a loss of confidence. this is under george bush. the arbitrariness of the decision was stunning. at one point they let citigroup that was broke and everybody knew it agree to buy wachovia. and then they reneged on the contract. i mean that was — paul voelker who is a good friend and a giant, he — as that whole thing — he is a giant. he is a giant. but he was saying as that was going along, you can’t do this. you do this weekend by weekend, it’s arbitrary and then everybody says well what are the rules? how does it apply? we have to have something more systemic. i do think that was an issue. if we were on the super committee, he would have done a damn deal. this is my thing. i think that if you got reasonable people to sit around and say what does this country need to grow and where do we need to be in five years? i think there’s a lot — i got a little teary thinking about it. we’re almost out of time on this discussion. but what are the areas where we could reach agreement where we say, yes, this makes a lot of sense. do it right now and do it quickly and get 60, 65% of the people to agree? i got the alliance. as you got into the dialogue, there weren’t reasonable people there. the issue quickly turned into either blame or political. there was no grounds to have a sort of reasonable discussion. yes. because immediately it became which side are you on as opposed to — how about bowles-simpson. you were there. what if the three guys went and sat down with the president and valerie jarrod, i think — by the end of it, i think someone might have a black eye or something. i don’t think that’s true. really? the president has actually met many times in private lunches with ceos to companies to get their ideas. and oftentimes, you know, they can be fairly tough with the president about particular issues. but he doesn’t want to get in a fight about that. why did he turn his back to simpson-bowles? he didn’t turn his back. the president offered — now we get into the debt ceiling negotiations. he did nothing with it. now we’re drifting apart again. this is a tremendous conversation. we’re glad you all could be here. john allison, my good friends. you have andrew. okay. if you have comments or questions about anything you

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