You can call Matthew Tannin, but he probably won’t
• Most of City Council is backing a plan that would require hedge-fund and private-equity-fund partners to pay a city tax on income generated by investments. [NYS]
• The SEC and the Federal Reserve are finalizing a plan to start reworking how Wall Street should be regulated. [NYT]
• Citigroup is getting ready to lay off 10 percent of its bankers and traders. At least they’re in good company: Even unflappable Goldman Sachs is getting ready to lay off 10 percent of its M&A staff. [FT via DealBook/NYT, href=” http://dealbook.blogs.nytimes.com/2008/06/22/citis-investment-bank-braces-for-layoffs/”>DealBook/NYT]
• Someone is selling a business card belonging to Matthew Tannin, one of the Bear Stearns hedge-fund managers arrested last week for fraud, on eBay. Currently, the price is up to $20.50. [eBay via DealBreaker]
• Tom Brokaw will moderate Meet the Press through the November presidential election. [Politico]
• Many New York Times readers feel Maureen Dowd’s relentless gender-laden assault on Hillary Clinton — in 28 of 44 columns since January 1 — crossed a line. [NYT]
• Tim Russert’s Wikipedia page broke the news that the Meet the Press host had died. Now the person who updated the page has been fired. [NYT]
• Nearly three dozen former federal prosecutors are backing a congressional bill intended to safeguard confidential communications between lawyers and their clients. The bill would make it illegal for prosecutors and other federal enforcement officials to demand that a company under investigation disclose confidential legal communications or risk being indicted. [DealBook/NYT]
• The Clash’s “I Fought the Law” and Warren Zevon’s “Lawyers, Guns, and Money” are favorite songs among lawyers. [Above the Law]
• Comedian George Carlin, who died yesterday, was the inspiration for FCC v. Pacifica, the 1978 case in which the Court decided that FCC sanctions could be invoked against a radio broadcast of words dealing with sex and execration. [LawBlog/WSJ]
• This will really make you want to hang out on your 21st-floor balcony: The company hired to test the strength of the concrete poured at some of the city’s biggest construction projects hasn’t really been doing its job. [NYT]
• The Supreme Court put an end the federal lawsuit filed by landowners and tenants against Bruce Ratner’s Atlantic Yards project by declining to hear an appeal. Next stop, state court. [NYO]
• New Yorkers aren’t the only ones who rent. The percentage of renters increased nationwide to 32 percent. [NYT]
Our film starts as Bear Stearns is stumbling, and a rumor is going, and the housing bubble has burst, and it's all going to go down in about a week. From Dallas you must have watched some of this happen. What did you think about the idea of pumping that $30 billion into Bear Stearns? …
Well, first of all Tim Geithner then is head of the Federal Reserve Bank in New York, and he was on the front line. The way Ben Bernanke has chaired the Federal Reserve is all of us are consulted in the process. … We had countless video telephone conferences and other conferences, as well as meetings, to go over what was happening.
We did not supervise Bear Stearns. We did not have supervisory power over Lehman Brothers. We did not have supervisory power over AIG. But the role of a central bank in a crisis, in a panic -- and this goes back to the panic of 1825 and basically the handbook that was written by a man named [Walter] Bagehot with the Bank of England -- we, in essence, pulled out that playbook in a modern context, and we opened the floodgates. We were the lender of last resort. That's what a central bank does.
I take no issue with that urgent need for what we called "exigent action." The real thing is to prevent it from ... happening again. And one thing that Dodd-Frank does do is it puts these other kinds of large institutions under a body of supervision. There is an oversight committee. It is now chaired by the secretary of the Treasury. The chairman of the Federal Reserve is involved in all of the other agencies.
But at the time, it was seemingly just an extraordinary failure, or potential failure of the system that could bring the system down. And then there were others that follow, as you know, in consequence.
You felt that way, though? You really felt like when those phone calls and those video conferences were happening, you were at the edge of the abyss?
Well, you could see -- and this is the parlance of our business -- but you could see the credit default swap spreads widening. What that means is that the cost of insurance against risk was becoming more expensive and more expensive, and the market was telling you that something was wrong. And so it's one thing, when you're in a battle, you react tactically.
In terms of developing a strategy, being prepared for this, remember we had gone through almost 25 years of what they call the Great Moderation. Interest rates were low; we had new people coming into the competitive system, new populations like China bringing prices down, and very little volatility in the marketplace, with some exception of 1987, but they didn't last for very long. And I thing people became complacent. And with complacency, people take greater risk.
Again I want to remind you, Bear Stearns was not on our supervisory duty, but we had the job of stepping in to make sure that a panic didn't ensue that would end up compressing the entire global economy and leading to deflation. …
Talk about being on the hot seat.
I do believe the Fed not only did the right thing under the circumstances at the time. I want to remind your viewers, we did something that is very unusual in the government of the United States or any government anywhere in the world. We did what we said we would do, because the system stopped. All forms of payment froze when we got to the depth of the panic. Banks wouldn't lend money to each other.
The first money market mutual fund in the United States quote "broke the buck." Commercial paper, one of the most basic instruments in finance, that market failed. Someone had to step in and remake those markets, and we did it.
That's point number one. We actually did what we said we were going to do. Secondly, they worked. Thirdly, we made money for the United States taxpayer. And this is the most unusual part of all: When we were done, we closed them all down.
I'm very proud to be part of a team that actually did something that's almost never done in government: (a) create something and then close it down, and (b) have it be profitable for the taxpayer. But I certainly don't want to ever be part of any team that ever has to go through this again. … This was incredible decision-making under incredible duress.
But, you know, you could argue almost any single case is exceptional and has to be acted on. It's sort of a perverse Lake Wobegon. All our children are exceptional and everything is exigent and has to be acted on, and it's unusual and unique. And this is one of the traps you fall into when you have these large institutions that you don't really understand, are poorly regulated, which Bear Stearns, and Lehman, and AIG were. …
When you have that kind of concentration where you don't understand really where the risks are -- they're gigantic in size, they have global scope -- that's where you have a huge risk of an error infecting the rest of the system, what they call "contagion" in finance. …
- The Bear Stearns RescueFederal Reserve