with one of those firms, you were sure to lose. they were the smart money. somehow they became the dumb money. the somehow is they got structured in a way that caused collective intelligence to decline. it caused a kind of stupidity inside. risk-seeking, so that, you know, there was money to be made in the short-term because the bubble kept inflating. and nobody wanted to miss that opportunity. that s right. the short-term is at the center of the problem. if you want to in the very abstract way to back away from from the massive losses in these wall street firms and say, okay, what were the incentives that caused people to take those risks that led to the losses. first the ceos are evaluated quarter to quarter. if there are insane businesses that are making money at a given time, they can t avoid the businesses. because their peers will be in
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banks couldn t take a hit. very different policy than they adopted with the auto industry. very different policy than the british government adopted with banks. once you adopt that policy, you paint yourself in a corner. the only way out is to give money to the banks until they re healthy again. that s what they ve been doing in dramatic fashion. lots of little subtle gifts to the banks. the bank s response, you might have thought, might have been, wow, we re grateful. we are really sorry we behaved the way we did clearly there s something wrong here. there must be a way to regulate us. instead, the banks have paid themselves and did their best to stimy reform. democracy moves slowly. if it moves fast, we might do things we shouldn t do. but it s pretty clear that the
we know that wall street screwed up. we know why. i think the things he has proposed, the basic the basic idea of, one, forcing transparency in places. by transparency, meaning if you buy or sell a credit default swap or any other thing, you will not do it between yourselves and create risk that nobody knows what they are or how big they are. creating this uncertainty in the system. you will do it on a change, and we will know at any given moment what your exposure is and what the world s exposure to you is. two, consumer protection agency. for whatever reason people i ve learned this from 25 years of writing on the subject. people have a hard time understanding money. we live in a society that s money drenched, money obsessed, but americans are easily people, easily buffaloed on the subject of money. they re persuaded to do things against their own self-interest
so, you know, when i wrote the only reason i came back to it, i was wrong. liar s poker was the story not about the end of an era but the beginning of an era. there remained this question. it was assumed that the rest of the american economy may be going to hell. but those americans do know what they re doing with money. yeah. that, has changed. that has changed now. it now i don t think there s anybody who thinks people on wall street know what they re doing. but those banks are still making lots of money. yes. it s because they created a crisis of such proportions that the first crack at the problem, the government s response was they have essentially got us hostage. whatever the cause is, the symptoms are so grotesque we have to deal with those first. so, for a year and a half, we have been dealing with symptoms. the government made a decision, the bush administration preserved in the obama administration that wall street shareholders couldn t take a hit. that creditor