formerly a writer and editor. for more information on it justin fox and to read his blog visit time dot com / curious capitalist. >> .. >> we have a small group your. feel free to fill in if you want, but i asked how many of you watched cnbc. so many of you are cnbc viewers. we usually have a pretty educated viewership so i'm curious. i can do like to do this in small groups, large groups. how many of you think the economy has seen its worst days? it's going to improve. okay. how many of you think that we will see economic growth in 2010? not just gdp being flat, but actual growth. rip are so not too optimistic. we are in new york. i just read how many of you think we're in for a very tough time here in new york or also we have seen the worst of it. who thinks we've seen the worst of it? okay. finally, how many of you think joe kernan's hair is israel? [laughter] >> nobody? nobody? i'll tell you at the end. you have to stay. i wrote the book, many of you may have seen, i don't know if you haven't. if it is still airing or documenting. we spent a year over on the document appeared it was late 2007 and a lot of people who i've been speaking to. i began as a bking reporter, in 1987 you're one of the advantages of doing something for a very long time, getting old is so the resources, in institutions where they are working. and many of them are senior executives at many of our nation's banks. beginning in august of 2007, almost two years ago right now when the credit crisis began, many of them were telling u this was going to be very, very bad. and yet if you recall, t stock market did not reflect that at all. through the fall of 2007, right through october, november. things were quite good. i think we were heading our all time highs in the stock market. but i had this course of people who said the stock market doesn't get it the credit markets are not functioning. we are going thave a serious significant recession. we started to see a lot of different elements of that in the equity markets. as i said things were not being reflected. i decided at the time it might be appropriate to begin work on a documentary. and so we did. and that process took 13 of 14 months. and a documentary aired. it is house of cards. it aired in february of this year, 2009. documentaries are great. they are a lot better than being able to report on something for two minutes. and even they have their limitations as generous as cnbc has been to me to give us the time to tell an important story. house of cards was two hours, two hours 20 minutes. of course you have advertising. but there still so many things i think we're left to say about this crisis and so many more dots to connect for people. obviously not nearly as many people unfortunately read books as watch television. and so while millions of people have seen a documentary, far fewer will read the book are nonetheless i felt it was going to be an interest and thought and understanding of what happened, how it happened. and building in a little bit more detail in some of those somewhat complex topics such as collateralized, debt obligations, which i devoted a chapter two in the book. and hefully it's not too tough for people to understand. funny, a lowball figure but read the book and come back to me that i thought i got it, but i only really understood how they were constructed, the wrist that was inherent in actually how it all worked until i read your book or something else i thought was important to do was try to explain to people how the banks ultimately suffered the losses that they did. i think we did that to a certain extent in the book without hopefully boring the reader. and i used merrill lynch as an example. i might've used bear stearns, lehman brothers or citigroup, merrill lynch means a great firm that it was of course being on its knees as well last september 14, openly sold to bank of america i felt would be a good example. so that's what i tried to do in the book. there are any number of different things i think that our significant in terms of the focus, but other things that i was trying to do more to combat some of the i think myths that are out there that have been promulgated. for example, that fannie mae and freddie mac caused the economic crisis or caused the credit crisis. visited something that is been bandied about certainly in political circles. and it is really not a big fannie mae and freddie mac at many wrong things but ultimately, if you read the book, i think i try and explain that it was in fact their absence from the market for mortgages that allow wall street to move in and overlake ao many of the problems that we currently are still suffering from. rather than their irresponsibility in terms of offering subprime mortgages and the like. what fannie and freddie did was try to gain back market share that they ultimately had lost to wall street. as you can judge from the title, of course, i dewpoint the finger squarely at wall street in a lot of ways. i do think wall street, there are many culprits. mini mini culprit, but wall street is i think chief amongst them. a lack of leadship amongst so many of the firms and their leaders. a lack of understanding of the risk that was being taken on by so many of these firms. again, as i said, i focus on merrill lynch, very tough but very smart man who ran a firm with a knife is for a number of years but ultimately was forced to resign in october of 2007. he is an interesting story, is all new, but what i uncovered in my report on merrill lynch, he really did not fully understand, not even close frankly the risk that was being undertaken by the firm that he ran. it may have been capped from him in part by people who ran fixed income, mortgages, mortgage related products became by far the largest engine of growth at merrill lynch. it was as i said the largest mortgage broker investing as an investment bank in our country. and yet o'neill didn't fully come to grips with that fact until the summer of 2007. august of 2007 when he embarked on what has been a much remarked on solo golfing excursion essentially, taking days in late august and september of 2007 alone playing golf. many people wondering why in the world would stand o'neill be doing that while it seems the world was starting to melt down. i believe it was because he finally understood that his firm was in serious serious trouble and he was trying to collect his thoughts and figure out what to do. ultimately a year later merrill lynch would be sold to bank of america for about $40 billion in a deal that is still being loed at very carefully by regulators, if any of you have watched television in saint ben bernanke get up and have to testify in front of congress. why they spent so much time on this is not quite clear to me. but nonetheless bank of america did pay a high price to receive that it may have collapsed on september 15 or 16th, at last year, if it not been for bank of america. coming in. seems thing a lot better these days. i wrote the epilogue to this book in the spring of this year, and it's funny how quickly ings seem to change. we're still going to be suffering from 10% from the plummet for some time to compare we have seen a complete retrenchment of the consumer in our country at this point. and there are so many questions about whether this recovery that seems to be reflted in the dow jones industrial average is real. goldman sachs of course is back to making a lot of money. perhaps taking on a lot of risk. but wall street has change. whether it has changed for ever of course is a larger question, even change significantly as a question. i find myself with far too many questions these days and not many answers in terms of those larger issues as to whether wall street is truly going to find himself or will be as result of the regulatory actions that are being undertaken by the obama administration, or they hope to undertake. really don't have much more to add. i look forward to your questions. i encourage them. if you have any, please feel free and again, i very much appreciate to you all being your yes, sir. [inaudible] >> we're going to bring over microphone so that everybody can hear. >> assuming that we pull out of this recession without things like the irs disallowing tax deductions for warehouse department were to bring much bigger than real estate isom how long do you think it'll be before the next recession or the final depression? >> final depression? is that what we are all aiming for? you know, i don't know. i try in my reporting everyday to at least understand wt i think is happening and provide some context for our viewers every day. and so whenever i talk to as many people as i can and get as many opinions as i can from people who i've come to respect years and years of winnowing might soar space down. you see the stock market going up it we are up almost 50% from the march lows. an incredible move in a very short amount of time. thankfully in a lot of ways certainly. but i'm not sure what that is reflective of at this point. so i don't know to answer your question as to whether or when this recession is ultimately going to end. i look at the consumer as a key barometer, and people really have retrenched. of course, we go way over our skis in so many ways. many of you may have seen the chart of household debt. it is square footage of homes. they all just go like this for a very long period of time, and we do seem to be in a period where that is changing. and where savings rate that was the nail actually is becoming somewhat significant. something we all want ,-comto come arlie's many people said we needed. but now of course people say it can wait little while longer until people start saving money again? but that being said, 70% of our economy is led by the consumer. and its recent earnings period from cporate america which has sparked this very large rally, or part of it, i talked to a lot of ceos and executives at companies. and there's no doubt they have been able to cut costs and shed jobs to get ready for what they saw coming. d so their earnings are better than might have been anticipated, but they don't have a great deal of revenue growth. and when i talk to them now, they aren't the best judge, believe me, they get very negative at the bottom and they get euphoric at the topic it's typical. that happens oftentimes, it may be the case here, but many of them are still very negative. they say they have not seen any real turn in their business. what i continue to hear is the rate of deterioration has slowed or stopped, so we perhaps have hit a bottom. but the larger question, given what a huge role the consumer place in the economy, in my mind, is whether ultimately we're going to see any real growth. the stock market now does seem to be expecting in a six-month time companies are going to start having higher revenues. and i don't know the answer. so i haven't answered your question because i just don't know who can say when this recession will end. my sense is at we could be in for another tough time before we truly see the end. in the back. >> hi, david. i'm just wondering how do you see the national debt, very much growing national debt, playing into our economy over the next few days -- years. sing at how is it working, are we putting a lot of money, what are we doing right now? yeah, we're increasing the deficit enormously and increasing the national debt. and ultimately could be inflationary, all that money that we are printed and there will also be the politicians like to state a burden for our children. it's not a good thing. gets a bad thing. but some of the structural -- some of the things that have taken place that caused this crisis are things that became structural. overspending here in the united states. lack of course of exported goods that resulted in huge imports, huge dollars surpluses around the world. certainly in asia and in mideast, that's where all recyclers and the like, they need to bite dollar-denominated products and we had a wall street that was happy to kind of come up with any opportuity they could to sell it. , that's a 20 year in the making trend. china has a trillion dollars. all of this going to this larger point, i mean, how are we ultimately going to get back to where we're exporting more than we are importing. the president talks about it, but it's hard to imagine when we'll actually get there, or if we'll ever get to pick and ultimately i think it does lead to what might be a diminution in our lifestyle, you know, it's not good. but it's been a long time in coming and continues to. i don't know. these larger trends are still there. they don't go away in a year or in two years. and we are dealing with some of them now. and again, the fact that we built up huge deficits, huge trade deficit, did come home to roost in a sense in the fact that all we rely on until many foreign governments or i should say foreign institutions to fund our debt. and we still do. of course, thankfully the chinese are still big buyers of our treasuries. are there any other questions? at gentleman standing in the back there. >> thank you. at what point does it become more of the chinese interested maybe not by somuch of our dollars, and what consequences will it have for us? >> you know, i've asked that question myself a time that i've been lucky enough to secretary geithner sitting across from a. he is come to cnbc a number of times in the last six months, off the record, to chat with some of his. and i think there is a belief that they will not. and the reason they won't is because if they were they would get hurt very badly as well. in other words, they will start selling certainly. will they buy less? yes, i think that's a possibility, and ultimately result in interest rates having to go a. we haven't seen it yet. all this money we are printing, that we are selling, we have yet to see any significant inability, some of the auctions lately have been a little soft. but really inability to sell a lot of what we've got to the self chinese are huge buyers of treasures and also the obligations of fannie mae and freddie mac. but if they were too absolutely so, the impact would be so large on what they had that it's hard to imagine they would go about doing that. and they think very long-term. you know, i think it's the threat of it that does give them more power. rather than the fact that they will ever actually do that. as to whether they will buy less of our debt, and i think that is more likely, it would ultimately result if we can't find someone to replace the chinese, and interest rates going up there which by the way a lot of people i think expect will happen. not this year, buthen they actually exit this period, all this money would have been, inflation conceivably will come back and we will all be looking at much higher interest rates which of course will be something we will also be dealing with. and again another legacy of this period and this crisis. are there any other questions? good. lots. >> i can hear you, but maybe other people can't. >> you said you are pointing fingers ward wall street. i believe. [inaudible] >> i personally believe it's the peoples fault and i think if people learn about what they're doing they will probably make better decisions? >> what do you mean? >> like purchasing a home. when you look at mortgages, lower interest rate, if they knew about it within a click educated choices and not being in this kind of position? >> the question is art homeowners to blame for making poor decisions? >> there is no doubt in a number of whom i've spoken to who took on mortgages that absolutely could not afford and should never have been given. wall street was happy to fund those mortgages, and the way it worked was wall street has a pool of money which you can actually gives or buys the mortgages from the originators. who are on the ground making the mortgage sang to you what a mortgage? and though standards slipped over a period of time, particularly in the 2004, 2005, 2006 period. there were virtually no standards. you all probably heard and read about it. i go into it in some detail her and did all the different popular mortgage products, and it really is amazing how many products were created. the key one being of course the stated income loan. you didn't actually have to tell them the person who is lending you money how much money you made. there's nothing back can allow people the more irresponsible than that. should people have been more responsible? of course. did they fully understand what they're getting themselves into? i think some did and some didn't but i think it's also important to remember that it's another, one of those -- i think it's more of a misunderstanding that a myth. most subprime was for refinancing. it wasn't for the purchase of a new home. it was for somebody who owned a home to put in a new pool, go buy a new car, to buy a new coat. that is what more than half of all of subprime, and then you move on to a recall all day during this period is action for cash out refinancing, take the equity in home has gone up your people saw an opportunity frankl, more than once, over and over again to avail themselves of the equity in their homes, take it out and take on what were called the subprime mortgages. or also another category, although a. and so i think many of them did note to a certain extent what they were doing. i think he always assumed as everybody did that housing prices would never actually go down. ill i sat with alan greenspan for quite a paradigm for this book and for documentary, and he said why would you question whether this asset class would really decline in value. it hadn't been 50 years. it was simply a denial. no, i think based on history that housing prices would ever truly decline. and i think that is at the heart of so many of the decisions that were made. we can get these mortgages and we know these people may not be able to pay them back, but really wants its clear of us and some guy in china has bought his mortgage-backed security or cdo, or went to norway and they bought it there. it's not rlly that important and frankly, housing prices are never going to go down to what is the word. they can just keep playing this game over and over and over again. you get to a point where you need to refinance because your mortgages going to adjust, because you've had it for two years you can go ahead and do that. because housing prices will go up so we will be hpy to give you more money on the house. i think that is also at the root of this. misunderstanding on the part of some, absolutely. not understand what they were doing, no doubt. believe that housing prices would never go down, which was naïve, we now know. and of course the willingness and the part in particularly wall street to allow mortgage brokers to extend any kind of product they liked to more or less in the winter coming, we were at a point where anybody could get a mortgage. .com a high profile a gentleman and above-named arturo who w an from mexico. nice family, three gets. he worked in an embroidery factory. he made -- he wanted to start his own company vicki wanted to start an embroidery factory but he also worked in various jobs. you know, his take-home pay in a given month i believe was, of course, memory is escaping me, was about 3000 dickey said he earned even less than a. it was $900 a week. batch records of $3600 trickey said he earned a lot more. he got a $580,000 mortgage to buy a house. that's what we're dealing with at that point. you know, unfortunately for him is no longer longer living in that house as you might imagine. so was he a responsible? sure you want to reach for the american dream so to speak? every time people are going to do that. you want, somebody is willing to give it to come you're probably going to take her to take a lot on the part of those people wh