For this weekend's upcoming Motley Fool Money radio show, I interviewed Maria Bartiromo, the host of CNBC's Closing Bell and author of The Weekend That Changed Wall Street: An Eyewitness Account. In the book, she details the weekend of Sept. 12-14, 2008, when Goldman Sachs
Chris Hill: The weekend you refer to is the weekend of Sept. 12th through the 14th, 2008. For those who don't remember it vividly, Lehman Brothers' fate is sealed, Merrill Lynch barely survives, and for all intents and purposes, AIG
Maria Bartiromo: Well, I was covering that moment in time and the entire financial crisis so closely that I felt that I had such a privilege to be able to speak to the insiders and have a front-row seat during this, what I felt was really an extraordinary moment in time for our country, and I felt that I had to document it, I had to write about it. I just think it was really an extraordinary moment in time, and I think that in order to really understand where we are going in this economy and where the jobs will be and how things will progress, you need to understand what happened that weekend and how we came so close to the edge, the financial system, that is.
Hill: And there really are a lot of great behind-the-scenes stories in the book, and frankly, some of them are things that you almost couldn't make up. One that stands out in my mind is when it's getting down to the wire and the various leaders from these banks are going through the books of Lehman Brothers, they start finding examples of just how bad it is. I am quoting directly from one of your sources who says, "In Dubai, you had man-made islands that hadn't been made, and people had bought houses on those islands and secured mortgages for them. But the islands didn't even exist yet!"
Bartiromo: Right, it was extraordinary, but I wrote that because I wanted people to understand why it was that so many people were saying that the books of Lehman Brothers were so much different and worse than other firms, but the truth is, when you consider that and the fact that they had this real estate all over the world that was just losing value quickly, you could understand why so many people were running from Lehman.
Hill: What surprised you the most when you were going back through your notes and putting this book together?
Bartiromo: I think I was surprised by the level of severity that we were faced with and how close the system came to falling and how industrial companies, the largest of industrial companies, were worried that they weren't going to make payroll because the commercial paper market dried up. I mean, we say it all the time, "the worst crisis in a generation," "the worst crisis since World War II," but it really was. I think the average person out there didn't really understand swap CDOs, derivatives, all this jargon that we talk about, but they did understand that the value of their house had plummeted and the value of their 401(k) was plummeting and they wanted answers.
It is really important to recognize how we got there and why debt is so troublesome. That is why, I think, we are seeing change. I don't buy into the whole idea that business is back to normal and Wall Street hasn't learned anything. I do think we have seen change, and one of the big changes is that fact that the average person out there, whether it is an individual or an institution, recognizes that you cannot borrow forever and that debt is bad and that it will come back to haunt you. That is why we are so focused on deficits and [the] $13 trillion debt that this country faces and what is going on in Greece because we just lived through it with these firms taking on so much leverage.
Hill: Do you think it is something about the banks themselves, that they are almost too big or too complex? Because when you think about things like, they are going through the books at Lehman Brothers and they are finding these bizarre toxic assets, it almost smacks of a company that is so large that it is impossible for someone at the top to get a feel for everything that is happening.
Bartiromo: Yeah, I think that "too big to fail" is not necessarily the problem as much as "too connected to fail" is. I don't think big is bad, and I think that Jamie Dimon, who runs JP Morgan, would argue that having a large bank is positive for shareholders and employees because when you are in different cycles for various businesses, one business, which may not be doing as well as the others, will offset the others, which perhaps are not doing as well.
So I don't necessarily think that "too big to fail" is an issue as much as I think "too connected to fail" is. And that is what we had with Fannie Mae, Freddie Mac, AIG, and so many others. So much connection, not only to each other, but to institutions globally, which is why the global economy really did come to its knees. Who knew that AIG was insuring everything from the derivative swaps in real estate to the bridge being built around the corner from you? AIG is so connected, which is why the government, at the end of the day, the terms could have been much different, but the government ended up taking 80% of the firm to sort of stop the bleeding.
Now you [can] argue that the terms of the AIG acquisition by the government were so different than the Citigroup acquisition, and why is that, but that is a debate that will continue. But the bottom line is "too connected to fail" and that is still the case today, is a real problem.
The interview with Maria Bartiromo airs this weekend on Motley Fool Money on radio stations across America and on iTunes. Chris Hill does not own shares of any of the companies mentioned. The Motley Fool has a disclosure policy.