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Was 'Adult Supervision' Needed On Wall Street?

The bankruptcy of financial services giant Lehman Brothers and the 500-point drop in the stock market on Sept. 15 have sent shock waves through the financial community. Law professor Michael Greenberger discusses the potential ramifications of the recent turmoil.


Other segments from the episode on September 17, 2008

Fresh Air with Terry Gross, September 17, 2008: Interview with Michael Greenberger; Review of Andy Zwerling's "Hold up the sky."


DATE September 17, 2008 ACCOUNT NUMBER N/A
TIME 12:00 Noon-1:00 PM

Interview: Michael Greenberger discusses the potential global
ramifications of the recent turmoil on Wall Street

This is FRESH AIR. I'm Terry Gross.

"Ten days that reshaped US finance" is how The Wall Street Journal described
the period that was capped with yesterday's emergency rescue of the insurance
giant American International Group. The Federal Reserve will loan $85 billion
to AIG, which is described in The New York Times today as "the most radical
intervention in private business in the Fed's history." Also in the past 10
days the government took control of the failing mortgage finance companies
Fannie Mae and Freddie Mac, backing the $5.3 trillion of mortgages they own or
guarantee. The government refused to bail out the 158-year-old investment
bank Lehman Brothers, forcing it into bankruptcy. So what does all this mean
for the American economy and for you and me?

Back for a return visit is Michael Greenberger, who did a great job last
spring on FRESH AIR explaining the shadow financial system that he feels got
us into this mess. Greenberger served on the Commodity Futures Trading
Commission from 1997 to '99. He's now a professor at the University of
Maryland School of Law.

Michael Greenberger, welcome back to FRESH AIR. What does it say that the
Treasury Department and the Federal Reserve were so worried about AIG going
under that they bailed it out?

Mr. MICHAEL GREENBERGER: Well, what it says is that the economy is teetering
on the brink. For the Federal Reserve and the Treasury to have gone from
Sunday, Monday to saying they were no longer going to expose the US taxpayers
to bailouts after they effectively bailed out Bear Stearns in March and
recently Fannie Mae and Freddie Mac to within 24 hours have reversed positions
on that, and now to have effectively taken over what was once the 18th largest
corporation in the world evidenced the fact that the Fed and the Treasury are
very, very worried about the stability of the economy. And when I say economy
I just don't mean fancy bankers sitting in Wall Street. They're worried about
what this means to Main Street, about what it means to you and me. And in the
absence of this rather dramatic move I think they believe that we would enter
something much deeper, possibly, than a recession and possibly a depression.

GROSS: Why would AIG's failure have been such a disaster if they weren't
bailed out by the government?

Mr. GREENBERGER: Well, essentially AIG, which is a huge company, it's got a
presence in 130 countries around the world, has a lot of successful businesses
like doing life insurance, annuities, commercial insurance and the like, the
kinds of things we expect a normal insurance company to do. But they then got
into the business of essentially insuring that all these financial instruments
that are built around the hope that people who can't afford their mortgages
will somehow be able to pay them.

AIG ended up insuring those who wanted to invest in instruments that depended
on those people paying their mortgages. They insured the fact that they would
pay their mortgages. That is to say, if you were holding a mortgage for
someone who was a risky creditor, if you were holding the financial
instruments that are derived from the mortgages, the securities, the other
derivative products, you're walking around telling the world, `Look, I know
the subprime market has gone to hell in a handbasket, but don't worry about
me. I have insurance. I have insurance, for example, with AIG.' Well, if AIG
collapsed, all those investors, those banks, those pension funds, those
endowments, those hedge funds, would suddenly no longer have insurance and
they would be exposed to what is happening in the economy regularly now that
these financial instruments dependent on people paying their mortgages would
suddenly be next to worthless. So there would have been a cascading effect
through the economy. It wouldn't just be AIG failing, they would be bringing
down many institutions with them.

GROSS: So what would it mean to the rest of us who aren't directly connected
to, you know, big financial institutions if AIG collapsed?

Mr. GREENBERGER: Well, Americans would have suffered in two different ways.
The first way would have been a lot of banks in which average Americans have
their deposits have been telling their depositors and their shareholders that,
`Don't worry about us losing money because of the subprime meltdown. It's
true we've had investments there and the investments have gone bad, but we've
got insurance--or a kind of insurance, called credit default swaps, from AIG,
or companies like AIG. So even if we lose we're hedged.' Well, if AIG failed,
all those banks would not be able to say that anymore. And even more
pertinent, they would actually experience very steep losses and they would end
up being in the kind of financial trouble that Bear Stearns was in or Lehman
Brothers were in or Washington Mutual. Now, the fact that banks fail in and
of themselves means that they can't lend money to people who are going into
business or students who need loans. That's one problem.

Secondly, people--and some of these banks take deposits. You have your
checking account, your saving account, in those banks. Now, a lot of people
feel, `Well, so what if my bank fails, I'm insured by the Federal Deposit
Insurance Corporation up to $100,000.' Well, it turns out the Federal Deposit
Insurance Corporation is already running low on money because it's had to
insure deposits of banks that have already failed. And the head of the FDIC
yesterday said, `Gee, I may need to go to the United States Treasury to borrow
money because I'm running out of money to insure deposits.' For that matter we
have trillions of dollars in deposits. The FDIC now has about $45 billion to
cover their losses. So if banks start to fail, normal investors or depositors
will have to go to the FDIC. The FDIC is running out of money. Now, clearly
the government will not allow that to happen in the long run. But how will
they not let it happen? They'll raise taxes. You and I will have to pay more
taxes to protect our deposits.

GROSS: Then there's also a related issue of money market funds, which a lot
of people have money in. They think it's very safe there. It's traditionally
been very safe there. But what's the related danger to the AIG collapse?

Mr. GREENBERGER: Well, you're quite right. And with regard to money market
funds, if a saver puts a dollar into those funds they expect to get a dollar
back. They know they'll get a different interest rate, maybe high, maybe low,
but they feel their dollar is safe. Many of those funds, it turns out, have
investments in AIG. Either they hold bonds for AIG debt or they have equity
interest in AIG, they hold their stock. And just yesterday one of the very
largest money market funds announced that they can no longer promise their
depositors that their dollar is worth a dollar. They now say it's worth 97
cents. In the business that's called, quote, "breaking the buck," close
quote. And the Fed and the Treasury were very worried that there'd be a
widespread announcement to people who thought their money was very safe that,
`Hey, that dollar isn't worth a dollar anymore, maybe 97 cents, 95 cents, 85
cents.' That would doubtless not only be a real problem, but would be a major
psychological problem. It would hit a lot of people directly and immediately
in their pocketbook.

And as I said, one of the largest money market funds yesterday announced that
it would break the buck. Others are lining up to do so. And if they can save
AIG by this $85 billion loan, that will keep these money market funds intact.
And the person on Main Street who may not be thinking about this or think it
affects them will be, quote, "kept in the dark." And that's especially
important as we head into the election season.

GROSS: Well, that leads me to ask, do you think that Henry Paulson, the head
of the Treasury Department, and Ben Bernanke, the head of the Federal Reserve,
are coming up with solutions for political reasons because of the election? I
mean, do you think politics is affecting the approach that they're taking?

Mr. GREENBERGER: Well, to the extent that you say that if the average
citizen discovers that he has a lot less money than he or she thought they
have, yes, they will vote accordingly. But on the other hand, what they're
really trying to prevent here in the first instance is a very serious economic
crisis. And I mean when--back six months ago people would say, `Well, this is
almost like the Depression, or it's a very serious problem like the
Depression,' people are now saying `we are trying to avoid a depression.' And
if you remember history from the 1930s, one, people suffered economically in
terrible ways during a depression. But secondly, it also revamped the
American political system and brought about the New Deal and ended a long
reign of Republican electoral victories.

So there are two things working in tandem here. If we run into a very serious
economic crisis, it will have a very steep impact on the way people think
about how they vote. And you see that yesterday. Both campaigns are
beginning to say, yeah, we need regulation. We need more regulation.
Especially startling in the case of John McCain, who has built a reputation as
the person who believes in deregulation. So you can see this is all piling
up. It is not just people on Wall Street losing their own money. It is not
some distant problem that doesn't affect you and me.

If AIG had failed, deposits would have been in jeopardy and savings accounts
and checking accounts. Money market funds would have been in jeopardy. And
also, by the way, a lot of people have insurance with AIG. They have life
insurance or annuities. Now, the government is saying, `Oh, don't worry about
that. These are in subsidiaries, they're very safe. The part of AIG that's
in trouble is completely separate from that.' But then we find out that when
the government made the $85 billion loan, what did they use as the collateral
from AIG? They used all these subsidiaries that sell life insurance,
annuities, commercial insurance, etc. So those assets are being sent around
the table like playing cards, and those assets are your and my assets. There
are a lot of people in this world--as I said, it was the largest private
insurer in the world--who are depending on insurance from AIG.

GROSS: My guest is Michael Greenberger, a professor at the University of
Maryland school of law, and the former director of the trading and markets
division of the Commodity Futures Trading Commission. More after a break.
This is FRESH AIR.


GROSS: We're talking about the bailout of AIG and other recent financial
collapses and bailouts and what that means for Wall Street and for the rest of
us. My guest is Michael Greenberger, a professor at the University of
Maryland school of law, and a former member of the Commodity Futures Trading

So have we averted the crisis?

Mr. GREENBERGER: Well, I think only time is going to tell. The AIG has
gotten this $85 billion loan, and the question is going to be, will they be
able to use it effectively to either right the ship so that they will be
successful in the future--in which case, by the way, the taxpayer did get an
equity, an 80 percent equity interest in the company--or more likely what will
happen is a good news ending to this, that it will be able to liquidate itself
without exposing the economy to losses. Someone else will pick up the
responsibilities that AIG has to the economy.

But a danger is, and my own view is--it's a 50/50 proposition--that even with
$85 billion, we're going to give them $85 billion, it isn't going to work.
They aren't going to save themselves. That money will be lost. Well, the
government will say, `The good news is we have all this collateral.' Well,
that collateral are insurance contracts, life insurance contracts, annuities,
commercial insurance, is that the kind of collateral the American public wants
to take? And what will it be worth? So it's, in my view, a 50/50 proposition
as to whether this will work.

And number two, this is AIG. Yesterday it was Lehman Brothers. Lehman
Brothers is going through a bankruptcy, which the government desperately tried
to avoid because of the adverse consequences of that. But we look down the
road, we see that Washington Mutual is having problems. Wachovia Bank is
having problems. People may say, `Well, you know those are problems in the
future.' But last week people were saying, `Well, Lehman Brothers, Merrill
Lynch, AIG, those are problems in the future.' This week they're immediate

GROSS: I guess I don't really understand where all this bailout money is
coming from. Since there's such a huge deficit that the American government
has right now, how do we come up with the 85 billion to bailout AIG after the
government has already bailed out Fannie and Freddie?

Mr. GREENBERGER: That's all--well, first of all, all of that money is coming
from the United States Treasury. And where does that money come from? It
either comes from more borrowing from China and other foreign countries who
are propping up the economy, or there's going to come a point where you just
can't run up deficits anymore. That we now have a $5 trillion deficit. We
entered into January 20th, 2001, with a multitrillion-dollar surplus, that's a
$5 trillion deficit. The $85 billion will come out of the United States
Treasury. And either we're going to fund that from China or you and I are
going to have to pay for it through taxes. We assumed a $29 billion debt when
we took over Bear Stearns.

Now, the other thing I would say is, the government, in taking over Fannie Mae
and Freddie Mac, said, `Oh, we may spend $5 billion here or we may spend $200
billion there,' but they've assumed a $5 trillion liability that is on the
books. That is, the Fannie Mae, Freddie Mac guarantee of mortgages is a $5
trillion guarantee. Before we took it over that was a private obligation.
Now it is a public obligation. And it effectively, you could argue, doubles
the size of the national deficit. And that raises another interesting
problem, is that the Bush administration refuses to treat these obligations as
part of the national deficit. They want to sort of put it on a side sheet and
forget about it.

GROSS: So it wouldn't be counted as part of our national debt, it wouldn't be
on the books?

Mr. GREENBERGER: Right. Well, at least as so far as what you and I are told
by our federal government.

GROSS: Mm-hmm.

Mr. GREENBERGER: But the Congressional Budget Office is absolutely
insisting, an independent, congressionally run auditing of the federal
government is insisting that that be put on the books. And we ran into the
same problem with the Iraqi war. They refused to put the billions of dollars
we're spending a month in the Iraqi war into the same pile that is used to say
how much money the United States owns. So, you know, this money isn't being
printed. You and I are paying for it. We're either going to pay for it
directly with taxes, or we're going to pay for it with interest payments to

GROSS: I can't pretend to understand Wall Street, but it does, from my
uninformed, distant view, look a little bit like maybe, you know, these
institutions like Lehman Brothers, the big financial institutions are
unregulated. These new derivatives like credit default swaps are unregulated.
But then when things start to fail, then the government jumps in and bails out
as necessary. So it looks like it's unregulated until there's a big problem,
then it's more almost like socialism where the government comes in and, you
know, buys it or backs it. And it just seems to go from one extreme to

Mr. GREENBERGER: I think you've hit the nail on the head here. It's not
that Lehman Brothers was totally unregulated. Parts of their business was
regulated. Their broker dealer operation--which, by the way, we hear today
they're going to successfully be able to sell and save some jobs, to Barclays
bank. But you're quite right. When I keep referring to the fact that all
this bad, bad investments were insured, what I'm really talking about, they
don't really want to use the word "insured," and what you'll see in the media
is something that says it's insurance like. Well, it really is insurance, and
they don't want to use that word because insurance is regulated. These credit
default swaps, which are another word for saying insurance, were deregulated
by Congress essentially with absolutely no forethought given to it in December
of 2000. These swaps, were they not expressly deregulated by federal statue,
would either be regulated by state insurance commissioners or by the federal
government as financial products that would be watched over. If it was
insurance or if it was, say, a futures trade, which would be subject to
federal regulation, then AIG would have had to have a capital reserve for all
the insurance like commitments it made.

You're quite right. We went from a thing we said in 2000, `Hey, you know,
have at it. This is wonderful. The free enterprise system unburdened by the
federal government.' These people go out and they make ridiculous
assumptions--that is, `housing prices will always go up and I don't have to
worry about commitments I make' that you and I would have never allowed
ourselves to make or our relatives to make, they make these assumptions under
the so called free market system. And where are we today? You're right.
We're nationalizing these institutions. This is now your problem and my
problem. We're undertaking the responsibility. And the sad fact is, what a
lot of people are saying now, we privatize profits, we socialize losses. That
is to say, if AIG were booming, nobody would ever say that you and I should
have the opportunity to take it over. But when it collapses and threatens the
entire economy, it becomes our problem.

And the final point I would make, you say, `Well, when we have all these
losses we understand that we have to have more government intervention.' The
only intervention here is taxpayer money to rescue these people. There's very
little discussion about re-regulating the financial system so these so-called
geniuses don't make these stupid investments based on concepts that you and I
wouldn't let our children walk around talking about. And there's very little
talk about, `Let's go pack and restructure these investment and re-regulate
them.' In fact, the investment banks today are saying, `Oh, yes, we got you in
a lot of problem, but don't throw the baby out with the bathwater by
re-regulating us.' My view is there's no baby here. There's no bathwater
here. There's a swamp, and the swamp needs to be drained. And I worry
whether our policymakers are up to understanding what needs to be done.

GROSS: Michael Greenberger will be back in the second half of the show. He's
a professor at the University of Maryland school of law, and a former member
of the Commodity Futures Trading Commission. I'm Terry Gross, and this is


GROSS: This is FRESH AIR. I'm Terry Gross.

We're talking about the bailout of the insurance giant AIG, the financial
crisis on Wall Street and what that means for the economy and our personal
finances. My guest is Michael Greenberger, a professor at the University of
Maryland's school of law, and the former director of the trading and markets
division of the Commodity Futures Trading Commission. He teaches a seminar on
futures, options and derivatives called "Hedging, Gambling or Bankrupting the

Now, throughout this interview we've been talking about these complex
financial instruments and, you know, the shadow financial system. The last
time you were on FRESH AIR you did a great job explaining what some of these
instruments were. I didn't want to take up too much time of our interview
repeating what you said the last time, but I really would like you to take a
couple of minutes here and give us an example of one of these complex
financial instruments that you think should be regulated that are behind a lot
of the financial crisis that we're in now. One example of what it is and how
it works.

Mr. GREENBERGER: Well, I think the poster child is the financial instrument
that we've been talking about, credit default swaps. And just to quickly
rehearse the bidding on all this, you have lenders who lent money to people
who they knew probably couldn't afford to pay the money back and were assuming
that because housing prices would go up they eventually could refinance based
on a higher priced house. People took all those mortgages and bundled them
into securities and then offered them to all sorts of financial institutions
to buy the securities. Those securities were sliced and diced into different
kinds of characteristics and then re-sold again as another set of securities.
But essentially everybody in that system was investing, if they were buying
these products, in the fact that people who could not afford to pay their
mortgages would somehow be able to pay their mortgages.

Now, a lot of people, you might say, when they hear that financial proposition
would say, `Why would they ever invest in people who seem to not be able to
pay their mortgages paying their mortgages?' Well, the answer is, they
purchase credit default swaps, an insurance like product--and in fact, it is
insurance--so you've got people like AIG who go to these people who are
worried about their investments in people who can't pay their mortgages and
say, `Not to fear, let's insure it. You pay me a premium and it they default
on you, I'll give you all your money back.' And of course AIG, as I said
earlier, thought this was risk free. Housing prices always go up. People who
can't afford their mortgages will be able to do so in six months, and this is
just printing money. We're going to get premiums, premiums, premiums.

Well, then suddenly, when housing prices went down, they didn't have the money
to pay the insurance obligation. They didn't have it because these things
weren't treated like insurance products where they had to have a capital
reserve that assured they could pay their obligations. They weren't treated
like futures contracts that would have insured that people who purchased or
were selling this had adequate capital reserves and that they were marked to
market every day. That is to say, they had a value that was real that could
withstand accounting. So this was a system--and, by the way, nobody is
reporting this. Today, nobody knows how many of these credit swaps are out
there. The government would die to have a list of who has credit default
swaps and what are the obligations. They're private contracts, unregulated,
and nobody keeps accounting for them. So you've got people like AIG, Lehman
Brothers, Bear Stearns got into this business of insuring that people who
couldn't afford their mortgages would pay their mortgages.

Now, you know, if there were a regulator involved in all that, they would have
said, `Are you crazy? You're getting in this business without setting aside
capital reserves and you're insuring that people who haven't documented their
assets will pay off their mortgages? That's a business we as a regulator
would advise you to enter into very cautiously.' Well, there was none of that.
No adult supervision. It was, in fact, barred by the Commodity Futures
Modernization Act, which was passed in the dead of night as Congress was
recessing for Christmas in December of 2000. It was pronounced that this
deregulation wouldn't be a boon to the American economy. And look where we
are now.

So those credit default swaps are those complex financial instruments for
which there is no oversight on the federal and state level. There is no
oversight because it's expressly barred by congressional statue. And what we
allowed these banks to do--and by the way, the people who are doing these
trades, they aren't the adults within the banking system. There's a whole
sales force of young people who are getting commissions off making these
trades, and the guys and gals who are running the shop don't understand what's
happening. And, by the way, I've not mentioned here that a lot of these
products were rated AAA by the credit reporting agencies. Why were they rated
AAA? Because when a credit rating agency gives a rating they're paid by the
people who own the financial instrument. They're biased. They want to
satisfy those people.

GROSS: So now that Lehman Brothers has gone under and is going to be in
bankruptcy, and now that the government has taken over the AIG insurance
company, will the shadow financial system be put in the light? Will we be
learning things about what's happening in these secret derivatives and fancy
financial instruments?

Mr. GREENBERGER: Well, certainly you can see, if you're reading day by day
what's happening here, is the government is desperately trying to avoid
putting anybody through bankruptcy. Fannie Mae and Freddie Mac are in a
conservatorship. AIG is in a conservatorship. And the reason they fear
bankruptcy is that a lot of these complex financial instruments are sitting on
various books and haven't been tested by economic reality. They aren't traded
on a regular basis. And quite simply, if I'm holding, for example, a
mortgage-backed security or some offshoot of a mortgage-backed security, or,
for that matter, a credit default swap, essentially each institution that
holds it are left to their own devices to say what it's worth. They get in
auditors and mathematicians, but it's blue smoke and mirrors, and they're
making their own evaluations.

The reason the government has been trying to avoid a bankruptcy is, for
example, Lehman Brothers, these products, these instruments are now going to
have to be tested in an adversary system with economic experts looking at
them. And these instruments will suddenly have a very clear value. And that
will not only, I believe, be a problem for the creditors of Lehman
Brothers--because we're going to find out these assets are worth a lot less
than Lehman Brothers has been telling people they're worth--but if you
suddenly take a kind of asset and say, `Well, the world believed that this was
worth 85 cents on the dollar,' and then you go through bankruptcy and find out
it's worth 9 cents on the dollar, that asset starts having a generalized
value. And people who aren't involved in the Lehman bankruptcy, who are
holding those assets in their portfolios, are suddenly going to find out what
they've been telling the world is worth 85 cents is worth 30 cents, 25 cents.

Well, what does that mean? That means all these institutions are suddenly
going to have to report more losses. And they're going to go into a chaotic
spin. And if the government believes their spin, like AIG's, will adversely
affect the economy, the incentive will be to go out and rescue them, too,
using taxpayer money or borrowing from China and having us pay the interest on
it. So the reason that bankruptcy--everybody is saying, `Great, we finally
didn't bail somebody out. We're going to let these guys suffer, go through
bankruptcy, and no bailouts for them.' Well, the problem with that is, and why
the government doesn't want to do it, is Paulson and Bernanke know that the
assets Lehman Brothers are holding are worth a lot less than they're telling
the world. And there will be a system for telling the world what those assets
in general are worth, and everybody else who's holding those assets will have
to fess up that their financial statements are a lot worse than what they've
been telling the shareholders and the public.

GROSS: So what happens to all the money that's been lost? I mean, you know,
we're putting 85 billion just into AIG and then there's Fannie and Freddie.
Money doesn't just like disappear into the ether--or maybe it does. Like,
where is all that money that's been lost?

Mr. GREENBERGER: Well, I mean, a lot this money was promises based on the
fact that there was no money there to begin with. For example, I could
promise you I'm going to pay you a million dollars at the end of the day and
you could say great and go to the bank and say, `I have an asset for a million
dollars' and ask the bank to loan you $2 million. And then at the end of the
day you come to me and I say, `Sorry, Terry, I thought I had the million, but
I don't.' And then the bank is going to come back to you they borrowed the
money from and say, `Where's your money?' And you may ask where are all those
losses from. But the losses were built on the fact that the money wasn't
there to begin with.

GROSS: Uh-huh, OK. Now, this like shadow financial system that we've been
talking about that's unregulated, that isn't traded on the stock exchanges,
how does that compare in size to the amount of money that is traded on the
stock exchanges?

Mr. GREENBERGER: Well, first of all, because it's opaque--and that is to
say, nobody writes down--there's not a central registry of all these
transactions, you can't tell. And as I have said the secretary of the
Treasury and the chairman of the Fed would dearly love to have that registry
in the sky that tells them where all these time bombs are located. But the
estimates are--for example, on the credit derivative market, which we've
talked about, is estimated to be $62 trillion. And that exceeds all the money
in stocks. It exceeds all the money in bonds. It's a huge, huge--it's not
some little sideshow. It's become the predominant method of transacting
businesses in the economy. And, in fact, that's why I teach this course at
the law school, because I think young lawyers should be armed to understand
this. And I think I'm one of the few law professors in the country that tries
to explain this. Most law schools are back still worried about stocks and
bonds, but nobody's losing money because the person who sells stocks and bonds
is going out of business. The stocks and bonds may be losing money. But in
this, in this environment people don't know what they're doing in their
financial strategies. And as I've said, they're claiming they have money when
they don't. And you need to have people in our professional systems who
understand this.

GROSS: If you're just joining us, my guest is Michael Greenberger, and he
directed a division of the Commodity Futures Trading Commission in the late
1990s. He's now a professor at the University of Maryland school of law. And
among the things he teaches is a seminar on futures, options and derivatives,
"Hedging, Gambling or Bankrupting the Economy."

Let's take a short break here and then we'll talk more about the implications
of the AIG bailout and the collapse of Lehman Brothers. This is FRESH AIR.


GROSS: We're talking about the implications of the bailout of AIG and the
collapse of Lehman Brothers. My guest is Michael Greenberger. He directed a
division of the Commodity Futures Trading Commission in the late '90s. He's a
professor at the University of Maryland law school. Among the things he
teaches is a seminar on "Hedging, Gambling or Bankrupting the Economy: The
Economic Role of and the Law Pertaining To Financial Derivatives."

We're just a few weeks away from the presidential election. Let's look at
where Obama and McCain stand on what's been called the shadow financial system
that we've been talking about. Let's start with McCain.

Mr. GREENBERGER: Well, McCain essentially has taken two different
approaches, one of which worries me a great deal because it plays off of ideas
of the Bush administration and especially Secretary Paulson. You know,
everybody now, all the politicians are saying, `Oh, we need more regulation,
we need reform, this is just awful, we've let this thing--we've dropped the
ball.' One kind of regulatory reform that they're talking about is sort of
rearranging the deck chairs on the Titanic. What I mean by that is they're
saying, `Well, the SEC can't quite handle this kind of thing so we're going to
merge the SEC with the CFTC and have the SEC operate more like the CFTC and
we're going to take some powers from them and we'll give some to the Treasury,
and then we'll give a lot of powers to the Federal Reserve, and this will be a
modern regulatory system.'

Well, as you'll notice in that description, there's nothing in there about the
underlying derivative products that caused the problem. They just want to
just change the organizational chart. And to the extent there's any
substantive content to it, it's to make it easier for the Federal Reserve to
do these bailouts. It's the equivalent of saying, `We're not going to put a
door on the barn to keep the horse in, but we're going to get faster people to
chase the horses after they've left.' And there's very little talk on the part
of McCain about, `Wow, we have some pretty devastating products that we
deregulated here in the Republican Congress in 1999, 2000. And now we need to
figure out how to staunch the bleeding.' And of course my answer would be, we
talked about credit default swaps, it's really insurance but not regulated
like insurance, they're really futures contracts but not regulated like
futures contracts, in fact they're not regulated at all. And so one quick
answer would be, hey, let's stop having these credit default swaps issued or
these other derivative products. Going into this deregulatory phase, they
were either regulated or arguably regulated. Let's go back to the status quo

You're hearing more of that from Obama, although I would like to hear it said
in a more direct fashion. And I would add in that regard, Obama has, as part
of his advisory team, Robert Rubin, who was the secretary of the Treasury for
a good part of the Clinton administration. Now, Robert Rubin and I had our
differences in the Clinton administration. I was very worried about this and
argued strenuously that all these products have some regulatory format around
them that we know where they are, that they be adequately capitalized, that
they be margined properly, and other traditional techniques. And Robert Rubin
and his successor, Lawrence Summers, were not sympathetic to that point of
view. And that's all fine and dandy.

But Robert Rubin now is articulating the fact that he has learned from this
experience and he is saying that these complex financial products need to be
transparent. We need to know where they are, who has them, what the value is.
We need to make sure that if somebody makes a commitment they have an adequate
capital reserve. We need to have margin requirements. We need to audit these
things to make sure that they have a real value that can withstand economic
reality. And it's for that reason, as I look out and see what's happening, I
would say that Obama and his advisers have a better bead on what the problem
is. Although I must say, both from both campaigns and from Congress as a
whole, I really believe that there's a little bit too much of being behind the
curve on this. And I think they're struggling to sort of articulate what it
is they want to do. But I think Obama's got a better bead on what the problem

GROSS: So, Michael Greenberger, you've painted a pretty dire picture of the
American economy. And you're not at all confident things are going to get
better very soon. So just let me bring this down to the micro level, and we
only have a few seconds left, what's the safest thing to do with your money
right now?

Mr. GREENBERGER: Well, first of all, I want to say I'm not completely
pessimistic because I think there are strategies that can get us out of this

GROSS: Good, leave us on an optimistic note.

Mr. GREENBERGER: And I don't want to have people listening to this say, `Oh
my gosh, the world is coming to an end.' First of all, the government will
bail out a lot of things. We may have to pay through it through taxes and
interest payment on loans to other governments, but I think people will be
bailed out in the short run. And I think there is an intelligent path, but we
need intelligent leadership to lead us through that path to get us out of this

And as to what people should do with their money, I'm completely unqualified
to answer that question. My advice to people is to search out a
competent--and I underline the word competent--certified financial adviser to
get advice on where to handle your money. I am worried about the FDIC's
depleting its resources, but I'm confident that Congress will not allow it to
run out of money. So I don't advise--I think I don't advise putting money in
your mattress. The only option is to put it in an insured account. And I
think people should just be wise about what institutions they decide to use,
even if they believe that their money is insured.

GROSS: Michael Greenberger, thank you so much for talking with us.

Mr. GREENBERGER: It's been a pleasure.

GROSS: Michael Greenberger is a professor at the University of Maryland
school of law, and a former member of the Commodity Futures Trading

You can download podcasts of our interview on our Web site,

Coming up, a former rock critic turned lawyer, who's also a prolific
songwriter, makes his first solo CD in 37 years. Ken Tucker reviews Andy
Zwerling's new recording. This is FRESH AIR.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Review: Ken Tucker on Andy Zwerling's first album in 37 years,
"Hold Up the Sky"

"Hold Up the Sky" is Andy Zwerling's first solo album in 37 years. A former
rock critic who has made his living as a lawyer for decades. Zwerling has
also steadfastly maintained a sideline as a songwriter, writing and recording
literally thousands of songs that have not been released. Rock critic Ken
Tucker thinks Zwerling's new "Hold Up the Sky" is something special.

(Soundbite of "TV Pizza")

Mr. ANDY ZWERLING: (Singing) Love, love
This world is a terribly wonderful place
I hope you enjoyed the show
(Love, love)
This world is a terribly wonderful place

Unidentified Woman: (Singing) TV, pizza
Wonderful place

Mr. ZWERLING: (Singing) I hope you enjoyed the show

Woman: (Singing) TV, pizza

Mr. ZWERLING: (Singing) Hello death
This world is a terribly wonderful place

Woman: (Singing) TV, pizza...

(End of soundbite)

Andy Zwerling makes carefully crafted pop songs designed to sound like
journal entries: spontaneous thought, sudden inspiration that is, in fact,
meticulously labored over. At his best, you can be startled by his `this
just popped into my head' immediacy. Like, Andy, did you actually just write
a song about watching TV and seeing Jenny Lewis, singer with the band Rilo
Kiley, and have a little TV crush on her? I think you did.

(Soundbite of "Jenny Lewis Is Live")

Mr. ZWERLING: (Singing) TV news will hit hard.
Naked twinkling, dim stars
The only one I truly love
Is someone else's wife
Jenny Lewis is live on TV tonight
Jenny Lewis is live on TV tonight

There are people we can love

(End of soundbite)

Mr. TUCKER: I have my own tiny part in the Andy Zwerling saga. In the late
'70s, when I worked for a now defunct newspaper in Los Angeles, I reviewed a
then unreleased demo tape that Andy recorded with his sister Leslie as an
additional lead vocalist. But as Andy, himself an ex-rock critic for Rolling
Stone, knows all too well, the power of the press doesn't extend to star
making. And it wasn't until 1980 that an album called "Opportunity Rocks" and
credited to Andy and Leslie Z was released to instant cult status, which is a
polite way of saying Andy went back to being a lawyer most of the time.

In 2001, my FRESH AIR colleague Ed Ward wrote a big piece about Andy for The
New York Times' Arts & Leisure section. Again, nada, at least commercially.

(Soundbite of "The Sound of Trains")

Mr. ZWERLING: (Singing) Southern fried, drifting snow clouds sigh
Blame the union,
Who's every really satisfied?
Anticipation reigns,
But my laughter's strained
They might be giants, it's a super game
There are losses that ought to be gains

I miss the sound of trains
Watch her eyes in Chinese flames

(End of soundbite)

Mr. TUCKER: It's not difficult, really, to hear why Andy Zwerling is not
competing with the Jonas Brothers in iTune downloads. He makes music whose
melodies offer fresh variations on '50s doo wop, '60s pop and '70s
singer/songwriters. He sings in a full throated, open hearted manner. No
Clay Aiken melismatics for our Andy. But what I like most about Zwerling is
his fearless emotionalism, the way he really commits to the big, un-ironic
sentiments in his songs.

(Soundbite of "Here in My Heart")

Mr. ZWERLING: (Singing) If you ever leave me
If our time should be through
If you catch a dark star
And shine its light
I will still be close to you.

Here, in my heart
Dear, in my heart
There's always a place for you
There's always a place for you

(End of soundbite)

Mr. TUCKER: On "TV Pizza," the song that led off this review, Zwerling
sings, "This world is a terribly wonderful place." That word "terribly" is
placed carefully in there to acknowledge the pain and the wonderfulness, yet
you also don't doubt for a moment that he really does think the world is
pretty terrific. Let's hope it doesn't take another few decades before we
hear more of Andy Zwerling's unique wonderment.

GROSS: Ken Tucker is editor at large at Entertainment Weekly.


GROSS: I'm Terry Gross.
Transcripts are created on a rush deadline, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of Fresh Air interviews and reviews are the audio recordings of each segment.

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