0:00:02.000,0:00:06.000 [The Federal Reserve has cut its key interest rate to the lowest level…] 0:00:10.000,0:00:12.000 [Crisis will happen…] 0:00:12.000,0:00:15.000 [The biggest fiscal stimulus we have ever seen…] 0:00:17.000,0:00:20.000 [We’re in the midst of a serious financial crisis 0:00:20.000,0:00:23.000 and the federal government is responding with decisive action…] 0:00:32.000,0:00:35.000 Have you taken a large home loan? 0:00:37.000,0:00:41.000 Or did you put your savings in stocks, mutual funds or bonds? 0:00:43.000,0:00:46.000 If not, than you can relax. 0:00:46.000,0:00:49.000 But all of us who did are living on borrowed time. 0:00:50.000,0:00:54.700 This is the story of the greatest financial crisis of our time. 0:00:54.700,0:00:57.000 The one that is on its way. 0:01:15.000,0:01:19.700 They spent hundreds of billions of dollars to show that they were doing something 0:01:19.700,0:01:25.000 but not properly designed and not as effective as it should’ve been. 0:01:25.000,0:01:28.700 When they start losing money, “Hey, we gotta get back in the game, 0:01:28.700,0:01:34.000 “we gotta get theirs dice rolling again, hey, let’s create another bubble. 0:01:34.000,0:01:39.000 “You think the dot-com bubble was too big? We’ve got a bigger one for you…” 0:01:41.500,0:01:43.700 Well, the problem is they never actually cured the crisis. 0:01:43.700,0:01:46.000 Right, they just give alcohol to a drunk. 0:01:46.000,0:01:50.000 It doesn’t sober him up, it just sets him up for, you know, a bigger hangover. 0:01:50.000,0:01:53.000 And that’s all we’ve done, and that’s all we’re trying to do. 0:01:53.000,0:01:56.200 And so I know at some point you kill the patient, right. 0:01:56.200,0:01:58.000 At some point you can’t drink any more. 0:01:58.000,0:02:01.000 It’s just, it’s just the end of it. You reach the end of the ability. 0:02:01.000,0:02:02.000 And that’s where we are… 0:02:02.000,0:02:04.000 Congress wanted to believe them. 0:02:04.000,0:02:08.000 Congress wanted an excuse to bail out the autoworkers 0:02:08.000,0:02:11.800 and the executives gave them just enough political cover to say: 0:02:11.800,0:02:15.700 “Aah, well, I’m not really doing this because I want autoworker votes 0:02:15.700,0:02:18.000 “and I’m gonna give them huge amount of money. 0:02:18.000,0:02:21.000 “I’m really doing this for the American economy.” 0:02:38.500,0:02:40.500 So, the solution is the problem. 0:02:40.500,0:02:44.000 That’s why we have the problem in the first place. 0:02:45.000,0:02:49.800 This is the danger in protecting investors and consumers 0:02:49.800,0:02:53.000 from the consequences of their own decisions. 0:02:58.500,0:03:04.500 Overdose: The Next Financial Crisis 0:03:04.500,0:03:07.800 We can do it. But we need to do it soon 0:03:07.800,0:03:13.000 because the clock is ticking and time is not working in our favor. 0:03:18.000,0:03:21.000 I know many Americans have questions tonight. 0:03:21.000,0:03:23.900 How did we reach this point in our economy 0:03:23.900,0:03:28.000 and what does this mean for your financial future? 0:03:28.000,0:03:35.902 These are good questions and they deserve clear answers. 0:03:41.100,0:03:47.200 They took down the symbols… the financial symbols of America. 0:03:47.200,0:03:50.713 The twin towers of the world trade. 0:03:54.200,0:03:56.751 [Today we’ve had a national tragedy.] 0:03:57.563,0:04:03.066 [Two airplanes have crashed into the World Trade Center.] 0:04:13.074,0:04:19.614 Uhm, my, my old company… my whole com… where I used to work 0:04:19.614,0:04:21.572 the whole company is missing. 0:04:23.000,0:04:25.483 The story of the great financial crisis 0:04:25.483,0:04:28.000 begins just like many of the stories of our era. 0:04:28.000,0:04:33.020 In the United States, on September 11th, 2001. 0:04:33.340,0:04:36.435 The terrorists knew exactly what they were doing. 0:04:36.435,0:04:39.480 Striking at the ultimate symbol of the global economy. 0:04:39.480,0:04:43.050 And they did it when the US was already slumping into a recession 0:04:43.050,0:04:45.452 after the dot-com bubble had burst. 0:04:45.452,0:04:49.369 [Chairman of the U.S. Federal Reserve] Despite the tragic events of September 11th, 0:04:49.369,0:04:53.127 the foundations of our free society remain sound 0:04:53.127,0:04:58.376 and I’m confident that we will recover and prosper as we have in the past. 0:05:03.103,0:05:07.775 In spring 2001 the Federal Reserve started lowering interest rates 0:05:07.775,0:05:10.128 and now it continued lowering rates 0:05:10.128,0:05:13.634 to save companies on the brink and to keep unemployment down. 0:05:13.634,0:05:20.205 During 2001 the interest rate was lowered from 6.5% to 1.75%. 0:05:20.205,0:05:27.426 In 2003 it was cut all the way to 1% and it remained there for a full year. 0:05:29.609,0:05:33.858 Predicting the panic of ’08, the economic 9/11 0:05:33.858,0:05:37.666 and the current economic crisis that we’re still in 0:05:37.666,0:05:41.498 was probably one of the easiest forecasts we’ve ever made 0:05:41.498,0:05:43.959 in our 30 years of trend forecasting. 0:05:43.959,0:05:45.445 It was very simple. 0:05:46.213,0:05:50.551 Gerald Celente lives in Kingston, a few miles north from New York. 0:05:50.551,0:05:53.665 He’s one of the top trend analysts in the US. 0:05:53.665,0:05:55.823 He’s been called a modern Nostradamus. 0:05:55.823,0:05:57.892 He didn’t just predicted current crisis, 0:05:57.892,0:06:02.696 he also predicted the dot-com bubble and the stock market collapse of 1987. 0:06:03.719,0:06:08.702 Immediately after 9/11 the president of the United States George W. Bush 0:06:08.702,0:06:12.640 told the people to be good Americans and go out and shop. 0:06:12.640,0:06:15.442 But how are they going to do it? You’re in a recession. 0:06:16.310,0:06:18.379 Federal Reserve comes to the rescue. 0:06:18.379,0:06:21.882 In his memoir, Federal Reserve chairman Alan Greenspan writes 0:06:21.882,0:06:25.637 that he knew that low interest rates might cause a bubble. 0:06:27.009,0:06:27.922 [It’s party time.] 0:06:27.922,0:06:31.351 Traditionally, central banks remove the punch bowl 0:06:31.351,0:06:33.371 once the party stops. 0:06:33.371,0:06:36.413 The interest rate can’t remain low for too long 0:06:36.413,0:06:39.105 or people will do things they’ll regret later. 0:06:40.058,0:06:43.890 [This is one party that just has to turn out right…] 0:06:43.890,0:06:47.791 [Well, the purpose of a party is to have fun together 0:06:47.791,0:06:51.761 and a successful party needs planning and skill…] 0:06:51.761,0:06:55.569 Greenspan argued that the Fed should never remove the punch bowl 0:06:55.569,0:06:59.770 but rather keep refilling it when the party started to peter out. 0:07:00.721,0:07:03.857 And if things went bad, the Fed would clean up the mess 0:07:03.857,0:07:05.715 and tend to the hangover. 0:07:06.343,0:07:08.712 Banks and speculators loved it. 0:07:08.712,0:07:11.823 Now they could take greater risks than ever before. 0:07:11.823,0:07:14.517 If they were successful, they could keep the profits. 0:07:14.517,0:07:17.517 And if they were unlucky, Greenspan would rescue them. 0:07:20.275,0:07:21.367 [Mama’s that way. 0:07:21.367,0:07:25.939 Let me come home crying over something and she’d get me candy every time.] 0:07:29.703,0:07:33.500 When you see the stock market come down and real estate bubble burst 0:07:33.500,0:07:35.450 all that phoney wealth is gonna evaporate 0:07:35.450,0:07:39.159 and all that’s gonna be left is all the debt we’ve accumulated to foreigners… 0:07:43.500,0:07:47.094 Peter Schiff is another analyst who was roundly mocked 0:07:47.094,0:07:50.904 when he predicted the crisis for the US economy in the midst of the boom. 0:07:52.706,0:07:57.381 We went on a unprecedented global spending binge. 0:07:57.381,0:08:02.534 American citizens borrowed and spent trillions of dollars to buy stuff 0:08:02.534,0:08:04.533 and that is why we’re in so much trouble. 0:08:04.533,0:08:08.989 It was because we got drunk on all that Fed alcohol. 0:08:09.223,0:08:12.033 FED ALCOHOL 0:08:12.799,0:08:16.236 In a world that was suddenly uncertain with the country under attack 0:08:16.236,0:08:19.633 nothing felt safer than investing in your own home. 0:08:19.633,0:08:21.876 In the American Dream. 0:08:23.248,0:08:25.849 I do believe in the American Dream. [17 June 2002] 0:08:25.849,0:08:28.742 I believe there’s such a thing as the American Dream. 0:08:28.742,0:08:31.654 Owning a home is a part of that dream. 0:08:31.654,0:08:34.215 It just is. Right here in America, if you own your own home, 0:08:34.215,0:08:36.850 you’re realising the American Dream. 0:08:37.759,0:08:42.566 Vernon Smith was awarded the Nobel prize in economics in 2002. 0:08:42.566,0:08:45.659 He received it for his research in experimental economics. 0:08:45.659,0:08:50.439 In his experiments he puts economic theories to the test. 0:08:50.439,0:08:53.000 Smith is an expert on bubbles. 0:08:54.435,0:08:59.378 If you can buy a home with almost nothing down 0:08:59.378,0:09:03.644 then you do well if the prices continue to go up. 0:09:03.644,0:09:08.148 If it goes down, well, then you have an incentive to walk away from it 0:09:08.148,0:09:09.849 and let the bank have it. 0:09:11.778,0:09:14.655 Low interest rates caused a housing bubble. 0:09:14.655,0:09:18.744 Cheap loans encouraged people to buy more and bigger homes. 0:09:18.744,0:09:22.598 Housing prices began to rise by 10% a year. 0:09:22.598,0:09:27.403 So many took out a second mortgage on their old house to fund consumption. 0:09:28.612,0:09:32.239 You wanna go on a vacation, buy some new clothes? 0:09:32.239,0:09:34.580 How about putting an addition on your house? 0:09:34.580,0:09:35.776 You don’t have the money? 0:09:35.776,0:09:39.479 How about a home equity loan? That’s for you. 0:09:39.479,0:09:41.987 Let’s use your house as a piggy bank. 0:09:41.987,0:09:45.219 The banks granted loans to almost anyone. 0:09:45.786,0:09:48.233 Why would you need a decent income to buy a home 0:09:48.233,0:09:50.991 if you can get rich just living in it? 0:09:50.991,0:09:54.293 The market even coined the term NINA loans. 0:09:54.293,0:09:55.396 No income? 0:09:55.396,0:09:56.664 No assets? 0:09:56.664,0:09:57.665 No problem! 0:09:57.665,0:09:59.348 You’ll get a loan, anyway. 0:09:59.348,0:10:05.606 The legislation was more aggressively pushing lenders 0:10:05.606,0:10:10.377 to lend to people of modest means, people with… whose incomes 0:10:10.377,0:10:14.481 were 80% of the median income or below. 0:10:14.481,0:10:16.933 Politicians encouraged this. 0:10:16.933,0:10:21.755 For a long time both the left and the right have been encouraging home ownership. 0:10:21.755,0:10:25.478 So they’ve created deductions, subsidies and insurances. 0:10:25.478,0:10:28.612 And they created two huge mortgage-financing companies. 0:10:28.612,0:10:30.731 Fannie Mae and Freddie Mac. 0:10:30.731,0:10:34.789 Their job was to use thousands of billions of dollars 0:10:34.789,0:10:39.038 to insure loans for people who couldn’t get them on the open market. 0:10:39.038,0:10:43.102 They were government-sponsored enterprises. 0:10:43.102,0:10:46.329 They had private owners but they had been created by Congress 0:10:46.329,0:10:49.973 and their transactions were guaranteed by the government. 0:10:51.298,0:10:53.554 [Former Chief Economist, Freddie Mac] So, there’re particularly Fannie Mae and Freddie Mac 0:10:53.554,0:10:55.292 government-sponsored enterprises 0:10:55.292,0:11:00.470 and what it means is, er, they’re private, not now maybe. But they’re private companies 0:11:00.470,0:11:03.230 that have special charters from the government. 0:11:03.230,0:11:05.633 And the thing about government-sponsored enterprises 0:11:05.633,0:11:07.808 which is the main thing people are talking about 0:11:07.808,0:11:10.571 is a sense that they’re guaranteed by the government. 0:11:10.571,0:11:12.939 [17 June 2002] First of all, government-sponsored corporations 0:11:12.939,0:11:14.379 that helped create our mortgage system, 0:11:14.379,0:11:17.044 I introduced two of the leaders here today, 0:11:17.044,0:11:20.091 they call those people Fannie Mae and Freddie Mac 0:11:20.091,0:11:22.460 as well as the Federal Home Loan Banks, 0:11:22.460,0:11:25.352 will increase their commitment to minority markets 0:11:25.352,0:11:29.790 by more than 440 billion dollars. 0:11:33.527,0:11:36.670 In the last decade, Fannie Mae and Freddie Mac have donated 0:11:36.670,0:11:41.080 more than 200 million dollars to politicians in Washington. 0:11:41.337,0:11:44.377 Enterprise-sponsored government. 0:11:45.378,0:11:48.042 I asked the former Freddie Mac chief economist 0:11:48.042,0:11:50.345 what they got for their money. 0:11:50.881,0:11:51.879 I don’t know. 0:11:51.879,0:11:56.082 I mean, I… that’s a tougher question, ehm, 0:11:56.082,0:12:00.000 they had a pretty good charter, ehm, 0:12:00.000,0:12:04.000 they, they have… they were regulate in a spotty way. 0:12:04.000,0:12:07.669 In many ways the regulatory structure wasn’t that bad 0:12:07.669,0:12:12.870 but it was the case that the regulatory structure was a compromise. 0:12:12.870,0:12:15.378 It wasn’t the Treasury, it wasn’t the Housing really, 0:12:15.378,0:12:18.205 it was some… somewhere in between. 0:12:18.205,0:12:19.974 There was a huge moral hazard 0:12:19.974,0:12:22.715 courtesy of the government in the mortgage market. 0:12:22.715,0:12:25.479 When the government, through Fannie and Freddie, 0:12:25.479,0:12:28.520 started to guarantee mortgages, then the lenders were no longer 0:12:28.520,0:12:31.191 worried about getting their money back because the government said: 0:12:31.191,0:12:32.319 “We guarantee it.” 0:12:32.319,0:12:35.022 And so that’s why I proposed and urge Congress 0:12:35.022,0:12:38.271 to fully fund the American Dream Down Payment Fund. 0:12:38.807,0:12:44.774 This will use money, er, taxpayer’s money to help 0:12:44.774,0:12:49.100 a qualified, low-income buyer make a down payment. 0:12:49.100,0:12:52.158 Well, greed has to be balanced with a certain amount of fear 0:12:52.158,0:12:57.197 and that’s what down payment rules were all about. And amortisation rules. 0:12:57.197,0:13:02.398 It is to keep people from carried away by, as you say, the greed 0:13:02.398,0:13:05.045 of expecting become rich by buying a home 0:13:05.045,0:13:07.878 and reselling at a higher price. 0:13:07.878,0:13:10.891 And that’s important. If one of the barriers to home ownership 0:13:10.891,0:13:13.056 is the inability to make a down payment 0:13:13.056,0:13:17.491 and if one of the goals is to increase home ownership, 0:13:17.491,0:13:21.435 it makes sense to help people pay that down payment. 0:13:21.435,0:13:22.669 This is the problem. 0:13:22.669,0:13:24.071 The moral hazard. 0:13:24.071,0:13:27.058 We gave a moral hazard to home buyers. 0:13:27.058,0:13:30.401 Once you say that you can by a home with no down payment, 0:13:30.401,0:13:32.947 all of a sudden there’s no risk to the borrower. 0:13:32.947,0:13:34.381 He doesn’t care if he overpays 0:13:34.381,0:13:36.601 because if the house keeps going up, he makes money. 0:13:36.601,0:13:40.107 If it stops going up, the bank loses the money. 0:13:40.107,0:13:42.690 You know, we have moral hazards in our banking system. 0:13:42.690,0:13:45.659 The US government guarantees all bank deposits. 0:13:45.659,0:13:46.818 Well, what does that mean? 0:13:46.818,0:13:50.417 That means that depositers don’t care what the banks do 0:13:50.417,0:13:52.321 with their money once they deposit it. 0:13:52.321,0:13:54.016 Because they know the government guarantees it. 0:13:54.016,0:13:57.538 And the federal government obviously has to play an important role. 0:13:57.538,0:14:02.136 And we will, we will, I mean… when I lay out a goal, I mean it. 0:14:02.136,0:14:02.943 Why are they doing that? 0:14:02.943,0:14:07.047 Why can’t we let mortgages be financed in the private sector? 0:14:07.047,0:14:09.984 The reason is because the private sector would not finance 0:14:09.984,0:14:14.088 these crazy mortgages and real estate prices would have to come down 0:14:14.088,0:14:16.323 to levels that people can actually afford. 0:14:17.213,0:14:21.623 How can you promote home ownership if people can’t afford a home? 0:14:22.321,0:14:25.247 The big banks dared to make riskier loans 0:14:25.247,0:14:27.601 because they had started repackaging loans 0:14:27.601,0:14:30.725 and selling them to others as securities. 0:14:30.866,0:14:33.188 They sold them to each other, 0:14:33.188,0:14:34.909 to Fannie Mae and Freddie Mac 0:14:34.909,0:14:39.876 and they sold them to Norway, to Germany and to China. 0:14:39.876,0:14:41.408 If the loans turned bad, 0:14:41.408,0:14:44.611 someone else would end up with a hot potato. 0:14:45.472,0:14:48.072 I guess we’re little early. What do you want to do? 0:14:48.072,0:14:50.743 Anything but inspect this temple of capitalism. 0:14:50.743,0:14:51.892 Oh, Nick. 0:14:51.892,0:14:54.762 Look at them, their eyes popping out of their heads. 0:14:54.762,0:14:57.616 Drooling over the very things that are taking away their jobs. 0:14:57.616,0:15:00.286 Now Nick, don’t get all excited. 0:15:00.286,0:15:02.603 My family think that America is a pretty swell place 0:15:02.603,0:15:04.489 and I don’t want you to disillusion them. 0:15:04.489,0:15:05.485 I know. 0:15:06.021,0:15:07.252 Everybody wanted to buy 0:15:07.252,0:15:10.201 because the rating agencies that rate securities 0:15:10.201,0:15:13.939 gave the mortgage-backed bonds their highest rating. 0:15:13.939,0:15:17.144 They promised huge payoffs at near zero risk. 0:15:17.144,0:15:21.322 The rating agencies thought that house prices would just keep rising. 0:15:21.322,0:15:23.791 And then there was that minor detail 0:15:23.791,0:15:28.862 that the rating agencies were being paid by the sellers of the securities. 0:15:28.862,0:15:32.283 So I think the process was corrupted. First of all, 0:15:32.283,0:15:36.604 the government licenses Moody’s and Standard & Poor’s 0:15:36.604,0:15:39.006 so there’s only a few companies who are authorised 0:15:39.006,0:15:40.039 to rate these bonds. 0:15:40.039,0:15:42.643 So it wasn’t really a free market, the government was in bed 0:15:42.643,0:15:45.379 with Moody’s and with Standard & Poor’s. 0:15:45.379,0:15:48.073 But also you had this perverse relationship 0:15:48.073,0:15:50.209 between Wall Street and the rating agencies 0:15:50.209,0:15:52.902 where they were paying the rating agencies 0:15:52.902,0:15:55.410 to rate the products that they were structuring. 0:15:55.410,0:15:58.405 And so there was, you know, this was an incestuous relationship where 0:15:58.405,0:16:01.228 they knew if they put bad ratings on them, they wouldn’t sell 0:16:01.228,0:16:03.964 and if they didn’t sell, they wouldn’t be making all this money 0:16:03.964,0:16:05.509 constantly rating them. 0:16:07.926,0:16:09.528 They were great days. 0:16:09.528,0:16:12.500 But it was all based on a market on steroids. 0:16:12.500,0:16:16.772 Loans were cheap enough to keep trying the housing prices up. 0:16:16.772,0:16:21.068 But when interest rates returned to normal levels in 2006, 0:16:21.068,0:16:22.716 the spell was broken. 0:16:23.317,0:16:26.571 But for one person the future was still bright. 0:16:26.571,0:16:27.521 Ben Bernanke, 0:16:27.521,0:16:31.446 Alan Greenspan’s successor as Federal Reserve chairman. 0:16:31.812,0:16:34.025 [29 July 2005] Tell me, what is the worst-case scenario 0:16:34.025,0:16:37.624 if in fact we were to see prices come down substantially 0:16:37.624,0:16:39.296 across the country? 0:16:39.296,0:16:40.759 Well, I guess I don’t buy your premise, 0:16:40.759,0:16:42.523 it’s a pretty unlikely possibility, 0:16:42.523,0:16:47.049 we’ve never had a decline in house prices on a nationwide basis. 0:16:48.259,0:16:51.845 People could no longer get new loans to pay off the old ones. 0:16:51.845,0:16:55.480 Those who had been given a mortgage despite a very low income 0:16:55.480,0:16:57.198 couldn’t afford to stay. 0:16:57.198,0:16:59.253 The prices started falling, 0:16:59.253,0:17:02.990 making the mortgage-backed securities increasingly worthless. 0:17:02.990,0:17:05.392 [28 February 2007] There’s not much indication at this point that 0:17:05.392,0:17:09.896 subprime mortgage issues have spread into the broader mortgage market 0:17:09.896,0:17:11.632 which still seems to be healthy. 0:17:11.632,0:17:16.000 The rating agencies removed the high ratings from the securities. 0:17:16.000,0:17:18.806 Investors, who never looked beyond the ratings, 0:17:18.806,0:17:21.308 suddenly didn’t know what they had bought. 0:17:21.308,0:17:24.345 They didn’t know how risky those loans were. 0:17:24.345,0:17:27.681 [Chairman of the U.S. Federal Reserve, 18 July 2007] Overall the US economy appears likely to expand at a moderate pace 0:17:27.681,0:17:30.565 over the second half of 2007 0:17:30.565,0:17:33.687 with growth and strengthening a bit in 2008 0:17:33.687,0:17:36.723 to a rate close to the economy’s underlining trend. 0:17:37.892,0:17:40.761 The dominoes started falling. 0:17:40.761,0:17:44.231 Investors stopped buying mortgage-backed securities 0:17:44.231,0:17:47.301 and refused to lend to those who depended on them. 0:17:47.735,0:17:50.938 Investment banks like Bear Stearns and Lehman Brothers 0:17:50.938,0:17:55.009 suddenly couldn’t get new loans to stay in business. 0:17:55.009,0:17:59.613 Fannie Mae and Freddie Mac could no longer hide the disaster. 0:18:01.649,0:18:04.585 The financial crisis started in a way 0:18:04.585,0:18:08.289 that is eerily similar to today’s situation. 0:18:08.289,0:18:11.759 It started with an economic crisis in the US 0:18:11.759,0:18:14.828 and a government that responded decisively. 0:18:14.828,0:18:17.631 After 9/11 and the dot-com collapse 0:18:17.631,0:18:20.601 the US government decided to save the economy 0:18:20.601,0:18:23.270 by inflating a new bubble. 0:18:23.270,0:18:27.174 Today, the world is trying to get out of the financial crisis 0:18:27.174,0:18:29.710 by inflating a new bubble. 0:18:29.710,0:18:34.648 The difference is that this bubble is much bigger. 0:18:44.458,0:18:47.895 After they did the dot-com bubble and that burst 0:18:47.895,0:18:51.765 and they re-inflated it with the real estate and credit crisis bubble 0:18:51.765,0:18:53.133 and then when that burst, 0:18:53.133,0:18:56.303 now they’ve created the bubble of all bubbles. 0:18:56.303,0:19:01.239 It’s not only the United States, this is a global bubble, they’re all in to it. 0:19:01.239,0:19:02.977 It’s called the bailout bubble. 0:19:02.977,0:19:06.547 “Hey, the economy is going down, recession’s setting in, 0:19:06.547,0:19:11.051 “sales don’t look good, exports soft, need more money? 0:19:11.051,0:19:15.055 “How about, we’ll call it, stimulus packages?” 0:19:15.055,0:19:19.000 And from Australia to the United States, 0:19:19.000,0:19:21.595 from the UK to China 0:19:21.595,0:19:27.034 they’re dumping funny money into the system to keep it going. 0:19:29.403,0:19:34.235 In September of 2008 the US economy is near collapse. 0:19:34.235,0:19:38.178 Fannie Mae and Freddie Mac have been taken over by the government. 0:19:39.480,0:19:44.084 On September 15th giant investment bank Lehman Brothers goes bankrupt 0:19:44.084,0:19:47.221 after monumental bets on real estate. 0:19:47.688,0:19:50.535 AIG, the largest insurance company in the world, 0:19:50.535,0:19:52.560 collapses the next day. 0:19:52.560,0:19:54.194 Fear sets in. 0:19:54.194,0:19:56.463 It seems like anyone can fail. 0:19:56.463,0:20:01.268 Suddenly, banks no longer dare make loans to companies or each other. 0:20:02.503,0:20:06.440 Experts warn that the economy is about to collapse. 0:20:09.643,0:20:12.513 [The CBS News Special Report] 0:20:12.513,0:20:15.288 [A presidential address to the nation.] 0:20:15.288,0:20:20.221 [From CBS News headquarters in New York here is Katie Couric.] 0:20:20.221,0:20:21.322 Good evening, everyone. 0:20:21.322,0:20:24.491 President Bush asked the networks for this television time 0:20:24.491,0:20:28.162 so he could talk directly to you about a national crisis. 0:20:28.162,0:20:30.764 Some of this country’s major financial institutions 0:20:30.764,0:20:34.134 are in danger of collapsing under the weight of bad mortgages 0:20:34.134,0:20:37.072 and that would be devastating for the entire economy. 0:20:37.972,0:20:41.308 We’re in the midst of a serious financial crisis 0:20:41.308,0:20:44.712 and the federal government is responding with decisive action. 0:20:48.682,0:20:50.985 $700 billion 0:20:50.985,0:20:54.655 In a televised speech Bush scares the market even more 0:20:54.655,0:20:57.524 while still claiming that they can trust him. 0:20:57.524,0:20:59.522 He has a solution. 0:20:59.522,0:21:01.195 Under our proposal the federal government 0:21:01.195,0:21:05.000 would put up to 700 billion taxpayer dollars on the line 0:21:05.000,0:21:08.435 to purchase trouble assets that are clogging the financial system. 0:21:16.377,0:21:19.947 The US government wants to spend huge amount on Wall Street banks 0:21:19.947,0:21:21.749 to cover their bad deals. 0:21:21.749,0:21:23.651 Even banks who don’t want the money 0:21:23.651,0:21:25.319 will be forced to take it 0:21:25.319,0:21:27.721 so that the public won’t know which banks 0:21:27.721,0:21:30.357 are on the brink of collapse. 0:21:31.825,0:21:33.494 [All those in favor say “I”.] 0:21:33.494,0:21:34.528 [I…] 0:21:34.528,0:21:36.397 [Opposed say “no”.] 0:21:36.397,0:21:37.898 [The I’s have it.] 0:21:40.935,0:21:42.236 I want to thank the Secretary of Treasury 0:21:42.236,0:21:44.338 for working hard with the members 0:21:44.338,0:21:45.839 and thank the members for working long hours 0:21:45.839,0:21:47.575 like they’ve been doing to come up with this solution 0:21:47.575,0:21:50.544 that’s bipartisan and that’ll solve the problem. 0:21:50.544,0:21:55.415 On October 3rd Congress approves the biggest financial bailout in history. 0:21:56.450,0:21:59.786 700 billion dollars. 0:22:01.689,0:22:03.023 Around the world, 0:22:03.023,0:22:07.161 in Germany, Italy, Canada, South Korea and Great Britain, 0:22:07.161,0:22:10.831 other politicians do the same to save their banks. 0:22:18.305,0:22:21.508 We’ve taken the right, the decisive and the tough decision 0:22:21.508,0:22:24.411 that was necessary to protect the stability of the financial system 0:22:24.411,0:22:27.047 and to protect the depositors. 0:22:29.083,0:22:34.321 David Walker was US Comptroller General from 1998 to 2008. 0:22:34.321,0:22:37.625 He quit because he was so worried about the US economy 0:22:37.625,0:22:41.695 that he wanted to have the freedom to warn about what may happen. 0:22:41.962,0:22:44.398 In my view, 0:22:44.398,0:22:49.036 the bailout was necessary in certain regards 0:22:49.036,0:22:53.507 but in many cases we wasted a lot of money. 0:22:53.507,0:22:55.442 Because we didn’t do three things. 0:22:55.442,0:22:58.345 First, have clearly defined objectives 0:22:58.345,0:23:00.281 about what we were trying to achieve. 0:23:00.281,0:23:03.617 Secondly, have criteria established up front 0:23:03.617,0:23:06.954 as to who would get the money and who wouldn’t get the money. 0:23:06.954,0:23:10.491 And number three, have conditions established up front 0:23:10.491,0:23:13.460 as to what they could and couldn’t do with the money. 0:23:13.460,0:23:16.196 And as a result of not having those three things, 0:23:16.196,0:23:19.333 some people got the money that didn’t deserve it, 0:23:19.333,0:23:22.736 other people got the money that didn’t make good use of it 0:23:22.736,0:23:27.441 and as a result we had a lot of waste with regard to taxpayer money. 0:23:27.441,0:23:31.178 [19 November 2008] What would it mean if the domestic industry were allowed to fail? 0:23:31.178,0:23:33.881 You heard Senator Stabenow… 0:23:33.881,0:23:35.616 As a result of the crisis 0:23:35.616,0:23:39.253 the situation for the US auto industry becomes critical. 0:23:39.253,0:23:43.423 On November 19th their CEOs fly to Washington to demand money. 0:23:44.358,0:23:47.361 [Business and economics editor] The executives came out and they said: 0:23:47.361,0:23:50.598 “If you don’t do this, 0:23:50.598,0:23:54.101 “we are going to see a jobs holocaust.” 0:23:54.101,0:23:58.138 They issued extremely high estimates of how many jobs would be lost 0:23:58.138,0:23:59.874 that included counting every single company 0:23:59.874,0:24:01.642 that supplies them with anything. 0:24:02.176,0:24:05.312 That’s why this is all about a lot more than just Detroit. 0:24:05.312,0:24:09.250 It’s about saving the US economy from a catastrophic collapse. 0:24:09.250,0:24:12.419 A month later president Bush gives billions of dollars 0:24:12.419,0:24:14.722 to General Motors and Chrysler. 0:24:14.722,0:24:16.857 The money comes from the bailout package 0:24:16.857,0:24:20.407 that was really only designed to save the financial industry. 0:24:20.407,0:24:21.795 [Now, some US auto executives say 0:24:21.795,0:24:23.931 that their companies are nearing collapse.] 0:24:25.399,0:24:28.836 [And that the only way they can buy time to restructure 0:24:28.836,0:24:31.105 is with help from the federal government.] 0:24:31.105,0:24:34.441 Megan McArdle is a financial analyst for the Atlantic 0:24:34.441,0:24:38.245 and has written extensively about the problems of the US auto industry. 0:24:38.245,0:24:42.283 Congress wanted an excuse to bail out the autoworkers 0:24:42.283,0:24:46.153 and the executives gave them just enough political cover to say: 0:24:46.153,0:24:50.190 “Aah, well, I’m not really doing this because I want autoworker votes 0:24:50.190,0:24:52.459 “and I’m gonna give them huge amount of money. 0:24:52.459,0:24:54.562 “I’m really doing this for the American economy.” 0:24:54.562,0:24:56.864 But if you look at how much money we gave them, 0:24:56.864,0:24:59.199 I mean, we’re talking about almost a hundred billion dollars, 0:24:59.199,0:25:01.335 it’s how much we’ll end up spending on this. 0:25:01.335,0:25:04.004 You know, even if you were saving millions of jobs, 0:25:04.004,0:25:06.507 it would’ve been cheaper to give every single one of those people 0:25:06.507,0:25:10.244 100,000 dollars to go out and find a new job. 0:25:10.844,0:25:12.613 The big guys on Wall Street, 0:25:12.613,0:25:14.582 they can’t take their losses. 0:25:14.582,0:25:17.251 They’re crybaby capitalists. 0:25:17.251,0:25:22.523 Oh, they preach capitalism for everybody but themselves. 0:25:25.559,0:25:28.429 [16 December 2008] 0:25:32.499,0:25:34.969 [The Federal Reserve has cut its key interest rate 0:25:34.969,0:25:36.971 to the lowest level on record.] 0:25:36.971,0:25:39.773 [Fed chairman Ben Bernanke and his colleagues also pledge 0:25:39.773,0:25:43.878 to use all available tools to contain the widening crisis 0:25:43.878,0:25:46.513 and the longest recession in a quarter century.] 0:25:49.984,0:25:52.653 December 16th, 2008. 0:25:52.653,0:25:56.824 It is time again to pour alcohol into the punch bowl. 0:25:56.824,0:26:00.694 The Federal Reserve reduces interest rates to practically zero 0:26:00.694,0:26:03.030 to restore investor confidence. 0:26:03.030,0:26:05.766 Other central banks do the same. 0:26:06.901,0:26:09.403 Hey, have no credit? Don’t worry about it. 0:26:09.403,0:26:11.939 Just sign on the dotted line. 0:26:11.939,0:26:14.442 INSERT COIN 0:26:14.742,0:26:16.544 The housing bubble that they inflated 0:26:16.544,0:26:19.914 blew up with all the carnage and all the bankruptcies 0:26:19.914,0:26:21.248 and now what is their solution? 0:26:21.248,0:26:23.250 “We’ll just do the same thing we did before.” 0:26:23.250,0:26:26.787 Instead of having interest rates at 1%, let’s have them at zero. 0:26:26.787,0:26:30.457 And let’s buy everything we can. Let’s print money and buy mortgages. 0:26:30.457,0:26:32.359 Let’s buy credit card debts, student loans. 0:26:32.359,0:26:35.362 Let’s buy bonds, let’s drop money from helicopters 0:26:35.362,0:26:40.334 to try to get the same risk taking, excessive gambling on Wall Street 0:26:40.334,0:26:43.837 Let’s try to convince Americans, who are already loaded up on debt, 0:26:43.837,0:26:47.208 to go out and buy more stuff, to go out and go deeper in the debt. 0:26:47.208,0:26:48.809 And if the banks don’t want to lend them money, 0:26:48.809,0:26:50.444 let’s make ’em lend them money. 0:26:50.444,0:26:53.447 I mean, this is economic, you know, suicide. 0:26:54.982,0:26:56.850 While the Fed lowers interest rates, 0:26:56.850,0:27:00.721 president elect Barack Obama prepares an enormous stimulus package, 0:27:00.721,0:27:03.524 meant to get the US economy going. 0:27:06.293,0:27:10.998 We are running out of the traditional ammunition 0:27:10.998,0:27:12.333 that’s used in a recession, 0:27:12.333,0:27:14.587 which is to lower interest rates, 0:27:14.587,0:27:17.004 they’re getting to be about as low as they can go. 0:27:20.975,0:27:23.043 $787 billion 0:27:24.345,0:27:26.447 [17 February 2009] The American Recovery and Reinvestment Act 0:27:26.447,0:27:28.349 that I will sign today, 0:27:28.349,0:27:32.519 a plan that meets the principles I laid out in January, 0:27:32.519,0:27:35.789 is the most sweeping economic recovery package 0:27:35.789,0:27:37.491 in our history. 0:27:38.726,0:27:43.397 On February 7th, 2009 Obama approves a stimulus package 0:27:43.397,0:27:47.034 worth 787 billion dollars. 0:27:47.034,0:27:50.538 With the Bush stimulus package from the year before 0:27:50.538,0:27:53.874 US politicians have now spent close to one trillion dollars 0:27:53.874,0:27:56.443 to stimulate the US economy. 0:27:56.443,0:28:01.015 The money is spent on roads, airports, education, unemployment 0:28:01.015,0:28:02.850 and other benefits. 0:28:02.850,0:28:05.019 There is bureaucracy in everywhere. 0:28:06.220,0:28:10.491 And in Italy they used to say, where I’m from. 0:28:10.491,0:28:16.096 When you have a jar of honey, you lick your fingers. 0:28:21.035,0:28:25.005 The town of Union is located a few hours from the Canadian border. 0:28:25.005,0:28:27.875 This is where the computer company IBM got its start 0:28:27.875,0:28:30.244 and grew to be the biggest in the world. 0:28:30.244,0:28:32.379 The factories are now empty 0:28:32.379,0:28:35.724 but the town has acquired a small town rhythm. 0:28:35.724,0:28:39.086 So they were surprised when 600,000 dollars 0:28:39.086,0:28:43.557 from the stimulus package arrived to combat homelessness. 0:28:44.225,0:28:46.727 [Mayor] Ah, you know, on occasion, you know, 0:28:46.727,0:28:52.800 our police officers may run across someone and they try to, you know, 0:28:52.800,0:28:56.971 take the person to an area where the individual can get some shelter 0:28:56.971,0:28:59.687 and get something to eat. But it’s not a problem here. 0:29:01.976,0:29:04.545 This is Rodeo Drive in Beverly Hills, 0:29:04.545,0:29:08.182 probably the world’s most famous upscale shopping district. 0:29:08.182,0:29:11.118 It was here, for example, that Julia Roberts went shopping 0:29:11.118,0:29:13.039 in Pretty Woman. 0:29:13.039,0:29:15.890 Stimulus money has made its way here as well. 0:29:15.890,0:29:20.461 These streets are to be repaved to the tune of 1 million dollars. 0:29:20.461,0:29:22.861 Sure, there’re potholes in the asphalt 0:29:22.861,0:29:26.667 but is this really the economy that needs to be stimulated? 0:29:30.104,0:29:34.975 We had a $787 billion stimulus bill 0:29:34.975,0:29:39.113 but only about one third of it was truly stimulus. 0:29:39.113,0:29:43.117 By that I mean timely, targeted and temporary. 0:29:43.117,0:29:46.353 The other two thirds were things that people wanted to do, 0:29:46.353,0:29:48.789 have been wanting to do for a long time 0:29:48.789,0:29:50.758 but they didn’t want to have to pay for it. 0:29:50.758,0:29:53.761 They wanted to do it as a part of emergency legislation 0:29:53.761,0:29:56.063 and charge it to the national credit card. 0:30:00.301,0:30:04.872 The Johnstown, Pennsylvania airport has three scheduled flights a day. 0:30:04.872,0:30:07.608 Other than that, it’s quite empty. 0:30:07.608,0:30:11.879 When we have the flights coming, that’s when the people are here. 0:30:11.879,0:30:13.759 Other than that, it’s empty. 0:30:13.759,0:30:15.950 But one face is everywhere. 0:30:15.950,0:30:19.587 Congressman John Murtha, the airport’s name sake. 0:30:19.587,0:30:21.538 He’s been called the King of Pork 0:30:21.538,0:30:25.808 and has gotten 200 million dollars for Murtha Airport from Washington. 0:30:26.391,0:30:29.781 Earlier this year, the airport got a new source of revenue, 0:30:29.781,0:30:32.474 800,000 dollars from the stimulus package 0:30:32.474,0:30:35.121 to repave this backup landing strip. 0:30:35.121,0:30:39.173 The head of the airport insists that the landing strip is safe. 0:30:39.173,0:30:43.200 So why does it need doing if its not a safety issue? 0:30:48.635,0:30:50.586 Because of the steps we take, 0:30:50.586,0:30:53.626 this plan is about to shift it to high gear. 0:30:54.905,0:30:58.225 One of the biggest stimulus programmes was aimed at the auto industry: 0:30:58.225,0:31:00.106 Cash for Clunkers. 0:31:00.106,0:31:02.863 Turn in your old car and get cash toward a new one 0:31:02.863,0:31:04.169 from the government. 0:31:04.169,0:31:08.536 It was so popular that its one billion dollar budget ran out in a week. 0:31:08.536,0:31:11.621 So more money was quickly injected. 0:31:13.474,0:31:15.803 Many countries offered similar programmes. 0:31:15.803,0:31:19.657 Germany had the biggest one and handed out almost 7 billion dollars 0:31:19.657,0:31:22.258 to those who scrapped any car more than 9 years old 0:31:22.258,0:31:24.624 while buying a new one. 0:31:28.422,0:31:32.923 Our government seem to think that German auto industry is so important 0:31:32.923,0:31:35.284 we have to support it in some ways 0:31:35.284,0:31:37.769 and therefore they created this bonus. 0:31:37.769,0:31:39.466 They didn’t call it a scrapping bonus, 0:31:39.466,0:31:42.575 because I think they knew just how ridiculous that was, 0:31:42.575,0:31:45.826 so they called it an environment bonus. 0:31:45.826,0:31:50.259 Karen Horn is a doctor of economics at a German Economics Institute. 0:31:51.278,0:31:54.441 And of course, people took advantage of that. 0:31:54.441,0:31:58.852 It worked as long as it was on, the programme worked. 0:31:58.852,0:32:03.657 But now it’s out, it’s over and of course, numbers are dropping, 0:32:03.657,0:32:08.512 people are feeling that they ran into additional debt due to that bonus 0:32:08.512,0:32:10.631 that they wanted to take advantage of 0:32:10.631,0:32:12.900 and they’re having problems they didn’t anticipate. 0:32:12.900,0:32:17.872 So Germany spent almost 7 billion dollars to scrap fully functioning cars 0:32:17.872,0:32:21.583 and to maintain excessive auto factory output. 0:32:22.444,0:32:26.831 Once the programme ended, the industry was right back in the doldrums. 0:32:28.156,0:32:34.007 I was just very surprised that people would accept the idea so readily, 0:32:34.007,0:32:35.956 that they would accept the money is something else. 0:32:35.956,0:32:36.790 Who wouldn’t. 0:32:36.790,0:32:39.894 But, ehm, that they would find this a solution 0:32:39.894,0:32:41.554 that they deemed viable. 0:32:41.554,0:32:43.504 It doesn’t give me a very good impression 0:32:43.504,0:32:48.435 of the rationality of the voter and taxpayer, I must say. 0:32:48.435,0:32:49.611 And that’s where we are. 0:32:49.611,0:32:53.380 I think at this point, the problem is now so big 0:32:53.380,0:32:56.477 that government stimulus is not going to, you know, 0:32:56.477,0:32:59.155 buy us another five or six years of phoney growth 0:32:59.155,0:33:01.012 like it did last time. 0:33:01.012,0:33:04.170 Because we have to accumulate so much more debt now. 0:33:04.170,0:33:06.687 ’Cause the bigger the problem gets, the more we have to stimulate 0:33:06.687,0:33:08.656 to get that short-term boost, 0:33:08.656,0:33:12.393 but now, the bigger the bust, because now we have the bigger stimulus, 0:33:12.393,0:33:14.461 you know, to get out the economy. 0:33:16.964,0:33:21.268 About a year after the worst economic crisis in modern history, 0:33:21.268,0:33:23.211 Lehman Brothers is gone. 0:33:23.211,0:33:26.574 But apart from that, Wall Street looks much the same. 0:33:26.574,0:33:29.677 Many banks are reporting record profits. 0:33:29.677,0:33:32.379 The world’s stock markets have skyrocketed. 0:33:32.379,0:33:36.517 The market is finally breathing a sigh of relief. 0:33:36.517,0:33:38.861 But isn’t it somewhat uncomfortable? 0:33:38.861,0:33:41.455 Haven’t we been here before? 0:33:41.455,0:33:45.479 All the measures that we have taken to save the economy: 0:33:45.479,0:33:46.894 The low interest rates, 0:33:46.894,0:33:48.128 the massive debt, 0:33:48.128,0:33:51.000 the safety net for the financial industry. 0:33:51.000,0:33:56.470 These are the very things that led us into a crisis in the first place. 0:33:56.470,0:34:00.409 We’ve been saved from the consequences of one burst bubble 0:34:00.409,0:34:05.112 by inflating a hundred new ones, all over the world. 0:34:19.859,0:34:24.564 [27 January 2010] One year ago I took office amid two wars, 0:34:24.564,0:34:28.272 an economy rocked by a severe recession. 0:34:28.272,0:34:32.900 A financial system on a verge of collapse and a government deeply in debt. 0:34:33.404,0:34:35.543 Experts from across the political spectrum warned 0:34:35.543,0:34:40.949 that if we did not act, we might face a second depression. 0:34:41.615,0:34:42.748 So we acted. 0:34:43.250,0:34:46.103 Immediately and aggressively. 0:34:46.919,0:34:51.500 And one year later the worst of the storm has passed. 0:35:17.000,0:35:18.869 There are positive signs. 0:35:18.869,0:35:21.255 This is the Hampton’s outside New York, 0:35:21.255,0:35:24.161 a classic playground for Manhattan’s elite. 0:35:25.893,0:35:30.464 A house by the Atlantic like this one costs 30 million dollars. 0:35:31.338,0:35:35.680 And a hotdog bun with lobster salad costs 18 dollars. 0:35:35.680,0:35:38.405 Fast food Hampton style. 0:35:39.047,0:35:41.694 The crisis has made its mark here too, 0:35:41.694,0:35:43.947 there are fewer private jets at the airport. 0:35:43.947,0:35:49.053 Instead the Porsches jostle the Mercedes on the turn pike to New York. 0:35:55.723,0:36:01.128 New York City, Washington, D.C. and Los Angeles, California 0:36:01.128,0:36:03.931 don’t represent the real world. 0:36:03.931,0:36:06.967 They also don’t represent the real part of America, 0:36:06.967,0:36:09.744 the so-called main street of America. 0:36:09.744,0:36:11.438 My tax money go to Bevery Hill, 0:36:11.438,0:36:13.541 well, there is a lot of money in Beverly Hill. 0:36:13.541,0:36:16.477 I don’t think they needed my money down there. 0:36:16.477,0:36:18.752 That’s a different world. 0:36:18.752,0:36:23.165 It’s not a reality, you know, down there. 0:36:23.165,0:36:26.587 If you ever visit Union and need a hair cut, 0:36:26.587,0:36:30.571 you may well end up at Frank Petrilli’s barbershop. 0:36:38.299,0:36:41.579 But unfortunately a lot of people lost their homes, 0:36:41.579,0:36:44.644 because they lost their jobs. 0:36:44.644,0:36:46.307 And it’s a… 0:36:46.307,0:36:50.511 They now live under the line for that one time they were able to do it. 0:36:50.511,0:36:54.348 And lot of the young people, specially educated, 0:36:54.348,0:36:57.508 they try to move, go out of town, 0:36:57.508,0:37:01.130 but I believe that no matter where you go, the situtation is the same a lot. 0:37:01.130,0:37:02.456 Where are they gonna go? Detroit? 0:37:03.870,0:37:05.075 Now listen son, 0:37:06.633,0:37:08.662 I wasn’t going to tell you this 0:37:08.662,0:37:12.740 but you’re the reason we came here all the way from Indiana. 0:37:12.740,0:37:14.969 You’ve heard all the talkers. 0:37:14.969,0:37:17.671 Now, I’m going to show you the doers. 0:37:22.176,0:37:26.714 The US government has launched bailouts, stimulus packages and guarantees 0:37:26.714,0:37:30.084 to the tune of 10,000 billion dollars. 0:37:30.084,0:37:32.620 [Caught myself wondering for the hundredth time, 0:37:32.620,0:37:36.772 how the hell I got here, what the hell I’m doing here.] 0:37:36.772,0:37:39.721 That’s more than the total cost of the US government 0:37:39.721,0:37:43.330 for World War I, World War II, the Korean War, 0:37:43.330,0:37:47.616 the Vietnam War, the invasion of Iraq, the New Deal, the Marshall Plan 0:37:47.616,0:37:49.603 and the Moon landing. 0:37:49.603,0:37:52.748 [… one giant leap for mankind.] 0:37:52.748,0:37:55.232 Bush almost wrecked up more US debt 0:37:55.232,0:37:58.065 than all presidents before him combined, 0:37:58.065,0:38:02.059 from George Washington to Bill Clinton. 0:38:02.059,0:38:04.785 And Obama is almost creating greater debt 0:38:04.785,0:38:07.388 than all presidents before him, 0:38:07.388,0:38:10.991 including George W. Bush. 0:38:12.526,0:38:16.943 But it’s not just the US that’s increasingly looking like a house of cards. 0:38:16.943,0:38:20.519 During the crisis, many governments went deeply into debt. 0:38:20.519,0:38:23.304 Estimates say that the average debt in the richest nations 0:38:23.304,0:38:28.342 will exceed 100% by the year 2011. 0:38:29.443,0:38:33.334 These are loans taken at currently low interest rates. 0:38:34.335,0:38:37.168 Should the interest rate rise by 1%, 0:38:37.168,0:38:42.089 the US interest payments will rise by 100 billion dollars per year. 0:38:42.089,0:38:47.013 That’s more than the annual cost for the Vietnam War. 0:38:47.013,0:38:49.219 [Sometimes it’s just an engine failure, 0:38:49.219,0:38:51.518 other times it’s the deadly flak.] 0:38:51.518,0:38:55.000 [If the pilot’s lucky, the flak kills him, 0:38:55.000,0:38:59.064 but usually he isn’t and he burns to death as his plane spins in.] 0:38:59.064,0:39:02.142 It sounds absurd to even think that the United States, 0:39:02.142,0:39:05.412 the world’s economic superpower, might crash. 0:39:05.412,0:39:09.783 After all, they get the highest ratings from the credit rating agencies. 0:39:09.783,0:39:12.369 One of the lessons that we must learn 0:39:12.369,0:39:14.807 from the mortgage-related subprime 0:39:14.807,0:39:20.895 is you have to take credit ratings with a big grain of salt. 0:39:20.895,0:39:25.633 Because as we saw with the mortgage-related securities, 0:39:25.633,0:39:31.224 they went from AAA rating to junk bond pretty fast 0:39:31.224,0:39:34.441 once people understood the true situation. 0:39:34.441,0:39:38.027 Today, the United States is rated AAA 0:39:38.027,0:39:41.626 but if it doesn’t start taking steps to put its financial health in order, 0:39:41.626,0:39:44.505 that AAA rating will be lost. 0:39:44.505,0:39:46.944 It’s only a matter of when and how quickly. 0:39:48.615,0:39:53.494 In September 2008, the bankruptcy of one large investment bank 0:39:53.494,0:39:56.023 brought the world economy to its knees. 0:39:56.023,0:39:58.252 The fate of Lehman Brothers raised the question 0:39:58.252,0:40:00.100 who was next in line. 0:40:00.100,0:40:03.404 So everyone avoided doing business with banks. 0:40:03.404,0:40:07.493 How would the world react if the next entity to declare bankruptcy 0:40:07.493,0:40:08.956 is a nation? 0:40:08.956,0:40:11.903 Who is next in line if that were to happen? 0:40:14.041,0:40:17.638 Some houses of cards have already started falling. 0:40:18.198,0:40:19.453 This is Iceland. 0:40:19.453,0:40:22.934 Until recently one of the richest nations in the world. 0:40:22.934,0:40:26.348 When the crisis hit, the Icelandic banks collapsed, 0:40:26.348,0:40:28.362 the Icelandic stock market crashed, 0:40:28.362,0:40:31.454 leaving the debt with a small population. 0:40:32.066,0:40:37.468 For the first time in 50 years this peaceful country saw riots. 0:40:42.161,0:40:43.229 This is Greece. 0:40:43.229,0:40:45.546 Here, deficits have hit a record high, 0:40:45.546,0:40:50.868 the national debt is approaching 135% of GDP. 0:40:50.868,0:40:53.487 The market wants higher interest rates for Greek loans, 0:40:53.487,0:40:56.190 increasing the pressure on its strained economy. 0:40:56.190,0:41:01.153 It seems like the Greek government needs a bailout to avoid collapse. 0:41:03.330,0:41:04.031 Italy, 0:41:04.031,0:41:05.399 Spain, Portugal 0:41:05.399,0:41:06.890 and Great Britain 0:41:06.890,0:41:10.257 are other EU nations with similar problems. 0:41:10.257,0:41:12.857 What about my country, Sweden? 0:41:12.857,0:41:15.458 The country’s finances are fairly robust, 0:41:15.458,0:41:19.580 our national debt and deficit are lower than that of most nations. 0:41:19.580,0:41:23.469 But Sweden is highly dependent on the world economy. 0:41:23.469,0:41:26.487 More than half of our prosperity is based on exports. 0:41:26.487,0:41:30.876 When other countries crash, we get hit almost as hard. 0:41:30.876,0:41:34.823 And Swedish hosing prices have risen during the crisis 0:41:34.823,0:41:38.864 despite the recession and despite the rising unemployment 0:41:38.864,0:41:43.204 but because of low interest rates and a government mortgage company, 0:41:43.204,0:41:47.107 SBAB, making loans easier to get. 0:41:47.107,0:41:51.495 Swedes have never carried more debt in relation to their income. 0:41:51.495,0:41:55.000 Doesn’t all of this sound very familiar? 0:41:56.000,0:41:57.765 We have new bubbles everywhere 0:41:57.765,0:42:00.830 so I am pretty worried about what’s going to happen. 0:42:00.830,0:42:04.708 If we don’t want bubbles to burst, then don’t blow them up in the first place 0:42:04.708,0:42:06.308 because all bubbles burst. 0:42:06.821,0:42:10.964 If enough things can go wrong, some of them probably will. 0:42:12.132,0:42:15.991 The question is just which needle will burst this bubble. 0:42:16.704,0:42:20.706 Will it be new credit losses as banks take on greater risks 0:42:20.706,0:42:24.396 knowing that the government considers them too big to fail? 0:42:25.722,0:42:31.130 Or falling stock prices as interest rates rise and the steroids wear off? 0:42:32.037,0:42:35.544 Will it be the Chinese economy, overheating? 0:42:35.544,0:42:39.605 Or will it be a collapse of confidence in the US dollar? 0:42:44.298,0:42:47.301 If we lose the confidence of our foreign lenders, 0:42:47.301,0:42:49.174 and we must not allow that to happen, 0:42:49.174,0:42:50.838 but if that were to happen, 0:42:50.838,0:42:53.374 then there will be a dramatic decline of the dollar, 0:42:53.374,0:42:55.559 a dramatic increase in interest rates, 0:42:55.559,0:42:58.578 significant fuelling of inflation, 0:42:58.578,0:43:03.408 a very, very deep recession and possibly depression 0:43:03.408,0:43:07.076 that would be felt around the world. 0:43:07.076,0:43:10.722 We must not allow that to happen. 0:43:12.185,0:43:13.926 When the next bubble bursts, 0:43:13.926,0:43:17.222 you cannot use the same emergency measures. 0:43:17.898,0:43:21.540 You can’t lower interest rates that are already at rock bottom. 0:43:25.838,0:43:28.276 You can’t stimulate the economy with borrowed money 0:43:28.276,0:43:32.106 if an excessive national debt is the cause of the crisis. 0:43:33.849,0:43:36.283 The governments could save the banks, 0:43:36.283,0:43:39.538 but who can save the governments? 0:43:41.000,0:43:43.857 Ultimately, there’s gonna be a price all around the world 0:43:43.857,0:43:45.296 to be paid for this. 0:43:45.296,0:43:48.295 And the longer it continues, the bigger that price is gonna be. 0:43:49.801,0:43:52.399 You know, this really is a moral question. 0:43:52.399,0:43:56.403 I mean, I can give you plenty of big and bad numbers. 0:43:56.403,0:43:59.205 You know, when you talk about tens of trillions of dollars, 0:43:59.205,0:44:01.040 it’s just hard to imagine. 0:44:01.040,0:44:03.444 But you have to put a face on it. 0:44:03.444,0:44:07.448 And to me I put my children’s and my grandchildren’s face on it. 0:44:07.448,0:44:09.983 It’s their future that we’re mortgaging. 0:44:10.560,0:44:13.718 When we tell people that there’s going to be a bailout bubble 0:44:13.718,0:44:17.191 and they see the world equity markets up 50 or 60%, 0:44:17.191,0:44:20.103 they don’t want to believe it’s another bubble. 0:44:20.103,0:44:22.634 They want to step right up back to that table 0:44:22.634,0:44:26.907 and throw their dice and try to win their hand 0:44:26.907,0:44:29.902 at the wheel of fortune that Wall Street’s spinning. 0:44:29.902,0:44:33.607 So people still don’t want to believe that the worst is yet to come. 0:44:37.170,0:44:41.210 It’s easy to think of these predictions as much too gloomy 0:44:41.210,0:44:45.459 but that is exactly what people said the last time. 0:44:45.459,0:44:49.825 When these experts predicted the 2008 financial crisis. 0:44:49.825,0:44:52.632 They were laughed at in the media. 0:45:19.151,0:45:22.325 We can do it. But we need to do it soon 0:45:22.325,0:45:27.500 because the clock is ticking and time is not working in our favor. 0:45:34.569,0:45:38.100 [Based on the book “Financial Fiasco” by Johan Norberg]