The Flaw

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In October 2008, a humbled Alan Greenspan admitted to the US Congress that he had been mistaken to put so much faith in the self-correcting power of free markets and that he had failed to anticipate the self-destructive nature of wanton mortgage lending and the housing and credit bubble it generated.

Taking for its title Greenspan's admission that he'd found a flaw in his model of how the world worked, THE FLAW attempts to explain the underlying causes of the crisis in more depth than any documentary to date.

Made by international award-winning documentary maker David Sington (IN THE SHADOW OF THE MOON), THE FLAW tells the story of the credit bubble that caused the financial crash. Through interviews with some of the world's leading economists, including housing expert Robert Shiller, Nobel laureate Joseph Stiglitz, and economic historian Louis Hyman, as well as Wall Street insiders and victims of the crash including Ed Andrews - a former economics correspondent for The New York Times who found himself facing foreclosure - and Andrew Luan, once a bond trader at Deutsche Bank now running his own Wall Street tour guide business, the film presents an original and compelling account of the toxic combination of forces that nearly destroyed the world economy.

The film shows how excessive income inequality in society leads to economic instability. At a time when economic theory and public policy is being re-examined this film reminds us that without addressing the root causes of the crisis the system may collapse again and next time it may not be possible for governments to rescue it.

'An eye-opening look at the mischief of greed and its global repercussions. A wake-up call for those policy makers that put their heads in the sand and could not detect the rise of systemic risk and the roaring fire that ensued.' Dan Braha, Professor of Complex Systems, New England Complex Systems Institute and Professor of Decision and Information Sciences, University of Massachusetts-Dartmouth

'This timely documentary skillfully shows the links between the predatory lending practices of the mortgage industry, the easy credit policies of the government, the securitization of mortgages by the banks, and the increasing inequality between the very wealthy and everyone else. But it also shows the impact of the bubble on ordinary Americans who lost their homes, their life savings, and in some cases, their dignity. While accepting American capitalism with its essential profit motive, still contends, in one commentator's words, that 'capitalism should work for us, not work us over.'' John R. Boatright, Professor of Business Ethics, Loyola University Chicago, Author, Ethics and the Conduct of Business and Ethics in Finance

'This is a masterpiece with brilliant cinematography, intellectual mega-stars, and ordinary families, suffering the ordeal of mortgage foreclosure, on the terrible housing-banking crisis of our time...The film convincingly makes the case that our current crisis is rooted in a shift of American capitalism after the 1950s from manufacturing to finance, that produced extreme income inequality, sand-castle-home assets, and very real debts that were ruthlessly exposed by the banking tsunami of 2008. This is the best film ever on the flaws in America's post-industrial capitalism and our inadequate understanding of economic behavior.' Dr. Joseph A. Soares, Professor of Sociology, Wake Forest University, Author, Power of Privilege: Yale and America's Elite Colleges

'The Flaw masterfully explains the warped economic thinking and practices that fueled the 2008 financial meltdown. Until we understand the lessons of The Flaw, we're doomed to continue the extreme inequalities and the boom-bust cycles of casino capitalism.' Chuck Collins, Senior Scholar, Institute for Policy Studies, Director, Program on Inequality and the Common Good, Co-editor, inequality.org

'The Flaw is a hard-hitting and astonishing account of how growing income inequality in rich, developed countries caused the global economic crisis. Mixing animation, interviews, and archive footage, The Flaw tells a compelling but accessible story. If you ever thought that greed was good, or that the free market underpinned a fair and flourishing economy, this film exposes the flaw at the heart of that thinking and reveals the damage caused to the vast majority of us by excessive income inequality.' Kate Pickett, Professor of Epidemiology, University of York, Co-founder, The Equality Trust, Co-author, The Spirit Level: Why More Equal Societies Almost Always Do Better

'Like a jigsaw puzzle, The Flaw comprises a collection of expert comments and statements, which, when assembled, provides a picture of what caused the most severe economic downturn since the Great Depression. Anyone teaching about the root causes of the global economic and financial crisis will find The Flaw to be one of a number of useful resources to help students piece together the picture for themselves. A most useful exercise is to contrast the views of those who warned that a crisis was in the offing with those who not only ignored the warnings, but took actions that contributed to its occurrence. There is no substitute for both listening and watching experts, from multiple positions, opining about issues of critical importance.' Hersh Shefrin, Professor of Finance, Santa Clara University, Author, Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing and Ending the Management Illusion

'The Flaw serves up a damning indictment that meshes with the 'Occupy' anti-Wall Street outlook...Highly recommended.' Video Librarian

'Explores aspects of the crisis too often ignored...Packed with information and it does something other videos on the crisis do not do. This video connects the 'dots,' the precursor factors leading to the housing boom and why the crash was so devastating...An excellent video. It covers the real causes of the economic crisis of 2008 and foreshadows the economic crisis of 2???.' Vance Geiger, University of Central Florida, Anthropology Review Database

'Exceptionally well-made...The story begins with decades of success by the 1% and corporate CEOs in driving down incomes for everyone else. How could the majority of Americans maintain their standard of living despite stagnating wages and income? By borrowing. How could the 1% and Wall Street make the most return on the wealth they were accumulating as they paid working people less? By lending it to those same working people.' World Wide Work

'Recommended...The topic is carefully researched and presented, and will provide interesting information for students, investors, and the general public. This DVD is suitable for high school and college students as well as adults, and public and academic libraries will want to purchase.' Susan Awe, University of New Mexico, Educational Media Reviews Online

'Sobering...A thoughtful and absolutely invaluable documentary worthy of the highest recommendation that deserves to be on the DVD shelves of every public and college library in the nation.' The Midwest Book Review

'Particularly insightful are the explanations by economists Robert Shiller and Joseph Stiglitz...Strikes a nice balance between being entertaining and informative...Highly recommended for all viewers.' Library Journal

'The Flaw is the best film we know for explaining the financial meltdown, the crisis of capitalism, and growing inequality. It provides a deeply critical and comprehensive explanation...Engaging.' Rethinking Schools

'The film's conclusion is perhaps not the one that might be expected....The Flaw displays a high level of sophistication in explaining why the markets collapsed as they did, unlike, for instance, Michael Moore's Capitalism: A Love Story.' James Elwes, Prospect

'A lively, iconoclastic look at the current crisis in capitalism' Kenneth Turan, Los Angeles Times

'What makes this film stand out is its impassioned, at times enraged, expose of the way our economic system has become weighted in favour of the super-rich...a furious rallying cry for change which still hasn't come, this is forceful, eye-opening viewing.' Tom Huddleston, Time Out London

'Lively documentary on the 2008 financial crisis...Unchecked capitalism, the growing inequality of incomes, the gap between the super-rich and the rest of us, simple greed and sheer stupidity are identified and explained as major factors.' Philip French, The Observer

'This sobering, informative film will enrage many in the audience. Those smiling on the way to the bank will probably wait for the DVD and watch it with some relief from 50 inch plasma TVs in their basement screening rooms.' Joyce Glasser, Mature Times

'Smart and entertaining documentary...By establishing the intellectual framework of what took place and then demonstrating the effects in the real world, Sington has cleverly taken complex, often abstract concepts and made them accessible for a lay audience. Outstanding archival work by Jacqui Edwards in collecting amusing images over which Sington and his editor David Fairhead could place the cold, hard facts, helps make the message understandable.' James Greenberg, Hollywood Reporter

'The way that stagnation of real incomes for most in the US provoked a sensational rise in personal debt is superbly portrayed in David Sington's new film The Flaw...as economists have pointed out and The Flaw illustrates vividly, the principal beneficiaries of the long period of growth were those at the top of what economists call 'the income distribution'.' William Keegan, The Observer

'Rather than beginning with the housing bubble's immediate causes, David Sington's film goes further back in time to take a general look at why so many Americans chose risky mortgages. In a brisk account, featuring pithy talking heads, it highlights the vast wealth of the country's super-rich: so much of this elite's money has been spent on pointlessly big houses that the entire market has been distorted.' Edward Porter, Sunday Times

'Wonks meet everyday Joes to explain the 2008 global economic crisis in writer-director David Sington's intelligent THE FLAW. Going out of its way to make economic theory and practice digestible (and viewable) to lay audiences...' Robert Koehler, Variety

'Bolstered by graphics and animation (ironically plucked from postwar cartoons extolling free markets) the film renders complex ideas digestible and argues that capitalism has changed in the last 30 year--and not for the better. Once sold on consumer power through borrowing and a higher standard of living, we realize we bought into a lie. The Flaw has burst the bubble.' Sundance Film Festival Program

'David Sington's damning documentary makes it easier to understand but not to condone.' Allan Hunter, Daily Express

'A welcome companion to Inside Job, explaining the 2008 financial meltdown -- and the unscathed power structures behind it -- with analysis, informed experts and vintage cartoons.' Steve Rose, The Guardian

'A terrific film, intelligent and persuasive, but also entertaining, witty and at times moving.' MatthewTaylor, Royal Society of the Arts, former head of strategy for Tony Blair

'The Flaw is a film which squares up to the issue with confidence, verve and righteous anger...what makes The Flaw an outstanding documentary is its firm stance. The film is bold for how it draws a firm distinction between good capitalism and bad capitalism...The Flaw is to be applauded for attempting to redeem the capitalist system itself, rather than the people who ruined it. Sington's film deserves to be seen by every mortgage lender and Dow Jones shareholder in the West.' Ben Taylor, Electric Theatre

'When the greed of bankers sent the world economy into a tailspin, US Federal Reserve chairman Alan Greenspan had to stand in front of Congress and eat some serious wedges of humble pie, and award-winning director David Sington's film takes Greenspan and his financial whizzkids to task in this seriously enlightening documentary.' Dan Carrier, West End Extra

'A film that informs and outrages in equal measure. Prompted by the 2009 financial crash and looking at how capitalism is heading for crisis, we learn how, in 2007, the top 0.1 per cent of Americans made 40 per cent of the country's money. That's 15,000 people 'earning' $700 billion while everyone else got poorer. Bring on the revolution!' David Edwards, Daily Mirror

'This is one of the best films I've seen in a long time. David Sington has made a film which is hugely entertaining and hugely insightful. This is a film without commentary, and there are no Michael Moore-type stunts. Instead Sington has found a range of economists and experts who explain in clear language the roots of the crisis.' Val Kermode, Eye For Film

'The Flaw moves at a nicely snappy pace, with Sington shrewdly blending thoughtful interviews with bankers, brokers, borrowers and economists with graphics and animation drawn from post-war cartoons, which -- with a certain irony -- are busy extolling the pleasures of benefits of a free market.' Mark Adams, Screen Daily

'With its judicious mix of talking heads and poignant case studies, this is a fascinating insight into why so few academics and financiers failed to notice the imminence of meltdown until it was too late...(David Sington's) arguments are cogent and compelling, but it remains to be seen how many of his lessons about excessive income inequality leading to economic instability will be taken onboard.' Parky at the Pictures, Oxford Times

Citation

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Main credits

Sington, David (film director)
Lambert, Stephen (film producer)
Hird, Christopher (film producer)

Other credits

Cinematography, Clive North; editor, David Fairhead; music, Philip Sheppard; consultant, Alex Crossman.

MARC Record See Worldcat record

Keywords

credit bubble, financial crash, financial crisis, Alan Greenspan, free markets, mortgage lending, Wall Street, Congress, housing bubble, economics, Robert Shiller, Joseph Stiglitz, Louis Hyman, Ed Andrews, foreclosure, Andrew Luan, bond trader, Deutsche Bank, finance, world economy, income inequality, economic instability, economic theory, public policy, root causes of economic crisis, Robert Frank , Dan Ariely, Robert Wade, George Cooper, Jim Fink, Steve Pennington, Jim O'Neill, Nell Minow, Sarah Ludwig, Josh Zinner, Antoinette Coffi-Ahibo, Steve Nahas, Rose Alfono, Lawrence Citarelli, Alex Chardiet,"The Flaw",Bullfrog Films

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[Parliament's Wizard of Finance]

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♪ ♪

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- ♪ Whoa, whoa, whoa, whoa ♪

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♪ ♪

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♪ If I was a wizard
of finance ♪

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♪ Speculating every day
on Wall Street ♪

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♪ My dividends would be
so tremendous, baby ♪

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♪ Even Dow Jones would
find it hard to believe ♪

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- The bursting of the nation's
housing bubble

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adds up to a subpar snapshot...

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- A major shake-up
on Wall Street.

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Lehman Brothers has filed

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for Chapter 11
bankruptcy protection.

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- The mortgage crisis
and the government takeover

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of mortgage giants Fannie Mae
and Freddie Mac...

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- Alan Greenspan calls it

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a once-in-a-century
financial crisis.

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- Meltdown on Wall Street,
the worst since 9/11.

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One giant collapses.
Another is bought.

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- President's economic generals
warning Congress:

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approve a $700 billion bailout

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or face dire consequences.

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- The outlook for the economy

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and thus for credit quality
remains uncertain.

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- I have talked to the heads
of almost every single one

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of these firms
in the last 72 hours,

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and he has no idea
what it's like out there.

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None!

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- Yes, I've found a flaw.

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I don't know how significant
or permanent it is,

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but I've been very distressed
by that fact.

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- ♪ It's the loving kind ♪

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♪ It's the squeezing kind ♪

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♪ It's the loving kind ♪

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♪ It's the squeezing kind ♪

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♪ It's your loving kind,
squeezing kind ♪

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♪ Loving kind,
squeezing kind ♪

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♪ Yeah, baby ♪

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♪ It's the loving kind ♪

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♪ It's the squeezing kind ♪

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♪ It's the loving kind ♪

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♪ It's the squeezing kind ♪

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[siren wails]

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[siren wailing]

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- Welcome to New York City,
financial capital of the world.

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Welcome to Wall Street.

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This is the heart
of American capitalism.

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Before I begin,
a few things about the tour.

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One is - I'm not used
to the camera in front of me.

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One is, let's make this tour
interactive.

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Feel free to ask me questions.

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One of the things
I love the most

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is you guys getting
the "aha" moment.

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If you can walk away today
with a better understanding

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of Wall Street,

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a better understanding
of the financial crisis,

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I've done my job, all right?

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- Committee will please
come to order.

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I will start the questioning.

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Dr. Greenspan,
I want to start with you.

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And my question for you
is simple.

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Were you wrong?

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Be sure the mic is turned on.

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- Partially, but let's separate
this problem

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into its component parts.

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- We're talking
about explaining history,

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major world historic events.

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- This is as much a wealth
crisis as a debt crisis.

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It's a problem of wages
as much as investment.

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- It's a debt crisis,

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but it's also very much
a crisis of economic theory.

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- I think
the income distribution

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was the initial step
in the dynamic

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that drove the debt crisis.

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- It's horrifying.
[laughs]

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I mean, this is - you know,
all the people that we trusted

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have turned out to be
completely untrustworthy.

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- This crisis is a total failure
of markets.

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- So it's not simple.

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- In a short span of time

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between March 2008
to September 2008,

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so many things happened.

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Fear was in the marketplace.

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And if someone were to tell you,
in six months,

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three of the top
investment banks would fail

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and they would tell you

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the top U.S.
insurance company would fail

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and they would tell you
Freddie or Frannie,

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top mortgage issuers,

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bankrupt -

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oh, Iceland bankrupt,

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bankrupts round the world,

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if someone were to tell you

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this would happen
in short six months,

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you'd think they're crazy.

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But that's essentially
what happened.

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- Dr. Greenspan,
you had an ideology,

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you had a belief, that,
"Free competitive markets

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"are by far the unrivalled way
to organize economies.

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"We've tried regulation.

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None meaningfully worked."

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That was your quote.

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Do you feel that your ideology
pushed you

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to make decisions
that you wish you had not made?

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- Well, remember
that what an ideology is,

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is a conceptual framework

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with the way people deal
with reality.

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Everyone has one.

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You have to.

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To exist, you need an ideology.

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The question is whether it is
accurate or not.

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And what I'm saying to you is,
yes, I've found a flaw.

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I don't know how significant
or permanent it is,

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but I've been very distressed
by that fact.

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- You found a flaw
in the reality?

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- A flaw, in flaw in the model
that I perceived

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is the critical
functioning structure

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that defines
how the world works,

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so to speak.

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[cheers and applause]

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[triumphant music]

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♪ ♪

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male narrator:
It wasn't so long ago

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in the history of man's voyage
toward a better world

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that ships were carrying
eager passengers

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toward the shores
of a new nation

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that was just in the building.

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Our forefathers
were constructing

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the foundation of this nation
by interlocking inseparably

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the blocks of our political
and economic freedom.

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- In some sense, economics,
standard economics,

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is a very optimistic view
of human nature, right?

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Everybody's wonderful.

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Everybody's great.

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Every person
is a perfect calculator.

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And that's basically
what it means

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is that we have lots of actors,

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each of them doing
the best thing for them,

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and that creates some kind
of social benefit for everybody.

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[patriotic flute and drum music]

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narrator: The way of life
our forefathers established

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on this foundation of freedom

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drew people from the far corners
of the Earth,

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and all those who set foot
on these shores

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had the opportunity to build
a better life for themselves.

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Even young Jonathan,

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an unskilled lad
from across the sea,

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hoped to find a job
where he could progress

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according to his ability
and enterprise.

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- Well, there's many factors
that ultimately underlie

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the current financial crisis.

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But one thing
that comes across in my mind

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is an intellectual change.

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- An idea!

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An idea?

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- In the 1970s, the so-called
efficient markets hypothesis

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began to be received doctrine
in the universities.

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- The simple version

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of the efficient market
hypothesis

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is that you have a value
of something in the market,

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whatever it is.

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If it's too low,
people would recognize it,

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and then they would bid
the price up.

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If it's too high,
people would recognize it,

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and they'll bid the price low.

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So you might have one opinion.

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I might have the other opinion.

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But the opinion of all of us
in average

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is going to be kind of
the correct opinion,

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what's called
the wisdom of crowd.

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- This is the hypothesis
that all financial asset prices

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are correct at all times -

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well, correct in the sense

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that they accumulate
all of the information,

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pool the information,

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and then become wiser
than any one individual

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so that it would be foolhardy
to ever question a market price.

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Narrator: While the Main Street
of today doesn't look much like

00:09:32.333 --> 00:09:34.633
the Main Street
of Jonathan's time,

00:09:34.667 --> 00:09:37.833
the principles of our
business system remain the same,

00:09:37.867 --> 00:09:39.900
for businessmen
still compete with one another

00:09:39.933 --> 00:09:43.033
for the consumers' supply
of spendable dollars.

00:09:43.067 --> 00:09:45.700
And Mrs. Consumer
is still mighty critical

00:09:45.733 --> 00:09:47.533
of everything she buys.

00:09:47.567 --> 00:09:49.867
- So under that thesis,

00:09:49.900 --> 00:09:54.567
prices are always
at the correct price.

00:09:54.600 --> 00:09:56.600
You can't have
an asset price bubble

00:09:56.633 --> 00:09:59.000
in the efficient
market hypothesis.

00:10:00.267 --> 00:10:04.000
- Do let me tell you a bit more
about myself.

00:10:04.033 --> 00:10:06.233
After MIT,
I went to Silicon Valley.

00:10:06.267 --> 00:10:08.833
And so I was there
before the bubble,

00:10:08.867 --> 00:10:11.833
during the bubble,
and slightly after the bubble -

00:10:11.867 --> 00:10:14.000
the internet bubble, that is.

00:10:14.033 --> 00:10:17.333
And so, you know,
after the bubble,

00:10:17.367 --> 00:10:18.900
I was, like, looking around.

00:10:18.933 --> 00:10:19.973
I was like, "Wow, you know,

00:10:20.000 --> 00:10:21.300
"what I'm doing is really risky.

00:10:21.333 --> 00:10:22.900
I got to find something
more stable."

00:10:22.933 --> 00:10:26.433
What I became is,
I became a bond trader

00:10:26.467 --> 00:10:30.233
of, essentially,
subprime mortgages bonds.

00:10:36.000 --> 00:10:38.933
- I think we know
what a bubble is.

00:10:38.967 --> 00:10:42.967
It's a phenomenon that has been
repeated many times in history.

00:10:43.000 --> 00:10:44.567
[bubbles gurgling]

00:10:44.600 --> 00:10:48.400
If you look at
The Oxford English Dictionary,

00:10:48.433 --> 00:10:49.967
I think it says something like,

00:10:50.000 --> 00:10:53.200
"A speculative price increase
that's not justified."

00:10:53.233 --> 00:10:54.733
It's filled with air
like a bubble

00:10:54.767 --> 00:10:55.933
and eventually bursts.

00:10:58.667 --> 00:11:02.200
Economists would like to come up
with a good explanation.

00:11:02.233 --> 00:11:05.367
Why did we have a stock market
bubble in the 1990s

00:11:05.400 --> 00:11:08.000
and then a real estate bubble
in the 2000s?

00:11:08.033 --> 00:11:10.333
[bubble pops]

00:11:10.367 --> 00:11:13.100
I like to give explanations
that sound a little -

00:11:13.133 --> 00:11:14.433
that sound right to me

00:11:14.467 --> 00:11:17.533
and maybe a little disreputable
in our own profession

00:11:17.567 --> 00:11:19.500
and a cultural explanation.

00:11:19.533 --> 00:11:23.767
One thing that strikes me
as having been very formative

00:11:23.800 --> 00:11:27.800
for people's thinking
was the explosion of capitalism.

00:11:27.833 --> 00:11:31.567
- Government is not
the solution to our problem.

00:11:31.600 --> 00:11:34.700
Government is the problem.

00:11:34.733 --> 00:11:38.300
- It started
with the Margaret Thatcher

00:11:38.333 --> 00:11:40.333
and Ronald Reagan revolutions

00:11:40.367 --> 00:11:42.700
that brought free markets
to more prominence.

00:11:45.900 --> 00:11:47.300
And then it moved on

00:11:47.333 --> 00:11:50.200
with the breakup
of the Soviet Union...

00:11:50.233 --> 00:11:51.833
- [speaking Russian]

00:11:59.100 --> 00:12:01.933
- The advent of capitalism
in China.

00:12:01.967 --> 00:12:05.733
It seemed like there was
an intellectual revolution,

00:12:05.767 --> 00:12:08.700
that people believed in markets.

00:12:08.733 --> 00:12:11.100
And so people thought
that we're in a new world.

00:12:11.133 --> 00:12:13.900
Private property reigns.

00:12:13.933 --> 00:12:17.567
It struck a tone of fear
in people that,

00:12:17.600 --> 00:12:21.833
"I'd better get on this,
or I will be left behind."

00:12:21.867 --> 00:12:24.700
I call it
a "gold rush mentality."

00:12:24.733 --> 00:12:28.033
And it led to people
changing their self-image.

00:12:28.067 --> 00:12:29.767
They thought that,
"I have to change

00:12:29.800 --> 00:12:31.367
"to become part of this,
to be smart

00:12:31.400 --> 00:12:33.800
"and stay afloat in this world.

00:12:36.000 --> 00:12:38.867
I'm gonna be
an investment genius."

00:12:38.900 --> 00:12:40.667
male announcer:
Play your hand at hotjobs.com.

00:12:40.700 --> 00:12:41.733
Male announcer:
Dot-com.

00:12:41.767 --> 00:12:43.067
Male announcer:
Dot-com.

00:12:43.100 --> 00:12:45.300
- It looked like the dot-com -
all those tech stocks

00:12:45.333 --> 00:12:47.133
were a great way
to invest your money,

00:12:47.167 --> 00:12:48.500
and so money flooded in.

00:12:48.533 --> 00:12:50.767
- Today I'm talking
to some city pets.

00:12:50.800 --> 00:12:52.600
Oh, ooh, hey, poodles!

00:12:52.633 --> 00:12:56.733
Did you know that Pets.com
delivers food, treats, and toys?

00:12:56.767 --> 00:12:58.167
- And lo and behold,

00:12:58.200 --> 00:13:00.967
you can't make money selling
pet food on the internet.

00:13:01.000 --> 00:13:03.300
But people thought it was

00:13:03.333 --> 00:13:04.900
this new opportunity
for investment.

00:13:04.933 --> 00:13:06.400
- Doctor, I think
you should see this.

00:13:06.433 --> 00:13:08.500
- Oh, my.
- Why, what is it?

00:13:08.533 --> 00:13:10.500
- He's got money
coming out the wazoo.

00:13:10.533 --> 00:13:11.533
- What does he have?

00:13:11.567 --> 00:13:13.600
- Money out the wazoo.

00:13:13.633 --> 00:13:15.200
- Move this man
to a private room.

00:13:16.833 --> 00:13:18.367
Male announcer:
It's time for E*TRADE.

00:13:18.400 --> 00:13:20.000
- Unfortunately,
we were embarrassed

00:13:20.033 --> 00:13:21.867
by the fall in stock prices,

00:13:21.900 --> 00:13:27.767
so we had to turn to some way
of maintaining the ego

00:13:27.800 --> 00:13:29.233
that we had just developed.

00:13:29.267 --> 00:13:30.500
- Yow!

00:13:30.533 --> 00:13:32.100
- We started to think
we had a smart response

00:13:32.133 --> 00:13:33.500
called sector rotation.

00:13:33.533 --> 00:13:36.000
Rotate out of the -
that's a little bit of jargon.

00:13:36.033 --> 00:13:40.367
Rotate out of the equity sector
into the property sector.

00:13:40.400 --> 00:13:42.267
Male announcer:
Introducing the world fastest

00:13:42.300 --> 00:13:46.600
moneymaking system:

00:13:46.633 --> 00:13:49.200
- It accelerated
largely through media,

00:13:49.233 --> 00:13:51.167
television shows that focused
on the bubble

00:13:51.200 --> 00:13:54.267
and ad campaigns
that reinforced notions

00:13:54.300 --> 00:13:56.133
that seemed to support
the bubble.

00:13:56.167 --> 00:13:58.267
- Wouldn't you like to learn
how to make a fortune

00:13:58.300 --> 00:14:01.333
in real estate
without needing any money?

00:14:01.367 --> 00:14:03.833
- People were so pleased
that they had found

00:14:03.867 --> 00:14:07.833
the smart, at-home investment
that they understood and knew

00:14:07.867 --> 00:14:10.233
and they were very confident
about.

00:14:10.267 --> 00:14:12.600
- There's no reason
that you can't be living

00:14:12.633 --> 00:14:15.667
the same life I am
in no time at all.

00:14:15.700 --> 00:14:18.700
[birds chirping]

00:14:20.867 --> 00:14:22.600
- It's humiliating.

00:14:22.633 --> 00:14:24.200
I am an economics correspondent

00:14:24.233 --> 00:14:26.833
for The New York Times,
and I'm ten months past due.

00:14:26.867 --> 00:14:29.567
And in extended discussions
with the lender,

00:14:29.600 --> 00:14:33.033
I'm kind of amazed, actually,
that I'm still in this house.

00:14:42.567 --> 00:14:45.000
- That deal that I got
is not a good deal,

00:14:45.033 --> 00:14:48.533
and I cannot keep the house
with this deal.

00:14:48.567 --> 00:14:52.833
All the bad mortgage you can
ever imagine in this planet,

00:14:52.867 --> 00:14:54.800
that the kind of mortgage
that I have.

00:15:04.200 --> 00:15:05.367
- I'm a working stiff.

00:15:05.400 --> 00:15:07.333
I'm a regular guy.
I have a job.

00:15:07.367 --> 00:15:09.800
I'm trying to get ahead,

00:15:09.833 --> 00:15:12.267
and I thought this was
a smart way to do it.

00:15:23.567 --> 00:15:26.367
Here's how it started for me.

00:15:26.400 --> 00:15:28.733
I got married six years ago.

00:15:28.767 --> 00:15:31.000
And about a year
into our marriage,

00:15:31.033 --> 00:15:32.900
my wife was staying at home
and decided,

00:15:32.933 --> 00:15:34.267
"Now I want to do something."

00:15:34.300 --> 00:15:35.567
So she looked around

00:15:35.600 --> 00:15:37.700
and thought she'd try
to sell real estate.

00:15:37.733 --> 00:15:40.767
And she took the course,
passed the test,

00:15:40.800 --> 00:15:45.400
went to work for a pretty large
Century 21 office in our area.

00:15:45.433 --> 00:15:47.433
And the broker there -

00:15:47.467 --> 00:15:50.367
that was maybe two years
into the boom.

00:15:50.400 --> 00:15:51.633
And he said to her, he said,

00:15:51.667 --> 00:15:54.667
"I would recommend
everybody that owns a house

00:15:54.700 --> 00:15:56.700
"borrow as much as you can
against it.

00:15:56.733 --> 00:15:58.767
"Take out every nickel
that you can

00:15:58.800 --> 00:16:00.433
"and invest it in real estate.

00:16:00.467 --> 00:16:01.800
You just can't lose."

00:16:01.833 --> 00:16:03.733
- But you can always tell,
can't you?

00:16:03.767 --> 00:16:06.233
A town with good
real estate people

00:16:06.267 --> 00:16:08.767
is a more substantial community,

00:16:08.800 --> 00:16:10.800
because more people own
their own homes.

00:16:10.833 --> 00:16:12.567
- That's right.

00:16:23.133 --> 00:16:25.867
- You could look at a house
that was two years ago $300,000.

00:16:25.900 --> 00:16:28.100
Now they're $600,000.

00:16:28.133 --> 00:16:29.867
They're just astronomical.

00:16:29.900 --> 00:16:31.933
And you see it happening
all around you.

00:16:31.967 --> 00:16:34.033
Everybody's getting in on it.

00:16:34.067 --> 00:16:36.933
So I'd been in my house 12 years
or something like that,

00:16:36.967 --> 00:16:38.800
and I'd built up equity.

00:16:38.833 --> 00:16:40.867
And I thought, "Wow, he's right.

00:16:40.900 --> 00:16:42.000
I should do that."

00:16:42.033 --> 00:16:43.033
So that's what I did.

00:16:46.633 --> 00:16:48.067
- The efficient market
hypothesis

00:16:48.100 --> 00:16:49.900
is built on the simple idea

00:16:49.933 --> 00:16:52.133
that as the price
of a good goes up,

00:16:52.167 --> 00:16:54.600
we tend to demand less of it,

00:16:54.633 --> 00:16:57.367
so the supply
and demand matches.

00:16:57.400 --> 00:17:00.900
That's what gives us
the stability in the system.

00:17:00.933 --> 00:17:06.433
If you imagine, for example,
something like a refrigerator,

00:17:06.467 --> 00:17:08.833
if its price rises dramatically,

00:17:08.867 --> 00:17:10.133
people are going to make do

00:17:10.167 --> 00:17:14.167
with the refrigerator
they've already got.

00:17:14.200 --> 00:17:17.833
When they start to treat a good
as a financial asset,

00:17:17.867 --> 00:17:20.700
as people started to do
with houses in the boom...

00:17:23.833 --> 00:17:26.867
That's when you get
into a very unstable market.

00:17:33.200 --> 00:17:38.767
- Asset markets are dramatically
less stable than goods markets.

00:17:38.800 --> 00:17:41.200
You don't see the price
of Chevrolets

00:17:41.233 --> 00:17:43.133
skyrocket and then plunge.

00:17:45.200 --> 00:17:48.367
- The key difference
between an asset and a good is,

00:17:48.400 --> 00:17:51.467
when you buy a good,
you want to use it.

00:17:51.500 --> 00:17:53.033
You're not going to resell it.

00:17:53.067 --> 00:17:54.500
When you're buying an asset,

00:17:54.533 --> 00:17:56.733
you're buying it in the hope
of being able to sell it

00:17:56.767 --> 00:17:59.367
in the future
for a higher price.

00:17:59.400 --> 00:18:02.767
So if we see
that its price is rising,

00:18:02.800 --> 00:18:05.133
we then tell ourselves
that we're very smart,

00:18:05.167 --> 00:18:08.933
and we go out and buy
some more of that asset.

00:18:08.967 --> 00:18:13.967
So in goods markets,
when prices rise, demand falls.

00:18:14.000 --> 00:18:17.133
In asset markets,
when prices rise,

00:18:17.167 --> 00:18:20.300
demand often rises as well.

00:18:20.333 --> 00:18:21.667
- In the asset market,

00:18:21.700 --> 00:18:24.567
the very fact
of its having grown in price

00:18:24.600 --> 00:18:28.633
fuels demand for additional
purchases of the asset.

00:18:28.667 --> 00:18:31.900
It also fuels
additional purchasing power,

00:18:31.933 --> 00:18:33.733
because people can borrow more

00:18:33.767 --> 00:18:37.233
against the value of the assets
they own that went up in price.

00:18:45.867 --> 00:18:48.867
- Most of these assets
are bought financed with debt.

00:18:54.100 --> 00:18:57.067
When we buy a house,
we buy it with a mortgage,

00:18:57.100 --> 00:18:59.667
so it's debt financed.

00:18:59.700 --> 00:19:02.300
If one of those assets goes up,

00:19:02.333 --> 00:19:06.700
you're able to borrow more money
against that asset.

00:19:06.733 --> 00:19:09.800
So your spending power
for new assets rises

00:19:09.833 --> 00:19:12.100
as the prices go up.

00:19:15.833 --> 00:19:17.833
- I bought several
investment properties.

00:19:17.867 --> 00:19:22.267
I'd buy one, and I took equity
out of my house.

00:19:22.300 --> 00:19:24.800
Or I'd buy one
and then go look at another one,

00:19:24.833 --> 00:19:26.767
take equity from the one
I just bought

00:19:26.800 --> 00:19:29.267
in order to buy
as much as I could.

00:19:32.367 --> 00:19:34.400
I bought at exactly
the wrong time.

00:19:34.433 --> 00:19:36.700
I went on a buying spree
right at the peak.

00:19:40.767 --> 00:19:43.433
In fact, the most expensive
property I bought in Hawaii

00:19:43.467 --> 00:19:46.867
is still today the highest price
in that development,

00:19:46.900 --> 00:19:49.867
3 1/2 years later.

00:19:49.900 --> 00:19:51.033
I was the peak.

00:19:51.067 --> 00:19:52.167
I had to buy around the peak.

00:19:52.200 --> 00:19:53.567
I was the highest one.

00:19:53.600 --> 00:19:56.967
Immediately after that,
the next one was less.

00:19:57.000 --> 00:19:58.333
- How does that make you feel?

00:19:58.367 --> 00:20:00.067
- Great.

00:20:05.300 --> 00:20:06.533
- Dr. Greenspan,

00:20:06.567 --> 00:20:09.700
your view of the world,
your ideology, was not right.

00:20:09.733 --> 00:20:11.367
It was not working.

00:20:11.400 --> 00:20:12.633
- Precisely.

00:20:12.667 --> 00:20:14.733
That's precisely the reason
I was shocked,

00:20:14.767 --> 00:20:17.767
because I'd been going
for 40 years or more

00:20:17.800 --> 00:20:19.767
with very considerable evidence

00:20:19.800 --> 00:20:21.833
that it was working
exceptionally well.

00:20:25.733 --> 00:20:28.167
- Greenspan had been working
to the assumption

00:20:28.200 --> 00:20:33.400
that the financial system
was a self-stabilizing system.

00:20:33.433 --> 00:20:37.933
It meant that he took a view
of asset price bubbles

00:20:37.967 --> 00:20:42.700
which was that
it really wasn't in his remit

00:20:42.733 --> 00:20:44.167
to do anything about them.

00:20:51.700 --> 00:20:54.333
He had this idea
that the central bank

00:20:54.367 --> 00:20:57.633
should never question
asset prices.

00:20:57.667 --> 00:20:59.033
It should only take action

00:20:59.067 --> 00:21:02.967
when asset prices
started to fall.

00:21:03.000 --> 00:21:05.767
So whenever there was
the tiniest slowdown,

00:21:05.800 --> 00:21:08.200
he'd be leaping in
with monetary stimulus,

00:21:08.233 --> 00:21:09.333
cutting interest rates

00:21:09.367 --> 00:21:11.633
and trying to boost
activity again.

00:21:11.667 --> 00:21:15.533
And of course,
boosting economic activity

00:21:15.567 --> 00:21:16.600
is just a euphemism

00:21:16.633 --> 00:21:18.133
for trying to encourage
the economy

00:21:18.167 --> 00:21:19.600
to borrow even more,

00:21:19.633 --> 00:21:25.167
creating a credit boom
or a credit bubble.

00:21:25.200 --> 00:21:28.767
So we're in this crisis
in large part

00:21:28.800 --> 00:21:31.500
because our central banks have

00:21:31.533 --> 00:21:33.900
for the last two
or three decades

00:21:33.933 --> 00:21:37.200
encouraged us to borrow more
and more and more

00:21:37.233 --> 00:21:40.767
and eventually got us
into this unsustainable state.

00:21:44.533 --> 00:21:46.867
Now, if the central bank's

00:21:46.900 --> 00:21:49.300
operating
its interest rate policy

00:21:49.333 --> 00:21:53.967
in a way to encourage
asset prices to keep inflating,

00:21:54.000 --> 00:21:55.600
obviously that's going
to benefit

00:21:55.633 --> 00:21:58.633
that portion of society
that owns assets,

00:21:58.667 --> 00:22:00.233
which is typically

00:22:00.267 --> 00:22:03.367
the wealthy end
of the spectrum already.

00:22:10.567 --> 00:22:13.667
Narrator: In 1900,
many men had to work

00:22:13.700 --> 00:22:17.667
ten hours a day six days a week

00:22:17.700 --> 00:22:20.700
to earn enough money
to provide their families

00:22:20.733 --> 00:22:23.567
with the bare essentials.

00:22:23.600 --> 00:22:25.933
Hand labor was the rule
in the home

00:22:25.967 --> 00:22:27.800
as well as the factory.

00:22:29.200 --> 00:22:31.667
A half century later,
we had invested enough

00:22:31.700 --> 00:22:34.867
in our business system
to provide the average worker

00:22:34.900 --> 00:22:38.000
with efficient and expensive
buildings and machinery

00:22:38.033 --> 00:22:41.367
to enable him to produce enough
in a 40-hour week

00:22:41.400 --> 00:22:44.933
to earn twice as much
as the 1900 worker earned

00:22:44.967 --> 00:22:47.433
in a 60-hour week.

00:22:47.467 --> 00:22:51.167
This shorter workweek
gives us all more leisure time

00:22:51.200 --> 00:22:54.600
to enjoy a standard of living
beyond the wildest dreams

00:22:54.633 --> 00:22:57.400
of anyone who lived
a half century ago.

00:22:57.433 --> 00:22:59.033
The more we earn,

00:22:59.067 --> 00:23:00.700
the more our families have

00:23:00.733 --> 00:23:02.767
to spend for the things
they need and want.

00:23:06.433 --> 00:23:07.733
- You ask an American,

00:23:07.767 --> 00:23:09.933
"When was America
most prosperous

00:23:09.967 --> 00:23:11.067
in the 20th century?"

00:23:11.100 --> 00:23:14.033
Most Americans outside
of financiers in Wall Street

00:23:14.067 --> 00:23:15.900
will tell you the 1950s.

00:23:15.933 --> 00:23:18.900
It's thought of
as this time of perfection,

00:23:18.933 --> 00:23:23.467
this golden age of capitalism
with big-finned cars and houses

00:23:23.500 --> 00:23:25.967
and anybody, any guy,

00:23:26.000 --> 00:23:28.767
could get a job
and support his wife and kids.

00:23:28.800 --> 00:23:30.600
[bell ringing]

00:23:30.633 --> 00:23:31.833
And this kind of lifestyle

00:23:31.867 --> 00:23:35.000
isn't possible
for most people today.

00:23:35.033 --> 00:23:37.000
Narrator:
And fortunately,

00:23:37.033 --> 00:23:40.100
we have been able
to raise our standard of living

00:23:40.133 --> 00:23:42.833
without sacrificing
the spiritual side of life

00:23:42.867 --> 00:23:45.567
which means so much
to the American family.

00:23:45.600 --> 00:23:47.833
- Now, this is also
the moment in America

00:23:47.867 --> 00:23:51.433
that has the least income
inequality in our history,

00:23:51.467 --> 00:23:53.067
and I don't think
that's a coincidence.

00:23:59.300 --> 00:24:02.000
Before the sort of
World War II period,

00:24:02.033 --> 00:24:04.000
income inequality was very high.

00:24:07.133 --> 00:24:10.500
- The share
of total American income

00:24:10.533 --> 00:24:13.500
going to just the top 1%

00:24:13.533 --> 00:24:18.667
peaked in 1929 at about 22%,

00:24:18.700 --> 00:24:22.400
which is an extraordinary
figure.

00:24:23.800 --> 00:24:26.200
- And then as you go
into World War II,

00:24:26.233 --> 00:24:30.500
income inequality falls
from 1945 to 1970.

00:24:30.533 --> 00:24:35.900
- In the 1970s,
the top 1% were getting only 9%.

00:24:35.933 --> 00:24:39.533
That was a huge fall.

00:24:39.567 --> 00:24:42.500
- And then in the 1970s,
you start to see it rise again,

00:24:42.533 --> 00:24:44.300
accelerating in the 1980s.

00:24:50.300 --> 00:24:52.567
- There's been a big shift
in the way income growth

00:24:52.600 --> 00:24:54.600
has occurred in
the United States, certainly,

00:24:54.633 --> 00:24:56.200
but also in other countries
as well,

00:24:56.233 --> 00:24:57.433
though not to the same degree.

00:25:02.033 --> 00:25:05.167
What we've seen is that unlike
the three decades

00:25:05.200 --> 00:25:07.700
right after World War II
when incomes grew

00:25:07.733 --> 00:25:09.733
at about the same rate
for everyone,

00:25:09.767 --> 00:25:12.033
starting in the early 70s,
roughly,

00:25:12.067 --> 00:25:15.800
income growth started
accumulating only at the top.

00:25:25.033 --> 00:25:28.300
- The share of the top 1%
went shooting up

00:25:28.333 --> 00:25:31.867
like a July the 4th skyrocket

00:25:31.900 --> 00:25:35.767
back up to about the same
as in 1929.

00:25:38.733 --> 00:25:41.200
[rocket whooshing]

00:25:41.233 --> 00:25:43.400
- And part of that can be
explained by the credit boom,

00:25:43.433 --> 00:25:44.567
or the credit bubble.

00:25:44.600 --> 00:25:47.100
- You were okay
up to that credit business.

00:25:47.133 --> 00:25:48.733
Couldn't you make that
a bit clearer?

00:25:48.767 --> 00:25:49.833
- To really understand it,

00:25:49.867 --> 00:25:53.567
you have to go back
to the 1920s.

00:25:53.600 --> 00:25:58.133
There was increasing inequality,

00:25:58.167 --> 00:26:01.500
but there was also
increasing debt.

00:26:01.533 --> 00:26:05.933
- The U.S. was developing
great productive capacity

00:26:05.967 --> 00:26:09.333
in consumer goods industries
such as refrigerators,

00:26:09.367 --> 00:26:11.633
such as radios,
such as automobiles.

00:26:13.933 --> 00:26:16.133
- And these were very expensive

00:26:16.167 --> 00:26:17.733
for the average worker
at the time.

00:26:18.900 --> 00:26:21.600
- And so over the mid-'20s
to late '20s,

00:26:21.633 --> 00:26:23.467
there's an incredible explosion

00:26:23.500 --> 00:26:25.433
of installment credit
in America.

00:26:25.467 --> 00:26:28.600
People could borrow
to pay for all the new modern

00:26:28.633 --> 00:26:30.033
electric appliances.

00:26:30.067 --> 00:26:36.700
- And you had a rapid rise
in credit in the economy

00:26:36.733 --> 00:26:40.167
to the point at which
we got too much credit,

00:26:40.200 --> 00:26:41.500
too much indebtedness,

00:26:41.533 --> 00:26:44.567
and then eventually,
the system collapsed.

00:26:44.600 --> 00:26:50.300
- So the 1920s can actually
be seen as a kind of precursor

00:26:50.333 --> 00:26:53.633
of what happened in the 2000s.

00:27:04.133 --> 00:27:08.067
So you have a very pronounced
U-shaped curve

00:27:08.100 --> 00:27:13.767
just as we have seen happening
with income distribution.

00:27:13.800 --> 00:27:16.300
- And that's because
economic activity,

00:27:16.333 --> 00:27:18.767
profit growth,
and credit creation

00:27:18.800 --> 00:27:20.433
are all intimately linked.

00:27:20.467 --> 00:27:22.733
- Ah, yes, dear lady.

00:27:22.767 --> 00:27:27.433
High, high quality
at a low, low price.

00:27:27.467 --> 00:27:29.800
- If the banks
are more willing to lend,

00:27:29.833 --> 00:27:32.500
it becomes easier for companies

00:27:32.533 --> 00:27:34.833
or for households to spend,

00:27:34.867 --> 00:27:37.633
because they can borrow money
and they can then spend it.

00:27:37.667 --> 00:27:38.967
Narrator:
Sales dollars

00:27:39.000 --> 00:27:41.667
from satisfied customers
once again...

00:27:41.700 --> 00:27:45.467
- So as credit rises,
corporate profits rise.

00:27:45.500 --> 00:27:47.300
Narrator:
The remainder of the profit

00:27:47.333 --> 00:27:48.867
is paid out as dividends.

00:27:48.900 --> 00:27:52.633
- Well, who tends to own
the shares in the corporates

00:27:52.667 --> 00:27:54.667
and the shares in the bank?

00:27:54.700 --> 00:27:57.100
Generally,
it's the wealthier people

00:27:57.133 --> 00:28:00.933
that own the capital stock
of an economy.

00:28:00.967 --> 00:28:03.633
So if profitability
is being boosted,

00:28:03.667 --> 00:28:09.267
then there's a natural tendency
to polarize wealth distribution

00:28:09.300 --> 00:28:11.300
within the economy as well.

00:28:14.367 --> 00:28:18.500
That's a symptom
of a credit cycle.

00:28:18.533 --> 00:28:21.767
- Say, that sure was a neat job.

00:28:25.600 --> 00:28:26.833
- That building across

00:28:26.867 --> 00:28:29.567
is the most important building
on Wall Street.

00:28:29.600 --> 00:28:33.567
That building
is the House of Morgan building.

00:28:33.600 --> 00:28:36.933
That's where JP Morgan's
original bank was.

00:28:38.767 --> 00:28:41.400
- The institutions that are
going to make the most profit

00:28:41.433 --> 00:28:43.500
from that credit creation
process are,

00:28:43.533 --> 00:28:45.300
of course, the banks.

00:28:45.333 --> 00:28:48.367
Every time a loan is made,
they take a margin on it.

00:28:48.400 --> 00:28:49.900
Every time a bond is traded,

00:28:49.933 --> 00:28:52.667
they take a margin
on that as well.

00:28:52.700 --> 00:28:55.767
So the credit bubble
creates a system

00:28:55.800 --> 00:29:00.133
where you boost
financial profitability

00:29:00.167 --> 00:29:03.533
more than profitability
in the rest of the economy.

00:29:21.500 --> 00:29:23.867
So if there's a boost
to profitability

00:29:23.900 --> 00:29:25.167
for the banking sector,

00:29:25.200 --> 00:29:28.967
it tends to drop
quite quickly through

00:29:29.000 --> 00:29:32.733
to pay for bankers,
through to bonuses.

00:29:32.767 --> 00:29:34.200
- Ha!
Here we go.

00:29:37.767 --> 00:29:39.400
I think
the compensation strategy

00:29:39.433 --> 00:29:43.767
that we've had for many years
is in line with best practices

00:29:43.800 --> 00:29:46.100
to encourage
long-term incentives.

00:29:46.133 --> 00:29:49.167
- The closer you are
to the money,

00:29:49.200 --> 00:29:50.933
the more of it you make.

00:29:50.967 --> 00:29:52.667
- If I took anybody

00:29:52.700 --> 00:29:54.500
and I paid them $10 million
for the job -

00:29:54.533 --> 00:29:56.000
I took you
and I started paying you

00:29:56.033 --> 00:29:57.300
$10 million for your job,

00:29:57.333 --> 00:29:59.333
in two weeks,
you will think you deserve it.

00:29:59.367 --> 00:30:01.833
- I'm looking forward
to my next billion.

00:30:01.867 --> 00:30:04.233
- We want to hire and retain

00:30:04.267 --> 00:30:06.233
the smartest people
in the world,

00:30:06.267 --> 00:30:10.600
and so we have
to offer them incentives

00:30:10.633 --> 00:30:14.000
which can compete
with those that are trying

00:30:14.033 --> 00:30:17.067
to attract the best and smartest
people in the world too.

00:30:17.100 --> 00:30:19.533
- You know, we just want
one thing from Wall Street.

00:30:19.567 --> 00:30:21.400
We'd like them to be able
to do the math.

00:30:21.433 --> 00:30:22.700
That's all we want.

00:30:22.733 --> 00:30:24.500
We just want them to be able
to do arithmetic,

00:30:24.533 --> 00:30:26.167
and they got it
completely wrong.

00:30:26.200 --> 00:30:27.333
- If they were that good,

00:30:27.367 --> 00:30:29.700
we wouldn't have been
in this mess.

00:30:29.733 --> 00:30:33.533
- All right, so our next stop's
gonna be Deutsche Bank,

00:30:33.567 --> 00:30:34.933
where I used to work.

00:30:34.967 --> 00:30:36.700
All right, let's go.

00:30:44.567 --> 00:30:47.467
- So it's been an enormous
pyramiding of income and wealth

00:30:47.500 --> 00:30:49.433
in the last 30 years.

00:30:49.467 --> 00:30:51.767
If you look at the people
in the top decile,

00:30:51.800 --> 00:30:55.367
the lion's share of the growth
that occurred there

00:30:55.400 --> 00:30:57.400
was in the top 1%.

00:30:57.433 --> 00:30:58.967
Slice that up,

00:30:59.000 --> 00:31:01.467
and you'll see the lion's share
of the growth in the top 1%

00:31:01.500 --> 00:31:04.433
occurring in the top 1/10 of 1%
and so on,

00:31:04.467 --> 00:31:07.733
as far as we've managed
to go up and find data to check.

00:31:42.833 --> 00:31:44.600
[cork pops]

00:31:44.633 --> 00:31:46.367
- For everybody else,

00:31:46.400 --> 00:31:50.633
this new inequality
meant a bunch of things.

00:31:50.667 --> 00:31:53.933
Narrator: Only a business
operating at a steady profit

00:31:53.967 --> 00:31:55.900
can give its workers security.

00:31:55.933 --> 00:31:58.867
- From World War II
until about 1970,

00:31:58.900 --> 00:32:01.100
wages grew very steadily.

00:32:01.133 --> 00:32:05.033
There was a widespread
well-paid manufacturing economy,

00:32:05.067 --> 00:32:07.367
good steelwork, good car work.

00:32:07.400 --> 00:32:11.500
Narrator: High wages
and steady employment.

00:32:11.533 --> 00:32:15.467
- All this changed after 1970
with the double whammies

00:32:15.500 --> 00:32:19.167
of the rise of globalization
and deindustrialization

00:32:19.200 --> 00:32:21.567
beginning to hit
the American workforce.

00:32:26.800 --> 00:32:29.767
- Through the 1950s, '60s, '70s,

00:32:29.800 --> 00:32:32.767
the bottom 90%
of the American population

00:32:32.800 --> 00:32:37.500
was getting roughly 65%
of national income.

00:32:42.767 --> 00:32:48.467
That share fell to about 50%
in the last few years.

00:32:52.633 --> 00:32:56.100
- Adjusted for inflation,
the median wages stagnated

00:32:56.133 --> 00:32:57.900
from the early 1970s,

00:32:57.933 --> 00:32:59.633
except for a small blip
in the early '90s,

00:32:59.667 --> 00:33:01.500
till today.

00:33:01.533 --> 00:33:04.533
[waves crashing]

00:33:23.000 --> 00:33:25.033
- Well, there are certainly
primary residences here

00:33:25.067 --> 00:33:27.600
in Westhampton Beach,

00:33:27.633 --> 00:33:30.633
but for the most part,
they're secondary.

00:33:30.667 --> 00:33:32.867
Some of these homes
are third and fourth homes

00:33:32.900 --> 00:33:34.933
for some of the people here.

00:33:39.200 --> 00:33:42.033
You can certainly
get a small cottage here

00:33:42.067 --> 00:33:45.700
somewhere in $500,000
to $1 million.

00:33:45.733 --> 00:33:47.633
But the lower-end properties
are rare,

00:33:47.667 --> 00:33:50.667
and you generally need to really
put some money into them

00:33:50.700 --> 00:33:51.967
to make them livable.

00:33:56.133 --> 00:33:58.033
With that said,
you can certainly afford

00:33:58.067 --> 00:34:00.667
a house here around $900,000

00:34:00.700 --> 00:34:04.967
all the way up to $10 million,
$12 million, $20 million,

00:34:05.000 --> 00:34:09.100
so depending on how much money
you have in your back pocket.

00:34:16.933 --> 00:34:19.700
- So we're about two weeks away
from being complete.

00:34:19.733 --> 00:34:22.867
Homeowner's taking possession
in about two weeks' time.

00:34:22.900 --> 00:34:23.900
- It's stunning.

00:34:23.933 --> 00:34:25.267
- Thank you.

00:34:25.300 --> 00:34:26.467
Right now, we're just doing

00:34:26.500 --> 00:34:28.067
the final punch list
and walkthrough

00:34:28.100 --> 00:34:32.633
and final touch-ups,
as you can see.

00:34:32.667 --> 00:34:36.600
Great raised panel detail,
custom kitchens.

00:34:36.633 --> 00:34:38.500
- It's really coming along
amazingly.

00:34:38.533 --> 00:34:39.533
- Thank you.

00:34:39.567 --> 00:34:41.000
The gentleman
who bought the house

00:34:41.033 --> 00:34:44.233
is a chief operating officer
of a hedge fund in Manhattan.

00:34:44.267 --> 00:34:47.267
This is their summer home
here in the Hamptons.

00:34:47.300 --> 00:34:50.500
They have another home up in
Westchester, upper New York.

00:34:50.533 --> 00:34:53.500
Here's your home audio,
control force system again.

00:34:53.533 --> 00:34:55.700
He's able to control the house

00:34:55.733 --> 00:34:57.667
anywhere in the country
or anywhere in the world,

00:34:57.700 --> 00:34:58.700
as a matter of fact.

00:34:58.733 --> 00:35:01.733
It used to be
that more was better.

00:35:01.767 --> 00:35:05.667
More was more impressive.
More was everything.

00:35:05.700 --> 00:35:07.567
I think what we have
in Westhampton Beach

00:35:07.600 --> 00:35:09.767
is what most people
are looking for,

00:35:09.800 --> 00:35:11.200
which is simpler.

00:35:11.233 --> 00:35:14.267
It used to be the 10,000-,
15,000-square-foot house

00:35:14.300 --> 00:35:15.400
had to be.

00:35:15.433 --> 00:35:20.267
Today that smart money
is saying,

00:35:20.300 --> 00:35:21.633
"I want to simplify my life."

00:35:24.100 --> 00:35:28.300
People are keen
to want to scale down.

00:35:28.333 --> 00:35:31.267
That's what Westhampton Beach
offers to people.

00:35:31.300 --> 00:35:33.767
If offers them a simpler life.

00:35:33.800 --> 00:35:37.000
Do I need
the 17,000-square-foot home,

00:35:37.033 --> 00:35:39.733
or really, can I survive
with the 8,000-square-foot home?

00:35:39.767 --> 00:35:41.233
- I would say 8,000-square-foot.

00:35:41.267 --> 00:35:43.433
- And it's not - you know,
there's plenty here.

00:35:43.467 --> 00:35:44.700
There's plenty here.

00:35:44.733 --> 00:35:46.567
- And you still get
the Hampton address.

00:35:46.600 --> 00:35:48.100
So...

00:35:56.233 --> 00:35:58.833
- As you go up
the income distribution scale,

00:35:58.867 --> 00:36:02.400
what people spend
their money on changes

00:36:02.433 --> 00:36:05.967
so that consumer goods
relatively decrease.

00:36:06.000 --> 00:36:07.833
Housing increases a lot.

00:36:07.867 --> 00:36:11.000
But then when you get finally
to the top of the economy,

00:36:11.033 --> 00:36:13.933
they're spending
most of their money on assets

00:36:13.967 --> 00:36:15.567
rather than manufactured goods.

00:36:18.367 --> 00:36:21.567
- And so this upwards
income redistribution

00:36:21.600 --> 00:36:25.567
in itself tends
to ignite asset bubbles.

00:36:25.600 --> 00:36:28.900
- That process
of income distribution

00:36:28.933 --> 00:36:32.667
created a bidding
for houses indirectly.

00:36:32.700 --> 00:36:34.733
The people at the top
of the income ladder

00:36:34.767 --> 00:36:36.733
buy mansions.

00:36:36.767 --> 00:36:39.500
People in the middle don't seem
offended by that in America.

00:36:39.533 --> 00:36:42.067
They want to see pictures
of the mansions.

00:36:42.100 --> 00:36:43.367
But what does happen

00:36:43.400 --> 00:36:46.333
is that when the people
at the top build bigger,

00:36:46.367 --> 00:36:48.867
their bigger houses
shift the frame of reference

00:36:48.900 --> 00:36:51.467
for people who are near them
in the income distribution,

00:36:51.500 --> 00:36:54.267
people who have a lot of money
but not quite at the top.

00:37:09.467 --> 00:37:12.367
So you get a cascade
one stage at a time

00:37:12.400 --> 00:37:17.333
that drifts down
through the income distribution.

00:37:17.367 --> 00:37:19.200
The median family now,

00:37:19.233 --> 00:37:21.700
if it wants to buy
the median price new house

00:37:21.733 --> 00:37:22.933
for its area,

00:37:22.967 --> 00:37:26.867
it's got to buy one that's now
2,400 square feet in size.

00:37:26.900 --> 00:37:31.233
In 1970, it was about
1,600 square feet.

00:37:31.267 --> 00:37:33.700
So a 50% larger house
you have to buy

00:37:33.733 --> 00:37:35.800
if you want to match
the spending of people

00:37:35.833 --> 00:37:38.200
at your income level
if you're in the middle.

00:37:38.233 --> 00:37:39.467
Well, maybe you shouldn't,

00:37:39.500 --> 00:37:41.233
because you don't have
any more money.

00:37:41.267 --> 00:37:42.600
You can't afford that house.

00:37:42.633 --> 00:37:43.800
But then you say,

00:37:43.833 --> 00:37:44.900
"Well, if I don't match

00:37:44.933 --> 00:37:46.900
"the spending of people
in my area,

00:37:46.933 --> 00:37:49.267
it'll be my kids who go
to the inferior schools,"

00:37:49.300 --> 00:37:50.667
because there's
a very tight link

00:37:50.700 --> 00:37:52.833
between how good
the schools are in the area

00:37:52.867 --> 00:37:54.200
and how much the houses cost.

00:37:54.233 --> 00:37:58.800
So it's really a dilemma
for the family in the middle.

00:38:01.633 --> 00:38:05.967
- Oh, I don't know
what to do, Ginny.

00:38:06.000 --> 00:38:10.000
I want that house so bad,
I can taste it.

00:38:10.033 --> 00:38:11.433
Maybe we ought to wait.

00:38:11.467 --> 00:38:12.533
- And wait and wait.

00:38:12.567 --> 00:38:13.967
- My colleague Karl Case and I,

00:38:14.000 --> 00:38:15.233
we wanted to find out

00:38:15.267 --> 00:38:17.567
what were the dynamics
of home prices.

00:38:17.600 --> 00:38:20.133
And there was surprisingly
little academic

00:38:20.167 --> 00:38:22.167
or scholarly literature on it.

00:38:22.200 --> 00:38:26.933
Someone would publish a paper
in, you know, 1953 or something,

00:38:26.967 --> 00:38:29.500
and then it would just
be forgotten.

00:38:31.200 --> 00:38:34.200
I found them in dusty volumes.

00:38:34.233 --> 00:38:36.367
And I thought,
"Well, I'll link them together.

00:38:36.400 --> 00:38:38.367
So I created
for the United States

00:38:38.400 --> 00:38:41.967
a home price index
from 1890 to the present.

00:38:47.300 --> 00:38:49.133
And when I corrected these
for inflation,

00:38:49.167 --> 00:38:52.733
consumer price index inflation,
to my surprise,

00:38:52.767 --> 00:38:55.667
there was no increase
in home prices

00:38:55.700 --> 00:38:58.667
from 1890 to 1990.

00:39:00.300 --> 00:39:02.733
It was just the same.

00:39:05.567 --> 00:39:07.700
And then there was
this huge bubble in the U.S.

00:39:07.733 --> 00:39:09.567
starting in 2000.

00:39:17.300 --> 00:39:18.467
And that was the only one.

00:39:23.133 --> 00:39:27.033
Male narrator: Savers
and homeowners are capitalists.

00:39:27.067 --> 00:39:28.567
They've worked and saved

00:39:28.600 --> 00:39:32.300
to make the biggest single
purchase in their lifetimes.

00:39:32.333 --> 00:39:34.667
They have a share
of America's wealth.

00:39:34.700 --> 00:39:36.800
They've seen capitalism work,

00:39:36.833 --> 00:39:40.800
and they've made it work at home
and in their own communities.

00:39:40.833 --> 00:39:43.033
- On the one hand,
you have home buyers

00:39:43.067 --> 00:39:44.533
struggling to make ends meet,

00:39:44.567 --> 00:39:47.033
looking for the only way
they know how

00:39:47.067 --> 00:39:48.767
to make money in our economy.

00:39:48.800 --> 00:39:50.567
They can't make money
through their labor,

00:39:50.600 --> 00:39:53.833
but maybe they can make it
through buying a house

00:39:53.867 --> 00:39:56.033
and seeing the value
of that house increase.

00:39:56.067 --> 00:39:58.967
So people look to mortgages,

00:39:59.000 --> 00:40:00.867
these-easy-to-get mortgages,
as a way

00:40:00.900 --> 00:40:03.867
to finally get their share
of the American dream.

00:40:03.900 --> 00:40:05.467
And on the other hand,

00:40:05.500 --> 00:40:08.200
the income inequality produced
a ready supply of capital

00:40:08.233 --> 00:40:10.800
at the top
to be invested as well

00:40:10.833 --> 00:40:12.400
in these kinds of mortgages.

00:40:12.433 --> 00:40:16.267
So while the top was not willing
to pay the bottom wages,

00:40:16.300 --> 00:40:18.400
they were willing
to lend them money.

00:40:28.100 --> 00:40:30.633
Male narrator:
In a typical city or town

00:40:30.667 --> 00:40:33.100
on a typical residential street,

00:40:33.133 --> 00:40:37.333
we find a typical home occupied
by a typical American family.

00:40:37.367 --> 00:40:38.767
[horn honking]

00:40:38.800 --> 00:40:41.567
Like millions
of his fellow Americans,

00:40:41.600 --> 00:40:43.733
John Q. Public
earns enough money

00:40:43.767 --> 00:40:47.167
to keep up the payments
on a new car.

00:40:47.200 --> 00:40:50.200
- [whistling]

00:40:51.500 --> 00:40:52.767
narrator:
He takes great pride

00:40:52.800 --> 00:40:56.133
in owning a fine new
long-term mortgaged home

00:40:56.167 --> 00:40:58.833
that was built
to last a lifetime.

00:41:01.367 --> 00:41:02.900
- The way in which mortgage
has been sold

00:41:02.933 --> 00:41:04.933
has changed tremendously
over the 20th century.

00:41:04.967 --> 00:41:06.533
- Sign right here.

00:41:06.567 --> 00:41:09.300
- Hmm, mind if I read it first?

00:41:09.333 --> 00:41:11.400
- In the 1920s,
there were a variety of ways

00:41:11.433 --> 00:41:12.700
to borrow for a mortgage.

00:41:12.733 --> 00:41:13.733
Things that seem as though

00:41:13.767 --> 00:41:15.500
they were just invented
a few years ago

00:41:15.533 --> 00:41:17.700
were actually commonplace,
like balloon mortgages,

00:41:17.733 --> 00:41:20.500
or interest-only mortgages
for houses.

00:41:20.533 --> 00:41:22.533
Male narrator: Thousands
of people get a big thrill

00:41:22.567 --> 00:41:23.900
out of looking at model houses

00:41:23.933 --> 00:41:25.567
and a much bigger thrill
when they buy one.

00:41:25.600 --> 00:41:27.800
- They could be amortized
or unamortized.

00:41:27.833 --> 00:41:28.967
They could be three years.

00:41:29.000 --> 00:41:31.067
They could be ten years.

00:41:31.100 --> 00:41:33.933
Narrator:
Suppose we follow them.

00:41:33.967 --> 00:41:36.867
The husband apparently
isn't very keen about it all,

00:41:36.900 --> 00:41:38.767
but you know how wives are.

00:41:38.800 --> 00:41:41.300
- So they would borrow
some large fraction of the house

00:41:41.333 --> 00:41:44.433
and then refinance it
in three to five years.

00:41:44.467 --> 00:41:47.233
So part of what causes
the mortgage crisis

00:41:47.267 --> 00:41:48.667
of the Great Depression

00:41:48.700 --> 00:41:51.700
is that suddenly not just
that everyone lost their job,

00:41:51.733 --> 00:41:53.733
'cause a lot of people
obviously lost their job...

00:41:53.767 --> 00:41:55.300
[teeth chattering]

00:41:55.333 --> 00:41:59.933
But that investors fled
the mortgage investment market.

00:41:59.967 --> 00:42:01.433
So in response to this,

00:42:01.467 --> 00:42:03.633
the federal government
developed the FHA...

00:42:03.667 --> 00:42:07.667
[triumphant music]

00:42:07.700 --> 00:42:09.467
The Federal Housing
Administration.

00:42:09.500 --> 00:42:11.367
Male narrator:
Do you know how far your pay

00:42:11.400 --> 00:42:13.300
will go in buying a house?

00:42:13.333 --> 00:42:14.567
It may surprise you to learn

00:42:14.600 --> 00:42:16.867
that you can become a homeowner
even on a small salary

00:42:16.900 --> 00:42:19.133
with a National Housing Act
insured mortgage.

00:42:19.167 --> 00:42:20.600
- The FHA standardized

00:42:20.633 --> 00:42:22.667
the criteria
for a good mortgage.

00:42:22.700 --> 00:42:23.967
By making it standard,

00:42:24.000 --> 00:42:26.033
it made it into a commodity
that could be resold

00:42:26.067 --> 00:42:27.733
anywhere in America.

00:42:27.767 --> 00:42:29.867
It enabled investors in New York

00:42:29.900 --> 00:42:32.233
to be able to invest
in Texas or California.

00:42:32.267 --> 00:42:33.767
Narrator:
Home ownership is the basis

00:42:33.800 --> 00:42:36.067
of a happy,
contented family life

00:42:36.100 --> 00:42:37.133
and now, through the use

00:42:37.167 --> 00:42:39.200
of a National Housing Act
insured mortgage,

00:42:39.233 --> 00:42:41.167
is brought within the reach
of all citizens

00:42:41.200 --> 00:42:42.500
on a monthly payment plan.

00:42:42.533 --> 00:42:44.200
- The FHA underwriters' manual

00:42:44.233 --> 00:42:45.767
had very explicit criteria

00:42:45.800 --> 00:42:48.600
for what made
for a good investment.

00:42:48.633 --> 00:42:50.467
So 20%, for instance,

00:42:50.500 --> 00:42:52.467
of whether a mortgage
should be approved or not

00:42:52.500 --> 00:42:55.400
depended on whether or not
there was class and race mixing

00:42:55.433 --> 00:42:56.600
in a neighborhood.

00:42:56.633 --> 00:42:59.300
And so if there were
restrictive deeds

00:42:59.333 --> 00:43:01.400
to keep out Jews, Asians,

00:43:01.433 --> 00:43:03.367
and, most importantly,
African-Americans,

00:43:03.400 --> 00:43:05.933
it was considered
a good investment.

00:43:07.967 --> 00:43:09.133
Narrator:
Under these roofs,

00:43:09.167 --> 00:43:11.233
Americans can live
as Americans should.

00:43:11.267 --> 00:43:12.900
These pleasant,
healthful surroundings

00:43:12.933 --> 00:43:14.700
provide the background
that young Americans

00:43:14.733 --> 00:43:16.000
need and deserve.

00:43:16.033 --> 00:43:18.133
- Through this policy,
there was the co-creation

00:43:18.167 --> 00:43:20.100
of both the ghetto
and the suburb.

00:43:20.133 --> 00:43:23.567
And the consequence
was that mortgage capital

00:43:23.600 --> 00:43:26.167
flooded from
basically New York City

00:43:26.200 --> 00:43:29.067
into suburbs around the country.

00:43:29.100 --> 00:43:30.567
It made it very difficult
for people

00:43:30.600 --> 00:43:32.467
who lived in the city,
particularly areas

00:43:32.500 --> 00:43:34.633
that were multiracial
or multiethnic,

00:43:34.667 --> 00:43:36.067
to get mortgage loans.

00:43:36.100 --> 00:43:39.467
And over time,
over 30, 40 years,

00:43:39.500 --> 00:43:42.167
those kinds of markets
in housing deteriorated.

00:43:44.633 --> 00:43:49.867
And it helped bring about
what we see as the urban crisis.

00:44:20.967 --> 00:44:26.367
- This is Bedford-Stuyvesant
in Brooklyn in New York City.

00:44:26.400 --> 00:44:28.200
There are something like
2.3 million,

00:44:28.233 --> 00:44:32.333
2.4 million people
living just in Brooklyn alone.

00:44:34.467 --> 00:44:37.067
This is a very vibrant
community.

00:44:37.100 --> 00:44:39.533
There's a lot of immigrants
who live here

00:44:39.567 --> 00:44:42.800
and a lot of old-time
New Yorkers, Brooklynites,

00:44:42.833 --> 00:44:44.953
families that have lived here
through the generations.

00:44:49.900 --> 00:44:52.467
The work that I do,

00:44:52.500 --> 00:44:55.200
I started doing
in the early 1990s,

00:44:55.233 --> 00:45:01.100
and the work was about
getting access to loans

00:45:01.133 --> 00:45:04.933
in neighborhoods that had been
historically redlined,

00:45:04.967 --> 00:45:09.100
which means they were cut off
from access to banking services.

00:45:09.133 --> 00:45:11.067
Bank branches
either weren't there

00:45:11.100 --> 00:45:12.933
or had long abandoned
the community.

00:45:14.367 --> 00:45:16.433
So we were working
with community groups

00:45:16.467 --> 00:45:18.767
to try to get banks
to make loans

00:45:18.800 --> 00:45:23.867
in neighborhoods that had been
cut off from financial services.

00:45:23.900 --> 00:45:25.300
By the mid-1990s,

00:45:25.333 --> 00:45:28.767
the picture was just changing
right in front of us,

00:45:28.800 --> 00:45:30.767
because these same neighborhoods

00:45:30.800 --> 00:45:32.933
were suddenly flooded
with credit.

00:45:37.100 --> 00:45:39.867
Consumer finance companies
and other lenders

00:45:39.900 --> 00:45:42.867
had realized that there was
a lot of money to be made

00:45:42.900 --> 00:45:47.000
by making mortgages
in neighborhoods

00:45:47.033 --> 00:45:50.167
that had been cut off
from mainstream banking.

00:45:53.100 --> 00:45:57.900
- So much money was being made
during the '80s and '90s

00:45:57.933 --> 00:46:00.333
that investors
had to put it somewhere.

00:46:00.367 --> 00:46:02.867
And not just money being made
in the United States

00:46:02.900 --> 00:46:04.433
but all over the world.

00:46:04.467 --> 00:46:08.167
I mean, with oil, you know,
with the rise of China,

00:46:08.200 --> 00:46:09.533
there's a lot of money

00:46:09.567 --> 00:46:10.967
that's sloshing
around the world.

00:46:11.000 --> 00:46:12.633
Capitalism works.

00:46:12.667 --> 00:46:14.367
And it's because
capitalism works

00:46:14.400 --> 00:46:17.000
that there's more money
to invest than ever before.

00:46:17.033 --> 00:46:22.033
So people began to invest
a lot in mortgages.

00:46:42.333 --> 00:46:46.200
- Dynamic Credit's a specialist
investment manager.

00:46:46.233 --> 00:46:49.167
We manage portfolios
of financial products

00:46:49.200 --> 00:46:52.900
called mortgage securities.

00:46:52.933 --> 00:46:55.800
It really began
in the late 1980s.

00:46:57.500 --> 00:46:59.167
Banks who made mortgage loans

00:46:59.200 --> 00:47:01.300
didn't want to sit
and hold those mortgage loans

00:47:01.333 --> 00:47:02.667
for their full term.

00:47:02.700 --> 00:47:05.433
Whether they were 10-year,
15-year, or 30-year loans,

00:47:05.467 --> 00:47:07.307
they were clogging up
the capacity of the bank.

00:47:07.333 --> 00:47:08.600
You'd lend out the money,

00:47:08.633 --> 00:47:10.400
and it would take all that time
to get it back in.

00:47:10.433 --> 00:47:12.567
You're far better off
originating the mortgage

00:47:12.600 --> 00:47:13.633
and selling it off.

00:47:13.667 --> 00:47:16.633
The origins of securitization

00:47:16.667 --> 00:47:19.033
were to take those mortgages
on a pooled basis

00:47:19.067 --> 00:47:21.267
and form CDOs out of them,

00:47:21.300 --> 00:47:24.033
collateralized debt obligations.

00:47:24.067 --> 00:47:26.933
CDO is that kind
of agglomeration

00:47:26.967 --> 00:47:29.567
of mortgage-backed securities

00:47:29.600 --> 00:47:32.533
that can be sold
into the capital markets.

00:47:35.667 --> 00:47:38.100
- Have you guys
heard of a toxic asset,

00:47:38.133 --> 00:47:39.633
about toxic asset, yeah?

00:47:39.667 --> 00:47:43.033
I'm gonna show you guys
what a toxic asset looks like.

00:47:43.067 --> 00:47:47.733
I'm gonna let you guys touch
and feel this toxic asset.

00:47:47.767 --> 00:47:52.167
Be careful when you handle this,
because it's toxic, right?

00:47:52.200 --> 00:47:54.600
So this is a -

00:47:54.633 --> 00:48:00.833
this is the first page
of a legal document of a CDO,

00:48:00.867 --> 00:48:02.867
collateralized debt obligation.

00:48:02.900 --> 00:48:06.033
The actual document itself
is an inch thick.

00:48:06.067 --> 00:48:08.867
What it does, it tells you
how the CDO works.

00:48:08.900 --> 00:48:10.967
You basically take a pool

00:48:11.000 --> 00:48:13.633
of any regular
cash-producing instruments,

00:48:13.667 --> 00:48:16.833
like a mortgage, credit card,
corporate loans.

00:48:16.867 --> 00:48:18.300
You pool it together.

00:48:18.333 --> 00:48:20.867
You tranche it up
layer and risk,

00:48:20.900 --> 00:48:22.667
in different risk layers,

00:48:22.700 --> 00:48:25.167
and then you sell that
to investors around the world.

00:48:25.200 --> 00:48:26.333
Okay?

00:48:26.367 --> 00:48:27.800
That's essentially
what a CDO is.

00:48:27.833 --> 00:48:30.133
It's sort of like a Frankenstein
sort of security.

00:48:30.167 --> 00:48:31.167
That's what it is.

00:48:38.367 --> 00:48:39.867
- There are a lot of attractions

00:48:39.900 --> 00:48:42.067
to doing CDOs
on the money management side.

00:48:42.100 --> 00:48:44.600
You get paid anywhere
from 1/10 of 1% per annum

00:48:44.633 --> 00:48:47.033
on the balance
on multiple billions of dollars,

00:48:47.067 --> 00:48:50.033
which could mean a couple
million dollars a year of fees,

00:48:50.067 --> 00:48:52.967
to 1/2% per annum
on a couple hundred million,

00:48:53.000 --> 00:48:54.600
perhaps corporate credit
portfolio,

00:48:54.633 --> 00:48:56.233
which, again, could mean

00:48:56.267 --> 00:48:58.267
couple million dollars
a year of fees.

00:48:58.300 --> 00:48:59.567
And the best part of it was,

00:48:59.600 --> 00:49:01.667
most of the work went
into selecting the portfolio

00:49:01.700 --> 00:49:03.133
on day one,

00:49:03.167 --> 00:49:05.200
and then you were paid
over years of time for, I'd say,

00:49:05.233 --> 00:49:06.867
doing a little bit more
than babysitting.

00:49:06.900 --> 00:49:09.100
- [tapping]

00:49:09.133 --> 00:49:11.267
- [screaming] Ow!

00:49:11.300 --> 00:49:14.367
- I would start
with a nice clean portfolio

00:49:14.400 --> 00:49:16.533
of triple-A, double-A,
and some -

00:49:16.567 --> 00:49:20.333
perhaps some single-A
mortgage-backed securities.

00:49:20.367 --> 00:49:21.767
But I'd have to add
something else,

00:49:21.800 --> 00:49:23.067
what we call "juice."

00:49:25.667 --> 00:49:30.300
It's an extra element of risk
which would pay a higher yield.

00:49:36.700 --> 00:49:38.067
- At the time,
there was a lot of talk

00:49:38.100 --> 00:49:39.833
about liars' loans.

00:49:39.867 --> 00:49:42.167
The kind of loan
that Pattie and I got

00:49:42.200 --> 00:49:45.300
was one step further down
on the credibility ladder,

00:49:45.333 --> 00:49:47.533
which was called
a no-ratio loan,

00:49:47.567 --> 00:49:50.533
in which I literally didn't
disclose my income.

00:49:55.633 --> 00:49:59.233
The house cost $460,000,

00:49:59.267 --> 00:50:01.667
which even to me was -
at that time

00:50:01.700 --> 00:50:04.433
was an astounding amount
of money.

00:50:04.467 --> 00:50:08.833
The problem that I had
was huge child support payments

00:50:08.867 --> 00:50:12.333
to my ex-wife,
as well as alimony,

00:50:12.367 --> 00:50:16.100
so I was paying out
about $4,000 a month out of -

00:50:16.133 --> 00:50:18.367
which is well over half
of my take-home pay.

00:50:18.400 --> 00:50:19.833
Well over half
of my take-home pay.

00:50:19.867 --> 00:50:22.167
- Hmm, that's disappointing.

00:50:22.200 --> 00:50:24.000
- Oh, not necessarily.

00:50:24.033 --> 00:50:25.933
Let that be our problem.

00:50:25.967 --> 00:50:28.467
- Borrowing the money,
even under my circumstances,

00:50:28.500 --> 00:50:30.533
was the easiest thing
in the world.

00:50:30.567 --> 00:50:32.733
The only thing the lender knew,

00:50:32.767 --> 00:50:34.667
the only thing
that they wanted to know,

00:50:34.700 --> 00:50:39.233
was that I had a credit rating
of over 700,

00:50:39.267 --> 00:50:40.767
that the house
had been appraised

00:50:40.800 --> 00:50:46.267
and, you know, was worth
what the purchase price was,

00:50:46.300 --> 00:50:47.400
and that I had a job.

00:50:47.433 --> 00:50:48.867
They did confirm I had a job,

00:50:48.900 --> 00:50:51.533
but they didn't try to confirm
what the income would be.

00:50:51.567 --> 00:50:55.100
- Well, what are we waiting for?

00:50:55.133 --> 00:50:57.133
- For me, it wasn't at all
a financial investment.

00:50:57.167 --> 00:51:00.533
I had no expectation that I was
gonna make a bundle of money

00:51:00.567 --> 00:51:02.167
on the rising value
of the house.

00:51:02.200 --> 00:51:03.533
It's a hormonal thing.

00:51:03.567 --> 00:51:10.500
It's a cornerstone
to keeping your family together.

00:51:10.533 --> 00:51:13.200
It's a ticket to, you know,

00:51:13.233 --> 00:51:15.733
continued membership
in the middle class.

00:51:15.767 --> 00:51:17.700
You know, here I had been
through this, you know,

00:51:17.733 --> 00:51:19.267
kind of traumatic, dramatic,

00:51:19.300 --> 00:51:22.400
you know,
divorce and remarriage.

00:51:22.433 --> 00:51:24.100
This was normalcy again.

00:51:24.133 --> 00:51:25.967
I could still be a normal guy.

00:51:36.633 --> 00:51:39.567
- I used to have
my own optical store.

00:51:39.600 --> 00:51:41.500
I needed financial help.

00:51:41.533 --> 00:51:42.700
So I went to the bank,

00:51:42.733 --> 00:51:44.533
and I found out that each time

00:51:44.567 --> 00:51:47.133
I was talking
with some financial people,

00:51:47.167 --> 00:51:50.233
they was asking me
if I have a house.

00:51:50.267 --> 00:51:53.200
And they did explain to me
that if I have a house,

00:51:53.233 --> 00:51:54.500
I will have -

00:51:54.533 --> 00:51:55.867
it will be like a collateral.

00:51:55.900 --> 00:51:58.100
So after I close my business,

00:51:58.133 --> 00:52:01.333
I told me my new adventure
would be to get myself a house.

00:52:01.367 --> 00:52:02.433
And then from my house,

00:52:02.467 --> 00:52:06.200
I can get myself
another business.

00:52:06.233 --> 00:52:09.733
So we came here,
and I liked the house.

00:52:09.767 --> 00:52:15.733
He told me the house
was $679,000, $679,000.

00:52:15.767 --> 00:52:19.200
$679,000.

00:52:20.933 --> 00:52:23.733
I tried to get
some other real estate,

00:52:23.767 --> 00:52:27.500
but in this neighborhood,
the price is about the same.

00:52:27.533 --> 00:52:29.233
But he told me, "You know what?

00:52:29.267 --> 00:52:31.033
"It's a two-family house too.

00:52:31.067 --> 00:52:32.633
"You can rent the other part.

00:52:32.667 --> 00:52:36.133
And you can do the basement."

00:52:36.167 --> 00:52:37.600
They told me,
"You're going to pay

00:52:37.633 --> 00:52:41.767
about, like,
$4,000 a month."

00:52:41.800 --> 00:52:44.767
I said, "Listen,
$4,000 is very expensive."

00:52:44.800 --> 00:52:46.333
They told me,
"Don't worry about it.

00:52:46.367 --> 00:52:48.633
"After a year,
you can refinance.

00:52:48.667 --> 00:52:50.200
"When you refinance,

00:52:50.233 --> 00:52:52.400
"you can get the mortgage
go lower.

00:52:52.433 --> 00:52:53.667
"So don't worry.

00:52:53.700 --> 00:52:56.000
Going to be
just for one year."

00:53:03.467 --> 00:53:07.967
- So we're gonna just do
some quick announcements

00:53:08.000 --> 00:53:09.633
and then turn it over to Herman.

00:53:09.667 --> 00:53:12.533
- We've gotten quite a number
of folks calling us

00:53:12.567 --> 00:53:14.000
for foreclosure assistance.

00:53:14.033 --> 00:53:16.300
Ren, if want to highlight
what's been going on?

00:53:16.333 --> 00:53:18.333
- We got four last week.

00:53:18.367 --> 00:53:20.300
I mean they're just a bunch
of homeowners

00:53:20.333 --> 00:53:22.667
who are in loans that were
much too expensive for them.

00:53:22.700 --> 00:53:24.500
- The majority of the loans
that were generated

00:53:24.533 --> 00:53:27.000
and then sold to Wall Street
to be securitized

00:53:27.033 --> 00:53:28.200
were refinance loans.

00:53:28.233 --> 00:53:30.567
They weren't adding
to home ownership.

00:53:30.600 --> 00:53:31.900
They were taking away,

00:53:31.933 --> 00:53:34.700
and they were deteriorating
home ownership.

00:53:34.733 --> 00:53:36.133
- Right, I was just
gonna say, I mean,

00:53:36.167 --> 00:53:37.533
according
to the Federal Reserve,

00:53:37.567 --> 00:53:40.400
it's something like 77%
of the sub-prime loans made

00:53:40.433 --> 00:53:41.867
were refinancing loans.

00:53:41.900 --> 00:53:43.900
So they were loans made
to people who also,

00:53:43.933 --> 00:53:45.133
to add to what Josh was saying,

00:53:45.167 --> 00:53:47.100
had built up a lot of equity
in their home.

00:53:47.133 --> 00:53:49.800
So they had a lot of wealth
that they'd built up.

00:53:49.833 --> 00:53:54.200
- And there were lenders who -
and brokers and contractors

00:53:54.233 --> 00:53:56.400
who were all working together

00:53:56.433 --> 00:53:58.633
to try and get people into loans

00:53:58.667 --> 00:54:01.033
without any regard
to whether they were affordable,

00:54:01.067 --> 00:54:02.867
because they knew
that they could turn around

00:54:02.900 --> 00:54:06.133
and sell them the next day
to Wall Street investment banks

00:54:06.167 --> 00:54:07.800
at a premium and make a profit.

00:54:07.833 --> 00:54:10.067
And they knew that they could
charge high fees up front.

00:54:10.100 --> 00:54:12.200
- Every time
the loan is refinanced,

00:54:12.233 --> 00:54:13.833
the borrower -
and this is why -

00:54:13.867 --> 00:54:15.900
what the incentive is
for the broker and the lender

00:54:15.933 --> 00:54:17.533
to keep flipping the loans

00:54:17.567 --> 00:54:20.533
is that they're charging
more up-front points and fees.

00:54:20.567 --> 00:54:21.733
And what that does is,

00:54:21.767 --> 00:54:25.367
it strips out the equity
each time more and more.

00:54:25.400 --> 00:54:27.967
- If you look at the deed
records for neighborhoods,

00:54:28.000 --> 00:54:30.133
particularly neighborhoods
of color in New York City,

00:54:30.167 --> 00:54:32.267
where there's a high rate
of home ownership,

00:54:32.300 --> 00:54:34.433
you'll see so many homes
where people

00:54:34.467 --> 00:54:36.933
were refinanced
over and over and over,

00:54:36.967 --> 00:54:38.900
you know, several times
in one year sometimes

00:54:38.933 --> 00:54:42.667
until their equity is gone
and they lose the house.

00:54:49.867 --> 00:54:53.933
- The banks were interested
in maximizing transaction costs.

00:54:53.967 --> 00:54:55.000
One could understand,

00:54:55.033 --> 00:54:56.067
that's capitalism.

00:54:56.100 --> 00:54:57.933
That maximized their profits.

00:54:57.967 --> 00:55:01.067
But they were doing it

00:55:01.100 --> 00:55:04.900
at the expense
of the poorest Americans.

00:55:04.933 --> 00:55:06.667
There were attempts
to try to stop this.

00:55:06.700 --> 00:55:09.933
It was clear that it was
predatory lending.

00:55:09.967 --> 00:55:12.967
But they fought back.

00:55:13.000 --> 00:55:18.000
They stopped the legislation
that was moving forward

00:55:18.033 --> 00:55:21.967
to stop the predatory lending.

00:55:22.000 --> 00:55:23.333
I've seen this.

00:55:23.367 --> 00:55:25.900
I've seen the kind
of lending patterns.

00:55:25.933 --> 00:55:28.333
I've seen what they've done
to some of these poor people.

00:55:28.367 --> 00:55:32.500
Let me tell you,
it is outrageous.

00:55:36.800 --> 00:55:38.833
- If you were asking me,

00:55:38.867 --> 00:55:42.133
who do I blame
for my own mortgage woes?

00:55:42.167 --> 00:55:44.700
I will tell you,
absolutely certainly,

00:55:44.733 --> 00:55:45.900
I blame myself,

00:55:45.933 --> 00:55:47.800
and I don't put the blame
on anybody else.

00:55:47.833 --> 00:55:51.567
I knew exactly
what I was getting into.

00:55:51.600 --> 00:55:56.200
And I knew better, actually,
than most other borrowers.

00:55:58.567 --> 00:56:01.133
We began to struggle
very quickly.

00:56:01.167 --> 00:56:04.433
We ran through
what little extra cash cushion

00:56:04.467 --> 00:56:06.967
I had left in my savings.

00:56:07.000 --> 00:56:09.667
Then we were borrowing.

00:56:09.700 --> 00:56:11.300
- I hate this.

00:56:11.333 --> 00:56:13.367
- And we were borrowing
more than we realized

00:56:13.400 --> 00:56:15.933
through our credit cards
to keep ourselves afloat.

00:56:15.967 --> 00:56:20.767
- But, you know, sometimes
these things work.

00:56:20.800 --> 00:56:25.867
- We were borrowing on average
an extra $2,000 a month...

00:56:25.900 --> 00:56:27.233
- But where would this go, then?

00:56:27.267 --> 00:56:28.967
- A staggering amount of money.

00:56:29.000 --> 00:56:31.367
And the interest rates
on that money

00:56:31.400 --> 00:56:33.367
were just through the roof.

00:56:33.400 --> 00:56:36.200
And I was trying to figure out
what in God's name to do.

00:56:36.233 --> 00:56:41.467
And that's when I called
my friendly mortgage broker

00:56:41.500 --> 00:56:44.400
and started wailing
about my problems.

00:56:44.433 --> 00:56:45.500
[phone rings]

00:56:45.533 --> 00:56:46.500
- Oh, excuse me.

00:56:46.533 --> 00:56:48.433
Chandler speaking.

00:56:48.467 --> 00:56:52.133
- He said, "Look, I'll figure
a way out of this,"

00:56:52.167 --> 00:56:53.267
and indeed he did.

00:56:53.300 --> 00:56:55.833
- Oh, oh, put him on.

00:56:55.867 --> 00:56:57.767
- The value of the house
had gone up

00:56:57.800 --> 00:57:00.800
about 10% over those two years.

00:57:00.833 --> 00:57:02.233
- Yes, sir.

00:57:02.267 --> 00:57:05.033
- And we ended up boosting
the amount we had borrowed

00:57:05.067 --> 00:57:06.500
another $50,000.

00:57:06.533 --> 00:57:08.167
- I thought you would.

00:57:08.200 --> 00:57:10.867
- The theory
of the whole maneuver was,

00:57:10.900 --> 00:57:16.100
if I borrow more
against the house

00:57:16.133 --> 00:57:18.233
and pay off my credit cards,

00:57:18.267 --> 00:57:20.767
my credit scores
automatically go up,

00:57:20.800 --> 00:57:23.800
even though the total volume
of debt is exactly as high,

00:57:23.833 --> 00:57:27.033
maybe a little higher
than it was before.

00:57:27.067 --> 00:57:29.567
And because I've got
those higher credit scores,

00:57:29.600 --> 00:57:32.000
now I can get
a slightly cheaper loan.

00:57:32.033 --> 00:57:33.600
Go figure.

00:57:33.633 --> 00:57:35.200
It makes no sense at all.

00:57:35.233 --> 00:57:36.833
You have to be pulling

00:57:36.867 --> 00:57:40.200
the wool over your eyes
aggressively

00:57:40.233 --> 00:57:41.500
to believe this kind of stuff.

00:57:41.533 --> 00:57:43.567
- Now you're beginning
to see something

00:57:43.600 --> 00:57:45.600
of what a mortgage banker
really does,

00:57:45.633 --> 00:57:47.633
the full and active life
he leads,

00:57:47.667 --> 00:57:49.267
much of it behind the scenes

00:57:49.300 --> 00:57:51.300
for the betterment
of the community.

00:57:51.333 --> 00:57:54.467
- The reason why the money,
this capital,

00:57:54.500 --> 00:57:56.533
gets allocated
into consumer debt

00:57:56.567 --> 00:57:58.633
and gets allocated
into mortgage debt

00:57:58.667 --> 00:58:01.333
is because it actually pays -
has a better return

00:58:01.367 --> 00:58:03.767
than investing it in businesses,

00:58:03.800 --> 00:58:07.367
than investing it in factories
or things that make things.

00:58:07.400 --> 00:58:09.867
And it's this simple
banal calculation

00:58:09.900 --> 00:58:11.500
that's behind all of this.

00:58:11.533 --> 00:58:14.433
It's not some greedy
Wall Street banker.

00:58:14.467 --> 00:58:17.100
Wall Street bankers and all
capitalists are always greedy.

00:58:17.133 --> 00:58:18.900
That's the basis
of our entire system.

00:58:18.933 --> 00:58:21.900
It's that the opportunities
for investment

00:58:21.933 --> 00:58:25.200
are different
than they used to be

00:58:25.233 --> 00:58:27.167
and that a dollar
put into credit card debt

00:58:27.200 --> 00:58:29.333
or into mortgage debt
makes you more

00:58:29.367 --> 00:58:32.367
than a dollar
put into a factory.

00:58:55.033 --> 00:58:56.767
- Most of the buildings
around here sprung up

00:58:56.800 --> 00:58:58.200
within the last five years.

00:58:58.233 --> 00:59:00.400
Like this building over here,

00:59:00.433 --> 00:59:01.867
they're still building,

00:59:01.900 --> 00:59:04.333
even though
there's close to 20,000 units

00:59:04.367 --> 00:59:06.567
that are either available
or are gonna be available

00:59:06.600 --> 00:59:08.433
in a very short period of time.

00:59:11.133 --> 00:59:13.900
And this one just sprung up
not too long ago as well.

00:59:15.167 --> 00:59:16.933
I think there's 400 units,

00:59:16.967 --> 00:59:18.900
and there's 50 people
in it right now.

00:59:18.933 --> 00:59:22.200
So it makes
for a lonely existence.

00:59:22.233 --> 00:59:25.233
In some buildings,
they're empty.

00:59:25.267 --> 00:59:27.600
But what happens
is that these banks, you know,

00:59:27.633 --> 00:59:29.600
they get the financing
to build these buildings,

00:59:29.633 --> 00:59:32.567
and, you know,
they have to keep building.

00:59:41.033 --> 00:59:45.233
Started the mortgage business
in 2001 and started in Miami

00:59:45.267 --> 00:59:47.433
and started working
for this company,

00:59:47.467 --> 00:59:49.400
Ameriquest Mortgage.

00:59:49.433 --> 00:59:50.967
Last year as a branch manager,

00:59:51.000 --> 00:59:54.000
I made a little under
$1 million,

00:59:54.033 --> 00:59:56.800
$930-something thousand.

00:59:57.833 --> 01:00:01.767
And most of the work that I did
was refinance.

01:00:01.800 --> 01:00:04.467
60% of it was
for debt consolidation,

01:00:04.500 --> 01:00:06.667
and the other 30%, 40%
was cash out.

01:00:12.433 --> 01:00:14.700
We felt like we were
helping people, you know.

01:00:14.733 --> 01:00:16.100
We'd walk into our office,

01:00:16.133 --> 01:00:19.233
and there was baskets
of flowers and fruit from people

01:00:19.267 --> 01:00:21.533
that we refinanced
that weren't able to refinance

01:00:21.567 --> 01:00:22.867
and, you know, we got 'em a loan

01:00:22.900 --> 01:00:24.967
and now they were saving
$400 or $500 a month

01:00:25.000 --> 01:00:28.033
or, you know, we pulled
their house out of foreclosure.

01:00:28.067 --> 01:00:30.933
There was a lot of that we did.

01:00:30.967 --> 01:00:33.967
So how could that
not make you feel good?

01:00:34.000 --> 01:00:38.400
At the time, it seemed like
win-win for everybody.

01:00:41.967 --> 01:00:43.267
- It's wonderful, it turns out,

01:00:43.300 --> 01:00:45.500
that while incomes
were falling...

01:00:48.633 --> 01:00:50.333
House prices were rising.

01:00:54.100 --> 01:00:56.267
As the housing assets grew

01:00:56.300 --> 01:00:57.867
and their wages
remained stagnant,

01:00:57.900 --> 01:01:00.300
people would borrow money
from their houses

01:01:00.333 --> 01:01:03.000
to make up the gap
in their wages.

01:01:06.433 --> 01:01:09.667
- This fall in the share
of the bottom 90%

01:01:09.700 --> 01:01:15.333
represents a transfer upwards

01:01:15.367 --> 01:01:19.200
of roughly $1 1/2 trillion
each year

01:01:19.233 --> 01:01:21.433
to the top 1%.

01:01:21.467 --> 01:01:24.100
[cash register dinging]

01:01:24.133 --> 01:01:25.133
- [gasps]

01:01:25.167 --> 01:01:26.967
- This enormous
upwards redistribution

01:01:27.000 --> 01:01:29.100
of American income

01:01:29.133 --> 01:01:34.033
took place in a stable democracy

01:01:34.067 --> 01:01:35.800
with governments
that were promoting

01:01:35.833 --> 01:01:39.267
this upwards redistribution
being reelected

01:01:39.300 --> 01:01:40.700
time and time again.

01:01:40.733 --> 01:01:43.667
[cheers and applause]

01:01:43.700 --> 01:01:45.200
It's a very interesting
question of,

01:01:45.233 --> 01:01:50.233
how was the American elite
able to get away with it?

01:01:54.800 --> 01:01:56.233
- When we were doing
refinancing,

01:01:56.267 --> 01:01:59.067
it was very common to see people
with $20,000 and $30,000

01:01:59.100 --> 01:02:00.533
worth of credit card debt.

01:02:00.567 --> 01:02:01.900
- Holy smokes!

01:02:05.233 --> 01:02:07.400
- We've masked
a lack of income growth

01:02:07.433 --> 01:02:10.033
by the fact that people
have been supporting

01:02:10.067 --> 01:02:12.500
their living standards
with more debt.

01:02:14.700 --> 01:02:16.000
- So what they were doing is,

01:02:16.033 --> 01:02:19.233
they now had all this equity
in the properties.

01:02:19.267 --> 01:02:22.933
So a lot of people refinanced
to get rid of that debt,

01:02:22.967 --> 01:02:24.167
to consolidate the debt.

01:02:24.200 --> 01:02:29.833
- We had in one year alone
over $900 billion

01:02:29.867 --> 01:02:32.200
in what are called
mortgage equity withdrawal,

01:02:32.233 --> 01:02:34.600
much of that money
going into consumption.

01:02:34.633 --> 01:02:36.167
[cheers and applause]

01:02:36.200 --> 01:02:41.267
- So you have roughly
$1 1/2 trillion a year going up

01:02:41.300 --> 01:02:45.800
and roughly $1 trillion
a year coming down

01:02:45.833 --> 01:02:49.533
in the form
of house equity refinancing.

01:02:49.567 --> 01:02:51.200
[loud crash]

01:02:51.233 --> 01:02:55.833
If the American population
had been receiving something

01:02:55.867 --> 01:02:58.100
like their -
the same income share

01:02:58.133 --> 01:03:00.267
as in the 1950s and 1960s,

01:03:00.300 --> 01:03:03.367
then they would have been able
to increase their consumption

01:03:03.400 --> 01:03:04.767
in a sustainable way

01:03:04.800 --> 01:03:06.833
out of rising income.

01:03:06.867 --> 01:03:08.367
But that's not what happened.

01:03:11.267 --> 01:03:14.033
- The fatal flaw
was the assumption

01:03:14.067 --> 01:03:16.533
that real estate values
would always go up.

01:03:16.567 --> 01:03:19.133
And I think even a fourth grader

01:03:19.167 --> 01:03:21.233
would be able to tell you
that's impossible.

01:03:21.267 --> 01:03:22.367
It can't happen.

01:03:22.400 --> 01:03:23.800
That's contrary
to laws of physics.

01:03:23.833 --> 01:03:24.833
It's contrary to history.

01:03:24.867 --> 01:03:26.267
And yet somehow,

01:03:26.300 --> 01:03:28.600
everyone literally
bought into that.

01:03:35.700 --> 01:03:37.300
[loud crash, man screams]

01:03:37.333 --> 01:03:39.333
- The problems started
after a year.

01:03:39.367 --> 01:03:40.967
So when I call them, they say,

01:03:41.000 --> 01:03:42.367
"No, you cannot refinance,

01:03:42.400 --> 01:03:45.600
because the value of the house
went down."

01:03:45.633 --> 01:03:48.200
Then I start having -
I hear some bell.

01:03:48.233 --> 01:03:49.367
Panic!

01:03:49.400 --> 01:03:51.167
I say - and she told me,
"You know what?

01:03:51.200 --> 01:03:54.600
You can do
a loan modification," okay?

01:03:54.633 --> 01:03:56.200
I say, "Okay, fine.

01:03:56.233 --> 01:03:58.673
If I can do a loan modification,
what is a loan modification?"

01:03:58.700 --> 01:04:01.467
She said, "Okay, that where
we're going to go over your loan

01:04:01.500 --> 01:04:04.033
"and lower your interest

01:04:04.067 --> 01:04:06.467
and give you something
that you can afford."

01:04:06.500 --> 01:04:08.067
I say, "Okay, perfect."

01:04:08.100 --> 01:04:09.367
When they answer me back,

01:04:09.400 --> 01:04:12.300
they told me that
my loan modification was denied.

01:04:12.333 --> 01:04:13.700
I say, "Why?"

01:04:13.733 --> 01:04:17.600
They say, "Because you've been
paying your mortgage on time.

01:04:17.633 --> 01:04:19.333
"You never been late.

01:04:19.367 --> 01:04:22.467
"So it mean
that you have no hardship.

01:04:22.500 --> 01:04:24.100
"Don't pay your mortgage.

01:04:24.133 --> 01:04:25.800
"Don't pay for two
or three month,

01:04:25.833 --> 01:04:27.767
"and then you apply for,

01:04:27.800 --> 01:04:29.700
"either call it the loan
modification,

01:04:29.733 --> 01:04:32.000
and then we'll be able to
give you the loan modification."

01:04:32.033 --> 01:04:33.500
I say, "Okay, fine."

01:04:33.533 --> 01:04:34.867
So I take three -

01:04:34.900 --> 01:04:36.700
Three month, I didn't pay.

01:04:36.733 --> 01:04:39.667
And I sent - I filled out
the paper again.

01:04:39.700 --> 01:04:40.700
And guess what.

01:04:40.733 --> 01:04:42.733
They denied.

01:04:57.800 --> 01:05:00.233
- Tampa.
St. Petersburg.

01:05:00.267 --> 01:05:01.267
New Orleans.

01:05:01.300 --> 01:05:02.500
Kenner.

01:05:02.533 --> 01:05:03.500
Mansfield, Ohio.

01:05:03.533 --> 01:05:05.200
Phoenix, Mesa, Scottsdale.

01:05:05.233 --> 01:05:09.900
San Jose, Sunnyvale.

01:05:09.933 --> 01:05:11.000
Fresno.

01:05:11.033 --> 01:05:12.000
Columbus, Ohio.

01:05:12.033 --> 01:05:15.267
Poughkeepsie, New York.

01:05:15.300 --> 01:05:16.700
Michigan City.

01:05:16.733 --> 01:05:19.333
Port, Indiana.

01:05:19.367 --> 01:05:22.700
New York. New Jersey.
San Francisco. Tampa.

01:05:22.733 --> 01:05:27.633
St. Petersburg. Portland.
Vancouver. Dallas.

01:05:27.667 --> 01:05:31.400
Forth Worth. Arlington.
Tampa.

01:05:31.433 --> 01:05:36.433
Los Angeles. Long Beach.
Riverside, New York.

01:05:36.467 --> 01:05:41.733
Cleveland. Boise City.
San Diego. Carlsbad.

01:05:41.767 --> 01:05:44.133
Each one of these is a mortgage

01:05:44.167 --> 01:05:46.933
that is part
of a particular pool

01:05:46.967 --> 01:05:48.833
for which we have an exposure to

01:05:48.867 --> 01:05:51.967
or, in this particular case,
we've done an analysis for.

01:05:54.133 --> 01:05:55.967
We're looking at a history
of a borrower.

01:05:56.000 --> 01:05:57.000
And so what you see

01:05:57.033 --> 01:05:58.933
is this delinquency history
for 12 periods.

01:05:58.967 --> 01:06:00.900
And so there's C for current.

01:06:00.933 --> 01:06:03.000
There's 3 for 30 days.

01:06:03.033 --> 01:06:04.300
There's 6 for 60 days.

01:06:04.333 --> 01:06:07.367
And then 9 is for 90 days
or more delinquent.

01:06:07.400 --> 01:06:09.233
Then you've got FC,

01:06:09.267 --> 01:06:12.333
which means the process
of foreclosure has been started.

01:06:12.367 --> 01:06:13.733
And then you have REO,

01:06:13.767 --> 01:06:17.567
which means the process
of foreclosure was completed.

01:06:17.600 --> 01:06:18.633
So C is good.

01:06:18.667 --> 01:06:21.300
You want to see
long lists of Cs.

01:06:21.333 --> 01:06:23.800
You want to see everybody
that looks like that.

01:06:23.833 --> 01:06:26.967
Where it gets bad is when
you look at situations like this

01:06:27.000 --> 01:06:29.333
where you went foreclosure, REO,

01:06:29.367 --> 01:06:33.067
and then the bank finally
discharged of the home

01:06:33.100 --> 01:06:37.667
but they took a $193,000 loss
on this home.

01:06:37.700 --> 01:06:42.900
And so interesting things are,

01:06:42.933 --> 01:06:46.367
if you look at present status,
9, that they start out current,

01:06:46.400 --> 01:06:50.000
and then they went through
five periods of current,

01:06:50.033 --> 01:06:52.467
and then they got
30 days delinquent.

01:06:52.500 --> 01:06:56.700
Then they - they basically
fought back to current.

01:06:56.733 --> 01:06:59.800
It appears that they've survived
some event.

01:06:59.833 --> 01:07:03.000
And then they just
went down the slippery slope,

01:07:03.033 --> 01:07:04.700
and this time,
they've turned the corner.

01:07:04.733 --> 01:07:09.100
Once you're 90 days delinquent,
it's really tough to get back.

01:07:09.133 --> 01:07:14.933
It's kind of a dark world,
because you see it happen.

01:07:14.967 --> 01:07:18.267
And it's somebody's life.

01:07:20.533 --> 01:07:23.867
As Americans,
you've been taught,

01:07:23.900 --> 01:07:25.833
this is one of your
major stores of value.

01:07:25.867 --> 01:07:28.100
And in a situation where,
you know,

01:07:28.133 --> 01:07:30.167
wages are not rising in America,

01:07:30.200 --> 01:07:32.333
this has been one
of the major methods for people

01:07:32.367 --> 01:07:36.633
to ultimately increase
their income in the middle class

01:07:36.667 --> 01:07:39.667
is through this house
appreciation factor.

01:07:39.700 --> 01:07:43.767
But now that that's gone,
it's a devastating reality.

01:07:43.800 --> 01:07:49.633
And so you're seeing this ripple
through the economy.

01:08:11.667 --> 01:08:15.800
- It's a myth that people
didn't see this crisis coming.

01:08:15.833 --> 01:08:17.767
There was a lot of chatter
in the industry.

01:08:17.800 --> 01:08:19.567
- Despite the Dow
hitting a three-month high,

01:08:19.600 --> 01:08:21.633
more and more analysts
are cautioning

01:08:21.667 --> 01:08:24.567
that a recession could be
just around the corner.

01:08:24.600 --> 01:08:32.000
- Well, things started
to go wrong in the fall of 2006.

01:08:32.033 --> 01:08:33.267
- In all these years

01:08:33.300 --> 01:08:35.100
that we've been running
these trade deficits,

01:08:35.133 --> 01:08:36.933
the wealth of the average
American household...

01:08:36.967 --> 01:08:38.600
has been going up, not down.
- No, it hasn't.

01:08:38.633 --> 01:08:40.933
- The so-called
smart money people,

01:08:40.967 --> 01:08:42.033
you know, the definition

01:08:42.067 --> 01:08:44.067
of being a smart money
kind of person or player

01:08:44.100 --> 01:08:45.567
is that you know
when to get out.

01:08:45.600 --> 01:08:47.467
And so they all thought
they knew when to get out.

01:08:47.500 --> 01:08:50.700
- Sophisticated investors
would negotiate

01:08:50.733 --> 01:08:51.933
for better protections

01:08:51.967 --> 01:08:53.867
They'd say, "Well,
I need more protection

01:08:53.900 --> 01:08:56.000
against potential defaults
in the portfolios."

01:08:56.033 --> 01:08:58.833
So they'd get
an extra 1% protection.

01:08:58.867 --> 01:09:03.300
But 1% extra protection
was like saying to somebody,

01:09:03.333 --> 01:09:06.367
"You know, I'm gonna give you
an extra life vest

01:09:06.400 --> 01:09:08.533
to wear on the Titanic."

01:09:10.533 --> 01:09:12.700
- When you see the stock market
come down

01:09:12.733 --> 01:09:14.267
and the real estate bubble
burst,

01:09:14.300 --> 01:09:16.400
all that phony wealth
is gonna evaporate,

01:09:16.433 --> 01:09:18.200
and all that's gonna be left
is all the debt.

01:09:18.233 --> 01:09:20.267
- My safety valve in my mind
when I did this -

01:09:20.300 --> 01:09:21.667
again, no one put a gun
to my head -

01:09:21.700 --> 01:09:22.900
but I always thought,

01:09:22.933 --> 01:09:24.500
"If the market starts to turn,
I'll sell."

01:09:24.533 --> 01:09:25.733
- This is an economy

01:09:25.767 --> 01:09:27.900
that's driven
by good economic policies,

01:09:27.933 --> 01:09:30.933
by good monetary policy,
by good trade policy,

01:09:30.967 --> 01:09:32.467
and it's working beautifully.

01:09:32.500 --> 01:09:34.933
- You started having borrowers
not paying in the first month

01:09:34.967 --> 01:09:36.333
or second month
or the third month

01:09:36.367 --> 01:09:39.467
and this wave of mortgages
coming back to the originators.

01:09:39.500 --> 01:09:40.867
- It's a zero-sum game.

01:09:40.900 --> 01:09:43.700
Every interest dollar paid
is interest dollar earned.

01:09:43.733 --> 01:09:46.200
- Art, the people that earn
the dollars are in China.

01:09:46.233 --> 01:09:51.900
- What triggered it was
an abrupt lowering of ratings

01:09:51.933 --> 01:09:55.200
on hundreds of subprime
mortgage-backed securities.

01:09:55.233 --> 01:09:57.133
- And that struck a huge panic

01:09:57.167 --> 01:09:58.807
into the whole
structured products market.

01:09:58.833 --> 01:10:02.300
- Investors suddenly knew
that the game was up.

01:10:02.333 --> 01:10:04.567
It wasn't that they were
surprised

01:10:04.600 --> 01:10:05.967
that the downgrades
had happened.

01:10:06.000 --> 01:10:08.733
But they now knew that all
of the other securities

01:10:08.767 --> 01:10:10.500
couldn't hold up either.

01:10:10.533 --> 01:10:12.400
And knowing that,

01:10:12.433 --> 01:10:14.300
they bailed out
very, very quickly.

01:10:14.333 --> 01:10:18.400
- Oh, yeah, we were surprised
at how fast

01:10:18.433 --> 01:10:19.867
the devastation took place.

01:10:19.900 --> 01:10:21.767
- There was no time to sell.

01:10:21.800 --> 01:10:25.333
Once there's blood in the water,
everybody's running.

01:10:25.367 --> 01:10:26.800
And there was just no way out.

01:10:26.833 --> 01:10:29.167
- The crisis came on us
rather fast,

01:10:29.200 --> 01:10:31.367
and it took fast action.

01:10:31.400 --> 01:10:33.700
I think that the government
had to prevent

01:10:33.733 --> 01:10:35.500
a collapse of confidence.

01:10:43.967 --> 01:10:46.033
- The whole system
was predicated

01:10:46.067 --> 01:10:50.633
on there being a complete gap
between the people on the ground

01:10:50.667 --> 01:10:51.833
making the loans

01:10:51.867 --> 01:10:54.300
and the people packaging them
to sell them off

01:10:54.333 --> 01:10:56.433
as - you know, through
the securitization process

01:10:56.467 --> 01:10:57.800
on Wall Street

01:10:57.833 --> 01:10:59.133
so that you can have people
sitting

01:10:59.167 --> 01:11:00.933
in their high-rise building
on Wall Street

01:11:00.967 --> 01:11:04.000
or wherever they were,
in their fancy offices,

01:11:04.033 --> 01:11:07.633
having no connection whatsoever
and no regard

01:11:07.667 --> 01:11:10.300
and not even in their
imagination thinking about

01:11:10.333 --> 01:11:11.733
what this commodity was

01:11:11.767 --> 01:11:14.100
that they were bundling
and selling off.

01:11:14.133 --> 01:11:15.700
They were completely severed,

01:11:15.733 --> 01:11:18.200
and that was why this
was able to go for so long,

01:11:18.233 --> 01:11:20.567
'cause one would hope
there would be some people

01:11:20.600 --> 01:11:23.267
within that machinery
that had some conscience

01:11:23.300 --> 01:11:25.500
and that if they understood
what they were packaging

01:11:25.533 --> 01:11:30.067
was actually translating
very concretely into loans

01:11:30.100 --> 01:11:32.800
that were - let's just be blunt -
ruining people's lives,

01:11:32.833 --> 01:11:34.800
I mean, wiping out
people's life savings,

01:11:34.833 --> 01:11:37.900
stealing their equity,
making people homeless,

01:11:37.933 --> 01:11:39.267
wrecking families.

01:11:39.300 --> 01:11:42.167
I mean, the devastation
can't really be overstated

01:11:42.200 --> 01:11:45.467
what it means to sort of be
kind of induced into a loan

01:11:45.500 --> 01:11:47.000
that then spins out of control

01:11:47.033 --> 01:11:48.733
and leaves you
without your home.

01:11:48.767 --> 01:11:52.567
- Uh, do I feel
any responsibility?

01:12:06.000 --> 01:12:11.600
- I think responsibility

01:12:11.633 --> 01:12:13.433
is a difficult feeling
for people

01:12:13.467 --> 01:12:17.100
in the sense that all -

01:12:17.133 --> 01:12:19.867
most people's participation

01:12:19.900 --> 01:12:22.233
other than a select few

01:12:22.267 --> 01:12:25.633
which had very,
very important jobs,

01:12:25.667 --> 01:12:28.167
probably head
of the ratings agencies,

01:12:28.200 --> 01:12:29.533
some chief regulators,

01:12:29.567 --> 01:12:31.833
a couple chief bankers,
et cetera,

01:12:31.867 --> 01:12:34.100
most of the other participants
in the system, I think,

01:12:34.133 --> 01:12:36.100
kind of felt like cogs
in the wheel

01:12:36.133 --> 01:12:38.233
of a much larger
piece of machinery.

01:12:41.933 --> 01:12:43.767
- Mr. Chairman, I know -
I agree with you

01:12:43.800 --> 01:12:46.000
in the fact that there were
a lot of people

01:12:46.033 --> 01:12:49.200
who raised issues
about problems emerging.

01:12:49.233 --> 01:12:53.200
But there are always a lot
of people raising issues,

01:12:53.233 --> 01:12:56.133
and half the time,
they're wrong.

01:12:56.167 --> 01:12:58.467
And the question is,
what do you do?

01:12:58.500 --> 01:13:00.967
I mean, you point out
quite correctly

01:13:01.000 --> 01:13:02.800
that the Federal Reserve
had as good

01:13:02.833 --> 01:13:05.633
an economic organization
as exists in,

01:13:05.667 --> 01:13:08.600
I would say, in the world.

01:13:08.633 --> 01:13:12.167
If all those extraordinarily
capable people

01:13:12.200 --> 01:13:14.467
were unable to foresee

01:13:14.500 --> 01:13:16.600
the development
of this critical problem,

01:13:16.633 --> 01:13:18.267
I have to think -

01:13:18.300 --> 01:13:21.800
I think we have to ask
ourselves, why is that?

01:13:21.833 --> 01:13:26.633
And the answer is that
we're not smart enough.

01:13:43.567 --> 01:13:46.300
- My aunt had a riding stables
in the Midwest,

01:13:46.333 --> 01:13:48.267
and every summer,
I'd go out there

01:13:48.300 --> 01:13:49.667
and work for her, so...

01:13:49.700 --> 01:13:52.300
Go on, girl.

01:13:52.333 --> 01:13:55.933
She died 12, 14 years ago,

01:13:55.967 --> 01:13:59.300
and there were 50 horses
to dispose of,

01:13:59.333 --> 01:14:01.033
so I thought,
"Well, I have the land now.

01:14:01.067 --> 01:14:02.200
Maybe I should get horses."

01:14:02.233 --> 01:14:04.267
So that's what happened.

01:14:04.300 --> 01:14:06.333
- Good girl.

01:14:06.367 --> 01:14:08.533
- I owe a lot more on this place
than it's worth.

01:14:08.567 --> 01:14:12.267
So hopefully it'll all work out
and I can hang on to it.

01:14:12.300 --> 01:14:15.800
But that's still
to be determined.

01:14:20.867 --> 01:14:23.233
- My situation right now is,

01:14:23.267 --> 01:14:26.367
I'm waiting
for a loan modification.

01:14:26.400 --> 01:14:28.600
I need a loan modification.

01:14:28.633 --> 01:14:32.000
My only way out
is a loan modification.

01:14:32.033 --> 01:14:33.633
I don't want to live free.

01:14:33.667 --> 01:14:35.367
I know I have to pay
my mortgage.

01:14:35.400 --> 01:14:37.000
I'm going to pay my mortgage.

01:14:37.033 --> 01:14:41.967
It would be a shame if I cannot
hang on to my house.

01:14:42.000 --> 01:14:44.100
It would be a shame.

01:14:44.133 --> 01:14:47.367
It would be -

01:14:47.400 --> 01:14:49.767
I don't want to think
about that, because it's -

01:14:49.800 --> 01:14:53.200
I don't think it's right,
because I can pay for it.

01:14:53.233 --> 01:14:56.467
All I'm asking
is a loan modification, okay?

01:14:56.500 --> 01:14:59.667
The house, the value
of the house was too high.

01:14:59.700 --> 01:15:03.400
The kind of mortgage I got
was a bad mortgage.

01:15:03.433 --> 01:15:05.967
So why they cannot redo
my mortgage for me?

01:15:06.000 --> 01:15:07.467
Why they're going to -

01:15:07.500 --> 01:15:09.000
want me to lose my house?

01:15:09.033 --> 01:15:11.167
What are they going to do
with it?

01:15:11.200 --> 01:15:13.600
- To have, you know,

01:15:13.633 --> 01:15:15.433
achieved a measure of respect
in your life,

01:15:15.467 --> 01:15:17.233
worked hard to become
a, you know,

01:15:17.267 --> 01:15:20.867
correspondent in Washington
at a famous newspaper

01:15:20.900 --> 01:15:25.300
and, you know,
kind of been, in a way,

01:15:25.333 --> 01:15:26.833
a part of the establishment

01:15:26.867 --> 01:15:30.967
and to now, you know,
see yourself plunge down

01:15:31.000 --> 01:15:34.800
to being, you know, a debtor

01:15:34.833 --> 01:15:37.067
the likes of which are being
made fun of all over the place,

01:15:37.100 --> 01:15:38.333
it's just an awful experience.

01:15:38.367 --> 01:15:41.300
It was the kind of thing
where you find out

01:15:41.333 --> 01:15:43.133
you're not as strong
as you thought.

01:15:43.167 --> 01:15:46.500
You're a whole lot more foolish
than you thought.

01:15:46.533 --> 01:15:51.967
And furthermore, you've lost
maybe almost everything

01:15:52.000 --> 01:15:55.033
that you had in terms
of your financial assets

01:15:55.067 --> 01:15:59.067
and maybe even in terms
of your marriage.

01:15:59.100 --> 01:16:00.567
It doesn't get much worse
than that.

01:16:00.600 --> 01:16:03.300
[siren wailing]

01:16:09.733 --> 01:16:13.300
- So thank you all
for joining me today.

01:16:13.333 --> 01:16:17.933
On this tour, I gave you guys
a lot of information.

01:16:17.967 --> 01:16:21.967
I want to give you guys
a few takeaways, key takeaways.

01:16:22.000 --> 01:16:25.467
- People, when they talk
about the financial crisis,

01:16:25.500 --> 01:16:28.067
they talk about the regulation
of financial institutions.

01:16:28.100 --> 01:16:29.900
They talk about evil people

01:16:29.933 --> 01:16:31.333
lending money
when they shouldn't,

01:16:31.367 --> 01:16:33.567
taking advantage of people,
predatory lending.

01:16:33.600 --> 01:16:37.400
But I think all those things
pale before the real crisis,

01:16:37.433 --> 01:16:41.933
which is the way in which
capital moves in the economy

01:16:41.967 --> 01:16:44.067
and the way in which
wage inequality

01:16:44.100 --> 01:16:47.100
has caused this capital to move
so inefficiently in our economy.

01:16:47.133 --> 01:16:50.333
- What we are doing, in effect,
is transferring money

01:16:50.367 --> 01:16:52.400
from people who would spend it

01:16:52.433 --> 01:16:54.467
to people who don't need
all that money

01:16:54.500 --> 01:16:56.200
and don't spend it -

01:16:56.233 --> 01:16:58.733
record bonuses, you know,

01:16:58.767 --> 01:17:01.833
hundreds of people getting
more than $1 million a year,

01:17:01.867 --> 01:17:04.600
even when the company
makes a loss.

01:17:04.633 --> 01:17:11.333
So the problem is that when you
have roaming inequality,

01:17:11.367 --> 01:17:16.300
typically, your level
of consumption goes down.

01:17:16.333 --> 01:17:18.000
In the United States,
we said to those

01:17:18.033 --> 01:17:21.133
whose income was not
going anywhere, we said,

01:17:21.167 --> 01:17:22.400
"Don't worry.

01:17:22.433 --> 01:17:25.667
Continue to spend
as if your income was going up."

01:17:25.700 --> 01:17:29.800
But the only way you do that
is through debt.

01:17:29.833 --> 01:17:33.600
But that particular model
has been broken.

01:17:33.633 --> 01:17:36.367
- We need to have capitalism
work for us,

01:17:36.400 --> 01:17:37.900
not work us over.

01:17:37.933 --> 01:17:39.300
This is the real difference,
right?

01:17:39.333 --> 01:17:40.600
We need to figure out a way

01:17:40.633 --> 01:17:44.200
to make profits create jobs
for everybody,

01:17:44.233 --> 01:17:48.100
not profits create just
some wealth for the very few.

01:17:48.133 --> 01:17:49.133
If that's the case,

01:17:49.167 --> 01:17:51.633
then capitalism
will no longer work,

01:17:51.667 --> 01:17:54.033
because people
will not stand for it.

01:17:54.067 --> 01:17:58.033
And what's made capitalism great
for the last 500 years

01:17:58.067 --> 01:17:59.533
is that it's actually created

01:17:59.567 --> 01:18:01.733
better standards of living
for everyone.

01:18:01.767 --> 01:18:03.400
The capitalism
in the last 30 years

01:18:03.433 --> 01:18:05.967
has decreased the standard
of living for everyone

01:18:06.000 --> 01:18:07.500
except those at the very top.

01:18:07.533 --> 01:18:10.500
[mournful folk music]

01:18:10.533 --> 01:18:18.533
♪ ♪

01:18:18.633 --> 01:18:21.733
- ♪ Jack built his house
on sand ♪

01:18:21.767 --> 01:18:23.233
♪ It sure looks good on paper ♪

01:18:23.267 --> 01:18:25.767
♪ Jack's a fortunate man ♪

01:18:25.800 --> 01:18:28.967
♪ Let's build a house
like that ♪

01:18:29.000 --> 01:18:33.567
♪ So we can be just like Jack ♪

01:18:33.600 --> 01:18:35.867
♪ Just like Jack ♪

01:18:35.900 --> 01:18:38.100
♪ But when the sand begins
to blow away ♪

01:18:38.133 --> 01:18:39.800
♪ The way that sand does ♪

01:18:39.833 --> 01:18:41.367
♪ We gather round and say ♪

01:18:41.400 --> 01:18:44.500
♪ That's where the house
that Jack built was ♪

01:18:44.533 --> 01:18:48.967
♪ And why did he build
his house like that ♪

01:18:49.000 --> 01:18:51.300
♪ House like that ♪

01:18:51.333 --> 01:18:54.167
♪ Watch out,
it's tumbling down ♪

01:18:54.200 --> 01:19:00.367
♪ Round every man jack of us ♪

01:19:00.400 --> 01:19:03.267
♪ A bear
in fine bull clothes ♪

01:19:03.300 --> 01:19:07.733
♪ He's keeping up appearances
so no one knows ♪

01:19:07.767 --> 01:19:15.067
♪ How bad it's gonna get
for all of us crackerjacks ♪

01:19:15.100 --> 01:19:17.733
♪ Us crackerjacks ♪

01:19:17.767 --> 01:19:19.500
♪ Now, Jack is no fool ♪

01:19:19.533 --> 01:19:21.733
♪ He's a jack-of-all-trades ♪

01:19:21.767 --> 01:19:25.267
♪ A carpenter, a mother,
a banker, a babe ♪

01:19:25.300 --> 01:19:27.800
♪ He's sitting in the backseat ♪

01:19:27.833 --> 01:19:31.000
♪ He's driving this bus ♪

01:19:31.033 --> 01:19:33.067
♪ Drive this bus ♪

01:19:33.100 --> 01:19:36.233
♪ Look out,
he's crashing into ♪

01:19:36.267 --> 01:19:40.100
♪ Every man jack of us ♪

01:19:40.133 --> 01:19:43.133
♪ Watch out, Jack ♪

01:19:43.167 --> 01:19:51.167
♪ ♪

01:19:58.600 --> 01:20:01.300
♪ Jack built a house of cards ♪

01:20:01.333 --> 01:20:05.733
♪ It's a funny little habit
that dies hard ♪

01:20:05.767 --> 01:20:09.333
♪ We all followed suit ♪

01:20:09.367 --> 01:20:13.133
♪ 'Cause we don't know Jack ♪

01:20:13.167 --> 01:20:16.267
♪ We don't know Jack ♪

01:20:16.300 --> 01:20:19.933
♪ He jumps into the fire
from the frying pan ♪

01:20:19.967 --> 01:20:23.400
♪ He bets he won't get burnt
'cause Jack's a gambling man ♪

01:20:23.433 --> 01:20:28.767
♪ But, Jack, can you
be quick as all that ♪

01:20:28.800 --> 01:20:31.333
♪ As all that ♪

01:20:31.367 --> 01:20:33.967
♪ Watch out,
it's burning down ♪

01:20:34.000 --> 01:20:39.367
♪ Round every man jack of us ♪

01:20:39.400 --> 01:20:41.633
♪ And when the sand begins
to blow away ♪

01:20:41.667 --> 01:20:43.500
♪ The way that sand does ♪

01:20:43.533 --> 01:20:44.900
♪ We gather round and say ♪

01:20:44.933 --> 01:20:48.033
♪ That's where the house
that Jack built was ♪

01:20:48.067 --> 01:20:52.767
♪ And why did he build
his house like that ♪

01:20:52.800 --> 01:20:55.033
♪ House like that ♪

01:20:55.067 --> 01:20:57.767
♪ Watch out,
it's tumbling down ♪

01:20:57.800 --> 01:21:00.433
♪ On every man jack of us ♪

01:21:00.467 --> 01:21:03.400
♪ Watch out,
he's crashing into ♪

01:21:03.433 --> 01:21:06.000
♪ Every man jack of us ♪

01:21:06.033 --> 01:21:08.633
♪ Watch out,
it's burning down ♪

01:21:08.667 --> 01:21:12.700
♪ Round every man jack of us ♪

01:21:12.733 --> 01:21:16.300
♪ Every man jack of us ♪

01:21:16.333 --> 01:21:19.167
♪ Every man jack,
every man jack ♪

01:21:19.200 --> 01:21:23.300
♪ Every man,
every man jack of us ♪

01:21:23.333 --> 01:21:31.333
♪ ♪