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Tuesday, April 24, 2012

Three Profiles in Crisis Leadership

PBS is airing a four-hour summary of the causes and consequences of the financial crisis that nominally began in 2008. You can watch online at


or read the transcript at


Much of the content in the first two hours seems recycled from prior Frontline shows and other sources such as 13 Bankers (see #1) or Too Big To Fail (see #2) that covered topics such as:

* Brooksley Born's attempt to impose regulations on derivatives even before the Long Term Capital Management crisis -- an attempt squelched by Alan Greenspan and Larry Summers

* attempts by the State of Georgia to curtail predatory and fraudulent lending practices that resulted in a campaign by the financial industry to defeat the Georgia Governor in November 2002, instantly repeal those limits then get legislation passed by Congress to block ANY state from imposing similar limits on lending practices that contributed to the bubble

* the operation of the Treasury and Federal Reserve in "panic of the hour" mode throughout September and October of 2008 which telegraphed a sense of chaos and lack of principle to the markets that actually worsened the problems

* how Blythe Masters devised a financial instrument that allowed her employer, JP Morgan, to sell pieces of a giant loan it made to Exxon (to cover its potential risks after its Exxon Valdez disaster) so JP Morgan could reduce its risk exposure to an Exxon collapse, reduce JP Morgan's capital reserve requirements and make more money lending at a lower effective reserve ratio

* how Blythe Masters and those very same wizards at JP Morgan grew that concept into selling pieces of a collection of credit papers from hundreds of major name firms, only to get cold feet about the process and drastically curtail their use of the tool after the rest of the industry became addicted to the process

The biggest piece of new information is the five minute picture of what actually happened in the emergency "summit" hastily called for by John McCain as he "suspended his campaign" to focus on the financial crisis and help Congress break a deadlock after balking at the first Treasury bailout plan.

Here's an excerpt of that segment (see 42:00 to 47:00 in the Episode 2 clip)

Rep. NANCY PELOSI: Senator Obama said, "Well, I’d really like to hear from Senator McCain because he’s the person who called for this meeting."

RON SUSKIND: McCain is fumbling with his cue cards. He doesn’t even barely get started. Obama kind of patronizes him, saying, “I think Senator McCain has something to say.” McCain just melts on the spot.

MATT LATIMER: Obama took charge, had authority. John McCain had no plan, no strategy. I don’t think he understood what was happening, or didn’t have a plan for what he wanted to accomplish.

JONATHAN ALTER: President Bush whispered to Nancy Pelosi, who was sitting next to him, when McCain was talking, he said, “You guys are going to miss me.” And she kind of laughed.

PETER BAKER: The meeting ends up breaking into— into a cacophony of shouting and— and screaming back and forth. And Bush stands up and says, “Well, I’ve clearly lost control of this meeting,” and he walks out.

JONATHAN ALTER: And another Republican at the table joked to the person sitting next to him, “After this, even we’re going to vote for Obama.” That was the level of Obama’s dominance in this meeting.

MATT LATIMER: It becomes a turning point because McCain started this. He suspended his campaign. Obama did not suspend his campaign. McCain promised some sort of dramatic action. He sent mixed signals and did not seem to have the authority that a commander-in-chief should have. And I don’t think he ever really quite recovered from that.

Who is saying this? A Democratic party hack? No. Matt Latimer, a White House speech writer in the Bush Administration between 2007 and 2008.

People will argue for centuries about whether TARP was the right thing of the right size at the right time to attempt to plug the drain we were headed down at the time. It may have only slowed the rush of water out of the tub for a few months or years. However, just think about the stakes that WERE clear in that room at that time involving a few TRILLION dollars in household wealth and Wall Street market capitalization then compare the communication styles and composure of the players in that room.

One guy starts the meeting with "we gotta do something or this sucker's going down" then immediately punts on first down. This is the President of the United States.

One guy has the opportunity to come to the meeting and frame the discussion -- having called for the meeting thereby MAGNIFYING worldwide risk by setting expectations to "do something" -- and freezes -- literally like a deer in the headlights. This is a candidate for President from the party professing to know business, management and leadership.

One guy shows up, comes prepared with ideas having done HOURS of homework with input from advisors in government and business, and -- simply by appearing focused and informed -- dominates a meeting with the President of the United States and the heads of the Treasury and Federal Reserve at a moment of national economic peril.

Congress didn't pass the revised TARP plan immediately after that pointless meeting but one can imagine the sense of panic that would have ensued had people in that meeting left the room without seeing at least one adult show up and convey a sense of direction and reason. Barack Obama may have earned his spot in history before ever taking the oath of office based on the leadership he demonstrated in that meeting.


#3) http://watchingtheherd.blogspot.com/2010/04/book-review-13-bankers.html

#4) http://watchingtheherd.blogspot.com/2010/04/book-review-too-big-to-fail.html