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Fallout: The Financial Crisis

Federal panel looks into financial risk

Marketplace Staff Sep 1, 2010
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Fallout: The Financial Crisis

Federal panel looks into financial risk

Marketplace Staff Sep 1, 2010
HTML EMBED:
COPY

TEXT OF INTERVIEW

STEVE CHIOTAKIS: More hearings are going on today over at the Federal Crisis Inquiry Commission, looking into potential systemic risk from big financial institutions. Federal bank regulators are defending the actions they took back in 2008 leading up to the collapse of Lehman Brothers and the purchase of Wachovia Bank at the height of the financial crisis. Former Lehman CEO Richard Fuld told the panel the company could have survived had financial regulators made different decisions. Rick Rothacker is a reporter for the Charlotte, N.C., Observer and author of the book “Banktown.” He’s with us live from Charlotte. Good morning.

RICK ROTHACKER: Good morning.

CHIOTAKIS: All right, so Rick, what are we hearing today and the thinking about saving Bear Stearns — but Bear Stearns was saved earlier in the year — and then Lehman was led to collapse.

ROTHACKER: Yeah, the way they’re distinguishing it is that Bear Stearns first had a merger partner who was interested, and that was JPMorgan. And that they had some collateral that made it worthwhile to make a loan in the interim. And they are saying that there just wasn’t that collateral there and they couldn’t get paid back and didn’t want to risk taxpayer money to try to do that for Lehman. Of course, soon after we saw more bailouts, including some assistance, potential assistance, for Wachovia, which later didn’t need it because Wells Fargo came in.

CHIOTAKIS: Wachovia, of course, is based in Charlotte, right?

ROTHACKER: It is.

CHIOTAKIS: And so what was going on up to that point? Weren’t there negotiations with Wells Fargo to sell the bank to Wells anyway.

ROTHACKER: Exactly. Wachovia was, at the peak of the crisis, suddenly having a liquidity crunch. And over the weekend at the end of September, Wells Fargo and Citigroup were both looking at Wachovia. Citigroup needed government help to do it. Wells said they could do it on their own. But then kind of pulled out at the 11th hour. And the government arranged the sale to Citigroup.

CHIOTAKIS: And what could the Fed have done — because the Wells sale didn’t really go through — do you let Wachovia fail?

ROTHACKER: Well that’s the question. They didn’t want to do that. They argued it was too interconnected and bigger than even some of the banks that did fail, like Washington Mutual essentially failed. So they were working to help them and that’s why they did this, essentially, an auction that resulted in Citigroup first was going to buy it. Then Wells Fargo came back a few days later and said, hey, we can do it on our own. And FDIC was pretty happy to let that happen and not have to worry about going into their fund to help Wachovia.

CHIOTAKIS: Rick Rothacker joining us from Charlotte, N.C., thanks a lot for your time.

ROTHACKER: Thanks a lot. I appreciate it.

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