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Money, Power, and Wall Street: Picking Up the Pieces

For three decades, the struggle to "free" the markets met with accelerating success. Regulations forged from the lessons of 1920s' excesses were discarded one after another. Simultaneously, innovation in finance provided new ways to leverage risk. Obama recognized peril in the economy, but no one perceived the imminent danger.

"We've got eight years of disastrous economic policy. That's what we're going to change when I'm President of the United States." - candidate Barack Obama

Obama realized very early in the campaign that the economy was getting worse and decided to run on that issue: 'My opponent doesn't see it and I can fix it.' He had traveled to Wall Street to push for a change in its ways.

The Cooper Union speech had been Obama's message that we have to rein in Wall Street; resume more aggressive regulation. He was talking about regulation before anyone was talking about regulation, before the writing was on the wall. Austan Goolsbee remembers that the reaction was not great, "but to his credit, it did not keep him from laying it out."

"He was talking about the idea of making sure that the ethics of Wall Street was pure and that we were doing the business that we should be doing." - Robert Wolf, Chairman UBS Americas

The third segment of the Frontline series, Money, Power, and Wall Street begins at the end of the 2008 campaign. The economy was melting. The Bush administration was leaving. The inauguration was 76 days away. This was the most eventful and consequential Presidential transition in American history. In Chicago, President elect Obama watched the economy continue to collapse. Obama was getting a real glimpse of the future: disaster was coming. In those first weeks after the election, the entire economic team he had assembled was stunned by the bad news. They had been advising him for months, warning him. Meanwhile, there was really no one in the departing administration managing it. There was no political will; no one in charge.

Money, Power, and Wall Street: The Financial Collapse

By March 2008, the prospect of a meltdown was looming. Bear Stearns fell first. It started with rumors about investment in sub-prime mortgages, tagged as toxic assets. Bear Stearns bought hundreds of thousands of sub-prime mortgages and bundled them. Little then did candidate Obama know the role he would play.

This continuation of the Frontline documentary takes up with the events of 2008, a Presidential election year. In this installment, the very foundation of the financial world trembles while we meet the major players: Secretary of the Treasury Hank Paulson, Chairman of the Federal Reserve, Ben Bernanke, and Tim Geithner, president of the Federal Reserve Bank of New York.

Tim Geithner distinguished himself from the moment he received the first panicked call. Instead of acting without intelligence, he dispatched a team to survey the situation at Bear Stearns. They and teams from the SEC and JP Morgan discovered a drowning pool of toxic assets. Bear had made credit default swap deals worth trillions of dollars that had infected all of Wall Street and the financial world. Geither recognized the systemic risk to the world economy. This was the moment of realization that Bear Stearns was too big to fail. This took Federal regulators by surprise.  

Money, Power, and Wall Street: an Invisible Market

The myth of a strong economy heralded by the Bush administration unraveled in a series of Wall Street financial earthquakes. $11 trillion of America's net worth dissolved; 8.5 million jobs were lost in the resulting recession. People's homes weren't worth what they paid for them. College graduates moved home.

"The real story of this financial crisis is not so much whether the bailout was the right thing or the wrong thing to do. The real question is: How did it come to be?" - Phil Angelides, Chair, Financial Crisis Inquiry Committee

This beginning of a PBS Frontline documentary depicts the dramatic succession of events that led to and through the financial cataclysm that altered the economic landscape. In the first installment, events leading up to the 2008 crisis are brought into focus. Some of the key players are introduced. Most important is the development of a financial layman's understanding of the complex machinations involved.

It didn't begin with credit default obligations (CDOs) but that is as good a place as any to start explaining this mess. A group of innovators at JP Morgan developed the concept of a derivative to trade loan risks in the early 1990s. That is where the Frontline documentary begins the journey through a sorry tale of a failed economic credo and its victims.