PBS Frontline: What Caused the Financial Crisis?

Michael Kirk
Frontline Producer
Wednesday, February 18, 2009; 10:00 AM

PBS Frontline producer Michael Kirk was online Wednesday, Feb. 18 at 11 a.m. ET to discuss his film "Inside the Meltdown," which investigates the causes of the ongoing economic crisis and examines what government officials didn't see, couldn't stop and haven't been able to fix.

"Inside the Meltdown" aired Tuesday, February 17 at 9 p.m. on PBS (check local listings).

The transcript follows.

Michael Kirk is Frontline's senior producer for special projects. His most recent Frontline productions include: The Choice 2008, the two-part special Bush's War, the Peabody Award-winning Cheney's Law and the Emmy-winning The Lost Year in Iraq.


Michael Kirk: Hi everyone. I'm sitting at my computer in sunny Cambridge MA ready to try to answer your questions. Fire away!


Alexandria, Va.: Why did Frontline not delve deeper into the causes of this crisis, namely policies by the government and Federal Reserve that created an unsustainable bubble and drove financial "engineering" to become the most "profitable" sector in the USA?

The show should have been more critical of the bailouts; each bailout has meant that the U.S. government has adopted the risk position of every successive entity. We have already seen one government collapse in Iceland as a result of this, with others including Ireland and Hungary apparently very near it. The bailout culture has placed the entire nation at risk because the forces that led to the collapse of BSC and LEH, increasing leverage into an asset bubble that popped, remain unabated yet now the government is on the hook for these losses. BSC did not fail as a result of something so capricious as "confidence," it failed because it was the smallest player in a game of musical chairs when the record stopped.

Michael Kirk: We made a program about a different matter than the "causes of this crisis." CNBC made quite a good documentary that aired last week that gets closer to the matter that interests you. You will enjoy watching it and I hope learn a lot from it (as I did).


Raleigh, N.C.: Great, great program.

Here's what I don't get. I knew in the summer of 2007 that the housing/mortgage industry was heading for a serious fall. I'm not in the business, I'm just a news geek; a million or more Americans outside the business knew the same thing. What I did NOT know was how mortgages had been packaged into incredibly leveraged investment vehicles. But if I had known, I would have realized that the recent financial meltdown was all but inevitable. What I don't get is why the people who DID know about those investment vehicles didn't sound the alarm. Your program hinted, as one person put it, that when you're having fun at a party, nobody wants to leave. But I felt that was inadequate. Was that really the best answer, or was an exploration of that question outside the scope of your 1 hour show?

Michael Kirk: Many knew. Few in positions of authority did anything about it. I'm not sure how many really understood the massive nature of the connections between trading parties that were associated with these sophisticated financial instruments. After the collapse following the Lehman Brothers bankruptcy it certainly became much clearer.


Glenelg, SA Australia: Can you explain why so many institutions were willing to hold onto these overvalued assets and continued to produce more of them when the world market for selling them off was evaporating?

Also, do the European institutions that purchased those assets feel cheated? Are they pursuing fraud or other charges against the US firms that sold them?

Michael Kirk: The people we interviewed said that no one wanted to leave "the party" too early. Denial played a part, fear that competitors might stay a little longer and gain an edge, and there was a measure of greed. Not sure how the European's feel...I think some of them may share in the regret that they didn't get out earlier (for a while I'm sure they were very happy to be playing in the big casino).


Worcester, Mass.: People seem to feel this crisis may have been avoided by greater fiscal responsibility. What is the possibility we are in a normal reoccurring cycle of 60- to 80-year increments; that was exacerbated by our attempt to withstand the inevitable by embracing low interest rates and poor lending policies? As such may we be looking at a 20-year recovery if history is to repeat itself?

Michael Kirk: There are certainly many theories about where we are right now--and how we got here. 80 year cycles? 20 year recovery cycles? Maybe. The truth is--I'm not sure anyone really knows (including those at the very top of our government).


Lehman Bros.: I enjoyed the program last evening. This was the first I had heard it argued that Paulson's ideology was the driver for not helping Lehman Brothers, and thereby exacerbating the crisis, leading to much more government spending. It seems plausible, but is there debate over this take on the chain of events? Has Paulson said anything recently about the decisions he made?

Michael Kirk: Secretary Paulson chose not to answer our questions about these matters. I'm sorry he wouldn't talk to me--then I might have been able to answer your question directly.


Chicago: Why did the Treasury, Fed, and FDIC not address the solvency issues of banks in a comprehensive way from the beginning instead of the piecemeal approach of TARP 1.0 and Pubic-Private Investment Bank? The barn is burning and authorities are unable to grasp the problem and address it at the root. The brain trust of the country is engaged in addressing the problem in a very fragmented manner.

Michael Kirk: Many observers of this matter agree with you. The question now is whether Secretary Geithner and Federal Reserve Chairman Bernanke can or will. (Our next film is about this issue and others regarding the major banks in America)


Plymouth, Mich: Thanks for an excellent piece of journalism, Mr. Kirk. I'm a HS history, civics and economics teacher and plan to show this to students in all of my classes.

Question: Is there a metric for us to track whether or not the TARP money will be be effective in stabilizing the banking system?

I would have loved for this Frontline to be 2 hours. Hope you plan to produce a sequel.

Michael Kirk: Thank you. We are producing a sequel--about the bank system.


Anonymous: Barney Frank and Chris Dodd are on record (and video) in 2004 opposing efforts to strengthen regulation of Fannie and Freddie, and now bear significant responsibility for contributing to the mess we're in, but are given a platform here to point fingers elsewhere. Why aren't they held accountable?

Michael Kirk: We didn't make a program designed to "hold people responsible". If we did it would take many more hours than the time we devoted to explaining what happened during those specific times (March; late August; September; October). The "blame" would spread quite wide--from the Clinton administration, through Alan Greenspan, many republicans, and democrats, and regulators, and middle-class citizens, and bankers, and on and on. Senator Dodd and Congressman Frank are included in our program as witnesses in specific meetings that are central to our inquiry. We offered many republican senators and congressmen equal opportunities to talk about those meetings. They chose not to participate.


Waterville, Kan.: Your preview clip talks about the tremendous impact on the market of losing faith in companies.

How much of this crisis is due to a loss in faith of companies and Wall Street and how much of it has real substance?

Michael Kirk: In some ways there is no difference. If people (lenders in this case) lose faith in a company, that company can be devoured. If it is interconnected to companies all over the world, then the system is damaged. If tens or hundreds of billions (or even trillions) of dollars are involved, then there's a "real" problem. Some of that is what happened. Confidence (or lack of it) became a contagion.


Dayton, OH: I keep reading in various articles that in 1999, under pressure from the Clinton administration, Fannie Mae relaxed credit requirements on the loans it would purchase from other banks and lenders, hoping that easing these restrictions would result in increased loan availability for minority and low-income buyers. Also, that early in his administration, Bush tried to reverse those earlier decisions but, was accused of being against home-ownership for minorities and low-income individuals and, wound up backing off from reversing them.

Are those stories I hear true? Were those Clinton-era decisions the real start of this mess?

Michael Kirk: We didn't address these issues in this particular film. In the future we will. I believe there is plenty to investigate and the "blame" is rather widespread across the political spectrum.


Olney, Md.: I love Frontline and the 2002 piece "Bigger than Enron" was a catalyst to my career as a public accountant. Two comments I had was 1) Why not make this Frontline piece a two-parter, especially given its importance to all of America/World and the fact that it didn't mention lots of other failures in Business like WaMu,Countrywide and Merril Lynch. My second part question is why you didn't focus more on the stimulus?

I am guessing that the answer to these question were time constraints. Am I right? By the way keep up the good work with Frontline. It's a quality program.

Michael Kirk: The tyranny of time is always a problem in television journalism. In a way this program was part 1 of at least 2 parts. In June we will air another film that continues where this one left off. It is a look at the banks and their relationship to the crisis and the government. Next fall we plan to make another film. By then the stimulus may be well enough developed that we can follow the money and see what has happened. Would you be interested in a film like that? We're keeping our options open as long as possible.


Talent, OR: If a bank is too big to fail, it's too big to exist. So is it feasible to reinstate likes of Glass-Steagall in near future?

Michael Kirk: GSA was a critical element in all that has happened. We are examining it's impact--from the Clinton administration to the events in 2008 as part of our banking film.


Washington, DC: Your program was excellent. The straightforward reporting and teasing out of the timeline of the meltdown really helped to illustrate what actually happened and is continuing to happen today. My sense of the program was that you felt Paulson and Bernanke were doing the best that they could and I admired them for not showing the rigidity that the rest of the Bush administration showed in creating a bailout and directly injecting capital into the financial system. What I want to know is if you see this event as being the death knell for the "Washington Consensus." Does the US lose its prima position vis-a-vis trade relations and forcing other countries to open up and accept American style capitalism? There is no reason anymore for other countries to buy into unfettered capitalism. Thank you.

Michael Kirk: Thank you for your question and compliment. The people we have spoken to tell us the nature of American capitalism has certainly been altered by the events of the last year. The relationship of the federal government and corporate America will surely be much different for a long time. If you think about it--the government has taken major positions in the biggest banks, Fannie and Freddie, AIG Insurance, and the auto industry. How that plays throughout the world will become evident soon enough.


Orlando: Why were Freddie and Fannie never discussed on the program??

Michael Kirk: They were. You can rewatch the program (and see many other elements--including extra scenes, documents, and in-depth interviews) by going to http://www.pbs.org/frontline.


Princeton, N.J.: Isn't it true that everyone involved was tempted by the prospect of immense wealth that would embarrass an Oriental potentate. They made short term decisions that thought would benefit themselves (and did in a lot of cases), but were bad for the country, the world, and even their institutions.

In 1946 - 1973 we had much higher marginal rates (93 percent under Eisenhower) and people at the top earned 50 times what their workers made, not 500 times. They made better decisions, too. We need much higher marginal rates.

Michael Kirk: Interesting observation. I don't know enough about it...but it's obvious that a lot of people made a lot of money--and a lot of people recently lost a lot of money.


Ann Arbor, Mich: I know you've produced at least a few Frontline documentaries. Did these interviews to feel different than others? To what extent are these economists, journalists, and politicians genuinely scared and unsure how all of this will play out?

Michael Kirk: This was my 50th FRONTLINE documentary. This year I produced the 4 and half hour BUSH'S WAR, the 2-hour "Choice 2008" (the political biographies of President Obama and Senator McCain" and "Dreams of Obama". The economists, journalists and politicians we talked to for "Inside the Meltdown" are very concerned, in some ways scared and uniformly unsure of how this will play out. In that sense, they are no different than all the generals and politicians we talked to making our 11 films about the war.


Washington, D.C.: I was interested in the CNBC reporter who called Lehman to say their CEO should make a statement to calm the markets. But, then when he came on the show, CNBC seemed to blindside him with a lead question about Goldman losing faith, which made matters worse. What was never answered in the Frontline show was whether the Goldman bit was accurate, or a rumor that ended up bringing Lehman down.

Michael Kirk: There's more to that story. I'm not sure "blindsided" is an accurate statement about what CNBC reporter David Faber did when he asked the CEO of Bear Stearns (you said "Lehman" but I think you meant BS). Faber told me he warned the CEO that we was going to ask the question enough in advance that Bear Stearns could have checked the facts and answered the question sufficiently. Faber has a very solid reputation for reporting financial news--the reliability of his assertion about Goldman seems like a good bet.


Washington, D.C.: Many thanks for this program. If you had aired a 4-hour version, would we have heard anything about the roles of President Bush or candidates Obama and McCain? Is it your sense that Bush had effectively excused himself from the management of the crisis? Were the key players actively considering electoral politics, or did the market dislocation just transcend all of that?

Michael Kirk: The politics of this at the presidential level are fascinating. We didn't have time to really delve into them. Remember, the Lehman decision (to not bail them out) as well as the AIG decision and the $700 billion bailout bill, all happened in the midst of the presidential election, and every single member of congress was running for reelection. I'm not sure what effect this had on Paulson and Bernankes decisions. I wish they would have agreed to interviews so I could have asked them. As to Obama, McCain and Bush--I think, truthfully, the candidates were busy with their campaigns and the president was in the last days of his administration. None of them could really have done anything useful in the midst of the emergency that was happening with the economic meltdown.


Indianapolis: Do you think it was the bad blood between Bernanke and the head of Lehman that led to the Fed letting Lehman fail? It seemed like it to me from your reporting.

Michael Kirk: We did not report that. We said that Secretary of the Treasury Henry Paulson and Dick Fuld (head of Lehman Brothers) had been competitors. We reported that Paulson had been calling Fuld for months encouraging him to sell Lehman Brothers so that it wouldn't go bankrupt. Joe Nocera, a reporter/columnist for the New York Times, said on our program that Paulson was angry that Fuld had not sold his company.


Arvada, Colo.: Michael, just a superb documentary, it should be mandatory viewing for everyone. It is so frightening to have been on the edge worldwide collapse, what backup plans are being put in place that we hopefully won't teeter on the edge again?

Michael Kirk: Thank you. I'm not sure about "backup plans." Not sure what they would be. The people I talk to say we are continuing to teeter on the edge.


Long Island, N.Y.: A question on the CDOs.

If a CDO's underlying assets were made up of subprime mortgages, how was it possible for a credit rating agency to say that the amalgamation of these subprime loans were A-rated securities?

Michael Kirk: There are many who criticize (appropriately) the rating agencies. They are part of a broad spectrum of people and institutions who can be blamed for what has happened.


Anonymous: Mr. Kirk : In your opinion was there a turning point at which this current crisis could have been avoided or lessened ?

Michael Kirk: My opinion doesn't really matter. Some of the people I have talked to (more than 20 on-camera interviews so far) say the problem has roots back when regulations about banking were changed (1999). Others say the real problem got rolling under the leadership of Alan Greenspan. Historians and economists will argue about this for a long time.


New York: A wonderful show, as always. You guys are amazing -- entertaining and fair, what a concept -- and I wish all programming of current affairs met your standards. Considering the grim subject matter, it seems awful to say that I enjoyed the show, but so help me, I did. You indicated, I believe, that Paulson and Geitner were traumatized by the frightening consequences that ensued when they finally let one of the investment houses fail. Paulson is gone, but do you see carry-over here, in that, even if a bank or auto company or whatever clearly deserves to be allowed to fail, it will be psychologically impossible for Geitner to permit it? And also, in your opinion, does Bernanke retain as much power and influence that he had under Bush, under this new regime, or is he of lesser importance than Summers and Geitner?

Michael Kirk: Thank you for the kind words. We worked hard to boil the crisis down to a story that would help you understand what happened in a clear way. Hopefully others in journalism (including FRONTLINE) will fill in the spaces that we just couldn't spend the time drilling down into. As to your question--it's too early to tell yet about Geithner and Bernanke and Summers and Obama. Those events are happening behind closed doors right now in Washington. It's our job to get information for you from behind those doors and we're trying to do that right now.


Anonymous: When will it be a good time to buy again?

Michael Kirk: When you find out let me know.


Las Vegas: Great job. I hope you get a chance to look at what the Federal Reserve has done for the last year. I have heard estimate of upwards of 2 trillion being printed and lent into circulation by the Fed.

Michael Kirk: The numbers are astonishing.


New York: Do you think we will see perp walks from this crisis??

Michael Kirk: I'm not sure. I know that many of the people we tried to interview at the investment banks were reluctant to talk because they fear indictment and prosecution.


Southampton ,NY: Are economists essentially bewildered by this meltdown because they can't identify all the variables involved , or is it too complex to expect it of them ?

Michael Kirk: My impression is that economics is not as precise a "science" as we all wish it was. Was it Harry Truman who said his fondest wish was for a "one-handed economist"?


Annapolis, Md.: Thanks for taking my question. One thing that I've heard again and again is that the crisis is caused by government forcing banks to lend to low-income people who really had no prayer of a chance to repay. To what degree did this cause the meltdown.

Michael Kirk: Plenty of people received complicated (and in some cases downright illegal) loans. Many of them should not have purchased houses...or taken on the kind of debt they did. Many people (middle-class folks) also bit off more than they could chew, or used the "wealth" they thought they had accumulated in their house, to take out home equity loans and live beyond their means. Imprudence seems to know no socioeconomic boundry. These factors, added to lack of regulation or outright greed, dishonesty and many other factors led to the meltdown.


Cape Elizabeth, Maine: Some economists, like Paul Krugman, think that larger stimulus packages are needed. Something on the order of $1 trillion per year for 3 years. What do you think and what have you heard from your research on what it will take to turn this economy around?

Michael Kirk: I've been fortunate enough to talk to many people about this matter. Some think the system should be allowed to simply melt down so that a sorting out can take place. Others believe we are not spending nearly enough. Many look to the Japanese experience for a "get-tough" approach with the banks. The fact is--I've learned that nobody really knows what to do. In many ways, for me, that's the most alarming truth of this problem.


Foster City, Calif.: Hi Michael,

I read that there were 3 parts to this series - when will the other parts air?

I thought it was very information and extremely well done.


Michael Kirk: FRONTLINE will air a program (by different producers) about the national debt, and another program about the Maydoff story. My team and I will be back in June with a film that will be a sequell to "Inside the Meltdown" that we are tentatively calling "Breaking the Bank". Stay tuned.


Michael Kirk: Well... that was fun for me and hopefully useful for you. Sorry if I didn't get to your question. I appreciate your generous praise for our program and take to heart your criticisms. It really is an honor to be allowed to investigate these important matters on your behalf--you pay for PBS and we're take that responsibility seriously. Goodbye.


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