• HIGHLIGHTS
• Paulson didn't use all the tools in his toolbox
• The looming crisis wasn't a surprise
• Where did the TARP money go?
• Banks find themselves in "the realm of the puppet master"
• Her disappointment with Secretary Geithner

So it's Sept. 15, [2008]. Lehman Brothers is gone on the weekend, on Sunday night. [Merrill Lynch CEO] John Thain and [Bank of America CEO] Ken Lewis are shaking hands. And, the way our story goes, it's a kind of bulwark by [then-Treasury Secretary Henry] Paulson. He's hoping that the merger of these two institutions will somehow soften the blow of what's happened to Lehman and what may or may not be inevitable. … You're teaching at the time?

I'm teaching bankruptcy.

And what are you thinking when all of this is transpiring?

So I walk into class on Monday morning, and we have the day's lessons laid out. Everyone's done their reading. ... Everyone's sitting forward. And clearly the designated questioner has a hand up. And he says: "Just say something about Lehman. Tell us just something about what's going on." ...

I said, "OK, five minutes." We spent the next hour talking about Lehman in the context of Bear Stearns and what it is that Henry Paulson was trying to tell the rest of the country, and particularly how we're going to be OK on the economy, and what he was trying to signal, in effect, to the other financial institutions: "We're not here to bail you out. We're going to make this work."

Moral hazard is the rule of the day.

That's right: "You're on your own. Make it happen. We're not here to be the insurer of last resort, ... the sugar daddy to provide all the assets to make this happen." ...

How big a mistake was that?

You know, here's the hard question. When things started falling apart, everyone's like, "Whoa, big mistake." But let's keep in mind, we reverse course within two days. ...

So the big mistake is to say, "North 90 miles an hour," and then go south 140 miles an hour. Confidence that these guys have a clue drops to zero. So the way I measure this is not what happens in the 48 hours between [the collapse of] Lehman and AIG. It's how it is that Treasury and Fed articulates two of the most diametrically opposed policies within literally hours of each other, and then the kind of chaos we end up in. ... You can't go north and south at the same time without destroying everyone's confidence.

And you've got Bear, and Paulson preaches moral hazard on the weekend back in March. But Sunday morning, he's on the talk shows saying: "Moral hazard. We're not going to do this again." Then he's got Fannie [Mae (Federal National Mortgage Association)] and Freddie [Mac (Federal Home Loan Mortgage Corp.)] in August, conservatorship. So I guess he's still going north 90 miles an hour.

That's the problem. His words don't match his deeds. So he's already with Bear Stearns, in effect, gone a little south by having arranged the deals and tried to make it all work out. Fannie and Freddie, you can always say, "Oh, but that's exceptional, because they were already quasigovernmental entities." So that's there.

And indeed, on that Monday in September, the lesson I was teaching my bankruptcy class about what this meant was that Lehman was his way to say: "I really mean it when I say no moral hazard. This is it: private profit, private losses. We just have to take our licks, and the reality is what the reality is. It is not the taxpayer's role to bail out any of you." I thought on Monday that I understood where he was and that he had charted a course, and we were in it now for the ride to see how it would work. ...

Then he says: "I had no idea about the interconnectivity of Lehman and how bad it was all over the place. I had no sense of AIG's exposure and what that might have meant. And the credit market starts to freeze, and the [commercial] paper market's gone, and I have to do something." But maybe he didn't. Is that what you're saying?

The question is, what's the something? It's not as if the only tool in his toolbox is to say, "Let's shovel in $700 billion of taxpayer money and eventually maybe a trillion or two of Treasury guarantees."

There are a lot of other tools that might have been used, and let me just suggest one. He could look around at Lehman and say, "You know, the mistake in Lehman is that there was no way to prevent a run on Lehman's assets once it had filed for bankruptcy." The bankruptcy laws had been changed quite significantly in the early 2000s and again in 2005 in order to say when a financial institution goes into bankruptcy, in effect, people who have credit default swaps and other kinds of fancy financial instruments with them can keep on collecting, but they don't have to pay immediately, even if they're in offset positions; that is, "You owe me some money, and I owe you some money." That meant that there was a feasting instantly on Lehman, that they fell on Lehman the way that depositors fell on banks in the 1930s before we had the bank holiday.

Another option available to Paulson would have been to say, "Look, what Lehman teaches us is that a disorganized liquidation in which people beat on the doors and clamor and grab the first assets they can and race out was a really terrible way to do this." And in fact, there are a lot of folks who now estimate we just basically wasted $50 billion in assets out of Lehman, that Lehman went from a little bit insolvent to wildly insolvent just literally in hours because of the run-on-the-bank sort of mentality.

So Paulson might have said: "The first line of defense is not taxpayer dollars. The first line of defense is a controlled way to liquidate out these businesses and preserve as much value as we can to be distributed to the individual parties."

In other words, we have to back out of these positions. These businesses have to back out of their swaps and their guarantees and all the things they're involved in, but we're going do it in a way to maximize value to all of those involved. That's a very different position. ...

You know what's remarkable about this? Of all the people I've talked to over the last few months, this thing keeps bubbling away in me, which is, when we fight a war, we war-game in advance; we figure stuff out, right? Here we are in this problem that we kind of know is coming in about '06. [Then-President and CEO of the Federal Reserve Bank of New York Tim] Geithner is making speeches. Others are making speeches. [Former Federal Reserve Board Chair Paul] Volcker has spoken, and lots of other people. We certainly know by August of '07. And after Bear, you'd think we'd know that something big is happening right --

It's spring of '08. If we don't know that there's a problem, then it's because we've got our fingers stuffed in our ears, our eyes taped shut, and we're singing, "La, la, la, la, la, I can't hear you."

Well, exactly. ... We've talked to people from the Treasury who were on Paulson's staff who say: "We were writing plans. We thought we had ideas that we were cooking up." ... Have you heard since then that there were big plans that Paulson sort of shoved aside, or is he just kind of flying by the seat of his pants?

As I understand it, there were no plans. ... Every erg of energy went to keeping the punch bowl full, the noisemakers going, the music playing loud, right? What we were doing with the interest rates, monetary policy, I mean, it's just fancy ways of doing the same thing.

But let's party, party, party, keep this boom economy going, and what happens tomorrow is what happens tomorrow, as long as it doesn't happen on my watch. So I think these were people who, right down at the heart of it, said: "I can only plan for a party mentality. And I'm just not going to plan for the alternative that something else is going on."

Well, thank you. That's depressing.

But, you know, it's important. And it's important to unpack this ... so we can think about how we put together better regulatory structures that don't fail us so miserably. If we don't know what went wrong, then we don't know what to change to make sure that it doesn't happen to us again in another 10 to 15 years. So yeah, it's a depressing conversation, but it's a conversation we absolutely, positively must have.

[On Sept. 18, Paulson and Fed Chairman Ben Bernanke tell the congressional leadership] that if they didn't do something incredibly fast … that the economy would melt down by Monday. … Are you aware that these conversations are taking place in Washington, and the dire scenarios are being painted?

Well, so once there's been this whiplash between Lehman and AIG -- "It's all on you," and "We'll totally bail you out" -- this back-and-forth movement, there follows this period of great uncertainty where everyone's asking, "So what's the long-term strategy?" And we sort of go into a holding period, because no one understands where this is going to go.

And you keep mapping out alternatives: What are the possible tools? Which direction could this take? And then the announcement is this vague announcement -- it's supposed to be reassuring that the federal government is going to stand behind it; no one's going to fail. "We're here. We're going to throw everything we have to into this." … And the question for me at this moment is, what does that mean? We're going to stand behind what? ...

And you remember the first description was, "We'll buy troubled assets at a price far above what any sensible person would pay for them." Well, that's just a way of subsidizing those who took incredible risks. And in fact, it subsidizes those who took the biggest risks the most. I thought that was what the whole conversation about moral hazard was supposed to say was not going to happen.

So this first description of how we're going to be saved is -- you ever ring a bell that's got a crack in it? You know how a bell can look perfect, but you ring it and it doesn't sound right? Even a small crack, it doesn't sound right. It doesn't quite add up. It's not coherent.

And that's where we get started. So Congress, having had a gun held to its head by the nation's top economic chief, the secretary of the Treasury, [who] says, in effect, "Give me $700 billion or the economy gets it," you know, "This is what I need to save it," but he describes this plan that no one is sure makes any sense. So we engage in a big conversation about moral hazard, which is appropriate.

But the underlying part has to be, buying assets doesn't make any sense at this point. Are we sure $700 billion does it? What about all the things that have been inflated around these assets? It's only one thing that we have to worry about? Are these bad mortgages? There's conversation about how, "Oh, we'll buy them up, and then the federal government will renegotiate them." No. The assets we're talking about buying are fractionalized shares of mortgages. The government wouldn't be in a position to renegotiate at that point. Nothing about this is adding up.

And every detail that comes out causes a new round among sort of the economists and finance people to say: "I'm not getting this. We're not heading north, and we're not heading south. I don't know where we're heading now." The pieces don't add up.

And of course just days later, the announcement comes through that in fact we're not going to buy troubled assets; we've got a whole new plan. And that's when we end up infusing money into banks in a very different way.

That's Oct. 13, when he pulls all the banks in and lines them up alphabetically. Some people say that's the first moment of nationalization of the banks.

If that's the first moment of nationalization, then I'm sure there are a lot of banks who would gladly sign up for that one, because it was the first moment of the biggest subsidy to the financial institutions in American history. It was the first moment of pulling out the shovel and loading it with dollars and dumping them on the banks.

Why did they do it? ...

Well, you know, it's always hard to reconstruct anyone else's thinking process, but let's talk through what the possibilities are, the logical possibilities. ... One possibility is that this was designed from the beginning to pump up banks that we knew were insolvent. So how can you do that? You could do it by buying their assets at an inflated price. Does that sound like buying up toxic assets? That had been plan one.

If you take a closer look at the books of the banks and say, "Huh, they are so insolvent that if we start by just buying up the assets that trickle down to the financial institutions, won't be enough." So the second and more direct [possibility] is: "Let's put money straight into the banks. We'll just give them subsidies. We'll just write them checks from the American taxpayer."

Now, both of those have described subsidies [that] are going to run into real political firestorms. People are going to say: "Now, wait a minute. I didn't sign up to have my tax dollars go to some financial institution who made billions of dollars during the boom and now in the bust wants me to pay the check." So how could you do that? How could you give them that money?

You could do it by calling them in, describing them as financially healthy, announce that "We're going to make investments in these financial institutions for which the American taxpayer will receive stocks and warrants of an equivalent value," and this will provide additional liquidity, which just means extra dollars, for these banks to be able to go out and lend them, and that the problem is not the solvency of financial institutions. No, no, no. The problem is, the pipes are frozen. There's no lending going on. Credit markets are frozen.

So we're going to provide liquidity. Remember all the analogies: water into the pipes; we're going to thaw the pipes so that there will be money moving through the system. But what this might have been about from the beginning is, we're going to shovel money into the banks because they're insolvent -- or at least some of them -- ... to pump them up, to make them solvent again. ...

When do you get signed up to oversee the [congressional panel on] TARP [Troubled Asset Relief Program]? And how does that happen? ...

It's November, and I'm having my first-year law students over for barbecue. The guy's coming to deliver the barbecue. I've got the brownies that have just come out of the oven; the dog is barking and running around because someone's just arrived with 40 pounds of ribs. And the phone rings, and it's [Senate Majority Leader Harry] Reid [D-Nev.]. And he said, "Elizabeth, our country needs you."

It was really that straightforward. And he described very quickly what he had in mind. And I said, "Well, Senator, I'm honored." And he said: "Good. I'll take that for a yes." And I said, the first thing that crossed my mind is, "I think I know how Harry Reid gets things done." And the second thing is, I said, "Senator" -- and the dog kept barking -- "I'm going to have to at least talk to my dean. Can I call you back?" And he said: "Yes, but call me back. I want to make an announcement tomorrow at noon. We need to get this done." ...

And your charge is what?

Our charge is to oversee how the TARP funds are spent, and also to advise Congress on regulatory structure. ... We turn out a report every month about what's going on within TARP and TARP money and TALF [Term Asset-Backed Securities Loan Facility] and CAP [Capital Assistance Program] and every other acronym that comes along. And we talk about regulatory structure, which in effect is where the problems that got us into this [are], and what does Congress need to be thinking about to make sure we don't just replicate this problem 10 years from now, 20 years from now, 30 years from now, over and over in cycles. ...

What's the zeitgeist in Washington in mid-November about this particular problem? Is there panic in the halls of Congress? ...

The sense I got was that people were still astonished -- not panicked, just astonished that Congress was stampeded into passing this bill right now because there is so much danger: "And the plan is, we're going to buy troubled assets. Give us the money right now." And then the ink is not dry on the check until: "Well, no, it's not that plan; we have another plan." And the plan heads in an entirely different direction, and the folks in Washington are saying, "What's going on here?" ...

He spent, I think, Paulson, $125 billion that day with the banks in his office. … Do you know what happened to that $125 billion?

No.

No?

No. Treasury pushed that money out the door without putting any restrictions in place saying: "Tell us what you're going to do with the money. You must do this with the money." Nothing. And if you don't ask, you don't get any information back. So my very first meeting with [former Interim Assistant Secretary for Financial Stability] Neel Kashkari from Treasury, when we asked, it was not only, "No"; it was: "No. And why would you even ask? We didn't ask. We don't have any way to find that out." That's just amazing.

... Here's the way Ken Lewis would tell [it to] you. He said: "Well, look, the guy offered us this money. I didn't really want it. … It was cast as our patriotic duty to take the money. Confidence was everything in the system at the time, and if we took this money, it would look like we all had plenty of money to spend." ...

I'm sure that that's Mr. Lewis' description of what happened. ... But let me remind you what the numbers showed. The numbers showed that at the moment the transaction took place -- not what happened later on, when the wheels really came off, but at the moment the transaction took place -- Paulson is announcing: "This is just an investment. They don't need the money." And this is what Lewis and others are saying: "We don't need this money." ...

If you put them all together, in the first $250 billion that goes out the door, the deal was that for every $100 the United States government put into these financial institutions, the United States government got back in stocks and warrants a value of $66. So across the pool, the average was $1 out of every $3 that left the U.S. Treasury for these purposes was a gift to these financial institutions to do their patriotic duty. The gift was larger and smaller depending on the financial institution, but there was not one of these financial institutions that did not make significant amounts of money on the initial trade, the initial stock for taxpayer money. ...

It was a letter that Paulson wrote ... you said misled the public. ...

... So the transactions take place in October. Our panel gets going in November, and we come out with our first report on Dec. 10. You know, we ask a series of questions about what's going on. And one of the questions we ask is about that transaction. We'd read the press releases, but we asked the question of Secretary Paulson: "Did the U.S. taxpayer get a fair exchange, a fair deal when this money was put into these so-called healthy banks in this first infusion of cash?"

And Secretary Paulson sent a letter [PDF] back to me. It's addressed to me as chair of the [Congressional] Oversight Panel, and the quote is, "Yes, these transactions were at or near par," which is just finance language; for every $100 put in, the U.S. taxpayer got back $100 in value. He sent that letter to me on Dec. 30, so plenty of time to crunch the numbers to see not what had happened to the market in the meantime, but just what they'd actually been back in the middle of October when they did this deal.

My panel used only publicly available information, and yet we were able to reconstruct these deals and show that while Paulson is telling us $100 in for $100 out, in fact, it's $100 in for $66 out.

He lied to you.

He sure didn't tell the truth.

[What happened during the transition after Obama was elected? Was there a kind of stasis?]

So as I saw it in November, December, it's that we're still whistling past the graveyard. ... But the cracks are just multiplying at this point. There's more failure. The credit markets are not unfreezing, to use the metaphor we were using at that moment. No one sees an increase in lending; economic activity keeps going down. And people are starting to wonder, "Is this a plan that can work?" And confidence is down. But the underlying point is, the plan isn't coherent. And that's starting to become clear.

They don't know what they're doing.

One of the questions we asked in our very first oversight report is, just describe the general strategy. Just tell us what you think is the plan to get us out of here. I disagreed with it, but at least I understood the description of the first plan. ...

By November and December, there's just no story anymore. There's money moving -- billions -- but there's no strategy. There's no battle plan here. I keep mixing the metaphors, but I can't think of any other way to do it. There's just nothing that's a coherent plan to help revive this economy.

And at this exact moment, Ken Lewis is hearing that the fourth-quarter earnings from Merrill are $15 billion down, worse than he expected. … He goes forward to Paulson and Bernanke and says, "I'm going to get out of this thing," whether he's there to negotiate or whether he's actually there to threaten, or both. And Paulson and Bernanke, the way the story goes, and others say, "You can't." … There's a kind of implied threat to Lewis, as we hear, where he's told management could be changed by the government if he tried to do it. ... What do you think of that, of those events?

Now we have a public-private mix that is the most dangerous of all. It's neither the due north that said, "Hey, it's your problem; the losses fall where they fall," nor is it a due south: "We'll prop you up by giving you cash to do your operations and make your business work." This has now entered a very different realm. ... This is the realm of the puppet master. This is the realm of the "We're going to give you some money, but we're also going to tell you how to run the game." And I don't mean just run the game for your own financial security, like stop with the corporate jets and stop paying your CEOs zillions of dollars; I mean how you're going to run the game as in you're no longer running it even to save your own business. You're going to run it to fit our larger policy, because we don't want this other company to fail, so you will become the instrument of the bailout.

Now, the interweaving of government and private at a decision-making level, at a national policy level, that takes all of this out of public debate. Let's just be clear here, right? The idea that this is an open, public process, that we're going to kind of announce what we're trying to do, ... that's totally gone. This is: "I'm going to pull the strings. I'm going to make it happen a certain way and use this bank as an instrument of some kind of plan to try to save this economy."

Social and domestic policy being enacted out from a kind of central bank.

From someone who has no legal authority to do this; from someone who's not an elected official; from someone who's devising back in the shadows a reorganization of the American financial system and how it's going to play out, with no checks, no balances. Just the decision: "This is how I'm going to do it."

Congress, in its wisdom or whatever, held back half the TARP so that the government, I guess, would have to come and ask, prove the need. Is that the justification for holding it back?

I actually thought it was clever to hold half of it back. It's a little bit of saying: "OK, I get that there's an emergency, but at least you'll have to come back and justify a little bit about how you're using that money and give us a chance to approve, in effect, that we're on the right track before we commit a second $350 billion." ...

[What did you think of Geithner's first speech?]

I was so disappointed. I wanted to hear him just bring it home. I wanted to hear him say: "OK, new day. Bad old Treasury Department, lots of mistakes. We're going to make serious changes. And I've been thinking hard about this for a long time." Goodness, he'd been the head of the New York Fed, right? ... Give us the direction on the compass. ... And it just wasn't there.

What does it tell us, that he couldn't or didn't do that?

It tells us a lot of things, and some of them are really scary. It tells us the problems are hard. If they were easier, somebody would have figured out the right answer and gotten there. It tells us that he doesn't want to make a mistake. He doesn't want to announce north and then have to turn around within three days and announce south. And I understand that. He's learning from the past mistakes. He does not want to repeat Paulson in September. He gets that part of it.

But the part that seems to be missing is the recognition [that] you're already in a hole, and yeah, maybe the hole is dug by your predecessor, but it's now where you stand. We're no longer on solid ground here. You're just way down in a hole, a lot of lost credibility for the Treasury Department, a lot of mounting anger over the fact that $350 billion is gone and nobody's quite sure where it went. ...

And frankly, generalities don't get the job done at that point. People need to be talked to like adults, because what they want to hear, what they insist on hearing, is a comprehensive plan, a coherent plan, and that someone's in charge who gets that and, for right or wrong, is going to be in charge of steering this ship. We're going to make this happen. This is the direction we're going to go in, and here's why; here's my rationale; here's how it's going to work. And it didn't happen.

You guys release a report in early February that causes a stir. Why?

Well, the report in early February goes back to see what Treasury had done in October, November and December and exposes that they've been giving away subsidies while declaring all the time, "No subsidies here, no subsidies here." And it makes a lot of people feel like they've really been misled, and misled when their money is at stake and when their economy is at stake.

March isn't so good either. What does it say? ...

The March report mostly focuses on foreclosures. That's the upfront. But there's a war going on in the back of the report over asking Treasury to answer the questions that had not been answered by Secretary Paulson, and a letter back from Treasury that doesn't answer those questions that appends some press releases, and then a letter back from the Congressional Oversight Panel saying: "This doesn't work. This doesn't cut it. You have to answer these questions." ...

First at the top of the list is, explain your strategy. Tell us where you're headed. Tell us what your plan is for getting us out of this mess. Give us a sentence. Give us three sentences. Give us some description of what's going on here. And that's the state of play in March report. ...

... There's a lot of money being spent. Is it just that it's not a coherent plan? Is it just that they don't want to bundle it all up in one thing, and they do have a kind of strategy, but the strategy is more piecemeal?

I don't know. The finger in the dike is a plan. And then it's another finger, and then it's a third finger, and then it's another finger. ... It's a plan, and it fits the facts. It's just one that you might want to back up and say, "I'm not sure this is a workable plan, because I'm not sure the underlying strategy makes any sense here." There are many possible plans, but right now, I just can't tell you what Treasury's plan is. ...

Help me for a moment on the politics of [TARP]. ... Is there a common understanding of what the problem is and what needs to happen? Are politics being played in some way that feels familiar and obvious, or is it something different now?

... It's a peculiarly composed panel. I'm the chair. We have [Associate General Council for AFL-CIO] Damon Silvers, who is someone who has a background in both law and business, ... understands a lot about industrial policy and labor policy. We have [New York Superintendent of Banks] Richard Neiman, who is a bank regulator, so someone who saw this process from a very different perspective, and then the Republicans appointed [Rep.] Jeb Hensarling [R-Tex.], who's a sitting congressman who voted against the TARP bill and has a very strong point of view, and I'm sure -- and I mean this in the nicest possible way -- thinks this through the lens of everything else that he wants to do in Congress, in his political future; and John Sununu, who was a senator [R-N.H.], but had just been defeated and was put into this position, who now is a private citizen, has taken positions on corporate boards, so has a somewhat different trajectory and future. ...

It actually sounds good, as a group of people.

I will say about the panel, we've come together in different vote combinations. So some of the reports have been 3-2; some of the reports have been 4-1; and some of the reports have been 5-0. That's not a bad mix.

Not at all. One of the things that you said the other day on NPR was the fact that your oversight is only over a certain percentage of this. ... Is anybody watching the chicken coop, the rest of it?

I thought that $700 billion sounded like such a mountain of money. I couldn't imagine that there was anything higher until I began to watch the guarantees that the Fed was now making quietly with no independent oversight. So they're now at the $2 trillion level.

Now, I'll say this: I have a somewhat expansive reading of what we're entitled to oversee. And to the extent that TARP funds are sometimes used in combination with Treasury guarantees, I think that gives us the obligation to take a look at both of these and how they're working in conjunction. But do keep in mind, the government has multiple ways to move in the financial markets, and only part of it is the TARP program and the part that the Congressional Oversight Panel is involved with.

We've been talking about one tsunami. We haven't talked about credit cards yet. Is there another tsunami coming? ...

In many ways, credit card debt and mortgages were the two things that were the cocaine of the financial services industry. They produced profits beyond your wildest dreams. Boy, why invest in small businesses and construction lines when you can get the profits off those? ... We've watched what happens and the collapse of housing prices, these enormously risky mortgage products that were pushed out there that were promising the high profits, but of course now are going to produce these terrific losses.

And here are the credit cards, kind of the last big profit center for these large financial institutions. And two things are happening simultaneously. They're trying to wring every last dollar they can out of them: Let's raise people's interest rates; let's tack on more fees; let's get tougher on when it is that you're overdue. Push, push, push, get as many dollars as you can, because we're hemorrhaging money over here on the mortgages and everywhere else. ...

Wages have been flat at that point for about a decade. Nobody's making any more money. ... Core expenses -- housing, health insurance, transportation, child care -- have been rising. Families are saving nothing. They're carrying mounting loads of debt in order to bridge the gap between their rising expenses and their flat incomes. They're tapped out. And that's where we are while the boom is still on, while unemployment is low, interest rates are low. The party goes on.

[Then] the housing market declined sharply, which means ordinary Americans, their net worth on paper just is going through the floor, because for most people, there are only two assets that they've got: They've got a house and maybe, if they're lucky, a 401(k). Both of those are going down sharply. Unemployment is going up. Core expenses are not coming down. So the American consumer, the family, the ordinary middle-class folks, they're on their knees financially.

How do we get out of this? They've been the ox that pulled the plow. They've been the consumer. You could count on them. It was safe to invest in retail. It was safe to invest in restaurants. It was safe to invest in anything they might use because they'll always get up and spend and drive this economy.

The fundamentals during the boom showed that that whole underlying economic picture was wrong. It was wrong. It was created through smoke and mirrors, through crazy monetary policy, through permitting financial institutions to keep marketing these credit products and promising profits and throwing them out into this larger marketplace, and these complex instruments and doing trades and bets off them, and pretending that that was wealth, that that was reality.

Well, the party's over. The financial institutions are down for the count. But look around the room. Basic economics of the American family have changed, and that means there's a fundamental reordering here. We can't just jump-start this. We can't just say, "You know, we'll bite our lips, and in another six months we're going to get that same old economy back." ...

We're going to make a series of decisions over the next six months to a year that are going to shape who we are as a people, who we are as a country for the next 50 years. This is our moment. We'll decide this. And what we decide will set who we become. I believe that.