Auletta and Cohan Discuss Greed and Geithner

In 1985, Ken Auletta wrote a financial classic, Greed and Glory on Wall Street. Now, William Cohan has written another, House of Cards. In a freewheeling discussion on the economic crisis, the authors pin blame, reveal lessons and pull back the curtains on some of Wall Street's most important characters.

KEN AULETTA: So, if your two sons come to you one day, and they say, "Dad, what's the major valuable lesson you learned from doing this book that I could share with my class?"

WILLIAM COHAN: As you are familiar with, after writing Greed and Glory on Wall Street, greed is the corrupting factor here, as it has been in many instances over many generations of businesspeople and politicians. The idea that you could make huge amounts of money and pawn the risk off to your shareholders came about as a result of Wall Street firms going from private partnerships to public companies. The whole ethos of Wall Street changed as a result of that from being a series of partnerships where the partners shared liabilities and shared profits to "Give me my bonus now, and any risks that I took to get that bonus, well, that will be fobbed off to shareholders later down the road, if at all, and I'll have my bonus. It will be in my pocket, and I'll be off to the Hamptons or Fifth Avenue or wherever I want to be."

"His ego is in check. Unusual in this book.  Unusual in Washington milieu. Unusual among powerful people.  You can see the way he carries himself.  He's not boastful.  He doesn’t seem to be prideful.  I get a lot of comfort at night thinking that Tim Geithner is in that job."  

And so, the biggest lesson is how that culture of greed evolved over the years and we ended up with one scandal after another. This isn't the first time this has happened. This is like the fifth time this has happened since all these firms went public. This one though was more devastating than the others.

But you quote Paul Volcker in your book, a warning he gave in 2005. Why was Wall Street and so many other people deaf to that warning?

Well, because it's no fun. It's no fun to listen to the guy who tells you to stop what you're doing. Telling you you're creating more risk than we're going to know how to deal with. You're creating a situation where you're going to stop a situation where everybody's having a big party. Everybody's making tons of money. The firm's making money. The bankers are making money. The traders are making money; the executive committee of Bear Stearns is making $30-$40 million each. Why stop that party?

But you grow up being taught that businesspeople are supposed to assess risk. Where was the assessment of risk?

There was no assessment of risk. I mean, one of the myths about Bear Stearns was that they were good risk assessors; they had good risk controls. They didn’t. They had people in those jobs. They had people supposedly doing that task, but if they were—in some instances, if they were doing their job, they were unable to convey that information effectively to the executive committee of the firm to get them to stop the bad behavior. So, I mean, what's the point if they're not willing to get it done?