FRONTLINE FOUR-HOUR INVESTIGATION GOES INSIDE THE EPIC STORY OF THE GLOBAL FINANCIAL CRISIS - MONEY, POWER AND WALL STREET

Since 2008, Wall Street and Washington have fought against the tide of the fiercest financial crisis since the Great Depression. Now, FRONTLINE’s veteran financial and political producers Martin Smith (College Inc., The Madoff Affair) and Michael Kirk (Inside the Meltdown, The Warning), team up to present the inside story of the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities and the unprecedented and uneasy partnership between government leaders and titans of finance in Money, Power and Wall Street, a four-hour investigation airing Tuesdays, April 24 and May 1, 2012, from 9 to 11 P.M. ET on PBS (check local listings).

The revolution in modern finance began not in a Wall Street boardroom but at a luxury hotel in Boca Raton, Fla. There, in the summer of 1994, a team of 20-something bankers from JPMorgan pioneered an insurance product for loans called a credit default swap. “The defining problem was that banks were unable to adequately deal with their own credit risks,” says Bill Winters, the former co-CEO of JPMorgan’s investment bank. With the credit default swap, JPMorgan created a new marketplace in which banks could buy and sell risk. It fueled a golden era of profits for the banking industry and a boom in global investing.

In the first hour of Money, Power and Wall Street, FRONTLINE correspondent Martin Smith interviews leading bankers, government officials and journalists to chart the epic rise of a new financial order—and the trouble that followed. As Wall Street innovated, its revenues skyrocketed, and financial institutions of all stripes tied their fortunes to one another. Smith probes deeply into the story of the big banks—how they developed, how they profited, and how the model that produced unfathomable wealth planted the seeds of financial destruction.

With the real estate market booming, bankers successfully tweaked the credit default swap to bundle up and sell home mortgage loans to eager investors. “We were bullish on the mortgage market in general, and subprime, which was an element of it,” Deutsche Bank CEO Josef Ackermann tells FRONTLINE. But despite the money flowing into banks’ coffers, credit default swaps also loaded the financial system with lethal risk. “The basic business that they created was immensely profitable,” explains Satyajit Das, a consultant with more than 30 years of experience in the financial markets. “But there’s a problem with all of this. Most people in finance assume risk can be eliminated. It can’t. We were just moving the risk from one party to another party.”

When the housing bubble burst, the credit default swaps—originally designed to stabilize the financial system—brought the global economy to its knees. Regulators, who had often stood on the sideline and allowed Wall Street to police itself, watched in horror as the consequences rapidly unfolded before them. Federal Reserve governor Daniel K. Tarullo notes, “It was quite clear to me that a number of really quite large financial systems had not had the kind of management information systems which allowed them even to know what all their risks were.”

Today, questions remain as to how the chiefs of global finance failed to manage the risks on their own books and those to the system. As Former Wells Fargo CEO and Chairman Richard Kovacevich argues: “For people to say no one could have seen this is a total mistake. It shouldn’t have happened. Most of our financial crises in the past [were] due to some macroeconomic event—an oil disruption, war…. This was caused by a few institutions, about 20, who in my opinion lost all credibility relative to managing their risk.”

In the second hour, FRONTLINE producer Michael Kirk investigates how the American government confronted the crisis while dealing with sharp internal divisions and a relationship with Wall Street marked by mistrust and dependence, mutual interests and competing goals. The investigation charts the largest government bailout in U.S. history, a series of decisions that rewrote the rules of government and fueled a debate that would alter the country’s political landscape.

Beginning with the government bailout of the collapsing investment bank Bear Stearns in the spring of 2008, the film tells the story of how the country’s leaders—Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and New York Federal Reserve President Timothy Geithner—struggled to respond to a financial crisis that caught them by surprise. Decades of deregulation kept the government’s top officials in the dark about the complicated financial products that drove the meltdown. “One of the most striking parts of the story is … how little people in charge of our system knew and/or did in the wake of the oncoming crisis,” says Phil Angelides, the chairman of the Financial Crisis Inquiry Commission.

In September 2008, the decision to allow the investment bank Lehman Brothers to fail spread financial contagion across the globe. Paulson, Bernanke and Geithner believed they had no choice but to initiate a massive government bailout of the financial system and pump billions of dollars into the very Wall Street banks that had caused the crisis. “It was what had to be done,” says Assistant Treasury Secretary Michele Davis. “There was no choice in the matter. The markets would never regain confidence unless the united government was working together to solve the problem.”

In hour three, airing May 1, Kirk goes inside the Obama White House, telling the story of how a newly elected president with a mandate for change inherited a financial crisis that would challenge his administration and define his first term. From almost the very beginning, there was a division inside the administration’s economic team over how tough the White House should be on the banks that were at the heart of the crisis. In a dramatic meeting, Obama’s top economic adviser, Larry Summers, and the chair of the Council of Economic Advisers, Christina Romer, pushed for strong action against the banks, including a possible government takeover of a major bank. “Larry Summers and I were both on the side of we needed a definitive cleanup of the financial system,” Romer says. “The question was if somebody really wasn’t solvent, do you need the government to put in capital, realize the losses, clean it up and then put it back into private hands?”

On the other side of the debate was Timothy Geithner, the New York Federal Reserve president who Obama had brought on as his Treasury secretary. Geithner warned that taking on the banks in the midst of the crisis could backfire. “The first rule is, to borrow from medicine, the Hippocratic Oath, first do no harm. And there were a lot of ideas out there, frankly, that some us thought might do harm,” Geithner’s deputy Lee Sachs tells FRONTLINE. In the end, the president sided with Geithner, and the administration delayed taking decisive action against the banks. The result, some on the losing side of the argument say, is that Wall Street was able to avoid the type of reform that would prevent the next crisis.

“Here we are three years-plus after, and very little has changed,” says Angelides. “In many respects, the financial crisis never ended.”

In the fourth hour, Smith takes the investigation into the present, probing into a Wall Street culture that remains focused on making risky trades. Bankers left an ugly trail of deals extending from small American cities to big European capitals. For more than three years, regulators have tried to fix an industry steeped in conflicts of interest, excessive risk taking, and incentives to cheat. New rules and regulations are being written, but can they fend off the next crisis?