The Buffett story Clinton shared with bankers


Wikileaks has published what appears to be transcripts of Q&As held by Goldman Sachs with Hillary Clinton at three different events in 2013.

While it has yet to be determined how this document dump may affect Clinton’s current presidential run, the content nevertheless captures the complicated relationship that Wall Street has with Washington in the post-financial crisis era.

“There’s nothing magic about regulations, too much is bad, too little is bad,” Clinton said. “How do you get to the golden key, how do we figure out what works? And the people that know the industry better than anybody are the people who work in the industry.”

At one point, Clinton shared an anecdote with bankers about a conversation with billionaire Warren Buffett.

“[There’s] so much at stake now, I mean, the business has changed so much and decisions are made so quickly, in nano seconds basically,” she continued. “You know, I remember having a long conversation with Warren Buffett, who is obviously a friend of mine, but I think he’s the greatest investor of our modern era, and he said, ‘You know, I would go and I’d talk to my friends and I’d ask them to explain to me what a default credit swap was, and by the time they got into their fifth minute, I had no idea what they were talking about. And when they got into their tenth minute, I realized they didn’t have any idea what they were talking about.’”

Simply put, credit default swaps are like bond insurance and enable investors to transfer the risk of a default in exchange for some premium.

Clinton also noted that then Federal Reserve Chair Alan Greenspan even acknowledged he didn’t understand what was being traded on Wall Street.

“So I think it’s in everybody’s interest to get back to a better transparent model,” she said.

Her comments were purportedly made at the AIMS Alternative Investments Symposium at Goldman Sachs’ headquarters on October 24, 2013. It came from one of the three transcripts Wikileaks dropped on Saturday. They were part of paid speeches Clinton gave to Goldman Sachs between June and October 2013. The speeches were given after Clinton’s tenure as US Secretary of State. It’s believed she collected speaking fees totaling $675,000 for those three appearances.

Representatives from Goldman and the Clinton campaign didn’t immediately respond to a request for comment to confirm the authenticity of the transcripts.

During the October 2013 symposium, Goldman partner Tim O’Neill, the global co-head of investment management, asked Clinton for her advice to the Wall Street community and the big banks amid activity from regulators and politicians, the transcript shows.

Clinton responded that they had “great relations” with those in the room, particularly when it came to rebuilding downtown following the September 11th attacks. She added that the bad decisions that led to the 2008 financial crisis could have been avoided with greater transparency and that Wall Street could help leaders in Washington DC “figure it out.”

“And I think that there’s a lot that could have been avoided in terms of both misunderstanding and really politicizing what happened with greater transparency, with greater openness on all sides, you know, what happened, how did it happen, how do we prevent it from happening? You guys help us figure it out and let’s make sure that we do it right this time,” she said, according to the transcript.

Below is an excerpt from the exchange:

MR. O’NEILL: Let’s come back to the US. Since 2008, there’s been an awful lot of seismic activity around Wall Street and the big banks and regulators and politicians.

Now, without going over how we got to where we are right now, what would be your advice to the Wall Street community and the big banks as to the way forward with those two important decisions?

SECRETARY CLINTON: Well, I represented all of you for eight years. I had great relations and worked so close together after 9/11 to rebuild downtown, and a lot of respect for the work you do and the people who do it, but I do — I think that when we talk about the regulators and the politicians, the economic consequences of bad decisions back in ’08, you know, were devastating, and they had repercussions throughout the world.

That was one of the reasons that I started traveling in February of ’09, so people could, you know, literally yell at me for the United States and our banking system causing this everywhere. Now, that’s an oversimplification we know, but it was the conventional wisdom.

And I think that there’s a lot that could have been avoided in terms of both misunderstanding and really politicizing what happened with greater transparency, with greater openness on all sides, you know, what happened, how did it happen, how do we prevent it from happening? You guys help us figure it out and let’s make sure that we do it right this time.

And I think that everybody was desperately trying to fend off the worst effects institutionally, governmentally, and there just wasn’t that opportunity to try to sort this out, and that came later.

I mean, it’s still happening, as you know. People are looking back and trying to, you know, get compensation for bad mortgages and all the rest of it in some of the agreements that are being reached.

There’s nothing magic about regulations, too much is bad, too little is bad. How do you get to the golden key, how do we figure out what works? And the people that know the industry better than anybody are the people who work in the industry.

And I think there has to be a recognition that, you know, there’s so much at stake now, I mean, the business has changed so much and decisions are made so quickly, in nano seconds basically. We spend trillions of dollars to travel around the world, but it’s in everybody’s interest that we have a better framework, and not just for the United States but for the entire world, in which to operate and trade.

You know, I remember having a long conversation with Warren Buffett, who is obviously a friend of mine, but I think he’s the greatest investor of our modern era, and he said, you know, I would go and I’d talk to my friends and I’d ask them to explain to me what a default credit swap was, and by the time they got into their fifth minute, I had no idea what they were talking about. And when they got into their tenth minute, I realized they didn’t have any idea what they were talking about.

I mean, Alan Greenspan said, I didn’t understand at all what they were trading. So I think it’s in everybody’s interest to get back to a better transparent model.

And we need banking. I mean, right now, there are so many places in our country where the banks are not doing what they need to do because they’re scared of regulations, they’re scared of the other shoe dropping, they’re just plain scared, so credit is not flowing the way it needs to to restart economic growth.

So people are, you know, a little — they’re still uncertain, and they’re uncertain both because they don’t know what might come next in terms of regulations, but they’re also uncertain because of changes in a global economy that we’re only beginning to take hold of.

So first and foremost, more transparency, more openness, you know, trying to figure out, we’re all in this together, how we keep this incredible economic engine in this country going. And this is, you know, the nerves, the spinal column.

And with political people, again, I would say the same thing, you know, there was a lot of complaining about Dodd-Frank, but there was also a need to do something because for political reasons, if you were an elected member of Congress and people in your constituency were losing jobs and shutting businesses and everybody in the press is saying it’s all the fault of Wall Street, you can’t sit idly by and do nothing, but what you do is really important.

And I think the jury is still out on that because it was very difficult to sort of sort through it all.

And, of course, I don’t, you know, I know that banks and others were worried about continued liability and other problems down the road, so it would be better if we could have had a more open exchange about what we needed to do to fix what had broken and then try to make sure it didn’t happen again, but we will keep working on it.

MR. O’NEILL: By the way, we really did appreciate when you were the senator from New York and your continued involvement in the issues (inaudible) to be courageous in some respects to associated with Wall Street and this environment. Thank you very much.

SECRETARY CLINTON: Well, I don’t feel particularly courageous. I mean, if we’re going to be an effective, efficient economy, we need to have all part of that engine running well, and that includes Wall Street and Main Street.

And there’s a big disconnect and a lot of confusion right now. So I’m not interested in, you know, turning the clock back or pointing fingers, but I am interested in trying to figure out how we come together to chart a better way forward and one that will restore confidence in, you know, small and medium-size businesses and consumers and begin to chip away at the unemployment rate.

So it’s something that I, you know, if you’re a realist, you know that people have different roles to play in politics, economics, and this is an important role, but I do think that there has to be an understanding of how what happens here on Wall Street has such broad consequences not just for the domestic but the global economy, so more thought has to be given to the process and transactions and regulations so that we don’t kill or maim what works, but we concentrate on the most effective way of moving forward with the brainpower and the financial power that exists here.


Julia La Roche is a finance reporter at Yahoo Finance.

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