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Live.

Good morning. Welcome to the

program. I'm Whitney

Fitzsimmons. In Business Today

- tough talk, Ben Bernanke

blasts AIG for oversight

failures. Harsh lessons,

regulators admit they could

have done more to stop the

financial crisis. And holding

firm - Australian interest

rates unchanged ahead of

crucial growth figures. Those stories coming up authority

stories coming up authority

Shortly but let's look at the

morct markets. - markets.

Shares on Wall Street rose

during a choppy session.

Yesterday there were firmly

down across the reej.- region.

For more on the market

action, I'm joined by Al

Westover. Wall Street gave up

some of its - Chris

Weston. Wall Street gave up

some early gains. We finished

down 37 points on the Dow. In

the S&P we're flirting around

the 700 mark. We broke through

some key levels to end around

686 That was a level we were

looking at closely. We saw

buying activity in the front

the end of sessions. Some of

the stocks look very cheap so

Barack Obama we saw good buying and we saw

Barack Obama with his meeting

with Gordon Brown saying that

stocks do offer some good

buying opportunities. There

were negative comments about

Bernanke about the way AIG has been running this environment.

That helped push the market

down. We've heard from Geithner

as well. It is a traders

market. You just mentioned the

Treasury secretary there. He

package may cost commented that the stimulus

package may cost more than the

approved E700 billion? - $700

billion? Exactly right. We saw

the market have a bit of a

rally while he was speak. He

pledged to crack down on

companies an individuals who

are trying to avoid pay ing

income tax and taxes in the US.

His words were our effort have

stabilised the financial is

system they cost more than the $700

$700 billion. No-one really

knows the figures expected to

be thrown around. We didn't see

a #1e8off on the back of that.

The is ex he is expected to

take aggressive steps to tackle

the shortfall. We saw regional

markets cam come off their

record lows yesterday but there

was still down. What will we

see today? We're going to see

more weakness today. The ASX

will open around 63 points

down. The Nikkei 185 point s

lower. Around the 7048 mark and

the hang essential down around

476 point s trading the 11696

level t not the greater picture

to start the day on. We're expecting Australia to record

growth figures today. What can

we expect to see? All eyes will

be on the GDP expected to come

out at 11:30 today. The market

is factoring in a growth of

2.5%. That's up 1.2% on the

year. So if we get a figure

bigger than that we can see some dramatic moves on the

Australian dollar and the index

as well. Later on we have the

USA DP private sector pay rolls

which usually have a bit of a

bearing on commodity prices.

They're the two things I am

looking at for today. Thanks

for the update. Kris Weston

from IG markets. Now let's look

at what's happening with

currencies and commodities.

Federal Reserve chairman

Bernanke has delivered a harsh rebubling to AIG management

saying the insurance Group

exploit add huge gap in the

regulatory system. Speak at a

US Senate hearing, Mr Bernanke

said no other episode during

the financial crisis had angered him more but he

defended the Government's

repeated bail-outs of the

company. AIG Pohhed a a third quarter loss yesterday but

still received a new $30

billion Lifeline from

Treasury. We had no choice but

to try to stabilise the system

because of the implication of

the failure would have had for

the broad economic system. We

know that failure of major

financial firms in a financial

crisis can be disastrous for

the economy. We had no choice

but and I share your concern,

share your anger, it's a

terrible situation but we're

not doing this to bail out AIG

or their shareholder,

certainly. Dr Bernanke also

urged authorities to move

swiftly or risk further

stagnation of the economy.

Meanwhile Treasury secretariry

Timothy Geithner identified

stabilising America's bank as crucial to the American

economy. We need to make sure

our banks have the necessary

creditor the economy and we

need to make sure we get credit

markets again and where we

provide assistance we to do so

with measures to protect the

taxpayer and that that

assistance will improve and

increase the amount of lending

above other lend levels that

would otherwise happen. Last

week the Obama Administration

unveiled a budget blue print

that provided stand-by

provisions for up Todd 750

million in new aid for the

financial sect. And the plan to

diverse AIG's stance. AIG's

highly complex web of

investment spans the globe and

commentators have warned its

fail vur may have the same

effect of the chance of Lehman

Brothers last - Lehman Brothers

last year. Why is an insurance

companying getting all this

money? The answer - AIG is spac

SNAK the middle of the

financial crisis. The Corr

Company sold a credit fault

swaps to Banks an financial

shutions that invested in the

mortgage market the bank

started losing money or

mortgage or anything else, AIG

would help cover the losses.

AIG was raking in huge money

selling this insurance, betting

and betting big that the

economy would keep come humming

along. AIG took too many bets

on what was in the end not a

sure thing. The real estate

bubble burst, the bank started

losing a fortune and started

looking to AIG to pay up. It

really became a huge casino.

AIG was the house and this is

one case where the betters beat

the house. And the house, AIG,

couldn't pay. So the Government

stepped in. But why bother? Why

not just let AIG fail? The

Government and leading

economists say it is simply too

big. AIG has 74 million

customers around the world, and

town, individuals fortune 500

companies. If AIG fails, the

worry is it would drag down so

move the companies it is

insuring. Who loses if waig

goes under? Everybody. It's an

unpleasant choice between

unsavoury scenarios. Pump

billions more into AIG now or

risk having to spend billions

on everyone else later. The US

and other governments around

the world are scrambling to

find effective measures to

stimulate demand, support banks

an restore the found'ses of the

financial system. As we've

heard the problems of AIG are

looming large in regulators'

minds and the company's been

thrown another $30 billion

lifeline a move that's drawn

criticism. To discuss the effectiveness of this and

stimulus packages generally, I

am joined by respected economist Edward Leamer, Professor of economics and

statistics at UCLA. Good

morning Professor Leamer.

Welcome to Business Today. Good

morning, it's great to be

here. Now lease been a lot of

discussion about the further

need to bail out AIG. Do you

think this action to mitigate

risk is justified of simply

fear drif Jen? The problemsy

don't really know the answer.

There hasn't been adequate

disclosure. I think the

financial community and the

tiemps the United States need

to know exactly what the

problem is, how big it is how

much more money is going to go

into this thing and how long it

will last. What we've had is

the sort of continuing throwing

dollars at this problem and

that problem including AIG with

no ince ication whatsoever as

to how long this is go ing to

last and how much money is

going to be involved. I think

the lack of transparency is a

really big problem. Now as

we've seen this morning, Ben

Bernanke has spoken at the

Senate budget committee for the

state of the US economy. What

did you make of his

comments? It's good to hear

that he was angry. He doesn't

really express very much er. I

think taxpayers are angry, and

rightly. So but I think he is not very Ford coming with regard to

regard to the details of the

balance sheets of AIG and who

exactly are the counterparties

and where is that money going.

We just don't know that. You

were very critical of the

Paulson bail-out plan. I think

you said at first read rather

you thought it was an Internet

joke with how little detail.

Has it been more damaging than

helpful? I think it's been more

damaging not the plan itself

but the way it was sold to Congress. Paulson and Bernanke

went to Congress and said we

would have the Great Depression

untes lest this thing is passed

by Monday. That just unleash

add tidal wave of fear not just

in the financial community when

everybody sold equities at any

price but most importantly the

US consumers just suddenly

stopped spending and we've seen

seen anything like that fear

gripping US consumers inner the

first time in any DAT yay can

see. That's why we had the

terrible fourth quarter, is the

fear gripped us. Would you say

it wasn't the plan itself but

the way it was sold to the

American public and to Congress

in general? First it wasn't a

plan, it was a vague idea about buying mortgage backed

securities and fortunately some

congressmen had the wisdom to

instert possibility of a capital injections in the

middle of the plan. But we have

not yet heard a plan about how

we're going to deal with the

so-called toxic assets.

Secretary Geithner who has been

involved with us since more

than a year ago, he was

promised to be giving a major

speech last week in which he

explained he would explain what

the problem is and what the

solution is. We still haven't

heard the answer to. That it is

very frustrating. So why do you think we haven't heard the

answer to that then? I think

the answer must be that neither

Treasury o nor the Federal

reserve really has a handle on

the fundamental problems.

Obviously a capital infusion

has to be done and done in a

way which separates the

healthy, well managed banks

from those that ought to be

going bruptd. You need to get

the mortgage backed securities

markable again and that is

obviously. Obvious. How you do

it is knot completely obvious.

I have my own plan by the way

but it is not one hoo tha is

likely to be adopted soon. Why

is that? The plan is to have a

a private public partnership in

which they make a decision on

how the securities are worts

and mow much the capital

infusion is worth. The

taxpayers share that gambling

dollar for dollar, the downside

risk is shairds equally. The

upside risk is dis

proportionately to the private

sector 60-40 in order to get

the market rolling. It may be

something that Geithner is

going to use. So you think the

private sector would not go for

that plan? , no I think it's a

question of whether our

national leaders will go for

it. I think the private sector

which is already creating pools

of money to buy mortgage backed

of money to buy mortgage backed securities and do capital in

fuses I which this private

sector would be happy to have

the extra incentive the Federal

Government would provide and

you could see the markets for

mortgage backed securities

restrived a marriage extent if

that plan were put in place. We

will stand by for that one. I

would like to get your opinion,

Professor Leamer, on President

Obama has recently come out

with his multibillion-dollar

package with a large em fa cyst

on nuclear fr nuclear new

industry like clean green

technology. Long-term do you

think this will create a backbone for the United

States? Long-term is one thing

but short term it's not a

stimulus. Stimulus needs to be

spent on the sectors where

there's idle resource.

Otherwise the job a cost not a

benefit. The idle sect z

oecters in the United States - sectors in the United States

are homes and construction,

secondly automobiles and consumable and then retail

we've lost a lot of jobs in

retail and last the restaurants

and hospitality. Only about $8

billion of that $780 billion

so-called stimulus package is

directly aimed at those sectors

and only a tiny stimulus for

housing and stimulus for All

housing and stimulus for All

Blacks it seems strange because

this is a main street problem

noorkts breet problem. We're throwing the money at the

management of General Motors

and at Wall Street mortgage

backed securities but the

problem is declining home

prices and nobody buying All

Blacks. That brings me to my

next point. You've long said

that the answer lies in the

housing sector an bolstering

the housing sector. Recently in

the housing sector. Recently in Australia, the Federal

Government has reintroduced the

first home owners grant,

bootion it to a maximum of

$21,000. Would you support such

a plan in the United States? I

think that's exactly what we

need to. Do we need to create

urgency. Buying a home for most

people is a very frightening

prospect and you need something

to get you oerve the fear. You

need some sense of ure Jen si.

Right now you have the

opposite. Most buyers are

thinking if they wait longer

they will get a better deal and

they're sitting on the

sidelines and there is nothing to make that purchase urgent.

But if the Federal Government

provides a substantial support

for purchasing a home and

support for only a temporary

basis, that is enough to create

urgency and bybry the buyers

back, give price support force

whole market place and you

bring the rest of the buyers

back because they stop worrying about continued price erosion. Professor Leamer

erosion. Professor Leamer we

are nearly out of time. I want

to ask you one more thing, it's

a reflective question. In the

lead-up to the current economic

situation, you remained causely

opt missic stay nag the US

economy will remain nervously

intact I think is what you

said. How do you feel about

that statement now? It's

totally wrong. We did not

expect that consumers would be

gripped by fear. We didn't see

a koord naethd mechanism that

would get all US consumers to

cut back spending at the same

time. I don't think it would

have happened but for the pay

the package was plan and most

importantly the way it was sold

to Congress. It just unleashed

this awful fear about the Great

Depression. Everybody is in a

defensive mood adges a

consequence of that. I think it's a rare thing for an

been wrong. economist to admit that they've

been wrong. Thank you for your

time today. Thank you.

Some of the world's

leading financial regulators

have confessed they could have

done more to head off the

global crisis which has

decimated share values. Speak at a conference organised by

the Australian securities and

invests Commission, they argued

that even if they had warned of

impending disaster, nobody

would have landlnds University

jrges when investors hoped the

bottom plight be in sights,

tremors have again rumbled

across global stock market as

the latest turmoil unfolded

some of the world's leading

market regulators were being

refleshingly honest about their role in the catastrophe. Regulators are

like Army generals. We've

always got the best strategy for fighting the last for fighting the last war. Mr

Wheatley was joined on the

platform by cause's orp erate

regulator Tony D'Aloisio,

Kathleen Casey from the US

security an exchange

Commission, Malaysia chief

Zarinah Anwar, Greg Tanzer who

is head of the international

organisation of securities

commissions and on video from

London by the chief executive

of the UK financial services

authority, Hector Sants. We

could have done a better job

both in respect of challenging

the individual institutions we

supervise to think about their

own business models an thinking

in the round about how all the

risks fit together. The big

surprise of the global

financial crisis has been the

destruction of some of the best

and most respected names in the

financial industry. Like Sants

San, beat Martin Wheatley

believes regulators were

looking in the wrong areas. All

of us collectively failed to

see that the root of the

problem would come from within

the regulated sector. Even two

years ago, maybe three years

ago, we were talking collective

saying the biggest fear we face

is from un regulated settingor, hedge funds collectively taking

down the people who provide

liquidity to them. The period

leadsing up to what started as

the US subprime mortgage prices

banks were making record

profit, the smarkts was at

record high tanced global

economy was boom ing, an

environment in which it was

difficult for regulators to be

heard. People have preercted if

the they had stoned the party

and there's no question that of

course that society as a whole

enjoys a credit boom. Even when

we perceive risks that need to

be addressed, it's quite

challenging to do so absent

crisis. In response to

collapses like Enron, the United States introduced the

very prescriptive Sarbanes

Oxley Act to toughen up

reporting standards. Tony

D'Aloisio tblees a similar

approach is adopted to the

global financial crisis It will

inhibit economic growth. I

think that the fact that we

have the experience of Sarbanes

Oxley Act should hopefully

inform the debate and the appreciation of what the

consequences can be if policy

approaches aren't carefully

considered. Another challenge

for regulate Sors influencing

the - resisting the influence

of regulators who lobby hard to

protect their own patch. I feel

very strongly that rule s have

to be applied across the board,

irrespective of whether

institutions are big or small.

And I think we need to be very

much more vigilant in terms of

the applicability of such rules

an to avoid such regulatory

capture. As the dismal

corporate and stock market nus

keeps coming, the regulators of

the ASIC conference added to

the gloom with their t

prediction that the next cries

lis be difference and as now

they might not see it before it arrives. HSBC's Asia Pacific

chief has reinforced the bank's

solid footing in the reej you n

Yon, sighing it's well placed

to grow. Sandy Flockhart's

comments came kes site a plunge

in the stock price. Mr

Flockhart says HSBC is well

capitalise and can expand as

competors such as Citigroup re

treat to their home markets. In

Asia we're very well

capitalised. We end the year

end at a tier one capital ratio

of around 12.5%. So the issue

is not Asia, we're all well capitalised. The issue is that

the ratios of tier capital

which everyone is seeing has

changed from what it was

before. HSBC shares tumbled 19%

in Hong Kong trading at their lowest levels since October

1998. The Reserve Bank of

Australia has adopted a wait

and see approach, leaving

interest rate s on hold for

nou. But most economists don't

expect them to stay at 3.25%

for long. Many are predicting

the cash lending rate will fall

again as Australia trying to

fight off the global

recession. In the world of

finance, no change at all can

still get the heart

racing. After a series of

dramatic cuts, for now the RBA

is keeping the initial cark

rate steady at 3.25%. The RBA

governor says the big cuts and

billions in government spending will provide significant

support to domestic demand,

notwithstanding evident

economic weakness. Therefore

the board judged the stance of

monetary policy was appropriate

for the moment I don't think

this is the end of the RBA's

easing cycle. I looks like it's

in watch and wait mode assess

ing incoming data both domestic

and global. Given really the

global developments and the

increasing downside risk to

global growth and what looks to

be an intensifying global

recession, the rods the Reserve

Bank is going to have to take

the cash rate lower. After an

initial plunge, the RBA

decision maif gave the market a

boost with Australian stocks

defying massive falls on Wall

Street and in Europe. The

Reserve Bank today has

emphasised the relative

strength of the Australian

economy. Yet the Government

says it's prepared to do

more. The Reserve, with the

Government, always stands ready

to take further action, if

necessary, to support the

Australian economy and

Australian jobs. I think it's

pretty fair to say without the

action of the Australian

Government and without the

action of the Reserve Bank in

recent months the global

recession and its impacts on

this country would have been

far worse. Wayne Swan's used

the latest retail trade figures

to support that view. ABS

figures show January retail

turnover sumped on strong

December sales. In an even more

positive sign, in the three

months to December, the trade

surplus rose to 4.1

billion. Sh With a key to any

recovery in the United States

this year will be the state of

California. But its economy

which is bigger than Indias is

caught up in a combination of

factors that are indicating it

will be a long road back to the

previous golden growth levels.

California, the land of dream

s. I would say the new American

dream is hoping that tomorrow

you can feed yourself, your

kids and have a dry place to put your head at night

. That's the American

dream. And that's sad. As the

Academy Awards were handed out

last week we went to a Nascar

race in California. 10% of this

state is out of work, almost 2

million people. They had to dis

count tickets to race to fill

the stands and just talk to

people at random you get a

sense of how tough it is. I

have bills that I am not pay

ing me and I have people all

the time. I don't answer the

phone anymore. I think it's

Depression. No place is worse

than east of Los Angeles. Plies

k like pa moan ya, we flew over

there today. One of the iddo

sin cra soifs California so

many people have swimming pools

and as to many homes go into

foreclosure, the pools are

staying nant and they can

become public health hazards.

The State made Washington DC

seem prudent years ago. Sales

tax revenues were plentiful.

When the housing market

collapsed, so did California's

economy. The tax revenues dried

up and so did the job

market. I've even applied at a

gas station and worked at a gas

station. Demean? It was kind of

embarrassed to say where I worked. People think there's

still a population boom in California. Actually the

non-immigrant population has

decreased by a million and a

half in the past 10

years. Have any of you thought

of leaving California? If I had

the wherewithal I would be

right out of here. And

finally we viz yaitd church,

virltdually every parishioner

has lost a job or a family

member has. There's no jobs.

There's just no jobs here. He's

been out of work now for 11

months. Straight. And there's

nothing. People are by nairt optimist ic and you find that

here as well. But no-one we

talk to could tem us when the

hard time also ends. They're

just hold ng on until then and

in the meantime the music is

not as sweet in California as

in days gone by. Now let's

look at what's making headlines

around the region. Banking

firms Standard Chartered Bank

have posted a better result. If

financial 'Times' says AIG

still faces billions of dollars

potential losses. And the

'Wall Street Journal' looks at

how Japan will use some of its

huge foreign exchange reserves

to alleviate a credit squeeze

for big companies operating

seas. That's all for this

edition of Business Today. If

you would like to look never

any of our interview, please

visit our website. We look

forward to your feedback. I'm

Whitney Fitzsimmons. Thanks for

joining me. Enjoy your day.

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