WHEN: TODAY, MONDAY, SEPTEMBER 14TH
WHERE: THROUGHOUT CNBC'S BUSINESS DAY PROGRAMMING
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with European Central Bank President Jean-Claude Trichet. Excerpts of the interview will air throughout CNBC's Business Day programming today, Monday, September 14th.
All references must be sourced to CNBC.
STEVE LIESMAN: Let's go back and review that very momentous weekend of-- the le-- when Lehman Brothers collapsed. Some would-- begin the narrative on Thursday, when they had trouble. When did you first begin to understand that this was a very serious financial event for the global system?
JEAN-CLAUDE TRICHET: It was-- I-- I mean, I-- of course-- after-BearSterns, after the-Freddie Mac and Fannie Mae operations-- we knew that-any systemic institution, having problems, would be a big, big problem. And particularly after the three rescue operation, which-- had taken place before. I have to say that-- we could-- we were making the working assumption that perhaps a private solution will be found out. And that-we could have-- a solution of the type of Bear Sterns. When it appeared during the weekend-- that it was probably not the case, then we knew thatwe would have to cope an enormous problem.
STEVE LIESMAN: Jean-Claude, Americans don't really understand how American Federal Reserve officials monitor the markets, and they certainly don't Understand how the European Central Bank, how were you monitoring markets? What kind of information flow were you getting during that week and again on the weekend?
JEAN-CLAUDE TRICHET: I mean, we are permanently alert, of course. Both the Fed and us-- on all events that could have a systemic-- influence. And-- I have to say that-- during this period, which was a period of intense-- changes, hour after hour-- we had a very good relationship with the Fed And-- I must-- say that-- it was really an absolutely intimate corporation. And-- flow of information that we had to the extent that there was a lot of-- systemic problems at stake.
STEVE LIESMAN: Were you getting-- updates-- personally from Fed chairman Ben Bernanke?
JEAN-CLAUDE TRICHET: Absolutely.
STEVE LIESMAN: Beginning when? Beginning on Wednesday? Thursday?
JEAN-CLAUDE TRICHET: I mean, during the weekend.
STEVE LIESMAN: Right. During the weekend.
JEAN-CLAUDE TRICHET: During the weekend
STEVE LIESMAN: And so you went into the weekend, is it correct to say, believing that Lehman would be saved?
JEAN-CLAUDE TRICHET: No. I knew that-- it was extremely complex. But before the weekend, my working assumption that perhaps a solution of the type of Bear Sterns. Because it was very-- very-- like Bear Sterns in this respect. And-- had-- we-- had the chance-- to have the- confirmation that-- some-- private institution would be interested, then we would have been in a different universe. But it-- it-- we realized that it was not the case during the weekend.
STEVE LIESMAN: Were you surprised to hear the comments from-treasury secretary Henry Paulsen basically saying that there would not be government money in a solution here, on that Friday before?
JEAN-CLAUDE TRICHET: I-- have to say that-- this-- seemed to me to correspond to the situation of the public opinion in the US. After Bear Sterns-- which was well done, in my opinion, there had been-- a number of criticism, which were coming various sensitivities, as far as I could-see.
Then we had Fannie Mae and Freddie Mac with public money, public risk at stake. And, again, a lot of criticism. So I-- interpreted what had been said by the secretary as meaning, you know, the public opinion is now very, very careful. And-- is not envisaging on (UNINTEL) the idea of putting public money on-- taxpayer's money, or risk, in this-- operation. But, again, my working assumption, right or wrong. It proved wrong. Was that a private solution might be found out.
STEVE LIESMAN: I think you were not alone in that assumption. I think you were probably following-- other people in the market. At what point do you-- did you feel pretty certain that there was not going to be, not only not a private solution, or public solution, but no solution at all?
JEAN-CLAUDE TRICHET: Well, it was-- at the end of the weekend. We knew that-- it was unfortunately-- the bankruptcy-- that would-- that would be the solution. And, of course, then, immediately, it triggered, for us, as well as for all-- I would say sister central banks, the-- sentiment that we had to prepare for-- something which was really big. Really big. (NOISE) And-- and it was big.
STEVE LIESMAN: Were you scared?
JEAN-CLAUDE TRICHET: No. It's-- I mean-- I don't think a central bank should be scared. We have to-- to keep our nerve-- our-- our composure. To-- to-- display (UNINTEL), if I may. That-- that is very, very important. (LAUGHTER) But we-- we knew that it would be very, very difficult. That being said, of course, we were already living, since August 2007, in a period of turbulences.
And-- we had already taken ourselves in the ECB-- extraordinary measures. Like-- full alert not at fixed rates. That we practice, the 9th of August, 2007, and also at the end of the year, 2007. So we-- we-- we had appreciated, since the very beginning of the turbulences, that the situation was exceptional. And that we had to be-- permanently alert. I call that credible alertness
STEVE LIESMAN: Do-- do you remember getting a lot of sleep that weekend?
JEAN-CLAUDE TRICHET: No, I slept. Yes. Yes.
STEVE LIESMAN: And-- I-- I'm wondering if-- there was a sense that-when when you got the call of that this was not gonna happen, was it a call directly from Fed chairman Ben Bernanke?
JEAN-CLAUDE TRICHET: In my memory, it was-- chairman, yeah.
STEVE LIESMAN: Do you remember what he said?
JEAN-CLAUDE TRICHET: I mean, (LAUGHTER) in very-- with a great economy of means-- (LAUGHTER) what-- what was the situation.
STEVE LIESMAN: And it's not gonna happen, is what he said. And get ready. Was that-- was that-- was there-- was that-- was that the-- what he communicated?
JEAN-CLAUDE TRICHET: Yeah. Yeah. Yeah. Sure.
STEVE LIESMAN: And-- at that time, what-- did you have all of the programs you felt you needed in place to deal with the aftermath that you thought was coming?
JEAN-CLAUDE TRICHET: I mean, we-- we, of course, are-- permanently alert. And so we had-- reinforce all of our surveillance of all markets and-of all channel of information. But, of course, the consequences of-of Lehman Brother collapse were-- still very largely unseen, of course
And-- all what I can say is that-- I was, and my colleagues of the executive board, and my colleagues of the governing council, we were convinced that it will have enormous consequences. Because the entire-financial markets, we are making the working assumption, after the rescue of Bear Sterns-- Freddie Mac and Fannie Mae, that these events, the possibility of losing a lot of money on-- one of the major signature of New York, was-- not credible.
And so the fact that it appears to be credible was it-- in itself an enormous new information. That was processed through all decision making processes in the US, in Europe, in all industrialized country, and the world over. And if I have a main lesson to draw from-- these events, it's-- it is that a single event, in the present global finance, and the present global economy, can trigger, at the level of the planet, a synchronization of decision making processes, both in the financial sector, as well as in the non financial sector.
And, in all economies, industrialized, as well as emerging. And it is what happened with-- within several-- days. I have to say, at the end of the week, after this-- traumatic weekend, I would say that practically all decision making processes are-- in the world, had been synchronized down.
STEVE LIESMAN: What do you mean synchronized down? What does that mean?
JEAN-CLAUDE TRICHET: It means that-- the-- various entities, again, corporate entities, financial, non financial-- in the-- all economies of the world had decided to change, drastically, their own risk management. They had decided to shorten-- their investment-- to be sure that-their (UNINTEL)-- was-- had shrunk considerably. As a natural response, in the world, where the unthinkable appears to be-- thinkable.
STEVE LIESMAN: There was also a lot more coordination that came after that. Correct? There were global rate cuts and global--
JEAN-CLAUDE TRICHET: Absolutely. Absolutely.
STEVE LIESMAN:--liquidity provision that came after. That was one of the things that came out of that.
JEAN-CLAUDE TRICHET: Absolutely. To this-- discovery in real time that- the entire global economy was-- behaving in a totally different fashion. I have to say that the central banks proved a capacity to cooperate. Which-- was absolutely remarkable. And I would probably praise, of course, the relationship that we had with the Fed. (NOISE) Which-has been extremely, extremely important in the circumstances, before and after. But particularly after, of course(UNINTEL) saw that, with the other sister institution-- in the industry as well. As well as in the emerging world. We had the capacity to respond to a situation which was totally traumatic. And created, immediately, what I would call-- global systemic liquidity threat. We all had to cope with a systemic liquidity threat immediately.
STEVE LIESMAN: In hindsight, given the cost that has been exacted from the planet, because of Lehman's failure and the cascading-- events that happened after it, was it a mistake to let it fail?
JEAN-CLAUDE TRICHET: I think that it is not exactly the way I will present things. First of all, we were in a universe, in the global finance, that was not stable. That was highly potentially unstable. The-- scie-scientists would say (UNINTEL) stable. And we have to recognize that. So, in that way, Lehman was a trigger. But you could have another trigger. Lehman could have been saved. Then AIG wouldn't have been saved. And then you would have exactly the same. And even if Lehman and the AIG would have been saved, then it would be a new-- entity that we have problems. So it seems to me that we have to fully recognize that we were living in a universe, in global finance, that was highly unstable. And-- dependant on the trigger. And the trigger could be this or that, to create the difficultly. The major difficultly. Another way of looking at it was that the public opinion, as I already said-- didn't want-- taxpayer's money to be put, because they didn't realize to which extent, I mean, all sensitivities in the public opinion didn't realize to which extent the system was vulnerable.
And once the demonstration was given, that, indeed, we were in a very fragile universe, then-- the public opinion was on board with some difficultly. Because I remember the difficulty of-- getting the approval of the congress for the TARP. But then, nevertheless-- finally the decision was taken. And-- we could cope with this systemic liquidity threat. (NOISE) But that we did ourselves as central banks. But also with the systemic solvency threat that only-- only the governments and-- the-- parliaments-- could cope with.
STEVE LIESMAN: Were the central banks of the world-- I want to say not prepared, did they fully understand the financial system that they regulated? And was that a lesson of the-- of the Lehman failure? Is that they needed to know more and be more involved?
JEAN-CLAUDE TRICHET: I think-- I think the central banks, in general, the constituency of central banks, was probably the consti-constituency which was the most lucid on the fragility of the situation. We meet every two month in (UNINTEL), as you know. And-- myself, I happen to have(UNINTEL) in-- various circumstances, the sentiment of my colleagues. Including Davis (PH), for instance. In January 2007. And I said, very clearly, that-- we thought that there was an under appreciation of risk at the level of global finance. That it was a general phenomenon. That it was illustrated in very low level of spreads. Very-- very low level of volatility. Abnormal risk pre-- ab-- abnormally risk premier (PH). And that took creation. Would have-- would been necessary.
And that we had to prepare for that correction. And we-- we are thinking, of course, that the private sector also had to prepare for that correction. So, again, I think that if you want to find out an area where there was-- a level of lucidity which was the (LAUGHTER) over the average, it would certainly be in the central bank constituency.
That being said, the-- what we learned from-- from these events, of-dram-- dramatic events, was that the-- the global system itself was depending on a single event. And that is entirely new. If something has been entirely new, it is that. We had already had problems, big (UNINTEL)on there. But that-- single event could trigger a global phenomenon within half days, that is entirely new. And (UNINTEL) of course for a lot of lessons to be drawn from that situation.
STEVE LIESMAN: I want to get to that in a minute. But I just want OT ask you-- just a couple sort of personal questions. And, obviously, if you want to answer, that's great. Is your memory of that weekend very vivid or is it a blur, as in one event after another?
JEAN-CLAUDE TRICHET: It is-- I mean, we-- we had-- to cope with a lot of difficulties before-- as-- as-- I said, we had Bear Sterns-- in the US. I-- in Europe we had, also, to cope with-- difficulties that were-major difficulties. We had to take very hard decision.
So it was one particular weekend, in a sequence of events. So I wouldn't say that-- experiencing it-- until the final result-- was not some-- was- it was not something which was extraordinary. It was, unfortunately, the way we were dealing with the exceptional situation.
STEVE LIESMAN: But that's very interesting.
JEAN-CLAUDE TRICHET: After, of course, it was totally different.
STEVE LIESMAN: So you went into it as just another crazy weekend among several of them?
JEAN-CLAUDE TRICHET: Yeah. Yeah. But
STEVE LIESMAN: Is--
JEAN-CLAUDE TRICHET: But, again, with-- with a working assumption which, unfortunately, didn't work.
STEVE LIESMAN: Is there one memory, one vivid memory, that stands out from that weekend of something you-- you will never forget for the rest of your life?
JEAN-CLAUDE TRICHET: No, I won't say that
STEVE LIESMAN: Okay. And I'm just wondering, and I'm sorry for these personal questions, but they interest me. Is there something you said to your wife, or something like that, that-- that was-- was there concern among people who were-- who are close to you about what was happening around the world that you-- that you recall? Either-- your two sons, or--
JEAN-CLAUDE TRICHET: No. I-- I don't think I-- put my family in this-in this business
STEVE LIESMAN: That's okay. That's fine. Let's go back to the lessons then. When we talk about how the world will be different, because of Lehman Brothers, what are the most important ways that you think-- I-I mean, is it right to say the world is permanently different because of what happened a year ago?
JEAN-CLAUDE TRICHET: I think that it has to be different, of course. Because we have to do-- all appropriate-- improvements that are necessary for the global finance, and the global economy, to be much less fragile. We-- we cannot afford to have, again-- in future of-- yours, this levelof-- of fragility.
And my understanding is that-- we have to draw all the lessons withoutscapegoating (PH) any part and parcel of the system, you know. It's too easy to say it's the fault of the credit agency. It's the fault of the son-- of the commercial banks. It's the fault of the investment banks. It's the fault of the regulators, and so forth.
I mean, we have to improve everything. Every part and parcel of the system. And-- not giving any privilege to any part of the system, whether private or public. But-- not again scapegoating, because it's the best way, precisely, to-- ignore-- that-- the-- it is the full body of the system, which is at stake. And we must improve all part and parcel of the system. And it is what we are doing. It is what we are striving to do,right now.
STEVE LIESMAN: Do you worry that, as we get further from the event, as the economy improves, as it looks like maybe we have taken a step towards more normal, that the impetus and motivation for reform goes away?
JEAN-CLAUDE TRICHET: It would be the major mistake we could do, and, of course, there is always a danger. Because the central banks, and speaking-- of course, of my central bank. I'm speaking of the fact that-speaking of Bank of England, Bank of Japan, all the-- central banks, including in the emerging world. Because we took decisions that we extremely bold. Extremely nonconventional in many respect. And in a very, very quick and expeditious fashion, we could prevent a total meltdown of the-- of global finance, and of the global economy. Because governments, we are able to mobilize taxpayer risk at the very high level, on both sides of the Atlantic. Not to speak of-- other continents.
We could avoid a meltdown. But what we have done is enormous. It would be absolutely stupid to say, "Now-- business as usual. Market are functioning," and so forth. It would be to-- totally forgetting why market are functioning today.
They are functioning today because we-- we are bound to take, in the public sphere, extraordinary decision. And we are not authorized to do that again. I would say it would be very, very abnormal. We have to get things fixed.
And-- again, as I said, to treat and improve all elements of the system. Whether public and private. And it is what we are doing. And I would urge, of course-- all-- the-- authorities in question, and the private sector, they have to be fully aware of the fact that, if things are functioning a little bit better today, it is because those decisions had been taken only a few month ago
STEVE LIESMAN: Can you say, with certainty, that today, an event like Lehman Brothers, could not cause another global panic?
JEAN-CLAUDE TRICHET: I mean, again, today we are in a different universe. Today-- I think that-- the private sector is much more aware or-of course, of all the risks that are at stake. And-- I urge them to continue to improve their risk management and all their behavior.
And, of course-- we are in-- in a world where we could demonstrate, in the public sphere, that we had the capacity to cope with these enormous risks. Liquidity and solvency risk-- that I was mentioning. So we are not in a universe where-- it is-- it-- it would be likely that we would have the same phenomena.
But, when time passes-- when we are in five years from here, if-of course, if we don't do the job now, then we will have the same kind of risks that would be possible. And-- we will-- we wouldn't be forgivable if we are putting ourselves in this new situation. I-- I think our people will not forgive us. And they would be right, in my opinion. Public opinion will not-- we are living all in democracies. We have to be up to - what our people are asking for. And they are asking that the system - would be much less fragile. That's clear. It's a clear message.
STEVE LIESMAN: Is-- is there something, thinking back on a year ago, that you wish you had done differently that you think might have affected outcomes?
JEAN-CLAUDE TRICHET: I think that-- with the benefit of the hindsight, we see that we would have been much better off had we done all what we are doing, right now, and will continue to do-- (UNINTEL) instead of doing it (UNINTEL). Had we been more lucid on the fact that the global finance was that fragile, it-- would have been much better
But, that being said, taking into account the fact that the-- as I said, that central banks, in particular, we are sufficiently lucid to be public on the fact that a big correction was to be expected. And we can prove that. And taking into account the fact that we-- we proved a level of alertness and capacity to respond to an expected situation, which-has proved to be-- reasonably effective. I-- I wouldn't say that I would rewrite anything.
But-- it's-- a lesson for all of us that we have to be in a state of permanent alertness. And the worst possible situation is a situation where you're told, by-- various channels, and-- you know, your own staff, and so forth, everything is going quite well. We are-- in a very-Goldie Locks situation. There's no Goldie Locks situations. It is-- they-- we-we have to be permanently aware of the risks that are at stake.
STEVE LIESMAN: Did the UCB ever contact, I've always wondered about this one detail, did the UCB ever contact the FSA to get them to withdraw their objections to Barkley's purchasing Lehman?
JEAN-CLAUDE TRICHET: No.
STEVE LIESMAN: Is-- do you think that decision, by the FSA, was a mistake?
JEAN-CLAUDE TRICHET: I-- wouldn't-- certainly, not comment on that. I think it was the responsibility of-- all the public authorities-at stake. With the benefit of the hindsight-- they have very good argument, I have to say. But I wouldn't comment.
STEVE LIESMAN: Jean-Claude, you've been very generous with your time. And I just want to give you an opportunity, if there's something about thatweekend that people need to understand or know that's important. To give you an opportunity to-- us this time to-- to tell us-- something we might have missed here.
JEAN-CLAUDE TRICHET: I think I will sum up-- in saying that it-- it's been the trigger of-- dramatic correction at the global level. Hadn't it been that trigger it would probably had been another trigger. And what is very, very important is to see to which extent, in this extraordinary situation, the (UNINTEL) democracies. The interaction between authorities and the gravity of the situation. And public opinion is very, very important.
The public opinion support for a package to cope with the gravity of the situation was gained after the demonstration that was given that we were in a dramatic situation. (LAUGHTER) Of course, one would say, would have been better if public opinion would have been, itself, sufficiently well informed, and lucid to understand that you had to do that (UNINTEL) not (UNINTEL). But that easy to say. But it's a very, very important point, I think.
STEVE LIESMAN: There's just two very quick things. One is, do you-do you care to comment on the issue of whether or not Ben Bernanke should be given another four year term?
JEAN-CLAUDE TRICHET: Privately, I would certainly comment. But--
STEVE LIESMAN: But not publicly.
JEAN-CLAUDE TRICHET: Not publicly.
STEVE LIESMAN: Fine. One other thing, I promise it's the last one, we are doing a town hall with Treasury secretary Tim Geithner where we are going to do a public-- regular public come in. But we're also asking experts if they have a question for the Treasury secretary. So-- this would be for a separate segment we're doing that same weekend. If you have a question for the Treasury secretary just want to--
JEAN-CLAUDE TRICHET: No. No. No. I-- I-- I will not.
STEVE LIESMAN: Were you monitoring spreads? Rates? What was the thing that you would focus on the most to tell you-- as that week went on, that things were spinning out of control?
JEAN-CLAUDE TRICHET: Yeah. All-- all kind of markets. Spreads-of course. The tensions of the market that we had observed since August 2007 Don't forget that, for us, the abnormal situation was already-a longstanding abnormal situation between-- we look-- a lot of-- a lot of-- of indicators-- that we-- dramatically, dramatically, picking up, you know. When you look at the-- charts, you see-- you see that the-- that kind of-- of peak. I mean, it's totally totally dramatic in a number of areas.
STEVE LIESMAN: It's amazing. It never--
JEAN-CLAUDE TRICHET: It's-- it's a dramatic change.
STEVE LIESMAN: What-- what's-- is interesting though is-- the Fed chairman, he get-- recently talked about how the-- it was the demise of a European bank in the 30s that caused the recession to turn into a depression. So we did have some evidence of that single even. Although, obviously, not in a half a day.
JEAN-CLAUDE TRICHET: Yeah. But it was-- it was-- a process which had been extremely long and-- and laborious, if I may. Not-- nothing to be-- to be compared-- to this-- you know-- immediate-- absolutely immediate spreading of the news.
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