Return to Transcripts main page


Obama's Cairo Speech and Muslim Reaction; Global Economic Crisis

Aired June 7, 2009 - 13:00   ET


FAREED ZAKARIA, HOST: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have, of course, as the main event this week President Obama's historic speech at Cairo University, a speech to the Muslim world.

My reaction? I thought the way in which President Obama was able to use the symbols and symbolism of Islam, and his familiarity with it, was very powerful. He was able to convey to the audience and to the world that he knew Islam, he understood it.

He talked about generations of his family being Muslim. He talked about the azaan. He said, "Assalaamu alaykum," peace be upon you. He quoted the Quran.

All these might seem small things to people in the West, but they resonate powerfully, because they send a signal that "I understand you."

What was most striking about the speech from a substantive point of view was, of course, the way in which he dealt with the Israeli- Palestinian issue early on in the administration. Mostly, presidents get to this issue in the sixth or seventh year of their term when they are hoping for the Nobel Peace Prize or a legacy.

He was tough on Palestinian terrorism, but equally tough on Israeli settlements. There was an insistence that the settlements stop, and that was new from a policy point of view.

The other extraordinary moment from a policy point of view was the de-emphasis on Iran. Benjamin Netanyahu, the prime minister of Israel, had come to the White House hoping to get Obama to understand that Iran was at the center of all problems in the Middle East.

In this speech, Iran doesn't really make it as Iran. It only is discussed in reference to the need for a nuclear-free Middle East. And even in that context, Obama talks about the legitimate right of Iran to have a nuclear capacity -- a civilian one, not a military one. So, all in all, de-emphasizing the idea that Iran is the great danger and great threat to regional peace or global peace.

There were other elements to it, of course. But the one great criticism people are inevitably going to make is that these are words, and they must be followed by deeds. And, of course, so they will in many cases.

Ironically, the one place where President Obama has the most ability to actually do deeds is in a part of the speech he de- emphasized, which was Iraq. In Iraq, unlike in the Israeli- Palestinian issue, or unlike in bringing democracy to Egypt, say, in Iraq, President Obama has enormous leverage to shape an Arab country in the heart of the Middle East. We will have to see, of course, whether he takes it.

We have a great global panel -- former Malaysian deputy minister, Anwar Ibrahim; Egypt's leading dissident, Saad Ibrahim; Hanan Ashrawi from the Palestinian Authority -- all kinds of people. Stay with us.

And then, a fascinating look at Wall Street from one of its greatest chroniclers, the writer Michael Lewis.

Let's get started.


ZAKARIA: And I am now joined by a very special global panel. I've gathered a group from all over the Muslim world, because I thought it was important to find out how the speech resonated among different populations. I have also invited a distinguished Israeli to participate.

Joining me now from Ramallah in the West Bank, Hanan Ashrawi, the Palestinian scholar and activist, who has served many terms on the Palestinian Legislative Council.

And the Malaysian opposition leader, Anwar Ibrahim, from London.

From Beirut, the journalist, Rami Khouri. He is a distinguished academic and an editor of Beirut's "Daily Star."

Also, the Iranian filmmaker and journalist, Maziar Bahari, from London.

And Saad Eddin Ibrahim, who is one of Egypt's leading scholars and leading human rights activists, currently in exile from that country, here in the United States. He joins us from New York.

From Li-On, Israel, Benny Morris, a very distinguished and controversial Israeli historian and professor.

And Juan Cole, a professor and influential blogger on the world of Islam, joins us from New York.

Welcome to all of you. You're all very distinguished people with many more credentials, which will be featured on the screen and the Web site. But because we have such a large group, I didn't want to get into too much of that. It might take me a while, but I will get to every one of you.

Let me start with Anwar Ibrahim. Anwar, you have to contest elections with Muslim fundamentalist parties, with radicals. Do you think that Obama's speech will in some way heal some of the tensions between the world of Islam and the West and America?

ANWAR IBRAHIM, MALAYSIAN OPPOSITION LEADER, LONDON: We at times tend to expect him to speak like the great caliph of the Muslims. He is the president of the United States of America. He can share his commitments, his views.

And to me, it is very reassuring indeed to have a president of the United States of America showing some concern, a willingness to negotiate and for rapprochement with the Muslims.

But we cannot expect him to agree with us. Neither would we agree with him on all issues.

ZAKARIA: Benny Morris, he does speak very forcefully about the need to end settlements. He also speaks very moderately, as I was saying, about the Iranian problem, does not seem to see it as the kind of existential problem or strategic threat.

You have written that you think that this is very much a dagger pointed at the heart of Israel. I think you have implied that you would support an Israeli military strike against Iran.

Do you feel that Obama is exercised enough about the problem of Iran?

BENNY MORRIS, BEN-GURION UNIVERSITY, LI-ON, ISRAEL: You're right. The major problem today faced by the Middle East isn't the Israeli-Palestinian problem. It's not the grievances of the Palestinians or the grievances of the Israelis vis-a-vis non- recognition by Palestinians. The major problem is the impending Iranian atomic bomb.

The Iranians are rushing headlong towards production of nuclear weapons. And that is the major crisis I think the Middle East and maybe even the world will face in the coming year or two or three.

The Palestinian problem, fortunately or unfortunately, will be with us for the next 10, 20, 30 years. I don't think it's going to be solved now. I don't think the Palestinians are ready for a solution. So long as they don't accept Israel's legitimacy there won't be a solution.

But the Iranian problem is what is on the table at the moment. And in the coming year or two or three it will have to be resolved. And sanctions are not going to happen. Diplomacy and negotiations will probably not resolve it. The Iranians are dead set on getting atomic weapons.

And I fear that the world will either have Iranian atomic weapons and rely on deterrence, or it will have to destroy the Iranian nuclear project -- that being, of course, either American military power or Israel. JUAN COLE, AUTHOR, "ENGAGING THE MUSLIM WORLD," NEW YORK: We've spent $40 or $50 billion a year on intelligence in this country. And our intelligence agencies came back to us in late 2007, and said there isn't good evidence that the Iranians even have a nuclear weapons program.

I think Benny Morris has it exactly opposite. The real threat, existential threat to the long-term survival of Israel is the occupation of the West Bank and Gaza. And if he thinks that the rest of the world is going to put up with the Palestinians being treated this way for the next 20 or 30 years, he has another thing coming.

Boycotts are going to arise. Israel needs economic and technical cooperation with the rest of the world. This is the threat to Israel.

And it's also turning Israelis into occupiers. It's brutalizing them. It's causing them to talk in a more and more racist way.

Iran is not that big a threat to Israel as the continued occupation is.

ZAKARIA: Hanan Ashrawi, it has often been noted that, if the Iranians use a nuclear weapon against Israel, it would be pretty bad news for the Palestinians, as well, since you live within a few miles of Israel proper.

How do you regard the rise of Iran?

HANAN ASHRAWI, PALESTINIAN LEGISLATOR, RAMALLAH, WEST BANK: I don't see the rise of Iran as a threat to the region. I see the continued injustice done to the Palestinians, and the continued occupation, and the theft of our land and our freedom and our rights and our lives -- these are the most emotive issues in the region.

They feed extremism and violence. They de-legitimize Israel even further. They create fertile grounds for hostility, and so on. So, there is a need to deal in an integrated way with the problems of the region.

The Palestinian question is crucial. You may find digressions and side issues. You may try to deal with Iran and forget the Palestinians. But this is the core issue that has shaped perceptions, that has shaped attitudes, that has been used by extremists also, in order to justify their own causes and existence.

So, I think placing the Iranian issue first is not only misguided, it is dangerous.

Two, Iran is ready to make a deal. Iran understands the requirements of the region. And I'm sure Iran, like Syria, would like to make deals with the U.S.

And I think Obama is intelligent and responsible enough to understand that these are countries with which he can make deals. These are deals of exclusion, of inclusion and of mutual interest. And he said so openly. ZAKARIA: Maziar, what does it look like to you, for an Iranian? Do you think that the Iranians are delighted by the fact that the Arab street is really not anti-Iranian?

And surely this has been part of the project of the Iranian regime in supporting the Palestinian cause, the great cause of the Arab street. They have, in effect, made it very difficult for Arab governments to work their population into a kind of anti-Iranian mood.

MAZIAR BAHARI, IRANIAN JOURNALIST, LONDON: Well, I think, like any other regime, Iranian regime is mainly interested in maintaining its power -- survival, to tell you the truth. And they do whatever to do that. And you can look at all the issues regarding Iran through that prism.

You can look at the nuclear technology. You can look at Iran's relations with organizations like Hamas or Hezbollah through that prism.

And I think that President Obama is moving in the right direction, that he is guaranteeing the Islamic regime of survival. And then, he wants to talk with the Iranian regime.

We doubt that security guarantee. We doubt having the grand bargain, so to say. Nothing can be achieved in terms of Iran's relations with the West, and especially with the United States.

So, I think the Arab street or the Israelis or the Americans, the relationship with them for the Iranians is mainly about survival and keeping the regime intact.

ZAKARIA: Saad Ibrahim, do you believe that, had Obama made the containment of Iran or the rising Iranian threat a great theme, he would have found support on the Arab street? You know, do the Arabs view the rise of Persia, of Iran, as a great worry?

SAAD EDDIN IBRAHIM, EGYPTIAN DISSIDENT, NEW YORK: Well, the Arab street does not. Some Arab regimes do fear the rise of Iranian power.

However, I think he would have been -- and he hinted at that. If he goes for denuclearization of the whole region, which will include both Iran and Israel, I think he will find tremendous support, not only from the people, but also from the regimes. And I think that is the balancing act which he hinted at without speaking, without addressing directly.

RAMI KHOURI, "THE DAILY STAR," BEIRUT: integrity and the legitimacy of many Arab governments and states.

We have brittle states. We have failed states. We have failing states. We have split states. We have quasi-states. We have parallel states.

There's all kinds of new configurations of power and legitimacy, because the traditional state is falling apart. And this is something that needs to be stopped, as well. ZAKARIA: And we will be right back with our panel from around the Muslim world.


COLE: Obama seems to me to be, in some ways, positioning himself as an opinion leader for the Muslim world.



ZAKARIA: And we are back with our panel from around the Muslim world, talking about President Obama's speech.

Juan Cole, you study this world very carefully. You have a new book out about engaging the Muslim world.

Has President Obama begun that engagement?

COLE: President Obama today, I think -- or on Thursday -- declared an end to the war on terror as the Bush administration had framed it. And we're moving now to a new situation of engagement, in which Obama seems to me to be, in some ways, positioning himself as an opinion leader for the Muslim world.

That is to say, his choice of Cairo, which intersects with the Arab world, with the Muslim world, with the world of Africa and the Third World, as a point from which to address 1.5 billion people. He quoted the Quran to them. He laid out projects of joint cooperation.

So, there's a sense in which he's taking the lead here. And instead of fighting a war on the -- some elements of the Muslim world, he's enlisting their cooperation.

It's almost the kind of rhetoric that you would hear about NATO, you know. In the same way that the U.S. rounded up the Europeans to fight communism, he's rounding up the Muslim world to fight those small extremist elements that he sees as danger to both worlds.

SAAD IBRAHIM: All in all, I think he combined in his address the kind of compassion that Carter had once showed in that region, the knowledge of the details of the problems that Bill Clinton had once shown, and the statesmanship of Dwight Eisenhower in being commanding and being fair-minded, and willing to take steps to tell everybody what his responsibility is.

ZAKARIA: Well, Saad, I'm a little surprised, though. I thought you would have wanted him to say something like, "I look forward to the day that Egypt will be a democracy," or "I look forward to the day that Egypt will have a greater degree of participation in its public life."

Why did you not want him to say that?

SAAD IBRAHIM: No, no. I would have loved to hear that. But I am realistic enough to know the limits of any foreign dignitary visiting another country and making a speech like this.

I am satisfied with what -- am I happy? No, I am satisfied, but not happy.

ZAKARIA: Would it be fair to say that Egyptian dissidents like yourself still find themselves unable to criticize the government openly, that whatever openings have taken place in Egypt remain quite limited?

SAAD IBRAHIM: Of course. And he addressed freedom of speech and freedom of organizing. And that, I think, was a clear message. And I know that behind closed doors he has also mentioned some of the important cases.

ANWAR IBRAHIM: Here we have a new president of the United States showing his concern and approaching the Muslim world, wanting to engage. I think he must be given a chance. We must reciprocate.

Muslim leaders, Muslim countries must respond, engage, even to the point of disagreeing with him. But we must show the courage to engage.

ASHRAWI: In many ways, what he did was signal to the Arab world, and the Islamic world -- if there is such a thing -- that the U.S. is claiming back its own foreign policy, that Israel is part of the region, yes, and it exists, but Israel has obligations, as well. It is not a country above the law, that settlements are illegal and must stop, that the Palestinians have the right to statehood, that the situation under occupation is intolerable, and so on and so on.

So, in many ways, it addressed and redressed some of the basic grievances that people have felt in terms of Israel, of the U.S.'s blind allegiance to Israel, of Israel constantly shaping America's foreign policy. And it went a long way towards restoring the image and the credibility of the U.S. in this part of the world.

I know that, as he said, the words will not solve the problem. But at least these were indications of where he is heading. And at the same time, there is a need -- quote, unquote -- for bold action. And this is what people are waiting for now, to see if these statements of intent, these visions, so to speak, are translatable into concrete policy and concrete action.

MORRIS: I think the lack of recognition of Israel and Zionism's legitimacy has underpinned Arab enmity and hatred of Zionism and Israel for the past 100 years. And this is something he addressed.

The question is, how will the Arab world respond, both to his statements about the conflict, and about women's rights and minority rights, et cetera? It's all very well for an American president to put these things on the table. But will it bring any response -- real response on the ground -- in the Arab world? That's the question.

ZAKARIA: Rami Khouri, the last question to you.

Is there a specific response you want to see from the Arab world? If you were to describe what it would look like, what should some Arab leader do now? What's the next step?

KHOURI: I think there should be a response from the Arab world, definitely, and from Iran, as well -- and from the Israelis, but from the Arab world in particular. I think we need to reciprocate at the same rhetorical level the message coming from Obama.

The most important thing I think that he said was that we need to deal on the basis of mutual interests and mutual respect. And he said that we should listen and learn and respect one another.

And I think we need to reciprocate that message, but to put it into actual action. We need to provide mechanisms of serious engagement that go beyond the rhetoric that we've heard, which is very good, and get things happening on the ground.

An American ship carrying medicine to Gaza would be a great gesture. The Arabs can make gestures themselves. The Israelis can make gestures. We need to get practical...

ZAKARIA: But that's an American gesture, Rami. What would be the Arab...

KHOURI: Right.

ZAKARIA: ... response?

KHOURI: Well, the Arab response would be, well, something at the equivalent level with Israel, with the Palestinians, with the United States, with Iran. I mean, I'm just saying that something to come from the Americans, too, because it's the Americans now that are taking the stage and trying to define the agenda. And I think they're doing it in a relatively positive sense.

But we need to move beyond the rhetoric and into some kind of practice. The Arab peace plan is an obvious place to start for the Arab world -- to put a little bit more meat on it, but not to make any more concessions, but to show that we are serious and to move this process forward.

ZAKARIA: Ladies and gentlemen, thank you very much. This was an ambitious attempt, and I think it was successful, thanks to your cooperation.

Thank you all, and we will be back.


MICHAEL LEWIS: The people who make the money gain the control of the decision-making. And so, what happened over time was the smart guys -- who ended up being the proprietary traders and made the risk decisions, eventually became -- gained control of the firms.


(COMMERCIAL BREAK) ZAKARIA: Since the global economic crisis began, I've spoken on this program with some of the greatest economic minds I could find. And today, I welcome another great mind with a unique perspective.

The writer, Michael Lewis, was right there, front and center, at the moment that this terrible mess all began -- a witness, you might say, to the original sin.

Back in the 1980s, he was a 24-year-old bond salesman at Salomon Brothers, the now-defunct investment bank, where the mortgage-backed security was born -- the idea of bundling mortgages together, slicing them up and selling them as investments.

He chronicled those days in a best-selling book called "Liar's Poker," and he's written a number of other great books, including his latest, "Home Game."

Welcome, Michael.

MICHAEL LEWIS, AUTHOR, "HOME GAME": Good to be here, Fareed.

ZAKARIA: So, you were a 24-year-old kid, who had no science background, and you're at Salomon Brothers. Did it feel to you like it was the beginning of something new?

LEWIS: I thought it was -- you know, I wrote "Liar's Poker," because I thought it was the end of something. I thought that anybody -- when someone was paying me hundreds of thousands of dollars to dispense financial advice, that was a sign the end was near.

And I thought, when I wrote the book, that this was going to -- actually, my whole motive for writing the book was, I was going to capture this era, because no one would believe it 15 years from that this had actually happened. And I turned out to be completely wrong.

I mean, it turned out that this was the beginning of something that would run until now. I mean, we are coming to the end of a financial period, I think, that really began in the early 1980s.

ZAKARIA: And why did it begin? Because, you know, some people date this to the point at which you could no longer charge premiums for selling stocks. Commissions were democratized, so banks had to find some -- investment banks had to find some other way to make money.

LEWIS: It is true that there has been a steady erosion in the profitability of the old-line businesses of these Wall Street banks. And there...

ZAKARIA: Which were basically charging you...

LEWIS: Charging you a commission for being a middleman, for brokerage advice, mostly advisory sort of work. And the firms themselves were structured as partnerships, so there wasn't a whole lot of incentive for the firms to take insane risks, because it was their own money. And what happened in the 1980s was a combination of an explosion of financial innovation -- and, of course, any time there's innovation in the marketplace, the innovators for a brief time have a kind of monopoly, and they make an awful lot of money off their innovations -- and a transformation of the firms from partnerships to corporations.

So, all of a sudden, it's not their money they're rolling the dice with, but shareholders' money. And the shareholders, we now know, had absolutely no idea what was going on inside the firms. The CEOs didn't have that much of an idea what was going on inside the firms, because it was all so complicated.

ZAKARIA: Now, when you were there, did it feel to you like these guys knew they were handling a lot of risk?

LEWIS: It took a long time to get to the point, the point of madness at which we've arrived.

ZAKARIA: Because the levels of leverage were actually much lower when you worked there...

LEWIS: Well, lower. That's right. It started -- you know, it was a slippery slope kind of thing.

However, it is true that, even when I was there, there was a transformation inside of Salomon Brothers where I worked, which became a model for how the other firms ran themselves. And it was, the revenues increasingly were generated by proprietary trading, by risk- taking by the traders on the trading floor with Salomon Brothers capital.

And they were a group of traders supervised by John Meriwether, who was ultimately my boss, who generated -- and you're talking about a handful of people -- in the late '80s and early '90s, there were years where they generated more than all of the profits of the firm. In other words, the rest of the firm was not unprofitable, and they were generating all of it.

And naturally, it occurred to them at some point, why do we need the rest of the firm? And they spun off -- well, partly voluntarily and partly involuntary -- into long-term capital management, which is a, you know, a step on the road to this crisis.

But all the firms started to see that there was an awful lot of money to be made in highly leveraged, proprietary trading.

ZAKARIA: And what happens inside a firm? What happens to the DNA of a firm when every year the risk-takers seem to be rewarded, and the guys, the fuddy-duddies saying, "No, no, no. We should be operating like the old lines of business," seem to be wrong?

LEWIS: This is a great question, because there are politics internal to each of the firms that drive the decisions that the firms make. And very broadly, the people who make the money gain the control of the decision-making. And so, what happened over time was the smart guys, who ended up being the proprietary traders and made the risk decisions, eventually gained control of the firms.

And in the case -- in the specific case of the subprime mortgage debacle, what happened inside the firms was that the machine that each firm created to originate subprime mortgages, package them into bonds, and then into CDOs and sell them off, were driving -- were such an important part of the revenues of the firm, that once that machine got up and running, the people who ran the firm really had the power to make broad policy decisions about whether the firm should even be involved in this as it got crazier and crazier.

ZAKARIA: Now, why is it that very smart people did not protect themselves on the downside?

LEWIS: Well, Goldman Sachs did. They were the exception. They did it very late, though. They were lucky, in a way, that they caught it in time.

The logic of it, internal to the Wall Street firms, is that if I'm the CEO of Citigroup or Merrill Lynch, and the vast majority of my revenues are coming out of this subprime mortgage machine, and I just shut it down, unless I'm incredibly lucky in the timing of it, it's going to look like I've just jettisoned my single most important business. My competitors are all going to be earning fantastic returns on their capital, and I'm going to be out of it. And I'll probably be out of a job.

Below the CEO -- if you just think about this, it's kind of incredible -- there's the level of the individual trader who is deciding whether to -- I mean, the problem wasn't just that they were generating all these mortgages. The problem was they kept the risk on their books.


LEWIS: Right? So, the individual traders who are deciding, do I own, essentially, subprime mortgage bonds.

Well, let's say he's smart, and he sees that this is a game that's going to end. He doesn't know when. And he's very cynical about it, and he thinks, one day we're going to have a catastrophe. And he expresses that view by not participating -- maybe even shorting the market.

I'll tell you what happens to him, because I know some people who did this. He is yelled at by his superiors. He doesn't get paid bonuses, because he's not making big profits on his trading books.

Meanwhile, all the guys who are going along with it are getting paid huge sums of money at the end of every year. The efficient strategy for the individual trader was to ignore his reason and participate in the madness.

So, it's true. People were saying that this is madness. Not everybody was saying it. Not that many people were saying it, but some people were saying it.

Very, very, very few people were actually positioning themselves financially to make a fortune if it all came a cropper.

ZAKARIA: So, all the incentives, in a way, aligned for this.

Now, when we come back with Michael Lewis, we're going to talk about the future, what Wall Street would look like in the future, what the economy will look like. We'll be right back.


LEWIS: I think that we're in for another day of reckoning down the road. I just don't know when it is.

I think that they haven't even properly evaluated the institutions. They haven't been honest about what these institutions have on their books. They've had phony stress tests.

So, we're in a kind of a, I think, right now, in a period where there's a false sense that it's over.



ZAKARIA: And we are back with Michael Lewis.

Michael, there are sort of two views on the future of Wall Street. One is, this whole game is over. And sort of, to a certain extent, you've been expressing it a little bit, that, you know, this is a 30-year boom. We're going to look back it the way we did the 1920s, maybe the 1890s.

But there's another view that says there are so many smart people out there, and they are so hungry, and they desperately want to find ways to make money, that you're going to actually see new and interesting ways that these firms will either produce money, or there'll be a whole series of smaller firms -- you know, risk-taking firms like hedge funds on the one side, much more staid banks on the other.

What do you think? What does your gut tell you the future of Wall Street is going to look like?

LEWIS: I think that we are in for another day of reckoning down the road. I just don't know when it is.

I think that they haven't even properly evaluated the institutions. They haven't been honest about what these institutions have on their books. They've had phony stress tests.

So, we're in a kind of, I think, right now, in a period where there's a false sense that it's over, that the crisis is passed. I don't think the crisis is passed.

Now, they haven't all deleveraged. Morgan Stanley did, to its chagrin. But everybody else is still running these huge -- a huge amount of leverage. But that's going to change. I think the general sense that this sort of risk-taking should not take place in a public corporation, especially one that's too big to fail, will express itself in regulation that will prevent it from happening.

But you're right. There are all these smart people. And they're used to making huge sums of money. And it's kind of hard to believe that that will just end.

I don't think it will just end. I think it will find a different expression. I think that what you'll see is hedge funds will become more and more interesting.

ZAKARIA: But what happens to these storied...

LEWIS: These big institutions.

ZAKARIA: ... these massive, massive banks? I mean, they used to define American power in a way, these massive, multinational banks that were all headquartered in New York.

LEWIS: I think they steadily become much more boring. I think they steadily attract a less a caliber people to work for them, and they pay less. They pay less.

I think that -- it's hard to see now, because what's odd -- one of the things that's odd about the current situation is that the people who created the problem are so powerful in deciding what the solution to the problem is going to be. There is a great tradition on Wall Street of making a fortune, creating a mess, and then making a fortune cleaning it up. But to do it on this scale is breathtaking to me.

And it is amazing to me the degree to which, say, Goldman Sachs is intertwined with the Treasury, and how they're -- there don't seem to be any independent voices in the thick of the decision-making. The decision-making is all being done by people who one way or another might expect to make a lot of money from Goldman Sachs in the future.

ZAKARIA: You talked about that in an op-ed in the "New York Times." Describe that amazing revolving door between the SEC and the investment banks.

LEWIS: Well, that's the -- that's sort of the down market version. But the directors of the last three -- let's see, three of the last four or four of the last five directors of enforcement of the SEC work for big Wall Street banks now.

ZAKARIA: And expected -- right. And...

LEWIS: And you can just assume, I think, that if you're a prominent person at the SEC, your exit strategy is to get a lot of money from a Wall Street firm. And nobody says anything about it. That's the amazing thing.

It's not even thought scandalous. It's just thought normal. It's like a natural career -- a step in a financial career. Regulate...

ZAKARIA: And regulators, of course -- you are highly unlikely to enforce in a very punitive manner any of the SEC's mandates, if your hope is the next day, you know, to leave and get a job.

LEWIS: You're not going to want to not get along with the head of Goldman Sachs. That's absolutely right. You're not going to -- there's a limit to how much trouble you're going to be willing to cause.

I think that only partly explains the SEC's impotence. I mean, the truth is also that an awful lot of what happened to create this crisis wasn't even illegal.


LEWIS: So, there wasn't anything the SEC could have done about it.

So, on a grander scale, if I'm Tim Geithner and I'm the secretary of the treasury, what do you think he's going to do when he stops being secretary of the treasury? His natural next step is go work in the financial sector. I don't think he's actually thinking, "I've got to be nice to the people on Wall Street, because they're going to make me rich on the back end of it."

But I think it can't help but influence his behavior, that that option even (UNINTELLIGIBLE).

ZAKARIA: But won't you still have the problem you were talking about -- which is I think exactly right -- most of this was legal? The vast majority of it, actually, was legal.

And to a certain extent, can you ever get back what used to exist on Wall Street and, I think, in American business in general, which was a kind of a guild mentality that viewed these, you know, that viewed your role as a lawyer, as an accountant, as a banker, as being partly to make money, but partly as a kind of leader of industry, a steward of society?

LEWIS: You've put your finger on basically the central issue. And that is, finance became detached from the productive economy. That you could make huge sums of money on Wall Street in finance doing things that are actually, economically counterproductive. That's shocking.

And that's -- you know, and the finance sector grew -- you know, it grew to be too big.

And the idea we're obviously going to need to get back to is that finance is the handmaiden of industry, that finance is supposed to help productive enterprise, not undermine it.

So, how do you organize the industry so that it behaves this way?

Well, there are new -- there are regulatory approaches to it to make it behave better. I mean, for a start -- I mean, there are so many things that could have happened that would have prevented the crisis. If the ratings agencies had just behaved at all reasonably, I think a lot of it wouldn't have happened. If credit default swaps had been regulated at all, a lot of it wouldn't have happened.

So, these are obvious things to do.

Having said all that, I think you're probably a natural cynic about all this. But it is also true that really smart people in positions of privilege will find ways to get around the new rules. So...

ZAKARIA: That's what I mean. If you had -- your father is lawyer, right...

LEWIS: Right.

ZAKARIA: ... and came out of a generation of lawyers who saw the law -- you're an officer of the court. You were not just a lawyer.

At some level, you need...

LEWIS: It means ethical change.

ZAKARIA: It seems to me you need some kind of -- because you're never going to know what's -- you know, the law will never be exactly prescribing and proscribing what you should do.

LEWIS: You need people to want to do good as well as do well. Right? And you do -- and that spirit is not, believe it or not, not entirely absent on Wall Street. It's just that another kind of spirit has been excessively rewarded.

ZAKARIA: The incentives got out of whack. It became...

LEWIS: That's right. That's exactly right. And I think that government can do a lot to create the right incentives. But then, the culture does have a capacity to regenerate itself.

You know, you see things. It seems silly, but these people at the Harvard Business School, who have taken an oath to ethical behavior.

I mean, in a way it's a joke, but in a way it's not. I mean, I do think that youthful idealism sometimes actually does have an effect.

I think we're living through a period of political idealism in a lot of ways. I think the Obama administration brings a spirit of -- a kind of collaborative spirit to the world that we haven't seen in a while.

I think that -- so, I guess I do think that we might 20 years from now be looking back on this and say, did the culture change -- assuming everything works out -- did the culture change, or did the rules change, and the rules change created the culture change? I think they work together. And I do think -- but I think we're at this period where people have kind of been given pause. I don't think -- and I don't think that it's necessarily true that the people who go into finance in the future are going to be looking to bring down the economy. I think that they would like to think that they're doing good, as well as doing well.

ZAKARIA: On that optimistic note, Michael Lewis, a pleasure to have you on.

LEWIS: Thanks for having me.

ZAKARIA: And we will be back.


ZAKARIA: Now for my "What in the World" segment.

Take a look at this.


MAHMOUD AHMADINEJAD, PRESIDENT OF IRAN (voice of interpreter): Today, we become a nuclear state.


ZAKARIA: A heated moment in a presidential debate. Right?

But it's the players that make it unusual -- Iranian President Mahmoud Ahmadinejad and his leading challenger, Mir-Hossein Mousavi, a former prime minister of Iran, and considered a reformer. Now, in a country that is at its core a conservative theocracy, this was an astonishing expression of democracy.

Take a listen to the reformer, Mousavi. He's a voice of dissent that in the past wouldn't have been given such a public platform, let alone be allowed to say what he does here.


MIR-HOSSEIN MOUSAVI, IRANIAN REFORMIST PRESIDENTIAL CANDIDATE (voice of interpreter): In foreign policy, our nation's dignity has been harmed. Our country has been degraded. Development inside the country has faced problems. There has been increasing tension with other countries.

I welcome the entire nation to support me and vote for me, to change this situation. I tell all the people, vote for me if you want to change the situation where a president can't defame others.


ZAKARIA: As you can see, Ahmadinejad was put on the defensive. To be sure, the president landed some blows himself. But the fact that Mousavi was even given this forum might mean that the nation's clerics -- the people who actually rule Iran, and have done so since the revolution -- see Ahmadinejad as being weak, and expect him to be voted out of office on Friday.

Listen to Ahmadinejad.


AHMADINEJAD (voice of interpreter): I'm not fighting against one candidate. I'm standing against a combination, led by Rafsanjani and with the cooperation of Mousavi and Khatami.


ZAKARIA: The president confirms something close Iran watchers have always suspected: He, Ahmadinejad, is not the favorite of the clerical establishment. He took direct aim here at three senior leaders from that elite.

Ahmadinejad's appeal has always been a street appeal, that he is a simple, honest man of the people. He's rising above the heads of the clerical establishment and trying to connect directly with the people.

If it doesn't work, if Ahmadinejad does lose, it would be surprising to many. It would be historical. The first time that an incumbent president in Iran has lost a re-election bid since the revolution.

We'll be right back.


ZAKARIA: Now, for the "Question of the Week."

Last week I asked you, if you were advising Obama, what is the one idea you would tell him he must include in his speech in Cairo?

Well, we had many responses, some from people who were angry that Obama chose Cairo as the site for his speech. Why, you asked, did he speak from a dictatorship?

But the majority of the responses came, as they almost always do on this issue, about Palestine and Israel. So much of the anger of that region seems to come back to the two responses we saw most often.

The first, President Obama must condemn Israel for its occupation of Palestinian lands. President Obama must understand that Israel occupies Palestinian lands for its own security.

There it is again.

For this week's question, we have just marked the 20th anniversary of China's crackdown at Tiananmen Square. In the ensuing years, China has, of course, changed dramatically. So, could another bloody crackdown happen like this? Or have the rising standards of living staved off the kind of unrest we saw in Tiananmen?

Let me know what you think the future of China looks like.

I know that many of you tuned in today to see the greatest hits of the first year on the air -- the first year of our program, that is. I hope you will be patient with us and wait one more week. We have found a lot of great material. It's taking longer than we thought to edit it down. Next week we'll have the final product, I promise.

As always, I'd like to recommend a book. Today it's actually two books, and they were written by guest, Michael Lewis.

If you want to know where the financial crisis got started, you really must read "Liar's Poker," his extraordinary, prescient book. It was published in 1989. It tells the tale of his days at the now- defunct Salomon Brothers, where mortgage-backed securities -- the fuel for the fire of the crisis -- were born.

"Liar's Poker" is a record of his life on Wall Street. His latest book, "Home Game," is a record of his life as a father. And don't forget, Father's Day is coming up.

And don't forget to check out our Web site, You will find that you can win three free trips to Paris.

No, that is not actually true, but there's all kinds of good stuff on it -- program, the Fareed Quiz, all kinds of stuff. Please check it out.

Thank you very much for being a part of this program this week, and I will see you all next week.