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PIERS MORGAN TONIGHT

Dominique Strauss-Kahn Granted Bail; What's Next for Arnold and Maria?; 'Too Big to Fail'

Aired May 19, 2011 - 21:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


PIERS MORGAN, CNN HOST: Tonight he's getting out of jail, and he's out of a job. What happens to IMF chief Dominique Strauss-Kahn now?

And after Arnold's bombshell what next for Maria Shriver? I'll talk to two of the country's top divorce lawyers.

Also tonight, how main street took the fall and Wall Street got the check.

UNIDENTIFIED MALE: You wanted too big to fail. Here it is.

MORGAN: The shockwaves from the financial crisis. It's your money.

UNIDENTIFIED MALE: Why would you bail out people whose sole job is to make money?

MORGAN: Who are the bad guys?

ANDREW ROSS SORKIN, AUTHOR, "TOO BIG TO FAIL": You can blame Greenspan. You can blame the rating agencies. You can blame Congress. You can blame the bankers that went wild. Regulators who weren't minding the store.

MORGAN: What really goes on behind closed doors on Wall Street?

JAMES WOODS, ACTOR, "TOO BIG TO FAIL": We stand strong, and on the other side we'll eat Goldman's lunch.

MORGAN: Could it happen again?

WOODS: I don't think anybody realized that we were within a day away from a major international catastrophic economic meltdown.

MORGAN: James Woods from "Too Big to Fail" and Andrew Ross Sorkin, the man who wrote the book on the crisis that brought the world's economy to the edge of disaster.

This is PIERS MORGAN TONIGHT.

Good evening. It's costing former IMF chief Dominique Strauss- Kahn $1 million in cash to get out of jail. The judge is granting him bail on the condition that he also posts a bond for another $5 million and will be required to submit to home detention. But as it came up to his indicted on seven criminal charges, relating to allegations that he sexually abused a hotel maid in New York.

Joining me now are three lawyers. Lisa Bloom, attorney and author of "Think: Straight Talk for Women to Stay Smart in a Dumbed Down World." And sort of another pending legal matter, the break-up of the marriage of Arnold Schwarzenegger and Maria Shriver.

And Sue Moss, partner at Chemtob, Moss, Forman & Talbert, and Raoul Felder, divorce attorney and the author of "Getting Away with Murder."

Let's start with the case of this IMF boss and turn to you, Lisa. This is your area of specialty. An extraordinary case. We don't really know what went on in that hotel room. What we do know is that he's been allowed bail. He'll come out tomorrow. What's the significance of that if anything?

LISA BLOOM, ATTORNEY: What jumps out at me are the conditions on this bail, Piers. He's not only been required to pay $5 million, an extraordinary amount in a rape case, but he has to wear the ankle monitor, an armed guard will be posted at the door to his apartment, and he promises to waive extradition.

To me that says this judge clearly does not want another Roman Polanski situation, does not want him to flee to France and we never see him again.

MORGAN: Does it infer any sense of the evidence stacking up against him? Does it --

BLOOM: It very well could. I mean the judge in this type of case is going to look at whatever evidence the police has -- the photographs, physical evidence, any DNA tests, hair, fiber sample that may have come in. And the judge may say, look, this is a serious case. We want to make sure he stands for trial.

MORGAN: Given the charges that he's facing, if he is convicted on all seven of these, what kind of sentence are we looking at?

BLOOM: He could be looking at 25 years behind bars. I mean these are class one felonies here in New York. If convicted. Of course, he is presumed innocent. We haven't heard both sides of the story yet.

MORGAN: I mean, bringing you two, you're a divorce specialist. It seems to me that the absolute best scenario from everything I'm reading is that he may say this was consensual, and if that's the case, I would imagine this is where you will come in where the divorce courts were (INAUDIBLE).

RAOUL FELDER, DIVORCE ATTORNEY: I was a prosecutor. These are not easy cases. He-said, she-said. Unless they have photographic evidence. And what may happen is this, she hired a first-class civil lawyer. That lawyer may sue him for assault. That will destroy the criminal case. It happened in the rape case of the Kennedy boy. The same thing. So I wouldn't count hem out, and I wouldn't think of a long-term situation with that wrist bracelet or whatever he's wearing.

MORGAN: What do you make of it, Sue?

SUSAN MOSS, CHEMTOB MOSS FORMAN & TALBERT, LLP: To me the most interesting part of this case is what the state court judge is going to allow in. Are they going to allow in evidence of the other women who have similar stories, who say that they suffered similar fates like this maid?

Under a theory of modus operandi, meaning that Dominique Strauss- Kahn has done this before, this is the way he goes about committing this crime, and this is a common occurrence for him, a New York state court judge just might let it in.

MORGAN: I mean if you couple that, Lisa, with these pretty damaging images that we're getting now all the time of this guy, which the French are going mad about, saying this is really affecting people's impression of him. He's looking like a guilty man. It would be allowed to happen in France?

Do you think they got a fair point, the French, to complain about the way he's being paraded around and cuffs and stuff?

BLOOM: Well, that is standard operating procedure here, right? There's the perp walk --

MORGAN: Doesn't make it right, though, right?

BLOOM: And we have -- well, we have the First Amendment here, and I will defend the First Amendment. We have a right to photograph people when they're on the street, when they're being taken out of the car, into the jail. You know we have free press here. And I'll defend that until the end.

But, look, there's only two defenses theory. I didn't do it or it was consensual. If there's physical evidence linking the two of them sexually, the only defense is that it's consensual. Then the question is --

FELDER: Well, no --

BLOOM: Are there scratches, marks, contusions? Then he's going to say it's consensual rough sex. Really? A 32-year-old maid walks into the room of a 62-year-old man, immediately has consensual rough sex with him? That's, I think, a difficult story for a jury --

MORGAN: I mean one of the most outrageous theories, I've heard today, and there are many, as well know, we're all hearing different versions, is that he's been linked to this escort agency and that he may have ordered an escort and thought --

FELDER: Mixed up. That's mixed up.

MORGAN: You know, have you heard this rumor?

FELDER: Yes. That's the rumor.

MORGAN: Does it seem a potentially credible one to you?

FELDER: I don't know. I don't know. I would think the D.A. probably investigated that, and if that were true, it would affect --

BLOOM: You still can't rape an escort.

MORGAN: No, no, no, of course.

BLOOM: I mean how is that a defense?

MOSS: And that's a very dangerous defense because if you have physical evidence that there was some type of a struggle and evidence that she was in the bathroom with him, and she escaped and she was almost at freedom, but was dragged back, you're putting all your eggs in a basket that may be destroyed by the physical evidence of a fight, of blood in the room, and other types of abrasions on this maid.

BLOOM: And won't she be wearing a uniform?

MORGAN: Yes, I mean the whole thing -- at the moment there are too many unanswered questions as -- from where we sit. We just don't know enough of what's going on behind the scenes. I mean it's interesting that he's been let out. And he will be out tomorrow. And then we'll find out more.

Let's move to the other case, which is the Schwarzenegger scandal which, if it hadn't have been for the IMF guy, it would have been bigger. I mean it's kind of bombshell.

(CROSSTALK)

MORGAN: It's a strange story to get our heads around. You see images of him with his housekeeper. It doesn't seem feasible this has happened, but it has, and he's admitted it. It looks like we're heading to a divorce, although Maria Shriver at the moment hasn't apparently retained divorce lawyers. And she's known since January.

You two are the experts in this area. If it goes to a divorce, we're talking stratospheric numbers, but answer me this question. How much of what Arnold has admitted to in terms of bad behavior -- and it doesn't get much worse than impregnating your housekeeper. Were any of that come when it comes to a divorce settlement now?

FELDER: Not really. By the way, I understand she has lawyered up at this point.

MORGAN: She is.

FELDER: Yes. Laura Lasserman represents her, from what I hear. The significance of all of this stuff would affect custody, saying he has moral perpetuity, he can't be with children, he is a degenerate, and so forth. But, you know, it's 10 years have passed and all of a sudden this lady gets shocked and seen in "Casablanca" where (INAUDIBLE), I'm shocked. Shocked me again. What is going on as she pockets the money.

And that has to be some kind of music in this --

MORGAN: So how much if it comes down to how Maria Shriver decides to react to this. I mean I've said this repeatedly since this broke. I saw them both together in Los Angeles only a month ago. Clearly long after she found out. And they seemed happy. They were going to dinner together. Clearly it wasn't that hostile when I saw them.

So does a lot depend on how she reacts now?

MOSS: Absolutely. I mean there has been rumor after rumor about how many affairs that Arnold has had. I mean, you know, the joke is he should be named Kennedy. But to me the real issue in this case --

FELDER: He almost is, yes.

MOSS: The real issue in this case is not the affair. It's not the child. It's the cover-up.

FELDER: Yes.

MOSS: It's the fact that for 14 years he had this lady who -- first he knew he had an affair with, and then he knew he had a child with in the same home as his wife and his four kids. That to me is the most distasteful part of this entire event.

MORGAN: Lisa, I mean you're a specialist in California. Is there any particular aspect of Californian law that might relate to this?

BLOOM: Well, I always wonder if she has a sexual harassment claim, right? Because she was an employee. Now that would be time- barred because these incidents were so long ago, unless something happened in the last three years. She was still working there.

Did he make a pass at her? Did he make a move on her? If something happened in the last three years, she could bring in all of the old stuff.

MORGAN: And also we don't know exactly the circumstances of her departure. Originally it was that she retired.

BLOOM: That's right.

MORGAN: Now there's a suggestion -- it's only, it might be complete nonsense that she was fired, in fact, because Arnold feared the story was going to come out. And --

BLOOM: Sure that there's a confidentiality provision. He's paying her a lot of money, I'm sure, over time, periodic payments, with an ironclad confidentiality provision. That's why she hasn't talked to any news outlet. That's probably why she will not talk because she won't get paid in the future if she starts talking.

MORGAN: Arnold Schwarzenegger is worth -- depending on what story you believe -- up to $1 billion. What percentage-wise could he expect to lose if Maria goes for the jugular here?

FELDER: California is a 50-50 state, but if there's no prenuptial agreement and he was spending money, shuffling money to this lady, that gets figured back in the pot. That's a dissipation of money here.

MOSS: And just remember, we just had the McCourt case where Jamie McCourt was able to set aside that prenup even though she had worked into --

MORGAN: This is the L.A. Dodgers owner and his wife, right?

MOSS: Exactly. And she had been a previous divorce lawyer. So the fact that, you know, we're on a swing in California, they're not afraid to set aside a prenuptial agreement.

MORGAN: What if you're in Arnold Schwarzenegger' position, what is the prudent thing to do now in terms of public statements or interviews? And what would you advise him?

FELDER: I wouldn't give the story legs. I will just -- he made a statement. A gracious statement of sorts. And I would just go to Cincinnati or somewhere and disappear.

BLOOM: Pay Maria whatever she wants. Don't fight her. Give her her 50 percent. Give her child support. Give her spousal support. She gave up a broadcast journalism career for him. Let's not forget that. She stood at his side. Many people credit her with getting him elected governor.

Give her whatever she wants, settle it, lay low for a while. Eventually come out and talk publicly.

MORGAN: What is the mood in the California smart set about all of this? Shock?

BLOOM: I think it's -- really it is so appalling, and I have to say among women -- not that I speak for all women, but the idea that this woman may have had relations with him in their marital bed, that she lived there, that they may have had babies five days apart, I mean, the shocking aspects just keep on coming.

It's hard to get your mind around how appalling this really is.

MOSS: How about in the last 10 years this maid has started to look more and more like Maria Shriver. Changing her hair, changing her color.

MORGAN: Well, TMZ was saying --

(CROSSTALK)

BLOOM: I don't know if I see that.

MORGAN: She had some kind of, you know, idolizing relationship towards Maria. And that she asked her --her advice about love and relationships.

BLOOM: Right.

MORGAN: And that's where it gets really painful for a woman, I think, is that --

MOSS: Absolutely. This is --

MORGAN: The (INAUDIBLE) of a child.

MOSS: This is the woman that for 10 years Maria has been going up to and saying, do I look good in these jeans?

MORGAN: Yes.

MOSS: And now you realize that maybe she wasn't so honest.

MORGAN: I mean to his credit Arnold Schwarzenegger has been a very good father. I think everyone agree with that. And he's --

BLOOM: Well, what about to this child, though? Has he been --

(CROSSTALK)

FELDER: Apparently he's been a good father to --

BLOOM: Giving money is not the same thing as being a good father.

MORGAN: No, but he's certainly he's not absolved his responsibilities to the housekeeper or the child. He's provided financial support.

BLOOM: But isn't there more to being a father than providing financial support? I mean wouldn't it have been better for him initially when the baby is born to own up to what happened and to be the father to this boy?

MORGAN: Of course. Of course. But he's not the first to make a mistake in terms of his sexual behavior.

BLOOM: No, but many men who have earned this situation actually do own up to it and become a father figure to the child. I disagree. I think it is about the child.

MORGAN: Well, one of the strange things about this --

BLOOM: I think the child doesn't deserve this.

MORGAN: I mean the child is apparently good friends with Arnold's children.

FELDER: And looks like Arnold, they say.

MOSS: Looks exactly like him.

(CROSSTALK)

BLOOM: Maybe the kid, you know, has come to this conclusion on his own, looking in the mirror, looking at pictures.

MORGAN: But in terms of a divorce settlement, how much of it in the end is tainted by -- the sort of hysterical stuff that we read in media coverage. How much of it just comes down really to Arnold and Maria?

(CROSSTALK)

FELDER: There aren't reparations in divorce cases. You've got to do something pretty, pretty bad to affect that financial thing.

MOSS: But on the other hand, you look at something like the Tiger case where presumably there was a prenup, but Tiger ended up paying significantly more, as been reported by some sources, just to try to get back his PR image. I think the same might happen in this case as well.

MORGAN: Well, we don't know. We don't know and a lot of those allegations are unsubstantiated, and it will be fascinating to see if any other women do come out and actually corroborate earlier claims that were made against him. He always said they weren't true. So the jury is out. But thank you all very much.

BLOOM: Thank you.

FELDER: Thank you.

MORGAN: Coming up, the financial crisis that nearly brought this country to its knees. The story of "Too Big to Fail" with James Woods and author Andrew Ross Sorkin.

(COMMERCIAL BREAK)

MORGAN: The movie "Too Big to Fail" is based on a best-selling book and premieres May 23rd on HBO. Andrew Ross Sorkin who wrote the book is the chief mergers and acquisition reporter and columnist for the "New York Times", and James Woods plays Dick Fuld, the chairman and CEO of Lehman Brothers which filed for Chapter 11 in September 2008.

They both join me now.

Andrew, let me start with you. You wrote this book. It's a brilliant title.

SORKIN: Thank you.

MORGAN: Because it kind of perfectly encapsulates the mindset of all these guys, doesn't it, on Wall Street? SORKIN: Right.

MORGAN: They simply never imagined that any of them could fail in the way that Lehman Brothers failed.

SORKIN: You could call it failure of imagination. But, you know, you're right. "Too Big to Fail," the title -- my editor actually hated the title when we first started the book. But I always thought about it, not about the institutions themselves, which were too big to fail, but about people who in their own way thought that they were too big to fail, and couldn't accept the reality of sort of what was happening to them.

MORGAN: I mean, James, you're from a business, which is not dissimilar, I would argue, to Wall Street. Lots of big egos.

WOODS: Yes.

MORGAN: Lots of narcissism, lots of people who themselves would assume they're too big to fail.

WOODS: And also a sign curve that's very much -- sign curve of success and failure that's very much like the world of economics where, you know, you're as good as your last movie, you're as good as your last earnings quarter, whatever.

One of the things that I had said to Curtis when I first started to play Dick Fuld, this sort of -- the "Bette Noir" of the peace, that I thought it was a very Shakespearean story because these people have these tragic flaws, it seems, and I'm not -- I don't think that, for example, that Mr. Fuld was an evil person. In fact if anything he had serious errors in judgment where he was trying to protect his stockholders as well, and wouldn't take certain acceptable offers on the stock as it was making a freefall to precipitate this crisis.

But in our business, I've seen it so many times where -- I mean, the fellow who was the head of Columbia, David Beagleman, was on top of the world and started, remember, hiding checks --

MORGAN: Yes, yes.

WOODS: You know, Cliff Robertson and so on, and ended up committing suicide. I think there are legendary Hollywood Babylon stories, and I'm sure there are some Wall Street Babylon stories.

And this remarkable book -- and this is something that's important to point out, by the way, because really we're talking now about the entertainment that we made here for HBO. I thought how could anybody pull this incredibly complex story together, A, which he did, remarkably, and B, make it exciting?

And this thing is like "All the President's Men." It's the most exciting thriller, and I just never expected it.

(CROSSTALK) MORGAN: It is exciting. It is. It's a great film. And I wouldn't say that lightly. Because you have. You've energized the story that could have been quite dry. And I was trying to think of the reason why it's so entertaining because in the end, it's kind of like Robinhood, isn't it?

I mean you have no real savior. You've got very rich people running a kind of collective scam which encourages pretty poor people, not the brightest of people in many cases, to leverage themselves right to the hill, so when this ballooned, never to be popped, which the smart, rich guys know has got to happen.

WOODS: Right.

MORGAN: It's the poor people who get hammered, and they just simply get bailed out by the government and start all over again.

WOODS: Right. But there's only thing, though. There's one little amendment I'd like to put to that. These people put this zeitgeist, this cultural zeitgeist to greed into the atmosphere. So everyone sits around, I mean, during the bottom of this crisis, I was trying to sell my late brother's house, and a real estate agent friend was trying to sell it and said this is just a catastrophe.

He said I had a woman come into my friend who was a mortgage broker. She was trying to refinance her house. She had gotten a $750,000 mortgage for her house, and when they asked for her driver's license, she said, I didn't have to give it the last time I got a mortgage. She didn't have to give her driver's license to get $750,000. She was a cocktail waitress.

(CROSSTALK)

MORGAN: That was insane. This is what was going on. This is real life. When you came up with the idea for the book, did you see these guys as villains? Were they woefully villainous?

SORKIN: It's a great question. I actually -- I'm not sure I saw them as villains. In some cases, as we talk about Dick Fuld, in some cases he's the villain, in some cases he plays a tragic figure. I don't want to say tragic hero.

WOODS: No.

SORKIN: But he's somebody --

MORGAN: To me, he's either shockingly naive --

SORKIN: He's somebody who believes to the bitter end --

MORGAN: Not very intelligent, or he's willfully now pretending he was those things?

SORKIN: I think what you realized about Wall Street is these people are professional traders. They always believe there's one last trade to be made. There's one more card that they can play. WOODS: Right.

SORKIN: And I think that Dick Fuld felt that he always had one more card. Did he know at the back of his mind that he'd taken on too much risk? I think he did. Did he think it was going to be the end of him and our country and the global economy? No.

MORGAN: Let me ask you about a hard question, because you're a top reporter for a top newspaper immersed in Wall Street and business. Did you see what happened coming in any way?

SORKIN: Honest answer, I didn't. I didn't -- I don't want to say that I didn't see that we were going to have problems. I did. I wrote articles saying there were going to be problems.

Did I think that we were going to be on the precipice? Did I think that we were going to see a bank like Lehman Brothers go under, that AIG was going to almost falter?

WOODS: Right.

SORKIN: That the economy was going to -- you know, we're going to be living in this sort of 9, 10 percent world of unemployment, and at the time people were talking about 25 percent unemployment? I mean that part is what I didn't get.

WOODS: Right. One of the things that you're both hitting on -- and I don't want to ruin sort of the drama of the story, but I don't think people at large -- I didn't even -- and I went to MIT, and I studied economics and so on, and I was as confused by this as I think all of us are.

I don't think anybody realized -- and this is one of the points of this movie and this book -- that we were like within a day away from a major international catastrophic economic meltdown.

And you know my mom always talked about what it was like to live during the depression. You know she was born in 1925. You know, I mean, literally, people were virtually starving to death. You know? And of course, the big Wall Street guys are jumping out of windows, unless they had not already put their money away, in which case they were going out to their summer homes.

But it's always the same cycle no matter what. But we -- when you talk about being on the precipice, I don't think anybody understands that, you know, war is terrible, disease is terrible, but economic depression can be the most single --

(CROSSTALK)

MORGAN: Because it actually impacts on everyone.

WOODS: Everything.

(CROSSTALK) SORKIN: The bigger surprise was even contemporaneously, when I was reporting on this during this period, September 2008, it wasn't until I actually started working on the book and later as we were working on the film where I think I appreciated that it wasn't just bad, it was worse than bad. I mean it was really --

MORGAN: Well, I had an amazing conversation with the former British prime minister, Gordon Brown, who was prime minister at the time in Britain when this all was kicking off. And Lehman Brothers and so on was happening.

And he said, you know, he got a call at 5:00 in the morning. He was woken up by his chancellor, his treasurer, and told if you do not commit I think $50 billion right now to the U.K. banking system --

WOODS: It's over.

MORGAN: This is over. It's kind of a -- it was like economic apocalypse.

WOODS: Right.

MORGAN: Staring everyone in the face.

WOODS: Literally.

MORGAN: And the question then, I guess is no British banks went under, which they continued to laud as a great success. Lehman was allowed to go under. Do you think professionally speaking now that was a smart move or not?

SORKIN: It's a personal view. I still think that's actually one of the great mistakes of this crisis. Not because they deserved to be saved, but because ultimately what the ramifications were. The domino effect that we saw that if they had tried to save them or at least give them some breathing room, some time, could we have actually avoided the catastrophe?

Part of this whole crisis was about confidence. It was about people's confidence --

(CROSSTALK)

SORKIN: The market's confidence in the system, and because we had saved Bear Stearns, because we had gone and saved Freddie and Fannie, there was all of a sudden the sense that Lehman Brothers will be saved. It was at that moment when that didn't happen that I think people really almost, you know, just couldn't understand what could happen next.

I mean that --

(CROSSTALK)

SORKIN: That's when the abyss became possible.

MORGAN: There was a kind of desperation in the air. Wasn't there?

SORKIN: Right.

MORGAN: I mean when you look at the sequence of events. You could see that people were really panicking.

SORKIN: Right.

MORGAN: And trying to work out how they saved because we're now such a global economy. Not just America's economy.

WOODS: But here's --

MORGAN: But everybody's economy.

WOODS: But here's one of the really scary parts of that. When you look back through history -- quoting Santayana about those who forget history are condemned to repeat it. And you look, for example, at World War I, it's always some little -- not little but some singular event that precipitates something that, of course, was coming, but all of the allegiances and treaties and so on that we had at that time, it was impossible for the world not to implode or explode into war.

So when -- Arch Dude Ferdinand, it was that singular event precipitated things that now in retrospect we realize were inevitable. You look at something like this event with Dominique Strauss-Khan --

MORGAN: The IMF boss, yes.

WOODS: Yes, IMF boss, and so on. A singular event like this -- oh, it won't have any effect. Well, you know, Greece and Ireland and Portugal are in the same position we were almost in, you know, not so long ago.

MORGAN: I think it's a very -- I think -- I mean, Andrew is a very good point.

(CROSSTALK)

MORGAN: Although it's a good salacious story, the reality is the boss of the IMF right now who is, you know, spearheading the bailing out of all these countries --

(CROSSTALK)

MORGAN: Suddenly emerged in this huge scandal. This is dangerous.

WOODS: Yes, it is.

SORKIN: But that's -- I think that's the beauty of this project and this film project and what they've actually done, which they've proven that this is a human drama, that it's actually about people.

We oftentimes think about these folks with, you know, million dollars in their pockets, and they have business cards and they have great titles, but ultimately, it's about people and what they do in these little decisions that they make that somehow can really change, you know, the world.

MORGAN: But this is interesting to me. When it all blew up, I was looking at this whole subprime mortgage thing. Is there any expert in this field must have known or just didn't really want to go there on this? That this was a huge problem that had to explode. Didn't they?

WOODS: Well, it was the riding elephant head in the room. I mean even Warren Buffett, when he made the first offer, which was eons better than what they ended up with, he said, what about the real estate? I mean, it was one of those things where you -- you know, it's the way people now in the modern politically correct world try to get information across without saying something they can't be sued for?

What about the real estate? It's a little hinky, is it?

(CROSSTALK)

SORKIN: Do they know -- I think they knew there was a problem. Did they know that it was going to become this kind of problem? I don't. I mean I think a lot of people today -- some people want to revise history. They want to say everybody knew it. It was there for the taking. Everyone knew it.

Yes. Should we have known? Absolutely.

MORGAN: Well, no ---

SORKIN: Did we want to know? And, by the way, was everybody incentivized not to know? Absolutely. That was part of the problem.

MORGAN: I mean I had a moment, a very interesting involvement in this personally when I was with a bank called Coutts in Britain, it was the queen's bank. They are the most prestigious, oldest banks in the country and reputed to be one of the safest. And they had encouraged me about a year before to put a lot of money into a -- my current account into a premium account, AIG.

A lot of people did this. And when Lehman Brothers went under, the first thing I did was Google AIG and heard one report saying they might be one of the next to go. I rang my bank and I tried to get all my money out of that.

WOODS: No chance.

(CROSSTALK)

MORGAN: Six weeks later I finally did, but I know there are thousands of people who are still trapped without getting their money back from AIG. I mean, it's extraordinary that everyone just assumed that my end of this process that the ordinary punter, if you like, that our money was safe. It wasn't safe at all. WOODS: Right. Because when all is said and done, we can learn as much from Bernie Madoff as we can from Dick Fuld's situation. One was a willful vicious criminal who defrauded people of obviously billions of dollars, but it was a Ponzi scheme that did everybody in.

I mean I hate to say this because I don't know much about it, but my mom said to me the other day -- she's elderly, elderly, and you know she's been fragile lately, I'm kind of helping her out, and we went to get money from the bank, and I -- and she wanted to get something from the bank.

She said, by the way, where is all our money? I said, well, what do you mean? You know, in the bank. She said, no, no. She said I'm asking what seems like a naive question, but it's actually a very --

SORKIN: Pretty good question.

WOODS: Where is all our money? I said, well, it's actually kind of leveraged out and pays other people's mortgages and so on. She said, what if their houses aren't worth as much? I said, well, then we've got a problem.

And really the entire international economic structure is kind of a Ponzi scheme. I hate to say it.

MORGAN: Well, let me take a short break. When we come back, I want to get exactly into this. Lessons learned, who we should be blaming, and how we move on.

WOODS: I blame you.

MORGAN: Thank you.

(LAUGHTER)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: We're at 36 right now. We haven't been anywhere near 66 in months. My kids like Buffett. His name will push the price up overnight.

WOODS: You know, I don't care who he is. I am not spending 360 million dollars a year for the pleasure of doing business with him. Real estate will come back.

UNIDENTIFIED MALE: Koreans have been sniffing around.

WOODS: There you go, and they won't steal us blind. I've seen this before. CEOs panic and they sell out cheap. Right now, the street's running around with its hair on fire, but the storm always passes.

We stand strong. And on the other side, we'll eat Goldman's lunch. (END VIDEO CLIP)

MORGAN: That was a scene from the movie "Too Big to Fail." Back now with Andrew Ross Sorkin, who wrote the book, and James Woods, who we saw there starring in it. I mean, I suppose when you see a clip like that, you can just tell this kind of -- it's part arrogant, part narcissism, it's part defiance, it's part the Wall Street mentality.

What's extraordinary to me and to lots of people watching this from the outside, not a single one of any of these executives on Wall Street ever gone to jail over the greatest financial scandal in history. Why?

SORKIN: Well, I think the hardest part is that this entire financial crisis is a crime unto itself. It's a crime against our country. It's a crime against our economy -- the global economy. And yet, on an individual basis, it was so engrained in the culture -- every -- all the decisions, all the risk taking, and we haven't figured out a way to make the risk taking itself a crime.

These people just made horrible decisions over and over again, but it's unclear whether all of it was fraud. Was there some fraud? Absolutely.

(CROSSTALK)

SORKIN: It's been a lot harder to pin the blame there than it probably should be.

MORGAN: Let -- let's remove the word fraud which carries all kinds of connotations.

SORKIN: But that's what the crime is supposed to be.

MORGAN: Yes, but let me throw other names in there of what we can call this. Certainly shocking negligence in my view, a failure of duty to care to their customers, et cetera, et cetera. I mean, when you look at what happened with Goldman Sachs --

SORKIN: By the way, you're seeing the SEC go after these guys for some of this. The thing we haven't seen is someone go behind bars.

WOODS: And their rationale oftentimes was that they wanted to protect their shareholders. I mean, Dick Fuld, I actually believe wanted -- he said I'm not going to give away this company. In that clip, when he was referring to -- character I played was referring to not wanting to pay 360 million a year for the pleasure of doing business with him. He was talking about a potential deal with Warren Buffett, a very brilliant man and a decent man.

You know, the bottom line was he didn't feel that it was right, you know, not only for himself but -- and for his cohorts, his colleagues at Lehman, but also for his investors. He repeatedly again and again -- MORGAN: Yes, but you mentioned Warren Buffett. I was about to mention him because he is a genius. He's one of the richest men in the world. Certainly one of the most successful businesspeople. And yet if you look at what happened Goldman Sachs, fascinating really, the sequence of events.

They are right on their knees like Lehman. They could easily have gone under. They get bailed out by the government. And they also get bailed out by Warren Buffett who looks at the stock price and thinks, wowzer, I'm in here. Buys five billion dollars worth of stock, which is now worth trillions more. God knows how much he has made. He's quadrupled his money or something.

And they are now making so much money, the first thing they do -- Goldman Sachs -- is hand out the million dollar bonuses all over again.

SORKIN: All over again.

MORGAN: It's like nothing --

(CROSSTALK)

MORGAN: And yet while they're doing this, ordinary people in America who were caught on the tail end of this influenza -- economic influenza are still suffering. It cannot be right.

WOODS: And one of the great lines in the book and in the movie is when they're talking to him about doing some of the real estate, he says, well -- Buffett says, you know, I'm a little short on cash right now.

MORGAN: He's down to his last 40 billion. But I don't blame him. He sees his opportunity, and he helped bail out Goldman Sachs.

(CROSSTALK)

MORGAN: Good luck to him. But I do blame a government that allows this system to then just start up all over again, with no penalty, no real punishment. Just get one and go.

SORKIN: And a great disconnect during this period was the idea that we bailed them out and we're still living in this sort of 10 percent, nine percent unemployment world.

And yet we're watching, not Dick Fuld, but many of the other bankers -- many of the characters in the movie who now have huge bonuses all over again, and it doesn't feel like we've changed anything.

MORGAN: We've changed nothing. You know all these guys. I mean, my argument is not that Goldman's was bailed out. That may well have been the right thing to do. Right?

SORKIN: Needed to add some strings. MORGAN: No. You needed to add absolutely strict regulation, that once they're back on their feet and they're making money again, they do not hand out these bonuses for the next five years. The money is divided amongst all the people who've helped bail them out who've been chucked out of their home. That's what should have happened.

WOODS: Right, but a lot of times when they -- when they have these bailouts and they have to structure them very quickly, they miss opportunities. We were talking during the break, and I mentioned that there were some friends of mine that I play poker with out in California, very rich guys.

And when the bailouts were happening, one of the guys who was literally a billionaire said, oh, I'm going to get some of this for these buildings that I own.

SORKIN: Going to get it from the bailouts.

WOODS: I don't think this is for -- meant, you know, in this kind of situation. He said, if it's legal. And you know --

MORGAN: Exactly the point.

(CROSSTALK)

WOODS: But you're not required -- see here's the problem with what's happened to our culture. You're not required to be ethical. But as long as you're legal -- you know, you can have lawyers. It's amazing. If you've ever been through a lawsuit, the lawyers will coach you without coaching you. OK?

MORGAN: The lawyers just want to rack up money.

(CROSSTALK)

MORGAN: Who do we blame? Is it President Bush who got us into the mess? Or is it President Obama who went -- he sorted the mess, didn't put the regulation in to prevent exactly what's happening?

WOODS: A lot of people -- a lot of people thought it started way before Bush.

(CROSSTALK)

SORKIN: Well, I don't want to get too productive. There's a lot of people to blame on the way in. There was a perfect storm on the way in. You can blame Greenspan. You can blame the rating agencies. You can blame Congress. You can blame the bankers that went wild and regulators who weren't minding the store.

But the question today is who do we blame for not changing the system for the next time, for the next too big to fail? And that are the folks that are in Washington today. That is the administration today. That is a group of people that has not made all of the real decisions that need to be made. And we now have the same -- you know, the same folks who were at the scene of the crime are on the police force. Ben Bernanke is still there. Tim Geithner is still there. And I don't think that they've pushed the needle as far as they need to.

MORGAN: Let's stop the needle just for a second, have a short break. When we come back, pick up on exactly that point. We'll come back with a clip from President Obama saying this won't happen again.

WOODS: Oh, OK. I feel better now.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I've insisted that the financial industry -- not taxpayers -- shoulder the costs in the event that a large financial company should falter. The goal is to make certain that taxpayers are never again on the hook because a firm is deemed too big to fail.

(END VIDEO CLIP)

MORGAN: That was President Obama a little over a year ago. And back with me now from "Too Big to Fail" the movie and the book, Andrew Ross Sorkin and James Woods.

I mean, you heard it there from the president. We want to ensure that never again will a firm be too big to fail. I'm seeing -- and we left off with this really -- exactly the same kind of arrogance and dismissiveness to ordinary (ph) people that existed before. These firms are already in their heads too big to fail, aren't they?

WOODS: But I have to -- there's one part that we always miss which is part of the culture itself. I mean, you know, the market does give you answers, you know. The fact that gold is at, what, 15, 16 -- you know, highest it's ever been in history shows that people, you know, the common person, among which I happily count myself, is leery of all these promises, leery of the fact that, oh, the economy's in recovery.

Really? How come I don't have a job? How come nine, 10 percent of the country doesn't have a job? And you can't see a job coming. It's not like, all of a sudden, they're going to start rebuilding factories in Detroit. They're not.

MORGAN: The reason I think gold and silver became a safe haven for so long, had a bit of a blip last week, but I think the reality is people are desperate to find somewhere that is genuinely safe for their money.

I was so shocked by what happened with this AIG thing that suddenly this money I assumed was mine whenever I wanted it, I was told that, at worst, I would only get back 10 percent of my money. This was a bank. This was not some kind of punt I'd had at a casino. WOODS: Right. But you know, I'm right now taking care of my mom who's had some problems in Rhode Island. And I've been around sort of the common man out in the hinterlands, what people in my business sneeringly call fly-over country. And I always say if they wanted to make better movies, maybe they should drive through it once in a while, see the people they're making movies for.

But with all due respect to the differences between New York, L.A. and then the rest of the country, you know, people out there are really -- when they don't have a job, they don't eat. I mean, people are really having a hard time. And they don't see any hope. And when you talk about attitude, you talk about confidence, you can have all the billionaires you want, but if the people out there by the tens of millions are not happy, you've got a real problem.

Now what happens when this culture of greed -- you know, we've had it, you know, the Japanese had it, whenever it was, the '90s or the '80s, and you know, you go back to all of these places. I see Greece failing, Portugal failing, Ireland failing. And I see people in China where they were literally, you know, living in poverty under Mao. Now all of a sudden, they're all buying Gucci, you know?

And they own all our paper. And I do believe -- isn't Obama -- I mean, I don't know this stuff, so this is a question I wanted to ask you. You know, you hear these people saying well, you know, they're printing money like it's paper, which it is, you know, and so on. How do I know, as a guy who's just a mere humble actor -- and I'm not kidding when I say that -- and I'm asking you two experts.

How do I and all the people like me who really don't know about this stuff -- how do I know this isn't going to happen again tomorrow or next week or next year?

MORGAN: Great question. You're the man to answer this. How do we know?

SORKIN: I think the sad answer is it will happen again. I don't think it's going to happen tomorrow, but I think it will happen again. Every time --

WOODS: I'm going to call my bank.

(CROSSTALK)

(LAUGHTER)

SORKIN: Look, this financial crisis -- as all financial crisis -- are based on one thing, debt. Too much debt in the system. There was too much debt at the banks. They had levered themselves up too much. And by the way, the story has now changed. It's no longer about financial institutions. It's about this country. It's about the countries you talked about in Europe. It's about municipalities.

That's what happens. And the worst part about it -- and I think hopefully this project will hopefully get people to remember is confidence doesn't erode over years and months, it erodes in days and hours.

(CROSSTALK)

SORKIN: And some point somebody decides that someone in the daisy chain or the line of trade is no longer good for the money, and then it falls apart.

WOODS: Everybody panic.

SORKIN: And that's what -- that's what happens. It happens every single time. Will we have another crisis again? Absolutely. Jamie Dimon, the CEO of JP Morgan, famously was up in Washington a couple of months ago and said, you know, his daughter called him up and said, Daddy, what's a financial crisis? And he said, something that happens every seven years.

And you know, they laughed in the room at the time, but there's some real truth to that. And if you think about this last financial crisis, by the way, starting in 2007. Do the math, we're not that far away from the next one.

MORGAN: What are you seeing there which we could do that we're not doing in terms of somehow preventing another crisis?

(CROSSTALK)

SORKIN: I think we need to -- I think -- there's two issues. I think we need to think long and hard about the banks themselves, whether they will precipitate the next crisis. They are bigger than ever. They are too big to fail squared.

The top 10 banks in this country now control 75 percent of the bank assets. Think about that concentration and what that means if one of them goes down.

MORGAN: Terrifying.

SORKIN: And the second component goes to the larger -- it's a larger political question. It goes to the debt ceiling issue we're talking about these days. It goes to how are we going to deal with our debt? So far, it's been fine. So far, we've been able to push it into the future and we always think that we're going to be able to get ahead of it.

But at some point, we may not.

MORGAN: Like James was saying before, these things are often governed by a single event. Something could happen which --

(CROSSTALK)

SORKIN: And it's usually something we're not thinking about.

MORGAN: I think it's a great book, great movie, great performances, but more importantly, a great story. And a story that people ought to go and see because that way lessons may be learned. WOODS: Thank you for your passion on it, by the way.

MORGAN: I watched it with mounting fear.

WOODS: No, I mean about the issues.

MORGAN: It's very important.

WOODS: We're trying to save lives here. If we have an economic crisis, people will literally die of starvation in America like they are sadly around the world.

MORGAN: I agree. We've been warned. Thank you very much.

WOODS: Thank you.

WOODS: Coming up, CNBC's Morning Maverick Joe Kernen and his daughter Blake on capitalism and what they think you need to know about this country's economy.

(COMMERCIAL BREAK)

MORGAN: You know Joe Kernen as the co-anchor of CNBC's longest running show "Squawk Box." But in a fine example of like father like daughter he's written a book with his 11 year-old girl Blake.

They both join me now. The book is called "Your Teacher Said What?". It defends our kids, apparently, liberal assault on capitalism. Big words Joe. The liberal assault on capitalism. Tell me how this started. What was the germ for this?

JOE KERNEN, CNBC CO-ANCHOR OF SQUAWK BOX & AUTHOR: I would say if I had to point to one thing it was probably the financial crisis and the backlash, which is to be expected.

MORGAN: You had a moment, I mean in the introduction to the book, a moment when Blake comes back from school and says something so offensive to you that you just think, I'm going to do a book.

J. KERNEN: It's the banks fault. Wall Street's fault. And I think I said to her that, well that's a little too simplistic. There's a lot of blame to go around. And -- but it -- because she's a student, she spends all her day at school with teachers. But that's why we call it that. But she gets it from TV.

I think we get it from the Obama Administration. I think we get it from main stream media.

MORGAN: Now Blake. Let me talk to you about this. Do you know what capitalism is? What do you think it is?

BLAKE KERNEN, SCHOOL CHILD & AUTHOR: Yes. To me it's the free markets doing their thing and it's also the private ownership of business.

MORGAN: Why do you think America hit it's big financial crisis? B. KERNEN: Well it was nobody's fault really --

MORGAN: Do you think that?

B. KERNEN: Well, I'm only 11.

MORGAN: You're 11.

J. KERNEN: She's 11 and she has a sound - -

MORGAN: When she asks you that question, "who's fault was it dad?" what do you say?

J. KERNEN: I say, it's complicated. You've got one side that said it was totally Fannie and Freddie. You've got another side that says it was totally Wall Street and Goldman Sachs and Merrill Lynch. And then you've got people in the middle, I think, that are smart enough to see how many different things were happening here.

MORGAN: Blake, let me bring you in here. This is all obviously quite complicated, right, you don't understand all of this do you?

B. KERNEN: Not all of it.

J. KERNEN: She understands it.

MORGAN: If you were America's President -- given that you've now written this book with your dad -- and it's a very interesting book. It really is. It raises a lot of issues. And I think that you're a smart young lady. If you were America's President, what would you do to get America back on its feet, do you think?

B. KERNEN: Well, what I would do is, I would encourage the businesses to get back on their feet and --

J. KERNEN: What about regulations?

B. KERNEN: I'm not a regulation inventor.

J. KERNEN: You don't just invent a new regulation every time -- every time you have a crisis, you don't put 35,000 pages of new regulations on the books.

MORGAN: I mean, what really gets on my goat is this issue with the bonuses for bailed out companies and the moment they get the cash running through again, immediately award themselves huge bonuses with so many American's suffering. That sticks in my gullet.

J. KERNEN: I'll tell you what gets to me. What gets me is that the -- let's say Citigroup as an example, Chuck Prince, or you take Merrill Lynch, Stan O'Neill. These guys were gone by the time the excrement hit the air conditioner, if you know what I mean.

Now, they had cash compensation, so there's no claw back. So, if it's a 140 million dollars or whatever it was, they were fake profits. They were built on air. They weren't real. So there's an argument to be made to make sure that the compensation structure is long term and is correlated with performance, long term performance.

MORGAN: So you talk about your abhorrence of regulation. I would say, what I would love to have seen with President Obama is that when they bailed out these companies, they put an absolute cast iron regulatory clause in these contracts saying, we will give you this money and we will get you back on your feet, but the first five years when you would normally award yourselves these often grotesque bonuses, that money is all going to go to the poor people out there in America who lost their homes.

J. KERNEN: Grotesque. This is a loaded question -- when you're making 50 million dollars per year, which I fully expect that you probably will someday. Is that going to be grotesque for you? Will you characterize it as grotesque?

MORGAN: If I made it without anybody else suffering because of my actions that's perfectly acceptable.

It's a great debate. We're going to bring this to an end. All I would say is either the experts were very, very stupid or they were very, very naive or it was worse than that.

J. KERNEN: Is it not possible that so many different things you can get caught up in -- you've heard of tulip bulbs. You know that mania has happened. Everybody thought that housing was going to go up forever because they weren't making any more land.

MORGAN: Listen, the book was great fun. It's been a pleasure meeting you.

B. KERNEN: Pleasure meeting you too. Thank you very much.

J. KERNEN: You're welcome on "Squawk Box."

MORGAN: I'd love to come on.

J. KERNEN: I can gang up on you.

MORGAN: You can try and rip me a new one as you say here, but I will be ready for you.

Thank you very much.

J. KERNEN: Thank you.

MORGAN: When we come back, a sneak preview of my interview with "Celebrity Apprentice" finalists John Rich and Marlee Matlin.

(COMMERCIAL BREAK)

MORGAN: Tomorrow night, something I know a fair bit about, winning "Celebrity Apprentice." I'll talk with finalists John Rich and Marlee Matlin.

(BEGIN VIDEO CLIP) MORGAN: It's an extraordinary thing to witness. When I was trying to think, if I had been on "the Apprentice" this season, watching Marlee having to interact with 14 to 16 people to start with, and hold her own, and win challenges, a remarkable thing.

JOHN RICH, "CELEBRITY APPRENTICE": Without a doubt. I don't think anybody that's ever met Marlee thinks anything other than what you just said. She's a remarkable person, period. I mean, really, really impressive.

And to watch this --

MORGAN: It's amazing, isn't it?

RICH: I look at it as kind of like a privilege to experience being around such a relationship, because how many people have ever even seen something like this in person? It's incredible.

(CROSS TALK)

MARLEE MATLIN, "CELEBRITY APPRENTICE" (through translator): I mean, it happens every day.

RICH: No, I know it happens. But you don't get the opportunity to witness it first hand.

MORGAN: Although you say that Marlee, I think the really important thing, I thought, after meeting you and seeing this in action, is the incredible power of you as a role model now for deaf people in America. I mean, incredible.

This show must have transformed that for you.

(END VIDEO CLIP)

MORGAN: A really extraordinary interview to watch. That's tomorrow night. Now here's Anderson Cooper with "AC 360."