American Scandal: Lehman Brothers | Too Big, Still Failing | Episode 5

Host: Lindsay Graham
Guest: Anat Admati, Professor at Stanford University, finance & regulation expert
Episode Date: February 10, 2026

Episode Overview

This episode marks the fifth installment in the series on Lehman Brothers, with a deep interrogation of the enduring risks, regulatory failures, and unchecked power within the modern banking sector. Host Lindsay Graham interviews Anat Admati, a distinguished and critical scholar of banking and financial regulation, exploring not only the 2008 crash but also its aftermath and the continuing vulnerabilities in the banking system. The conversation addresses root causes of financial instability, the myth of the "too big to fail" doctrine, corporate misconduct, eroded democracy, and the ongoing challenge of holding powerful interests accountable.

Key Discussion Points and Insights

The “Banker’s New Clothes” – The Illusion of Financial Wisdom

[02:13-03:48]

• Admati explains the title of her book, a metaphor suggesting much of what bankers claim is sophisticated is actually hollow:
  • “What it means is what they say has no substance, is flawed in some way, is wrong. So in the story of the Emperor’s New Clothes...the public doesn’t understand, then they are afraid to expose it because they feel like they’re incompetent.” (Anat Admati, 02:23)
• She emphasizes her book aims to demystify banking for the public, counteracting misconceptions perpetuated by industry jargon.

Debt, Leverage, and the Nature of Risk

[03:48-05:18]

• Admati illustrates with a mortgage analogy why banks prefer high leverage:
  • High debt allows for outsized gains when assets rise, but places others on the hook for losses.
  • “On the upside, they take the upside just like the homeowner. And on the downside, you know, deposit insurance pays, or the taxpayers pay, or...there are bailouts. So on the upside, it’s great. And on the downside, they walk away.” (Anat Admati, 04:38)
• She argues that homeowners can be wiped out by small downturns, whereas banks offload their downside to the public.

Capital Requirements – Substance or Smoke and Mirrors?

[05:18-07:50]

• Admati criticizes widespread misunderstandings of "capital requirements":
  • “When they use the word capital, it’s the beginning of how they want to confuse you...they use things like capital reserves, hold capital, which suggests...money aside in a lockbox. But that’s not what it’s about.” (Anat Admati, 05:36)
• She explains that banks hold very little equity—much less than non-banking firms:
  • “The kinds of numbers we’re talking about in banking are so ridiculous that companies outside banking, with no regulations at all...nobody...has so little equity.” (Anat Admati, 06:32)
• Opaqueness and complex instruments allow banks to hide risks and avoid healthy competition.

Financial Complexity: Useful or Deceptive?

[07:50-09:16]

• While complexity can serve risk-sharing, Admati says much of it obfuscates real risk and enables “flawed claims.”
  • “Some of it is to confuse because by people not understanding their jargon...they can sell you any kind of, you know, flawed claim, any kind of these bankers new clothes flawed claims.” (Anat Admati, 08:49)

The Logic and Failure of Bank Bailouts

[09:16-11:16]

• Admati acknowledges regulators faced terrible choices in 2008 but blames underlying negligence:
  • “The problem was not that they bailed Lehman out, but that they had let Lehman succeed before.” (quoting Michael Lewis, 10:07)
• She argues that the specter of bailouts remains, despite official denials, with ever-larger and more complex institutions. Future crises, she warns, could rival the Great Depression.

Criminal Accountability: Why Haven’t Bankers Been Prosecuted?

[11:16-12:58]

• Admati’s current research focuses on “profitable misconduct” and why executives escape consequences:
  • “If the executives escape, then why would they ever obey the law at all? Any law?...We should have a standard by which they could be found criminally liable.” (Anat Admati, 11:53)
• She cites multiple missed opportunities to prosecute major offenders from the financial crisis.

Milton Friedman’s Influence and “Profitable Misconduct”

[14:02-16:15]

• The conversation shifts to Milton Friedman’s doctrine that a corporation’s only responsibility is profit-maximization—if playing by the “rules of society.”
  • “The social responsibility of business is to make as much money as possible while obeying the rules of society, both those written in the law and those in ethical custom.” (Anat Admati, 14:11)
• Admati points out that this framework assumes robust law enforcement—which has eroded.
• “We were just blinded or maybe were willfully blind to the possibility that corporations will interfere with laws and distort the system while trying to make as much money as possible.” (Anat Admati, 15:49)

How Law and Regulation Enable Profitable Corporate Crime

[16:28-19:41]

• Corporate legal structure makes prosecution difficult: fines may be deemed inadequate, especially as companies are shielded from true accountability.
  • “Law enforcement is insufficient to deter the corporation, meaning that misconduct is profitable...So what will happen...with the incentives managers get to maximize profits, you get all kinds of results that show that the corporations will do ever more to undermine law enforcement.” (Anat Admati, 18:16)
• The "cost of doing business" attitude turns settlements into a slap on the wrist.

Democracy vs. Oligarchy: Regulatory Capture and Corporate Power

[19:41-22:31]

• Admati suggests the US is exhibiting more characteristics of an oligarchy than a democracy:
  • “Corporations get special treatment in the law, and the people who lead them have also privileges—and that is...what people refer to as oligarchy.” (Anat Admati, 19:57)
• Money’s influence in politics and the lawmaking process undermines democratic governance.
• She explains the term “symbiotic relationship” in the context of powerful interests reinforcing one another.

Tech, Government, and Systemic Capture

[22:31-25:00]

• Recent administrations (not just the current one) have fostered close ties with powerful tech and business interests, sometimes at public expense.
• Admati warns that rhetoric about "free markets" is at odds with increasing government intervention influenced by private interests.

The Boeing Scandal: A Case Study in Non-Accountability

[25:00-28:20]

• The recent Boeing case, where a judge dismissed all charges, signals a collapse in law enforcement against corporations—even after repeated failures and broken agreements.
  • “No accountability anymore. We’re done, no more...That’s very sad commentary on our justice system.” (Anat Admati, 27:57)

Is There Hope? What’s the Remedy?

[28:20-29:30]

• Civic engagement, transparent discourse, and reform are key to redeeming democratic governance:
  • “The remedy has to be intelligent discourse to start with, so we can actually claim back a level of democracy, democratic institutions that we can trust.” (Anat Admati, 28:41)
• Admati admits challenges are enormous but sees inspiration in her community and ongoing collaborations.

Notable Quotes & Memorable Moments

• On Bank Leverage:
  "On the upside, they take the upside just like the homeowner. And on the downside, you know, deposit insurance pays, or the taxpayers pay, or...there are bailouts. So on the upside, it's great. And on the downside, they walk away." (Anat Admati, 04:38)

• On regulation as theater:
  “When they use the word capital, it’s the beginning of how they want to confuse you.” (Anat Admati, 05:36)

• On corporate law enforcement:
  “Law enforcement is insufficient to deter the corporation, meaning that misconduct is profitable.” (Anat Admati, 18:16)

• On democracy’s erosion:
  “Corporations get special treatment in the law, and the people who lead them have also privileges...That's what people refer to as oligarchy.” (Anat Admati, 19:57)

• On solutions:
  “The remedy has to be intelligent discourse to start with, so we can actually claim back a level of democracy, democratic institutions that we can trust.” (Anat Admati, 28:41)

• On hope and motivation:
  "I am able to speak. So I'm very grateful for that. And I feel privileged that I am a tenured professor...and that I have some opportunity to work with some young people, students and some colleagues who want to make the world a better place." (Anat Admati, 29:38)

Timestamps for Key Segments

• Overview & Introduction: 00:11–02:11
• “Banker’s New Clothes” explained: 02:13–03:48
• Debt, Leverage, and Risk: 03:48–05:18
• Capital Requirements & Banking Solvency: 05:18–07:50
• Complexity & Obfuscation: 07:50–09:16
• Bank Bailouts & Regulatory Choices: 09:16–11:16
• Criminal Accountability: 11:16–12:58
• Milton Friedman and Corporate Purpose: 14:02–16:15
• Profitable Misconduct & Law Enforcement: 16:28–19:41
• Democracy vs. Oligarchy: 19:41–22:31
• Tech/Government Ties & Political Capture: 22:31–25:00
• Boeing & Justice System Failures: 25:00–28:20
• Pathways Forward & Personal Motivation: 28:20–30:37

Conclusion

This episode features a sweeping yet incisive critique of modern finance, regulation, and democracy from Anat Admati, grounded in vivid analogies and practical insights. The conversation underscores the persistent vulnerabilities of the financial system, the self-reinforcing cycle of corporate impunity, and the corrosive impact of money on democratic processes. Yet, Admati closes with a call for civic engagement and honest conversation as the foundation for hope. For anyone seeking to understand not just the legacy of Lehman Brothers, but the broader question of “too big, still failing,” this episode is essential listening.