♪ terre: we asked some of the best minds in the world from business, government, the arts, academia, what are the most urgent problems facing humanity, and how do we solve them? the result is "big problems, big thinkers." what is the number one major problem facing mankind? >> i think is the lack of education. thomas friedman: politics has been getting dumber and dumber. >> you're dealing with a balance of green spirit. thomas friedman: if we don't have a more sustainable way -- >> everybody has the capability

of making a difference. >> remember your humanity. and forget the rest. terre: welcome to "big problems, big thinkers." i'm terre blair. in this series, we confront the most dangerous challenges facing our survival as a human race, climate change, economic dislocation, nuclear proliferation, social unrest, and we examine each issue by asking if there is an ethical framework that can help us face these problems and solve them. to do that, we'll hear from an extraordinary group of leaders as they search for answers and perhaps inspire us collectively to take action. in this first episode, all of these exceptional men and women agree that climate change is one of the top threats to our existence. after all markets rise and fall, one of the lessons about that can mitigate the

economic pain. so many lessons, but what have we actually learned. it was something completely different that we have ever seen. was even more extreme that was happening in the media, in any subsequent part --period. stop, it is now regaining speed. that was a big lesson for people to operate on leverage. demonstrated the aspects of the economy incentives and that can of thing. >> we went through a. is situationally where people wanted to get a mortgage and deeded to show no income statement.

people who never needed to take mortgages should not taken up people should not have given them. people should not have bundled those mortgages into bonds to sell them into banks. stamping things as aaa even though they were garbage should never have been stamping them. they world doing what was legal. it all blew up. leah blew up, the collateral damage has been devastating. >> people did not want to pay attention, the big mortgage banks came about when the them astgages and sold a package. they were sold to professionals, to the trustees and mutual fund owners. these are sophisticated people

who should not have these jobs. they knewat this and what was in these packages, they look at them and said that rating is aaa. if everythingaaa did not go wrong at the same time. they bought these things when they have higher yield, they had to stop and think if there is higher yield it is less risky. no one wants to blame themselves for taking a risk. a charles prince quote who says when the music is playing you have to cut -- get up and dance. make an have to unbelievable quarterly profit of the shareholders are celebrating. is saying the guy who we're not going to do that, that

becomes professionally risky. we got into this short-term loop. jpmorgan did not get anywhere near as caught up with this as the other banks. this was looks as slightly as a scam. >> could you have foreseen this? say stopis going to making money because you're going to make too much money and collapse. stop taking that job. sell your house for a lower price because you can sell it to another person who has more leverage built-in. we wanted everyone to have a more enjoyable foundation. so freddie mac and sallie mae and companies like this, the quasi-government organizations, encouraged everybody, encouraged the banks -- make the loan, regardless. and the argument was if you do not make the loan to people who

cannot afford it, you are discriminating against people who cannot afford it. and all of us are guilty. we wanted to help everybody. the trouble is there are no quick, simple answers, and we tried to create one. and you create a bubble, and then the bubble collapses. warren: we have had bubbles throughout history, and they manifest themselves in various ways, the dot coms, whatever it may be, and we will have them in the future. human beings, we get smarter about a lot of things in terms of how to produce things and become more productive. we don't get rid of, unfortunately, the basic human emotions. and greed and fear will always operate the same way. thomas: you are dealing with a balance of greed and fear, greed and fear, greed and fear. and every decade or so, greed gets out of context and eventually leads to enough fear and something blows up, and we all just say, how could we have been so stupid? michael: to go back and revise history and say, "oh, i did not know," you are a professional, you should of known.

the information was there and common sense says if you are earning more, you are taking more risk. i think if you look back at bob steel and people like that that went to treasury, saved this country because the rewriting of history says you should not have bailed out the companies. to not bail out the biggest companies, the biggest banks is ridiculous. you have no choice but to do that. were they overleveraged? yes. but everybody wanted them to be overleveraged, and congress was as guilty as everybody else. and of course we live in a world where somebody else has to be guilty, it can't be you, it has to be somebody else. so we go after the bankers, which we have always done. they are hardly without sin, the worst thing they did was none of the documentation and those kinds of things. but they were just part of something that everybody wanted. you wanted the world to keep expanding and the good times to keep rolling. until one day they don't. ♪

warren: if you look at 2008 and the institutions that failed or came close to failure. if you take aig and citigroup and you take wachovia and washington mutual and you take freddie mac and fannie mae, the stockholders of those companies lost hundreds and hundreds of billions of dollars. citigroup did not go under, but when the stock holders lose 90% of their value, it really does not make much difference, if you have $1000 invested, whether you end up with $100 or nothing. so there in my view, there has been no moral hazard created for stockholders by the fact that the government came in and rescued those institutions. the moral hazard exists i think with the top executives who walked away with hundreds of millions of dollars and really did not pay the price for their failure. we had bigger and bigger financial institutions that had all kinds of activities where their problems became other people's problems.

and then we had improper incentives, we had the people running the huge institutions whose upside was lots of money and lots of glory, and the downside was still a lot of money and no glory. thomas: one of the points my teacher makes, when you're in a world that is a flat and is technically interconnected, it is also ethically interdependent. because when greek bankers basically were going nuts, you know, giving mortgages to greeks to build their third vacation home or their second pool, whatever they're doing -- thomas: when it suddenly blew up and you discovered that your portfolio was down 5% because people were worried whether greece could default or, you know, pay back all of these sovereign debts they had accumulated, you said, "wait a minute. i'm not just technically interconnected with them, i am ethically interdependent."

well, that can really affect your 401(k) and your happiness, not to mention your retirement here. so, you know, we all have to think much more globally. warren: trust makes the world function better. commerce without trust, it is very awkward, and we saw that in september 2008. 30 million americans in a period of a week lost trust in the money market funds. and the government had to come in and essentially guarantee those funds. but, if you have 30 million americans that believe something to be the case in august and in september where their money was, they don't believe in it anymore, the economic train comes to a halt pretty darn fast. so a functioning, trustworthy economic system worldwide is a huge plus, and it is even more of a plus for many countries who have not had it. we are used to it in the united states. terre: do you believe that

international financial stability is essential to world peace? warren: well, we will never have perfect international financial stability. i mean, people will continue to make the mistakes they've made in the past, with small variations. you know what mark twain said, "history does not repeat itself, but it rhymes." that is very much the nature of financial history. terre: as warren buffett says, we will never have perfect international financial stability. that is the history of markets. but can individuals create a financial future that improves on that history? can investors, governments, political leaders transform their values to mitigate the pain of future crises? that is next on "big problems, big thinkers." ♪ thomas: do we really have to pass a law that tellbanks, you cannot give a loan to mee who can't pay it back? warren: i have 20 iq points over him, and he is getting rich and i'm not. that drives people crazy and it will continue to drive people

crazy 100 years from now and 500 years from now. steven: as soon as you had two cavemen with caves, one of them looked at the other and said, "why is his cave bigger? and why does he have shrubs and we don't?" i look at you and i compare you to me. ♪

♪ terre: welcome back to "big problems, big thinkers." i am terre blair. after the near collapse of global markets, former federal reserve chairman alan greenspan said, "no two crises have anything in common except human nature." and that is where we pick up with pulitzer prize-winning journalist thomas friedman. what part did we as individuals play in what went wrong?

what can we do better? thomas: well, when someone comes to you, selling you a home mortgage, and telling you the only thing they need to do is check if you can fog up a knife, and not show your income statement, that is a pretty good sign that it sounds too good to be true. it usually is. you know. also, should we really have to pass a law that tells bankers, "you cannot give a loan to someone who can't pay it back?" i mean, do we need to pass a law to do that? so people were doing such manifestly obviously unsustainable things because they always thought that, what i call ibg or ybg, i will be gone or you will gone. i will sell you this mortgage, because i will be gone. i will package this into 1000 bonds, i will sell it to somebody in dusseldorf, and i will be gone. they pawn it off to another investment bank in france and they will be gone. you cannot pay for your house?

now that the money is actually due, no problem. just sell it, because we know that house prices only go up. then you will be gone. so we are all practicing ibg and ybg values basically. it was an epidemic of that. warren: the people that got big institutions into huge trouble, which sent not ripples but tsunamis throughout the world, they went away with a lot of money. that should not have happened. we need a greater balance of incentives. you need a person, if they are running a bank or some other large institution that is so important that the government needs to save it because it needs to save the economy generally, those people, in my view, should be bankrupt if they screw things up. and that hasn't happened. terre: even though we will have bubbles and we have always had bubbles, do you believe people have the ability to transform their values? warren: well, i don't -- i would be fairly pessimistic about people learning to control greed

and fear any better in the future than they have in the past, but what really gets them in trouble is the fact that a fellow goes home at night, and a neighbor is making money easily and his wife reminds him that that man is dumber than he is, yet he is making more money on dotcom stocks or he is making money because he has been financing more than he can handle, but nevertheless -- looking at that guy and thinking, i have 20 iq points over him and he is getting richer and i'm not, that drives people crazy and will continue to drive people crazy 100 years from now and 500 years from now. steven: i think it will be very difficult to unwind our materialistic impulses, partly because it is tied to something that is very basic. i think as soon as you have two cavemen with caves, one of them looked at the other and said, "why is his cave bigger? why does he have shrubs and we don't?" i look at you and i compare you

to me. kwame: people who make a lot of money in our country tend to trade in some of their money for other kinds of rewards, including the rewards of honor that come from being recognized as a great philanthropist. but there is a muddle that comes when there is a conflict between doing the thing that will bring you honor and the thing that will bring you money in many cases. and i have a name for this. i call it the bernie madoff problem. bernie madoff was an american financer, a man who invested money for other people. and he was incredibly honored, and all the time he was cheating people. he was someone that was getting money and honor for doing something profoundly antisocial and dishonorable, and then he was caught -- fortunately. you want to create a world that encourages people to be successful in things that are worth doing. and finance is necessary and

worth doing. but you want them to see that money is not the way to measure, measure your life. warren: there is always tension between the market system and unleashing it while at the same time not causing it to go to excess. we learn that certain things need to be controlled and we will learn that other systems do unleash the potential of humans. and different societies will come at it in different ways. the chinese are coming at it at somewhat different ways than the u.s. you will see that around the world. but i think overall, we will learn more from others and their successes as time goes by. and humanity as a whole will be living better 50, or 100, or 200 years from now. and incidentally, the world is not a zero-sum game at all. if somebody discovers penicillin in the united kingdom, it crosses borders and does me some good.

so we want the rest of the world to prosper. we should want it anyway as human beings, but beyond that there is a utilitarian aspect to wishing the world well. because you do not want the united states to be an island of 300 million people doing magnificently well, 6 billion people are sitting there, envious of us. ♪ steven: money is such a powerful force. you know i would argue it is more powerful than nature in some ways, just because of the economic forces. we do a bad job often in attributing an accurate value to something, and this economic crisis is a perfect example of that. somebody created fake value out of something that did not really have value. and eventually it was going to crash, which is what it did. >> the dow had its biggest point drop ever, falling a little more than 777 points.

michael: we don't want to have banks that are too big to fail. we do want to have gigantic banks, because that is the only way you can compete in this world and fund companies that will create the jobs you want and a better life for all americans and people around the world. so instead of keeping the banks from being able to make money and with that money make loans and take risks, what you have to do is find ways to protect the banks from going under. or have an insurance policy in case they do. but not keep them, not try to change them so that they can't possibly go under, because then they can't do their function. terre: right. michael: and they are a very important part of the function, and unless somebody finances development, there is no development. if there is no development, there is no ways to create jobs and wealth and good lives and good education systems and good governments that depend on tax revenue in the future.

thomas: one thing we know about growth is that it is not everything, but it is the source of all good things. in the sense that you have a growing economy, people are more relaxed and open to new ideas and open to cooperation. they are dividing a growing pie. when you do not have growth, people are competing over a shrinking pie. you are going to get a more snarly, angry and probably racist, more homophobic -- people will use whatever emotional hooks they can to get their piece of a shrinking pie. so growth is very important to the underlying tenor and climate of the whole discussion. kwame: i think we need to think more about growth with equality, rather than the inequality based growth that we have seemed to have been very good at creating in the last few years. thinking about anything that makes a radical change in how we live our lives faces you with

this problem that there are going to be winners and losers. and the people who are currently winning risk becoming losers if we change the game. so that they have an interest in keeping things the way they are. michael: i am concerned that we are burdening society with so many rules to protect ourselves from every eventuality that it doesn't work. the real world is full of risk. and if you want to prevent all risk, then you do not have anything. warren: i send out a letter every two years roughly to all the managers at berkshires, and i basically say, do what is legal obviously, but also do not do anything you would not be happy to have written on the front page of the newspaper tomorrow morning to be read by your neighbors and friends and family and all of that. and i tell them one other thing,

look, if the reason you are doing it, if the reason you give me why you are doing it is, everybody else is doing it -- that is not good enough. if that is the best you can come up with, there is something wrong with what you are doing. so it is not can we do it. it is should we do it. it is very important in all aspects of life. i've heard more dumb things rationalized by the fact that the other guy is doing it and i tell them, if it is close to the line, it is over the line. i mean, nobody can see the line that well. i'm 80 years old, and my eyes are going bad, so do not do anything close to the line. it makes me nervous. terre: the post-crisis response has included lines upon lines of new laws and regulations, including increased capital and liquidity positions for financial firms. and yet, the question remains, after the financial equivalent of a near-death experience for

global markets, are individuals around the world -- enough individuals -- closer to being able to say when enough is enough? the answer to that question may determine how many are hurt when -- not if -- the next crisis comes. i am terre blair, and thank you for watching. ♪

♪ ashlee: there is part of me that thinks icelanders might not be the brightest of people. i mean, look at this place. it is mostly made up of barren, volcanic rock that belches, pushing the foul smell of sulfur throughout the countryside. animals and plants have avoided this cold, hard land, and so too should have humans, but, as we all know, humans are a stupid