how bad things are? the fact you have groups like the germans who were insisting on talking about hedge funds and nothing else, which was not particularly helpful, one of the problems was that it was very hard to pinpoint the leverage and the scales of risk that were being taken in the system because there was not datum people were not looking in the right places so for example the scale built up on the balance sheets of on groups such as lynch and ups which had utterly disastrous implications towards the end of 2007, that was not been debated but it wasn't on the agenda and there was little way to keep track of that. on the regulation issue, this is really critical and something had think the new york said grappled with the great length about the cbs market in 2005 and 2006 and i talk about this and the book in relation to some of the initiative that tim geithner was involved with in the creditor of this market.

the theory that somehow in a market all the actors have a self-interest and behaving in a sensible way for the long term and basically the pressures will somehow lead to the system as a whole behaving rationally has just not turned out to be true in the credit world. if you can see that in a very tangible way in the issue of settlement in the cbs, because if you had a perfect rational free-market, you would have a situation where every banker would say, i have incentives and of making sure i don't have huge backlogs of paper building up my office because that a rational. maybe we will have a bit of legal limbo. of course the buzzword for the free-market group was efficiency. the problem was though, that when innovation occurs and finance, you never actually know which products are going to be successful and which aren't, and which ones are worth investing in infrastructure and which ones

are not. and sell several months after the product has been launched. it took several years before it became clear, and these products grew slowly, the knee to basically have each bank barry, and rationally basically building up the infrastructure to process or saddle or deal with these new products. in credit derivatives they grow to such a process that no single bankhead time once they realized it was going to be successful to actually invest in the infrastructure and the trading debts inside banks certainly did not have the time or incentive to invest in infrastructure. that was the-- of the bank said you had all these reasons why do you were not behaving rationally. there were structural incentives. then you get the situation where all the banks are competing fiercely to grab a slice of the market and none of them not only stopped to build up their the structure but nor did they want to spend any money because that is going to hit their peak and al, their bonuses nor did they

won two-- so there isn't enough situation, there's a case where there is a rational self healing mechanism to get everyone to invest collectively. it wasn't until the fed stepped in and said listen, let's try and get everyone around the table and work out a solution. they began to do that. they could do that and they did it with a degree of success but it was in some ways pretty late in the day. they could do that in a case of credit derivatives with the settlement problems but it was tangible and it was stated, and if you like there was an issue where everyone agreed. no one quite knew how to act. was clear that market forces alone was not solving it but you get the banks on the table part of a terrible tragedy that grips the regulators in 2007 was although in the credit derivative settlement area, it was clear there was a problem, you could identified in the rest data showing how big the problem was partly because people were

counting how many backlogs' there were. the general question of the leverage, there wasn't data so you couldn't get all the g8 countries to get together. the system spun out of control. free market forces alone are not fixing the problem now because it was moving too fast and was very hard to touch or feel just how big the excesses have become because of the system. any way. >> could you talk a little bit about how j.p. morgan reduced its exposure to risk when it did? was there something about the institution, either having to do with this culture or its processor was is simply a lucky coincidence? >> i think there was actually a lucky collision happened j.p. morgan. basically the old j.p. morgan had a pretty conservative attitude towards risk in some senses, and that they had back in the 1990's, partly because

they were less commercial than some of their rivals and less intensely focused in the short-term p&l partly because they had a rather bizarre internal corporate culture where people would say there for a long time. by and large the j.p. morgan teams were not bouncing from bank to bank. most of them joined strait ad of graduation and stayed there for ten, 20, 30 years and that created a strong sense of team and spirit. it created a luxury of being able to show ideas in a collegiate manner and take a broader into the towards risk. very interesting in terms of the way the internal corporate coaches can change. the old j.p. morgan had clay a-- towards risk but then they-- summon disastrously and that created disasters like enron.

then when dimond arrived, he brought with them a set of added towards-- attitudes towards risk which in a low-key way it was time very well in the risk management culture. so, they do appear to have taken, as far as i can tell, have been topped atlanta to the j.p. morgan guys and talk to other banks to take an attitude towards risk. they were much more systematic in terms of trying to monolith and analyze it. that boren just relying on a few models. the case of ups for example eventually, they were looking at the super senior product primarily through our models with disastrous effect in using a unit dimensional way of measuring risk. it wasn't the case with j.p. morgan even though j.p. morgan had invented are. having invented it, guess it is useful but it is only useful as part of a set of techniques for

measuring risk. so i think that contributed. the other key thing was about j.p. dimond was he was actually prepared to face up to the analysts on wall street and say no and that is critically important because it from 2005 onwards, actually j.p. morgan was not doing that vertically. there's a huge criticism from equity analysts say, where you lagging behind? with the diamond was going to come in and basically solve the problems and in fact the revenue it ain't that great. there were other banks responding to that incent-- intent stock market pressure and saying yes we have got to start chasing after credit revenues as fast as we can, and there was this real what people used to call golden and the. everyone to be like goldman sachs than half our row e's is digga sx. dimond and a number of occasions said we are not going to go down

that route purely through chasing after a quick and easy p&l which again does not mean they did not make mistakes. i don't want to paint these guys is somehow perfect angels because they made their mistakes but it is a very instructive lesson. [inaudible] >> in terms of boat was going wrong? well, for example, when all the banks started going in what was called cdo, which is basically taking chunks of mortgage debt and slicing and dicing it into cdo plessy due to the tangible lawns are increasingly towards the end to the derivatives of those loans. there was a number of occasions where internally the j.p. morgan investment bank try to work out why the competitors were making so much more money than them and there was a huge debate on a number of occasions and if they should do the same. they kept running the numbers and they could not work out how

to make a pay unless he took crazy, crazy risk, so they said no. to say no was clay a hard decision because everyone else was dashing down that route. other people were dashing down that road even in 2006 when there was already evidence that the u.s. rising market was starting to turn. that was one of the astonishing things that summoned to the crazy risk-taking and crazy breaches of normal controls occurred, even when there was evidence that the sub-prime mortgage market was starting to turn sour and mortgage lenders were starting to-- go south. >> as an armchair economic theorist, i see a schism developing an economic spur other those people who think that the problem was a mel designed of acceptance within the institutions leading to

excessive sharp turn asim and then there's another group and economics to think the problem was a failure to recognize the market does not have any magic, that there is hardly any way to put prices on these exotic newfangled assets. the future is highly uncertain, and if you can't do your own do diligence to figure out what the risk is upholding an asset, it doesn't really make any sense from a social point of view that the kinsella to somebody else, who is naïve enough to take on the risk because he won't know any better with the rest are than anybody else, so there's just a huge amount of ignorance of darkness of impenetrable, it and penetrable future that was sort of dog in the market,

without any awareness. it sounds like your book is more toward the latter view than the first. >> yes, i would agree with that. yes. [laughter] >> my question, and you described very well in the book, but the way j.p. morgan, the people at j.p. morgan kept looking at what else was going on in the market and somehow there's a combination of luck and smarts. is there something about the financial sector of the competitive pressure, especially when you've got these publicly traded companies, inevitably leads not to some optimal results like you think competition does in most markets, but when you have a myopic investor and also people within the companies dealing with short-term investments, short-term incentives. i guess the question is, what you do about it? clearly there is one place, j.p. morgan and others that were spared in resisted but they'd

logic of these marketplaces is to move to the point where everybody acts really stupid. and, do we go back to partnerships for these firms? can regulation do it? although regulators get caught up in the crazy logic. >> i happen to think when it comes to risk-taking partnerships would be a good idea. simply because we need to create an incentive inside banks or brokers tex would try monitor each department to monitor the of the department and the needs to be a sense of collective screen may. i think it is interesting one of the banks appears to be better at ducking the bullet is goldman sachs. whether it is more of a sense of one department looking over the shoulder, they are not all operating in fierce competition with each other and as secretive with each other is that are the outside world. i think that is partly because of goldman sachs's partnership with history which it managed to npo some of the corporate

culture even today. i think partnerships are one way to go. unfortunately, all the people would disagree, i think regulators need to get much more hands on a much more involved, and having a system, whereby a group of financiers, a group of bankers are essentially free to develop innovative assess if they want to whatever degree they want with very little extra oversight, be it from journalists, from regulators or politicians, and some of hope that they will, through sheer good as the spirit, to collect irrationality, will keep their activities in check. it is night. banking is too important to be left to bankers allow. an analogy i draw, if the people who run nuclear power plants were paid per kilowatt of energy they compound, so you have to pump out as much as you can and the more they compound the more

successful they look, think-- and we need to look in banking to other spheres of activity, be it the nuclear industry, be it pharmaceuticals and the lessons we can learn about grists control. of the great ironies is everyone is talk about financial engineering until they are blue in the face. if you are in engineered building bridges your top things like safety margins, wrist. you are taught to debate with other engineers. you are taught to think about the wider context. you might even be talking about things like ethics. some of those lessons outside finance the to be brought in to finance as well. >> was sort of regulation would be the most helpful going forward? >> i could talk for another hour about that, but i would say joint regulation is critical, because one of the key reasons why these were developed is because we live in a stylized

world. as the world as become more complex there's a great tendency for everyone to steering around the silo. but the tension is, the one time we need the details of each silo, we also need time to see how they fit together, be it inside banks, be it between banks. so i'm actually very strongly in favor of moving towards more dignified systems of regulation or regulatory oversight. i think we need to start moving on that as well but in the u.s. and would be a good start to actually have not a half a dozen feuding fragmented regulators that actually reflects inside the banking system and basically you have a bunch of silo private structure sectors. you basically had fiefdoms inside banks, warring chieftains , complete lack of information exposure and guess what? you have regulators reflecting

those patents. they wonder if there's anybody to take a picture of how the system fits together or how the excesses were building overall. what you think the, taking this as given the financial journalist not discover what was going on, to think that is a problem on the journalistic side of lack of expertise or bad incentives, or what? >> i think it is a combination. on the one hand, newspapers-- newspapers set out to cover the last crisis and certainly in a lot of the press, in the early part of this decade, the sexy parts of the market were the equity market and things like that because it started with the i.t. bumper go credit and debt which had been quite sleepy the previous decade with regard to blackwater, so you didn't have the high status, labels attached to that area of activity.

so that was one problem. another problem was that actually not having lots of journalist apparro for the credit world suited the bankers just fine. i nothing there was deliberate by the bankers, let's fight but we were doing but it was one of those situations that suited everyone rather well. the bankers became like the financial preselect, who spoke financial latin. the conservation just sat there. the congregation by and large were happy to-- as long as they bus everyone from time to time and the funny to priests felt no need to talk about anything but financial let in. there was a feeling that this is all complicated. let me get, the. of course, politicians didn't have much incentive either come up because it was a contest the credit boom, so everyone was going along in and join the party. there's also the simple problem

that almost anyone who understood what was going on with credit, as i say, intended to work in the credit world. because guess what, they got paid ten, 20, 50 times for than journalists. the media relative to fight is reflected the bigger padden in society too. [inaudible] [laughter] >> i get the feeling that you are a little too easy on j.p. morgan. you have actually highlight some of the mistakes they made with that many underlying mistakes or maybe i'm wrong. this is what i was trying to figure out. they sort of say, the insurers aren't good enough because they don't have enough capital and will it-- they are not there when we need them but they get their cdo's or cbs's issued by

aig. well, we found out that aig was no different-- it could blow up as well, so aig was not really there when the big default happened, that was not supposed to happen but could have happened, happened. what was the difference between what moral lynch-- merrill lynch did? >> j.p. morgan used aig a bit but not that much parley because they had internal limits, so yes back in 1988 to cut the first-ever deal, the first time aig discovered was that in 1998 when they said it that this wacky way, are you interested? he said yes, bring it down because they spotted coming to to regulus nouri arbitrae as they basically do whatever they wanted and-- [inaudible] so, yes, j.p. morgan did deal

with aig quite a bit at the very beginning, and yes it kept on dealing with them throughout the decade. far, far less. >> [inaudible] >> and not to the skillet many of its competitors in the concede that from the figures. to look at the break down, it is pretty stark. j.p. morgan is not even up there in the top half-dozen. you can see the breakdown of who have benefited from the rest cooper guy think j.p. morgan was somewhere around ten or 11 but i can get the figures to you if you want. >> but,. >> they thought they monolith in session was nets. one of fastening things about telling the story is so many of the mistakes and the terrible things, egregious things were

done in 2005, 2006 were discussed by the original team back in 1998, 1999 and in fact one of the things they use to do was trample as many as economic model lines because he thought they were stupid. very pressing and. and in 2005/2006 when there haven't the discussion, which we do with super senior? terrorist the discussion, shelley basically do what is called a negative basis trade to wrap everything with model lines and they recognize, yes, if you use dimond applies to could exploit the accounting rules and make it seem as if the risk has magically disappeared which was basically like what ubs and merrill were doing but the genuine risk, if there was ever a situation that enough to blow up the super senior it probably would have blown up the model lines too in which case it was stupid to use my allies to protect yourself from super senior risk. >> what about the exploited bear

stearns funds? that was similar to the concept of putting all the cdo's and said. that is why j.p. morgan was one of the biggest hedge funds because they insult the cbo. they came back to them because they had loaned 90% of the money that they were supposed to pay them, so-max d.. >> they would say over and over again pletka craft record, we have made mistakes and they were scared people thinking they did too well. nowa wants to stick up above the carpet and that is they are doing well because they will get too much attraction. in fact in the course of my into being, i would say we made mistakes to. i mention them all on the book, but you can look a the result. you can look at who is made the big write-offs in the last two

or three years. you can simply see the scale of the mistakes j.p. morgan made so far and that think they are plenty of things that can go wrong in the future. said that credit card exposure. they have got exposure. there are mistakes there, but the scale of florida is that j.p. morgan have made are nowhere near the scale up marrow, ubs, morgan stanley, which is one reason why, they are not being able to raise a bunch of capital now. you probably still got more questions but thank you very much for coming along. [applause] >> gillian tett was named trelles of the year for coverage of the market decline in 2008. she was also awarded the wincott prize for financial journalism in 2007. right now she runs the global market coverage for "financial times" newspaper. to find out more on the author please go to ft.com.

>> the c-span civics buses traveling the country, visiting libraries, bookstores, festivals and authors. here are some of the people and places we visited. >> we are here with susan levine at the university of illinois, chicago to talk about her book, "school lunch politics" the surprising history of america's favorite welfare program. susan, why did you think it was important to expose the behind-the-scenes scene of the school lunches? >> well, i think that everybody who goes to school in america eats a school lunch and at some point in their life, and it is a very important program for child nutrition and it is a very important program for poor children in this country. >> when and why did we start providing school lunches to children? >> that is a good question and it is a long story.

, economists provided school lunches for children in the early part of the 20th-century and an effort to teach immigrant children how to become american in the depression of the 1930's. many more poor children were showing up in schools and teachers began to offer school lunches, and at that point, the government got involved with children's lunches, because there was a surplus of agricultural commodities and in order to keep the prices down, the government would buy up food and then distribute it to children. but, it wasn't until after world war ii that the federal government establish a permanently funded national school lunch program. >> you write that the program is flawed. what are some of the current flaws? >> the current loss stemmed from the historical flaws, and in my

opinion, they centered around issues of funding because it costs money to feed children nutritious, help the food, and the government still supplies surplus commodities to schools, and some kinds of subsidies, some money subsidies. but, it has never supplied enough to cover the whole cost mso local communities have to put in their own funds. that is a recipe for inequality, because areas that can afford to subsidize better lunches do and areas that don't, don't. so, there is, across the country there's a good deal of inequality and the level of funding and the kinds of lunches that children eat. >> there are a lot of different programs outside of schools including nonprofits that used a free and reduced price lunches and the standard for serving children. is that a fair way of serving

children in communities? >> it is a convenient way, and they think in recent years it has become a kind of common measure for the level of poverty in the school. i always thought that was kind of interesting, that the level of poverty and the level of subsidies for schools was based on her lunch. i thought that was an interesting idea. and, if there? i don't know. it is an easy way to measure what is going on in the community and the school. >> one of the current qualifications to be eligible for a free lunch? >> since i am an historian, i don't know the specific qualifications. they differ state-by-state, and children qualify, depending on their parents and their family income and it is a percentage of the poverty level. so, there is free and then there are reduced price lunches. as i say, the qualifications,

there is a national, a federal minimum and then states can increase that they want. >> what you think the responsibility in relationship to school lunch programs and nutrition is? >> that is a really tricky question. is very complicated. there are in fact federal nutrition standards, which are not insignificant and they have been improved over the course of the school lunch, the history of the school lunch program. they are not what nutritionist today would prefer. they are not the best standards but i would say that they are not that. the problem really is that's some of the critics of the school lunch program don't understand the link between the quality of the food and the federal, the local subsidies, so that is really easy to say children should just get organic foods and only fresh vegetables

and so forth, but that stuff is a lot more expensive. so, i think there has to be a happy medium, and in fact, the federal nutrition guidelines aren't as bad as people think they are. some of the criticism of the meals and the school comes from what they call allah carte items and the food outside of the school lunch subsidies. >> do you have any ideas on how we can move forward? >> well, i do believe that the public and the people, people who eat, the parents of children and just citizens in general should lobby for more funding for school lunch programs, and for adequate funding for organic mills for every one. i also think that it