the gateway site for all the different sites that she has mentioned. she is also the founder of the center for responsive politics and public campaign. data.gov very much. >> data.gov. thank you. ..

>> thank you very much for coming along this morning. i realized people have got very busy lives the thanks very much for the what i'm going to do is talk a bit about how and why can't to write this book and give you a rough sketch of how the book is instructive and the story and then open it to questions because i'm sure some of you may have questions and feel free to chuck at me whenever you want.

the origins of this book really started five years ago when i was working on the lex column of the fd, with some of you in the room were there as well and at one stage i was asked to try and do a quick sketch of what i thought were going to be the key themes going forward for next cover so i started off listing things like telecom's thanks, etc. and then i said let's take a step back and try and look at how it is covering the financial and corporate world in general and how that matches up to how the financial corporate world looks. so, i tried to draw a map of the city of london, and compare it to what the stories we were covering and i was struck almost immediately by the fact that there was a big discrepancy that pretty much all the media was focusing accessibly on the equity markets and writing a lot about msa and foreign exchange but there was this great big slay of debt and derivatives

which was pretty important in london and mostly but which by and large was not being covered, so i thought of making noise about that and one thing led to another and the move to the capital markets in 18,005. at this stage, that wasn't viewed as a particular glory promotional move. the capital markets covering the debt markets for many years in a very sordid manner. but the glory of the optee were the banking editor, the economic editor, things like-- it was not the capital markets. most of the capital markets coverage was on page 423 of the fd kind of stuff. in fact one person pointed out to me as i just gotten pregnant that i'm going to the capital

market would be great because it would all be so quiet. nothing ever happens in credit and debt. i kid not. but i right in capital markets and one of the first things i started to do and this is where the story of the jpmorgan group comes into being, was to go down to niece to attend the conference of a body called the european securitization forum that they held once a year. i went down and walked into the acropolis center, a great bit of french planning hand into plush velvet conference room to find out what was going on in the credit world. that scene that i walked into, i remember it today, felt almost immediately like walking into a strange new alien jungles if you like. there were a bunch of people walking around in casual, lots of people talking about very

large firms of money by doing so in a language that i even though i've been working on the financial picture for the best part of the year did not have the foggiest idea what they were talking about. it was like hearing a strange new dialect or dialogue going on that franqui was very alienating in a strange kind of way it felt familiar too because before i became a journalist at the ft i worked for an anthropologist and i did a ph.d. in the himalayas and the western end of it in a place called tajikistan. when i was doing my field work up in the mountains and studied in particular tajik wedding rituals and i used to go into these large alienating tajik weddings and not have the foggiest idea what was going on and everybody would be speaking in strange languages and people would be running around at the discrete tri. it would be very clear that these rituals played a key role in assembling the tried and perpetuating the ideology that

bound them together by trying to pick that language and find out what was going on with the huge challenge. there is something about me as an anthropologist that made me very intrigued by the tribe in nice at the form and on the basis, if i could learn tajik i could learn the language of cdo's. i set about trying to undertake what was going on so as i sat in that whole i did what most journalists will often do when they have not the foggiest idea what is happening and the flips theroux the bridge materials and started reading the biographies of the people from the tribe. in as something very strange which was almost all of them appeared to have worked at jpmorgan. which come back in 2005 was kind of weird because in those days everyone seemed actually was goldman sachs the around the world and popping up everywhere. so they jpmorgan seem to be

all over the place. so i ask my neighbor what was going on, why they used to work at jpmorgan and he said a sentence which later and the, if you like changing the last year, you have got to understand there's one thing about the credit market that is key. they are everywhere and they created it. now, like many quick cliches that was not entirely true and i would stress the markon guys were not the only ones who created the structure credit by any means but it turned out to have a lot of voracity as the leader discovered. so, i left that conference in knees, flew back to the ft, determent on the one hand to unpick the strange new credit jungle and the other hand to try and keep an eye on why and how the markon alumni had played such a key role in building this credit world. for the next two or three years

we labored away in the capital markets team and i would stress me because it was a whole group of us, not just myself trying to make sense of this fest chatterley debt insure of this world that was growing at a pace. and, in the last year to it had become fashionable to unpick-- who predicted this crisis and who didn't. i for one cannot claim to have predicted the scale of the terrible cataclysms that has overwhelmed us, but what was clear to us back in 2005 and 2006 was that not only was an extraordinary revolution going on in the credit world but the only thing that was more extraordinary about this revolution going on in the financial system was the fact that it was going almost entirely on notice. there were a few papers like the ft were writing about this stuff and had a pretty few but for the most part politicians were extremely uninterested in asking questions about how the

financial system works or asking questions about why credit was so cheap. in that the only politician who ever volunteered the words securitization to me before the summer of 2007 was a barney frank. over in the u.k. there was absolutely no interest among mainstream parliament. i became increasingly concerned because it was clear to me that the scale of the activity was not merely occurring or expanding very rapidly but doing so with very little oversight and doing so under a condition where there was almost-- nobody was able to understand the minutia of the credit will let alone how it all fit together. there was not in some way entirely beholden to the system or who did not have a vested interested in preserving it either because they are being paid by the system or because there were regulator and it all might come crumbling down.

so then of course the summer of 2007 happened, and there were concerns about the excesses that have been building in the financial system that came only too true. in subsequency-- subsequent months in trying to cover what was happening as the world fell apart and many of you were also running around trying to work out what the hell happened and what was going to happen and why it happened. i was keen to find a vehicle to tell a story about how the financial system at sponsel beddia of control and perhaps learn some pointers about what could be done to try and avoid that in the future. so, i returned back to the original idea that had been bubbling within me ever since i had gone to the original conference in nice and the reason why i decided to-- was partly because they did indeed play a critical role in developing the credit world but

also because i felt strongly, i wanted to tell the story through the prism of real live human beings through natural story because as a financial system has imploded over the last couple of years it had been far too easy for politicians, consumers and journalists at times to simply resort to cliches or stereotypes to put everything in black and white terms to try and make very stark judgments and sometimes quite frankly you have the impression that the financial implosion it's happening because the team of evil martians have invaded the world and taken over the system with some kind of dastardly plot to bring down the financial system. and this idea that there were human beings inside the financial system who were taking decisions, both the good and bad, and like any human beings have complicated motives wasn't really about-- so i picked up on the jpmorgan group and

essentially the book divides into three parts. the first part is called enervation because i try to tell the story about how this group developed a set of ideas starting in the early 1990's, which proved actually crucial later this decade in terms of taking credit risk which had originally been treated as something which stuck to the balance sheet banks and slicing and dicing it in a way that it could be sold across the system and parceled out of investors all over the world. they initially did that with corporate credit risk and found for the most part stock was a corporate credit risk and they did that partly through derivatives. as they develop those ideas that came out of the much longer stream of intellectual development occurring in finance in the late 1970's which was all about trying to find ways to transfer risk between banks and between banks and investors that

made the financial system more efficient and effectively they hoped less risky. that was the theory. so there was this body of experimentation and development that took place in the 1990's which was pioneered in the corporate credit derivatives world by the jpmorgan team but this decade collided with another stream of intellectual development over the finance and mortgage arena. that had to do with the slicing and dicing of mortgage debt and the bundling of mortgages structures called cdo's, cmo's and in the middle part of the buck a trace of those ideas developed by the jpmorgan group in the credit world collided with a mortgage ideas, then called. in essence what happened was you have these concepts being fed into an era when credit was very, very cheap and in a sense

there was a tremendous deregulation in the financial system and these two intellectuals trains collided to terrible effect, spoiling a crazy credit bubble. the last third of the book is called disaster where i tell the story of how that then began to fall apart and in a sense the consequences of the overreaching excesses'. within the structure i follow the story of the jpmorgan group and there are some terrible ironies than that because although the group dwire risen battat about the developed many ideas, they spotted in a very early stage the risks attached to some of those and when they develop their ideas of credit derivatives and about synthetic cdo's they were doing that because they were in any way hoping to blow this is the mob. on the contrary, they have the technology they thought was going to make the system much

safer and many regulators thought was generally going to make this is the much safer. one of the american regulators told me when he first found out about truth is, of aesop presentation but together on this back in 1995. he was so excited he called her up and said wow this is going to transform the face of banking. there was a sense of having established this amazing technology. that could only be good, a bit like the guys that first put the atom or the guys with on the first medical genetic dna. you had technology that could only bring about good things and of course these were bankers. they knew about bonuses. they want angels. they were not charity workers but the jpmorgan group by and large were not in any way driven by, let's try to get a big p&l this year, let's try to be as greedy as we can. they like a lot of young people

were excited by their ideas, swept away by it. there was a very hattie period and they were in a sense caught up by the sense of being pioneers. so the initial impetus behind these ideas was not bad. the problem though it came in this part of the decade in the period, there were a series of hard choices to be may not just by bankers but by regulators and one of the ironies in the story is the jpmorgan group actually spotted at a very early stage some of the dangers inherent of putting mortgages into these structures. they experimented a couple of times with doing morgan cdo and actually backed away from it because they felt that that was not that. years later as the credit bubble became crazier other banks began to make similar experiments and took a different position. the jpmorgan group realized, they invented the idea of supersenior was piling up in the

balance sheet and made a decision to try to give ford-- fests 42 merrill lynch. jpmorgan basically cut its credit lines in 2002/2003 because they thought the structures did not make much sense. again a difficult decision was made by other banks and i say that not because i think jpmorgan was somehow superior alien beings that had wonderful insights and nothing could be further from the truth. they make plenty of mistakes but it did become far too easy in recent months to seek all bankers were risky and some of what happened was inevitable, and that was not the case. one of the things that have become very clear to me by doing the research is just a different a different banks were in terms of their treatment of some of the risk analysis. which brings me to my third point and the crucial point, which is where we start to come to the disaster section of the

book. when faced with a tremendous joy is clearly the financial system has imploded to a terrifying degree in many of the idealogies in principles on which finance has been based in the last three decades stands very discredited. right now we are in a kind of packaging, amending face with the government are dustily trying to keep the bank's alaikum to keep some kind of functioning credit system going into ensure we don't descend into another collapse but further ahead we have some hard choices to make. a week, meaning all of us in the u.k. and america, about how we are going to shape the financial system, and it is very tempting to say let's try to chuck all innovation out, a bit like people sometimes say, let's band of prescription drugs or stop an entire product. but if we are going to do that,

where the banking system operates on a much slower, to a much lower capacity where credit is much more rationed, where it is going to be a much slower world, so the question i would say i would leave the wit is that as we look back on the story of the jpmorgan group, the story of credit innovation, which parts of the innovations can we actually preserve and which parts kimley chuck out? is there a way we can actually take some of the original ideas about financial innovation developed in the 90's and keep them for the good or is it the case that all complex finance is that? i think looking back at the stories of real live human beings and how they try to develop these ideas offers one way of showing it didn't have to be like this and so i hope that for the future it would also provide a pointer of not just a terrible mistake that the banking industry has made but also perhaps some ways that we can try to control going

forward, so thank you and i will take any questions you would like to chuck at me. >> there is then in a complacency it seems to me in the credits derivatives market. it is going to be exchange traded, it will become more transparent. do you think-- are there rules that should be adopted? behead in terms of making credit derivatives more transparent? >> are there elements in the market that still trouble you? >> i don't think that the clearinghouse is an easy, the perfect solution. .1. i think there are good cases for extending a clearing platform beyond the credit derivatives world. it is being discussed by academics in the u.s. but simply

having cd of clearinghouse and leaving eckels way of derivatives out of the clearinghouse creates problems. i think that there needs to be more transparency still of house cds is being used in the degree to which-- derivatives is changing the way a credit has behaved when a company goes into bankruptcy in quite a radical and largely untested manner and i think there needs to be a lot more discussion about how that is changing the way that credit is behaving towards troubled companies, but to think somehow we have had the clearinghouse end that is the end of the story i don't think it's true at all. >> gillian,. [inaudible] >> he is actually sitting behind you. [laughter]

>> worked very hard, did you not mark, to prevent it from being regulated? do you think he was right? >> i will say what i would like to say and then maybe we should let mark say. the dominic intellectual framework as i understand it as an outsider that drove the derivatives industry from the late 1970's onwards is that basically did that hand of the state would stifle innovation. excessive-- and if you let the industry sort out its own problems through natural market mechanisms that the ebb and flow of the markets and competition pressures would provide a self-correcting mechanism and that sure you might have success but that would correct itself naturally and the market would find its own rhythm.

and the problem with that was really twofold. one, when you have perhaps-- when they credited derivatives world with a small part of the overall system that perhaps he could afford to have a few ebbs and flows without destabilizing all of it and initially when derivatives were developing in the early 1990's you were talking about numbers which at the time seemed bake that nelson colossally small part of the problem came when expansion became so explosive that in a sense suddenly stopped being just a small part of the financial system and began to percolate through the system in a way that meant, if you had ebbs and flows that could potentially be destabilizing but the other problem was that you never really had a free market in a sense of having true information flows, equal access to information and equal competition. you always had banks that were

distorting matters so you always had very mirky information flows so i would argue never really had proper free markets, even in a supposedly free market system. it is quite ridiculous we have had a financial system built on free market idealism where products sat on bank balance sheets and never traded. it was all basically a figment of the accounting imagination. [inaudible] >> i think it should be regulated. >> mark? [laughter] >> i would say and you are definitely putting me on the spot. [laughter] when we set out to design the framework for the derivatives we wanted to allow people to shipped risk easily from a place where it shouldn't be, in the mind of the beholder, reflecting their risk preference of the taker, allowing him to shifted to someplace else to someone

else that would rather hold that risk and we wanted to set up a framework where market discipline would be a guide to good behavior. now, you can look at the financial difficulties that we have around the globe today and ascribe them to a particular product, credit default swaps for example. i'm not sure that gillian has done that in your book. she talks about cds but she also talks about cbo's, these collateralized debt obligations are securities. their heavily regulated so both of those things are involved in some ways here. i would test the hypothesis that cds have some special role to play in this problem by doing this thought experiment. ask yourself that we would have this problem if every american was current on his mortgage payments. now i think the answer is clearly no. ask yourself if we would have

these problems in the financial system if credit default swaps had been outlawed on the date that they were-- and had never come into existence. the answer is definitely has. the problem we have is a housing finance problem. it is not a credit default swap problem. if there were no credit default swaps we would still have this housing finance crisis. it would just be harder to manage because it would be harder to move the risk from one place to another. so, it doesn't seem to me that there is a clear case to make, that a lack of regulation or credit default swaps contributed to the problem. if they would have been out what we would still have this problem today. >> i have to things that want to say about that. one is actually, i think credit default swaps did exacerbate the problem for three reasons. firstly that they make people confident about lending more than it would have in the past. because people thought they

could shift the risk and ecap landing, landing landing and the volume of lending expanded quite dramatically. wachter secondly, because the option of writing credit default contracts with their provided another mechanism for investors to basically place more bets on the housing sub-prime market. in 2005, when they actually started to run out of sub-prime loans and simply there were pumping out sub-prime loans as fast as they could all over america and they actually brann out of sub-prime loans. there simply were not and of sub-prime loans to put in the cbo's. that was the point when the collision of these two intellectual streams really happened and became so deadly because essentially they started trading derivatives contracts and mimic the exposure of the sub-prime mortgages which allowed investors to keep rolling the dice more and more on the sub-prime world and thirdly, the share opacity of the credit world meant the scan

of leverage building up went undetected for a long time and it wasn't just cds the did that but he basically had a situation where people antagonize describe this in my book, everyone could feel but than that something was going badly wrong in the credit world and regulators were getting together to say something is wrong, what should we do, is there some way that we can-- in quite a problem that you had 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 being taken in the system because there was not the data and people were not looking in the right places so for example the scale of soopers singer risk that have built up on the balance sheets which had utterly disastrous implications towards the end of 2007, that was not being debated but it wasn't

really on the agenda and there was the little way to track that. a lundby regulation issued, it is critical and something which i think they your fed grappled with about the seediest market in 2005/2006 and i talk about this in the book in relation to some of the initiatives that tim geithner was involved with in the credit derivatives market. the theory that somehow in a market all the actors have a self-interest in behaving in a sensible way for the long term and the investor pressures were somehow lead to the system as a whole behaving rationally as just not turned out to be true in the credit world and you concede that in a very tangible way in the issue of supplement in the seediest base because if you had a perfect rushnell free market, he would have a situation where every bank would say i have the incentive of making sure i have huge backlogs building up because guess what?

maybe we are losing papers, we will have legal limbo. of course the buzzword for the free market group was efficiency. the problem was that though that's when innovation occurs in 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 until several months after the product tessman launch. if it took several years before it became clear and its products grew slowly then you could basically have each bank fear a comely and rationally basically building of infrastructure to process or settle or deal with these new products. in credits derivatives the growth was so explosive that no bank had time once it realized it was going to be successful to invest in infrastructure and the trading desk inside banks certainly didn't have the time or incentive because that was the guys in the banks that you

had all these reasons for why do you were not behaving rationally. they were-- and venue of the situation were all the banks are competing to try to grab a slice of the market and none of them not only wanted to start to build up their infrastructure, nor did they want to spend money because that will hit their p&l and bonuses, nor did they want to use the-- so there isn't enough situation it isn't the case that there is a rational mechanism to get everyone to invest collectively. it actually wasn't until tim geithner from the fed stepped in and said let's try and get everyone on the table and work of some kind of a solution. now, 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 the case of credit derivatives when the settlement problems because it was tangible and there was data and if you like there was an issue where everyone agreed it

was a problem. it was clear that free market forces alone were not solving it but you would get on the table. the terrible tragedy with regulators in 2007 was although and a credit derivatives settlement area, it was clear there was a problem, you could identify it and there was data showing how big the problem was partly because people like-- were counting how many backlogs' there were. the general question of how big is the leverage, there wasn't that data so you couldn't get the g8 countries together and say the system is mad. free market forces alone are not fixing the problem now because it was moving too fast and it was very hard to touch or feel just how big the losses have become partly because of the system. >> can you talk a little bit about how jpmorgan reduced its exposure to risk when it did? is there something about the

institution, either having to do with its culture or its process or was it simply a lucky coincidence? >> i think there was actually a lucky coalition that happened at jpmorgan. basically the old jpmorgan had a pretty conservative risk in some senses and that they had a fairly come up back in the 1990's, partly because they were less commercial than some of their rivals and less intensely focused on the short at bnl partly because they had a bizarre culture where people joined jpmorgan end state for a long time. bayan lord the jpmorgan or not bouncing from bank to bank. most of them joined after graduation and stayed for ten, 20, 30 years and that created a strong sense of team spirit and created the luxury of being able to share ideas than the usual collegiate manner and take a broader attitude towards risk.

very interesting in terms of the way the internal corporate coaches can change, not ferry between banks but affect the outcomes of the old jpmorgan had quite a conservative-- towards risk but it changed somewhat disastrously and that created disasters like enron. then when thieman arrived, he brought with him a set of attitudes towards risk that in a strange kind of way or a lucky kind of way term very well with a lot of the existing risk management culture among the old jpmorgan gice so from 2005 onwards they do appear to have taken as far as i can tell, having talked to the jpmorgan guys and other banks they took risks that was-- they were much more systematic in terms of trying to model it and analyze it. they were not just relying on a few role models.

the cube-- case of ubs come actually they were looking at their supersenior product early through models with a disastrous effect in using a unique-- why isn't the case in jpmorgan even though i run ackley jpmorgan had invented it. yes it is kind of useful but it is only useful as part of a set of techniques for measuring risk. so i think that contributed to it. the other key thing about dimon was he was prepared to face up to the analysts and wall street and say no and that is critically important because from 2005 onwards, actually jpmorgan was not doing and there was a huge chorus of criticism from equity analysts saying why are you guys legging behind? we thought dimon would come in and solve the problems and the revenue is not that great. there were other banks who were

responding to that intense shareholder pressure and saying yes, we of got to try to chase after the credit revenues as fast as we can and there was this real what people used to call golden and the. everyone wants to be like goldman sachs and have are we posits big as sachs. dimon actually said no, we are not going to tear down that route of trying to beat everyone after chasing after the quick and easy piano which does not mean they didn't make mistakes. ida wanted peg these guys is perfect angels but there were decisions taken which i think r.a. very instructive lesson. [inaudible] >> in terms of what was going wrong? for example, when the bank started, basically taking chunks of mortgage debt and slicing and dicing it into cdo is either to the tangible loans where

increasingly towards the end to the derivatives of those loans. there were a number of occasions where internally the jpmorgan investment bank try to work out what their competitors were making so much more money then them and there was a huge debate about whether they should do the same. should bate-dumb route of cbs and copy that? they kept running the numbers and they could not work out how to make a pay unless they took crazy risks so they said no and to say no was quite a bold decision because everyone else was a dashing down that route very fast and other people were dashing down that route even in 2006 when it was evident that when the housing market started to turn, that is one of the astonishing things, so much of the crazy risk-taking and crazy breaches of normal controls occurred even when there was evidence the sub-prime mortgage market was starting to discern--

turn sour. >> as an armchair economic terrorist iza sessom developing an economics. there those people who think the problem was a maldesigned within the institutions, leading to excessive short-term is some and then there is another group in economics to think that the problem was a failure to recognize that the market doesn't have any magic, that there is hardly any way to put prices on these exotic new fangled assets. the future is highly uncertain and if you can't do your own and do diligence to figure out what the risk is of holding an asset, it doesn't really make any sense from a social point of view that you can sell it to somebody else

who is naïve enough to take on the risk because it won't know any better what the risks are then anybody else so there is just a huge amount of ignorance of darkness of the impenetrable, and penetrable future that was sort of dogging the market without any awareness. it sounds like your book is more towards the latter view then the first. >> yeah, that would be true. yes. [laughter] >> my question, and you were describing in described it very well on the book the way the people's jpmorgan kept looking at what was going on in the market and somehow the ray combination of resisting going for it but is there something about the financial sector that competitive pressure especially when you've got these publicly traded companies sort of

inevitably leads not to some optimal results like you think competition does in most markets but when you have myopic investors and also people within the companies dealing with short-term investors, short-term incentives, i guess the question is what do you do about it? clearly there is one place, jpmorgan and a few others that were smart and resisted but it seems like the logic of these marketplaces is to move to the point where everybody is actually stupid. do we go back to partnerships with these firms? is it to come akin regulation do it all the 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 you need to create an incentive inside banks or brokers to actually mukhtar the other department and there needs to be a sense of collective scrutiny and i think it is interesting that one of the banks that appears to be

better at dodging the bullet is goldman sachs where there is actually more of a sense of one department looking over the shoulder then operating as silos where in the beers competition with each other and a secretive with each other at the outside world and that is largely or partly because of goldman sachs's partnership history which has managed to imbue some of the corporate culture even today so i think partnerships are one way to go down it. unfortunately, all the people would disagree, i think that regulators need to get much more hands-on and much more involved and having a system whereby a group of financiers, a group of bankers are essentially free to develop innovative-- to whatever degree they want with very little externals oversight, be it from journalists, regulators, from politicians and some of hope that they will, through

sheer goodness of spirit, to collective rationality, will keep their activities in check. it is light. banking has been left to banking alone and if the people who run power plants or paid per kilowatt of energy they pump out, so you have to pump out as much as you can and the more they pump out the more successful they look, i think-- then not and a we need to look at banking to other spheres of activity beyond the nuclear industry, be it pharmaceuticals then asked what lessons we can learn about risk control because one of the ironies that everyone has talked about financial engineering until they are blue in the face. your talk about things like stick the margins, risk. you were taught to debate with other scientists. you are taught to think about the wider context. you might even be taught about things like ethics and again some of those lessons outside

finance need to be brought in to finance as well. >> what sort of information would be 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 problems developed was we live in a siloized world. there is a great tendency for everyone to keep going around in their special silo but the tension is that the one time we need specialist to understand the details, we also need time to see how they fit together theist inside thanks, to see how thanking fits into the economy so i am strongly in favor of moving towards more unified systems of regulation or regulatory oversight. [inaudible] >> i think we need to start moving towards that as well but in the u.s. it would be a good start to have half a dozen

getting fragmented regulators that reflect this idolize pattern in the banking system. basically you have a bunch of siloized private sector structures. you basically have warring fiefdoms inside banks, warring fiefdoms between banks, a complete lack of disclosure competing fiercely and guess what? you have regulators reflecting those patents too. no wonder there was nobody able to take the picture of how the system that together or how the excesses for building overall. [inaudible] do you 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 like regulators-- and certainly in a lot of the press in the early

part of this decade, the sexy parts of the market or the equity market because that had been sexy at the start of the i.t. boom. credit that had been sleeping with regard to the backwater and so you didn't have the kind of high status, labels attached to that area of activity. so that was one problem. another problem was that actually not having lots of journalist poor all over the credit world suited the bankers just fine and i'm not saying there was it deliberate thought by the bankers of let's go into the corner and hide what we are doing but it was one of those situations that suited everyone rather well. the bankers became like the financial preset you like to spoke financial latin, the congregation just up there. the congregation by and large were quite happy to let the priest speak in latin, just as

long as the blessed everyone from time to time and the priest found the need to touch anything but financial latin. there was a feeling that this is all rather complicated. and of course politicians didn't have much incentive to rock the boat either because there is a fantastic credit them so everyone was going along in enjoying the party. the results of the simple problem that almost anyone who understood what was going on in credit, as i say, it tended to work in the credit world because they got paid ten, 20, 50 times more than journalists of the structure and said the media and the media relative to finance reflected the bigger pattern in society too. [inaudible] >> i get the feeling that you are a little too easy on

jpmorgan. u.s. actually highlight some of the mistakes they made without really underlining the mistakes perhaps or maybe i'm wrong, but 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, so they are not there when we need them but they get their cdo's or cbs insured i ig. well, we found out that aig was no different-- i mean, different but could blow up as well so aig was not the one big default that happened that wasn't supposed to happen but what is going to happen happen. so what is the difference between the monolines and aig? >> in a word, scale. jpmorgan used aig a bit. partly because they had internal lines so yasbeck in 1998 that cut the first-ever deal, the first time aig discovered the

joys of soopers senior was in 1998. we have got this wacky super sr. and he said yes bring it on because they could both do whatever they wanted and barely have to process capital, so yes, jpmorgan did deal with aig quite a bit in the very beginning and yes kept on dealing with them throughout this decade but two or three years ago-- far, far less. [inaudible] not to the scale of many of its competitors, no. you can see that the that the years. jpmorgan is certainly not up there in the top half-dozen. you can actually see the breakdown of who benefited most from the rescue and i think

jpmorgan was somewhere around ten or 11 from memory but i can get the figures to you at the one. >> but, what about-- >> they thought the monoline situation was that. back in 98 there was discussion. one of the fascinating things about telling the story is that so many of the mistakes and the terrible things, egregious things that were done in 2005 and 2006 were discussed by the original team back in 1998 and 1999 and in fact one of the things that them chuckie is to do is try to put as many shots as he could on the monoline because he thought they were stupid. they were very prescient and in 2005 and 2006 when they were having the discussion, which we do with supersenior, there was a discussion of show we do what is called a negative monoline, wrap everything with monolines and they recognized, if you use the monolines you could exploit all

the accounting rules and make it seem as if the risk would magically disappear, which was basically what ubs was doing but actually-- there was every situation bad enough to blow up the supersenior it would have blown up too, in which case the was stupid to use monolines to protect from supersenior risk. >> what about the bear stearns bonds? that was in a way similar to the concept of how citigroup pedologist cdo's and buying cdo's from all kinds of banks including jpmorgan and that is why-- because they had sold them to cbo's, but like a sieve it came back to them because they have loan 90% of the money they were supposed to pay them so i mean-- >> steve black and jamie dimon would say over and over again,

we made mistakes and they were very scared of people thinking they did too well. no one wants to stick above the carpet right now and what is they are doing well because they will get too much attraction. in the interview, they kept saying we made mistakes too. you can look it the results. you can look at who is make big write-offs, to simply see the scale of mistakes jpmorgan have made so far and i think there are plenty of things that could go wrong in the future. they have got consumer credit-card exposure. they have got-- there are mistakes there but the scale of right of that jpmorgan made are nowhere near the scale of citi, marolt, morgan stanley and which is one reason why they are not being forced to raise it whole bunch more capital now. i am sorry, you have probably got a lot more questions but

thank you very much. [applause] >> our special prime-time book tv programming continues tomorrow with barry ritholtz on his book, the bailout nation.

>> chris anderson is editor-in-chief of wired magazine. over the next hour come he talks about his book on the internet business model. it is titled "free" the future of a radical price. >> is my great pleasure to be here with you this morning. i am a huge fan of your work and your magazine so it is a true pleasure. that said,. [laughter] bright? you have got to be kidding me? >> i get that a lot. >> how does that work? i know it took you 250 pages in the book but give me a 30-second version. >> my children when i tell them that that dad daddy has written a book about how stuff can be free on the internet, they are like, you didn't?

dad, it is bits. they are free, and then when i tell my peers my age that chris anderson has written a book about how things can be free on the internet, they are like, chris, you didn't. don't you know there's no such thing as a free lunch? between the in no way, free is the most misunderstood four-letter word beginning with f in the english language as opposed to the others. [laughter] very, very basically it is not really free, free though. well, sometimes it is. you see, what i have learned about this was one little word is just how it has changed in meaning, how it twists our minds and we are drawn to a to in equal amounts, how it has different meanings even today but the big difference is

20th-century free is a trick. it is not really free. you are right to be suspicious. the 21st century free, digital free willy is free. google this not show up on your credit card statement and that is based on the underlying, what is different about the underlying digital stuff which is that it costs almost nothing and whatever it costs to gets cheaper. >> but what we are doing and google is a great example because i'm a huge user of the product. you name it, i google it. somebody is paying for that. >> well, i should have to tell the radio guide that it is possible-- >> you are not telling me, you are telling them. >> i should not have to tell this radio guy that it is possible for things to be really free. radio is free to air, television is free to air and the fact that an advertiser pays for does not make it any less free to you.

by the way, in fairness to the phrase there is no such thing as a free lunch it did understand the concept in the monetary and non-monetary, so when kai and i have lunch and he picks up the check he is thing with me this time, his attention and his reputation. so he will pay in one way or another but not with money so their radio audience will pay you in their attention and the reputation that etc so you are absolutely right that you are paying for google with your time and attention etc. and that if you click on an ad and then buy that product will pay more for the project and the marketing costs to go into it and the book will balance in the end, but it is not like buy one get one free or razors and blades or a free gift inside. odd darth you are not going to pay. somebody else will. >> just for the historical background give us the razors and blades story with which this

whole thing came to life. >> can i go three years earlier? 20 a century free is cross subsidy to say you get one thing for free and pay for something else. the classic model is considered a razor blade. you give away the razors and sell the play. it turns out that king gillete never give away the razors. the banks gave them away to customers as a way to shave program. sabin shade, but the consequences for the same that you are hooked on one thing and which is useless with other places that you pay for a utility forever more. he did not invent that. the guy who invented it was a guy named frank woodward hugh in 1896 at the beginning of the packaged goods business, stores were largely fresh products. we didn't have many things in

boxes. we did not have neilsen shopping cart. instead to the extent where any boxes, pet and medicines were behind the counter and you had to call for them by name so the original package foods from all powders. there was east, baking soda and sugars and because you have to call them by name we get to introduce the concept of graham along with the purse packaging of food. arm and hammer baking soda, so it became possible right around then to take chilton and turn it into a power that you could reconstitute with water. before that you had to make boiling capsules. so they figured out how to turn it into a powder and put it into a box. the brand of cello was the unknown so what they did was they said how are we going to get this brand out there? they had a fleet of trucks. they would go to the merchants. the merchant would say, i have never heard of this. the problem was at the time

needed eight traveling salesmen's license. but there was a loophole in the loophole was he did not need a license to give away things door-to-door and this was the allow religious pamphleteers-- said they said what can we give away? they thought about it for a while and they said go to, the recipe books of they created this beautiful cello recipe book, norman rockwell and others, it was absolutely gorgeous. they handed them out the door to door. they have people coming in the door asking for cello. sure enough that worked better as they give away something which was enticing but useless without being greedy and creating demand for the ingredient, you created demand for cello forever more. the notion that giving away one product has a dependency on a paid products led to the 20th century market model so you'd

get a cell phone for free and pay for the mets and so on. that defined that form of freedom, not really free.

likewise if you are going to run somebody's out on your side you want to run the guidance of the most ad because the price of gas would be most effective so there are winner-take-all markets but not all businesses so there are thousands and thousands of businesses. there's the software servers, games, content, we are in the media business and have a fantastic when or to call monopoly over the 20 century. we own the broadcast towers, fleets and trucks etc. because we have these huge audiences without advertising it was great. along comes the internet and the problem with the internet from the media perspective is not that it's free, it has got competition and the problem with the competition is they don't do what we do, they are not attempting by and large to do magazines or radio shows, they are narrow and do things we don't do, the fine slice and

there is an infinite number of narrow things so the way to compete with googled is you don't do a google does you don't we get a search engine. when you do is say we are going to have the order is a perfect example. the three years ago twitter was nothing. it was an idea, 140 characters. today twitter has what, 40 employees? you know, they don't have revenues, they don't need revenues it is so cheap to run so you could continue to invent twitter and the was an infinite number to come. is twitter a winner-take-all market? mabey for a short time, but how long is the clinton last and that is the things about the monopoly on line. monopolies of into existence and then disappear. remember before facebook there was myspace and before myspace there was friendster and so on. i think google rightly believes the monopolies if they would use the word, monopoly is not guaranteed were set in stone and

they are more likely to lose than to retain. >> how do you compete with free if you're an up-and-coming internet bit economy company, but if you are an old line may be even when you make can be given away on the internet but what you are is markers of, how do you compete with free? >> microsoft has had 40 years of experience competing with free very effectively. we forget microsoft was one of the first software companies in the 1970's when it was created computer industry was a hardware company, ibm, you buy the computer and it software for free. some people copied for free because they got it for free the microsoft built this famous letter in 1976 and where he was saying you should pay for software because we won't continue making this stuff if we don't get paid and people are like a software company who knew there could be such a thing but they largely bought it said the continued wide intellectual convincing people then the next step was piracy.

how to compete with piracy because imposing animal forced economics, imposing the price of zero even if you don't do it look at the music industry. if they don't make the product free they will do it for even the digital space. microsoft said about piracy in china. okay but we shouldn't do it, but it's not the end of the world because you are a developing country and for now you can't afford software but as you develop media will if you are going to get hooked on software we removed rather you get hooked on our software and by lowering the cost by letting the software be free we may encourage the adoption of computing and would be adopted along like a soft lines. we know this model as the drug dealer model. [laughter] the first taste is free. but it works and unlike the drug dealer model which isn't increasing productivity lowering the cost of computing does so sure if it worked as china develops it did not faster and like a soft lines and now the chinese businesses pay for their

microsoft software and then they competed with open source by saying okay, you know it's not about the software it's the service level contract, the guaranteed it's going to work and the cool list but they are coming full circle and yesterday the day before yesterday announced microsoft office in 2010 will be free online competing with free google documents that there the the cut the entire software all the business software is free to start up companies under a program called bizspark they've come full circle. they realized the chinese pirates model today are the internet entrepreneurs. same deal. you're developing someday you will develop faster. you may develop more if your plan to use free software we would like to use our free software. if we make it free you may develop faster and then someday you will be hooked and be able to pay. >> there is an element of this book that requires you to wrap your head around the notion of

price because despite what we as american consumers think the price is not necessarily with the sticker says when you walk into the store and we were talking earlier and you made a great example about your magazine and quit has three prices. >> price seems so obvious yet so mysterious. let's talk about how stupid we are about price, we've been to college, we know that's $3. how does that work? saving a penny. we rounded down to two. how does that happen? [laughter] adam smith wrestled with it, he spent ten years spinning his wheels to understand price. he said where does price come from? is it based on intrinsic qualities of the product? eventually came to the notion the prices of the market will bear, prices people will pay but it took a long time to figure that out, long time to figure out competition. so, you know, the good news about place in economic terms is that it is signaling.

price is a consumer signal that says this is what i think it is worth and there is value in that if someone pays you you know they want the product and if you give something away for free you don't know they want the product or mosul the problem with free is you remove the signaling of commitment. the reason we give away the magazine we do that magazine is your roi website we have 495 on the newsstand of diffuse credit is $10 a year which is 80 cents per issue. it actually cost us, like $100 years of white wheat supplies by 90%? why don't we go all the way and make the magazine free? because by writing a check for any amount you are signalling a commitment which we can then deliver the advertisers. if you write a check for 1 penny we can charge may be twice as much to the advertiser because you acted and made this suggests a sense of engagement. free does not imply no value. well, here's the problem. we are seeing the adams world

and the big world. and adams world, you know, if you pick up a free newspaper on the street corner, do you value of as much as "the new york times" you subscribe to? maybe not. maybe not. we just can't test that. online on fortunately where the prize has been taken off the table you don't value google any less because it is free evaluate based on other factors. the way we measure that is what time, attention colin usage patterns, etc.. the problem is we don't know how tight that is, take twitter for example. the writer is a free service. why doesn't twitter -- twittered could make money would tomorrow. they could make money with one click of a button. they would turn on the ad level. why don't they do it? because they are afraid it is going to screw it up. they don't know how tight their hold on people is because they are not paying.

how much can describe it up by introducing monitoring model and it turns out to an twitters case that is tenuous. something like seven of people start eight worker account, i am one that tweets user and right now i am committed and i would use it. >> y jul tweets? the characters. we are finding them and amol publishing unit and may be the next will be like 40 characters. how about no characters? you and i get a business together and we just sell ads and see what works? those google guys think they have something.

>> you say several times in the book a certain thing is close enough to free to be basically considered as free, it is 11,000 of a penny or whatever. as i am sure glad well as you saw in his interview in the -- he makes the example of youtube. youtube and google and it's given away this bandwidth and that's great but 75 the chilean people uploading close enough to be free adds up to real money. >> i believe he suggest you would qualify for t.a.r.p. funds? he is a brilliant guy, completely wrong. >> i am shocked. >> my sister publication he's my colleague i have a huge respect. i wish some day i could be the kind of writer he is but he knows nothing about youtube. i was at google last week. let us count the errors.

first of all nobody knows how much -- youtube by the way is a subsidiary of google for those who don't know. nobody knows how much youtube loses. it does lose money i will get to that in a minute but the speculation about hundreds of billions of dollars, google doesn't buy bandwidth retail. they buy in dark fiber. google owns a good fraction of the internet. they are not paying comcast. google has farms that make the river rouge plant look small. we don't understand the scale they work. their costs are nothing like what malcolm said. he's off by an order of magnitude. second point, google makes money for youtube. youtube doesn't have to make money. they make money because does is

300 services with 290 are free. what google wants you to do is as you said to use the internet the more you use the internet the more you will leave traces of information. your actions let google make more money by selling ads. the attachment to the global network will benefit google whether it is you switch from youtube to one of the other services or whether the information they put in the videos and allows you want allowed to create smarter businesses. they will extract money and economics is called a complement. you give away the mustered for free to make a hot dog. no one says the mustard is qualified for t.a.r.p. funds because they understand it's a bigger business, the hot dog business. last point. youtube is 5-years-old. youtube has acquired a network television sized audience. never in human history or in the history of advertising, same thing. have advertisers not found a way to follow the eckert, to follow

the audience when we invented the car advertisers quickly invented the billboard. as we move to television advertisers understood may be that static picture could be a moving picture. it took them a little while to get to the static picture to move. as the audience move to youtube we will find a way to move to video advertising to youtube as well. the reason we can't take television advertising is television advertising is mass to mass, coke ad against american ogle. what do you put against achad video against my favorite torian? coke ad not such a good fit. how do we make the deal ads as granular as youtube? deconstruction aside what about the notion cheap enough to be considered free still costs somebody money? this is the distinction between near zero marginal cost and fee will marginal cost.

this entire conversation is predicated on this idea of marginal cost going to see roe. marginal cost going down close to zero. marginal cost never goes entirely zero but they get close to zero you can ignore them so back to the original point, close enough to marginal, zeal marginal cost how does that quantify as free in this economy? >> it's free to the consumer in that you choose not to charge so for those marginal cost a little equine 101 costs are fixed cost and marginal. the of original neyer zero cost business was your business, radio. when you set up a broadcast tower in the 1920's this was the new economy. unbelievable. such a broadcast tower and put out a signal and unlike all previous forums where every book you read required you to print a book so the marginal cost was as

the road you could reach a million people for the price of one. the cost of reaching one more person on the radio was is evil or close enough you could ignore. maybe you have to push your power out and put up more but the cost was zero so that was so profound we've realized what you need to do is get the maximum audience. this is the medium could work as the radio operators' realized economically it worked best as one too many. it was broadcast a mass audience and mass contant we need to invent a product that would suit this unprecedented build to eckert eight millions of people around the same thing at the same time so we invented the blockbuster, top 40, movie star, invented sitcom. we invented content that addressed the commonality of taste, the lowest common denominator everybody loves right now not to put your -- not to put you on the same spectrum

but would appeal to a mass audience. there are places you can't go because the entire conversation would be to wonky four-door show so that is what you're zero marginal costs did, created mass media. again we have a new medium and the smears hero has both advantages of everybody at the same time and to be narrow. it can be mass at the same time. that's the unprecedented thing about the internet is it is scale agnostic. >> with that requires you to do is use free for what it's best that which is to try to get to maximize your audience to get the maximum number experience a product and then do money.

the study and science of choice under scarcity if you can't have everything you have to figure out what you want. now you're point is in this era of marginal cost and how or what we have is abundant. we have everything in those fields and we can waste it. explain how that factors into this. >> so, scarcity is a good thing if you happen to own a scarce commodity as gold miners know very well. we the media industry had a monopoly in the 20th century we had these scarce things you have a broadcast license i had the printing plants. there was a day when the newspapers were in fact the way to get the news if you needed to get the news in your town the newspaper was the only way to do it so they had this monopoly and

the only way you could make money is with scarcity, the given of economics. so what's happened the internet destroyed scarcity. now there is an infinite number of producers out there, infinite number of channels so we've lost scarcity so one of the problems is it is more competition and prices go down. now that's a bad thing our cathedrals of commerce we built on our monopoly rent. we are not going to get another one of those. we have to run because we don't have scarcity anymore but the good thing about it, a good thing about the fact anyone can publishes everyone is publishing and youtube is a great example. youtube is the future of television. one would have thought somewhere in this city in a room not on like this people got on like this are figuring out the future of television wrong. what's happening is that a million people uploading their own videos is collectively

figuring out the future of television. everyone says youtube but isn't it full of crap and the answer is yes and that is what makes it great because your crap is not my crap. >> but it's all still craft. >> but the way nature approaches evolution is we are going to try everything. we are going to -- the deadline sees will flow everywhere almost all of them will land on the sidewalk that may be one of them might find this new place. mammals are very unusual. we are unique in that we have few offspring we treasure. you've got four kids i've got five. >> treasure them most of the time. >> but by and large 9 trillion to ensure they reach adulthood. [laughter] a2 and away 3 million eggs by and large it does not insure its children reach adulthood and by the way most of them don't.

what you're doing is in economic terms exploring the potential for throwing a lot of crabapple will, at youtube. every video that can be made will be. every city of erfurt and we may discover the future of television is not raymond but logan girls' 15 or soldering videos or all of the above. >> we watched susan boyle sitting on a dream eight treen 2 million times. you have a problem with that? >> it's a lovely song but that's the future of television? >> there is no one future of television. here's the dirty secret we are not all alike. when i was a kid when i came home from school and dewitt are the same age so you know. there were four her channels and there was only one show and that was gilligan's island. >> i got the tails navy -- mchail's navy. >> if you looked at the statistics of 1977 you would have said it turns out

14-year-old boys loved gilligan's island, the number one show a 14-year-old boys. we had found the perfect show. well, turns out if. in the book i tell the story of my wife as a very tough mom and she allows the children two hours of screen time all weekend, two hours. >> total for saturday and sunday? i read it as two hours saturday and two hours on sunday. >> there are times they were annoying and would get more. we're how that works. the more annoying you are the more -- >> they haven't figured that out yet. more than you could ever know. >> so we said you can have star wars, two hours of star wars, you can watch star wars as george lucas only dreamed of

skilling dee dee on the projector saw around south. we are going to make you popcorn, any one of the five or six or you can go on youtube and watch star wars action and animation made by 7-year-olds with lego figures and they are like youtube! at no interest in star wars. what they wanted to do is watch what you and i would consider crap and by the ways by 7-year-olds are crap, -- [laughter] the voice acting. but it's relevant. it's what they want as a matter of fact they started watching star wars it's interesting they want to watched one soldier and a nation's made by 7-year-olds. so that is -- by any normal definition of quality it's crap and yet that's exactly. no committee, the perfect

television for 7-year-olds was television made by other -- >> and happens because this abundance that lets us get to free because we let 7-year-olds waste bandwidth and processing we discover the future of television. >> were fighting. is to head back their somewhere? what time are we out of here? i'm sorry. mine:15 or 9:30? terrific. the medium level of free these days and i saw you and a web dee dee no and you said people ask all the time newspapers. how do you keep newspapers around where they themselves are giving away their product for free say we can't make any more money? >> de and of buying existence which is printed dead which people love asking the editor of

wired magazine that runs a print magazine about the digital space. anyway. let's talk about newspapers in particular. what we are discovering is that to problems with newspapers. the news and the paper. right? the first problem is newness. what is news and? we don't know any more what you look what people are consuming a lot of it is news by journalists but a lot of it is created by amateurs. it turns out news to me, then use my daughter's grave turney on the playground as news. more important and i'm not proud of this but more important to me is there has been another car bombing in baghdad. i'm not expecting my local newspaper to report on that but there is news and there is my interest and my friends etc,

facebook is news. news about your world. now it isn't news as professional journalists define it but it counts as that news gap. then there's the problem with paper. in general all of our jobs are to add value. the internet is the air we brigit. to the journalists at "the new york times" add value to the internet? absolutely. does the paper of "the new york times" ad value? you could argue i interviewed "the new york times" magazine this coming sunday and it's out already. wednesday night and it's out already. when the newspaper alliance, when you read the newspaper is their anything that is news at

this point? you have read it already. the paper makes the the news 18 hours late so that is a valid use of track proposition. so, the question is okay what is valuable? let's say some of the reporting is valuable but valuable most in the medium where we can't make as much money as we did with print so we need to find a way to make money. there's the other stuff, how many reporters do you need at the michael jackson memorial? sorry about this. >> you need more reporters. >> more. at the san francisco chronicle my hometown paper since one of the reporters how much value is that reporter adding -- you know? i think if we are going to find out some of what newspapers did they probably shouldn't be doing any more and some of what they did remains of all of you so now i'm going to talk about the difference between the san francisco chronicle and new york times. the times will be fine. maybe they will be smaller but what they do has value.

maybe they will charge for the phone application are content offer other. maybe they will develop a formula of advertising. they will figure it out. my local newspaper, my local local newspaper etc. they are probably going to be pretty good. they are lean and mean and will be good at covering by local community even better. the san francisco chronicle i am not sure has a future. turns out my interest, imagine a line of geography that goes 1 mile, 100 miles, 10,000 miles. so, i have got intense interest what happens from my home and really quite a lot of interest happens globally. so i am interested in berkeley and baghdad. i live in the bay area and i couldn't give a crap about san jose. san jose could be san juan. it's just -- i don't have that -- it turns out the newspapers -- >> they think you care. >> they're built on the

metropolitan area and i have this interest in the metropolitan area in fact i am granular. there's a terrific writer by the name of stephen johnson who has a company called outside which is all about hyper local etc and what they discovered is that it is the pot holes and, you are interested in the pot holes six blocks from your house but not eight blocks so if we are all incredibly provoke you and have the six block radius how do we scale immediate down to cover every six blocks obviously the way to do it is we have to find a way to help and terse cover their own community so i think the bottom scale we are going to be sort of, you know, coaching amateurs. it's community management and at the top scale it is when the traditional journalism in baghdad cetera. the middle scale covering san jose i don't know what is going to happen i think it will get worse before it gets better.

>> we think of wikipedia as the amateur and untrustworthy but some people that use that are the best scholars in the field maybe not the entry of a quantum mechanics but to the injury on or a particular passage which is the history of the free lunch was written by some really smart scholar john -- scholars on the subject. you need to check original sources and it does change and the of the third problem is you cannot cite the individual

but only the entry it is a collaborative effort. what we have decided to do with this book and we will do going forward is all of the notes are online it is the url if you want to find the notes go online and click on that you will see the entry and the history you can make up your own mind if it is a good source. >> if your 12 year-old came homesite day wikipedia wikipedia -- sightseeing i would make them get out the world but the. >> i would say when you cited wikipedia when it said the sources did you go to the sources and read those as well? if they said it is the beginning there are two reasons it is the entry point* the actual analysis is itself useful you do not do one without the other and i would

encourage them to click on the lincoln greeted the original material. >> how would you assess the situation with myspace? two or three years ago what did they do wrong? >> guest: we should all feel like that myspace is the third largest on the internet? i am not to worry about myspace. if you look at myspace to your eyes or my eyes it looks terrible there are no uglier pages other than craigs less. [laughter] but that is what people wanted. you can argue facebook by happen authentication starting within educational e-mail

address abizaid nouri is ratio but facebook will have its problems as well. myspace biggest problem was not finding the advertising model that worked as well as the service there has been some analysis that facebook was college phenomenon and myspace was not college and there was the age difference and myspace had an important music component that is the difference tinged quality in the beginning but it was blurred are like the fact they're returning to their music groups and will do a better job of that. i would say the biggest problem is after the site was successful they thought they

had won the lottery and that was it they did not innovative enough and facebook innovative faster the music component in particular they should have pushed up harder and figure out how to be a true music resource portal i know they had struggled more but complacency is always the answer. >> host: does a free economy make innovation easier or harder? >> guest: much much easier for two reasons the first is this is 31 of my projects is a robotics company. we do open sars -- open source hard right is a fascinating concept rebut the schematics, firmware, motherbo ard open source hardware. not the software.

this is terrifying but we do opens source drone creditors come up little creditors that are free-for-all everybody can now the wind. we're competing with the military industrial complex to giving away stuff to everybody. >> host: how was that going? >> guest: it is going great the and air force is very, very interested in what we're doing. [laughter] so this is what we do. we give away our stuff, our intellectual property and in return people make it better with an many eyes all boats are shallow. we had one bug in our own code. and we were busy with something else we could not fix it and we were getting hassled we said open it up.

here is the code and seven hours later the committee fixed a perk up the problem goes we cannot think of the various applications because it is open, i do not want to make a drone i want to make a bow or a car or a helicopter or a rocket then they evolves the code to suit the other markets we say do what we want. if you could take all of our stuff and make your own you were a chinese company and representative bus off and sell the product and not pay a penny but a few buy from us we will charge you 2. six times the cost we have built a relationship of trust and community by opening code and being there and building a community, people feel they understand us, they feel they want to support us, they trust

the products are what we say they are and they pay us 99 .1 ever% of what people choose to pay us rather than make it themselves. >> host: next question. >> do you think this concept will change and the that long ago you could read everything in the library but still universities are important? do think if they put more content online that would change almost like in this space people do not need to come because they can watch it somewhere else eventually? >> that is a great question and we talk about that m.i.t. has entire curriculum, harvard are putting lectures on line, what is university four? is it for the curriculum or lectures or for something else? we are realizing university is

not that you sit and we talk rather about the interactive communication the collaboration with other students the one-on-one collaboration with professors, the contacts that we make it is the accreditation that you got out the door that it says something about you but the content itself can be opened to all burma does not seem to hurt universituniversit ies or diminish the personal contacts broke a robotics company i was looking for my c. teel we're boast on the open source harbor platform i went out to the board and i found one guy wo is just awesome and he made a helicopter with the believable work and he is agreed to do a project with me we set up this company together and at that

point* i said i would like to know more about you. he told me he was a 19 year-old high school student living in tiajuana. [laughter] he is now 21 years old living in los angeles. he got a google ph.d. he had the initiative and intelligence and ability to give himself a ph.d. quality education by learning himself, a self started. now he is getting the degree because it turns out some companies like college degrees but he does not need it. that is not true villas' learning the basics the foundational skills he did not pick up but the editor in chief of "wired" when he went looking for the best ended up with a 19 year-old kid in tiajuana is the most inspiring story about what the internet can do that i have experienced. >> host: did you hire him? >> 50/50.

>> how low. is seems computing is the next thing in the business sector what is the next thing in the private market sector? >> in the digital age? >> i do not understand the question. >> like facebook is popular, youtube, what else, a twitter of course, what else to use the as the next thing? >> guest: i have no idea everybody always asks me. nobody knows i did not note twitter was the next big thing until it was the next big thing. my crystal ball is as bad as everybody else's what we do try to find is that the future is already here it is a and evenly distributed. something is big is 40 big summer you just need to find it.

but i have no idea what the next big thing is after twitter. nobody does. >> we did. zero characters and we making a lot of money. >> my question is about human evolution and continuing to reinforce consumer is them. if it is not free somebody will pay for it, it is the advertiser there is a paradox in behavior of finance that the richer we get the less happy we are so if we are in pursuit of happiness how does that fit in this model that we continue to reinforce consumerism? >> guest: a couple of answers first of all, we only talked about advertising but the book is different. it is called the freemium a tiny fraction is given away as a free sample then you sell

the rest and then you sell 10% the video-game industry and software is moving to freemium it is the best for because when you convert to a page user not because you were suckered in with the advertising but you sample the product and found the utility and are willing to pay. that does not address your question but i want to make that pay point*. in what does it mean? you are not paying. if you are getting free content online, blogs, facebook, are you a consumer? are you a customer? these are the wrong words. we are consuming more it is absolutely true because it cost less so we have more information my kids are exposed to an extraordinary abundance of content and

entertainment and all of it is free does that make them a value stuff more or less? does it make you a consumer or anti-consumer? i don't think we know doesn't make them more happy or less happy? these are all good question and it is not like there at the mall buying more genes. they have the infinite supply of stuff everything they want is one click away and everything is on line. they still ask me for the credit card like club banquet and any if you have kids? it is free to play games but then it comes in pretty quickly because they want a pet for their bank when. they value it although it is free but it is not like the plastic wrap they got for their birthday. >> host: that is a great question and what happens when

we become used to the free economy? >> [inaudible] is. >> "the long tail" was an extension of "gilligan's island" which is we thought we wanted blockbuster and best-seller and top 40 but we had limited shelf space if we had infinite shelf space we could choose from the internet menu it is the recognition of diversity but suppressed by limited distribution channels. we greatly enriched our culture and change of the world the only way shelf space can be infinite if it cost nothing so free shelf space changed our culture and change of the world. that made me think about free and then i realized not only

did free shelf space do that but we created the countryside the economy online we never had the industrial economy based on zero i figured there should be an economic model and wrote the book. three and "the long tail" are connected around free shelf space. >> i have the prerogative for the last question and may not be the most opera time of -- opportune time but what is the next and look? >> i think i am not going to write about the internet next time but i will write about the real world. my experience as a robotics company and a hardware company built on software ground, there is a magazine there is a diy a cottage industry going up because the manufacturing technology is

democratized sell the next book is atoms are the new bids. can we fix by using the same kind of democratized bottoms up of models that works so well web software now it is starting to play with hardware as well. >> host: thank you [applause]

>> as the healthcare conversation continues to go online and follow the latest video ads and links and keep up-to-date with health care events like town hall meetings, house and senate the bay and upload your opinion with the citizen video. the c-span health care how the at c-span.org/healthcare

>>host: harry reid it is a pleasure for me to have the opportunity to interview you we have done a lot of things together over many, many years but this is a first for i am

looking forward to having the opportunity to talk about your new book. >>guest: we have this longstanding relationship of 26 years but i am so used to having people question me that even you i am a little anxious with you. [laughter] >>host: this will be fun. tell me how you came across the the title "the good fight" what does that mean? >>guest: i think the fact that fight is not negative it is part of what life is all about. you cannot have good fights that are not to unnecessary you cannot have fights just to be fighting and so i thought that was a good title so o if people want me to put my name on the book i say it is our

fight so that is the best that i can come up with. >>host: i think it is a great title and i appreciate you're right teeing you inscribed the book to me, and unlike anybody who has written a book you had done that around the tidal and i appreciate that. >> i know what i put it in your book my forever friend because that is what you are. >> that is exactly right. that means the world to me. >>host: i have had the opportunity to write a couple of books what was said about this story that you felt compelled to share? >>guest: a light to be announcing it was one moment that i said i have got to read a book but my longtime chief of staff who knew no work for

me for many, many years for several years has been trying to get me to do a book for gore wrote a book, as you know, , of my home town of searchlight it was a history book nothing had ever been written of my little town on the southern tip of nevada so she knew i could write. but i knew how hard it was to write a book. so what i did, i gather a lot of stuff from my early career, newspaper articles, i kept even a diary when i first came to the house but going back through the mid 1960's i did not have time to do what i got stuck together and said i cannot do what i spend almost two years reading a history

book of searchlight if somebody wants to rebook, a book of fiction and have an imagination and can write come anybody can do it but when you talk about real facts, let you cannot do that i want to make sure i did not do anything sorry new-line did not have the time i had somebody to help me, a wonderful man by the name of markhor in. we spent hours together talking and looking over some of the newspaper articles and articles written about me and even the tv items in recent years. and for me, tom, this was so therapeutic for me because i had never ever, if i had written this book alone, i never would have delved deep into my soul like i did for

this book. mark and i spend days together it with a reporter and my just talking. there are things in this book that were buried deep into the recesses of my mind. it is not easy to talk about your parents of the way i did in this book. my parents did the very best they could but they were uneducated. they drink too much, they smoked too much. so it was very hard. for example,, tom, one of the things that i talked about in this book my dad committed suicide as you know, so i had to get all of these records together to see if my mother had any insurance proceeds or

anything. my dad was a minor but for the last few years he worked for the state highway departments william looking through this i need to find a marriage certificate to prove they were married there are four boys. my parents did not get married until after we were all born. i talk about that and the book i call the my little brother, i said hey you little bastard. [laughter] but it was done in a way that i hope it was soft and manny -- meaningful as it would be to my folks it was nothing to be embarrassed about but that is the point*, tom. it was a therapeutic thing for me to go through all of that stuff of the things that i did

that maybe i could have done better. >>host: in that regard, you say in your preface the last paragraph you right, looking back is something i have not often done and it does not come very naturally or easily for me. not all is sweetness and light in the past and there have been more than a few scars but i suppose that holds true for everyone. is that why you don't look back or you find it hard because of the scars? that is a very real late 80's revealing and poignant its mission and it is hard to look back when there are scars. >>guest: there are certain things one need not to dwell on. when i grew up i thought my life was as good as anybody's on many locations i never

cried about how hard my life was because i thought everybody is was the same as mine. so there is no need now to dwell on how my life was not so good and i tried to carry this over into my political life. i have a lot of not so good traits but a couple of them. one of them is i try hard to make the right decision. and i do the best i can but i do not dwell on it once i have made a decision i put that behind me. some colleagues will fret but that is the way i have been all of my life. i remember in college taking a test. students would meet after word and say what did you do on that question? not me. i walked away there was nothing i could do except to make me feel bad for what i could have done better so that

is what i do with life today. >>host: is that part of the good fight is that would you want to readers to take away? is that applicable? >>guest: i hope one of the things that i tried to convey in this block is we have to do everything we can to make the right decisions talk to people if somebody thinks it is important to pray about it as i have done on location, do that. but once you have done all of that, that is it. there is no need to go back what i could have or should have four did not do so i help people get that from at least my perspective i hope that is good advice. >>host: one thing appealing about the book i actually don't think i can recall i have seen it done this way before we take moments of your

life you talk about those particular moment and memories but in the next chapter you talk about circumstances as they are today always to revert back then you alternate between past and present i have never seen that have been so how is it with that style? . .

given the full load of what happened when i was growing up. half of when i was growing up and half of what is going on now, and i think also, tom, i have read a lot of these books written by our friends and colleagues really many of them very, very good. but i didn't want this book just to be my philosophy on government. i wanted to be more than that because i -- no one can write a book like i did. no one has ever >> host: what is the hardest part of doing something like this for you? >> guest: the hardest part was being honest. being honest, intellectually. >> host: talking about the scars you mentioned earlier?

>> guest: talking about my parents. that was hard to do to tell everybody that my parents were married after. >> host: have there been any repercussions with that honesty and candor? >> guest: no, usually as you know, tom, some people didn't like it and this interview they won't like, but no. i just love history and this is a history book as i see it and i thought i should be -- it should be a factual history, and also what i tried to convey in this book, and i've done this especially to young people, kids in elementary school, high school, college, and i hope that is one of the things that comes from this book. you don't have to graduate from

harvard. to don't have to have a big fancy car. you don't have to live in a big fancy home. i grew up in the house as i talk about in this book that didn't have an inside we let it not it wasn't because i am 90-years-old. we were just behind the times, had snow in sight toilet, no water in this town i grew up in, not a tv set anyplace, not a telephone anyplace, no telegraph, no real road, no way to communicate with outside world. las vegas was 60 miles away. needles california was 60 miles away. there was nothing. my parents were not educated. my dad didn't graduate from eighth grade, my mother never graduated high school. searchlight was a town where the number one business was and mining. mining was gone.

my dad worked in mining when he could. it was prostitution. i went to a school where it started out with two rooms. i went to school grade one through four, had teacher, one to get to the fifth grade with the big kids, got to fifth grade and there were not enough teachers, one teacher taught all grades. one religion, there wasn't a church in that town. i searched back. i talk about my history of searchlight. but i tell kids it doesn't matter how much money their parents had, how much education their parents had. don't be embarrassed about house you have and that is what i try -- i have a nice suit on a and i and you can do okay. i also don't want everyone to think i just made it in politics. i had a pretty successful business. free enterprise system. i made enough money to put my kids through school so that's

what i want people to understand. that is why i go into some of the stuff people say why did you want to go into that? that's the reason. >> host: i want to get into some of that and there are so many more things i want to talk about but before i get to your childhood and life in searchlight but me ask you this did you leave anything out? >> guest: lots of stuff out. lots of stuff. >> host: and if you did does that mean -- well, i think i interrupted you. >> guest: tom, i left stuff out. you read this. my position today as majority leader is because if you. senate together and we developed a relationship. we have started out with three brothers, one of them died as a young man, 47-years-old so i considered you like a brother to me. and there are many things some day meeting you and i can sit

down and to a book together because what we worked on for all of those years i think is worthy of consideration. sure there's lots of stuff in this book i didn't put in >> host: i guess that begs the question and you just answer i was going to ask whether you thought there was another book and that's the beauty of the work i used to do and you are doing now is that there is an on limited a ray of stories one can tell that somewhat never believe i think if he were to tell the truth. we've talked about the things that probably will go to our grave. but there are things that would be fun to explore. let me ask you, your childhood was from of all lot of sacrifice. you didn't think of it as a sacrifice but the things you didn't have and the things you are subjected to, you're father alcoholism and suicide, the rugged six distance you experienced but you still found time to do things a lot of young

police and kids would like including sports. i have always been intrigued by your infatuation with boxing and helpless started. i don't know the story how boxing became a part of your life. >> guest: tom, i always -- when i was a boy in a talk about my book a little bit, the one time of his sheer pleasure was when i could listen every day when we were out of school to the major league baseball game of the day, broadcast on the mutual broadcasting system. i loved those games, listened to them on the radio. and i envisioned myself as a little boy growing up being a great baseball player. i loved to play baseball. and i thought as my useful mind that i was really good. and as time went on live in high

school and played on the state championship team of which i was on the team it didn't make much difference whether we had won or lost because i spent most of my time on the bench. it was a big deal for me, i was one of two sophomores. went to college on an athletic scholarship, football and baseball. and i boxed a little bit and high school, my last year and i never understood why my men to our -- mentor who handled the fights. i learned later i was too big. i weighed 185 pounds. i went to college and came to the realization i wasn't good enough, fast enough or big enough. i got hurt and i knew i wasn't -- i was pleading with men and i was still a way a boy. i wanted to be an athlete and i knew i could cite a case i

started fighting and that is how i had my fight. his wife of a couple of years, competitive fighting. and that as athletics due to a person whether it is a boy or girl it builds your confidence. it makes you feel good about yourself and that is what boxing did to me. postcode there is a passage i want to ask you about in your book that i think goes to that very point and it goes exactly to that point. it's on page 56 you say but the lesson my mother taught me is that it is the most important thing -- and it's the most important thing i ever learned she taught me to have confidence when sometimes i had no business having confidence she taught me that, one better than me if it wasn't true she taught me that i could handle anything in the world that the world could throw at me whatever it might be. she actually was that

inspiration for confidence it sounds. >> guest: tom, you're reading that brings tears to my eyes, literally because my mother, i have never been a robert redford or gregory peck or brad pitt, understand that, but my mother why was the most handsome kid around and i sure she made my brothers feel the same way and tough. i was afraid no one because i had the confidence because my mother gave it to me. smart -- tom, i have learned since there's a lot of people smarter than me -- but no one felt they were smarter than me. i was as smart as anyone. so, yeah, my mother -- that is a wonderful passage and so what true. you're not afraid of him, don't you -- you are as smart as him. that was my mother. >> host: that is interesting because my mother taught me exactly the same thing and i think we could probably both

agree that were it not for that and our self-confidence we would never have arrived at where we are right in life. >> guest: i was never afraid to take chances. i am not a guy that likes mountain climbing or doing dangerous things. by that i just mean i wasn't afraid to try something because i figured the worst i can do is lose. >> host: it seems and reading the book that you didn't mind the fact you east cape search light, then you had this bright world of opportunity but then what i find amazing is in spite of the fact used it searchlight and went on to these things you've done in life you went back to searchlight. how is that? >> guest: well because that's the days of my youth, that is where i formed my ego dee dee kuhl ideas about wanting to do something different. i told you i wanted to be a

baseball player. but to show how little there was to do in searchlight, there was a two-lane road that can into searchlight, paved road and traffic from california, you know, and you hear the truck shifting gears. of ago up one and cut through the road maybe half a mile from our house i would count carson. can you imagine that? i would count cars, when i get to 100i would quit. there was nothing to do. i didn't like what was there in the sense i knew it wasn't anything -- i worked very hard physically lots of times, lots of times. i did a lot of things ably my age shouldn't do. that's another thing i figured i could moscow as well as anybody. but i knew that i didn't want to do that all my life. and i was as a boy as i talk

about in my book 18 major met my wife and today, tom, it is my but i loved the desert, that high desert. i've had only two senators come to my home in search light. tom harkin came by and ben nighthorse campbell so they have seen my home and the home is fine, it is no mansion but the setting is good. you can go to aspen, you can go someplace one of our friends, dianne feinstein, beautiful homes. the sitting in my home and searchlight is as good as it gets. high desert, the joshua trees, lookout 15 miles there is we call them the timber mountains. so i built a home there. for many years i lived out of a hotel. i tried to keep a home in las

vegas, but when you don't live in it it doesn't work well so i sold that after a couple of years and left out of hotels. but for the last eight or nine -- i don't know how many, maybe ten years i've had a home in search light and i loved. >> host: will happy anniversary. i didn't realize today was the day. i'm going to ask about family in the next segment, but before we have to take a break tell me -- i felt another one of the more interesting aspects of your childhood was the fact you were born and a -- to a family for which religion wasn't discussed. you make quite the plant not that you elaborate but you were clear you were not restored religious family you found religion at some point in your life how did that happen? >> guest: as i said, religion was not anything in searchlight. i mean, i participated in

christmas plays but that was just a holiday. and my mother used to tell me listen, you move your lips, she didn't care if i sing but she didn't want me just standing there because she probably knew what my voice was. i was in that play and i guess i moved my lips but religion wasn't anything. it was when i say it was never discussed i mean never. there was never a question of having a blessing on your food or are you going to go to church with somebody, never discussed. so i elaborate in the book little bit and i will make it short here. my wife is jewish and when i married my jewish wife, it meant nothing to me. i have no -- it didn't mean anything to me. religion meant nothing to me. the fact that she was jewish wouldn't had been any different than if she was a muslim or hindu. it didn't mean anything to me.

it took me awhile to understand all the prejudice against people who are jewish. and so, as i proceeded through high school, the people that were the nicest to me -- here, tom, understand this my mother when i came from search like to go to high school in henderson of that i did that because there was no high school in searchlight. had to go someplace and i would live with people during the week and go home on subway camps and and i lived with other people. my mother ordered my clothes out of the sears and roebuck catalog. ii imagine i came to henderson looking like some kind hick but i didn't -- again having the confidence i gave me -- my mother gave me i didn't worry. the people that were the nicest and reached out were more men kids. they were so nice to me.

kids who were athletes and handsome and had girlfriends and took care of me literally took care of me so and opened doors. i guess i thought to myself that's interesting and one of them asked me to go to church. something called seminary they did in the morning and he said there are good looking girls there so i went to seminary and the guy that taught the class was a guy named marlo walker and a wonderful teacher. so, he threw this opened the religious door and eventually i joined the nds church -- lds torch. >> host: well i want to talk about that and how you met her and the senate but we are going to take a short break and be right back. how is c-span's on did? >> the u.s. government. >> private benefactors. >> i don't know. i think some of it is government

raised. >> it's not public funding. >> probably donations. >> i want to say from me, my tax dollars. >> how is c-span funded? america's cable companies created c-span as a public service. a private business initiatives -- no government mandate, no government money. >> host: i want to spend a little bit of time talking about family and friends. happy anniversary once again. and tell me and tell the audience how you met your wife. >> guest: we went to high school together. on was one year ahead of her. i was a junior in high school, she was a sophomore and she has gotten used to me saying this even though she didn't like it initially. my wife as you know, 5-foot tall and myself looking a little leedy. >> host: beautiful. >> guest: i drove by her house and she was in her yard in a pair of short shorts washing her parents' car.

that was it. [laughter] >> host: so you stop it? >> guest: no, i don't even think i stopped -- i may have stopped but in my mind's eye i can still see her in those short shorts watching her wash that car. >> host: how long after did you ask her out? >> guest: we started dating and we have been together all that time except for a few months my freshman year in college -- my freshman year in college i went to college and we dated other people, but just for a short period of time. as we've been together all those years. so really 49 years is kind of inaccurate because it has been closer to 52 years or something like that, a long time. >> host: so more than 50 years later children and grandchildren. tell our audience held many and a little bit about them. >> guest: we have five children. we have what we say to families, we have the big kids, we had

after we were married we were married -- and lana, how were oldest kmart down by guess about 20 months after we married, something like that, and then the boy, rory came 16 months later. i was that you're going to law school. that is one of those times i went know, you're going to have another baby. it was kind of close together. so then we waited seven years and had three more separated by about three years. we had of course lief, josh, and key and then grant children we will see what we end up with. >> guest: and you see them a lot. >> guest: i had such good news. one of my place to the cowboys took a job at salt lake city and it was all awkward for me to go

to salt lake. we have two grandchildren and he took a job in las vegas who you know very well. more established this durham in las vegas. >> host: i am so pleased that you mentioned his name on national television. >> guest: he will like that one. so in a way that's been great. so i have grandchildren and reno and las vegas and my daughter lives back here so i have three grandchildren so it's wonderful. >> host: both of us are very blessed. i want to ask you about this. i have a lot of my own views about this and i know we share many if not all of the same views about raising a family in political life and the pluses and minuses that come with it. like qi had the good fortune to have three fantastic kids who have done well in life and married and one more to be married but you have to and it's always a challenge to raise children while you have raised them particularly well in spite

of the incredible pressures one experiences in public life. tell me a little bit. >> guest: one of my pet peeves is people leave public office and they say i can spend more time with my family. i don't say that. i've spent enough time with my family. i feel that i could have been practicing law all the time. i could have been a businessman. i could have been -- i wouldn't have done any better doing that than i have has a member of government in so many different ways. so i think that people should understand the mere fact that you're in politics doesn't mean you can be a good parent. now i hope i've been a good parent but i wouldn't have been any better identify had been doing something else, so i feel there is no question, tom, that my children as good as they are mainly because of my wife.

she is a wonderful mother, wonderful wife, but she would have been doing that if i had been doing something else. so i think that people should not would hesitate going into politics because of their fear of hurting their family. >> host: i can say with some authority because i know them that i think the test of a good parent is how good of parents your children become and you have got children that are fantastic parents as to why and i take as much pride in that as i think anything i have accomplished in her life. i want to ask you about not only your family but people in your life that i know have made a difference. you already talked some about your father. you're father was a complicated man. he was a hard worker but he struggled. ultimately, he ended his life,

which has had to have a huge impact on your life, but how do you see your father as you look back in retrospect? >> guest: physically he was a very powerful man. bigger than me. i am the biggest of the reid brothers. but he was bigger, six-foot tall, huge from the waist up, looked like a weight lifter, big arms. but as i look back he was always a very troubled man. he was extremely quiet, extremely quiet. he was a voracious reader even though he had no education. he didn't read great books that he read all the time and i have such admiration for him because he must have been very, very smart. he is a welder, blacksmith, he could frame, he was a carpenter, he could rebuild an engine and interestingly enough, he could do mathematical things that i

don't know how any eighth grader could. he could go deep underground with a compass and do this i kings,, op and draw an underground map. here's a man that never went to school but he could do that so my dad was a great guy but extremely troubled, depressed a lot that is why he drinks so much. i don't think he understood life very well having such -- searchlight was basically where he spent most of his life. >> host: could you stay on affected by all of that or was your life in some ways affected by that? >> guest: i'm sure it was because as i talk about in the book he would get me and sometimes -- get mean with my mother and one of the parts in the book is extremely difficult but you do a lot of things in life and this is a thing i didn't think of very much but i

don't know how old we were. i was probably maybe 14 or 15. my brother was 22 months younger than was 15, he was probably 14 and he was being amine to my mother and i looked at larry and i said let's take him and we did. we didn't punch him but we took him down and he was so strong. we held him down until he either had no more fight left in him and that ended that. he knew the time had come when he couldn't do that anymore. but that was my dad. i have fond memories of him. i spent time with him for a couple of summers i was the only one with an underground. it was illegal to work underground along but he did all the time. i would go down to keep him company. i was just a kid probably

11-years-old. it wasn't until later i could do actual work but i kept him company and watched him work so hard. >> host: you mentioned your brothers, lardy and dale but there is another person -- and i feel the same way about our relationship and it felt that you are in so many ways like my brother what you have got a picture of another mentor and brother whose name was governor michael callahan. you call him or lifelong friend and mentor. i have heard you talk about him on so many occasions and you always -- your eyes light up and your tone of voice and changes and you really can feel the immense respect and admiration and affection from michael callahan. tell us why did that happen? >> guest: when i was a senior in high school was the student body president and can remember i guess we thought we were big

shots. first day of school here comes this big man had a funny date walking by he had become over and we thought to ourselves take care of this guy get a week or two and he will be putty and our hands. it was a couple weeks later we were putty in his hand. first of all we feared him immensely. he could be very hard and some of the things he did to students at the time you couldn't do now. but he did it. he lost his leg in korea and was highly decorated but he was wonderful. he just was so good taught and one of the people that helped me understand leader in her life i can make good grades. >> host: your lives were intertwined. >> guest: this man even though he is on a pension sent me money when i was in law school he didn't have money to do that

when i came back to take the bar i was so poor she met me at the airport and gave me a 50-dollar bill. i'd never seen one before but he cared for me and i sure he did others but i felt i was his favorite, okay? he helped arrange loans and i sure he's the one that drum up a scholarship for me to get a scholarship from the business people i'm sure that was him. he taught me how to start fighting, boxing, and then as fate would have it i went for lieutenant governor. he has been in california, comes back to run for governor and no one thinks he stands a chance. we are elected governor, went into pantry and i will never forget that. i still have eight. united press international, teletype came. a1 leggitt ex-marine