>> guest: thank you sergei and thank you for letting me talk to about it now and for the interviews we did before i wrote it. . .

about the fed in august, so i hope that doesn't say is much about my ability to predict the onomy as it does my ability to predt the taste of washington audiences. three years ago at this time of year, if you let suggested to anyone that we might be anything close to having another great depression, unless an asteroid t the earth, you would have been dismissed as some kind of cook, and about two years ago at this time in august 2007 you probably would have been dismissed, but at that time, the u.s. economy began to shutter a little bit, b it seems like pretty much every other episode we have had in recent economic history. we have had some bickel calamity and then they figure out how to-- we have some big calamity, and then the economy manages to shake it off. after all over the last 20 years we have had the stock market crash of the high-tech stocks,

we have mekong presidentia election, we had 9/11, we have a uple of fords and bracken each time the economy wld sort of hit hard and the bounce back so there was no reason to believe that this time would be any different. about a year ago in august 2008 it was already clear that this was going to be a little unusual. the fed had called an emergency cord that they had not touched since the great depression in your money to subsidize theo purchase of bear stearns by jpmorgan chase and the u.s. economy was beginning to slow ppecipitously, but even a year ago, it seemed very unlikely at we were about to tumble into anything that resembled the great depression. and then, in september and octor of 2009, we cameloser to something like at than we ever have before come closer to the me for theinancial system stop functioning,here banks failed, where unemployment went even higer than it is now,

where we had the kind of shattered lives and shattered confidence in capitalism that ma the great depression. we came closer to that than we have that in the moment in 70 years. but, today we have pulled back from that of this. the economy isn't healthy, but it is tter because the economy is out of intensive care. and what i write about in this book is the role that the fed and particularly ben bernanke played in bringing us to this point where we can talk about this with aittle bit of tense. now, i have always thought that th fed was the most under covered institution in washington relative to its power. my newspap and others spent-- sent hundreds of people to cover political conventions, if you admit it pretty long much like a broadway production but you can figure the number of reporters to find to come to the federal reserve even though it has enormous power over all of our

economic lives. so, it has alway been something that i have been interested in writing about in after the bear stearns dl i figured wow, it is never going to get any better an the selling cards by my agent, i started on the book thinking that was going to reconstruct this moment when the fed used powers that have laid dormant since the great depression. i am the guy who thought you write a history of the great depression hn 1931. it turd out that that was just the opening act of something extraordinary. and so, the book turned out to be about a relatively small number of people, most of the men,ll of the very smart, surprisingly small number of people actually have got stuck with the job of preventing an economic calamity, and i am kind of surprised by the reaction that peoplehink it is a thriller. [laughter] wittney your times sunda book review descbibe it as a thriller i called my editor at random

house and that i was worried we were raising expectations for people who bought the book. it is after all about the fed, but i think it's a pretty good ory and an important one and i'm really glad t be here at this, our own national treasure here, politics and prose with so many friends and my wife nail me and my kids, and my sister and her husband bob and other people who supported me through the agony of trying to ite a book that turned out to be a lot more, a lot bigger tail than i thought i was telling at the beginning. now, the fed is not a one-man show but still a large extent, the book in the story of what happened is the story of ben bernanke, ben shalom bernanke, a nice jew boy from dillon, south carolina who corrupt any town, where his father and his uncle ra the local drug store. he was known as a really smart kid in town. hi s.a.t. scores were public inrmation because they were so

high and he was very good at spelling, good enough to me the national spelling bee at the mayflower hotel here in washington where he bombed out on the word edelweiss. [laughter] it turned out there was no mov theater in dillon, south carolina so he had not seen the sound of music. [laughter] he was probably going to end up at the university of soh carolina or the university of north carolina where his parents had gone but, for a uniquely american story, there was a guy in dillon, south carolina six years older than be bernanke, a black guy named ken manning emken manning's family had warm feelings towards the bernanke family because the bernanke's drug store gave credit to black people and not all of the other vendors in that town with. can manning for another american merical found himself going from a segreged high school in dillon, south carolina to

harvard. yeah, he was taken by, since you asked, somebody else come he was recruited into a program run by the national presbyterian church it took talented black kids in the south and sent them to private high schools to finish their high sool. he didn't want to go to a private school so he went to north haven, connecticut where he lived with a family o pediatricians, a jewish pediatrian, which becomes a relative and then went to harvard. he came and ld ben bernanke's parents that his son was too good to go to uncf or u.s.c., deite with people in south carolina think in north carolina in convinced into letting go to harvard but ben bernanke's farringer reluctant to let him go in one of the things they told ken manning who later became a professor at m.i.t. was that they were worried that he would lose his jewish identity by going to harvard.

ken manning, this black guy to assure them that actually there are jewish in boston too. [laughter] in fac because he had been friendly with is family of the jewish pretty attention-- pediatrician who mother led in brooklyn he made sure ben bernanke 12 russia' shauna services his first year at harvard and actually took him to brooklyn for a rosh hashan dinner. bernanke told ms. parents avoids been upset that ken manning found more meaning in judaism then he did. but it turn. alrightor both of them, so bernanke goes to harvard, gets a ph.d. in economics at mit. he is a shy introverted guy, a fan of basebal statistics which seems to be a habit of central bankers. alan greenspan has the same fascination, and he becomes the economic equivalent of a paleontologist because he spends his academic career trying to figure out how wast that otherwise smart people at the

federal reserve in the 20's and 30's did such a lousy job and let this to the great depression? and, it was a fascinating, intellectual steady which he thought not much relevance to today. fastforward a little bit into february of 2006, bernanke succeeds alan greenspan that the federal reserve, when he is sworn in. george bush comes to the fed for thswearing in in describes ellen greenspan que accurately as a rock star, which he was at the time. sort of amazing how quickly things have changed. and ben bernanke comes to the fed convinced that his mission is t follkw alanreenspan's policies but to have a somewhat different style. he wants to-- he thinks greenspan has created a feral reserve that is too much like the vaticawith an infalble pope and everyon else's will then did he promise to elevate the institution, the other

members of the policy committee and to deemphasize t role in the individual chairman as a symbol for the fed. for the first yeathat is about what he did. and then, things start to get pretty different than he anticipated. i think and i describe in the bo that bernanke, and he admits this, this was slow off the mark. both he and hank paulson understood we had a housing problem that they thought it was in their word contained. ey didn't think that it was a cancer that was going to endanger the entire financial system and the whole u.s. economy. it took him awhile to figure out his diagnosis was wrong and in january 2008 he catches up and cut interest rates dramatically by 1.5 anders this remarble episode where we have an institution that is not supervised by the federal reserve, one for which they have not been responsible for killing is about to go dow bernanke decides that it has to be saved forhe good of the system and there is no one else

in the country who can save it, except the federal reserve. the president of the united states kampusch a but it launch a mishel against north kor, iraq, or iran or mexico if he chose, but he doesn't have the money to fight the fancial panic. only the federal reserve does and so they use that power in mah of 2008 and they save their stearns from bankruptcy. as they said they sold it to jpmorgan chase and they buy $30 billion worth of stuff off the bear stearns balance sheet that jpmorgan chase did not want. for the next six months this sort of bumble alongn their problems, fannie mae and freddie mac turn out to be not sulliv that have to be taken over effectively by the state and there are a number of ways in which the chairman of the federal reserve and the other people at the f seat to keep lending gog and the economy, understanding that lendg and credit is in the circulatory system of the economy a if it

isn't auctioning that the economy cannot function but it is only in the fall of 2008 that weekend in september, when lehman brothers, merrill lynch and a ig all get into trouble at the same weekend, that the drum are really reaches its crescendo. and, as most of you know and i'm happy to talk about it in questions, theed did not save lehman broers. i.t. wind other. they knew it would have some ripple effect then it turned out to be a tsunami. they didn't have to save merrill lynch because they mary did to bank of america, much to bank of america's later regret and in the wake of that in the wake of the money market funds that was just as bad in severe is anything we saw in bank runs in the 30's they decided to save aig which has become a giant money sink, again with your money. but at that point, ving let or maybe been forced to letehman brothers go wonder bernanke's.the new mantra in the monster is, whatever it takes.

from that point on, he sees himself as the only thing that stands between us d the calamity of the depression. they lamps 10 tons of money to aig ande helps convince paulson to go to congress and get $700 billion to prop up the banking system. they guarantee money market funds, they guaranteed the debt of almost every financial institution in the country, they launched the whatever it takes campaign for the benefit o hindsight, the little hindsight we have i think you hav to judge as a succe. "the wall street journal" a few weeks ago pulled a bunch of wall street economists and ashem to great bernanke and i really like the comment that one of th may was. he said bernanke's record was outstanding, with flaws. you know, when i go i would like for someone toay that my record was outstanding with flaws. [laughter] i am happy to talk about why they did not save lehman and why

they did save aig. it sms to be a subct of endless fascination. but i thought i would ask a couple of other questions which have come up. one is, if is guy is so smart why did he see this coming? after all, he was not a princeton when some of the stuff was going on. he came to washington and was a member of the federal reserve board under alan greenspan. he worked for awhile for george bush, and i think there really are two very simple answers. es simply a failure of imagination. a lot of people have likened th to 9/11 and it is a metaphor that makes me uncomftable beuse a lot lot of people died in 9/11 and this hasn't been that kind of event. there were pele who have said that the people who defendedur country did not think it possible that someone could commandeer freer for airplanes and fly them into the pentagon and the world trade center and so forth. this was a similar thing.

it simply did not occur to people who were responsible for managing t financial system that so much of the financial system could be built on a single premise that turd out to be wrong, that housing prices across the united states w't fall. he might have flaws in one community of but it would not fall everywhere. turned up the ayn financial system that was the house of cards built on this flimsy foundation because houses for the collateral for mortgages that were turned in securities that were turned to the more securities that returned to more securities and sliced and diced in ways that people didn't understand what they were, but if housing prices haven't fallen it would not have been nearly so bad apising prices did fallen there were huge losses to be taken. the second reasothis crisis is so bad, why we have had, we now can say with definitively, the worst recession since the great depression itself, for all the

work that has been done in economics over the last 70 years since the great depression to try and prevent somhing, and even though wead $700 billion of taxpayer money, a somewhat heroic federal reserve, interest rates cuts is the rope, sorts of exence actions taken, even with that we ended up with the worst ression since the great depression itself. how could that be? i think the answer there is an extraordinary number of things people and institution failed. the list of culprit is very long and i'm not sympathetic tohe people who say, if only this law hadn't been changed glass-steagall rick only greenspan hadn't done this it would never happen. no, the lesson here ithat almost every check on the system fail. aiken blamed the well-paid executives and director of the banks to handle their own companies and did know what they were doing. reason kit the committees did not even understand the risk they were taking. credit rating agencies that stamp aaa ol paper that was in aaa buthen people bought it

knowing it was in tripoli but pretended it was aaa and then were surprised when the money did not get paid back. there were people who made loans, mortgages to people who they knew couldn't pay it back in there were people who took loans that they ew they could not have that. they we hoing that home prices would go up in the continually refinance. there were people who made fat feesn report of this process and there were people who had a lot of money in the game, and ended up, and relied on to know what they were doing who didn't, and i think he can blame the politicians to let that happen, who bought int the notion that the market's-- markets and what they weroing. there were storiesbout things that they might but they obviously were not well done enoughr they wld have had more effect in yessica and get the blame the fed itself and alan greenspan too because after all it was their job to maintain nancial stability and to head this off. so i think that when you look at, when you look at greenspan

with t benefit of the small amou of hindsight he had, he canrgue about whether he kept inrest rates too low, too long, the benefit of hindsight. i think he probay did and that contributed to an of speculation and barring. fatigue nrg he didn't use the had to try and prevent some of the sub-prime visas but i actually think the most interesting thing is somewhat less specific and it has to do with the mindset and the mindset was the one that if you have a lot of sophisticated investors who have their own money in the game, they will police the poker table better than regulators and reaucrats could never do. and that was what greenspan himself in his testimony before henry waxman's committee, if you want to do a confession you choose to do it before henry waxman is beyon me buthat is what greenspaid he got wrong, that it turned out they were not policing the table. the table was overturned and nearly took all of us with that.

so, we have now situation where i think we have learned a lot. i don't think we have learned everything. this is one of those episodes that will be studied and we examined for the next 20 or 30 years before we really have clarity but i think we can draw some lessonsbout what happens in a crisis, in do we have a system whereor all its flaws a bunch of people can come together into something, sometimes bending the rules, sometimes stretching the law, not terribly democratic but they didn't have to have an act of congress in order to pvent the financial system from going under and then i think it turns out to be somhing that is the essential. if we had waited for congress to decide the thing really needed, the water had to go on the fire the house would burn down before they got done. let me just conclude with quickly asking where we are right now and i think there are three parts of that want to talk about. one is where are we in the economy? as i said we are out of

intensive care, things are getting better but they are not good and they are not going to be good for a long time. the history of recessions caused by financial crises are that the recovery is very painful and slow and despite the recent euphoria i see no reason why this one will be different. where beyond ben bernanke? this term is up in january 2010 and my bet is that the prison had to make a decision he would reappoint him. changing drivers when the road is still bumpy is risky, putting its own and would inevitably spard sculation in concern among our people linda's money from the rest of the world, the peop on whom we are depennt that obama was putting in his own person in order to have easier money, more inflation and weaker dollar. i don think the president's appointees would likely do that but people would thinkhat he was than that will cost him something and finally when all these decisions are made it is compared to hum? i think the president probably

conclude that despite pretty attractive options on his own staf larry summers, the presence of the san francisco fed, for the sake of the economy instability, that bernanke pause appointment would be the safest course, so if that is true why didn't he come out and announce its mark? i think the president wanted little iurance and want to make sure, before it makes the decision he wants to make sure the economy is not falling apart because of the economy falls apart in the next couple of months the political pressure will replace bush's appointee to the bed with someone else would be very strong. and then there is have we learned a lot so we don't go to th again that where i am a little worry. we went through a financial catastrophe. we almt had another great depression. congress still has not done the things needed to fix it. the president, the treasury secretary and fed chairman have no more power today to deal with the teering financial institution that is organized than the day lemon went down and i tnk that concerns me.

and now, there seems to be this atmosphere on wall strt that, can go back to doing business the way we did before and that is also frightening so well in comforted we are not on the abyss of a great depression implead the economy seems to be getting better, don't think we can be complacent. we can't expect the federal reserve to again rescue us from ourselves. we are one that we need to fix things and it is up to us as a society to fix those things that we, the markets don't drivehe economy off the side of the iff again. thank you very much. [applause] so, there are l of people and i think mike id people should use the mic for the cameras and i think it would be fair, we should remember that questions and with it? and try to keep them short. [laughter] we mightear the speeches afterwards but let's not subject

everybody. >> i was like to ask you your sense of what bernanke and the vet think about how this will unwind over theext five or ten years? because the classic response to access that its inflation, which was that they wanted or they don't want given the amount of stimulus from the fed and the unbelievable stimulus from the congress may well lead us to that at which point we have a vote caressed response to that of which point we swing back and forth and we have the baby boomers retiring and that will crush government financing to medicare, so what is their sense of how did they get back to the goldilocks economy without, i mean whether will take ten years to do that? >> i think that the fed believe that, you point out exactly the rest. there are two red scare. when is the panic, and they tighten too soon and get 1937 gann rory plenge back in to depression, so i think they are going to be very cautious about pulling back the credit to seven

and tighting monetary policy to some are arguing fiscal stimulus to be withdrawn. lenihaviewer bright, u-18 long you can inflation. the fed has created enough money. it clearly has the technical capabilities to take the credit out of the system to use their tools of the way they handl bank reserves, to raise interest rates and to get the credit out before it creates inflation. i think the problem you identify is really one of political will. they will have to tighten before it is clear to all of us that the economy is healthy and they will need a lot of political resistance when they do that. look at the criticism they are getting now and they basically have to bring it open so there is that res. their people and say that is inevitable, that every countr has ge deficits and lots of stimulus through inflation. ina such a determine is. i think they have identified the ppoblem and we will have to see whether they have the guts to turn the spigot in time to stop

it but that is the right wrist. sir. >> i'm a little concerned about the-- about two years ago the prophets in corporate america for over 40% going into the nancial sector, and of cour it is going to go down now, but are you concerned about the financialization of the u.s. economy? such a large part of the activity and the flow of money being involved in financialization, and if we continue this way, it is going to do what it has already done, wreck the economy. >> i don't think it is ing to continue that way. i think we had a bubble in finance. when u.s. so manyeople comin out of engineering sool, going to work on the tradi desk for the computer desk at goldman sachs and jpmorgan chase and morgan snley and all like that, and that becomes the preferred option for people who are getting degrees into

engineering, you know this have got a fan. i think one of the silver linings in this disaster is that the more of the people will do something useful. [laughter] so, i think, i think that problem has taken care of itself. i think it is important though, we don't want to on financial lies the u.s. economy. finance is an essential part of the modern economy and the reason we can get fixed rate mortgages or life insurance and how it is that people can have finance their business sense of so i think we have to be careful not to demonize the entire financial system but it got too big comet got too big is the share of the economy. it is the contracting. maybe someday will go up again but i don't think it is the near term problem. >> tweeting your book, the damage that flashed through my mind was n a thriller, but that of a screenplay the 1930's horror show. with aig, d citicorp linda

roll of delegacy and boris orloff. >> are y offering a movie deal here? [laughter] yes, i mean thoswere frightening times. there was no ace to hide. but the questn i want to a is, looking to the future i think they have established a committee to investigate the financial crisis. suppose you were the lead counsel on that committee or an adviser. who would be the two or three people you would like to invite before the committee, and what questions would you like to ask them? [laughter] >> there is a commission and y know, the hope is it will be something like this famous mission that followed the depression, alough i am not convinced that it is organized, we will see if that happens. i think it would be, i think there are two s of people i would like to hear from.

one is, i actually think alan greenspan's reflecting on what he has learned from this is a fascinating conversation and when his not defending what he did, but thinking about how the world turned out to be somewhat different and more portly howie thinks about to be constructed in the future, it is an interesting conversation. it is like, now some people may say it is like going to a malpractice trial and hearing the surgeon talk but that is interesting sometimes. the second thing is i think we have a lot to learn about what were the guys thinking on wall street? the people who were running merrl lynch, goldman sachs, jpmorgan chase, se of them saw it coming and some of them didn't but what were they thinking and how did the account for the fact that they have such big enterprises with so many people and so much skill and so many computers and so much talk about how they were managing risk that they got it so wrong? i would like to hear them

explaid, so in your mind what did you get wrong so i guess those are the ones, but i can't it to see this commission go to work and i hope it is a success. there are a lot of important questis that have to be answered if we a going to learn how to avoid this. >> i listened t1 diane remold the time and really enjoy it. my question is, the point of capital markets is to allocate monay to their highest and most valuable use. powis said that such a huge amount of money went into housg, which is really consumption, our people borrowed moneynour house for consumption, instead of investment in productive activities that would allow people to get jobs, to produce wages that th could use to consume? the u.s. government for decades, going back to the brent roosevelt write to clinton and george bush, has always called for every american to the house. i don't think every american

should own a house. i think we made sort of a collective mistaken telling people that to be a real american and member of the middle class to ve to own a house. some people don't have enough come to pay mortgage and to maintain a house, so that was one part. one part is simply, a mh that make people think that they had to own houses. ..

>> it is my money. it seems to me that the obama administration has not gotten very much credit for pulling our bacon and out of the fe. i was curious about what your take it might be on that. >> on your first question unfortunately too many people did not think itas their money they thought it was other ople's money if they thought it was their money they may have been a little re careful it was not an

incident-- accident missile episode tells of the partnership was turned into corporations and law firm started your profit maximizing thing we saw this earlier during the corporate scandal in the 2000's when the bid is all about making money i these agencies with law firms or accounting firms if you do not take this business the next guyill get is a you might as well underwrite this thing that is not and a good. hi the gabbana administration desees a lot of credit i think we're on the path to getting things better i think whenever you think of george bush leadership in the thing in the book the right about how largely irrelevant in the process he did leper not the ample said run the show an did stand behind them when they went to get 700 million -- billion that was needed to save the economy but a lot has happened since inauguration dayhat is positive americans are not

convinced the stimus word but it seems there ever was a time you wanted fiscal stimulus, this is it. despite the criticism the bizarretress test which was a terrible metaphor that made us think ever going to put the banks on the treadmill and some of them would pass out. [laughter] it created months of uncertainty but i the yen to give people confidence the banks would come clean. added never of paying surprisingly have been able to raise capital. those are the two things the obama administrion did that was important. with the smulus and the stress test can they get sothing through cgress we do not have to go through this again? you have to get it through before people forget the crisis. >> thank you for the incredibly clear framework what should congress to our what do you propose for this current situation cracks especially looking at some of

the proposals that have come up by consumer financial protection agency, shuttle markets and the federal reserve itself? >> we know of a couple of things that are problems. there is not any one way to address them. we definitely need a way for the government to take over a non-bank financial and institutions of the only choice is not bail-out hour bankruptcy. the government can do that with banks in but not investment banks and that is important. secondly, we had failure of consumer regulatn i don't care if they make t existing agencies better or new ency but it is widely agreed we have a system where people cannot be sold products that are not in their interest and they cnot make some mh money off of them ty cannot sell them. you've mentioned the shadow bank gained system. we now know regulators spent too much time looking at things that are conventionally

defined as a bank citibank, wachovia, non they did not get into trouble but bear stearns, aig, and the brothers if they pose the same threat as the conventional bank that is why the president has proposed and oth people haven't seen today broad thing the financial sysm past to be regulated and we understand why that is. most of us do and you cannot set up a system where people go around and say i will shop for a regulator and put them against them so the president has decided not to put this together into one agency but the proposal is to make it less attractive for banks to shop around and banks need to have more capital than they had. it is the question, the shock absorber where you take your losses if you do not haveo go bankrup we have to find a way to make sure the banks have more

capital so if we get intohis again, they have better shock absorbers. >> my question is a little mo broadly and the financial markets. more cultural and social why it a we as a culture ready to give billions of dollars of money to people who simply pass paper around? and yet they're willing to take on the upside and the taxpay, it is like institutionalized socialism. i think whate are experiencing is not capitalism it is economicyranny because of these people's bad decisions come in millions of americans have lt their homes lost eir jobs and health care and these guys have the audacity to be taking billions of dollars this yea >> there is clearly a problem where they get the upside and

we get the downside and nobody can support a system like that. but levy ask added a slightly different way why d these guys like bernanke and paulson do this? whdo they bailout the financial system? not because hank paulson bella anhis buies on wall street or did they have some broader social purpose? i actually think although it is not necessarily popular not in ts approach, they did the right thing because the alternative was worse. when bernanke nt on "60 minutes" he sat on a park bench on main street where his father store had been. i said to the prerson you are lucky w called main street and it was wall street would have been dead. he did not set out to say up on wall street but main street t in order to save main stre i had to solve wall street when you bail-out the

financial system people get bailed out and that have been so are we charging them enough money for this great service? we will see. some of them have paid back their money it is a healthy return and the other is will we do we enough so we're not in the situation again three years from now? that would be criminal knowing what we know now we cannot just bobble along with the status quo and hope we can avoid this because they have learned their lesson because there's no evidence people have learned their lesson. >> 84 the opportunity. i agree on a couple of key points but disagree on the true underlying cse. there is a cultural issue is part of this. of the underlying almost poker parlor culture of wall street was to blame.

i have some firstha experience of originating mortgages in 2005, 2006, 2007. >> this is like the eighth reading. >> i am and brian morgan. [laughter] [applause] >> it was a tditional game of poker. the problem is the plot that was built was unsustainable and i feel led down and let down by the current response i feel nothing was done to get at thenderlying cause. wall street is taking this as a license toonduct business as always work it is interesting to see what the outcome of the cmission will be thus far there has been no criminal charges against anyone that has massive amounts of securities fraud. angelo mozillo got a slap on

the rest and a little civil investigation we're not looking to clean this up. you're very much direct bernanke has done a brilliant job to manage a crisis and move toward a short-term recovery by doing so kicking the can down the road. asset inflation continues. >> i agree with about half of what you said. dohink the cultural wall street was to blame and h don't think we have done enough to fix it. but i don't have a problem pausing and saying these guys did a great job blowing our chestnuts out of the fire d that is the only point* of my book. i am not trying to say i have the solution for everything that ails wall street or a ma quite cle o i a concerned we're not doing enough. i don't think we will do without wall street i don't think abolishing wall street is the answerut i do think if we allow people to take

risks either knowingly or unknowingly they get the upside we get the downside if we let that happen, shame on us. >> over the years the securities industry has developed more and more sophisticated products. over the years and has made rkets morefficient the situation in this case is the came up with the tranche of basis of risk and credit default swaps that we were supposed to ensure against this. what happened to the proceeds from the current default sws? were the obligations nullified because we put off bankruptcy? >> no. credit default swaps are

insurance that somebody bias but somebody else will pay back the money that they led them. 80 balked in the last couple of years andn the beginning it seemed like a good idea because it would aow banks and others to make more loans than they might otherwise make because they could lay off but rest of the default on another investor bell like a lot of markets it became a way to speculate people were placing bets on companies left and right of this was the problem with aig. they had pulled so much insurance the government decided if they did not save aig that people would get to upset in the stem because some people have relied on the insurance most credit default swaps were paid off if the was a process for for saddling so you get whatever losses you get, you are paid also to some extent the credit default

swaps have helpeprotect some of the people but the problem is the house of cards on which they were built is bigger the people writing the insurance could not afford the claim. they d not have enough money the government was afraid if they could not pay the climb the world would come to the end. >> you said earlier that a great misconception that led to the financial crisis was the false assumption that housing prices would never go down. do thing today there is a similar misconception among everybody in this room of our it in a bit are our ability to keep on borrowing money in order to deficit spend and run debts except representative? >>t is a good point*. we had . . this crisis we were

promised more benefits than our tax system c afford. we have gone to a number of years in running our economy on the kindness of strangers mostly the chinese were saving their money and lending it to us so we can buy the products. it did not look sustainable but it went on for quite a while now we have made the problem worse because we have borrowed more money. one of the dilemmas is we don't want to rush to sell the deficit problem because if we rush it could be 1937 we put ourselves back into a depression but we also cannot avoid a much longer. used to talk about the imminent retirement of the baby boom. we have not dlt with medicare or social security. i do think there is a bit of complacency among people in generally because we have been allowed to borrow unlimited amounts of money at low interest rates we can continue

to do this ithe future i think the president is eloquent but that so far he has not found a way to do anything about a. thank you very muc [applause] washington.

>> this building is 101 years old. from thereat days of the gentlemen's apartment building, of this apartment which wraps around the whole p floor was originally built with this wonderful flooring that you can see, this would implore. that is why i did not be furnish it. the building itself is an occupation of the greatest distinion is that it was

used by kiddies would -- clint eastwood to fill one of his movies that is an art the fan washington d.c. andeed a save house. he came back to the granite apartment and all of these was were coveredith knock off paintings of the treasures of the national gallery and i was really hoping that the producer would let me keep them but he had to take them all away. my good could be described a premature would describe it pricey but i think it is on the other side is what we call embassy roper good diplomatic buildings woods and gardens and very beautiful but pretty costly but if you break to the right and go down, the road you go down madam's or can or

it is bohemia with the latin quarter. diplomacy on one sid guatemala music, ethiopian restaurants, etc. on the other side then downonnecticut avenue and bookstores, cafes, resurants. what you see behind me is the nfluence o washington d.c., are nation's great capital purpes connecticut avenue the north-south artery running from the white house and crosses massachusetts avenue that is the rl axis but do west califora street and thiss colombia road curving around. i am td there is an apartment in this building and run by the national security agency to monitor the gorings

on ding the old soviet union. you can not seen a bet on the horizon is the rsian compound. there in the woods is the naval observatory buildings on the grounds of course, which lives the vice president than the british embassy after that with the extreme west end of the embassy row. this is a good reminder of the small size of the centrality of the district of colombia. there in t middle this general mcclellan, the man for whom he asked to borrow the army was a general had no use for he was a defeatist near and ran as a proslavery democrats. it makes me laugh anyway because on his horse he is still pointing south, the

wrong direction but confederates would happen that way. he is writing away from them. a little reminder about history. a typical riveting day depends on how a typical the previous day was. i tend to work late at night and if it is successful i may not have gone to bed until 3:00 a.m.. the next day may not start until noon but if i had to average a day it would be get up, and hail some coffee, of course, myself to eat zero mail for cholestol purposes per hourefore lunch i do not get much time besides answering e-mails and fending off whenever accumulat. let ping wh that then having lunch i generly do reading by myself the essential part of being a good writer is to be a good reader. thone thing and never tire

of saying this keep testing yourlf against writers that are better than do that is what, if -- quifies onerom running the risk of something to say i do not knowhy i bother. i think even if you can borrow from the library. i know i have in this apartment every single word george orwell ever wrote including his expense report to the bbc. everything that has been published a new high. most of james joyce, not all of what house because i have to say se books of his are not worth keeping. they are blasphemous. neil trotsky, karl marx thomas

salmon rushdie, i have pretty much all of what they have written. i like to think i have a life of the job or a career and it has to do with reading and writing. it is also what i a who i am and what i love. and fortunate that that because there is nothing else i couldo it is not as if i could have been a lawyer or a doctor and i chose this. it chose me.

>>an i ask you if there is a young person watching who wants to read their first book what advice you give to people likehat? >> to make the mistake of spending thr years in paris that because i studied by teeing and creative writing courses at harvard, and i had wonderful teachers coming down make the mistake of thinking you can just go and write a book. if you never lived through anything that is worth writing about. there are a lot of novels which i am sure none of them get published but what would they write about? what it is like to be in a creative writing class? i essentially decided when i left paris and came back to

boston. the following year i was in the classroom. it is interesng the year i give up right thing is the year that i wrote death at an early age. because suddenly ali doing somethinghat actually tore at my heart. and it was worth writing about. i took myself so seriously at young writers do that. i was in paris here i am and i am giving a mentor ship by eight older wters it was the only time i ever got to go to a nice restaurant and ricrd wright was in the paris at the

time i physically bumped into him at the bookstore. so i came back and i thought i must be a writer but i have not lived through anything that mattered enough. so i was ver pompous. young writers are pompous and i remember i came back to cambridge. i was going to go back to grad school and do what my folks would have liked at that time which was become a harvard english professor. it gas only the voice of dr. king and the death of the young volunteers that halted at and changed my life. but i remember i gave a party

at harvard square. i am giving up right team. i will stop trading. i will not be a writer. pompous young people. and then that year gradually lysol what racism was doing to these children and the kids i had that yea had 12 different substitutes before they put me into the classroom to be a permanent feature. -- teacher. this is what i have the kids do to keep a journal and every night i write down what happened that day and suddenly

around me, my girlfriend is said to me, i hate to break the bad news to you by the ku have written a book. i said it does not have an ending. but then they fired me. they were very loyal and they shut down my school and helped to spark the civil-rights movement in boston i said because they do because they ve an ending to my book. of course, rewriting it took three years. [laughter] i just say to young writers, don't, i mean you

have to learn the kraft and i am still learning at all the time. but you also have to get into the messiness of the real world and open your heart and let yourself be rped apart by anger or unbearable sorrow or an incredible exharation with a beautiful child that glows in theidst of a albreck you have to go through that. and then, i am addicted to writing every single day