all asker questions from the mic because you will be on tbn finally if you wouldn't mind helping us set up or fold up the chairs when we are done, it helps us set up for the signing of a lot more easily so thank you very much. so, we would like to welcome carmen reinhart director of the center for international economics at the university of maryland for new book, this time is different. ..

>> a long time in the making.

my co-author, from harvard university would have loved to have been here but for personal reasons he could not be here but i am sure he would have wanted to be here as well. what i would like to do, i have about 20 minutes? i am notorious for ramblings i will try not to fall into old habits buckling i will try to divide my remarks to say let's call about the essence of the book. then i will talk about how we came to write this book. lastly, what to the book means for where we are in the current economic juncture not just in the u.s. but to put it in the broader global perspective. those are the three pieces

of my presentation. hot let me begin with the titled "this time is different" it is meant to be ironic. over the course of the years come to my career began at bear stearns of all places. [laughter] in the '80s, not during the recent demise. i also workday number of years at the international monetary fund. that background also with the imf is where ken and i first worked together back in 2001. and during that period what we call a this time is different syndrome as a

possible way of understanding why we keep having a crisis from the last two years. basically, the premise is simple, it means crisis happens to other people in 10 other places and other times. they do not happen to us. the rules of valuation is the stock market soaring? are we borrowing from the rest of the world? of those rules. normally that would be a red light those rules apply to someone else, but not to us. it is universal.

it is universal and it is common. let me begin across time. when we submitted the manuscript to princeton university press for review, peter who we think added knowledge we were lucky enough to get him the excellent device, he sent me a copy of an advertisement for standard statistics that said we don't have to invest in the bubble anymore we're not the unsophisticated mass of the south's the bubble of the early 1800's we have statistical analysis was was an advertisement based from

new york and this advertisement it appeared in the saturday evening post september 1929. weeks before the crash. you can see where i am going, i hope with the this time is different syndrome. a very important example of the this time is different syndrome. the year was 1995. how many of you remember mexico peso crisis 1994? mexico almost approached defaults and then what was a large bailout package was put together from the imf and the u.s. and other of

the g-7 the economy is. mexico after all was in latin america so latin america historically has had a history of financial volatility. the mexican crisis occurred against a backdrop in which mexico months before the crisis had been upgraded by the rating agencies. mexico had just been admitted to the organization, ocd. of mexico was a poster child at the time of the imf. but at any rate the mexican crisis unfolded and at that time i was still working at the imf and and what it calls a mission that sounds like mission impossible we

went through of malaysia, hong kong, singapore and japan five 1/2 weeks long to assess financial liabilities in these countries and you could not go anywhere without hearing news of the evolution of the mexican crisis and the issue was raised at the time these byrd said east asia tigers by and large had a history they had more than a decade of the incredibly high growth, low inflation, prosperity, they

had very large current account deficit is. that was financed for borrowing from abroad. a lot of that with short-term borrowing called hot money, leverage. at the personal level, household level comment indebtedness have gone up a lot. stock markets had gone up a lot. real-estate prices are soaring. says shopping malls were it in the midst of the forest that were coming into being during this boom. we naturally pose the question are you concerned

to of what is happening in mexico could happen here? and we got this answer from every country official that we talk to domino. those things have been in latin america. not here. we have asian rallies how many of you remember the asian crisis 1997/98? move the clock forward. in the years running up to the beginning of this crisis, math the roots of this crisis, the recession begins in 2008, and a 2007. or the unfolding of the beginning of the defaults of

the mortgages and so on begins to really unfold in december 2007. i will say more about that later but my coke austerity 14 and i presented a short paper at the american economic association in january 2008. with that paper did is a chapter in the book that talks about the antecedent of the financial crisis what that paper did it was a short paper the american economic association is the largest meeting of

economists so you see a lot of people that look terribly boring congregating together. in early january of each year and with the paper did is took the worst the worst crisis of the post-world war two period, not even going into gloom and doom depression, great depression 1930's, lost decade, we said just focus on the worst financial crisis. of the perfect -- coastal were too point*. the study finn include the emerging markets of focus on the crisis of the wealthy country. you will see it called the big five. it was a famous nordic

crises, finland, norway, crises, finland, norway, 199 1, spain come in 1977 and the biggest of all, and the world's second largest economy, japan, 1992. at the hindsight we said we really are following the script. of these crises were preceded by big asset price booms in equimark bids and a lot of indebtedness. we have been running huge current account deficits. we compared the u.s. data to the average for these crisis in the run-up and the subsequent after crisis and the concluding remarks is we will be lucky if this

doesn't happen here. what is the response even in 2007 we're not an emerging market so these are not emerging markets. these are advanced economies. we have the world's most sophisticated financial system, the world reserve currency, the run-up of housing prices is predicated on the fact that we have discovered how to securitized mortgages and create this wonderful new market call the subprime market. we have been so successful in creating this market that to not only are the u.s. firms buying this but the central banks from all over

the world are tripping over themselves to buy subprime paper. don't forget we are borrowing from their rest of the world. we're still borrowing from the rest of the world with a crisis not withstanding. the perception is this time it is different. those rules don't apply here. the case-schiller index which looks at housing prices for the united states is available from teenine the newly. the case chiller index between the year 2000 through 2006, rose by more than a hit had in the preceding 100 years. right now, as we speak, i am

sure that there are new bubbles being created, not here, not yet to put new bubbles are being created right now. i know if you have heard this term, it has to be one of my favorites, more money has been lost searching for yields than at the point* of a gun. the search for yields right now with u.s. interest rates being close at o, the search for yields is going into the emerging markets right now as we speak. so it is conceivable many of those will say no. it happens in the united states but not here. it is human nature. in reviewing the massive amount of data, one of the conclusions we come to

combat it is a very human division that those rules don't apply to us. we don't see any exceptions to the rules. if you look across regions or time, you will find that at one point* or another another, everybody is vulnerable to the same sort of provision. how much time do i have? >> about 12 minutes. >> okay. let me say a little bit about about the process of putting the book together. and some personal notes. then, what we take away.

although i have said a little bit about that i would like to go back to that. one of our favorite books books, ken was a student and one of the books that is not under my pillow at present but is not far away for a long time was kindle burger wonderful history. it was a real inspiration. what we set out to do, was to put numbers on kindle burger and make it more global. kindle burger tells a wonderful narrative which is very consistent with what i have described to you, indebtedness come easy money, borrowing, booming equity prices booming

real-estate prices, borrowing from abroad, all of that is in the candle burger. the story is there and also there for a handful of crises in the big country. so what we set out to do is put together is a massive database that comes to the public domain. that is one of the projects that we currently have to put the data into the public domain out in the web and documenting, is like an illness. and illness does not effect. if you have a heart condition and you are completely healthy and contract the same disease it will not affect the same way but you will share certain symptoms. it is those common symptoms that we wanted to search for in the data.

we very much in the spirit of kindle. said let's make it kalanchoe and get data on the colony's. we have colonial records. my 17 year-old son said i should live in a little hut in the basement. and tap into the databases that were really not much use by really neglected. and i would just like to take a minute here to talk about one of those big moments that we had when we put to fed data together. you would think find the data on the government that is easy. you would think that. you would be wrong. we were shocked. this came to us.

can and i started collaborating, this is our first book, but we have had other numerous research projects. this is the most ambitious. and at the international monetary fund he was the chief economist 2001 through 2003 and i was deputy director of research. and we started to try to put together data on the government domestic debt. we have the imf and the world bank would have such data. surely not. the two institutions focused on the external debts. if you were argentina and had an external debt, debt

to investors in japan, that was documented but if you own debt to your own people, it would not. one of the missing links, we are economists you have to allow for the fact we get excited over discovering domestic data. you have two lower the threshold for what classifies as exciting. the other exciting component is that historians had done an excellent job in pinpointing fed did of default for restructuring of the extra know that. these are the debts the powerful bankers are powerful investors in london or europe, but if you took the pension plan and of the people that defaulted which

many have done, that does not get recorded. one of the things we set out to you do comment it can be more describe his archaeological been economics in many dimensions. it really was but we have colonial records. we have a wonderful source. my husband being a romantic that he is for valentine's day, gave me a complete set of world economic outlook for the league of nations. [laughter] league of nations cease to exist in world war ii. but it has incredible data going back to somewhere between 1910 and 1914. i it hand and put myself that data. not research assistance.

the best way i can describe it, is not that we never knew things, it is just that we forget. we forget. memories are very short. though the give nations actually collected wonderful data on domestic debt which neither the world bank nor the imf did, so we were able to really complement our analysis and it was a wonderful source from an institution that no longer existed. luckily for us the united nations continue to update some of the data that the lake at -- league of nations once put together. it was also looking at the league of nations material that i discovered newfoundland was one of the country's. i did not know that. i always thought of it as a province of canada. it was a country.

it lost its sovereignty because it was on the brink of default. talk about a high price for defaulting. to make a long story short, there was a lot of detective work that went into the book and unfolded over several years, the adr for the book came from the work we did in the 2003 then 2004 and 2005 were busy years and finishing other work so in 2006 we began full speed to bring the data together and work. i must say, and i can speak for both me and my co-author, ken rogof, one of the things i am most proud in my professional career, as this crisis unfolded not just here but in the united states, the

u.k. crisis is almost a mirror of what happened in the u.s., ireland, spain, we have the first global crisis. i know the term global gets bandied around but it is global. a sheriff gdp by the countries has been affected by the crisis that during the unfolding of the global crisis, we had central banks from all over the world, not just to the united states treasury department's, a finance ministry tracking our work. one of the things that we laid out was benchmarks saying this is not the average recession. this brings me to my last point* which is, where are we? this is not your typical recession were typical

postwar recession lasted less than one year. the longest post war recession was 16 months. so as the crisis unfolded, it's policymakers were looking at some of the benchmarks that were laid out in our analysis. two statistics that were shocking, we had moved from the american economic association presentation at the beginning from 2008 from the same exactly one year later. and two statistics from this comparison really shocked

many. if you look at the severe in a systematic crisis post-world war two come on average unemployment rises seven percentage points. so our bottom was 4.6% diffuse the average that was one statistic that really shocked people. january 2009. when we presented it as an in the middle of 2008 when we were preparing. the second statistic was that government debt increases. if you take a year of the

crisis and look where government debt was three years later come on average, a government debt increases by 86%. this is not 86% if gdp but added nearly doubles in the three years following a severe financial crisis. even absent bailout, and a stimulus plans government revenues simply collapse property prices crash and of course, unemployment rises, output declined comment so you have a big decline in government revenue. there is a big debt buildup which is where we are today. and it is not just the u.s. where we see the debt rise dramatically. the increase in debt is even

bigger in countries like the u.k., ireland, spain, and if you start looking at some of the emerging markets, you have to look at countries like the ukraine. iceland used to be an advanced economy before the crisis but now it is lost a huge amount of its income. it is a very uplifting way. it gets worse. the final remark, i would just touch the tip of the day spurred there's no way can try to give a flavor

because we also look at the inflation crisis, a currency crash, and before there were modern exchange rate, you could see how the government's reduced the content of the currency. you can see all types of crisis variety, but the theme that leaves us preoccupied looking forward is that we have certainly learned a lot on how to respond from such a crisis both in monetary policy with the federal reserve and fiscal policy with debt stimulus package we have seen a big effort not to repeat the mistakes of the thirties which were

basically reinforcing which was already making a bad situation worse. however, that is more on crisis management i think frankly we have serious doubts what we're doing or not doing to restructure the banks that we have learned a lot certainly i don't think we have learned a lot from the japanese lost decade. feel free to ask a question on that. [laughter] but what was more sobering sobering, if you will, about the patterns that we find is memories are short. some countries, shorter than others. if you look at this cycle, boom to bust and

back, in some countries it is shorter. memories are shorter, this is not only human nature but policy making and markets that have reinforced short-term horizon. i did say that i would ramble. i like to suggest that i would be very larry of any remedy that is put forth that says it will not happen again. and i will be that there. [applause]

>> he stressed that passes symptoms of forgetting in denial and as a cause of the recent debacle. but greed, deception, cover-up, that seems to be more of course, that is part of human nature. and it continues. how much do you think we're fooling ourselves? because guys like dean baker wrote about this a few years ago to say it will happen greenspan hushed and upper did not want to admit it or things like that. can you comment? i would appreciate it. >> the question between endurance and arrogance is also greed and corruption. the answer is yes. this is a different in that regard in preparing this

study. i must have read at least 60 case studies of individual banking crisis and the word corruption, motivated by greed, comes up time and time again. fraudulent practices and creating a third institution so those that are not you can circumvent regulators, those are not new features. i am very glad you asked a question because i use those as an amplifier. they may not be the root cause of the crisis because that means having a lot of

liquidity around to borrow from the rest of the world in the process, but but those package -- practices amplify and make the boom much more pronounced and therefore it makes the crash much more painful. again, we're not unique in that regard. i can give you references to individual case studies and you can find corruption coupled with greed which are key parts of yes i have seen this movie before. >> china seems not to have a lot of debt because they seem to loan the money that everybody has borrowed from them. do you think they will

escape everything? >> >> somebody will always ask on china. >> one of the things i did not get into, i mentioned in my remarks come a one of the issues that we document carefully is domestic debt. and a domestic crisis with capital controls in place capital controls with teeth, not those that just circumvent but the currency is not convertible and you cannot trade like a candy yen or the hero. or the mexican peso, you cannot trade it. that protection from having an external debt crisis.

they don't have much to begin with. they have created a massive, massive amount of domestic debt trying to stimulate the economy during this. realistic days real-estate prices are booming and it is fueled by a government induced credit expansion. not all blooms into in tears but i don't see any reason to seeing victory at this juncture. i just want to make the distinction you can have a full-fledged domestic crisis >> >> in the spring 2008 i taught a course at george washington university during the semester when bear stearns went under. the book i used was called

options futures and other derivatives, one of the standard books on wall street. the book by the way cost $150. i joked to my students to worry, i took out a subprime loan to buy it. one of the recurring themes in any course of that type is a risk. you do portfolio theory and plot the expected return against the risk and talk about the pricing formula and look at the volatility of the stock. risk is a pervasive theme. it is just unbelievable to me that what is common knowledge with an undergraduate course that bear stearns had a leverage of 30 or 40 /1. off the charts. but getting back to the

question that i want to ask, there will be a congressional inquiry or commission. >> i spoke to them on monday. >> you were called to testify. what we're comments on the past or advice on the future be? >> first of all, let me say one thing about the risk and the incidence of risk or risk taking. the risk is always there but the incidence of risk-taking. historic they come a one of the things that we highlighted the book if you look at periods where financial markets are high in the deregulated, not just domestically but globally, and internationally come with those of the periods of prior incidents of crises. with an increase incidence

for potential for higher profits comes the risk. >> that is leverage. >> yes. you can engage in net in a deregulated system with the point* being from world war ii to the early '80s financial systems were high the regulated here and elsewhere. international mobility or financial capital was virtually nonexistent until the early '80s. i don't think we're going back to the system. first of all, the u.s. will not do it unilaterally all it would mean is the

activity would shift from the u.s. to samarra else. and i spoke this money to the financial condition there's the issue of poor regulation of nine enforcing existing regulation which is also a part of the problem, the fact a complete ignorance of leverage in some firms that became too big to fail. i think the issue that is going to be seriously revisited i don't say we will return to a glass-steagall world where everything was regulated and in response to the great crisis of the thirties but i

do think there will be changes of regulation that try to limit this is what i answered the previous question that limits the amplitude of the cycle and by that i mean things to avoid the kiss of death and the rating agencies they can upgrade you during the boom therefore you can borrow more and you can amplify the boom bust pattern. those will be revisited but broadly speaking it took the great depression and world war ii to do with capital mobility because i lived in a world that was financially

more similar to today with risk-taking before world war war i in between their early eighties settled think at this stage the uk or the u.s. are ready to go that far i don't see that. >> thank you. very interesting a lawyer focus on two things. the great depression and comes in stages bridge is not a one moment event, that could show that we're just in the early stages of a big mess. so i will ask a request in which i don't expect you to answer at all. [laughter] but in other words, , how do you see coming out of this

with any reasonable calmness? because we usually don't. these are people's lives so how are we coming out of this is the first part if we have the same people on the above for such as larry summers, and that whole built, in other words, are these people just going to help themselves out of this they take care of the bank's first of the people second or third or never. i am concerned this administration would give me the same types of people and just to speculate on how we might come out of this. >> the second part of the

question first come up something that is in the mandate it is not a witch hunt, it is to look at the role of groups of doctors or individuals. not just about broad-based causes or failures of regulation. one of the things i would like to highlight from the depression those types of things are still in the future we have not seen the dirty laundry at. >> if there actually independent. >> and how much of that we will get to see, i don't know but then i think we will see more because it is

not something that happened right away either the last time we went through something like this which is the commission and after the depression. how do we get out of this? there are different expectations i am not the most optimistic. with a panic of the fall of 2008 and the meltdown, a no-no, but i think we still have a hard point* ahead for a variety of reasons. unemployment is a lagging indicator.

the industry's setter hurting great a like housing is very labor intensive, all construction industry another reason that i am very concerned about the magnitude of the recovery and sustainability is that not enough has been done with the banks. one of the lessons that i took away from the japanese experience and not talking about emerging markets but the second wealthiest the economy in the world is it took a decade to get out. i am not saying we're in that mold but i am concerned that the banks have a lot of

toxic assets that have not been written down. they are sitting there it is painful for institutions to take a hit and say we will write down the bad debt and to move on. but until that happens, and it has not happened yet, with normal lending and all that goes with it because we do need credit normally functioning eight -- functioning credit. i think we have learned a lot. one of the things we highlighted, due to make the mistake that the crisis happens in stages. they're early declaring victory is during the depression because that means fiscal stimulus was scaled back or monetary policy premature the. and also happened in the

mid-1990s. >> to fix this we have to do with the banks it will be a carrot and stick prepare you give capital to you have to ask them to write down the loans. if not, otherwise it will be another lost decade. weird two years and to the crisis. we cannot realistically we cannot expect government spending to do all the work simply because government spending also creates debt that somebody has to pay and that is the next generation. i am glad you brought this up because it gave me an opportunity to suggest or

express what i see as a concern and that has to do with being too much in denial or we will fix this later. they were called is all the banks in japan. we have them here also. thank you. >> thank you very much for your talk. have a question concerning belau spec you said in a previous response that lack of regulation it is set over all multipliers. but what we have seen is the government has seen a lot of people who took stupid risks with other people's money and they made them poll. ag for example, isn't that a multiplier for the future? all of these people, all these incredibly bad decisions and guess what? could you comment on that

cycle? >> let me say the federal reserve finds itself in the unenviable position. just by maintaining a very low interest rate, are we allowing this process to continue? for do we run the risk of tightening are making this can bit more difficult but at the same time run the risk of derailing recovery? that is not an enviable position to be an. moral hazard progress after bring of moral hazard which is clearly i think if we go anywhere with any kind of regulation that is meaningful, it has to deal

squarely. what do i mean in english? had a blanket guarantee. we have seen an incredible amount of government guarantees. that induces hang goes back to the question on risk-taking that the gentlemen asked earlier. it is easy for me to conjecture you want to avoid this kind of behavior again, tighten the screws to make a quick to be very difficult but that is also running the risk of what we did in the mid thirties. but with any regulation going forward has to do with the fact that we created institutions that are too big to fail.

and that issue of the two big to fail perhaps by dismembering some of them or creating smaller institutions or regulating come if you are too big to fail you have to regulated much more strictly. that has to do with there earlier remarks about corruption and so on. too big to fail is one of the big challenges that that future regulation has to do with so we can get out of the cycle. >> thank you for examining our life. [laughter] you talked about the madness of crowds that emerges in

that form of a bubble. we have had a the consumer having cheap credit, subprime mortgages, and investors of all things securities such as derivatives and why ratings agencies in the mortgage area, we have been going through a period of free economics that says it rules in greenspan the admitted he was wrong. now we have resurrected keynes on some of those formulas. what i am asking you to resolve this to create more jobs and doing more things things, is that a way out? >> okay. yes. we have gone through cycle in which markets reigned supreme and they always get

it right. the pendulum has swung in the other direction. if not more regulation we need better regulation or we have to enforce the regulation that we have. in terms of creating jobs, i mentioned earlier, my concerns about a gradualist approach toward dealing with the banking sector problem. and i reiterate that. it is not an abstract thought. help me out. you have a bank that if you have bad debts, if you are in individual with bad debts and you have not written down or taken the hit for

the loss yet, any new borrowing lending will be curtailed because you're still carrying that albatross. we are carrying that albatross. without a resumption of more normal lending, it is difficult to talk about the revival of sectors like housing, indicators for housing that have been coming out and showing sides of improvement. their rollover and died again with the latest employment because it is not a small segment of the economy and not just residential housing but also commercial, multi unit, a bigger than that. and the industry affected by credit which covers a lot of ground.

the last remark that i would like to say on this particular question, we cannot be like pollyanna and expect the rest of the world will pull us out of this. win ken rogof and i analyzed these crises, one of the things that we noticed in the book is that they are local crises meeting a country has a crisis but the neighbors are fine. or at worst, like the asian crisis it is regional. not global. in the context of a regional or local crisis coming one of the things that helps you is exports so the rest of the world helps you to grow your way out of it. we ought to be realistic the odds of that happening here

are slimmer. restoring domestic lending conditions is, i think, and that may entail some painful write-downs for financial institutions and it may unsettle the markets in the short run which is obviously why it is easier to talk about it and actually do it. but i think it is a necessary cleansing. if you will. [applause] . .