he could not join us but i am

sure he would have wanted him to be here as well. what i would like to do, since -- i have about 20 minutes, right? right. 23 cone 25 minutes. i am notorious for a rambling, so i will try not to fall into old habits. i will try to divide my remarks in two about the essence of the book. then i will move on to talk a little bit about how we came to write this book. and last week with the book means for where we are in the current economic conjuncture, not just in the u.s. but to put it in a global perspective. so those are the three pieces of my presentation tonight. let me begin with the title.

"this time is different," and it is meant to be ironic. i have over the course of the years my career began at restaurants of all places -- bear stearns. in the 80's, not during its recent to negative, i also worked a number of years of the international monetary fund, and the background international monetary fund is where we first worked together back in 2001. and during that period, the seeds of the what we call the "this time is different" some durham are sold as a possible way of understanding why we keep

having crises such as what we have had the last two years. let me define the "this time is different" syndrome. basically the premise of the "this time is different" syndrome it means crises have been two other people in other places and at other times. they don't happen to us. and is your debt were high relative, is the stock market soaring, are we borrowing from the rest of the world, all of those rules that normally would be red lights telling you that you are vulnerable, those rules apply to someone else but not to us. and it is universal its universal and it is common across time. let me begin across time when we

submitted the manuscript to princeton university press for an review. peter lynn heart jujuy thank and acknowledged he was one of the, we were lucky to get his excellent advice and he was one of the reviewers. he sent me a copy of an advertisement for standard statistics that said we don't have to invest in doubles anymore we are not the unsophisticated masses of the south sea bubble in the early 1800's in britain. we have statistical analysis that can allow us to discern valuation. this was an advertisement for standard statistics which was based in new york. and this advertisement appeared

in the saturday evening post in september of 1929. weeks before the crash. so you see where i'm going i hope with the "this time is different" syndrome. a very important example of the "this time is different" syndrome was the year was 1995. how many of you remember mexico's peso crisis in 1994, 1995? mexico almost approach to default and what was then a large bailout package was put together from the imf and the u.s. and other of the g-7 economies, and mexico after all was in latin america.

so latin america historically has had a history of financial volatility. lots of crises. so the mexican crisis yet occurred against the backdrop in which mexico months before the crisis had been upgraded by the rating agencies. mexico city had been admitted to the organization of the oecd. 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 for the international monetary fund and there was what the imf calls a mission, it sounds like mission impossible, maybe this but it is a visit we went through indonesia, hong kong, singapore,

japan, and it was about five and half weeks long and it was to assess financial vulnerabilities in these countries at that time and you could not go anywhere without hearing news about the evolution of the mexican crisis. and the issue was raised at the time well, you know, a lot of these countries which these were the east asia tigers by and large had had a history of more than a decade of incredibly high growth, low inflation, prosperity, and yet these countries had a very large current account deficits, a big

current account deficits financed by borrowing from abroad and a lot of the borrowing was short-term borrowing so-called hot money leverage. people at the personal level at the household level and at the firm lovell indebtedness had gone up a lot. stock markets have gone up a lot. real-estate prices were soaring. construction activity was booming. there were shopping malls in the midst of the tight forest that were coming into being during this boom. so naturally post the question are you concerned that something like what is happening in mexico

could happen here and the answer, and we got this from every country officials that we talk to was no, no. those things happen in latin america. they don't happen here. we have high savings rates. we have asian values. how many of you remember the asian crisis of 1997, 1998? well, let's move the clock forward. in the years running up to the beginning of this crisis, the roots of this crisis the recession begins in 2008, the end of 2007 but the roots or the unfolding of the beginning of the default of the mortgages and so on, that begins to unfold in

the summer of 2007. and so in the summer of 2007, we began to put together some of the material we are already working on this book. i will say more about that later. and kenneth and i presented a short-term paper at the american economic association in january of 2008. and what that paper did -- it is a chapter in the book that talks about the antecedents of financial crisis and with the paper did it was a short paper. american economic association is the largest meeting of economists so you see a lot of people that look terribly boring

congregating together and early january of each year, and with the paper did was took the worst financial crisis of the post world war ii period so we were not even going into let's gloom and doom depression, great depression 1930's lost decades, we focused on the worst financial crises of the post world war ii period and let's not make it too dramatic and naughty include the emerging markets. let's just focus on the crisis in the wealthy economies. so we focus on what we later call and you will see in the book the big five. the big five were the crises, sweden, norway, finland spain in

1977 and the biggest of all in the world's second-largest economy, japan which began in 1992. and the date basic -- this is not singled with hindsight at the time it is just we are following the script here. this crises were preceded by a big asset price booms of equity markets and real-estate markets and, lots of indebtedness. we have been running huge account deficits. and we compared the u.s. data to the average for these crises in the run-up and subsequent after the crisis unfolds and the concluding remarks we presented is we will be lucky if this doesn't happen here.

what was the response even in 2007. we are not an emerging market. these are not emerging markets we are talking about. these are advanced economies. the perception was the same this does not happen here. we have the world's most sophisticated financial system where the world, we have the world reserve currency. if the run-up in housing prices is predicated on the fact we have discovered how to securitized mortgages and create this wonderful new market called the subprime mortgages and we have been so successful in creating this market that not only are u.s. firms buying this, but central banks from all over the will or tripping over themselves to buy said prime

paper and don't forget we are borrowing from the rest of the world. we are still borrowing from the rest of the world crisis notwithstanding. and the presumption again is this time is different. those rules don't apply here. the case index for the united states is available from 1990 annually and the case should other index between the year 2000 to 2006 rose by more than a had in the preceding 100 years. something was bound to end badly and so right now as we speak on a am sure that there are new baubles being created, not here,

not get, but new bubbles are being created right now -- i don't know if you've heard this but this has to be one of my favorites. it's more money has been lost searching for yields than at the point of a gun. and the search for yield right now with u.s. interest rates close to cero, the search for the yields is going into emerging markets right now as we speak. and so, now it's conceivable that many of those countries will say no this happens at the united states. it doesn't happen here. it is human nature. in reviewing this massive amount of data one of the conclusions we come to is it is a very human delusion if you will that those rules don't apply to us.

we don't see any exceptions to the rules. if you look across regions and across time you will find at one point or another everyone is vulnerable to the same sort of delusion. how much time do i have? okay. let me -- let me say a little bit about the process of putting the book together and some personal notes and what we take away from the current conjecture , all the white said a little bit about that but i would like to go back to that.

one of our favorite books, kenneth and by -- well, ken was a student of kendal burgers and the books that we really sort of -- it's not under my pillow at present, but it lived not far away from it for a long time was the wonderful history. and there was a real inspiration what we set out to do was to put numbers on kindleburger and make it more global. so he tells a wonderful narrative which is very consistent with what i've described to you indebtedness, easy money, borrowing, booming equity prices, booming real-estate prices, borrowing from abroad, large current-account deficits, all of

that is in kindleburger but it's not quantify it. the story is there and it's also there for a handful of crises. so what we set out to do was put together what is a massive database that will come to the public domain and that's one of the projects we currently have is putting all this data held in the public domain on the web and documented. it's like the illness, can we -- and elkus does not affect if you have a heart condition and are completely healthy and contract the same disease it's not right to effective the same way but you are going to share certain symptoms and it's those common symptoms that we wanted to search for in the data. so we very much in the spirit of kindleburger said let's meet global. let's go and get data.

we have data on the qualities. sort of colonial records. my 17 year old son said he was going to -- i should live in a little hut in the basement. i receive books and tacked onto database is not very much used to read we were very neglected. and i would like to just take a minute here to talk about one of those big wow moments that we have been putting this together. you would think that finding data on government debt is easy. he would be wrong. we are shocked and this came to us, ken and i started collaborating -- this is our first book but we have had other

numerous research projects. this is almost ambitious work today and at the international monetary fund, ken was chief economist there from 2001 until 2003. i was deputy director of research and we started trying to put together data on government domestic debt. the government domestic debt. with surely the international monetary fund and the world bank would have such data. surely not. the two institutions focus on external debt, so a few were argentina and you had external debt to investors in new york or in europe or in japan, that was

documented. but if you own debt to your own people, it was not. so, one of the missing links, and this is, we are economists said you have to allow for the fact we get excited over things like this domestic debt, data, so you have to lower the threshold for one classifies as exciting. the other exciting component for this was that the historians had done an excellent job in pinpointing the dates of default work restructuring some of the external debt because these were the debts of the powerful bankers or investors of london and new york. but if you took the pension plans of people and be faulted on them, which many countries have done, that stuff doesn't get record. so, one of the things we set out

to do, our work in this book can be more described as archaeological the and economics and many important dimensions. it really was -- we have colonial records. we have a wonderful source. my husband being the romantic that he is for valentine's day he gave me the complete set of world economic outlook for the league of nations. [laughter] bet that one. league of nations ceases to exist in world war ii. but it has incredible data going back to somewhere between 1910 to 1914. i had data and it's, you know, the best way that i can describe it is not that we never knew

things. it's just we forget. we forget memories are very short. of the league of nations collected wonderful data on domestic debt which neither the world bank or the imf did so we were able to complement our analysis and a was a wonderful source from an institution that no longer existed. luckily for us the united nations in a sketchy we continued to update some of the data that the league of nations put together. it was also looking at the league of nations material that i discovered that no famine was once a country. i always thought of newfoundland as canada. what was a country and its lost its sovereignty because it was on the brink of default. talk about a high price for

defaulting. succumbing to make a long story short, there was a lot of detective work that went into the book and unfolded over several years when we really started working the idea for the book came from work that we did in 2003 in 2004 and 2005 we were busy years we were finishing other work and so in 2006 we began full speed to bring the data together and work. i must say that -- and i can speak for both the ken rogoff, michael author, and myself one of the things i'm most proud of in my professional career is that as this crisis unfolded not just here in the united states but in europe, the crisis can almost be a merit of what is happening in the u.s. and ireland and it happened in

spain. we have the first global crisis and i know the term global gets pinned it around a lot, but this is global meaning that a huge share of world gdp by the number of countries has been affected by the crisis that during this on folding of the global crisis we had central banks from all over the world not just the united states, treasury departments, finance ministries, tracking work to see because one of the things we laid out for 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. you're typical post war rescission of the united states lasted for laughs than a year.

the longest post war recession was 16 months. and so that the as the crisis unfolded, okay, as the crisis unfolded policymakers were looking at some of the benchmarks that were laid out in our analysis, and two statistics i will flag that are shocking in the year we had moved from the american economic association presentation at the beginning of 2008 to the same presentation exactly a year later, and two statistics that we produced from this comparison of the other crises really shocked many who heard us cite those statistics. we said on average if you look

at all of the house of year, systemic financial crises post world war ii both emerging markets and advanced economies on average unemployment rises to seven percentage points. so from the bottom to the peak, so the bottom was in the late 2006 around 4% so we were saying if we use the average it would give 11%. that was one statistic that really shocked people. this was january, 2009 when we presented it in the middle of 2008 when we were preparing. the second statistic was government debt increases, if you take the year of the crisis and look where government debt was three years later on average

government debt increases by 86%. this was just a government that nearly doubles in of three years following a severe financial crisis and this is even absent stimulus plans government revenues certainly collapse after financial crisis. prices crashed and of course unemployment rises, output declines and so you have a big decline in government revenues. and so there is a big debt buildup which is where we are today. and it's not just the u.s. where we are seeing that 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 crisis, welcoming you have to look at countries like ukraine and iceland used to be an advanced economy before the crisis and now it's lost. a huge amount of its income. and so it is a very uplifting way to end -- but it gets worse. the sort of final remarks i would like -- i just touched the tip of the iceberg and there is no way i can give a flavor because we look at inflation crises as well. we look at currency crashes and

before there were modern exchange rates they were sold for based exchange rates in which we could see how the government's writ of the public by reducing the content of the currency. and so you can see all kinds of crisis varieties, but the theme that leaves us preoccupied looking forward is that we have certainly learned a lot on how to respond to such a crisis from the great depression. i think both and monetary policy federal reserve and in fiscal policy the stimulus packages. we've seen a big effort not to repeat the mistakes of the 1930's which were basically reinforcing what was already making it a bad situation worse.

however, that is more on crisis management. i think frankly i have serious doubts that what we are doing or more accurately not giving to restructure the banks that we have learned a lot, certainly i don't think we learned a lot from the japanese the last decade. feel free to ask a question on that. but what was more sobering if you will about the patterns that we find was that memories are short, that some countries shorter than others so that if you look at the cycle for boom to bust and back to boom and back to boston in some countries it is shorter, some memories are

short term and that is not i think only human nature is policy-making and markets that also have reinforced short horizons -- >> [inaudible] >> absolutely. i did say i would ramble. but i would like to suggest that i would be very leary of any remedy that is put forth with a seals tag that says it's not going to happen again. and i will leave it there. [applause] with >> thank you very much for your talk. you stressed i thought passive symptoms of the for getting to, delusion, denial, and as a course of our -- as a cause of

our recent debacle, with a more active things like greed, deception, cover-up seems to be more -- that of course is part of human nature, and continues. so how much do you think is really not fooling ourselves and active because guys like dean baker wrote about this a few years ago, and so it is going to happen, alan greenspan and people like that hushed it up were covered it up. if you could comment on that i would appreciate it. >> of the question of besides ignorance and arrogance there's also some greed and corruption and the answer is yes. this crisis is also no different in that regard. and preparing this study, i must

have read at least 60 case studies of individual banking crises. and the word corruption motivated by greed comes of time and time again, fraudulent practices connected lending, created a third institution so that institutions -- you can circumvent regulation. regulators that don't regulate, those are not new features to this crisis. i'm very glad you asked this question because i view those as amplifiers. they may not be the root cause of the crisis because the root cause is having a lot of liquidity around and borrowing from the rest of the world in the process.

but those practices amplified, make the film much more pronounced and make the crash much more painful, and again we are not unique in that regard, so yes as i said, i can give you references to individual case studies and you will find corruption coupled with greed that are key parts of the i've seen this movie before. >> my question was china seems to have a big surplus. they don't have a lot of debt because they seem to loan money everybody has borrowed from them. do you think they will ease gave everything? >> well, there's always somebody

that's going to ask on what china. let me say this. one of the things i did not get into line mentioned in my her earmarks the issue one of the things we document carefully is domestic debt and domestic crises. china is a country with capital control in place that have teeth and i don't just mean capital control people circumvent but people have teeth, which means the currency for example is not convertible. you can't trade like you can trade of the yen or the euro or mexican peso. you can't treat it. that doesn't -- that protection from having an external debt crisis, don't have much external debt to begin with. the of create a massive amount

of domestic debt trying to stimulate a the economy during this. receive prizes right now are booming in china and it is very much fuelled by a domestic, government induced domestic credit expansion. not all bilmes indian who hears. but i don't see any reason to sing her victory at this particular conjuncture but i just wanted to make the distinction you could of a full-fledged domestic crisis. >> in the spring of 2008i taught a course on mathematical finance at george washington university and that is the semester bear stearns went under, and the book i used was called options, futures and other derivatives by john, one of the standard books

on wall street to read the book but we cost $150 i joke to my students don't were you can always take out a separate loan to buy it. but one of the recurring themes in any course of that time is risk. you can get the expected return against the risk. you talked about the black shores pricing formula and the volatility of the stock. so risk is a pervasive theme and a just is unbelievable to me that what is common knowledge -- this is an undergraduate course. it was unbelievable to me when i learned bear stearns had leverage of 30 or 40:1. this is off the charts. but getting back to the question i want to ask, there is going to

be a congressional inquiry or commission on the current financial crisis. >> i spoke to it on monday. >> can you recall to testify what would your comment on the past and advice on the future be. >> let me say first of all one thing about the risk and the incidence of risk or incidence of risk-taking. risk is always there. it's the incident of risk taking. historic lee one of the things we highlight in the book that if you look at the periods where financial markets are highly deregulated, not just domestically but globally, internationally, those are periods of higher incidence of crises. so, you know, with a brisk, with an increased incidence of the potential for higher profits comes the risk

>> [inaudible] -- leverage. i'm sorry. >> and you can engage in that in a regulated system, the point being that for many years from world war ii to the release financial systems in the u.s. and elsewhere were highly regulated and international mobility of financial capital is virtually nonexistent to the early 80's. i don't think we are not going back to the system. i think -- first of all, the u.s. is not going to do it unilaterally because all would mean is the activity would shift from the u.s. to somewhere else

however i do think and i spoke this monday to their financial commission who is revisiting. there is the issue of poor regulation and then the issue of not enforcing existing regulation which was also part of the problem, the fact that it was a complete ignorance of leverage in some firms that became too big to fail. so i think the issues that are going to be seriously revisited are i don't think going to win return to a glass stiegel world where everything is regulated and in response to the great crisis of the 30's. i don't think we are returning to that kind of muddled, but i do think that there are going to

be changes in regulation that try to limit -- this is what i answered the previous question, the gentleman asks about corruption that limit the amplitude of the cycle and by that i mean things that avoid the kiss of death rating agencies, rating agencies can upgrade que during -- during the boom therefore you can borrow more during the bill and amplify the boom and bust pattern. i think those regulations will be revisited but broadly speaking it took world war i, the great depression and world war ii to do away with capital mobility because we lived in the world financially more similar to today in terms of risk taking before world war i from the

period to the early 80's. i don't think this stage the u.k. and u.s., two leading financial centers are ready to go that far. i don't see that kind of tendency. >> thank you. very interesting. i want to ask you to focus on two things. as the great depression it comes in at stages. it isn't a one moment event, 29, fergie and so forth. so that could very well -- we could be in the early stage of the beginning of a big mess. so i'm going to ask a question which i don't expect you to answer at all. but in other words how do you see this coming out of this in any reasonable columnist because we usually don't and the reason i ask that is these are people's

lives has you know but they are as the depression people of lives. how are we coming out of this is the first part and the second part is if we have got essentially the same people on the levers such as larry summers and so forth in other words are these people just going to help themselves all of this and sort of manage the rest of the people? let them take care of the bank's first and people second or third or never. so i'm very concerned with this administration we are getting the same types of people wanting the thing and just speculate on how we might reasonably come out of this. >> let me take the second part of your question first. one of the things that is in the mandate of the financial crisis commission, it isn't a witchhunt, it is to look at the

role of a will to groups of factors and individuals also its largest broad base causes of the crisis or failures and regulation. so one of the things i like to highlight from the lessons from the depression is those kind things are still in the future so we haven't seen the dirty laundry yet. >> if there actually independent. >> but i think, you know what, that might -- how much of the dirty laundry we will get to see i don't know, but i think that we will see more because also it is not something that happened right away either the last time

we went through something like this which was the commission and so long after the depression. how do we get out of this? there are different expectations surprise, surprise. i'm not on the the most optimistic. and this isn't the gloom and doom, the same thing that happened in the panic of the fall of 2008 and the meltdown -- no camano camano. but i think that we still have a hard work ahead for a variety of reasons unemployment is a lagging indicator, so it's still on the way up and the industries that are hurting that greatly

like housing are labor-intensive also. all the construction industry and the one reason or another reason i'm very concerned about the magnitude of the recovery and its sustainability is that not enough has been done with the banks. you know one of the lessons i took away from looking very closely at the japanese experience in 1992, and we are not talking about a merging market, we're talking about the second wealthiest in the world as it took a decade to get out of it. i'm not saying we are in that mold, but i am concerned that the banks have toxic assets that haven't been written down they are sitting there -- it is

painful for institutions to take a hit and say okay we're going to write down bad debt and move on but until that happens and it hasn't happened yet than normal lending and all that goes with it because after all we do need credit normally function credit, and that is i think we have learned a lot. one of the things we highlight is let's not make the mistakes and you are absolutely right crises have been in stages. the early declare in victory during the depression was a problem because that means the fiscal stimulus was scaled-back and monetary policy was tightened prematurely. same mistake happened in the mid 1990's.

>> [inaudible] >> to fix this we have to deal with the banks eckert to be a carrot and stick. give capital the banks but ask them to write down these loans. if what is going to be another lost decade. we've already been two years into this crisis. we cannot really realistically expect the government spending to do all the work simply because government spending also creates debt. debt that somebody has to pay and that's the next generation. so, i am glad you brought this up because it gave me the opportunity to express what i see as a concern, and that has to do with being too much in the

nile, we will fix this leader. they were not called a zombie banks in japan. and we have zombi banks here also. >> thank you. >> yes, thank you very much for your talk. i have a question concerning bailouts. you said in a previous response lack of regulation corruption etc. we are all multipliers. what we have seen is that the government has taken a lot of people who basically took stupid risks with other people's money and made them whole. all the people who had money for aig for example is in the dannel supplier of the future? that all these people -- all these incredibly bad decisions and guess what? we are putting money again. can you comment on that cycle? >> let me say that the federal

reserve views itself in an enviable position. okay are we just by maintaining a very low interest rates and ample liquidity are we allowing this process to continue or do we run the risk of tightening and making this gambit more difficult but at the same time run the risk of derailing the recovery? that isn't an enviable position to be in. moral hazard. i have to bring up moral hazard which is squarely in i think if we go anywhere with any kind of regulation that is meaningful meaning that it has teeth it has to deal squarely with a moral hazard and what do i mean in english? blanket guarantees.

we have seen an incredible amount of government guarantees, and that induces, this goes back to the question of risk taking that the gentleman asked earlier. so, i don't see an easy -- it's easy for me to conjecture yeah you want to avoid this kind of behavior again tighten the screws and make liquidity difficult to obtain but that's also running the risk of doing exactly what we did in the mid-30s. but i do see that any regulation going forward has to deal with the fact we've created institutions that are too big to fail and so they own us, and that issue of the two big to

fail perhaps by dismembering some of them were creating smaller institutions or incredibly regulating if you are too big to fail you have to be regulated much more strictly which is to do with the earlier remarks about corruption and so on. so too big to fail is i think one of the big challenges that future regulation has to deal with so that we get out of this cycle. >> thank you. >> thank you for examining our life. [laughter] you talked earlier about the madness of crowd which was a tone that often emerges again in terms of bubbles. we have the period, the calming of the consumer both pond as

subprime mortgages come as cheap credit, as investors of op east securities such as derivatives and rating agencies which was mostly in the mortgage area. we didn't go into the pergola freedman economics which says the marketplace rules. greenspan finally admitted he was wrong using that. now he resurrected and we are starting to apply some of those formulas. so what i am asking you in terms of resolving this creating more jobs and giving more things, is that a way out of? >> okay. yeah, we have gone through a cycle in which markets reign supreme and always get it right.

so, the pendulum has swung now in the other direction which we need if not more regulation we need a better regulation or have to enforce the regulations we have so they are not just curiosities and paper. in terms of creating jobs, i mentioned earlier my concerns about a gradualist approach towards dealing with a banking sector problem and i reiterate that. it is not an abstract thought. help me out on this. you have a bank that if you have bad debt it's like if you are an individual and you have bad debt you haven't written down or taken the hit, you haven't taken the loss any new borrowing and lending is going to be curtailed

because you have that overhang. you're carrying that albatross. we are still carrying the that albatross, and without presumption of more normal lending it is difficult to talk about the revival of sectors like housing, the indicators for housing has been coming out showing signs of improvement. they've rolled over and died again in the latest data to read this goes back to your issue of in employment because this isn't a small segment of the economy and it's not just residential housing now. but it's also commercial penalty unit. it's bigger than that. it is in the industry affected by credit which covers a lot of ground. the last remark i would like to say is on this particular

question is we can't be pollyanna and expected that the rest of the world is going to pull us out of this one. when we looked -- wind ken and i analyzed of this crisis one of the things we noted in the book is that they are local crises meaning a country has a crisis but of their neighbors are fine or at worst the asian crisis is a regional crisis coming off a global crisis. in the context of a global regional or local crisis one of the ways i guess -- one of the things that helps you is exports to the rest of the world help you grow your way out of it. i think we have to be realistic the odds of that happening are slim so restoring the domestic

lending conditions is i think really -- that may entail some painful write-downs for financial institutions and it may raise hackles and unsettled markets in the short run which is obviously why it's easier to talk about it than to actually do it. but i think it is a necessary cleansing if you will. [applause] >> carmen reinhart is a regular lecture at the international monetary fund and world bank. and the co-editor of the first global financial crisis of the 21st century. she's an economics professor at the university of maryland. for more information, visit umd.edu. ..

brian: connie brock, "when hollywood had a king," is about what person? >> it's actually about two people. the king is lou wasserman and i say people because jewel son was the person who gave him and i say two people because jules stein was the person who h