like, the story when my mother said no, go in there and knock them down and it wasn't that kind of family. my mother was the kind of person who would say is the great i can't believe it will get the sentence to read but agreed sentence to read this fantastic. to get this peace. you can do this and you can do that. it was a positive comp and helvering and there wasn't any sense that you couldn't do stuff. >> host: every step he took to get where you are today, did you ever stop and say well of course naturally or did you stop and say we don't tell they find out what they've done? [laughter] >> guest: there was a bit of both this editorial page was like that oh my gosh, wow. but when they offered it to me, hal was at that time -- >> host: he hired me at times. >> guest: there you go. he sent you write this stuff about women in history and you could be a paragraph. i thought my gosh. >> host: did he say you can make history if you do this? >> guest: he did. i thought there are not that

many opportunities to, i don't think anybody is free to offer me baseball commissioner, so this might be -- this is great i can do this thing and it was a great -- >> host: she didn't do much with her life. [laughter] ..

>> host: it is a great story in a great read, gail collins, when everything changed some of the amazing women from 1960 to the present. thank you so much for joining me on after words. economics professor carmen reinhart argues that the 2008 economic collapse was not unique and solutions can be found from the past. politics and prose bookstore in washington d.c. hosts this

hour-long event. speak the evening everyone. my name is conor moran. on behalf of the owners of politics and prose, welcome tonight. thank you for. we have a few housekeeping things before we get started. the first as if everyone would please silence return of their cell phones, we don't want carmen to be interrupted this evening, and that goes for carmen too you have it and also if you need books after the event they are located on the table in the front of the store by the front doors so you can head up there for your buck. because we have sis been with us this evening, we have a microphone in the center aisle here and we need you all to asking questions from the microphone, because it will be on tv and then finally, if you wouldn't mind helping us set up the chairs or fold up the chairs when we are done it helps us set up for the signing a lot more

easily so thank you very much. alright, so we would like to welcome carmen reinhart director of the center for international economics at the university of maryland for her new book, "this time is different." for the pesty wafered many justifications, comparisons and explanations for the grant financial crisis as it relates to previous fund's. is the worst since 1982. does the deep since the depression. its effects have yet to be fully calculated in in light of those facts reinhart is put together a comprehensive look at global financial crises. in the copiously detailed account she lays out the cyclical nature of economic problems and provides much needed perspective. now matter how unique we feel we are author shows these things happen over and over again across the globe whether it is toxic assets, the devaluation of the currency or a savings and loan scandal. the one thing we can take away from any financial crisis is it

is bound to happen again and again and again and we have only previous crises to learn from so please help me welcome carmen reinhart. [applause] >> well, thank you all for coming here on a friday night. i hope i don't put you to sleep. let me first say this book was in the making long before the sub-prime crisis began, the gathering process was a long time in the making. my co-author, ken rogoff from harvard university would have loved to have been here but for personal reasons he could not join us, but i am sure he would have, he would have wanted to be here as well. what i would like to to sense i

have about 20 minutes, right? right, 20, 25 minutes. i am notorious for rambling so i will try not to fall into old habits. i will try to divide my remarks to say a little bit about the essence of the book and there is no-- then i will move on to talking little bit about how we came to write this book. and lastly, what the book means for where we are in the current economic conjuncture, not just in the u.s. but to put it in a broader global perspective, so those are the three pieces of my presentation. let me begin with the title. this time is different and it is meant to be ironic.

i over the course of the years, my career began at bear stearns, of all places, so in the '80s, in the '80s, and not during its recent demise. i also worked a number of years at the international monetary fund, and that background, also, in the international monetary fund was where can and i first worked together back in 2001. and, during that period, the seeds of that this time is what we called it this time is different sent from were really sewn as a possible way of understanding why we keep having crises such as what we have had in the last year, so let me define the this time is different syndrome.

basically the premise of the this time is different syndrome a simple. which means crises happened to whether people in other places and at other times. they don't happen to us. and, the rules evaluation, so is your debt to high relative to your income? 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 you are vulnerable, those rules apply to someone else but not to us. and, it is universal and i will talk, and it is universal and common across time. let me begin across time, when we submitted the manuscript to princeton university press for review.

peter lender, who we thank and knowledge, he was one that we were lucky enough to get his excellent advice and he was one of the reavie words. he sends me a copy of an advertisement for standard statistics that said we don't have to invest in bubbles of 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 standage statistics, which was based in new york in this advertisement appeared in the saturday evening post in september of 1929. weeks before the great crash.

so, you see where i am going i hope with the this time is different syndrome. a theory importance example of the this time is different syndrome was the the year was 1995. how many of you remember mexico's big peso crisis in 1994 and 1995? mexico almost approached defaults, and then what was then a large bailout package was put together from the imf and the u.s. and other of the g7 economies, and we'll 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

though against the backdrop and which mexico months before the crisis, had been upgraded by the reteaches agencies. mexico had just been admitted to the organization-- 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 at the international monetary fund, and there was what the imf calls the mission. it sounds like mission impossible, maybe it is, but it is safe is it that we went through indonesia, malaysia, hong kong, singapore, japan and it was about five and a half weeks -- and it was to assess financial vulnerabilities in

these countries. and, you could not go anywhere without hearing the news about the evolution of the mexican crisis, and the issue was raised at the time that well, you know, a lot of these countries, which you know, these were the east asia tigers by and large, had had a history of more than a decade of the incredibly high growth, low inflation, prosperity, and yet, these countries had a very large current-account deficits, big current-account deficits that were being financed by borrowing from abroad and a lot of that bar when was short-term

borrowing, so-called hot money. leverage. people's the personal level, at the household level and at the firm level of indebtedness had gone up a lot. stock markets had gone up a lot. real-estate prices were soaring. construction activity was booming. there were shopping malls in the midst of thai forests that were coming into being during this boom. so we naturally posed the question, are you concerned that something like what is happening in mexico could happen here? and the answer, and because the center from every country the official that we talked to us,

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 in 1997 and 1998? will, let's move the clock forward. in the years running up-- the beginning of this crisis, the roots of this crisis, the recession begins in 2008, at the end of 2007 but their roots or the unfolding of the beginning of the defaults of the mortgages and so on, that begins to really unfold in the summer of 2007. and so in the summer of 2007, we

begin to put together some of the material we already are working on in this book and i will say more about that later, and ken rogoff and i presented a short 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 crises, and what the paper did, it was a short paper. american economic association is the largest meeting of the economist, so you see a lot of people that look terribly boring congregating together in early january of each year. and, what that paper did was it

took the worst financial crisis or the post world war ii period, so we were not even going into gloom and doom the depression, the great depression, 1930's, lost decades. we just said okay, let's focus on the worst financial crises of the post world war ii period and let's not make it to dramatic so let's not even include the emerging markets. let's just focus on the crises in the wealthy economies. and so, we focused on what we later khaldun you will see it in the book, the big fight. the big five for the famous nordic crises, sweden, norway, finland in 1991, spain in 1977 and the biggest of all, in the world's second-largest economy, japan which began in 1992.

and, the basic-- and this is not saying it with hindsight. at the time we said we really are following the script here. these crises were preceded by a big asset price balloons, the equity markets and the real estate markets, lots of indebtedness of. we have been running huge current account deficits, and we compared the u.s. data to the average for these crises. in the run-up and the subsequent after the crisis unfolds in their concluding remarks-- the concluding remarks be presented were we will be lucky if this doesn't happen again. what was the response, even in 2007? we are not an emerging market so these are not emerging markets we are talking about.

these are advanced economies but the perception was the same, this does not happen here. we have the world's most sophisticated financial system. we have the world reserve currency. doron up in housing prices is predicated on the fact that we have a new-- we have discovered how to securitize mortgages, and create this wonderful new market called the sub-prime market, and in effect 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 world are tripping over themselves to buy sub-prime paper. don't forget, we are bar wing from the rest of the world. we are still borrowing from the rest of the world, crisis

notwithstanding. and, the perception again was this time is different. those rules don't apply here. the case-shiller index, which looks set housing prices for the united states is available from 1890 annually. and a case-shiller index between the year 2000 and 2006 rose by more than it had in the preceding 100 years. something was bound to happen. and so, right now as we speak i am sure that there are new levels being created, not here, not yet come abutt snook bubbles are being created right now-- i

don't know if you have heard this story but it has to be one of my favorites. it is, more money has been lost searching for euros than that the point of a gun. and, the search for yields right now with u.s. interest rates being close to zero, the search for yields is going into a marching markets right now as we speak, and so now it is conceivable that many of those countries will say no, this happens in the united states. it doesn't happen here. it is human nature. in mcewing this massive amount of data, one of the conclusions that we have come to is it is a very human to elusion if you will, that those rules don't apply to us. we don't see any exceptions to the rule. if you look at across regions.

if you look across time you will find that one point or another everyone is vulnerable to this same sort of delusion. how much time do i have? okay. let's meeks say a little bit then about the process of putting the book together, and you know sort of some personal notes and then moving on about what we take away about the current conjuncture. although i have said a little bit about that but i would like to go back to that. one of our favorite books, ken and i-- well ken was a student of kendalberger's and one of our

books that we really sort of-- it is not under my pillow at presence but not far away from it for a long time, was kendalberger's wonderful history. panics and many as. and it was their real inspiration. and what we set out to do was to put numbers on kendall berger and make it more global. that was-- so kendalberger are tells a wonderful narrative, which is very consistent with what i described to you, indebtedness, the easy money, borrowing, booming equity prices, booming real-estate prices, borrowing from abroad, large current-account deficits. all that is kendall berger but it does not quantified. the story is there and it is also there for a handful of crises in the big countries, so

what we set out to do was put together what is a massive database that will come to the public domain and it is one of the project we currently have is putting all of this data out in the public domain on the web. and documenting-- it is like an illness. and ellis does not affect, if you have a heart condition and if you are completely healthy in you both contracts the same disease it is not going to affect you the same way but you are going to share certain symptoms and it is those common symptoms that we wanted to search for the data, so we very much in the spirit of kendalberger said let's make it global. let's go and get data. we have data on the colony so we have colonial records. my 17-year-old son said that he

was going to-- i should live in a little hut in the basement as i receive books and tapped on two databases that were not really much use, were really neglected. and i would like to just take a minute here to talk about one of those big well moments that can and i had, including this data together. you would think that finding data on government debt is easy. you would think that. you would be wrong. we were 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 our most ambitious work today.

and, at the international monetary fund can was chief economist there from 2001 to 2003. i was deputy director of research. and, we started trying to put together data on government domestic debt, the government's domestic debt. we thought surely the international monetary fund or the world bank would have such data. surely not. the two institutions focused on external that, so if you were argentina, and you had external debt, debt to investors in new york or 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-- we are economists a you have to allow that we get to excited discovering things like domestic debt so you have to lower the threshold for what classifies as exciting. the other exciting components for us was that the historians had done an excellent job in pinpointing the dates of defaults or restructurings of the external that's because these were that that's that we owed the powerful bankers or powerful investors in london or new york but if you took the pension plans of people who defaulted on it, which many countries have done, that stuff doesn't get reported so one of the things we set out to do our work in this book can be more descried as archaeological then economics in many important

dimensions. it really was-- we have colonial records. we have a wonderful source. my husband being their romantic thaddeus for valentine's day, he gave me the complete set of world economic outlooks for the league of nations. [laughter] be to that one. league of nations ceased to exist in world war ii, but it has incredible data going back to somewhere between 1910 and 1914. i had input, myself, not research assistant, that data and you know, 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.

the league of 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 in a more sketchy way continued to update some of the data that the league of nations once put together. it was also looking at fleet of nations material that i discovered newfoundland was once a country. i did not know that. i always thought of newfoundland as a profit since of canada. it was the country and it lost its sovereignty because it was on the brink of default. talk about a high price for defaulting. so, to make a long story short, there was a lot of detective

work that pointed to the plug-ins it unfolded over several years and the idea for the book came from work we did in 2003. bin 2004, 2005 were busy years that we were finishing a lot of other work so in 2006 we began full speed to bring this data together and work. i must say, and i can speak for both my co-author ken rogoff and myself on this. i think one of the things that i am most proud in my professional career is that as this crisis unfolded, not just here in the united states but in europe. the u.k.'s crisis can almost be a mirror of what is happening in the u.s. and it happened in ireland and it happened in spain. we have the first global crisis and i know the term global gets bandied around a lot, but this

is really globaled, meaning that a huge share of world gdp by the number of countries that has been affected by the crises, that's during this on folding of the global crisis we had central banks from all over the world, not just the united states, the treasury department's, finance industries tracking our work because one of the things we laid out for benchmarks saying this is not the average recession. this brings me to my last points, which is where are we? this is not your typical recession. your typical post-war recession in the united states last addidas-- less than a year. the longest post-war recession was 60 months. and so that as the crisis

unfolded-- okay. as the crisis unfolded, policymakers were looking at some of the benchmarks that were laid out in our analysis come into statistics that i will flags that were particularly shocking, 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 to statistics that we produce from this comparison of the other crises. it really shocked many who heard us site the statistics. when we said on average, if you look at all of the safir-- the systemic financial crises, post world war ii.

both emerging markets and economies on average rises seven percentage points so from the bottom to the peak. sylmar bottom was in late 2006 around 4% so we were saying from bottom to peak if you use the average it would give you a 11%. that was one statistic that really shocked people. this was you know, january 2009. when we presented it in the middle of 2008, when we were preparing. the second statistic was that government debt increases. if you take the year of the crisis and you look where the government that was three years later on average, the government debt increases by 86%. this is 96% of gdp. it is just saying that government that nearly doubles

in the three years following a severe financial crises and this is even absence bailouts, even absent stimulus plans. government revenue simply collapsed after financial crises. property crashed a and of course unemployment rises, output declined since do you have a big decline in government revenues. and so there is a big debt buildup, which is where we are today and it is not just the u.s.. where we are saying that rise dramatically. the increase in debt is even thicker in countries like the u.k. ireland, spain. and if you start looking at some of the emerging markets crises,

you have to look at countries like the ukraine. and iceland used to be an advanced economy before the crisis in now it is lost a huge amount of its income. and so, it is a very uplifting way to and i know. it is not, but it gets worse. the sword of final remarks that i would like to-- i have just touched the tip of the iceberg. there is no way that 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, there were silver based exchange rates and which you could see the government ripped off the public

by producing the silver currency to the public so you can see all kinds of crises 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 the monetary policy, the federal reserve and in fiscal policy, the stimulus package is. we have seen a big effort not to repeat the mistakes of the 1930's which were basically reinforcing what was already making a bad situation worse. however, that is more on crises management. i think frankly, i have serious doubts that what we are doing or

more accurately not doing to restructure the banks that we have learned a lot. certainly had something we have learned a lot from the japanese lost decade. feel free to ask a question on that. [laughter] but, what was more sobering if you will about the patterns that we find was that memories are short. that's-- some countries it is shorter than others so that if you look at the cycle from boom to bust and back to boom and back to bost, in some countries it is shorter so memories are shorter, and that is not i think only human nature. i think it is policymaking and markets that also have reinforced short horizons.

absolutely, absolutely and i did say i would ramble. but, i would like to suggest that i would be very leery of any remedy that has put forth with a sale tag that says it is not going to happen again. and i will leave it there. [applause] >> thank you very much. use stressed i thought passive symptoms of forgetting, delusion and denial and as the cause of our-- as the cause of the recent debacle, but a more active things of greed, the deception,

cover up seems to be more and that of course is part of human nature and continues. so, how much do you think is really we are fooling ourselves and how much is active of people because guys like dean baker and william breyer wrote about this a few years ago and said it was going to happen in yet greenspan and people like that hushed it up or did not want to admit it in things like that, so if you would comment i would appreciate it. thank you. >> so, the question of the sites ignorance and arrogance is, there's also greed and corruption. the answer is yes and this crisis is no different in that regard. in preparing this study, i must have read at least, at the least 60 case studies of individual

banking crises and the word corruption, motivated by greed, comes up time and time again. fraudulent practices, connected landing, creating a third institution so that institutions that are not-- so that you can circumvent regulation. regulators that don't regulate. those are not new features to this crisis, and i am very glad you asked this question because i've seen those as amplifiers. so, 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. but, those practices amplify it, make the boom much more

pronounced and therefore 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 were key parts, a key parts of the-- i have seen this movie before. >> my question was, now china seems to have a big surplus. they don't have a lot of debt because they seem to own the money that you know everybody has borrowed from them. do you think they will escape everything? >> well, there's always somebody who is going to ask on china. let me say this. one of the things i didn't get

into, i mentioned in my remarks the issue that one of the things we document carefully is domestic debts and domestic crises. china is a country with capital controls in place that have teeth and i don't just mean capital controls that circumvent. i mean capital controls that have teeth. you cannot trade the rhamen belie bucan the euro. or the mexican peso. you cannot trade its. that protect you from having an external debt crisis. they don't have much external debts to begin with. they have created a massive, massive amount of domestic debt, trying to stimulate the economy during this. realistic pride-- real-estate

prices are booming in china and it is very much fueled by a government induced domestic credit expansion. not alt booms indian tears, but i don't see any reason to sing victory at this particular conjuncture but i just wanted to make the distinction that you can have a full-fledged domestic crisis. >> in the spring of 2008, i taught a course on mathematical finance it to george washington university and that was the semester when bear stearns went under, and the book i used was called options, futures and other derivatives by john hope, one of the standard books on wall street. the book by the way cost $150 a joke to my students that don't worry you can always take out a

sub-prime loan to buy it. but, one of the recurring themes in any course of that time is risk. you applaud the expected return against the risk. you talk about the options pricing formula. you look at the volatility of the stock so risk is a pervasive theme. and, it just is unbelievable to me that what is common knowledge-- this is an under graduate course. it was unbelievable to me when i learned that bear stearns had leverage of 30 or 40 to one. 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 them on monday.

>> you were called to testify, was which your comments on past and it dies in the future be? >> let me say first of all one thing about their risk and the incidence of risk or the incidence of risk-taking. risk is always there. it is the incidence of risk-taking. historically one of the things we highlight in the book that if you look at periods where financial markets are highly deregulated, not just domestically but globally, internationally, those are periods of higher incidence of crises, so with it the risk, with the increased incidence of the potential for higher profits comes the risk. >> leverage. >> leverage, yeah. but, you can engage in that in a

deregulated system. the point being that for many years, from world war ii to the early '80s, financial systems in the u.s. and elsewhere were highly regulated, and international mobility of financial capital was virtually nonexistent until the early 80s. i don't think we are going back to that system. this comes to your-- i think-- first of all, the u.s. is not going to do it unilaterally. because all it would mean was that the activity would shift from the u.s. to somewhere else. however, i do think, and i spoke this monday to the financial commission, who is revisiting.

there is the issue of poor regulation and then the issue of not enforcing existing regulation which was also a part of the problem, the fact that it was a complete-- a complete ignorance of leverage in some firms that became too big to fail also. so, i think the issues that are going to be seriously revisited are, i don't think we are going to return to a glass-steagall world where everything was regulated. in response to the great crisis of the 30's. i don't think we are returning to that kind of world 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 that asked about-- that limited the aptitude of cycle and by that i mean things that avoid sort of the kiss of death, rating agencies, a rating agencies can upgraded during the boom. therefore, you can borrow more during the boom and you can amplify the boom/bust pattern. i think those regulations are going to be revisited but just broadly speaking, it took world war i, the great depression and world war ii to do away with capital mobility because we lived in a world that was financially more similar to today in terms of risk-taking, before world war i then in the period from world war ii to the early 80s. i don't degette this stage the u.k. and u.s., the 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, i mean it comes in stages. it is not one moment event. you have got 29 in the 30's and so forth, so we could just be in the early stage of the beginning of the big mess. so, i am going to ask you a question which i don't expect to get answered at all, but in other words, how do you see this coming out of this in any reasonable, this because we usually don't and the reason i ask that is because these are people's lives, as you well know. but they are, the depression is people's lives.

so, how are we coming out of this is the first part in the second part is, if we have got essentially the same people on the levers such as larry summers and that hold guilt and so forth, in other words are these people just going to help themselves out of this and sort of-- they will manage the rest of the people? the way they take care of the bank's first in the people second, third or never. i am very concerned with this the administration we are getting the same types of people running this thing and just to 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 is not a witch hunt but it is to look at the role of groups of doctors or

individuals also. ada is not just about broadbased causes of the crisis or failures in regulation. so, one of the things that i would like to highlight from the lessons from the depression is that those kinds of hearings are still in the future, so we haven't-- we have not seen the dirty laundry yet. >> if they are actually independents. >> but, i think you know, that's how much of the dirty laundry we will get to see i really don't know but i think we will see more. because, it is not something that happened right away either. in the last time we went through something like this, which was really the commission and so on after the depression.

how would we get out of this? there are different expectations surprise, surprise the i am not among the most optimistic in this is not the climate doom, the same thing that happened, the panic of the fall of 2008 and the meltdown. note, no, no, but i think we still have a hard period ahead for a variety of reasons. unemployment is a lagging indicator, so it is still on the way up. the industries that are hurting greatly like housing are very labor-intensive also, all the construction industry. and, the one reason that,

another reason i am 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 that i took away from looking very closely at the japanese experience in 1992, and we are not talking about emerging market. we are talking about the second largest economy in the world. it took a decade to get out of that. i'm not saying that we are in that role but i am concerned that the banks have a lot of toxic assets that have not been written down. they are sitting there-- that it is painful for institutions to take a hit and say okay we are going to write down bad debts

and move on but until that happens, and it hasn't happened yet, then normal lending and all that goes with it because after all we do need credits, a normally functioning credit, and that is i think in achilles hill. i think we have learned a lot. one of the things we highlight is let's not make the mistake and you are absolutely right that crises have been in stages. the early declaring victory during the depression was a problem because that means the fiscal stimulus was scaled back and monetary policy was tightened prematurely. the same mistake happened in japan in the mid 1990's. to fix this, we have to deal with the things. it is going to be a carrot and

stick. you get capital to the banks but you have to ask them to write down these loans. if not, it is going to be another lost decade or the potential. we frb been two years and to this crisis. we cannot really realistically expect government spending to do all of the work. simply because government spending also creates that, that that somebody else has to pay and that is the next generation. so, i am glad you brought this up because it gave me an opportunity to express what i see as a concern, and that has to do with being too much in denial, too much and we will fix this later. they were called some the banks in japan, and we have some big

banks here also. >> thank you. >> thank you. >> thank you very much for your talk. i had a question concerning bailouts. you said in a previous response that lack of regulation, corruption and etc were all multipliers but 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 it whole. all the people and aig for example. is in that the multiplier for the future that all of those people made all of these incredibly bad decisions and guess what? we are creating money and we are whole again. could you comment on that cycle? >> okay, let me say that the federal reserve finds itself in in an enviable position, right? they say, 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 the railing recovery? that is not 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 the moral hazard and what do i mean in english? blanket guarantees. we have seen an incredible amount of of government guarantees, and that induces--

this goes back to the question on risk-taking that the gentleman asked earlier. so, i don't see any easy-- it is easy for me to conjecture here, oh yeah we want to avoid this kind of behavior again, tighten the screws and make liquidity hard to obtain but that is also running the risk of what we did in the mid '30's. but i do see that any regulation going forward has to deal with the fact that we have created institutions that are too big to fail, and so they own us, and that that issue of the too big to fail perhaps by dismembering some of them are creating smaller institutions or credibly

regulating if you are too big to fail and you have to be regulated much more strictly, which has to do with the earlier remark 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. you talked earlier about the madness of crowds which is an old tone that every so often emerges again in terms of bubbles. we have had a period of the cunning of the consumer, both kant in sub-prime mortgages, as cheap credit, as investors of

opaque securities such as derivatives and lying rating agencies which was mostly in the mortgage area. we have been going through a period of friedman economics which says the marketplace rules. greenspan from the minute that he was wrong. now we have resurrected keynes and we are starting to apply some of those formulas. so what i am asking you in terms of resolving this and creating more jobs, and doing more things, is that a way out? >> okay, yeah. we have gone through cycle in which markets reign supreme and markets always get it right to. so, the pendulum has swung now in the other direction. we need if not more regulation we need to better regulation or

at least we need to enforce the regulation we have so they are not just curiosities on paper. 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. does not an abstract thought. help me out on this. you have a bank that, if you have bad debts, the it is like, if you are an individual and you have bad debts that you haven't written down, you haven't taken a hit, you have not taken a loss yet, any new borrow blaine, any new lending is going to be curtailed because you have that overhang. you are carrying that albatross. we are still carrying that albatross and without a

resumption of normal lending, it is difficult to talk about the revival of sectors like housing that indicators for housing have been coming out showing signs of improvement. it rolled over and died again in the latest data. this goes back to your issue of employment. ..

regional or local crisis, 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 here are slim, so restoring domestic lending conditions is i think --

and that may entail actually some painful write-downs for financial institutions and it may raise hackles and on several markets in the short run which is obviously why it is easier to talk about it than to actually do it. but i eink it is a necessary cleansing if he will. [applause] >> carmen speed 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 is an economics professor of the university of maryland. for more information, visit umd.edu.

from the freedom fest 2,009 a libertarian conference held annually in las vegas thomas woods, author of "meltdown" a free market look at why the stock market collapsed, the economy tanks and government bailouts will make things worse. this is 50 minutes. [applause] >> ok. thank you, ladies and gentlemen. this is the first conference i've ever been to where there were eight other things going on while i was speaking so i'm glad to see if there's anyone here particularly since the other ones are all involving how to hold on to your wealth in these troubled times. you guys must know all about that. let's not forget the high rollers in the room. thank you for being with me. i would like to make a shout out to my wife who is in here but is a wonderful woman who together

with me we are expecting in addition to our family in the relatively near future, and we think foley have a wonderful relationship we're pretty much anything we fight about is which one is the better person and we are each making the case for the other, so thanks to that i'm able to say to her time going by myself to a conference in las vegas and i won't be around for three days and that sort of is okay. that works and lives thankful to c-span for creating this official historical record such an event did in fact occur. what i would like to talk about today of course very much revolves around the subject of my book, "meltdown," which i'm happy to say spent ten weeks on "the new york times" best-seller list earlier this year, however "the new york times" -- thank you. thanks. [applause] thank you. "new york times" refused to review it, however they will

still impose paul krugman every week. that, we are not going to be scared. we are going to get him but no dissent is a "new york times" but on the other hand i think we all know about the financial picture "the new york times" is facing so i tend to think it doesn't want to promote a book that argues against bailouts. given what the media is going to be demanding in the near future. let's not talk about that particular depressing subject and in fact i hope i'm not going to depress you today because i'm going to leave you with a suggestion there is a way out of this and whether or not they are going to follow it is another question that it's comforting to know if we wanted to get out of this economic mess we could do it. it's not impossible. it could be done. i'm not going to talk about some of the things you would likely encounter if you turn on right-wing radio where you would hear a lot of denunciations of the community reinvestment act that introduced affirmative action in lending or fannie mae and freddie mac was

irresponsible decisions were i think a fairly significant factor in all of this would all the same there is never the less the elephant in the living room, the factor that more than any other contributed to the crisis but yet never gets mentioned, is never mentioned in a negative light certainly in political circles, where in fact to the contrary we are in effect encouraged not even to think about it and that is the federal reserve system. most americans here federal reserve system and think i don't even know what this is. this is probably too complicated and i'd better just what the experts take care of this. that's the problem the experts are a bunch of quacks, so it's important to learn of this material, to know what is going on so we can have an informed opinion so that we won't inadvertently enlist in the army of drones who say the solution to the crisis it to give more power to the wise overloads.

been there, done that. the federal reserve system is in effect in charge of the country's money supply as i'm sure i don't need to tell people in this rim to read it has the ability to increase or decrease. i think we know the direction and normally goes. it is supposed to end as a lender of last resort for the financial sector. there's one thing it knows how to. we've seen that. they've got that pretty well under control. and we are told the fed is a great stabilizing agent in the economy so freely we shouldn't be questioning it because the fed brings scientific management to bear on our money supply. who could question that, what kind of quack argue this is for our own good. even the left prides itself on its authority and falls completely silent when it comes to the fed. if you question the fed will, that is taking the question of

40 just a little bit too far. i intend to do that and i think those of us in this room are inclined not to just accept whatever we are fed by the establishment especially when the establishment has been obviously so wrong so we are inclined to ask fundamental questions normally passed over. so, for example normally what happens when there is an economic crisis of this kind as we get people on one side saying we need fiscal stimulus to blow a lot of borrowed money on the nonsense projects and that will make us rich and the other side is supposed to say no, no, let's print a lot of money and spending on such and such and that is the big debate. yet we are introducing into this debate a third possibility which is the first two are completely juvenile and are only going to make the situation worse. why am going to be talking about today though and false something called the austrian school of economics, nothing to do with austria and other than a lot of the early figures in the school came from austria.

this is important because right now the austrian school just a school of economic thought is the smallest probably in the world. it also happens to be the oldest continuously existing school of thought in the world and right now it is the fastest growing. why? because disproportionately economists of the austrian school predicted what we are seeing at a time the rest of the profession was completely blind sided. james galbraith estimates that may be one-tenth or one one-hundredth of a percent of professional economists solve this crisis coming. naturally he's not including the economists because that's the job of james galbraith to protect their are no austrian economists but we need to highlight these people because they saw what is coming and that is what people are interested in. meanwhile the mainstream so-called of the economics profession has in my opinion completely disgraced itself during the crisis had not only because it failed to see it coming and not only because they told us this is the most robust

economy anyone has seen. they said that in 2007, but also because the solutions, the so-called solutions that they propose are utterly juvenile and extremely crude and this is all they have to show for themselves. now the mainstream of the economics profession has in effect morphed from what was once a small corner of the profession namely a group of people who fought the best thing for economics to do was to aid physics so i think a lot of times in economics we have former or would be physicists who for whatever reason wouldn't go through physics program and is the next best thing is to become an economist and try to aid the methods of the physical sciences, you come up with of certain models that if required to be applied only to mars or economy in the long run equilibrium we are never going to reach but never actually talk about the actual economy we are living in so if you actually

read the american economic review you will find it is completely not readable. it's math and jargon and you would not be alone if you are not subscribing to the american economic review. they did a study not long ago to ask how many people read the average article in the american economic review and the answer was two and a half, to and have people reading the typical article. i assume they are not including the editor and the author because then we would be left with half a guy running around reading articles. so the fact the mainstream is not favorable to the austrian school of economics i don't count as a demerit. i count that as it went in its favor. i don't see the mainstream profession has been doing a bang up job recently. will want to talk about today is as follows. arlan to exploit the precipitating factor of what happened and no, it is not a deregulation or free market is evil or of the nonsense you get

from cnbc or the white house or whatever. all that stuff is false. everybody who says the free-market has failed and the drones who from the economy need more power is dead wrong. so first what was the precipitating factor, second i want to explain why fiscal stimulus is a juvenile idea, why get only intensifies the problem likewise for monetary stimulus and then propose what actually could be done to accelerate the recovery. and here i'm going to make reference to an episode in american history no one has ever heard of, depression over in about a year and a half because the government did the exact opposite of what is doing right now. so, first to the fed. the fed has nothing, in my opinion, whatsoever to do with free market to get the free market is the idea of social cooperation bounded by private property rights that we all

engage in voluntary transactions with each other, and we cannot trespass upon other people's rights to life and property. that always is for all the boogeyman definitions you've been given about the wickedness of the free market, that's all it is. there is no room in that set up for a monopoly paper money producer. that violates the temmins of the free market, which opposes monopolies and the free market would never produce a paper money system like we have now where the money is paper, not redeemable. the system we have now has never been created for one chiarelli three the free-market, never. no such thing. it has always been introduced through government and threats of of violence and use of the police to suppress alternatives. it has never spontaneously emerged. so the fed therefore is going to be the target of my remarks. i am of the opinion the free market more or less works in every situation and so i don't

make an exception to say the free market works however when it comes to money in the interest there we need a soviet commissar engaging in a central plan. it seems like an inconsistency. i don't see the new to consume this, and yet the chairman of the federal reserve system from the late 80's up until a few years ago alan greenspan was treated like a god among men and our financial press and popular culture and television. he was called the maestro, "the new york times" in its typical totalitarian fashion referred to greenspan has the infallible maestro for the financial system. bob woodward, the reporter for "the washington post" supposedly anti-establishment reporter, bob woodward said in the wizard of oz, right away we are off to a creepy start. in the wizard of oz when the man

behind the curtain is revealed we are disappointed. but in greenspan we find comfort. just creepy. totally creepy. this is beneath the dignity of a free people for heaven's sake or my favorite example is from the new republic magazine i hope none of you waste your time reading but the new republican a journalist who had a little bit of a problem. he used to make up his stories and other journalists would be wondering why didn't i get that story because it came out of his brain. it didn't actually occur and one of the story is this guy who wrote, stephen class, was about alan greenspan and he told the story a group of wall street executives had built a little shrine with his image and flowers and candles and they would meet and meditate in front of him. what's more amazing that somebody would invent a story like that is nobody noticed that was a phony story.

people felt that seems like a reasonable thing somebody might do, sure. something is wrong here. this doesn't make sense in a free society so i want to puncture some of this bizarre aura that surrounds this man in particular and the federal reserve he headed in general. now let's talk about a nobel prize winner in economics who actually deserved the price unlike certain people whose names we won't mention until later today and that is if a hayak. he won the nobel prize for showing central banks like the fed, monopoly fed's that would be absolutely nothing without the government granted monopoly privileges they had destabilized the economy. forget this mythology about what wonderful stabilizing agents they are, to the contrary since we have had the fed when you compare the number of panics and crises we have had it has doubled since that time so don't

give me it is a wonderful stabilizer. that's a whole lot of propaganda. hayek it is significant he won the prize, he's saying what they don't want to hear. they don't want to hear that the whole central banking destabilize the economy so it is significant he wins at all but he says the exact opposite of what they would like to hear. anybody can understand hayek's argument with the exception of certain recent nobel prize winners but anybody in this room watching on television can understand this and if you want to understand what happened in the economy and why it is completely even laughably bogus to blame this on the free market, i suggest this to two minutes you will find wait a minute this makes a lot of sense in fact i am happy to say i spoke at the university of colorado a few months ago and i didn't realize it i didn't know

until i got there with his reputation was that they are on the political left. they invited me to speak so i'm going to read and the room was full i was happy to see on a friday night so i don't care what your political outlook is if you are coming to an economics lecture on friday night you get a pass from the city's people were there and a lot of them were obama supporters and i thought i'm not getting out of here alive. but as it turns out afterwards they fought to have made a good presentation -- lagat email leader -- to make a good presentation. we don't see the argument against what you're saying is. i did a show with a left wing host and that adds an appearance, howard monroe ten minutes to explain his theory. it's not me like i'm a genius. i'm explaining hayek's terrie. ten minutes he said i was expecting to hate you. instead you make a good case and finally the guy that reads the audio book of "meltdown" and he has the greatest reading voice

you can imagine, he's like the guy from the movies in the world, that kind of her voice, he's an obama supporter, too and when he got "meltdown" he thought here we go again another bit of right-wing propaganda and he wrote and said i have to admit he made a strong case so it is nice once in a weigel even though we have disagreements with people we can be civil and listen to what we are saying. is this a wonderful break from what usually takes place? anyway here is hayek's argument very simply. hayek wants to know why is it the economy moves like this? how come we are doing great and everybody's in the toilet and then up and down? why is this happening? kind of an interesting question, why is this happening? why is there what the economists like to call a cluster of error where all of a sudden people who had been great forecasters of consumer demand turnout to be terrible add it all at the same time in the same direction why would this happen, this demands explanation.

the market weed out people who stand at anticipating consumer demand. those people make losses and or go out of business and people who were good at it expand and get more control over capital. so at any time the market is in fact promoting people who are the best at doing this so why are these people selected by the market for their forecasting ability why are they bad at the same time? good question. very rarely do you get an answer to this question other than a psychological one that they are animal spirits that sometimes makes them want to invest a lot and then turns around they don't want to invest so much and what ever. but a totally antiintellectual unsatisfying an explanation. he says there are factors that account for why this occurs. and now he focuses on interest rates and if you are inclined to say interest rates there's no way this is too complicated. interest rates are so important you are going to have a dream about a johnny and interest-rate symbol chasing you because you will realize the significance of

this. what hayek is singing is interest rates are not just arbitrary numbers. you can't change them and expect nothing to happen. we would like to have lower interest rates the same way we would like to have milk sells for 5 cents a gallon but we only one that if it occurs spontaneously. the government makes milk 5 cents a gallon that doesn't mean we are going to get cheap milk. it means we will get no milk so we can't simply say anything that seems good for me as a consumer must be good and super and let's have the government for said. you might as well ask the government to abolish all laws of gravity because that is what you are trying to do. interest rates mean something. they are where they are for a reason and if you interfere with them you are going to lead to massive discrimination because what is the interest rate to? what function, what role does it play? it coordinates production across time which is a fancy way of

saying that when people are willing to postpone the purchase is into the future that is a time it makes sense for businesses to engage in long-term projects that will bear fruit in the relatively distant future whereas if people want to consume right now this is not a time to deploy resources on product development for best product city and district court meets demand of consumers for goods now versus goods in the future. at second and this is just the other side of the same claim, the interest rate makes sure there's enough resources the actual physical resources available in the economy to complete all the relatively low term projects businesses engaged in. well, when we save more, when you and i save more and we restrict the consumption temporarily this lowers the interest rate. this is pushing interest rates lower, banks have more to land, so to take a short cut here the price of lending goes down this

is common sense. when we do that that indicates number one we are postponing the desire to consume and the future and number to because we're postponing the desire to consume we are releasing resources into the economy for the use by the strong durham project is because if we are not going to be producing as many media goods some of the factors that go into producing the consumer goods are now released and made available for the longer term projects like research and development or manufacturing or mining, expanding the mining capacity. the reason why interest rates to encourage long-term investment should be obvious. the longer term your investment is, the more interest matters. if i have to make a ten year, stored it in your project at 15% interest it might not be worth my while but the interest rate comes down to 8% it might be profitable for me to do so the longer term the investment is the market is going to be artificially stimulated if interest rates are interfered with. if they come down naturally

because there's more savings available, then it does make sense for long-term investment to get started. people are willing to leave the time it takes for the project to mature said interest-rate plays a crucial coordinating function. it's not the case that you can create a utopia by forcing interest rates down artificially in that all of a sudden it will be sunshine and kittens. that is not the case. the interest rate is a genuine constraint that is there to limit our ambitions, to make clear we cannot do everything simultaneously. we cannot begin every conceivable production at the same time. it limits this. so hayek's point is this; let's suppose because was to come naturally. well we have coordination because we have a long-term investment starting at the time people have deferred consumption and released resources for use it longer-term projects or we might call them higher order stages of production.

but let's say you have a central bank like the fed with various means to push interest rates low were artificially. what is the difference here? we have the same effect which is more long-term projects are undertaken but notice the difference in this case people haven't stopped consuming or restricting consumption. they are consuming as much as before. if anything even more things to the low interest rates discouraging them from saving. so, now people are going to be consuming more and not releasing resources so now these long-term projects it is going to turn now they are not going to be profitable because literally there are not enough resources to complete them because the resources that are supposed to be released from the consumer goods production into the production of the more distant things haven't been released. so there isn't enough to go around so the price of the factors are going to go up and that is going to seriously compromise profitability of the new projects. so that in a nutshell is what

hayek is singing sure you have a boom temporarily. people are building things but what good is the boom if they are not building things they can finish? deer building things that do not correspond what consumers want. that is what hayek's vardaman is to interfere in the structure of interest rates as the market sets them result is a massive error on the part of investors, businessmen and consumers. this is the source of the cluster of error. lu dwight fahmy says was the great economist of the centric applied 1973. let me point out that mesis had to flee the nazi control europe where he had been teaching in switzerland for a while and he had to flee eventually not only because he was jewish but what he was teaching was not exactly in conformity with fought nazi economic program. mesis was talking of the international division of labor and how the market is the best example of him in cooperation across borders and wondrous thing it is somehow we can take

resources from all over the place and without any central direction create wealth and what an amazing thing this is. it's not exactly what the nazi party wants to hear. so the distressed his paper and library. he fled to the united states where he arrived in 1940 almost empty-handed not speaking a word of english and with no paid university position at a time every semi content, every boob and marxist could find employment, there is mesis, one of the great economic geniuses of all time, and get he went on to be as productive if not more productive than ever. his great treat this connection, 1949 is a fantastic best seller even though it is 900 pages. mesis was an extraordinary genius, whose work is now still being studied and remembered the time when all of those nobody's getting hundred and welcome over him have long since been

forgotten. mesis after whom the institute i work for, the lewd wade fahmy since institutes is named, in human action gives a great analogy for what's happening in the economy when in fact you are playing havoc with interest rates. let's imagine the entire economy as a master builder building a house and he's got a supply of bricks he think is larger than it actually is and let's for the sake of argument cities are all the bricks in the whole economy. it's better for him to discover this earlier rather than later because of the discoverers of earlier than he is only squandered so many of them and he's only wasted so much of his time but if he discovers the error as he is putting on the last break this a disaster wasting more labor time, the house to have to be demolished at this point may be the whole thing whereas if he discovers the error sooner he can go back to the blueprint and cross things off, change things around and make the best of the situation but notice what would not help him, notice what would not help this master builder if

we simply got him drunk and said keep on building in yes she will be happy and will look like an economic boom. he's building, this is an economic boom. is the house anymore on buildable or unofficial than it was before, any less than before? of course not he still can't finish it but now he's going to be misled into continuing launder. that is what happens to the economy every time people say the cure for low-interest rate problems is lower interest rates because then you are saying to the economy sure you started on investment projects that can't possibly be completed the physical resources don't exist to finish them keep doing that. start samore. that is what you're doing when you as a we need more credit pump into the economy. no we don't, we need the exact opposite of that. and what mesis and example also shows, and i know this is easy to take out of context and hostile people can interpret it

the wrong way but i am speaking to people of goodwill not propagandist's when i say that the recession period, the recession phase as painful as it can be is when we are restored to health because look at the master builder recession period is when his error comes to life and he says with mnf-i and engaged in unsustainable project. i have to go back and scale back my expectations or move into something else. that is a good thing because in fact the bad part was the booming when he was allocating resources wrongfully, when he was squandering on projects the economy doesn't have the resource to finish that was bad and that impoverishes us because a lot of the resources cannot be recovered and so we are that much poorer. so the recession is when we say wait a minute we've done a lot of stupid things we should not have done and now we need to let the market system sort out what is profitable what sound, what is a bubble project and needs to

be abandoned and clean this up and stored on a firm foundation. that is what the recession accomplish as and it can be short and swift if the government doesn't interfere. we have just lived through the classic example of what happens when you have an economic downturn and the authority tries to inflate their way out because remember dot com boon, these customers had no idea what they were making if anything and people were thinking they were going to get rich, a crazy sort of boom that eventually went boston around 2007. going into 2001, alan greenspan decided i'm sick of this economic downturn thing. it's time to laugh again according to homer simpson. we need to pump money into this economy and get interest rates

down and that will stimulate things again. he did that. we have 11 cuts in 2001 and this is when he started being called the maestro because this man, this overlord before whom we are not worthy to stand in whose presence we must wait in since has held off an economic collapse. amazing. what an extraordinary man this is. here's what extraordinary man actually did. in 2001 we had the first recession on record that we have ever had in which housing starts did not decline. so that's because greenspan wouldn't let the economy clean everything out. the bad investments, a production decision so instead people draw the conclusion we've had a recession and yet housing is robust so that means housing it never goes away, it's the best investment we can make and all of these myths get started because greenspan that saying we've got to abandon what we've been doing he says no full steam

ahead, keep doing what you've been doing so now what crash we have now is all the worse because in the interim we have been persistent in these incorrect flows of spending and production it's all the worst because in-store of corrected we were affirmed. so that is what greenspan has done. recently beah greenspan in tears on television saying this crisis goes to show that there is a flaw in the free market that he had never noticed before. of course it means a lot when a guy like this people falsely believe is a free market guy because of his ayn rand days 40 years ago he's still the free market by today and people say if greenspan says there is a fault who are you coming you mortals who are you to dispute what he says? i would simply say to greenspan not that he's listening she is of making $150,000 a speech pretty good racket going but i

would say to alan greenspan we have found the flaw and it is you. [applause] >> with all the fed how could you have a housing bubble? a lot of people have tried to say these bubbles and the bible i mean that prices unsustainably high we can't possibly stay that high and this is a sensitive subject in las vegas but there's no getting around. we have to talk up this. there's some people who say this is a psychological phenomena. people become insanely attached to a particular kind of investment or asset class and i don't mean to discount psychological explanations. i do think that once a bubble gets going it feeds on itself, but the cause and effect and the order is sometimes mixed up because if it had just been psychology the market would have put a damper simply because where would you have gotten the

credit to keep investing in housing? if there is unusual activity in a sector prices go up and if you have a free market in banking interest rates would go up to say we are running out of stuff to land but you don't need three houses maybe you should rethink this. but when you have a soviet commissar running money in interest rates the free market here as the soviet commissar running money in interest rates than he can create all this money, pump and, keep interest rates low and keep this artificial thing going. so this was always mesis arguments and anna schwartz who isn't an austrian but chicago school economist said anytime you have an asset bubble there is always an artificial credits and fleeting get. that is what does it because there's no way to afford the constantly increasing prices unless there was consistent spigot of credit pumped into the economy. so it isn't fair to blame h. g. tv for the housing bubble.

is a crazy simultaneous think and it may have played some role but without the fred debate k-fed pressing the accelerator we wouldn't have the problem. also the issue of lowering the standards is not altogether separable from the issue of the fed. it's not the community reinvestment act. it is if the fed pumps money into the economy into the banking system under the incentive structure right now the banks want to stay loaned to the absolute extent possible, so if they get suddenly more money to lend out and it's burning a hole in their pocket who is going to be the recipient? who will be the recipient of this money if not people they would have rejected otherwise? for example the exit live in "meltdown" as let's suppose i have a basketball team and as soon as i pick my players and told you get to pick to war. logically we're unlikely to take them from? the pool of people i have just rejected so naturally the standards are guinn to go down.

that is unavoidable. and all through this by the way we had something investors new as the greenspan put, which everyone understood to mean greenspan is not going to let things unravel if things turn bad for the major market factors she will intervene in the bill you out and this happen time and time again and this is not some theory i came up with and you can google greenspan put and find out all about this and again i talk about it in "meltdown" but again, we're is the free market of this i would like to know, in what we could this be the free market? what in fact happens when you have a central bank and particularly since 1971, what happens is it institutionalizes what we call moral hazard. we know this is the phenomenon in which people become riskier than they believe any losses they make will be spread out among the public instead of four individually. they get to keep the profits but spread the losses.

the fed institutionalizes this problem because why should financial firms worry so much about their capital? why should they worry so much about the types of investments they are making when they can get injections of fresh liquidity when they need them? naturally there's going to be more risk taking and recklessness them there would otherwise be. i don't see how this can be disputed. it is the nature of the system. so if people say that we need more regulation you have got to be kidding me that that is the explanation we didn't have regulation. you've got to be kidding. the banking industry is the most regulated in the whole country and the regulators thought that the securitizations model was working fine. it was just peachy. now we're being told we need a systemic regulator and that is going to be the fed. the fed creates the systemic risk in the first place. and now -- it's like we are living in an orwell novel combined with a kafka novel and

it's unbelievable. you wake up as a giant dog and they throw you in jail. it is a bizarre situation we are facing. i will point out by the way one of objection to what i'm saying is in the 19th century we had a lot of booms and busts you can't blame that on alan greenspan. that's true i can't blame that on the it person who had not yet been born in an institution that did not excess but again i talked about this in "meltdown." if you look at those cases of nineteenth-century they are caused by the same thing. so you've either got national banks enjoy a special government monopoly privileges and or a banking system that is consistently bail out when it gets into trouble so therefore it can create more credit in the economy and excess act will save resources to back it. if you look at the 1870's supposedly the time of the depression, the worst depression ever actually economic historians don't even believe

there was a depression in the 1870's. they don't even believe that this occurred. the consensus now is that there was a recession in 1873. the 1870's along with the 1880s were among the most robust decades in american history according to every criterion you can imagine. economic historians were misled into thinking this must have been a depression simply because prices declined on average by 3.8% per year and we've all been told declining prices is just like def the worst possible thing, zombies will roam the earth or something with declining prices. that is actually how why won't going to the deflationary. i talk about that in the book, too, but that is a people become rich and in the old days before the fed, you used to be able to save by just accumulating precious metal coins. bakoyannis circulate as money they held their value or gained slightly in value when they circulated money so hundreds of people save for the future they just simply saved claims.

they didn't have to go to the stock market and become speculator is progress today because the fed which lowered the fraga of the dollar by 95% since it was created when a mind would save by piling up pieces of paper. it would be ruined. so instead we all have to become speculator is and go to the stock market or invest in heaven knows what we're going to the debt to buy the house because we were told they would going to inflation but yet you can get wiped out and win the white this yet we are told this is all for the common man. the fed is there to help the common man. you've got to be kidding me. this is unbelievable, and it's just every time i hear the left talk about questioning authority and here you have the most regressive institutions imaginable that rewards the financial elite in society and discombobulates the financial planning of every normal person in the country and you can say that is not worth questioning or you are a crank, ury crank not

to question it at this end. [applause] so there is something wrong with the money. our money can be created at will in any quantity with basically almost no resources expended. this is pumped into the banking system and it pushes the rates of interest down and creates this boom and bust cycle. and then when the boss comes, the major players who get caught out in the boss to go crying tears and sadness to the central bank paper money producer because they know that there is no physical constraint how much money the paper money producer can create so they go to the paper money producer and sale me out and they usually get what they want. it seems to me this is not obviously the best conceivable system. now we're being told what needs to be done is we need fiscal

stimulus. this is -- this one is rich. we have got to spend about $800 billion blood on money-losing projects. how do i know the money-losing products? if they weren't the private sector were already be engaging and secondly when the heck has barney frank ever directed money to something that made any sense whatsoever so you know it is a money-losing project. [applause] and by the way i don't excuse republicans who say the problem with the stimulus is we didn't blow the 800 billion on the right things. this is kind of again not the sharpest response you might make. but the fact is the government has no profit of lost mechanisms and no way of knowing if it is doing well or destructively badly if it is wasting resources or adding value, no way of knowing, no feedback mechanism and it gets its resources by seizing them from the population kind of an uncivilized so it has no way of knowing how it