eight months later, they've written 200 more stories. they don't remember. they can't tell you what they were doing. so i was talking to joanne, the metro editor, very smart, very capable, you know, yeah, we talked a lot. we watch tv. well, could you give me an example? well, no. i mean, they can't -- it's not that there wasn't an example. it's that -- i mean, the journalists in the room, there's several, can tell me, it's just a big rush of events. it's very difficult to remember. so i -- after the very first interview, i took the entire corpus of what that person had written or said, i mean, i had -- if the tv was scheduled, there's closed captioning, so i had a script, so i had in front of me you said this, you wrote this, and i just -- i started taking it with me so i could turn it around and of shove it across the table so they could actually know what they said and many times they would then

remember. but if i just said what did you say about so and so, it was a dead end. but it's a really good question, it's deserving of a lot more time and effort than i gave it. it was kind of a dead end for me and i didn't pursue it as well as i should have. anything else? do you want to -- shall i say -- >> are you all set? >> awesome. >> thank you very much. [applause] >> jack censer is george mason's dean of the university of new hampshire's humanities and literature.

>> this past week, the u.s. senate took up the issue of financial regulation reform. become tv presents a block of tv

>> a formerly chief economist with the international monetary fund talks about the power of wall street banks since the 2008 financial collapse. simon johnson argues that these banks, which are still too big to fail, continue to take excessive risks and could lead us to another collapse. the center for strategic and international studies in washington, d.c. hosts the hour and 20 minute e >> my name is heidi, and on behalf of the board and member of the world affairs council washington, d.c., i welcome you here this evening. we are pleased to host simon johnson, who with his co-author, james crack, has just published a book, 13 banks, the wall street takeover and the next financial meltdown. the world affairs council brings to these events authors, diplomats, journalists, academics, government officials, and yes, sometimes even bankers. to discuss with our audiences the main international issues of

the time. over the course of the last two years, we come back again and again to what is now being referred to as the great recession and to the financial crisis that led to it, and have heard from and will continue to present speakers who will help us understand what happened and why, and what the implications and indications are for america's position in the world, as a result. for u.s. relations with others, one can think obviously of the u.s.-china relations here, and implications for america's long-term capabilities to protect power and influence global events. the world affairs council's other upcoming programs this month include fred pierce, next tuesday evening, he will be speaking about his new book, the coming population crash an our planet's surprising future, an on april 27, we will host paul collier for a look at his new book, the plundered planet,

published by oxford university press. i hope you'll all be able to join us for those two events as well. tonight, we host professor simon johnson. he is a fellow -- a senior temperature low at the peterson institute for international economics here in washington, d.c. he is co-founder of baseline scenario.com, focusing on the world economy, and is a member of the congressional budget offices panel of economic advisers. in january of this year, he joined the huffington post as contributing business editor. prior to joining the faculty of m.i.t., dr. johnson was the chief economist for the international monetary fund, he received his ph.d. from m.i.t., holds an m.a. from the university of manchester, and a b.a. from oxford. following his remarks, professor johnson will be taking questions from the audience, so if you have a question, i ask you to wait for the microphone that

will be brought around to you in order that the video equipment will be able to pick up the question. now, please join me in welcoming professor simon johnson. [applause] >> thank you very much, everyone. thank you for taking time on this beautiful summer evening in early april to come and listen to a talk indoors. i'd like to talk to you obviously about the financial system, and the situation that we find ourselves in today, and i think this is a very good day and a very good moment to have this conversation. i have just came from capitol hill, from one of many briefings, i'm sure, that are going on right now, but people are grappling with the question of what legislation should we pass or not pass, that will try and prevent a major financial meltdown from happening again.

we face in september 2008, as you know, an enormous economic and financial calamity, and it seems only reasonable and completely consistent with nature of american democracy, that we would fix this. i mean, something bad happened, we can argue about the details, again, that's very democratic of us, we have an administration that is packed with experienced professionals. we have a political process that has had a good track record over 200 years of taking on and facing down major problems. so where are we? on fixing the system that got us into so much trouble? well, i would say quite honestly, quite bluntly and hopefully we'll discuss this as we go through the evening, i'd say we're nowhere. i'd say we're at square zero.

ok. the legislation before congress does not fix, in my view, the essence of the problem, the heart of the matter in september 2008, in the month that followed, and in march 2009. with 13 bankers came to the white house to be saved. the essence of that problem is known as, and accurately known as too big to fail. those 13 banks and the bankers who represented them, were saved unconditionally by the obama administration. and when you talk to senior people in the obama administration, and i do talk to them, and i take them very seriously, and i don't know why -- i don't know if they take me seriously, but they do talk to me, they say they had to save

those 13 bankers. they had to save the financial system. i agree with that. they did have to save the financial system. our competent cannot function without credit, i think you all know that, but they insist they had to save these 13 bankers their jobs, their bonuses, their pensions, their perks, their boards of directors, their key of staff, their empires, their attitude. they couldn't ruffle a feather on their backs, they don't say feather on their backs, but you get the general idea. they couldn't disturb a hair on their head without causing a deep are recession and increasing the probability of a major financial calamity. now i don't actually think that's true and in the book we go through in some detail why we think the government, this administration had other options in march of last year. but just assume that it's true. just assume for a moment that they're right and that is an accurate statement of fact p.

that's extraordinary. that's incredibly dangerous. that means we have a small amount of financial institutions, a small number of people who essentially have the ability to extort money and various kinds of other support from the state. :

>> the largest six banks have a balance sheet, the size of the bank, which is 63% of the gdp. that's pretty big. what were they before the crisis? 2005, 2006, 2007, there were smaller, 56, 58% of gdp. what were they in 1995, same banks? 17% of gdp. they are getting bigger. of course, they're getting bigger, they were bailed out, they were safe. they were encouraged by other banks. the cost of funding today in the credit markets is estimated, i think accurately to be between 75 and 80 basis points lower than for other banks. that is .8 percentage points. that's a big funding advantage. james dimon, the co of jpmorgan chase one of the most successful

banks resell he said in a letter to shareholders just this week that if we get big, because we win, because we're good, we should be allowed to reach any size we want. that's the free market. well, that's not the free market. we do not have the free market. we have a too big to fail unfair advantage. if you run a massive bank, and i'm just assuming that none of you do because they usually don't come him he talks. but i would be happy to have a debate. if you have a massive bank, you have a tremendous unfair advantage. you are too big to fail. you will be saved and the credit market recognizes that. and, of course, you're going to get bigger. there is nothing in james dimon's job description as head of jpmorgan chase that says he is responsibresponsible for american or global financial stability. i haven't seen a job description but i'm confident in assuming that. his job description is to make

money for his shareholders and for his colleagues at jpmorgan chase. we can discuss how well he does for his shareholders, but you've seen the latest figures i think. for 2009, total compensation almost was high that it has ever been. executive compensation was down a bit but the people for working this is out. the ceo of wells fargo just got a big, we have seen the details, a very big cash bailout for 2009. cash which is exactly what the administration as them not to do. in march 2009 president obama did say to the bank, please be careful going forward, please behave yourselves, please don't take reckless risks are and none of which they have done. johnstone got paid very big, cash salad which is exactly.

the administration wants. when questioned about why he would get so much cash, a spokesperson for wells fargo said we had a very good year in 2009. it's difficult of a good year in 2009. they were saved by the american taxpayer, by the, i think, excessive generosity. certainly generosity of this administration. it's extraordinary. the attitude of these people. and nothing i say, nothing in the book is vindictive. nothing is intended to get back at these people. this is just forward looking. this talk about the future. we can argue actually we can have an interesting argument about the extent to which the big banks see themselves to be too big to fail before september 2008. that's an interesting discussion. but that's not my focus, not the focus in the book. the question is now do they think they're too big to fail.

goldman sachs, a balance sheet fluctuates around $800 billion. if goldman sachs failed, if goldman sachs in iraq, and i don't know to what extent you follow this, on a daily basis, but considering today greece is in more trouble quicker than people are anticipating, who knows what kind of exposure any of these big banks have for example, through their derivatives off-balance-sheet transaction. i'm not saying anyone of them is in trouble but let's imagine goldman sachs gets a big rock today, tomorrow. could they fail? could they go bankrupt? no. absolutely not. they will be saved by the government. the consequences of the goldman sachs that would be far -- perceived as too dangerous. what about if his legislation in the form currently proposed, what if that passes or something close to that? within the goldman sachs fell?

would go into bankruptcy? no. not in my assessment. i am fully aware this makes some of my friends on capitol hill quite upset when i say it. i used to work with the imf. the job at the imf as i missed it is today the harsh reality. the imf unfortunately can't articulate that with regard to the united states, so i will do it. [laughter] >> is a nasty truth that it is very unpleasant. i am sympathetic to people pushing for reform on capitol hill. we are not there yet. so where are we? how do we get here? and where should we go? moving forward. secretary geithner, treasury secretary geithner said we just had a 30 year, 40 year flood. very unusual, bad luck. we should do, take some actions

in case of the next, for the next time. but for years is not too bad. hank paulson in his memoir, former treasury secretary paulson says major financial crisis occurs every 46 years. james dimon, says it's every five to seven years. larry summers says it's every four to eight years. you get the picture. something happens in the financial system with some regularity. how big will it be next time? that's the key question. geithner says these things are rare. but that is overlooking a random occurrences and we haven't changed our structure. i would say that the levees that protect against flood have been undermined over the past 30, 40 years. and we should worry about these more regular shocks, identify them, hitting us before have a chance to strengthen the levees. and we haven't had a chance to

strengthen the levy, i think you know, because powerful players in the financial sector and their allies do not want reform. they see it as contrary to their interest. and it is. i think country to the interest of the people who run the biggest banks. it is not contrary to our interest. secretary geithner also said in this regard that we will not lose very much money. on the rescue package. we may actually make money on the top which is a program that injected capital into the biggest banks as you recall. if we lose money on that it will be because the car companies, because of aig. well, that's not the right mask. the right way to think about the cost of the crisis, a couple of ways to think about it, one is 8 million jobs lost since december 2007. that is traumatic, completely unnecessary and we're struggling. you can also worry about what the federal reserve has had to do and what that has done to the credibility of the federal

reserve. going forward, that's interesting, very important discussion. but i would focus on the fiscal cost, on the balance sheet, what has happened to the balance sheet of the government. what is the increase in net government debt relative to gdp, relative to the economy held by the private sector? that's the core measure, one core measure and the measure our focus on how much the government is indebted. this was about 40% of gdp before the crisis you. and i'm on a panel of economic advisers to the congressional budget office, these numbers are my numbers, not their numbers but i would say that their names are moving in my direction. my estimate is we will double debt to gdp and go from 40 to about 80% as result of this crisis. all the measures that the government was forced to take in order to reduce the likelihood we would get a massive

depression and make sure it turned out only to be a great recession, a horrible recession, but i think it would have been worse without the counter active measures. that's a big increase in debt. that's not enough to sink the country. that's not enough to cause a crisis per se. it doesn't turn us into greece, and thank goodness. but it's completely unnecessary. unwarranted, and we haven't fixed the problem. we have not fixed the financial system. and its ability to take on reckless risk and do well when things go when they're lucky and, and to show that risks onto us, onto society when things go badly. goldman sachs is a big backer of automotive in china, that just bought volvo from fort. i am a professor of economics at mit. i like the.

there's a big driver of growth in the united states around the world. think about goldman sachs and the goldman sachs says. goldman sachs is event. became a bank holding company in september 2008 as a way to save it from collapse. it has access to the fed discount window. if it's private equity investments do well, i can or should you they will make out like bandits. to use a technical term. [laughter] >> if it goes badly, whose problem is that? is a bank. it's a bank with access to the fed discount window. we do not let these banks fail. we cannot let them fail. and goldmans is okay, if that's your attitude, they give a much, we are no longer a bank. you became a bank in order to save you. they were an investment bank before, a rather loose not entirely accurate term but they were not regulate by the federal reserve. and it took a lot of risk and they were on the verge of failing. they say through no fault of

their own. again in the book we beg to differ. if you let them out at this size, with these characteristics with this relationship to the rest of the financial system and they get into trouble again, you let them become a bank again. you may say, you may promise up and a no, no, no. we won't do it. honestly, we promise. you can pass a law. you can pass as many laws that you want. at the end of the day when faced by financial calamity, the governor of this country will have the powers to do what it takes to save the day. that's the nature of executive power in the united states. if you don't like it you can sue them and take to the supreme court. good luck winning that case. they would let goldman backing. but that's not the worst of it. too big to fail is bad, and has these characteristics. but that's not the worst.

that's not the worst. the worst is too big to fail. if you look at what's happening in europe, look what they've allowed their big base to do, look at the case of ireland or the case of the united kingdom. the royal bank of scotland became one bank, became had a balance sheet 1.5 times the size of the u.k. economy. in ireland the biggest three banks together has balance sheet to times the size of the irish economy. in iceland, well, i slid, how could we possibly become like iceland? iceland, the banks began doing in lebanon and 13 times the size of the country. our biggest banks are getting bigger. next time they fail, there is nothing, i can assure you, in economics or law or physics that says the amount of offsetting impetus you can provide to the economy through monetary policy

or through fiscal policy will roughly match the negative shock you are getting from the collapse of the financial system. in 1930, if the federal government had wanted to do a sensible what we now regard as sensible fiscally and fiscal sinners because they're having a major problem, the historians look, the federal government could have done a fiscal stiffness of 1% of gdp. the government was more, much more than a. that would make any difference. we did 40% -- we increase over several years out of debt to gdp 40%. next time it will go to 80. next up we may not have the capacity to increase our debt. the federal reserve already cut its rate down to zero and they gave all sorts of imaginative and i think probably this is successful forms of so-called quantitative easing. next time will that make some difference?

i have no idea. i don't know. no one can tell you. the idea that -- we had -- we offset with i think broadly sensible government measures. that's roughly what happened. next time we may not be able to offset it to the same degree. next time we may lose 20 million jobs, easily. next up we may not go down and then come back, but struggle to come back. we may go down and stay down by longtime. that's the expense of other countries. that's the spirit of the united states 1930s. the big banks are becoming bigger. they are too big to fail now. they will become too big to fail. they have a massive funding advantage. their attitude is let's get bigger. the markets allow them to become bigger. this is not a market -- this is not a market outcome. this is not a market economy in this regard. this is the people who captured the state. the intellectual tradition is

not particularly that of the left, we cite thomas jefferson at length. i would stress in terms of modern thinkers, how much we draw on george to become givers at chicago professor, very much in the free market school is very much worried about free captcha. absolutely right to worry about the. what we are seeing in this country, it is the state chapter. it's a stickler, he won a nobel prize. he takes that further and thanks to a state being taken over and the states been twisted to the end of a particular interest group. how did we get here? how did we find ourselves in this incredibly awkward and unpleasant situation? the answer is pretty simple. i mean, i know there are many

things that happen, and we go to the book and their many proximate causes, many pieces that came together for the nature of that particular crisis. but you need to go back future. indigo backed i think to at least 1980, perhaps the 1970s and look at the nature of deregulation in this country. some forms of deregulation started under president harder and got a big impetus under president reagan. some parts of deregulation i think were sensible and some parts i would not want to roll back. i like cheap air travel, for example. we can debate the merits of the other parts of that agenda, but deregulation in this form led to great danger. if you look at what has happened to compensation and the financial sector over the past century, it's very interesting. very good work done by a couple and we show them as key figures in our book. they show that in terms of

average compensation of financial compensation compared to average out at second, in the '40s, '50s, 60s and into the '70s, bankers were not particularly well-paid that there is a so-called three had 63 banking which was paid 3%, out of 6% and go play golf at 3:00 in the afternoon. also known as board banking bigger was a bad lifestyle. don't get me wrong. it also wasn't sexy, fast-moving huge fortunes being made like what begin to happen in the 1980s. michael lewis of course is very much in the news now with this interesting new book, the big short. but we cited my favorite michael lewis book is the liar's poker which is a wonderful moment he captured in the 1980s as the more spectrum side of side finding its feet and becoming bigger. but one point i would stress, and we make this point in the book, is the people he worked with, the solomon brothers, that

brought trading inspectors of, in modern standard was done. the legendary so-called king of all street in the mid 1980s wouldn't even rank in the top 20, 20 now. in fact, the largest hedge fund we have in the country which i believe is approaching the head can the solomon brothers had at the time when michael lewis wrote his book. you read michael lewis' book and you recoil from the attitude and from the culture, i think that serving i think many of you would. but that was just the beginning. everything that came afterwards scaled that up. and the key thing about, and they paid a lot more money. the compensation went back to what was relative to the private sector what it was before the reform of the 1930s. when fdr reined in speculative financing, he ended up cutting their pay. he didn't target their pay but that's what happens when you do

that. now, the nature of american democracy, as you know, is such that if you have money, you can be heard. you can serving make campaign contributions. you know about that. you can also impress people. you can become really compelling and fascinating and central to the colder. and that's exactly what happened to finance. this idea that greed is good which i think all of us don't intended in his original movie of wall street as a cultural tale. that became the model of the 1990s. and the huge irony, i think it is an ironing, it will feels like an irish looking back on is the revolution apply to finance, reached fruition during the

clinton administration, particularly when robin was secretary of the treasury. and, of course, many of the same people who were now, many people are not responsible for helping to clean up the financial mess, hopefully, worked with mr. rubin at treasury during the 1990s. it's a great opportunity, still waiting to see progress on that. but we all did together. this is a culture shift. wall street became good. the percentage of to at going into finance, as far as we can figure from the data, around 1970, about 10%. at the peak of the subprime boom it was 40, 45%. it's funny, it's power. it's ideology. i spent a lot time talking to people in washington. i live in washington. i spent time talking to people

in address the official consensus, regulars, officials, politicians. and obviously the attitude have begun to change. this is not i would say at that level people thinking not what it was before september 2008, but it is still the case you meet an amazing number of people to think finances good, unregulated finances better, and completely unfettered by get banks are the best. this idea is wrong. this idea is dangerous. this idea must be stopped. how are we going to do it? the biggest banks have to become taller. -- smaller. people say to me, simon, there's a lot going on. it's very comforted. size doesn't matter. to which i respond, really? let's talk about citigroup.

citigroup, when it felt -- ran into liquidity difficulties. i always forget. [laughter] >> in the fall of 2008 was a 2.5 toy dollar bank. 2.5 trillion. if citigroup had been a 5 trillion-dollar bank, in september 200 2008 what are pros not be better or worse? what if citigroup start to approach, or mortgages by the way, started to approach the size of the royal bank of scotland? what if we had a bank that was tenderly in dollars or $20 trillion? and don't kid yourselves, don't say this couldn't possibly happen. it absolutely could have been. look at all the advantages they have now. making our biggest banks smaller is not a sufficient condition of

financial stability and avoid major crisis in this country, but it is necessary. and this is what i was just arguing on capitol hill. show me how you make goldman sachs safe without making it smaller, and lots more. largest financial institution we let that was the aig group. goldman sachs balance sheet, 1.1 trillion before the crisis, around 800 billion now. cit group screamed that if they were allowed to fail, they weren't rescued, they would be incredible disruption to credit to small and medium-sized business, their specialty. there was a lot of discussion in the administration about whether not to rescue them. and to their credit the administration helped i think by sheila bair and the fdic decide to step back and let them fail. you cannot find that failure in the day.

they were bluffing. goldman sachs at 800 billion is not bluffing. if you let them tell you have a very safe problem on your hand. that's certainly how the administration sees it, and i agree with them. people say, well, simon, we have the revolutionary a 40. in dog bill. revolution other is requested by secretary geithner, support the white house. this will allow us to take over and managed the failure and contraction, liquidation, of megabanks when they get in trouble in the future. well, with all due respect, to people who work long and hard on capitol hill, and i do have a great deal of respect for many of them, the resolution will authority is a unicorn. unicorn is a magical beast with fantastic recuperative powers. it is also a myth.

check with your children if you don't believe me. they will tell you. if you call for unicorn, it doesn't come. there are no unicorns that the revolutionary authority cannot work because the revolutionary authority passed by congress, the u.s. revolutionary authority would not apply to cross-border operations of these banks. citigroup does business in about 100 countries. lehman brothers, when it failed, had more than 600,000 open contracts in london. the london operation of late that operate on the basis of money, there was no wire on monday after lehmann failed on sunday night. the u.s. government doesn't have the legal rights, nor will it ever have the legal right, to manage what happened to that subsidiary of lehmann or the next equivalent in another country. you can go talk to the g20 --

you can't, but i can, and i have, and i put this to them like this. that they will not allow, agree to, a cross-border resolution of 40, which is what would be required, to apply what the treasury said it is doing, to really make that work. the g20 will not agree to that. they can't even get one in your. it's very interesting that the imf has been urging the european union, and even more specifically, eurozone, has once a debate, it's been pushing them hard to come up with a cross-borcross-border resolution authority or mechanism to deal with the failure of banks within europe that have operations of multiple countries. they haven't done it. they can't do it. they won't do it to countries will not give up their level of sovereignty. they think everyone will protect themselves, and they are right. i have also the opportunity to

bring us up with leading proponents of the revolutionary authority from the private sector. i take every opportunity i can assure you to debate and public with cabazon, leading bankers. there's not that many opportunities that they don't come out and talk to me that often. but i did have an opportunity to speak the head of part, a big part of one of these local bank. there were no cameras but this was in front of g20 deputies. this is a very smart person with great credibility and legitima legitimacy, former regular actually. as many people are. and i said to him, explain to me, you are pushing the revolutionary authority. your boss is pushing the revolutionary authority as the magical. as a measure that will end too big to fail, that's what they say. explain to me in front of these experts how that will help us manage the failure of your bank come or another major bank like

citigroup. and this gentleman, to his credit, and really i think a deep reflection on his honesty said, oh, is that the time? i have to go to the airport. that was his answer. there is no answer. the revolutionary authority is an illusion. it's a dangerous illusion actually. if you take that off the table and remove that from all the rhetoric you see and all the proposals before you, before congress, you have nothing. that will deal with too big to fill. you have the measures that will protect consumers did we support that in the book. it has helped to shift the consensus. and that's what we need to do now. on the sides of the banks, on the size of our biggest banks, shift the consensus that there is no evidence, and i mean really, no evidence. on economies of scale or scope

or other social benefit to an increase in bank scale of $100 billion in total assets. and we are talking about banks that are in trillions of dollars. actually we can argue about how compelling the evidence is for social benefits for banks above $10 billion. but about 100 billion, there's nothing. there are claims, james dimon made this claim. it's not true. it is flatly not true. and the book goes through this. the book has the evidence. the book has been in the hands of bankers for much. yes, of course they got an early copy. i make his presentation to leading finance expert. i'm on the editorial board of one of the top journals. i talked to lawyers. i talked to the big d.c. law firm at lunch yesterday. i give this talk endlessly. i even said it to stephen colbert. [laughter]

>> whose question is interesting. his life question was not so much different than you would hear on camera. [laughter] >> you know, there is no evidence. none. what does it take to change the consensus? what would it take to move the opinion of people like you away from perhaps being a little worried, that's where you here tonight, towards this almost pressing from and making the larger banks small is a sensual. in 1902, teddy roosevelt, president, of the united states decided to take on northern securities which was a massive monopoly, a railroad company traded by j.p. morgan and some of his colleagues. when teddy roosevelt did that, nobody really understood why he was doing it. nobody thought he had a chance. he said it was called a millionaire's club for a reason.

and actually there was no theory about why this was a good idea. all of modern antitrust thinking came after roosevelt decided to confront j.p. morgan. now, j.p. morgan came to the white house. he was upset. and he said, if we had done anything wrong, with regard to the structure of this monopoly, he said send your man to see my man and we will fix it up. teddy roosevelt and his attorney general said no. we don't want to fix it up. we want to stop it. and we are going to go to the supreme court, and they did, and they want did, and the one, five mac-4. from that decision came the modern antitrust movement. and by 1912, 10 years later, this movement was strong enough, the thinking behind it, the consensus and a change in

consensus was dramatic enough that standard oil was broken up into 35437 pieces. now, standard oil was the lifeblood of the american economy. this was a manufacturing economy, a transportation economy. that was the fuel of that economy. but people have become convinced because of teddy roosevelt that, while big could be beautiful, in america, under some circumstances and that certain private benefits, big could also be dangerous to society. it's a very simple point, and roosevelt i think was a very simple and direct think on this issue. he was just as concerned on the political implications of these massive trusts, he was just as worried about the political side as he was about the economic site. but the economic site is very important. the economic side is the way we

develop the theory and the practice. and let me ask you, who in this room -- and most of these companies did well. rockefeller did well. and the town of williamsburg get better. i think is tied to make it. who in this room would like to re-create standard oil monopoly? okay. at lunch there was one person. so nobody now, that's an improvement. we said he was from the energy industry. of course not. of course, it's obvious that it is obvious that it is intuitive to you that if you let one company control, to a substantial almost complete agree, oil distribution and even production, in this country, that would be bad for society. good for the guys who run the company, may be good the shareholders. not good for the united states.

that's the basic vegetable on which we structured this economy in the 20th century. and yes, i understand it's always complicated. they're so his back and forth. i am an economist. i am dismal, right? and i am cynical. you know that. and we make this very clear in the book. but there is no way that it is acceptable for these large banks to operate at the size with this kind of risk profile, with this amount of political power. it must stop. and these are six banks. that's it. our proposal, the are you were having on congress, you know, we will see how many people we bring with us. and a lot of people are interested but a lot of people are a free. it's about limiting the power and the size of six banks. that's the blind spot in the legislation. six banks. which operate, it is true, then

much in the interest of the people who control them. i mean, we are talking several hundred people. and we won't take them on. we are not ready to take them on. andrew jackson thought the second bank of the united states was too powerful in the 1830s. and a lot of people thought andrew jackson was great. you know, he took a bullet our in his career. the second bank of the niceties was a well-run bank. nicholas little was a charming character, by all counts. and jackson was struggling to really get his point across that he didn't have that much pull on capital hill and had the support once nicholas start to spin freely to encourage people to vote. in his direction. but as google fought back, and as biddle extended the campaign

contributions, and as biddle, when biddle said i am contracting credit in your to make the point that you cannot reign as in, people began to understand that jackson was onto something and this is what jefferson one. is what jefferson warned about. jefferson and hamilton debated these issues and hamilton was right i would say on most or much of the economic substance but jefferson, jefferson had a very important point which is absolutely correct. which is, you must fear the arrival and the intention of a financial aristocracy. that's what jackson faced and prevailed against. that's what teddy roosevelt faced. and largely prevailed against. also what fdr faced in the 1930s, and fixed, 50 years. and i think honestly that's about as much as you can hope for. these things do not stay fixed

for ever. that's the story of the american republic in this dimension is a repeated cycle, a reputed confrontation between financial power and elected democrats, principled leadership. we need to find teddy roosevelt again. we need of our teddy roosevelt among us. he acted in a preemptive manner, did not act in the face of a crisis that he acted because he thought finance had become too powerful and too dangerous. if you wait i think you will fix this, eventually. but you will fix it after another awful crisis. you will have an fdr, i think, i hope, will come and fix it. but why wait? and also, what if you don't get fdr? this is the expense of many other countries, when you have a polemic and economic collapse you don't always get sensible leaders coming in. you often get chaos or craziness. a lot of the popular anger i think on this issue, a lot of the people are angry from left

and from right have a very important point. and the book is designed in part to speak to them and to help articulate of that anger into sensible policy proposals. but it may not happen. and then you just have bigger. legitimate anger, but unproductive anger. and all kinds of crazy things can happen. in conclusion, i just would say, that we need to fix this. it is a fixable problem that the many tough problems facing our country and the world. there are many problems that are really hard to address. i mean, in economic terms, in terms of, in ethical terms, and broadly speaking political terms. this is not one of those

problems. this is a financial system that got out of control. it structures are dangerous. it must be fixed. if bridges were falling down because of a poor design, we would fix the design of the bridge's. this is not a country that is big on denial. but we're not doing it because finances very powerful, because the big financial players have a strong degree of ideological sway, still. and this problem will be fixed when and if people like yourself become convinced and convince the people you know, and to vote for people who make this a top priority. and i think if were lucky we can do it in 10 years. it were lucky we can have a teddy roosevelt moment. but we haven't even started yet. and i think now is the time to

begin. thank you very much. [applause] >> okay, questions and you are supposed to wait for the microphone. and the front row here. i want to left, right, sir. look at the boat and ago, we put them in the front to show you how to support we draw across the political spectrum. in the center to start with. >> hello? who else besides you is making this case that's a political figure, it was marshaling arguments based on evidence? obviously essentially you are a professor speaking with practical experience, but who is doing in the political form forum, other than maybe mr. volcker? and the reason i ask that

question is, there's no committee, there's no marshaling of facts in a political forum that is possible for the public to really digest at this point. we don't have a president, although obama has done remarkably well, like rose vote in 1933 who was calling the bankers and competent, cruel, et cetera. so there was no question at that point where the enemy was. and that's the way they addressed it. and what they did, but in these circumstances, that case hasn't been made. you are starting to make it, but in the political form for your martial anger to take action to do what you are saying has to be done, it hasn't been done. >> i absolutely agree. that's why we're early day. the president could do this, no question. he asserted capable of doing it and we have -- i run a website, one of the leading economics

blogs in the country called baselines of. and we follow this issue and other issues on a day-to-day basis. and i also do this with the "huffington post." we have strong support of the president on some dimensions, but not on this one. even in the financial issues on the consumer protection, i think eventually the administration has come to a sensible position and are pushing hard, and neal wolin gave a fiery speech i think two weeks ago now. he took them on. he said you're spending one put $4 million a day lobbying against financial reform. you have four or five lobbyists per member of congress eric you, chamber of commerce, are pushing measures that are not in favor of your membership. and it should stop. that's exactly the right thing to say but they're not saying it on too big to fail. they're not taking the issue. on as a, there are some politicians out there whom i

have hopes and expectations. i think there are 10 to 15 members of the democratic congress who could, could come out with sensible position. right now there's only one who is speaking clearly on this issue, and that is senator ted kaufman from delaware. he was appointed to joe biden's seat and is not running for reelection. he therefore has no fear. of any consequence. and you should look at his speeches. is given three stages that are remarkable. and you might is just an appointed sir. anyone who speaks to about these issues right now gets attention. larry summers was question on the abc weekend show. about what senator coppin said he was forced to visit said senator kaufman is right that i don't think larry summers is implement the agenda. this debate about financial reform in the senate now is very

important. -it's incredibly important that this be positioned so that people can speak clearly and truthfully on this issue and not get it all lost in some tactical political gain. we will see how that plays out. i will take a question on the right, with a gem in the back and then we will go to the left. >> i'm not an economist. i don't purport to be an economist, but when i heard you on diane reams the other night, the other day, my mind went back some, i think, 15 years, and i could remember this huge debate that went on when banks were allowed to become investment companies as well. i don't know if i have that right. and it was a lot of harbingers of doom at that time. and i think it of a course of what happened that instead of breaking these companies up, what would be -- would have the

same purpose to divide retail banking again from the investment banking, and allow bank of america to be a big retail banker, 3% interest, et cetera, and then be separate from the investment and let that be the breakup, would that work? >> this question is often, a very good question, in terms of to go back to the glass-steagall which, of course, was the law the 1930s that may display between what we allow time to investment banks and for a lot of commercial banks. the spirit of glass-steagall is right that the spirit of glass-steagall is you shouldn't be allowed to play with money. if you have federally guarantee deposits in your bank, if you're so big that we would have to say you, if you run the payment system in this country, you would therefore, you get an exit level of protection. you shouldn't allowed to go out and take matters like they. that's the basic idea but i think we need to modernize glass-steagall and apply it, and

that's what we propose that a book. we are arguing for a size cap, on the size of bank. a percentage of gdp. they could be a bit bigger but not that big. or would they want to be a risk-taking speculative investment bank, in which case they would have to be spotted the our two cats come you choose which one you want and it gives banks time to apply so their shareholders didn't lose either to the alternative. so i think this is also our interpretation of the poker principles, not the poker rules that been written, but the principle behind what mr. volcker has been arguing for is completely sound and senator kaufman is arguing for that also and i think other people may pick up on that. think of it as this. if you had the opportunity to go to las vegas with, you know, the

government of the united states or your brother-in-law, or your dad, backing and absorbing all your losses, would you take more risk or less risk? i would take more risk, right? if it goes well, you get to keep the upside. if it goes badly someone else will pay for the. that's good. i like that. not a market economy, who cares? it's not there. who cares? is a great opportunity for me, i should take it. that basic personal, and that's what is going on in the 1920s, we need to fix it again. a question on the left. the lady, lady here in the middle. >> to questions. one is, what do you think should be done to create the antitrust, you know, movement while, you

know, the obama administration is here? and you mentioned that there some difficulties with that to get the g20 two agreed, to help with this. but what can the u.s. do on this front? another question is, assuming that, you know, economist from the left and right, many of them are green with you guys they're all advocating, welcome on the right, free markets and on the left, regulation. you have some consensus on the left and right. why do you think then that there is such difficulty in washington with the republicans, let's say, supposedly segment of them advocating free markets? is it because they are beholden to their larger interest and they're really not representing that? how do you go about dealing with that, you know, concerning that? we want to bring together maybe the two sides and it might be possible if it weren't for the washington politicians. >> i will take the second question first.

why is this so much support in principle from left and right and center? why does it not have more traction. and i think we will get there. i think right now it is the power of the lobbies that is tremendously strong. i mean, we've had this before as i said. i think teddy roosevelt faced lobbies that were just as strong, different form, but nelson aldrich, for example, who was the dominant intellectual force in the senate on these issues in the first decade of the '20s century, his daughter married john d. rockefeller's son. the republican party, which was teddy roosevelt party, was a very tight with business. and i would stress, one reason we wrote the book, one reason i give these talks is the business sector, not just the intellectual do people write books and argue, this business

sector should take this very seriously. one corporation, one endorsed we have which is not in the book, it's on a website, the book's website is 13 bankers.com. you can look at reactions on there. but george davis who is the chairman of united technology, very big company, send us a nice endorsement and speaks very highly of the book. i would say he understands quite learned that the financial arrangements we have in this country are not in the interest of the nonfinancial sector that he is right that we also people from the hedge fund sector, we have people from other parts of the financial sector who have given us endorsements. so i think it will change that i think though you need money. you need people who are willing to put money into political campaigns and to run against this issue. and you need -- that takes time to the checks and balances in

the united states are healthy, but it means we don't spend around right away. we take our time and it takes a lot of arguing amongst ourselves before we decided what is reasonable. so we will get there. will we get there fast enough, before there's another crisis? i don't know. will we get there when there is a legislative opportunity? i don't know, but we will get there. this is how i relate to the new antitrust movement. i think, remember, because of what antitrust has developed and the way it is focused on and off for companies, the concept you have are not particularly appropriate to banking. so for example, there are, i mean, we do have some legislative principles which we can relate to. for example, it sets a size cap on largest banks in the country. no bank can be more than 10% of total retail deposits. that's pretty low from an antitrust perspective. very sensible. don't put too many eggs in one

basket that don't let one player become too powerful at the. that was the intent of talk to people who drafted that legislation. that was their intent. two problems with the law. all the action sends 1934 has not been in retail product. it has been wholesale market which is banks lending to other banks are so the retail cap didn't work. secondly, there are some loopholes of course in the law that regulators, regulators were about things as big as bank of america to be driven through those loopholes. but that spirit is there, and that idea of figuring out what i think is the idea to antitrust, the spirit of antitrust. that's what we need to figure out how to update and how to apply. and i'm serious, in 1902 there was no economic theory to say what tony was that was doing since. now i think is obvious to everybody in them why you would want one company to run all your railroad in a big chunk of the country. for that kind of economy without competing in transportation.

but it wasn't obvious to people than. so i think we have to shift our thinking and have a lot of hard thinking, hard analysis. some which is technical, some of which is completely accessible to everybody and involves everyone in this room. act to the center. this gentleman in the middle here. >> one reason it's difficult for people like us to grasp with subjects like this is that academics like yourselves don't all say the same thing. there was a harvard business school fell today on cbc, and he said that the dodd bill isn't that bad. he said that he questioned the two biggest they'll issue, and said that the real issue is how intermix of the organizations are.

he said the key issues liquidity and, of course, enforcement. and that there was discussion about what needed to be done to improve enforcement. but it is difficult when you have people saying different things. and i came away from his position, a little heartened that the dodd bill was be a little better than you say. >> look, it's democracy and a ety of opinions and it is very healthy. i will be sharply later to him this eating. mr. inslee, seriously, i don't understand, i don't understand the argument for example, last week in a "new york times" column. it is including brought on this will be buddies with something along the lines of the issues too interconnected, not fair to do to for. i'm checking the book a trip box that says all of the above. just because, and paul also said we should have effective

regulation in this country. i'm in favor of effective regulation. that's like being in favor of a tasty dinner. why would you oppose effective regulation? if you don't have a get effective regulation after 30 years of a lot of people not doing their job, i'm very interested. i would like to see that. and it is striking to me that the best idea of the administration and of our congressional leadership with regard to capital requirements, and systemic risk and so on and so forth is let's get the regulus victory to sort this out and come back to us with details. these are the guys who got it wrong for 20 or 30 is that they are the same guys. later lead the same guys. in the same ideological in a. a bit of a stretch. but anyway, if you think other things are important, that's fine. we can do it all. i am in favor of multiple barriers here.

some people call it suspended and braces. it kind of matters if you fall down. you can call it what you want. just because you think effective regular she is a good idea, that's -- does a bear the question of the size of the bank. there are no social benefits that you can point to the banks being bigger than $100 billion in total assets. there are many social costs i could point to. simon, you know, prove it. prove that making j.p. morgan smaller will not have adverse consequences. that's an interesting question. i don't think j.p. morgan is about to run an experiment for me. but where should the burden of proof of the year? should the burden of proof be on the guys who just dragged us into the biggest financial crisis since world war ii? that's what president obama calls the. that's what everyone calls it. should they have -- shouldn't

they have to prove that big is good for society and those of size advantages are commensurate with the cost that is a manifest of the created? i think yes. i think the otis is on them. and have done nothing. they do have, i do know they have some crash research products in progress to proven wrong. but i think we will evaluate that we should when it appears on the same basis we evaluate research sponsored by pharmaceutical companies, with an appropriate degree of skepticism. on the right with his children in the white shirt. >> high. i actually speak try to speak into the microphone. >> all right. i did graduate here in town and economics cannot i've been having lots of the same debates with banker friends of mine, and although the same lines of some of the questions that have been asked and what you just said, do you think that economics is

suffering a little bit in terms of credibility due to the fact that it is not a hard science? like you just made a point of j.p. morgan or whoever is not about to run an experiment, right, because, you know, you said is self-evident and whatnot. but there can argument is if i were to go below $100 billion a year, that's going to cut into innovation, it's going to cut into potentially gdp growth. it's going to these adverse effects that, you know, i can hear the political messages already. it's costing jobs, you know, you know, you are keeping the american economy restraint when it should be growing and so on. i sort of leaned towards the side of mr. volcker. i don't know i've seen anything other than an atm card anything in the last 30 years that is been that useful. but it seems like the burden of proof is acts as sort of still with you. i mean, you sort of are trying

to ask is this is self-evident, that they should be above a certain size. but i don't know the economics profession has proven this yet. >> plenty of people have studied banks i simply people have look forward to because of skill when it. typically defined as between 10 and 20 going on. the evidence goes from 10,000,020 but as a stretch. note found evidence that it does anything for anyone except a guy to run the banks. that's what evidence is right now. i do agree completely that the pushback from the financial sector is, well, if you do that you will really cause a big recession. and i will remind you that's what nicholas biddle said in the 1830s. and i would also tell you that when teddy roosevelt took on j.p. morgan, there was a lot of people in the stock market thought this would be destabilizing. you know, they have a lot of power. they say if they want to do

damage to this economy, they probably can. they are threatening us. make no mistake about it. and you should go home and reflect about how you feel about that. you are being threatened your elected represent his are being threatened by a few very powerful bankers. andrew jackson is on the 20-dollar bill for a reason. not because he like paper money, by the way. he hated paper money. he would be mortified by what if he knew he was on the 20-dollar bill. he is on the 20 dodd bill because he wanted very important fight. right? he determined that we should not be captured to a financial undercard. i think that was a good call. i mean, we probably could imagine a different path with a central bank during the 19th century. maybe that would have been good. we didn't have that. but we also did have an economy dominated by a few very powerful financiers distorted by them in the way other places, other

places struggled with in the 19 citi, including europe, including latin america. i think andrew jackson made the right call. on the politics, you know, i'm, you probably get some eye for an action, i'm an immigrant had i been a citizen for 10 years. i thought long and hard, who here took the test to become an american? there you go. a few of you. did you even know there was a test? i did well on the test. all right. i think we have a very good constitutional framework and an incumbent strong political, and all my reading than another's nothing that says we have it forever. there is nothing written or assured that says you don't get taken over and don't get distorted like so many other countries have. i think we can fight it off. i think that jackson, roosevelt and fdr, teddy roosevelt did fight it out. it has to be done.

it doesn't have, someone has to do. how are we doing on time? another few questions. on the front on the left. >> and i will be around afterwards if i don't get to everybody's questions. >> another funny accent here. first of all, i completely agree with your position. i seem to have made the same conclusions after the crisis. so i like to call it socializing the losses. and i think it's got to be stopped somehow. and another one is, i think it describes very well what happens.

first, you mentioned that we need to limit the size of the banks and that they get to choose if they are commercial banks or investment banks. and it now needs to be done in order to bring the system and about again. and my second question is i saw your article about james diamond and the question is, do you think it's beneficial to take the conversation private and have you heard back from him? [laughter] >> may i ask, which country are you from originally? [inaudible] >> and in russia. and does anything about our predicament here strike you unpleasantly familiar? >> exactly. [laughter] >> why do they go from a place for such dramatic change because being in moscow in the '90s and now here comes