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♪ ♪ >> host: james, thank you so much for joining us. >> guest: well, thank you for having me. >> host: i really enjoyed your book, great fun to read, and quite informative. >> guest: thanks. >> host: what i was fascinated about by the year 1948. i mean, clearly that was a

banner year so to speak in terms of setting the stage for the world we live in today. that was the year that the transistor was ingented, the information theory, and that the book was published "cybermedics qtsz, and what was about that year that all that came together? >> guest: that year is the starting point for my book because i start the book in the middle. it's a pivotal moment, and it's great that we can say this is the fulcrum in which the world changed. i really believe that about 1948. you named two things that came out of bell labs in the same year. the transistor, and claude

shannon's information theory. claude shannon is the central figure of my book because of this starting point, because in 1948, he published in the obscure technical journal of the bell lab's system two papers during the summer called a mathematical theory of communication, and then they became a book, "the math mathematical theory of communication." and it was the first time anyone used the word "bit" for a unit of measure, for this stuff, this information, but what was it, you know? he would go around reminding and telling people that he was going to use this word in a scientific way, and he needed people to understand that while it was related to the ordinary every day sense of the word, it was something different. he was going to make it something mathematical and

quantitative so 1948 is, i think, not exactly the start of what we now call the information age, but i'd like to say it's the start of the time in which we begin to realize that all human history had been an information age. >> host: right. how did he come up with the term "bit"? where did that come from? >> guest: bit was -- as far as anyone can tell, invented by a statistician named john tukey, who worked at princeton for years. i interviewed him once because he was a room roommate of richard fineman. there was a lot of discussion at the time of this not yet invented quantity. any way, bit is short for binary digit, and, of course, it's a nice little word that refers to something, you know, well, we

know what it is, on or off, yes or no, true or false. >> host: right. >> guest: that connection already laying in the computer area is due to shannon who wrote a master's thesis when he was barely 20 years old in which he was getting a degree in electrical engineering, and he wrote a thesis connecting the analysis of electrical circuits with george bule's symbolic logic from the 19th century. these were two ideas that just seemed to any normal person so distant from one another. i mean, inhabiting different plains of existence. lek think call circuits, engineers were doing things to do with hardware and current, you know, and resis tens. >> host: right. >> guest: and claude shannon was thinking of them in a completely abstract way where a

circuit could be on or off, and he made this connection that on or off could be the same as true or false, and then you could link circuits together and you could have logic, you could have "if then," and this is second nature to us now if we know anything about computers because computers are built on this circuit and logic. this is where it was invented. the bit is the fundamental unit, the binary digit. >> host: so, the transistor, you know, we know a lot about william, you know, he's been a notorious figure, but we know less about claude shannon in the imagination. what was he like as a person, you know, back then? >> guest: he was something of a loner. he was shy. bell labs, at that time, had a big old industrial building on west street, the building is

still there in downtown new york on the edge of grenich village. it's an artist collection now or something like that, and in the old pictures you see the highline railroad line running through the lower stories of the building. >> host: that picture is in the book. i love that picture. >> guest: anyway, right around this time, just after the war, most of bell labs moved out to the suburbs in new jersey to murray hill, and claude shannon who officially worked for the mathematics department kind of stayed behind on his own in a cubby hole. >> host: did he have a window? >> guest: i don't know if he even had a window. he was flirting with a young woman who worked across the street during the war in -- it was the old nabisco building called cracker factory and the

microwave research group. he later married this woman. it was betty shannon. he did important work for the war, he worked on crypt tog my -- crypttofy. because of this, people left him alone. the managers didn't know what he was working on, but he just was allowed to do what he was going, and what he was doing was apparently not particularly useful unlike the transistor. the transistor, everybody knew it was going to be a big deal, and when it was announced that same year, you mentioned shockley and his two coworkers became immediately famous. bell labs put out a big press release. the transistor we now know

replaced the bulky hot vacuum tubs and enabled the miniaturization of electronics, you know, almost immediately. there were transistor radios, and then combined with the technology of the integrated circuit, it became the underpinning of our computer world. you know, now we have billions of transistors, literally in our pockets. i mean, i could pull my device out of my pocket, and i'm sure you could. that's billions of transistors right there. shannon's theory which came out at the same time at first blush had nothing to do with that. it was a coincidence. he was thinking, at least officially, about telephone wires, old copper analog telephone wires, and his theory of communication was of great use in coming up with techniques

for compressing information and sending it officially over these analog wires. for example, in the presence of noise, but while he solved a lot of these problems in an analog way, he simultaneously solved them in a digital way meaning not just sign waves where everything is continuous, but in terms of what we now call bits thanks to shannon. that's where everything is broken up and discreet, and it's digital. in our world, that makes it suitable for storage on all kinds of new devices instead of just vinyl phonograph records, we have compact disks that store many times more bits because they're little microscopic pits engraved with a laser on a substraight of silicone or some other material. by solving these problems both

in an loll term -- analog terms and digital terms, shannon made a great leap forward for a science that was just in the process of being born which was computer science. >> host: so, at what point did, you know, bits, information theory, and the transistor connect, you know? if it was entirely by accident or circumstance or happenstance in 1948, when did, you know, they begin to intersect? >> guest: the paths converged very quickly. the early 1950s into the 1960s saw the birth of the digital computer, and right at the beginning you mentioned robert wiener -- he came into the picture quickly too. he was one of the people who

early on recognized the power of these new machines, and they became a popular sensation, you know? wiener was on the cover of "time" and "life" magazines in the 50ings. people talked about thinking machines. there was a lot of buzz about them. this was long before there was such thing. computers in those days were so crude by modern standards, just glorified calculating machines, but people could suddenly see some of the possibilities in part because of shannon's work and in part because of predecessors of shannon like alan turing. turing was at the end of his career by the 1950s. he was close to his very tragic death, but he was thinking philosophically about whether these digital machines could

ever think, and if they could think, how would we know? of course, a lot of people were terrified by that prospect and didn't like the idea. shannon was one of those who, for whatever reason, was entirely comfortable with the idea. he didn't mind. i think he and turing both essentially felt that we humans are more or less machines anyway. they had a fairly material view of what we are, and it didn't bother them to consider the possibility there would be electronic machines that could think, but, again, this was so far from the world we live in where, you know, just this spring we saw on tv ibm's machine playing jeopardy on tv, and it revived that whole line of conversation, you know? finally, if this genuine artificial intelligence, here's

a task solving funny jeopardy questions that smells like something that involves the higher capacities of our brains, you know? >> host: right. >> guest: back in his time, shannon was thinking about whether computers would ever play chess, and you and i both remember when that was considered a real threshold question. >> host: yes, yes. >> guest: would machines ever be able to play chess as well as the human being? everybody had realized that there are so many possible chess games that computers wouldn't be able to solve the problem by brute force or lift all the possible moves because there were just too many. there's more possible chess games than atoms in the universe so it requires intelligence to play chess. well, that ship sailed.

>> host: right, right, exactly. but what is it about it, you think? you mentioned in the book that in 1950, "time" had, i believe, the thinking machines on its cover, and, you know, here we are, you know, 61 years later, later,ibm plays 5 good game of jeopardy, and jeopardy is the crowning moment of human achievement, nevermind anything else. it seems like we are very eager, you know, to assign, you know, the ideas of the power of thought to these machines, but at the same time, we're kind of terrified about it. why is that? >> guest: one thing that's happening is we moved the bar, you know? something that humans used to be good at was remembering things.

even calculating numbers, seems crazy now, but it used to require a lot of intelligence to remember things, and to compute. the first computers were humans. it was not until the 20th century there was anything such as a decent meek -- mechanical counting machine. now, we don't have to calculate these things. we have machines in our pockets for these purposes. psychologically, i think what we do is we downgrade the value of those skills. we think, well, you know, calculating, that's not intelligence. you know, because you got a machine for that. we could relearn, you and i, if we wanted to -- i'm pretty

sure. memory becomes a kind of brute force kind of thing. i mean, yes, you can train memory, and people go around competing to prove that they can do that, but it's a little bit of a parlor trick because in day-to-day life, that skill is not required of us anymore. we have so much help. before we had computers, we had, you know, writing and notebooks, but now, computers help us remember absolutely everything. you're at a dinner party in an argument with friends about who was the star of such and such a movie. it's only a matter of seconds before somebody goes to the keyboard and gets the absolute true answer. >> host: right. >> guest: according to google. >> host: right, right. >> guest: so what happens is the bar is moved, and we need to look to some other skills that only humans can do, writing

poetry, comb posing music. it used to be playing chess. not anymore. until this spring, maybe it was answering the jeopardy questions. we can leave it open whether that problem has been sufficiently solved by ibm's machine. it's sad in a way because less and less is reserved to us exclusively. more and more is done by computers, and so the result of that is people worry. now, they look ahead and whether anything will be left to us poor humans at all. >> host: at the same time, it obviously makes us much more powerful, you know? it gives us the power to look up a fact on, you know, within milliseconds. something we were never able to do before, and that's, you know, that's been true with every sort of advance.

i was fascinated by, you know, very early in the book, you sort of stepped back from, you know, information theory and bits to look at, you know, much earlier forms of abstraction like, you know, written language, and it seems that every -- every time we develop a new symbol system whether it's language or, you know, spoken language or written language, you know, which is obviously more advanced than that or mathematics, that we move to a new level of abstraction, and that seems to be ultimately what's finally happened now with information. what -- what does this, you know, abstraction give us? >> the connections you're making here is exactly the reason that i think 1948 is such a turning

point, that we're able to look at all of these things now, and understand that there's been one story from the beginning, that all of these earlier technologies were technologies of information, just like the ones we have today. i mean, we know the computer is an information technology, and then we can look back and say, well, the computer is a successor to various other types of devices and in one way it's a successor to a calculating machine, but in another way it's a successor of television or phone photograph or even a book because we're using the computer to help us make use of all these different forms of information as we now call it. we look back and we can say the telegraph was information technology, and before there, the printing press, and before that, the invention of writing itself was the creation of a technology of information.

as you say, one thing the inventions all have in common is new levels of abstraction. the point of writing was to take something that was there already a set of symbols, a spoken language, and encode it in a new form. it could be encoded in pictorial form, the writing systems invented in asia, or it could be encoded a bit later in alphabetical form where the symbols don't relate to the words or the ideas or the images, but refer to a smaller unit, a unit of sound, a phony. that's more abstract, you know? a chinese character that represents the word "cow" is

connected to the cow maybe a little more directly than the three letters of the alphabet that spell the word "cow" that don't refer to anything except sounds. >> host: right. >> guest: and then in our world if we're good readers, and we don't read that much out loud anymore, there's not even sounds. another leap of abstraction begins then as it does in all of these technologies. the telegraph required coding. it's not an accident that samuel morse's name is attached to his code. we talk about morse code. >> host: right. >> guest: he may or may not have been the inventer of the telegraph. in fact, he wasn't really, but he was the inventer of the code. it was a brilliant idea and solved a problem people were trying to solve all over

europe. how do you take language, spoken or written, and convert it into a form suitable for transmission over electrical wires? you can imagine a lot of ways of doing that. maybe it's hard to imagine now because we know morse's solution and that was so powerful, tapping, opening and closing an electrical circuit, but before that, people came up with solutions involving magnets. they had clock faces and a needle would move so you could move a needle at one end of the wire, and the needle moved at the end of the wire, like a wiji board. >> host: surprised that didn't catch on? >> guest: well telegraphs in england worked that way for awhile. on the other hand, if you were just sitting down, if you heard the two systems described, you

might be forgiven for thinking, well, anybody can use the things with the needles, but the other thing you have to learn a code? are humans going to be able to learn the morse code? it's difficult and abstract. yet, we know that they did. thousands or tens of thousands of professional telegraph operators, and i think right up until our era, there were plenty of people who knew morse code, and now it's a vanishing skill. there might be a few people watching us who are jumping up and down saying i still know morse code, but i don't. >> host: so how long does it take to learn morse code, do you think? is it like learning to type? >> guest: you know, i never learned it, so i don't know. i take it you didn't either? >> host: no. >> guest: but we know it's a skill that people internalize and it was second nature very quickly. >> host: sure. >> guest: you could listen to

the clatter of telegraph sound over the wires and just hear it translated in your head fluently. you know, people who were fluent in morse code were good at understanding as a person who is fluent in a foreign language. you could just understand the message. we also know that people had distinct distinctive signatures. you could recognize the voice of a plaf telegraph -- particular telegraph operator. all of that has vanished. >> host: that's fascinating both that it can be, you know, the code can be so abstract and also so personalized at the same time. i find it, you know, fascinating, you know, your whole discussion of codes of morse code and of others, and, you know, in particular in light of the fact that, you know, both

shannon and turing during world war ii, were, you know, involved in code breaking which is, of course, something you touch on in the book, and, you know, i'm kind of particularly fascinated by that because, you know, of course, codes are or the process of encoding information is, you know, essentially taking a symbol system and making it, you know, even more abstract and more complicated. what was the connection, do you think, between that and between shannon's later development of information theory or, you know, what turing ultimately did as well? >> guest: i realized early on that this was going to be a thread running through the whole story, this idea of code. for one thing to our modern ears, it's a computer word, a techy word. computers programmers are coders. >> host: right. >> guest: that's not a coi

incidence. at the same time as shannon grew up in michigan, he was fascinated by codes. he read and reread edgar alan poe's short story, and he was also fascinated by codes. there was a time in the middle of the 19th century in the u.s. when he was probably the nation's most famous cryptogoro cryptogorofer. we can understand why that is. there's this conversion of one language to another. shannon, himself, did become a professional crip toll fer --

crip tog fer during the war because he had to. he was assigned to the top secret x system which was a telephone system. it was a hot line connecting president roosevelt and winston churchill, and shannon didn't invent the methodology used to encode the system. it was a kind of -- on the one hand, it was very clever, but on the other hand, incredibly clumsy system. it involved phonograph records with random noise on them, but identical phonograph records on opposite sides of the atlantic. the random noise to oversimplify was added by one record over here while roosevelt would talk, and it was subtracted from the signal in london so that churchhill could listen, and then back and forth, but there was a theoretical problem of how

secure this was, and that problem was assigned to claude shannon. they wanted him to figure out whether this could be broken. in the course of doing that, he wrote an entire, elaborate math mall call theory that was immediately classified and stamped top secret. not published for years, until after his mathematical theory of communication. we can see now, we compare the two things, there's a lot in common, that in both cases, shannon was thinking about converting information from one form to another from a public form to a private hidden secret form for concealment, but for communication, it was the same thing. it was converted 20 a different -- to a different form, not for the purpose of concealment, but for the purpose of efficiently

sending it over a communications channel, and yet, the problem was very similar. >> host: it's all about communications in each case. >> guest: that's right. there was a moment during the war when alan turing, who was simultaneously secret in england, traveled to the united states by whatever boat was available, you know, weaving in and out past the u-boats, and visited bell labs for a few months, and would have lunch with shannon, and neither one of them was allowed to talk about their secret project, so turing's was cracking the german's enigma code which was incredibly important. >> host: tell us about the enigma code. it's a fascinating story. >> guest: it is. another story not known long until after the war because it was classified a secret.

the germans had these giant machines with a lot of wires, these enigma machines, and in a stroke of luck, some polish soldiers captured one of the german enigma machines, and that in itself was not enough to make it possible to crack the code, but it was a starting point. >> host: right. >> guest: a big project was underway in the park in england, and alan turing was one of several mathematicians involved in the code breaking project, and he was the one who really did the most to solve the code once and then to chop solving, construct machinery, using electrical circumstance cuts and vacuum tubes, and a lot of mechanical gears, too, to crack the code in realtime.

every day the germans would change the code, and the brits would crack the code again. it was incredibly important. i mean, it's arguable that this secret technology project did more to win the war for the allies than the manhattan project did in creating the atomic bomb. i believe the answer to that -- i don't believe it's just arguable, but true. >> host: really, really, and obviously they had to -- you know, the english could not have given away that they knew too much because that was, you know -- >> guest: that's right. >> host: how did they avoid that problem? >> guest: well, they had to be very careful on how they used the information. >> host: right. >> guest: these were decisions that churchill made all the time. they were rightly paranoid about letting the germans know.

>> host: sure. >> guest: if the germans had known, and i think the germans suspect the long before the war was over. there's not that much they could do about it because, you know, they had u-boats. they needed to send messages. still, the fact that -- i'm not a military historian, so i can't give the chapter and verse, but go to the textbooks and see decisive battles that hinged on knowledge that the commanders had that we didn't know at the time that if the public didn't know at the time they were in possession of. >> host: right. so i distracted you, but i'm afraid you talked about turing and shannon in bell labs was it in 1943? >> guest: yes, 1943 and 1944, before the war ended, and you just wish -- well, i wish i could have been a fly on the wall, and i also wish they could

have talked about the work they were really doing because their interests had so much in common pl >> host: right. >> guest: apparently they didn't. on the other hand, they did start to speculate about the future of thinking machines because both of them were thinking about computers long before there were such things. >> host: uh-huh. > guest: turing in particular had invented a purely abstract mathematical machine that we now call the turing machine, or in particular the universal turing machine which is the computer that represents all other computers. turing's machine existed only in his head because the useful -- the transistor had not been invented yet, and so he imagined a paper tape, and a kind of read-write head, a little device

that would march up and down the type planting symbols or reading similar bombs off the tape. this read-write head, it's like the head of a tape recorder, that technology had not been invented yet either. really,turing had to imagine all this stuff he didn't have. he did have typewriters, you know, typewriters could plant a letter on a piece of paper. >> host: right. >> guest: turing said well, imagine the piece of paper is not two dimensional, but one dimensional, just a tape, and so the machine goes back and forth. anyway, he invented a computer using just these items, just the tape and the reading and writing and some mechanism of storage storing states of the machine could do anything that any other computer could do, any problem

that could be solved by this machine by turing's imaginary machine can be solved by a modern computing machine, ect.. >> host: was his machine digital? was he to the idea of what we now call bits? >> guest: it was digitalty by definition because the symbols were discreet. there was nothing analog about it. it was not binary. it remained for next generation of mathematicians whether you could make turing's machines with two symbols, 0 and 1, and it turns out that you can. >> host: there they are working more or less side by side. do you have any sense of whether they, you know, knew or suspected what each other was working on? >> guest: i can only guess. i think they must have suspected. i mean, at least we know that

their common interests were apparent because there they were talking about thinking machines. >> host: sure, sure. >> guest: turing even said something to a friend about how shannon -- shannon, he said,ments to feed not just da -- wants to feed not just data to a mechanic can call brain, but music. they were both -- each in their own way -- forward looking, visionary men, and they must have communicate thad to each other even though they -- they went their separate ways. turing returned to england, and shannon worked in new york. >> host: did they ever meet again or communicate? >> guest: i don't think so. turing's story, you know, is very sad. he should have been a national hero, and instead he was a homosexual, and in england in the 1950s, that was illegal. >> host: what happened with him? >> guest: he was arrested. he was entrapped in a sorted

british police little sting encounter, and i mean, the way he was treated is just barbaric to think about now. the psychological theory of the day, the 1950s, involved an idea that homosexuality was something to be treated. in particular in terms of the injection of estrogen, female sex hormones, which changed his body, threw him into a state of depression. it was humiliating. i mean, you can imagine, and he killed himself. >> host: one of the things you mentioned in order to make the word "information" work in the way he wanted to, shannon had to

essentially, if i'm not mistaken, rob it of its meaning, the richness of the meaning. you made a point i was fascinated by it that newton did the same thing with words like "math" and so forth. what is it about, you know, stripping something of its meaning, making it more and more abstract, that, you know, sort of paradoxically makes it more powerful at the same time? >> guest: in the case of newton, i know about him because a wrote a short biography on him ten years ago, and i remember going through his early notebooks and looking at them and they were over my head to what he was doing technically, but i can understand enough of the problem he faced 20 watch him -- to watch him struggle with the meaning of words. newton's in his 20s, and he's

working from a farmhouse in the english countryside. it's the plague years so cambridge university, which he was attending, was shut down. he was trying 20 create the laws of motion as we now understand them and solve problems that led to his appreciation of gravity, and he was writing things down for which there were no words. he was trying -- for example, mass, an object has weight. well, people knew that some things were heavier than other things, but mass is not exactly the same as weight in newton's equations. mass is tied up with gravity, and newton needed a concept separate from gravity, and he needed 20 feed it into mathematical equations that involved force. force is another word. you know, again, scientifically we know a little bit about

applying force to a stationary object or to a moving object. >> host: right. >> guest: thanks to newton, but you could see him struggling to come up with the words both in latin and in english. he was using both languages, and finally, he just picked words that existed in the language like force. force was a military thing. >> host: right. >> guest: he would say, okay, this is going to be a mathematical term, and i'm defining it in this mathematical way. cut forward three centuries, and claude shannon, i'm arguing, was doing exactly the same thing with the word "information". he had in his hid, not just shannon, but other telephone engineers, the idea that they were dealing with something real. they were dealing with it when they sent it up and down telephone wires, and it wasn't exactly words, and it wasn't exactly characters. now, a typewriter uses

characters. a scribe writes words. when you talk into a telephone, you are speaking in words, but what exactly is going up and down the telephone wires? shannon knew it was electricity. it was not satisfactory to say we're dealing with electricity either. there was something else, not electricity, not words, not characters, what was it? well, we know the answer. the answer wasn't orve. >> host: right. >> guest: shannon was not the first person to start using the word information, and information was not the only word he used. sometimes people talked about intelligence. there's an early letter where he writes 20 one of his teachers that he's doodling around trying to work on a general mathematical formulation of ideas having to do with the transmission of intelligencement well, wrong word.

we know that now. >> host: right. >> guest: the point is they needed a word, and they chose information, and he was measuring it in terms of bits, and that made it a quantity fieble -- measurement to work with. >> host: one of the sort of splendid ironies i sort of sensed in your book was the idea that here we are, you know, these very frankly wet, messy creatures with an an -- analog exinessest, and yet, we use these words to enable us to look up the name of a movie star at a party, you know, to do anything we want to. you know, practically, and, you

know, i'm kind of fascinated by that. i'm also, you know, sense that of what this can do to us. you know, where does that leave us, do you think? >> guest: well, there are a lot of ironies here, and we're all either semiconscious or conscious of them. one of them has to do with a question of meaning. shannon explicitly removed meaning from his concept of information. he said meaning is irrelevant to the engineering problem. when he talked about a string of bits, string of symbols, and that string of symbols translated into something sensible, useful, or sheer

nonsense. welcome to our world; right? >> host: right. >> guest: here we are, and one thing that we know is information is everywhere, and we have all of 2 that we could possibly want. maybe that's not literally true, you know? maybe we're hungry for more, but there's lots of it there. we almost feel unmissioned. we can get facts and data. those things are cheap. knowledge doesn't feel anymore available or clear cut and we try to find out, more than ever, the right ones to trust. ps elliot, you can kind profeteically said, where's the

wisdom we lost in knowledge? where's the knowledge we lost in information. he said that in the 1930s, so i do a little bit of a double take, but isn't that the question that we're all asking now? i think it's your question, frank. >> host: right, right. >> guest: you know, on the one hand, we're almost only nighs sent, and on the other hand, we feel we don't know anything. >> host: you know, i felt like reading this book, and, you know, a few years ago you wrote a book called "chaos," and that's about dealing with the order behind seeming randomness. this book, in a way, seems to be about revealing the randomness or imperfection or imcompleteness behind what we think of as defining reality.

is that the way you thought of it as you were -- >> guest: you know, there's connections there, technical connections that i know you're aware of between the science of chaos and information theory. scientists used this thing called information theory invented by a guy named claude shannon to understand the behavior of physical systems. in particular, one of them was analyzing the dynamics of a dripping faucet, and did it in terms of information theory. i thought, well, that's something that bears study. i mean, how does that make any sense? isn't information totally abstract? the connection has to do with

randomness, and the interweaving of order and disorder. information, it turns out, is claude shannon's vision of information involving a way of measuring disorder in a physical system which is what the chaos scientists were trying to do, and transmitting a message, and a telephone engineer worries about noise in the mng, but also about the redundancy in a message, and these things fight each other. redundancy is a way of coping with noise, so the tools converged. the discovery of the theory when a new generation of

mathematicians worked on them, and that's going on to this day, and here's where i think i'm getting 20 what you're driving at. they come up again in a less technical way in this world we're living in where we, too, are looking at a signal that involves 5 lot of noise, and as individuals, trying to get past the randomness, trying to find the parts of it that make sense, are orderly, and meaningful. >> host: sounds like a ts elliot quote. does this book go all the way back to the work you did for "chaos"? >> guest: i remember -- this is the year before amazon, of course, -- >> host: right. >> guest: sending away for

claude shannon's book, mathematical theory of communication. it's never been out of print. i had to get it by mail order, but still, it was possible to get it. some of it is very technical, just way over my head. it was mathematics. it had a nice introduction by warren weaver in it, then at rockefeller university who wrote about shannon for scientific american, and shannon, himself, was writing in a way that is -- that any of us can read to some extent. you skip e imageses, and every so often he says something that makes 5 bell go off in your head, and the bell that goes off says, oh, here's the modern world being born. this is really the kind of thinking that leads to the way

every computer scientist thinks today, and not gist computer scientists, but all of us who use these machines. the knowledge filtered down to us, and when we understand that recorded music on your laptop, ipad or ipod is in a way the same species of things as the words recorded in an e-book or a message that's being sent via twitter, that all of these things are related to one another. that's due to this book by shannon, so, yeah, i carried it around for awhile, and i wrote these other books, and finally, i guess, it feels as though this is the book i was always trying to write. >> host: fascinating. so the idea -- what's

considering the age that we live in, you know, the idea that our reality is defined by information and by networks and, you know, and sort of binary forms of communication, and, you know, in the same way that, you know, newton gave the idea of a clockwork universe, or, you know, 100 years or more after that, you know, this -- you had the age of steam, and steam, you know, power kind of defined human perception of reality. now we have this sense that, you know, information and networks, you know, applied to the brain, you know, applying that as a

metaphor to the brain that that's what it's all about. do you think that's true, or do you think that, you know, like in 20 years or so we'll come up with some other, you know, perhaps entirely different metaphor for the world? >> guest: i actually think this is it. i think this is how the world is. i think the world really is made of information. kind of dangerous to say that, and in saying it, i'm not saying that we've arrived at something like a theory of everything or that science can now relax, you know, fantastic discoveries lie ahead, and we only know that because fantastic discoveries have always lied ahead. >> host: right. >> guest: scientists will revise the way they look at the world, and discover that a lot of things that we took for granted here in the year 2011 were kind of stupid, and we only know that because that's how

it's always been. you know, that's the only -- the only kind of prediction i'm willing to make about the future is the easy one where i say it's like the past, but i really do believe that information is what our world is made of. when i started working on the book, there's no such thing as twitter or facebook. these are transgent. they may come and go. what is not is the thing we call the internet. we may not continue to call it the internet, and maybe there's a slightly broader thing that we can call the internet or cyberspace. maybe we can just say we humans are connected to one another by means of ever faster and ever more far reaching channels of

information. that's not going to change. i just believe there's going to be a future, barring some horrible apocalypse, in which people decide, well, i don't ever want to talk to anybody again. not that that isn't appealing. you know, i don't want to sound as though i'm saying this is something that we're heading for a cyberutopia where we want to be connected from morning until night. i did think that already we want to go back to the era sometime, go to the beach and turn off our cell phones. we need to find a balance. you can't be connected around the clock and still engage in the activity that we laughingly call thought.

you know? i'm not saying that. i'm saying what we learned about information can't be unlearned. >> host: so you mentioned cyberspace, and what's the concept of cyberspace, or, you know, the science fiction of the matrix. you know, writers -- science fiction writers, you know, who are reveredded by people in the techy world, you know, they -- this is not a utopia they present. it's the opposite. you know, they are presenting the role of the future as a very scary place. what do you think? >> guest: well, you're right, and, you know, to give credit where it's due, the science fiction writer who invented the word "cyberspace" was william

gibson, and certainly to some extent those matrix movies are utterly in his debt. >> host: absolutely. >> guest: you're right, it's a utopia vision. we're allowed to think even now that even now we're living this vision that it's not all apple pie, you know? it's not all strawberries and cream. choose your fruit metaphor. >> host: right. >> guest: personally, i tend to be a little bit optimistic. i think there are genuine dangers about this world. there's dangers to do with privacy. they are dangerous to do with loss of attention. they are dangerous to do with the fragmentation of human communities, and with overcontrol. i mean, right now, cyberspace is a surprisingly free kind of place in most of the world. >> host: right. >> guest: for whatever accidental reasons, the internet

as it was created in the united states started as a very democratic place where everybody had a voice and to some extent, it's still like that. you know, anybody who wants to be a blogger or a tweeter can be, and this has very good and very powerful effects, i believe. i mean, it's to say the democracy in egypt this year was caused by facebook, but it's cause to say the existence of electronic communication channels helped that movement enormously. it's not what it was about. it was about a desire for freedom, but it was an enabling tool. conversely at this moment in china, the state is struggling to exert control over communication via the internet

over google, over other enterprises of modern life, and it's succeeding to a scary degree. i hope it's not succeeding absolutely. i don't think it is. >> host: right. >> guest: i'm hoping that the internet, what the pieces of the internet, the intent towards freedom will be strong enough to overcome the technologies of the internet that enable a state control or for that matter corporate control, but i don't think it's clear who the winner is going to be. >> host: very much an open question at this point. >> guest: yeah, something to pay attention to. >> host: right, right, right, indeed. so, you know, i was kind of fascinated by the idea that you mentioned the concept of the role of the brain, and, you know, the idea of the sphere, and yet, you know, you -- we go from there to yelp.

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now on book tv come author erik larsen talks about his book in the garden of the beasts of america's first ambassador to hitler's germany william mr. larson spoke at the chicago public library for 50 minutes. >> it is terrific to be back in chicago. it always is, especially on an actual nice day. i was here last week was 45 degrees. i have to tell you this makes me tremendously must all shook for the days when moodie came to my

talks to read and i always like to tell this story about my very first book event, which took place when i was living in baltimore. it was just after it published a book called the naked consumer. [laughter] exactly. it's a book that nobody got. nobody read. well, one read it and reviewed the book and he did it because he was a target of the book. the book was about, by the way, about how corporations spy on individual consumers, very apt today perhaps, so why did get a call when i was living in baltimore to what to lamb tester pennsylvania to the talk, not to talk to a signing. i since learned that sunday afternoon talks are deaf and especially when you do a talk in lancaster pennsylvania on the first warm day after six months of hard winter.

it's one of those things you're stuck in the back of the books were you see these people at the table there are about 40 books on the table, and there you are. somebody at this bookstore had made a plate of chocolate chip cookies and put them next to me so i sat there for about three hours i sat there for the first hour and a half with nobody coming to talk to me. they were looking at the books all around me but nobody was coming to talk to me or may dhaka contact and of course nobody bought the book. and about the hour-and-a-half point i looked up and this woman was coming towards me with a big smile on her face, looks like she's taking the greatest delight in this event. i see her coming and i take out my hand and now i know that my career is on its way. she comes up to the table and she says hal much for the cookie

[laughter] so it's not what he would imagine it to be. let me first say here in this lovely in new i'm a huge fan of libraries and i'm not just sucking up when i say that. i like to think of myself as the indiana jones of libraries in repelling the 900 levels of the dewey decimal system looking for interesting and interesting debate the but we created by immelt phill who was a rabid anti-semite. if you were to give me a choice between an night with kate planchette or walked alone in the library of congress i would take the night with kate in a heartbeat. [laughter] but i do love libraries. so if i but talked tonight about this new book of mine come in

the garden of beasts, and how it came about. within the publishing company, within the company people i guess they are inherently lazy, they call the book now almost exclusively by its acronym which is itgob which sounds like something the cat would cough up and i have the nine year old mentality to use a itgob mile growling you sound just like the possessed girl in the exorcist. [laughter] >> this may not seem like my kind of book necessarily one

block of the quarter the holocaust and so forth when in fact there were distinct phases so this idea came to me during the first of all the idea as some of you may have heard me talk in the past is a very, very hard time. my publicist and friend refers to it as the dark country of new ideas. when i'm in that dark country have no idea as i get very moody, i get sort of inlaid with myself so i want to be productive and i don't ever feel productive when i am setting life, thinking of what i.t. i am going to do next so in this country of new ideas about five or six years ago wondering what

i was going to do next when i thought i'm going to go to a bookstore, browse the history section to get a sense of what the books look interesting. but covers turn me on and so forth but to strike my mind thinking about stuff. i saw a book that had always been on my must read list but i never read it because it was just too intimidating of the prospect. 1200 pages, tiny type, no photographs. some of your thinking it's a bible. [laughter] but in fact it was the rise and fall of the third reich. terrific book. i bought it home. it was like a thriller. if you can in fact be set to fall in love with a book about richard clich. i just feel a little bit slow

about things because when i was about a third of the way through the but i realized with a minute, william had actually been there in 1933, 34. actually in 34 he had come to berlin in 1934 and stayed there as a correspondent until it kicked out in the u.s. entered the war. what would that have been like the met these people face-to-face hitler all these people we know today to be monsters. only he met them at a time that nobody knew what the ending was going to be. he met them at a time when nobody had an inkling the holocaust was coming the second world war was in the relatively near future i would capture the sense of that time through the eyes of a couple of characters and 54 who were new to berlin

outside as americans because i write for an american audience. so they very deliberately began to read. i went to my library, my favorite library in the university of washington campus, and i just began to read. i took out as many terrific histories as i could, the grand history and the series of books by richard evans and the history of the biography of hitler and so forth. but also, i found a lot in the 900 levels i found a lot of memoirs and diaries and so forth from that period and before and after. eventually i came across the diary of a chicago man named william odd. and soon afterwards i found a memoir by his daughter, martha so we try to set the scene.

imagine that you are william, you are 63-years-old, you are a mild-mannered professor of history chicago and a good reputation but you are a professor of history struggling in this time with financial shortfalls because this is the era of the great depression. you are tired of the engulfing demands of the graduate students and all you really want to do is finish a book that you've been working on. it's actually a multivolume series of books about the old south which in fact, it's ironic when you titled the rise and fall of the old south. [laughter] one hot day in june he or sitting at your desk this is in 1933, you're sitting at your desk and precisely noon at the phone rings.

the guy at the other end of the linus franklin delano roosevelt, the new president of the united states, and one little note he was president at that point since his inauguration in march in 1933 inauguration day was still in march. it was changed to january because the feeling was you didn't want to have a president be a lame duck for any longer than he absolutely had to be. so, roosevelt is on the line coming and he asks you would you be the next ambassador to germany, america's first ambassador to nazi germany, the ambassador to germany has been vacant at this point for six months. here's the kicker he gives you two hours to decide. two hours to decide. what he does not tell you is that one reason he has called

you aside from the fact a confidant of his recommended you apart from the fact you know german, one reason he has called you is because nobody else wanted the job. [laughter] three weeks later, you find yourself on a shipped to germany you've got your family with you, your wife, a grown son, and you're 24 year old daughter, martha come and martha is a heck of a daughter. she's smart, she's sexy, she's a flirt, and she has this thing, she has a way about her that in flames the passions of a man both young and not so young. at 24 she's already had an affair with the poet and author carl sandburg. and one of the delights of the research which is why i always

do my own research is that when i was going through martha's dippers of the library of congress, in one file i can across the two locks of hair in a little clear plastic archival envelope tied with the old black thread it looked like little broom heads and i'm here to tell you it was as white as it appeared, and was quite course, coarse hair. it's a magical moment for me. [laughter] i'm just that way. but at 24 she said this affair, she has broken to engagements to be married, and she is in the midst of a divorce to escape a dead marriage to a new york banker. now personally i think any marriage to a new york banker would be dead, but i don't want to cast any aspersions to the financial crisis in america, but

by this time she's very close friends with wilder says she has a very interesting kind of circle. she comes along to berlin for the adventure and immediately falls in love, falls in love with the so-called mossy revolution, she calls it the nazi revolution. she finds it intoxicating at first and here's the thing. she was not alone. this was a very common viewpoint in 1933. the argument was you could quarrel with the methods i would say so will the other hand he was restoring the nation's pride helping it get its act together to drastically reduce unemployment and seeding by the years and to be delivering on that promise. the night before they left new york they all gathered there in order to catch the shift they went to a dinner party at the apartment of a fellow named

corrine of the crane plumbing dynasty. you may not realize it but i'm sure you have seen the logo staring up at you from urinals around the country. i can't speak for the ladies' room. so she has this party and mind you this is back in 1933 has no reflection of the plumbing today that charles crane as the party is winding down and they are leaving charles crane takes the new ambassador aside and says to him let hitler had his way. he also advises dodd, very directly not to have any social interaction with jews while he is in berlin. let's look at the world through martha's eis. she finds herself in a fiber and charismatic city. we always think of that world and at least i certainly did as

drab black-and-white shaded in gray because that's the kind of imagery that we come across, we see black and white photographs and newsreels. there are some color images that have surfaced but for the most part it seems like a black-and-white world, like there was a bright sunny day in germany until it 1965 when a chrome became a film of choice. she said something very different than this black and white world. she saw color everywhere, the brightly colored trans that ran on the streets as perfect as the toy is. every balcony had a box of red geraniums or seemed to at least. at christmas of the city went wild. there were christmas lights everywhere and trees on every square and every street corner. so much of it dodd was moved to write you would almost think the nazis believed in jesus. there were glorious cafes that sat hundreds of people at the time and there was dancing every

night at these fabulous night clubs like the root of the hotel and it's very interesting the establishment called the house in berlin and it's a structure that have five restaurants slash nightclub in usenet one of which is an american wild west parr and the of the wild west bar where the germans in the huge cowboy hats would serve your cocktails and some were members of the nazi party so it is kind of nice thought that these nazi cowboys were serving drinks. it appealed to me any way i thought when he saw here you have an investor, ambassador ghana arrived in germany as a professor of history for his studies he arrives with certain expectations. he's a statesman and yes they do crazy things but in the and the

act like states and there's a certain rationality even in the craziest people. he also arrives bearing a certain amount of pleasant baggage. back in the 1890's, i, like many students, he traveled to germany to complete his education, to do the postgraduate education. he went to work on his phd thesis, which don't even want to think of the nightmare here which was about thomas jefferson he has a wonderful time, the germans are marvelous, warm, sweet people and a young woman places on his pillow in his room so he comes bearing this recollection. the war he encounters is like nothing that he expected when he expected a certain amount of rationality. he finds now only pathology. not just pathology that he finds it, and talking about organic pathology.

he writes and this time that a leading free in germany and any of our culture would be a place of asylum and here is the daughter who in effect falls in love with a pathology at first. and the stories provided an ideal vehicle for traveling through that period i wouldn't want to write about him alone, and not a fan of diplomatic history is. i wouldn't have wanted to read only about martha, not sure i could sustain an entire book about her but to capture something much bigger think both in fact and both actually undergo a very satisfying transformation in the course of the very first year of there's in berlin which is when the action in the book takes place from the summer of 33 to

december 34 when something quite horrific occurs when the united states and the rest of the world should have paid much more attention to but failed to do so. >> so i realized that the story is really shed light, if you are looking for a more fundamental reason for this, for doing this story, they shed light on why it took so long for america and the world to realize the true dangers hitler and why appeasement became the first half of dealing with these people. some of the things that surprised me and to me it was a shock the extent the intensity of the anti-semitism in the united states, and also within the upper ranks of the state

department, the lower level of the secretary cornell hall. i was really startled by it. he was a very interesting guy that tried to imagine the perfect guy to be secretary of state at this time it would be cordial. one of his passions was croquet, and he hay speech impediment. he had a speech impediment but people around him likened to the cartoon character elmer of fudd. when hall wasn't around, he would quietly mock the speech impediment. if he was referring to the trade treaties he would refer to them as the "twade tweeties." but the top three guys in the state department all had a healthy if not outright hatred

certainly distaste for jews. one knit referred to them openly and readily as pikes. he had expressed a certain level of anti-semitism and in one dispatch back in the state park and after he had been in berlin for a while, he complained that he had too many jews on his desk. to many jews. this was in paring his ability to deal with the nazi regime in particular he complained about his receptionist who absolutely low-fat the nazis and sort of pictured this woman sitting at the entry as these officials came through and personally i think it is just made for a miniseries. but so you had dodd complaining about too many jews on his desk and there's also one very strange conversation that he has with hitler. there are too formal meeting season this time period and the

second meeting he actually tries to find common ground with hitler on the so-called jewish problem. the nazis had hijacked the debate by framing it as a jewish problem. once -- words matter. once you frame something as a jewish problem what else will you think about, how would you solve that problem? so it was a jewish problem. dodd said we have our own the jewish problem in america. but we have chosen to solve it in a more humane fashion by which he is referring to things like the university and so forth. this by the way does not nullify hitler, surprise, surprise. she gets steamed up again and he just loses it completely which was a tendency of his and he says if they don't stop this, i will put an end to all of them. this is 1934. long before the holocaust, 1934 you get the first whiff of what was coming down the pike.

i was also struck by how knew everything was and all the things that today we know as absolute truths of the nazi era were not familiar back then. for a sample, the goose step which when dodd first saw was how ridiculous it seemed, just ridiculous. it was so new at this point that in the embassy and was referred to as a swastika it was a broken cross which is a little translation which is the term the germans used. the hitler salute, i'm not going to do it because it still has a jarring effect also. i would be a little bit concerned that if i actually did it that would be the moment that somebody would take a digital photographs. [laughter] put it on the web and would go by role, and suddenly i would

have a lot of new friends that islands necessarily want. [laughter] the salute was so novel that dodd's general in berlin, the man named george not to be concerned with the designer george messersmith he did the nazis and happily messersmith treated the ferberite the way nm for polis would treat an aboriginal tribe that is to say that he wrote in detail and at length about all kinds of things because this was brand new. the swastika itself wasn't a brand new because i personally owned a collection of the works of kipling that for published in the 1890's and every book on its binding has a swastika.

it's the indian good looks fine but as a political symbol in the modern age back to the hitler salute. so, messersmith, who by the way wrote so long on so many subjects and was named 40 pages george come he wrote an analysis observations about the hitler salute because this was such an awful thing and it's the only thing i'm going to read, i promise you. the salute had no modern precedent for the narrow required salute of soldiers and the superior officers but the practice was uniques that everyone was expected to salute even in the most mundane encounters, the shopkeeper saluting, they were required to salute their teachers several times a day. at the close of the theatrical performances, the newly astana list custom demanded they would stand and salute as they sang the first german national anthem

and second, the storm trooper and thumb, the so-called kurson dessel song. the german public haddad that the increased the salute to make the act of incessantly saluting almost comical especially in the course of the public buildings where everyone from the loneliest messenger to the loftiest officials alluded one another turning a walk to the men's room into an exhausting affair. [laughter] my hope was to capture a sense of the gradual the darkening and had this vision suddenly has the two characters in a nonfiction grimm brothers' story tell. they entered the dark woods and things get darker and darker and darker or, you know, queue the wizard of oz song mollyann zandt tigers and bears as you move into the darkness of the third reich. so talk about flexible how dodd

was given secret draft committees not laws yet they were drafts of things coming including one that shot in the literal translation of the document being called for the killing of the incurable. another chilling for shuttling of what was. i also talked about martha's ninian loveless including her affair with a very interesting character who i think encapsulates the complexity and the nuance of the period this was a very complex period. this dhaka was rudolph who was the first chief of the then brand new agency called the gestapo. the first chief of the job all of one year when he was replaced by the awful characters speak to

in his high-pitched voice protege reinhardt. it deals with the unusual character. here he presided over this entity that has caused the imprisonment of the thousands of communists and social democrats in the political party of the era and who had presided over the agency that had tortured hundreds of these people and likely murdered even in this early phase scores, and jet the diplomatic community, dodd in particular, thought of him as a good guy. he had a lot of integrity as fer deride officials mind. here's the guy you went to if you wanted to get an american out you would go to rauf and he would oblige. he was a very interesting guy. he is the one who led, who agitated for the christmas

amnesty, the christmas amnesty for 1933 that led a lot of prisoners out of the camps and so forth in germany. and he later claimed that that was one of the most fine moment when he got to choose who got to go free. said he was a very interesting character who martha it seems clear at this point had a relationship with and a charming photograph in the collection of the library of congress where martha and the chief of the gestapo are sitting at a table in a lovely little outdoor country restaurant having a grand time. i just find that kind of magical cure is this evil character, potentially evil character with the daughter of the ambassador, the american ambassador to germany one other thing, just as he was the perfect embodiment of the secretary of state if you were to try to imagine what a

villain, what kind of villain would run something like the gestapo to would imagine read off to a point. finn, dark, lean with a horribly scarred face, the lower part of his face, scarred by a practicing a lot of students of the era engaged in which was terribly dillinger to mark your opponent that a doctor sitting in would then call it pitted everybody would get stitched up and then there was the end of it and would bear the scars for the rest of their lives but this was a sort of a bad judge strength and her was some. but the thing is he was considered to be a real catch. he was handsome in a dark way. look at the photograph and you might believe me, he was said to be sexually charismatic, he was a charmer, and it's funny i

showed this picture to a number of women in seattle most recently to the hit a tree and photographer and everybody looks at him and goes yeah, not bad, not bad. i also learned in taking a look at the gestapo that one way that they summoned people for interrogations' they would do it by postcard so we would get this postcard saying he can you come to the gestapo headquarters on such and such a date and time, we would like to talk to you and would you to do, you have to go and if you didn't they would hunt you down and they would go out because the german populace to fall into line to become the term was coordinated, fall into line with the nazi party and the

third reich that they would denounce neighbors who had not likewise seen fit to act to behave in a coordinated fashion they would also denounce neighbors because to the result petty personal disputes. if you didn't like the way that your neighbor was keeping up his house or her house come to would drop a dime on him or her with a gestapo and they would either send a postcard or come and pay a visit because they followed up on just about everything. in fact, people were riding out their friends and neighbors so much that even hitler complained. he said and i quote, this is what he told his justice minister, he said we are living at present in a sea of denunciations' and human mean, this is adolf hitler. anyway, i'm very happy to report they get it.

there's this narrative tension that he will bring to the book, this idea that we know what is happening in here are these people you just want to say don't go into the basement, you know what i mean, like poor films. my favorite reaction to the book this far is from a friend of mine who read it just before going to sleep one night, possibly a bad thing right we were going to sleep zero cup whipping from a nightmare being pursued by nazis and had to protect was her little purple plastic water bottle. if i give somebody nightmares, if i can give somebody nightmares consider that from an narrative standpoint of the victory and i'm going to stop there and take questions and i hope you have a lot of questions. if you don't, i have questions

for you. [applause] question. >> he the point is you have to go down to the microphone here so that is going to add the pressure. you have to come down to these microphones and speak because we have got c-span folks reporting this. these people are either leaving our they are going to ask me a question. [laughter] okay, you first. yes. >> my name is tracy. first i was curious as far as your writings did you have an idea that he started researching writing for a book and then all of a sudden decided this isn't going to work and if so, what was about? >> yes. second question. [laughter] i will talk about that in a minute. what's your second question?

>> that's it. what was it about. >> i will tell you something, you never know, but just recently, having been and still am in that dark country of new ideas, i had an idea that seemed to me to have all the right elements, and i was looking into it and looking into it and the thing that took place in california, and i was just -- i didn't know anything about this and the head of these great characters and stuff but there was just something missing and i worked on it for a long time until i realized i think the best way to put it is it lacked heart, so i killed it. most of my agents saw, but i'm not sorry. i'm glad it's dead. good question though. thank you. yes? >> i started reading the book yesterday evening, not too late. >> did you wake up crying? >> no, but i'm curious what struck you as the most surprising thing in your research? the fact that there was this 1% of jewish people in germany because the impression is is

this an overriding issue and that then mention that and also the fact that dodd wasn't reporting all of the attacks on america. i had no idea that they were actually -- yeah, those surprise me but what surprised you with your research because as you said you think you know this area that really? >> a couple of those things. just the fact and it's there for anybody to know. i think that it was kershaw that first made the point that only about 1% of germans were in fact jewish. it's also partly not well known and certainly should be well known that most of the victims of the holocaust or not germans they were from the eastern countries that were subsequently invaded by the nazis. but only about 1% of the germans were jews and the one point that he makes is that for most germans this whole anti-semitic thing was kind of an abstract concept because typically the average german have little or no contact with jews.

there were concentrated in the big cities and a typical world german had either no contact with the jews or limited contact and it was almost invariably find. siskel anti-semitic thing was meant for the party members and so forth and that is kind of fascinating. anybody that wants to look into that more, check out his work. it's fantastic. so, i was impressed by kind of thing as well and the level of the anti-semitism in this a department is what i found most startling. the effort to keep the tax on the americans from making the press i found really startling. the point was he was trying not to antagonize the germans in his nineties believe that he could actually use persuasion and reason to help hitler and the government find a more moderate way to go, which in the course

of the first year he realized thankfully at the end was not going to happen. so that is why. thank you. yes? >> i'm curious about the obstacles you might have encountered in your research, and do you speak german and access to the archives knockout asking about obstacles, german as it happens wasn't enough. i don't speak german, i did have a translator chancellor in german documents including the autobiography called lucifer at the gate, didn't mind being called lucifer by the way. he thought was kind of to his mystique, but they did a the translator for those things. but what i mostly wanted to concentrate on exclusively really was the point of view of my to innocence. the two americans entering this world and that led me to the

tremendous trouble for the documents and the national archives and the wisconsin historical society and madison wisconsin of all places. so, the main obstacle is the same obstacle ivies in any book is finding the material. you've got to go the distance to find the material. going to berlin and a sort of seeing what's there now but also getting a feel for berlin. little subtle things for example. one thing i didn't know and appreciate, i wouldn't have known is how close of the action in this book takes part around the central part in berlin which is called the garden which in translation is the garden of beasts hence the title "in the garden of beasts." so all the places that are important to the action are actually around the eastern quarter of the park and what i

learned by going there is that everything was so close together just a matter of a walk to the gestapo headquarters to the 20 minutes to the building. i don't know why that was important, but it was. everything is so. it is a very flat city. the first time i opened my hotel window and looked out over berlin and the tiergarten first thing that popped in my mind is this is corpus christi. i don't know why. just very flat and just it's berlin. so anyway. >> i'm a very big fan of yours and i think all of us are -- i know we all feel truly gifted -- we all feel the truly gifted to partake in the stories -- we'll give it to partake of your

stories. [inaudible] [laughter] [applause] i'm sorry. [laughter] >> i have a feeling of the end of the 21st century i think it is going to be considered one of the century's greatest books. i just started reading your new book and i just wanted to ask you as a writer you have a very engaging manner i feel just listening to you talk, and i just wonder the storytelling comes very naturally to you and how difficult is it to be a really good writer such as yourself as you encounter discourage and along the way. i mean i -- you talk about selling cookies at the table. we all know about that, but when did you really feel like i know i can do this? i know i've got. i'm a great storyteller, and along the way you encounter doubt in your self.

i'm just curious because i know --. it's an engaging to bring the readers and. it's a wonderful feeling. i pick up that book and feel like you are my voice, you're talking to me. i just love that. if you encounter a discouragement along the way. >> i'm going to let my daughter address that. if you missed it and tell the audience the reality this is my daughter she goes to the university chicago. [applause] >> sell with al all the time and what he does is he works from four to eight in the morning.

>> it is true. it is in fact true self doubt is something that i have to deal with all the time and i like to think that it drives me to hunt for stories that are the kind of thing that i'm going to like and people, other people are actually going to light but i sure wish there were some elixir i could take the would give me one day where i wasn't afraid something was going to be a bomb case in point to underscore things for you on the eve of the city's publication, i was convinced and you can check with anybody in my family i was convinced my career was over because this was a book that had to narratives' that never intersected. it broke all the rules of the narrative's.

so there you go. i have similar fears for this one. so there you go. yes? >> you touched a little bit on the anti-semitism, and i wasn't aware that the ambassador of history was a professor of history and my question is did he have any kind of historical and plant of anti-semitism in germany because you go back and read martin luther and has nice things to say about you so so was there any sense the history of anti-semitism in germany? >> good question. here's the good thing. she did have a sense the fact anti-semitism had been prevalent

in that a lot of times in terms of the anti-semitism nazis kind of drop in the drop in from mars but it has nothing to do it anti-semitism it had been a scene at that point out. but it's interesting at the same time as they were somehow able to ignore his own tendency to be anti-semitic. we today would see as the blatant and i summit as among his heart was in his era, sort of an indian thing that a lot of people expressed and so saw no reason to be uncomfortable with because you see the evidence in this in the fact that some of these guys in the diaries knowing that they might one day become public and very clear and direct another dislike about their views. another question. over there, yes.

>> thank you for the thoughtful presentation. i was wondering do you think that ultimately dodd was the right person for the position and do you find yourself sympathizing with the struggles and may be thwack of otherwise action on confronting the nazis. >> starting with the idea that was a kind of position nobody could have done anything terribly productive, and nobody could have really persuaded hitler to do otherwise i do have to say that given his mandate, roosevelt sent him with four the fundamental mission with a standing a sample of american liberal who values. and dodd did that. dodd never set up to the nazis and he never caved in to the

nazis. she held true to that mandate much, much to the absolute alliance of the third reich. he really ticked off the germans just by refusing to give on those fundamental principles and ultimately i don't want to throw out any spoilers in terms of the book. so, i do think that there is a tendency by historians to overlook dodd as a field ambassador i don't think that is at all correct. i think if i had to give him a letter grade, given the circumstances, i would give him -- given the curve of the era i would give him a d+. yes? >> i don't know if this is a great question to end with a love your begin by a understand that there is a song coming out and a slave to questions one is

what is your level involvement in actually making it and if you are concerned about when they make movies out of books particularly nonfiction the tend to hollywoodize that. >> was bought by leonardo dicaprio and he doesn't intend to play homeless and get off the ground. there is no screenplay as yet. it's going to take a while. my involvement is going to be minimal because i espouse i'm going to paraphrase this to hollywood which is that you bring your book to the fence, to get back of money in front. [laughter] because [applause] because hollywood if you are a writer that wants to have any control over your own work it will no question it will break your heart. hollywood will break your heart. so really it comes down to when

you decide to sign of over an option to make the decision at that point to i want this to happen or not, and it's going to be interesting because at this point i want to see what filmmakers and actors will make of this book. i'm particularly interested in what the music is going to be that goes with and who plays the victims. i'm going for scarlett johansson. and kate blanchet. [laughter] so anyway, that's where there's plenty of the involvement. [applause]

a look at the causes of the 2008 financial collapse gretchen morgensen and joshua rosner highlight de rolph freddie mac and fannie mae. the authors spoke of politics and prose bookstore in washington, d.c. in june. this is a little over an hour. [applause] >> thank you so much, david. we are really thrilled to be here tonight at politics and prose as you know is an iconic institution in washington, and it is just a thrill to be here

with you and engaged customer as well, that's really fantastic and it's wonderful to meet david, and to see in person this incredible institution the devotee loves in washington. now josh and i have been a little bit on a book tour. the book came out may 24th and among the questions that we always get or often get from interviewers, by years of the book, e-mail and my e-mail count at chaim what surprised you the most about your reporting and the investigation that you both did to come out with this book. we all know that there have been a lot of books about the financial crisis. many of them recount the events during the crisis in the heat of the panic of 2008. some of them go back a little bit further to describe some of

the groundwork that was laid to create a crisis but it josh and i decided to go back much further into the 90's to tell the tale because a debacle this large really didn't haven't been over night. and unlike some of the book's conclusions, other book's conclusions that it was nobody's fault, sort of day concatenation of events that couldn't be helped we really believe that there were actual parties involved laying the groundwork. but as far as what has the most surprising to me in this exercise is the number of paradoxes that emerge from the story. the paradox of the powerful participants in the event leading up to the crisis who continue to this day to be in

positions of power or are even in positions of greater power than they were. a second paradox that trillions of dollars of losses being endured by the investors and borrowers, yet no one involved in the mess being held accountable. but to be the most perplexing paradox of all is this. how did it happen that the drive to expand the rate of homeownership to the first-time home buyers many of them minorities, immigrants and other low-income individuals, how did it happen that this partnership, this push will not trapping them in loans that they could not afford and putting them squarely on the road to the financial ruin? in other words, how did the dream of homeownership become such a nightmare for so many

first-time home buyers? it is an awful paradox when you think about it. government officials and the belief that the homeownership was a win-win for everyone opened the door to the predatory lenders who lured the least sophisticated people on to the most poisonous loans. these included loans with prepayment penalties of high interest prepayment penalties or high interest rates. a report by the center of the irresponsible lending looked at 1.8 million loans in their early 2000's. it showed that from 2000 to 2000 for the borrowers and the minority neighborhoods received a disproportionate number of loans with prepayment penalties. the center found that the bar was living in the code areas were more than half of the residence represented minority groups the odds of reseeding prepayment penalties were 35% of

those of the solar lee situated borrowers in this of course where the minorities comprised less than 10% of the residence. the study controlled importantly from the ki borrowers property and loan characteristics such as the borrowing credit scores to ensure that the results were not, repeat not based on the differences in the risk factors. now, we move on to the apex of the boom and the center made another study of 177,000 loans in 2006. and i concluded that the odds of receiving a higher rate, fixed rate purchase loaned or 71% greater from african-americans than for whites. african-americans or 15% more likely to receive a higher rate adjustable rate mortgage than if they had been white. and african-american borrowers were 44% more likely to receive

a higher rate on their fixed rate refinancing alone and similarly situated whites far worse. latino borrowers were similar. receiving a higher rate, fixed-rate purchase loans favor 60% greater than a similarly situated white borough were. this data supports what i found in my reporting about countrywide financial, one of the biggest said prime lenders before it was acquired in a sale by bank of america in 2008. according to a former broker who spoke to me from the los angeles area where he worked for countrywide, it targeted low-income borrowers with high-cost loans. instead of receiving the best loans possible as countrywide's advertisements promised, the borrowers were let high-cost loans that resulted in rich commissions for countrywide's

smuts talking salesman. these loans also contained outside fees to the company's affiliate's providing loans services such as appraisals and insurance and also carried punitive prepayment penalties or interest rates that were set low at first only to skyrocket in a few years of time. countrywide financial founder angela talked enthusiastically of wanting to help the minorities and low-income americans secure a mortgage. during its part to democratize the home loan business, countrywide became the number one lender to both hispanics and african-americans. in february, to those of free speech here in washington, she promised to devote $600 billion to the mortgage loans for the underserved communities through 2010. and yet according to company

insiders, countrywide systems were designed to increase costs for precisely these types of borrowers. .. was anyway her friend 2% to four percentage points and you are

reprimanded if you do not charge more. countrywide entire operation, information technology and incentive pay was designed to wring maximum profit out of the mortgage lending boom, no matter what it cost or worse. the company's computer system, for example, defaulted to a setting that automatically excluded if borrowers cash reserve from his or her financial statements. this had the effect of making the fire appeared to be less financially sound and he or she would be steered away from lower-cost loans into those that were more expensive and more profitable. now, countrywide of course is not the only lender that appears to have targeted minority borrowers. a recent lawsuit against wells fargo overloads that it made in tennessee found that its foreclosure rates in black neighborhoods of memphis are almost 18%, five times the rate in predominantly white city

neighborhoods and seven times in predominantly white county neighborhoods. according to a sworn statement by a former wells fargo credit officer named mark taylor -- maria taylor cited in this lawsuit, quote, the prevailing attitude is african american customers were savvy enough to know they were getting a bad wound, so we would have a better chance of convincing them to apply for a high-cost loan. of course high cost loans make it that much harder to build up at the d. in thy love, which has been the biggest source of wealth for many people over the years. these spanish amounts obviously increase the odds of foreclosure a study baby up in constitution of foreclosure told african-american neighborhoods delineated by census tracts had foreclosure rose higher than maturity white neighborhoods.

that's because the newspapers that african-american borrowers are more than twice as likely to obtain sub prime loans than caucasians. it gives a whole new meaning to the american treating of home ownership. these are the very people who are also not getting any help from washington. her out billions of dollars that the lending institution that created the problem, and main street has really left to fend for itself. unfortunately, this has created a few, a very pernicious view that there are two types of roles. there are those for the rich, powerful, politically connected institutions and then there are the rules for the rest of us. and i'd like to turn it over to josh for his insights and

interpretations and his views on how much fun it was to write up a. [applause] >> i think she may not realize she wasn't getting that it was actually delightful to read a book together. i think it was largely because we both had been involved in this area from the writing side come in me from street side for very long. and frankly we are early in morning about the crisis to calm. it's probably worth taking a step back really into the early chapters of the book because the crisis -- i don't think we've contextualize and i don't think anyone wants to have the honest i like that needs to be had in order to move past and rethink our public policy. we talk about homeownership rates, but we don't ever define homeownership.

and that really is the root of this crisis. it's a result of the recession of the 80s. he came out with homeownership's in the early 90s stagnant at levels they were at in the early 80s. we had home prices rising and yet, wages were flat. and so washington and its list of recognized there two options. either figure way to increase wages sustainably for lower the standards to increase homeownership rates. and they chose the latter. so we embarked upon the largest public private partnership ever in the history of this country and the title of the parties in. today's treasury, heard, cne, friday, the realtors, the

homebuilders. the community groups and special interest groups. all of them were involved in this push to increase homeownership to the intended record levels by the end of the millennium. they created a platform that we carry that out and then included reduced down payments, changes in building quality, innovation of new mortgage products and all of these for a stated goal is implemented as part of policy, part of plan and part of the notion of wrapping ourselves in a culture of ownership. ownership society without having a discussion about what it was. then we forget that all of the benefits that historically have been conveyed by homeownership for real. there were greater ties to one community. there are a better place to raise more stable neighborhoods,

typically neighborhoods with more focus on educational attainment of children in those neighborhoods. when members have to ask what it was that really drove those as part of the social policy discussion. and history has shown that it's actually the down payment and the monthly payments of principal and interest and what has been a forced savings plan, a relatively illiquid investment, where money is paid in and trapped in very difficult to extract. the benefit of homeownership was one that resulted for most of the postwar period in people buying a home and about the tightness in the formation making monthly payments of principal and interest, such that about the time of retirement he could have a mortgage burning party from the largest retirement asset and wealth transfer asset.

and yet, we talk about having achieved record levels of homeownership, which we didn't because there wasn't equity. it was phantom equity. in fact, the homeownership rates were created for consumption by politicians, patriot associations, by capturing congress and pressuring regulators to pay less and less attention to safety and soundness. then we watched as homeownership rates climbed from their historic 62 and four are not to 1995 talking to getting to 69.5% by the end of the lending them. and then we think about this crisis. in reality, homeownership peaked in late 2003 or early 2004. so where's the crisis of 2004, 2005, 2006, 2007?

and that is really the story. that is the story of the fact that we older definitions. we watched the industry, fannie, freddie, realtors, home builders, community groups really pushed this notion that we need to put more and more people into homes. what we do by 2004 was giving people incentives to take a more and more risky mortgage products on homes that they already had as a way of extract and the equity they are a built up in their homes and create incentives for people to build and buy second homes and investment properties or watches another piece that isn't discussed here. part of the crisis we are living through right now is a crisis that was striven by the reality that in 2004, 2005, 2006 and early part of 2007, between 36% and 39% of home sales were second homes and investment

properties. that is overhang that's not going to be touched by any of the current government initiatives to stabilize the housing market. that is part of the reason that the banks, who we put through these troubled as they were these programs still have these troubled assets on their bank balance sheets. we don't want to really stop -- setback, look at look at her house in policy did, what our financial service policy did and really we've been said or used. we've been seduced by tax policies that in fact leverage rather than the building of equity and debt leverage benefits not the consumer, but the lender. and that really is what this crisis is about. so even as we are starting to talk about dodd-frank and its implementation in rulemaking that goes with it and the

building of more rational standards for housing policy, we are still not willing to have the larger discussion about what rational housing policy should be, who should benefit from how it be implemented. this tax cut has to be considered as something we need to address with? instead we got right back to where we were, this co-mingling of social policy with financial markets. and that's a very toxic brew. when you start handing the opportunity for social policy goals and subsidies to be delivered through private market players, there is going to be money that doesn't meet its intended target, where historically the landing for first-time homebuyers, buyers buyers have limited access were sometimes delivered directly through government programs. if you think back to g.i. bill

and jimmy may programs and fha programs, the goal was to have the government recognize that there is some value in inventing homeownership, but in doing so directly to us greater control and less likelihood for seepage of profiting. and fannie and 794 at the front end of co-mingling the social policy with financial america policy. and that really is a departure point i think is very important because in 2001, i wrote a paper called houston in the new millennium, a home without equity is a rental with it. and in that paper, there was no -- there really was no private label mortgage-backed securities market. i had been part of the creation of what we call the subprime 1.0 in the 90s, where we thought a lurch number of small sub prime

originators come. really what they were doing was making loans that were still relatively traditional mortgage products 15 year, 30 year fixed meat products, traditional and products, to borrowers have blemished histories. in that industry therefore had a very small market that it could tap into. ultimately it went away because prepayment rates accelerating after the russian debt crisis and accounting games that were found to have occurred at that industry and it disappears. and with that, wall street investment banks realized if only they started innovating new products, they could advance the barber class and increase the homeownership and sells a stream to a larger number of people. fannie and freddie were a partner in that. and as much as fannie and 79 for ipods in many ways the

investment banks in the private market, they also had a partnership with them. so what you saw was fannie and freddie was innovating blowdown permit programs in the move from traditional underwriting, were you talking to the bank in your community, but if you are in the face. he was a pitcher credit history and your employment history. he would look and think about the regional economics of the community in which you were byerly and where your job was than he would make a loan decision. fannie and freddie decided in instant gratification world we could move to automatic underwriting and appraisal processes. we could really change the structure and dynamics of the housing and mortgage finance system. and they did. and were here. and so even now as we are watching the discussion about under dodd-frank, there is a real risk protection, were any

securitizations, the issuer and with the originator are supposed to hold a proportionally 5% of the structure. unless a loan to not pull our what is called qualified residential mortgages. and now comes the regulators that their proposed rule on monday qualified residential mortgage is a new and up seeing the same group, the same partnership, the same unholy alliance of the home builders, mortgage bankers, banks, community groups say hold on. a few words to make this the qualified residential mortgage rule, there would be minorities who would be kept out of homeownership for the cost of homeownership would rise. , we learned we are not helping people if we put them in products that are not sustainable?

perhaps this time we think about really functional housing policy that doesn't transfer the benefit to the banks are the issuers and instead to the barber. so with the marc rich insurance deduction, which theoretically is supposed to benefit homebuyers come up are really only benefits those of mortgage punch and itemize their taxes, only really the upper income and wealthy, which we could turn on attendant turning three principal equity tax credit, which would therefore be progressive. it would give incentive for people to pay down every year as much principle as they can and build real wealth and real savings. we could create 529 accounts for mortgages so people can say for a down payment on a tax-free basis if we believe in housing policy as an important social tool for savings. but washington come in all of his wisdom, all of the relationships retyped about,

between the trade associations, when both sides of congress -- this is not a left right issue. this really has become, unfortunately, a senate banking committee, house financial services committee both compete for the same dollars from the state and trade groups and the people in this room, bradley as individuals have little involvement in the process and very little to win in that process. so our hope in writing this book was really to help educate and eliminate what has gone on here so that hopefully there would be a little bit more public outcry for holistic policy, transparency and policy and understanding who is sending a policy that comes out of our government intended to benefit us. and usually not defeating us. so i think what that, with that diatribe in rant, i'd like to

turn it back over. thank you. [applause] >> we are going to begin the question hour now. and so please come to the microphones with your questions or comments and try and ask questions without many semicolons. [laughter] and so, please begin. if you are comfortable saying your, please do that and gretchen morgenson and joshua rosner will answer the questions. >> hi, i want to play devil's advocate to both of you. there are federal agencies and the federal government to regulate to fannie and freddie. let's say you are both invited

to administer that agency. what would you do with your implementation quirks >> yeah, sure. first of all, regulators that were charged with regulating fannie and freddie in the years up to the criticism of the groundwork was being made were really neutralized. fannie s. top executives understood how to defend its regulator, how to co-opt congress, and a congress congress its regulator and therefore they could by congress and had everything under control. for years, this regulatory infrastructure over fannie and freddie was a weakling and punished. whenever our see how talked about safety and soundness issues, it was drummed out of

town. congress would get up in my legs and say, we don't have a safety and soundness issue here. we need housing. and so, it was no big elated well and aggressively because of the very proactive, you know, chicks of cne made and freddie mac. so i think looking back on the you can't really say that she had a good regulatory structure. now what we would do now -- i mean, i think you have to have a somewhat adversarial relationship with these companies you are overseen. when interviewed ernie frank for this book, we asked him, you know, why are we taking the side of the companies all these years when you could have been really hoping the regulator do it job? he said, i felt like there was becoming an adversarial relationship they appeared with that, but that's what it's

supposed to be. we are not supposed to be friends and colleagues here. they are supposed to be overseeing. >> now, if i were to summarize the book in a sentence -- that doesn't mean you don't have to read it. [laughter] it would really be how fannie and freddie type of financial service industries to capture congress to recapture the regulator. the industry learned that lesson. with the fannie and freddie as an example, you have the direct your in 2002 of the future systemic risks posed by fannie and freddie and the white house asked for the resignation within 24 hours now. you had the regulator after an accounting scandal that it didn't do because frankly my mind there is a captured examiner who was in charge. in the aftermath of that

accounting scandal, the regulator started doing an investigation and a senator called the hood inspector general to try and stay me that. there was most of the finish of regulators and i'm not using the behavior, it's just a reality that they don't want us to regulate. what are we going to do? that was co-mingled with the steelers people do it in their self-interest and none of these companies will intentionally turn themselves off the cliff, so we'll just trust them to do the right being. >> thank you. >> in the spring of 2008 i tied an and math and finance, where we did duration of a gun which measures interest rate risk, formula for pricing options,

kabbalistic pricing models, value at risk and high evaluation of risk. thank god the course ended in may of 2008 before lehman brothers to bankrupt. not a single thing i taught wasn't violated by the nature people running these institutions. let me just make one comment and then a question. the course announcement was posted on the website at gw in december of 07. this is an undergraduate course. i was amazed i got letters from three staffers said the federal reserve who attempt this undergraduate course. i couldn't believe it because there's no way they could get an mba degree so clearly they knew something was during their period for looking at your book,

i look at references to goldman sachs. by now most every shady deal that has been exposed, for example, they've ripped off to david. that is read "the wall street journal," which a colleague of mine made a joke that if we could get a major investment banks in china and russia and japan, we could cut our defense budget by $500 billion figure because there's not a single economy in the world they couldn't bring to its knees in five years. but my question was goldman sachs is this: given its deals, like the advocates deal, why would anyone in his right mind take the opposite side of a trade was goldman sachs? i mean, according to classical free-market economics, if a person is a shady banker or something, people stop doing

business with them. and yet there they are, bigger and better than ever. >> that only holds where there is a real free market, where there is an assumption that there is an informational or i should say an asymmetry of information between buyer and seller. you're always going to side with the one that you know has the asymmetry in their favor. i think that really is a piece of what's going in the crisis, which there is an understanding that there are those who are always in the know, always given advance information, access of the levels of government ripping of the outcomes that are before the questions have been publicly posed. and so, you are right. they closed system that was free-market, you're right, it would take the other side. i'm sorry, and a free market, you may take the other side because everyone can't be read on the time. i think there's been a free-market operating here. there is an assumption and understanding that it is not working fairly.

so right now, you are right. all i think you're saying is this is corporate cronyism and we haven't done anything to address that. >> your own books mention goldman sachs was responsible for managing the earnings of fannie mae and they were involved in the structured finance deals that always benefited goldman sachs and no one else. and that's fine. but now, why are they still in business? >> you know, it's also -- i always feel uncomfortable with that question only because their goldman sachs questions because unfortunately focusing so close and goldman sachs actually helps us to forget that very number of other to two shins that are equally culpable, but i find equally to big intertwined in

danger is frankly for good. and we're not really addressing those, nor by the way are we really even doing much digging into what goes on or has gone on or what they're involved with because there is a favorite whipping point. >> he's not defending goldman sachs. just so you know that. >> what effect, if any, did repealing glass-steagall house on the crisis? >> just a tiny little bit. [laughter] well, glass-steagall of course was the depression era law that served us very well for 66 years i think i was. of course, they were big financial institutions chipping away at it for years, finally succeeded with the help of robert rubin to annihilate it altogether in 1999. and there is a picture in the

book of designing of grant leach bliley, which was the repeal of state colin is smiling and line feed and greenspan is there laughing on its olympic lovefest. and he really was the beginning of the end. there is a wonderful picture of president roosevelt singing glass-steagall into the thing nobody is smiling. everybody looks very grim and it's a deep, dark depression. we don't have that when the book, but putting that together with with such an interesting text of the vision. it absolutely had everything to do with the crisis. it allowed wall street firms to vertically integrate, to expand operations. it was part of this idea again that josh mentioned earlier that allowed them to take even more risks within this guided notion

that they would never risk the bank because they were too smart to do that. and also fed into the regulatory view that regulation wasn't necessary, that regulation was an evil that bankers could be relied upon to do the right thing, could be relied upon to come up with their own capital ratios, to determine those kinds of things themselves. so it was a real sea change a thing. but it had been degraded over a period of years. it had everything to do with it and unfortunately it's very difficult to put the genie back in the bottle. >> i think gretchen is spot on. it also created this opportunity, frankly, for the banks to compete with the gses when it came to the world. fannie and freddie at a

regulatory perspective, the mortgage bank security had very low risk and we saw the basel committee to review that the gses mortgage-backed securities should be a lower risk at the behest of the banks and lobbying. and once they did in office said the notion was all mortgage-backed securities with equal ratings should have the same readings coming to see the banks that had branches become very aggressive in pushing mortgages through their own pipeline. but investment had to figure out another angle. and i was vertically integrating in many cases. and buying servicing and starting to build all of the information, including the relationships which we haven't talked about with the insurers, which are again part of the crisis of the private mortgage

insurers who are integral and essential to the crisis. and part of the supermarket that was intended with the repeal of glass-steagall. >> this is such a rich topic, no pun intended. i don't know where to start. so you personally really don't believe this is so much a financial crisis we are in as it is a cultural crisis and i think we're all culpable because nobody has asked for any heads up in this. we are also willing to go around and have wall street tell us this is just a normal business cycle. this could happen again, folks. no question about it. what you describe is not capitalism. its economic tierney. we are all the ones of that. i appreciate you writing about. i wish you'd also like it some other topics about people who

have put a lot of their money. i wish you would write a book about deportation of these people. let them live in sweden, but don't use my library is, my public schools. over your money is going. >> well come you don't read my e-mails because there's so many people looking for heads on spikes every day. so there are a lot of people who on your wavelength absolutely. i think there is a sense and a colleague and i have been writing articles about why there is no prosecution. it's a very interesting question why the dog didn't bark. very hard to come up with the authoritative answer. one of the answers i did get when you compare this crisis to the s&l crisis, in which 800

some executives went to jail for a crisis that was far smaller in number and losses, pain and agony endured by people, were you at actual ceos going to jail. you know, we found one of the key reasons that this occurred is because regulators in the years when things were good and you're slinging that to the media and in the media were not doing their job reining in the practices, taking names, doing investigations so when the bubble burst, the confirmation to bring cases. so again, it's this regulatory capture not only had the initial problem of failing to rein in really perverse practices, it then had the secondary impact of contributing to this notion that it was nobody's fault. we can't bring a case, therefore

luscious although quite and forget this ever happened. so i hear your pain, i feel european. i think we are trying to get the bottom of it, that's a very complex issue. i also think it's a social question. i agree with you. >> and actually we both agree. i think that's what drove us to agree to read the book together is that this is a cultural issue. the heads on spikes would serve some value, but it still doesn't address to my mind the more fundamental problem. and that is one way or still living those people in power in charge of redefining the system going forward and forgetting the fact that to my mind the largest impact of this crisis has not yet felt. the largest impact of this crisis is going to be felt over the next 19 years as the largest

generation in american history retires with less equity in one to six toric within a largest retirement and interracial halts transfer. as we end up with a failure to fix the system, to incentive pay down and does growth of personal savings. and that becomes a real piece of this coming crisis because it is going to have been likely at the time that her u.s. treasury is forced to accept austerity and cuts in the social safety net. >> elaborating something on you touched on. the one that can attribute the utter passivity of the department of justice, which continues to the present day. i ask that as a former federal prosecutor. i could write an indictment in these cases just just a luddite read in the newspapers in 30 minutes.

convicting these people would be like shooting fish in a barrel. >> it is the politicization frankly. it is the politicization of the department of justice, the attorney general's offices, the lack of independence of the regional offices to bring cases. it is frankly on the other side of this political pressure that comes from the notion that we've unfortunately had to turn to liquid. i don't agree that we've had to, but we have to. if you do anything like that, to risk destabilizing the very same institutions we spent so much of her trying to make look like they are solvent. >> i want to know what is happening. >> well, it's hard to draw any other conclusion honestly. i'm not a part of these e-mails going back and forth. but it is difficult to draw any

other conclusion that a debacle this large, creating this much pain and trillions and losses, that was nobody's fault and there wasn't a crime committed. it's very difficult. you have to suspend your difficult for far too hot to trot that conclusion. so again come i think it is an appetite to prosecute that isn't there. there is a fear factor losing the case. they say these are complex cases from the paper cases. you don't have a big was dead on the ground. there are many, many excuses given. i buy none of them. >> there's also been a real investigations. that's the problem. the regulatory investigations height not go on to really find the culprit and when you take it a case, such as the ones against subs angelo mozilo, e-mails and

which is privately saying that these funds are poisoned, toxic. at the same time, publicly crowing about how good his company is doing, financially sound and providing the best loan for other customers. and selling stocks. that seems to me to be a layout, but i'm not a prosecutor, so unfortunately -- >> put the senate in the mayor for life on the basis. i can understand why that hasn't been done. >> going to make sure all those in my book a chance to make their point and asked their questions. so we are going to end with the last woman in line. >> no point. just a question or two. i glass-steagall question i'd ask him as i am left with what do you think of the dodd-frank

response to this crisis. and any heroes? >> dodd-frank in my view really mess with the big one which is too big to fail, did nothing about cutting down these institutions to a manageable size that does not imperil the taxpayers. that is the key failing in dodd-frank. it has left hundreds of rows to be made by regulators and therefore providing a second manipulation possibility for the industry. so they got their first chance when they were talking about the legislation, writing the legislation to manipulate. now they can manipulate regulators. >> is it any better than nothing? >> there are parts that are fine, better. the 3000 page live, glass-steagall has 32 pages.

3000 pages is way overdone and not affect goods on the crucial issue into big to fail. >> not to take much longer i'm not, i agree with gretchen. you know, why couldn't you have just added one paragraph that essentially said, any institution that has to rely an extraordinary government asset purchases, debt guarantees them within 60 days at the window will have officers moved at the earliest convenience in part for employment or consultants or otherwise for a period of five years. if you did that, these companies could either choose to shrink themselves to the point that he can manage risk or spend money on increasing risk management to what they were ameliorated on those concerns. we didn't want to do that. legislators did a great job of doing everything but legislating because they did, as gretchen said, left everything to

regulators to define. >> we have some heroes. they were supposed to the cbo, congressional budget office. we had a wonderful thing at what they up in 195 as a part of the congress that in 92, which was the safety and soundness act that created a new regulator for fannie freddie, treasury, gao and cbo. cbo took a job job of analyzing how rich the subsidy was from the government that fannie mae received. there were visited by fannie mae executives. june o'neill was that he cbo at the time that like they were being visited by the mafia. she was pressured to try to water it down, not to produce a report that is very explicit but how much they guarantee was worth to the company and how at all costs they had to protect it. so we have cbo people who are

standing up against the pressure from fannie mae. there were other people who saw what was coming. people in the georgia area were first to wave the flag and call it the rating agencies for inserting themselves in a process, where georgia had the most, toughest predatory lending law and the country, but the ratings agencies what him and said will not rate any securities that contain georgia loans. and so the predatory lending law has to be guided because the ratings agencies said they would not rate those funds. with people on the way jumping up and down. so there are some heroes in the book i'm glad to say. >> thank you. >> you make a very strong case for the central role of housing policy and behavior at gses as

factors in the buildup to the crisis. but i've never been able to understand how a housing policy leaves private investment banks to go bankrupt. it seems to me when bair and the men went bankrupt, it seemed like there was a lot of mere incompetence or possibly malfeasance in the behavior of those institutions and many others that contributed to the failure of those institutions. if enough obvious causal connection for the housing policies to the states and investment banks. i wonder which are theories of state says. >> bear stearns has a major player in the fact that the leverage these firms are allowed to take on, which is something that henry paulson importuned the sec to allow us to increase the average these firms take on

their books. that really let them down the path to perdition because only a small loss was magnified by leverages they had. there was a tremendous amount of profitability and risk-taking related to mortgages on wall street. look at countrywide, bank of america. it is in trouble now because of its lending practices. >> you also have to remember the mortgage-backed security, the residential mortgage with the lowest risk asset from a capital good. and that is a big pizza by the banks went headfirst into this, why they leveraged it, why you took mortgage backed securities and when he didn't have natural buyers for them come you took them as tranches and bundled them into more leveraged instruments and then multiplied that further and further. when you look in the e-mail files of the financial crisis

inquiry system, one of the things defined as there were other institutions that would have gone down because they retain the risk which is one of my biggest problems with dodd-frank is you have the risk retention rule that says we should have these retain risk on the notion that if they have to drink the poison, they won't feed it to others. but the reality is the institutions didn't realize what they were serving up with poison. so what you saw was in 2007, you saw an e-mail files, institutions bear was ignoring it, merrill, stan o'neal didn't release the exposures he had until he was in hot water. work goldman in deutsche and others who had problems were quickly trying to offload what they had as remaining risk as quickly as they could. so those instruments, the murkiness, leverage, non-transparency come and ability of regulators to look

into a cd out because they were qualified institutional buyers have the right to our very essential to the crisis. >> i think he explained that there were severe intentions, but you haven't explained why they yielded to those. after all, they play tonight money and they lost money. >> that line of argument is another of the same line of argument. the question is alan greenspan comments on this. can you trust the executives of these institutions to have the interest of the institutions of such a hard because it would appear in these episodes that the interest of the institutions might have been sacrificed by those of the executives. i think again you go back to the heads on pikes.

that phenomenon also deserves a lot of attention. >> agreed. >> hi, looking forward in thinking about the next election and i'm assuming the answer to this question is no, but what do you think is the possibility of there being some kind of discussion of housing policies going forward in the next election? it would seem like the obama plan and the plan the republicans are talking about are different. none of them are housing policies. >> no one is talking about housing policy. housing policy is that we need to do that with housing population. reggie versus owning. mobility to change social reality of demographics. do we need to change tax incentive structures to meet whatever we find this social policy goals are housing goals?

we went to the social policy transmitted through private corporations who will deliver subsidies on the governments balance sheet quakes that is a housing policy discussion. what we are having the same error discussion, which is a political discussion about to put a stake through the hearts of fannie and freddie and what to replace them with? that's not housing policy question. with any expectation that either of those that dictations were real substantive discussion of housing policy will be part of the election? probably not. so you're right. but even in terms of what do we do with the gses, there is a mass -- an understanding of those size does want to take that down the road until the next presidential election. >> don't forget we are in the depths of the housing crisis because foreclosures are still

massive. people are massively underwater in the live. there is a sense we can't do it this right now. >> although that's an opportunity to choose a catalyst for real housing policy and also the solution to the ongoing crisis to define what the housing policy can transmit or can change into and transform it. >> speaking of the ongoing crisis, i wanted to ask about the programs to help borrowers who are in trouble. my reason for this is personal knowledge index your hands with two mortgages. one is that mortgage my husband and i hold in washington, which is in the neighborhood for house prices are the same. we had plenty of equity. we are clearly not the first people who need to be helped by the government. nonetheless, last year alone servicer called us up one day instead because your mortgages

mortgages held by freddie mac, you qualify for this program. and within a week, we had a no appraisal, no cost, no documentation of income refinance at a lower rate. it was wonderful. i mean, it is the best refinance have ever done. >> you must know somebody in high places. >> the other mortgages that of my contractor who is hispanic, lives in alexandria is underwater, has arm originated by countrywide and now is serviced at least by bank of america. they do not expect to default, but he wanted to refinance into second mortgage to get a fixed-rate mortgage before rates go up.

they have been trying for a year now to get the paperwork for the hud program or bank of america. and they've gotten the runaround over and over and over. and then last week someone said everything is fine. you really going to get us unless habitat to mr. sanchez. mr. sanchez told him everything would be fine. my contractor said they were going to move heaven and earth. only the next day when mr. sanchez talks them into signing the document, it turned out mr. sanchez was, it is a sleazy lawyer who is getting them into a contract to spend something like $2500 to negotiate the mortgage -- refinance they've been trained to do with no guarantee of success. fortunately, there are savvy

enough and also my contractor talk to me and i'm a lawyer and i said you cancel now. but it seems to me my feeling is maybe freddie mac is trying to raise its figures and looks like it could get lots of people who need help by putting through mortgages like ours. and in the meantime, people like my contractor really should get help for these programs are getting the help they need. >> is certainly within the treasury program, the hand program has been an unmitigated disaster. from the very outset of his badly conceived. it really was almost the worst possible combination of people coming up with that idea of how to not tell people is really how it ended up working. bank of america, you know, again my e-mail box is filled with

stories for the visa paperwork. there just does not seem to be a real sense, either in the or or the public are to make a rational intelligent decision about who should be held and who should not be held. so i just think the government has been a woeful job. again i say said diaz said, and main street really got it in the neck and everybody else thought to wait with a lot of money. >> i also felt the experience with my contractor was a real failure of regulation because it is clear that someone at bank of america was actually in pollution with the sleazy lawyer in steering them on. and that seems to me to be really outrageous. >> i mean, unfortunately again we don't have a housing policy, and holistic housing system. not making excuses for whenever the affair, i don't buy the

basis in the background on your equity in your home. but the other side is, is freddie mac subsidizing not necessarily your case, some borrowers who won't ultimately be up to stay in their homes, getting them to pay cash in the house where they haven't done the appraisal, seaside, and income verification. that is in some sense back to the other practices. there's a difference on top of that between the two comparing apples to oranges. getting freddie or government karen t. to credit risk already. bank of america, the likelihood is your contractor's work is not even help a bank of america. it's called by a mortgage-backed full and investors have to be considered. the problem is bank of america is a servicer who owns the largest portfolio of home-equity lines. and so there is risk to them on

that, depending what they do on the first mortgage. so you are right that this is a problematic situation in the government isn't interested in dealing with it. one of the things they are not willing to do at this before you can have come in that example, treat cars have come in they need to be in conflict to end the relationship between the circuit lanes they hold their balance sheets in the first is a link to hold from people. >> first, thanks very much for writing about. as a couple questions. right now that's like fannie and freddie might be profitable in 2012 and 2013, setting aside 20% dividend midnight on the treasury. at that point, i ensure there would be pressure to bring conservatorship. but they have patented most of this mortgage business or they hold over 40 patents.

so did pat at the mortgage, everything from the mortgage process to securitization. they also own a lot of tech algae and information on every single homeowner in the country. i'm not sure those patents should have ever been granted, but i guess i am asking, do you think they'll be put in the public domain along with the information to technology? are we going back to business as usual clinics >> go ahead. i think i know the answer. so, there is this great divide right now in washington between those who were afraid if we take too long to address it, after the next presidential election, there is going to be a push because they are profitable, just to put them back out there, remember, public markets. everything's okay. we'll take them for deletion are the edge. then you have those same of

them. i'm actually not state. there is value to the franchises if there's great value in the patent portfolios and the information they have, which i think you could use if you could figure out a way to make not government-sponsored enterprises, but enterprises that were fully private. i think there's some value in not because there's value in the information. or you can offer to the entire market, opening a good debate right now is do we have seen and friday or do we have the mortgage banks as the next fannie and freddie? the question is, should either of those groups the mechanisms for social policy delivery or should they be nothing more than mortgage market structure, financial market intermediaries? you know, the likelihood is that

fannie and freddie will come out the other side it seems. now with the same names, not the same structure, but some of the franchise value will be retained. it's still unclear as to what i'm trained in what manner. >> thank you very much, greg ginn and josh for this marvelous evening. [applause] >> on a special weeknight edition of booktv. do notp/