>> defending derivatives is not easy these days. a bubble in securities whose value is to write than the mortgage payments precipitated the worst financial crisis at the great depression and the president spoke recently about how speculators buying and selling futures and oil, and other form of derivative are to blame for the skyrocketing gas prices. politicians love to blame speculators since people maleness of the profits being made without realizing the work that process are doing to help us all.

the spanish dictator, francisco franco allegedly executed great speculators by women for high food prices to this bloody strategy worked well in the short run. food prices does fall, but that the price signals to direct investment, a famine ensued when a drought came. this is one of the feel-good stories come in many of the few good stories and good derivatives the boat by dr. sander were here to talk about tonight. he's one of the architects of many of the financial derivatives used around the world today. the book, on failure at the back table, which i commend to you while is part memoir, part users manual and should be required reading for anyone interested in not only the future of derivatives markets, but how we can use markets to solve problems ranging from global warming to poverty to water shortages. dr. sandor became interested in markets when he was an economics professor at berkeley in the 1960s.

he went on to fame and fortune from being a professor in the president went on to be president from a professor, so sometimes a week and i think thinking about my version would be, but i think i'm just a been a professor. his hobby of buying and selling commodities futures led him to a position as a chief economist at chicago-based exchange, which turned into a year sabbatical turn into a very distinguished career. the characteristic of our guest is that when he sees a problem, he asks the following question. and that is, how can a market help solve this problem? whether it is raising interest rates, disruptions to play a plywood on certain grain prices, acid rain, carbon emissions on climate change, and his instinct is always to ask in the market solve this problem? he helped develop the market in sulfur dioxide that help dramatically reduce emissions that cause acid rain and more recently pioneered the chicago climate change which for a while was incredibly successful at

reducing u.s. carbon emission equal to an amount the size of an economy the size of france. one of the great things about capitalism is a lot of times the heroes are completely unknown to us. really people like dr. sandor operated largely obscure ways, but have a profound impact on the way we live our lives and i'm delighted to introduce in the next hour, sewers are sometimes you you can ask questions. so dr. sandor can we did this one time before and when my parents watch the video, my dad said to me, i really don't know what to read it sorry. this is a good introduction, but i thought we'd start there before we noted good derivatives, what is a derivative? >> a derivative is a financial

instrument whose value is determined by another financial instrument. so it is derived from. so for example, we futures are derivatives and the price of the futures is derived from what the price of wheat is. treasury bond futures. the actual treasury bonds themselves. when i used the words, i meant it to describe those things traded on organized exchanges for future delivery or optional delivery, based on an underlying instrument. >> when you say delivery, i have in my head a farmer. there's a tractor and iowa or

nebraska. i have a farmer who thinks to himself, i'm worried about the conditions in the future. i don't know if i'm going to be able to play at my fields and feed my family. so if prices fall dramatically, i'll be in bad shape. i don't really care about making sure there's profit appears today to sell a little bit about the possibility to rise to someone else. so they internally have a contract. maybe there's a big run the other side of the contract and and they walk in the price of flour and sometimes a steamy in chicago and how this transaction. that's not how these markets were. the products are delivered, are they? >> welcome and 99% of the times then not delivered. what i would think about calling them as a form of price insurance. so if you buy the insurance, that is he picks the price of

the crop your harvest six months from now, then the insurance policies work, just like when you buy insurance from a homecoming he don't eat a occur to know that you had insurance. so, delivery is just a way of ensuring the level of the prices that exist in the future are honest and fair prices. so you're right. it's not meant as a delivery market. it's meant to be price insurers for the farmer, the baker, insurance for the airlines like southwest and chatfield, price insurance for anyone who hatches a physical commodity on the producer side, copper buyers and sellers. and so the market works in that way. >> so as you mention insurance,

i can assure my car, my house, so something bad happens, i can collect on that. the insurance policy hopefully will make the indifferent to the outcome of that event. the two people in the audience can't fast out whether my house will catch on fire. there's been a tradition of thought required an insurable tradition. i had to had a stake in the thing. i was the owner and then i could insure it. i could bet on my own life, but to strangers, to people in china and europe did not bet on my life, but in delivery of products treated here in chicago doesn't have to be a farmer and a baker. it could be two people in china, to building your betting on the price of wheat. where do i tolerate that kind of your wager? it doesn't seem that much different than betting on whether i'll have another when

the belmont stakes. >> i think those of us in the business or as economists are as practitioners in the business define two different terms than hopefully the students and faculty in the audience will bear with me for a sec and. one of them is gambling. and in gambling, there is no risk until you've built the race track, until you build the casino. and futures markets, there is existing risk. soybeans go up or down whether or not there is a futures market. the question as, who bears the risk out what stage in the marketing process? so, the farmer may in fact what to hatches company plant to. but miller may want to buy the week when she's going to use the

wheat. so in between, the buyer and seller may have different time horizons and stands in the middle to bridge the gap, the timing gap that occurs between when a buyer wants to buy and when a seller wants to sell. sometimes they're close to simultaneously, but mostly in between, you need somebody to bridge that god so that the spread between the buyer and a seller is kept fair. what a minute that is think about a market like any other product. you want to see many buyers and many sellers so that you reduce the gap between the wholesale and retail price? the answer is most of us would like to be able to know that this competition were trying to buy some paint as many sellers

and can't currently, or if you are a seller you want to see many buyers, so you get a can negative price. whether that is true for washing machines or automobiles or any other product or bread, competition and the role of the merchant or speculator who is in between the buyer and seller performs a very important economic function and helps both the consumers and producers to get better prices. >> that seems right to me. so what you think explains -- that's going far afield of what she's written here. what do you think explains given what you've excited is an essential function for sort of lubricating capitalist markets? what you think explains the centuries-old hostility towards those people? the practices of speculation and

being a middleman were condemned in england cronbach is for us at 13th and 14th century. the market insiders were viewed as people could be trusted. they had deceitful motives and plotted misinformation. they were producing things that were economically valuable. i like to refer this in my classes has a pretty woman scenario. and the movie pretty woman, richard koester there is a financier and he keeps trying to take over come those ships and the at the heart of gold eventually you think explains the centuries-old hostilities in this will speculators and middlemen? >> i think partially because the field is arcane. everybody in the audience knows

who henry ford was. he's a household name. it's tangible. it's real. i think somebody a lot more important. anybody in this audience here, luca pacioli -- he wasn't in the godfather, okay, it didn't sleep the stitches, but i would say to this exemplifies one of the problems with derivatives. luca pacioli actually is called the father of accounting. so it gave her to the industrial revolution, something like the limited liability corporation, who invented that, who invented accounting, these things don't have a brand name to them. they are not sold to the public.

they tend to be wholesale and not retail so people don't know what they are. a lot of people in this audience probably know to pull rate is even though the company is still good knowledge of business and is now an out of date technology. but nobody really understands what is cmo is, a clo, and bs. products don't have definitive parents. they are generally not patented. they tend to be wholesale and not retail. i think there is a better job that can be done by those of us in the academic world. the prius, the government to expand the role of finance and i think a perfect example is less anyone and it's not simply

should be concerned with, let's take a look at japan in the late 80s. the stock market was close to 40,000. it's now 12,000. it's been 23 years since the bubble was burst and i think now pretty well recognized that among people ought to know that they didn't develop a financial economy, but their banking system was flawed. pacheco know it until after a crisis. my clarion call him mr. the students, faculty, members of the business community here, the role of the financial economy is very important and facilitates the production and distribution of real products and services. and can anybody imagine a country working without a

checking account without commercial banks? and the process is arcane and we don't pay enough attention to it. >> see much in the industrial revolution on the road the double entry bookkeeping and such. >> when i read your book it is a statement about there is value. there's an important value in a world that lot of people don't understand the kind of behind the curtain, gears and machinery of how capitalism functioned. and i wanted to ask you about this sort of political rhetoric today. , vast, deirdre mccloskey would've to call pushrod. lucia dignity and essential claim in her book is asked the question, what is it about northern europe specifically,

the conditions in holland and england is or despond the industrial revolution? her claim is if it works that there was a real profound change about merchants, innovators, and middlemen and they were given a privileged position in society, the rhetoric used around them looks up to them. there's also a parallel in the late 1970s, when deng xiaoping famously said to get rich is glorious. that one statement moves people to thing, well, kind of rhetoric has changed her but we thought was good is no longer good. where allowed, unleashed and able to go in these different object is. >> what do you think of the thesis about the rhetoric of business and the people you describe in your book at what do you make of the national dialogue today is being capitalism in the news, the 1%

in the news, business and not held high esteem? what do you make of that? >> i do think it's a lot of rhetoric. i think you're right. in 1605 when the dutch east india company was formed and the limited liability corporation was invented, people understood if you wanted to buy silk and spices from the far east, the partnership was not a good form of business to do it. people wyatt earp transferable ownership and limited liability. and so -- [inaudible] is understood that there was a need and consumers wanted still,

one of spices, needed salt to preserve food that the stock exchange at the time and limited liability come any, were ownership could be transferred all this is great great value. i begin a complex economy there's always have it done in speculation as he charged world unto itself. i think we have a lot of challenges and social problem and as you said we point out in the vote, franco had a good way to do it, just kill the speculators, right? al-assad the problem. so we set up a speculator. it's an easy person to blame. the private sector where with income exaggerations are people

getting paid what they don't perform may not step in the breach. the political system. many politicians who have accepted the breach. they don't want to be accused of it proceeded to public during the year can easily focus attention on this demon. the risk-taking is important. i mean, what motivates venture capitalism and this is not a defensive sane or not a defensive game, but just take a look at the united states in the last 40 years. in 1970 years since then have a roughly in 30 years, we created 66 million new jobs in them. i don't know who would imagine that of those 66 million, 9 million were from new

companies. alternatively, minus 3 million from the fortune top 500 companies. so, you know, as microsoft went public in 86, -- sorry for this microphone. the united states contributed to the small companies. many small companies get their capital from venture capitalists. that is the same phenomenon but i think we miss. people in the venture business that finance the googles for the steve jobs or the apple is basically a because steve jobs doesn't want to take the financial risk. if the entity product design

risk, but he wants to take the financial risk. so while it's easy to say these people made a lot of money, but would you want a society that didn't encourage iphone sync google and mri and health care for the innovation in new business are coming from quiet and so we have to be very careful because somebody is a risk taker -- [inaudible] -- with money or say risk taker taken the risk away from farmer jones in most instances perform a really valuable function. it's really funny because the risktakers today are uncomfortable globe in the last

end up the risktakers in china celebrated the risktakers in india are celebrated. the risktakers in brazil are celebrated. the risktakers in korea allotted. ps mom wants to encourage more risktakers. indonesia wants more risktakers. they are all building more changes and they're trying to develop the country. so those of us in the western world with declining economies can have real high unemployment rates suffering middle classes are turning against mark s. -- marquette, building economies, providing jobs, housing for for celebrating the risktakers. so the poor countries like and

the western countries don't. and i think because it's strong then it easy to blame the professional people who assume risk and that becomes something that's criticized during tough times. >> i just want to go back one thing about the difference between speculation and these kinds of marcus spears of the commodities future trading commission for the cftc, which is a primer regulator for commodities and delivered it recently denied a company that wanted to open in exchange for trading on political derivatives. so this would be a contract that said, if barack obama wins the presidency in november 2012, this contract would pay 1 dollar. and if he doesn't win, then the contract pays $0. then we often start by buying

inside these contracts. some people might do it just because it's fun to bet on the presidency. they may give you an incentive to collect information and be informed and there's other people who might think that who wins the presidency can have a profound impact on their business. president obama has had put forward his version of health care reform. governor romney has said he would repeal it. it's always a health insurance company or because but i might say the outcome of the election would have a big impact cycad hedge those. the cftc said we won't allow the market because we think it's a speculation. to think they made the right call? >> i do in this case. i think they're certain things you don't want to put a price on mike terrorist tom, you know, and people of type about futures markets. >> arafat got in trouble.

>> the department of defense and a lot of us send a private set or said slow down, guys. there are certain things like who our elected leaders are, terrorist events that i think are better. >> re: what about manipulation or modification? what is your concern? >> i'm concerned people get biased and self-fulfilling prophecies. if you are marketing terrorism may be a combat on terrorism and create a self-fulfilling prophecy. and so, i really worry about those kinds of things that should remain sacrosanct that our leadership in things like that. i don't worry about manipulation and things like that if there was properly regulated. i worry about it becoming a self-fulfilling prophecy. alternative is so very different

than the kinds of things we hear today. we talk about good derivatives. >> what you mean by good derivatives? >> what is a good derivatives? >> what is a good derivatives from something that provides a risk transfer function that allows for somebody to cheaply transfer risk that they don't want to have too somebody who is a professional risk taker virtue somebody who also want to minimize risk. so the farmer. that's a good derivatives. the jet fuel hedging is sacred a good derivatives. the bank -- a centrist great risk. and what they share in common is they are traded on the regulated racket. they are transparent. they provide a risk transfer

function and most importantly, they provide open pree says vespers entrepreneurs or people to change their behaviors. so a farmer that folks that corn and soybean futures without doing anything and get a better future price than soybeans does. an individual sees the price of carbon might say what to invest in renewable energy and now i know if windmills produce the specialist carbon emissions, then i know the value of what a renewable energy is in terms of its effect on the environment. so we have good derivatives spring inventors, having people change planting decisions,

mining decisions, manufacturing decisions and then we have what i would have that derivatives. when they give you an example of something like that. and one which was so transparent and one that is incorrectly priced. if you look at greece in 2007, it costs 27 basis points to buy price insurance against the default on their debt. in spite of the fact -- in spite of the fact, greece defaulted every two years from 1828 to the present. so they had a 50% chance of default theme and it was costing one quarter of 1% to insurance. now that's okay because you could say those people who

insure against christina katrina have to rates, but the fact is the insurance companies paid off in katrina. they didn't run. but in the fact those degrees collateralized defaults were no margins. but in fact, greece fell deeper and deeper into problems. no one was making sure that the people who bought the insurance had enough of the financial guarantee to make any sense. so the bad ones are those that are not transparent, not centrally clear, no financial guarantee is with them and they are done in the dark as opposed to a transparent market. >> yeah, it bears repeating what she said that there are two really interesting things here.

i thought one is the idea that people who are participants in a market can get a signal from a price in a derivatives market like a farmer. and they don't have to imagine the value of soybeans are but they could be used for about the end-users are going to do with the soybeans or make industrial products or events or turn them into something else. all that snow is plant soybeans or tobacco or read is look at the prices and the prices will write a simple way of conveying all of that particular commodities to the farmer as opposed to trying to discern from the narrative that is what someone is worth and what the value is. the other thing is interesting is that prices they will change at cavities come as the high prices and the best care at low prices when the -- and prices

are high the spur investment. all of a sudden sentra prices are high and then there should be more production that comes to line a prices should come down. >> i think there's another corollary here, which is very important. i want to go back to the metaphor that we're talking about earlier and then maybe talk a little bit about something about were the worlds going in in the next 40 years so maybe the students here might be a would've figure out what might be interesting careers of a little bit about how you formed market. but our response tends to be one of regulate more. and we've lost with the artist, economy lines. picasso was right because he could conjure up an image with four or five strokes. >> economy of what?

>> lines. >> so a great visual artists can draw four, five for seven and evokes a great feeling. most artists can do the same name. the constitution and its founders had great economy of lines. as the enabling document for this great social experiment known as america seeks pages. even the federal reserve has only 50 pages. even the commodity futures trading commission not was only 150 pages. dodd-frank, which attempts to regulate commercial bank is over 2000 pages. is longer than the new testament, the koran and the old testament. that doesn't just strike you peculiarly that the great religions of the world can run on moral precepts and last words

than a current regulatory reform bill. this certainly doesn't have economy of line and i think that's really very important. i certainly don't think i'm off to shanghai saturday and talk about some of the exchanges have their, commodity exchanges and financial futures. they have tremendous ventures in the financial futures, what they're getting the united states from the chinese are interested in expanding. they are also interesting in expanding on environmental things to deal with global warming. the united states to get rid of it. we have no interest in the climate change. yet china will have seven separate market in the next year or two. india will have three.

brazil will have on. three weeks ago the korean parliament by a margin of 98% approved market-based solution to global warming and two weeks ago the people's republic of vietnam floated a trial balloon for cap-and-trade and yet we don't look at those things. and it's very, very disconcerting to see that happening. so we seek a complex regulatory solution as opposed to a tool that's been in existence 1605 and the dutch east india company send a team come in that century, worked for japan and osaka's 1697, worked for interest rates in 1970, worked for acid rain in 1990. and yet, our legislators don't

think this is necessarily a valuable tool. and it's not because they're not smarter goodhearted. the system is just broken. >> so there's two things there. the first one which is about the growth of legislation and complexity of legislation had to take that person will come back to the environmental thing. i am surprised that you were surprised because there is this thing, the government. there is the business of government and its those rules and loopholes. that is what it sells. and it is the most successful business in the united states of america. seven of the tenor suburbs of washington d.c. so what is the most successful business. and the people who inhabit washington d.c., the politicians, lobbyists, interest groups figured this out. it's an easy way to make money

as regulations, the more complex the better because the console loopholes and ways to get around them. i'm surprised you were surprised at this thing has grown. i agree with you idealistically. i would like a little bit economy of line, but it seems inevitable. if you have a world in which the people, that's us, the voters tolerate people in washington writing very complex rules and solid exceptions to that two people who have money just seems naturally. >> i will leave it to you. the lawyers and the political scientist which i like to call my joan to decide why is this way. i have been working on legislation for 40 years started in the 70s. i worked on the bill and redefined the commodity is something intangible, which allowed stock index futures, interest rate futures,

environmental futures also asked this. boy, it was so much easier. you were into washington d.c., you want to see senator herman komen, head of the act committee. talked called him up as a professor. he got on the phone himself. it worked. i worked on the aedes on the tax treatment of features, as instrument. i worked in the clean air act in 1990. i've just never been the system. i don't know why and i'm an economist, so again i'll leave it to others. i am surprised how it dramatically as changed in the last decade and the kind of model. i am stunned. i don't know if students know here, but i know what todd is saying is very interesting

because you may all be surprised to know that washington d.c.'s metro area must pass silicon valley is the highest per capita income in america. that's a pretty amazing area for a time that produces rules versus apple and iphone. and i am just surprised at the the the highest per capita income, $84,000 per person and washington d.c., higher than silicon valley. so i don't know why, but i don't think it's good. >> so with talk about the environment. take us through and i think be instructive here is a segue the environment about the sulfur dioxide markets and how that would be create a market out of

nothing and will talk about carbon and why it hasn't worked as well. >> let me talk a little bit about software that will talk a little bit about the environment and then i still do want to share your where i think the next 40 years go and where the opportunities particularly because i'm in the audience and they see the young faces. what should i be looking for is the next interesting environmental problem client sulfur was building up as a big problem in the 80s and 90s. a lot of you probably don't remember that acid rain was something that michael douglas made a piece about called lack rain. people worried about it. it was going to defoliate the northeast. it was going to be totally problematical. i'm basically a few plants,

power plants in the midwest burn coal. sulfur was admitted into the atmosphere to combine with oxygen to form a search to. i went a combined with clouds, it created an acid. and when it rained, the acid defoliated the trees, ruined the rivers and killed thousands of people because of lung disease. somebody came to me and it's interesting because you think it follows a very simple process, a seven stage process. you have a structural change. how do you figure out what's going to a marriage in your lifetime? there's some big structural transformational event. in this case, it was the buildup of acid rain as a problem. after you get a transformational

of bands, you basically need to standardize the commodity and you have to get that. and in this case, standardized was the amount of times sulfur was admitted based on the amount of coal that she burned. so it was a ton of us are too. >> easy to make it into a commodity. >> were going to define yellow corn member to assist generic product and everything will be -- >> and i were going to talk about the amount of sulfur per unit of energy camino, consumed or produced piercingly make it a commodity. then, we don't trade soybeans or corn or bonds. retrieve evidences of ownership, lakers soybeans warehouse receipt for corn warehouse

receipt for something of that nature. so you need evidence of ownership and that was created by the clean air act of 1990, where utilities were given the right to emit. i'm not all comes out of professor bonnell grosses were, who as you know, wrote the foreword to the book. it was ingenious for treating or urging between two people could lead to an out to mom social solution. then after that, it gets traded between people, which have and after the clean air act of 1990 family participated environmental products, predecessor did the first registered trade, which we brought the right to emit as

those two friendly utility because it is installing soap was simply a trade. it was financed in that we dared. >> so i think this makes sense twomey, the relatives layperson, that if the government tells me is the right to emit 100 units of this commodity do you define, academic 100 tons piercer of a piece of paper that size, this is 100 times of my rights to emit. and i figure a way to reduce the emissions to zero. install some technology, whatever it is. i sequestered carbon offset i cannot have this piece of paper and can't even say i am not smarter -- i am smarter than you. you are not so smart. why these rights to emit 100 units for me. you'll pay me for it and now way we can establish a market price.

>> and it's really interesting because it may sound complex to you, but let me bring it down to the teacher and glen falls, new york, who is describing to the class a one-year mission to figure out how i'm five co2 emissions, acid rain could be opened and needed. and the teacher decided, okay, everybody in this room could have the right to chew gum in class for two hours a day. and if one particular student at didn't want to chew it all, they could sell the chewing gum right to another student and thereby they were incentivized. and that's cancers may be the student didn't have a good lunch, they didn't feel the need

to chew longer, so they installed the tech don't shoot at her lunch and that stopped the craving for brown. and each time the student lowered the number of hours that they could chew and trading got three very, very good solution because they want to chew a lot. we are satisfied and the incentives were put in the hands of those students they could. ..

>> i was asked to come down to rio day shapiro 1992 to see if we could extend emissions trading to car been to deal with global warming. i wrote a paper on it. i was challenged but it just like the stockholm syndrome your captured comment kidnapped and then you fall of of with them i fell in

love with the environmental objectives i started off as the economist trying to solve problems. i thought we could get companies to volunteer to reduce emissions. i was accustomed to get less than a pleasing welcome with interest-rate futures and hedging i would is thrown out of every bank in new york. they said it was a stupid idea. this was not any thing to do to manage interest-rate risk. that kind of abuse got used

to advocating the idea is that were not necessarily popular. slow to take on a private contract to reduce emissions without the government monopoly i thought there were ample reasons. and we were greeted with the same sort of thing. who will cut their emissions? without being forced? the acid rain program taught me the captain trade model in 2010 with a $125 billion

to reduce medical expenses or sulfur dioxide. you could sir tens of thousands of lives so i have that to going for me. assets fell by vendors good the challenges of the unpopular idea and i was convinced from the paper that the professor wrote to that points out historical a that these sorts of social problems could be solved

initially without the government. because it was the for-profit entity. everyboby said it could not be done. they produced 700 million tons of the missions. of the dow jones, fortune 500 companies, a 25% of the power generators, of board, a dupont, united technologies, honeywell, saf eway, until, reliant, a group of companies that made it collectively 700 million tons of carbon

all without the force of law not only to the 6% accumulated reduction but 11%. it to work to. >> let me be the black cloud. this is important as third general lesson. the book is filled with chillier out a failure. a dead ball less than this. >> that is the failure. with the political winds change so that these

companies agreed to participate pretty much disappeared. i guess is what motivated the volunteerism? i think it was good for business. you can buy fair trade coffee at starbucks lots of companies trump they do voluntarily also day anticipated and then to build the infrastructure and

how to learn the financial engineering part. and then to get ahead of the curve because when they pass out the annette reed could lobby to get more than what we need and sell the rest for profit. >> is a combination of. they were in the health care business not worried about north lourdes those may come from a warmer plan that.

they wanted to be a part of it. with the chicago exchange with the following then you are on the big new. if you are part of the problem you better be there. they acted like it was the right thing to do. ford thought it was good for competitive reasons, they have to apply it and if they learned how to do it in dearborn michigan and they could do with manufacturing plants.

just like ibm and intel with those chips that were not as potent to get the same result to lower emissions and make profits. and we all felt they wanted to participate because of the reason. >> also wondering why they did nazis on that. but then to read the book to just take a minute i went

through the steps of how markets develop. what you look for the science of some transformation old changer opportunity? sort i'd like federal express to be exacerbated and the solution is your competitor is a governmental entity. that is a sign the business will be good. ups and all private delivery companies. the world is changing and

your competition does not have the same incentives. >> just like acid rain with proven jabbed and china that, water is a scarce resource. and with the price that cause people not to waste water go into the desert to take a recreation most shower. and it is the scarce resource. >> a little bit of knowledge

of western united states is by politics. water commissioner sit-down and dicker about how much water they can take from the colorado river. nobody owns that. we end of with the tragedy of the common problem and tried to allocate to maybe there is a better way. >> that is another area that there are clearly problems is the cost of medical care. you can have a country like the this state's or any country where it is no

better than somebody spending 50%. maybe it comes out of new products, financial instruments, and to the end fortunately outside the united states. and in those great countries that are growing or the absorbing markets. and to be a trendsetter whether the iphone were gold and people go there and california with the start of

car been trading, if it works, renewable energy wind power or solar power it is a nervous opportunity. look for externalities' or failed government policy step bid and learn an important lesson that there is a way for the externalities' to do good and do well. not necessarily a contradictory. it is okay to do gloriously. it is not a bad day in. financial incentives are

very worthwhile goals. >> another great story in the book is about helping the indian family is helping them dramatically improve their lives so the young with bit can go to school. it is possible because of financial trading of methane guest at dr. richard sandor helped to innovate. it is not just platitudes. if you would like to ask a question, step up to the microphone. tell us your affiliation. >>

>> in the book talk about the derivatives industry which is a tremendous bull market. the volcker rule, speculation in oil or food products. there is new exchanges and new products. going forward is it still pay good business or the third year bull market is

over? >> that is a great question. nothing has grown in the less -- last 40 years and 18% compound did growth rate. is a good bets -- business to get into. that is the growth. behalf to find contracts with intellectual property. is of a good business to get into.

if you will be part of a new product. whether bettis said zero were water there is big opportunities. >> i believe the american exceptional lonesome and madoff did have a crisis at the japanese word taking over just-in-time manufacturing we would be owned by the japanese. we got our act together. if you listen to what is in the book then we could be the leaders.

we need to listen but we don't take the current situation is the predictor. >> it is an important lesson. i don't know anybody made a lot of money by shorting ingenuity. also with mankind's ability to advent. sometimes you have to think out of the box. if you skate or play hockey use gate to where the puck will be. not where it has been.

>> what about investors not taking the long term time horizon? about those companies that have zero revenue and expect them to the profitable in the future. how would private equity firms find educational institutions? but then to create enterprises that do a better job but eventually lead to legislature's up having to pass scholarship or approach your programs.

-- about to programs that it could take time to get their return. >> the question is this the quarterly earnings report, is that the bad thing? there are 10 questions. let me quickly address a couple. there are short-term requirements both with politicians and public corporations that don't necessarily serve the public interest. for example, ases six years senator or the to your representative the election

cycle is the probability of an earthquake. you may not act in the best interest of 50 years if the election is every two years or six years. there is the contradiction. you have quarterly earnings and you may not be interested to develop something over 10 years because the investors ask if you hit to earnings by 1 penny and stock prices rise or fall. there is imperfections in both markets because of that objective that arises. that is the problem.

and now to stop it in the political realm another way to stop it is to privatize public rather them private to deal with investors. it is important in both cases people think of the implications but the economists fed is the corporate form disappearing to satisfy the investors and that maybe more companies become private? >> i am the second year of undergraduate student.

mr. henderson end talks about getting water from rivers. so should they decide what is the correct amount of water? >> this is a great question. when you talk about capping trade a crucial component is how much debt is each person get? not like we pass out per capita. so to pass out the carbon permit this so who decides and how do we insure that process is right? mexia the process privatized to distribute resources was

not fair or efficient to. >> two areas. is there a way to measure a level of pollution? in the case of so two kidding into what was socially optimum if you ask people in a carbon market basically they tell you the particles in the atmosphere where global warming becomes irreversible. you cannot said the

objective for what the emission level must be. with water, we have to ensure we have certain amounts for agriculture, personal use, the average person needs 30 gallons per day for hydration. you should price everything over that to make sure the vocal social impact is priced accordingly. each objective can be measured. with the cap-and-trade system you can do that. second, who gets the rights? what we have learned is if

we face some kind of history, it failed to pass the legislature when the government says let's raise 650 billion from the sale and put it on the objective. my feeling is very strong. with your priest or your ministers with your rabbis rabbis, you should take up the issues of morley what is right to or wrong. i do believe we failed to get our captain trade bill because refocus too much on

things other than the objective of the cap-and-trade the gestation to reduce emissions of co2. once we view it as a way to punish or raise revenue the legislation that nobody wanted to vote for. >> and for the generals that came and to talk about the successes to say when i said take vienna, i meant the end at.