[inaudible conversations] >> stephen moore, co-author of "return to prosperity" and robert frank, author of "the darwin economy," debate the merits of wall street. a jury includes steve forbes, peter schiff and whole foods co-founder john mackey. this event from freedomfest in las vegas, an annual libertarian conference, is about an hour, ten minutes. [applause] >> well, thank you. >> hi, everybody. you ready for some wall street on trial excitement? 'cuz i got the gavel s and i'm either pounding chicken or this court now comes to order! that's right. [laughter] ladies and gentlemen, members of the jury, the diverse jury -- very good to see you, wonderful to be here -- we're gathered in

the great sovereign state of nevada to decide the fate of wall street as an american institution. in this hearing we hope to discover if on-net balance wall street as a financial institution is worthy of praise and respect by the general public and the taxpayers of this great nation, or should it be consigned to the dust bin of history as a relic of capitalism investment banks, brokerage firms, hedge funds, money managers and the financial service industry, does it serve the public interest, or is it a nuisance that does more harm than good and, therefore, should it be punished and severely regulated and taxed and perhaps even nationalized? in the past year, we have seen spontaneous, smelly protests occur in new york and other major cities under the general banner occupy wall street. now, before this court the prosecution will attempt to show

that in sympathy with these protesters wall street has tragically shifted from being a valued, respected and vital source of capital investment and entrepreneur ip to a perverse shell game of greed, excessive risk taking, insider trading, excessive executive pay and undeserved bonuses, special tax breaks and casino-like gambling -- fun -- that lavishes benefits on partners, insiders and big business at a time when main street is suffering. as a result, the prosecution will try to demonstrate that wall street has been a destabilizing and risky sector of the american and world economy and partly if not wholly responsible for the latest financial crisis and unfairly bailed out by the taxpayers. in short, wall street is no longer a beneficial model of free enterprise capitalism. we have brought before this court mr. stephen moore -- sexy -- member of the prestigious editorial board of

the "wall street journal," defender of financial institutions everywhere and the conscious of wall street itself. mr. moore, will you, please, stand? very good. you're already wonderful at taking direction. [applause] let's hear it for his standing. [applause] you as a representative of the financial services industry and wall street in general have been accused of greed, corruption, excessive compensation, social inequality, unnecessary risk taking, not paying your fair share of taxes and causing the financial crisis of 2008. how do you and your supporters plead? >> not even close to being guilty, your honor. >> oh, no you didn't, really? all right. well, we're going to begin the proceeding with a five minute opening statement by the prosecuting attorney, mr. robert frank. mr. robert h. frank is the johnson lieu hyperlink wiki professor, cornell university, best of the darwin economy, he's

also the co-author "the principles of economics." he earned his ph.d. from uc berkeley -- [laughter] go, bruins. and was a peace corps volunteer in rural nepal. fun. [applause] after the opening statements, each attorney will call two witnesses, then each side will make closing remarks. afterward, the jury will rule on the case, and if the defendants are found guilty, i will impose a judgment. let me dwi a few instructions -- give many -- give a few instructions to the jury. at the end of this hearing you'll be required to determine whether there is sufficient evidence beyond a reasonable doubt, reasonable doubt that mr. moore and his wall street supporters are responsible for public malfeasance. is that understood? oh, that's great. very good.

all right, mr. frank. you may begin with your opening statement. [applause] go ahead. >> thank you very much, judge kennedy. it's an honor to be able to present the case before this distinguished group, and i want to say that we have a very mixed bag of opinions on our side of the issue. i am a registered democrat, my two principal witnesses are registered republicans. we come at this case in a way that you might not have anticipated from our affiliations. you will hear john mackey decry greed and malfeasance among wall street executives as somebody coming from the political right you might have more likely expected a message like that to come from mr. combs on the fox network -- [laughter] >> go, fox. >> i will try to guide the case towards what i regard as the core issue which is that wall

street may have committed malfeasance and be guilty of greed, but those are things we expect, after all, from enterprise, the invisible hand theory does not require that executives be altruistic or public-spirited. they're in it to make money, and the whole theory is predicated on the notion -- and this is the theory that animates all of your faith and enthusiasm for free markets -- that under certain conditions we will get very good results for society as a whole from letting markets do what they do. adam smith, however, didn't believe that markets give you good results no matter what. anybody who doubts that need only go to somalia and watch truly free markets in action. smith argued that markets worked well when certain preconditions were met, there were certain institutional preconditions that had to be met, there were traits of character that were expected in the main participants of

markets. when those were met, when we had the right institutional framework of property rights, laws and regulations and the right people in the positions, we could expect in many cases very good results from people seeking their own ends in the marketplace. it's not from the butcher or the baker or the -- >> candlestick maker? >> candlestick maker or anyone else he wrote that we look for our dinner. i guess we wouldn't look for our dinner from the candlestick maker -- >> no judgment. >> but we look to them for our dinner because it will serve their interest to provide it. so it may be correct to observe that wall street is greedy, but that's almost beside the point. we expect that in executives. the real flaw in the wall street industry has to do with the laws that shape their behavior, those laws push them to act in ways that our side will argue have made wall street an unambiguous

albatross around the neck of the nation's economy. it wasn't always believed to be so. alan greenspan, who's familiar to members of this audience and who was a very enthusiastic supporter of financial deregulation said in 19 -- excuse me, 2005, increasingly complex financial instruments have contributed to the development of a far more flexible, efficient and, hence, resilient financial system than the one that existed just a quarter century ago. when he spoke those words, there wasn't clear evidence to the contrary, although many people suspected that he was wrong about that point. since then, of course, we've seen the financial industry blow up in our faces, and many more people are receptive to the notion that the rules that govern the financial services industry weren't optimally crafted for the problems at hand. when you press industry observers to name innovations

that have come from the financial services industry, that is to say useful innovations, many of them seem nonplussed. on reflection their responses contain scarcely a single item in common. that would be atm machines, the one useful innovation to come out of the financial services industry. the other innovations, chiefly financial derivative instruments, are mainly seen as instruments whereby insiders are able to slough risk off on unsuspecting bystanders and often create catastrophic instability for the financial system as a whole. the way we got here was by a very hasty system of deregulatory steps -- >> you have ten seconds -- >> in the 1980s. those steps, our side will argue, led us to a much worse spot, and it would be much better for the country as a whole if it shed this albatross. >> thank you very much, mr. frank.

very good. [applause] >> well, now we will hear from mr. stephen moore, the defending attorney. mr. moore is the distinguished member of "the wall street journal" editorial board and author of several books. rich states, poor states, return to prosperity, how america can regain its economic superpower status. he received his ma from george mason university, he is a strong advocate of the flat tax, social security privatization and free trade. he is considered one of the premier supply side economists in the united states. mr. moore, will you give us your opening statement? >> thank you, your honor. >> very good. >> thank you, members of the jury. i would like to start by saying that i believe that this trial is a farce and a miscarriage of justice. i work for the wall street journal so, of course, i'm going to defend wall street. i would submit, and our defense,

your honor, boils down to this: that it is the wrong people and the wrong institutions that are being put on trial here this afternoon. now, let me start by saying, by making some admissions about some of the mistakes that were made by wall street. we are all angry about what happened in 2008 and 2009 and the massive losses. we're all angry at the excesses of wall street, the -- i'll acknowledge the fact that mr. frank made that there was excessive pay to ceos, that there were gaudy parties held by many of the members of wall street, that there were criminals and crooks like bernie madoff. by the way, they are in jail where they belong. but i think it's important to understand that wall street plays an incredibly constructive role for our economy. in fact, i would say that wall street is the central nervous

system that provides the seed capital that makes our $15 trillion free market economy operate. and grow. what does wall street do? what makes it such an integral part of our economy? a lot of people can't answer that question. i would simply say the role that it plays, your honor and members of the jury, is to allocate capital, scarce capital, to the highest value-added companies so that they can grow and create jobs and create profits. and i would submit that despite all of the mistakes made by wall street -- and by the way, not just by wall street, i would submit everyone in this room. we all made mistakes. we all lost money. we all got carried away in the frenzy of the runaway markets in the late 2000s. but for the last 30 years, we'd all have to agree that wall street has done a tremendous job of funding the vital companies in this economy, thinking of

companies like apple and steve jobs and thinking of companies like microsoft and bill gates and thinking of walmarts and home depot and google. and without wall street if we put wall street in jail and shut wall street down, what we're going to do is deny the funning and the essential capital for the next generation of googles and the next generation of walmarts and home depots that not only provide wealth to investors and profits, but also create hundreds of thousands, if not millions of jobs. and i would submit that no other country in the world has a more, a more well-functioning capital system and financing system than the united states of america, and that happens with the investors in wall street. so we should remember that, that they are extremely important for our economy. now, who is culpable and who is guilty and who should be on trial here, and i -- and who is responsible for the $11 trillion

of losses? well, let me tell you who i think that should be. on trial should be barney frank, barney frank -- [applause] who is the man who said that we should roll the dice on the housing market, and we did roll the dice, and americans lost trillions of dollars. i would submit that chris dod, the former senator for connecticut -- [applause] should be on trial for having coaz is si -- cozy relationships with the very types of people at countrywide that he was supposed to be regulating. i would submit that fannie mae and freddie mac should be on trial -- [applause] for providing 100% guarantees, taxpayer-backed guarantees for mortgages. and, ladies and gentlemen, of all the bailouts we did, the two institutions that never paid back any of the money that we lent them as taxpayers were fannie may and freddie mac. and they should be on trial here. i would submit that the 435 members of the united states

house of representatives that voted for a $700 billion bailout of the banks, they should be on trial here. [cheers and applause] and so should the people who voted for the $800 billion failed stimulus plan, and most importantly nancy pelosi should be on trial -- [cheers and applause] for running up the national debt by $5 trillion and putting our nation in the financial peril. i would submit that s&p and moody's should be on trial for giving aaa bond ratings -- >> you have ten seconds. >> these are the people, ladies and gentlemen, that should be on trial. i would submit to you that ben bernanke should be on trial -- [cheers and applause] for key money policies that have debased our currency. >> all right, thank you very much. >> don't put -- >> okay. >> don't put wall street -- >> all right. hey, hey, hey! >> they're the ones who are guilty! they're the ones who lost our money, and they're the ones who should be put behind bars! [cheers and applause]

thank you, your honor. >> okay, all i'm saying is if they were the jury, you'd be in so much trouble right now. but they're not, they are. all right, thank you very much, mr. moore. >> thank you. >> take a deep breath. [laughter] mr. frank, you ready to make it rain in here? would you like to call your first witness? >> it's time for us to hear from john mackey, the chairman of whole foods. [applause] [laughter] >> mr. mackey, would you, please, take a seat? we'd like you to take an oath to tell the truth, the whole truth and nothing but the truth. would you like to swear on the wealth of nations? [laughter] or alt las shrugged? -- atlas shrugged? okay. do can you swear to tell the truth, the whole truth and nothing but the truth? >> i do.

>> can i ask you one thing? have you seen the price of arugula lately? [laughter] so expensive. >> that was good. you're pretty funny. [laughter] i just need to say one thing. i'm, mr. frank, you need not insult me by calling me a registered republican. [laughter] >> forgive me. >> i've only voted republican one time in the 40 years, and i deeply regret that decision. >> i'm apologetic for the miscalculation. [laughter] what i did recognize you to be was somebody with a sincere appreciation of the magic of free markets and very deep libertarian sentiments -- >> okay. work out in couples' counseling later on. let's get on with the trial. [laughter] >> so i thought it would be interesting to hear your perspective on adam smith's notion that character counts in the marketplace, and that we expect certain things of

business leaders other than they ruthlessly try to take as much out of the enterprise as humanly possible. do you have some experience or thoughts you want to addsome. >> are you asking me whether i think business people should be ethical? >> that would be a starting question for you, yeah. do you think a business owner has a responsibility to obey the law even? >> yes. >> if he can't get caught and his business would do better by not obeying the law, where is the greater responsibility, to the shareholder or to the law? >> he should obey the law. >> [inaudible] >> unless the law is unjust, says one of the members of our audience. well, if you -- [laughter] >> they get feisty, by the way. like, no controlling them once they get -- so go ahead. [laughter] >> if you see things on wall street that troubled you, what would they be? >> the way i see business is i see business people as basically the heroes in this world because business people are the value

creators. [applause] we create value for our customers, for our employees, for our suppliers, for our investors, for our communities. indeed, for the whole world. it does trouble me sometimes that i think wall street forgets that it's a value creator. i do think sometimes it's -- my company's been public for 20 years, so i've been dealing with wall street for 20 years. it's a little bit of a love/hate. i do think they have created value, but i also think sometimes they've forgotten, um, why they exist, what their purpose is, what they're supposed to be doing, and that troubles me. >> and what about in the domain of executive compensation? i know you have strong views about that in terms of your own business. do you think the people who head up financial firms on wall street are on the right track there, or what would your assessment be? >> i think, ultimately, those decisions need to be made by their board of directors and the shareholders who elect the

board. sometimes think they're maybe not doing a good job in corporate governance there, but i don't think that's something the government should be involved in, but i do think, i do think sometimes some of those salaries would seem to be higher than market rates. [laughter] >> and is that something for collective action, or do you think the government really should just keep its hands off problems like that? >> ask him to define collective action. go ahead. [laughter] >> the judge wants me to ask you to define -- >> no, ask him like t -- it's from you. go ahead. >> i don't think i'm supposed to ask the questions. [laughter] >> it's totally fine. >> i do think it requires collective action, but i think that reforms really need to come from within the business community, from within the shareholders of companies, within the boards of directors. they're the ones that ultimately have to be responsible. and i do think they're not

always doing their job well, and i basically a lot of the corporate governance reforms that i'm seeing, i don't like all of them, but i think a lot of them are very positive. >> the last question i want to ask you about is about a fundamental distinction between the kind of business you run and the kind of businesses we see on wall street. so just imagine yourself in the role of baker. that's one of your roles. at any rate. when you sell someone a loaf of bread, the price the consumer pays you for that is a reasonably close track on the value the consumer receives or else the consumer would go elsewhere. it's enough to cover your costs, so that's one of the preconditions adam smith describes for market incentives and social incentives to be in close alignment. so that condition seems met for your business. >> you have 30 seconds. >> do you think the condition is met as well for the financial services industry?

>> not always, no. >> so, for example, if, if a financial services firm is confronted with a decision whether to invest in millions of dollars of computer equipment to make a forecast two minutes earlier -- >> wrap it up so he can answer. >> excuse me? >> you've got no more time. >> no more time? >> well, let him answer. he can answer quickly. >> i'll give you an example. when my company went public in 992, we did initial public offering, there was no price competition on wall street. they were taking a 7% cut of every dime they raised, and there was not -- you couldn't go out and negotiate 6%, you couldn't negotiate 5%. i thought that was a type of price collusion by the investment banking firms. and as far as i know, that's still kind of the clubhouse rules there. >> all right, very good. >> thank you very much, mr. mackey. [applause] >> your witness. >> mr. mackey, um, you mentioned

the housing bubble. and i wonder looking back on what happened with the massive overinvestment in housing that happened in this country who do you think is most responsible for that happening? obviously, wall street took a lot of excessive risks, and banks made excessive loans, but would you say that this is a result of wall street, or would you say that when the federal government was providing 100% taxpayer guarantees that these mortgages, many of them which were incredibly him flimsy and y of which people had no intention of ever repaying, when the government is telling these banks that they will provide 100% guarantee, who do you think is more culpable for creating this crisis, fannie mae or the bankers? >> i think they're probably both a little guilty, but if you're asking me, i think fannie mae's little more to --

>> fannie may is a little more. so maybe fannie mae should be on trial here. >> i didn't set the parameters. >> second question i have for you, do you believe ceos are overpaid on wall street? >> i mean, uh, these types of decisions ultimately are -- you can look from the outside, their compensation seems to me to be at times excessive, correct, yes. >> now, let me concede the point that many ceos, for a minute that many ceos of companies and banks are overpaid. then the question becomes, who do you think in your opinion is responsible for that, or that is to say would you favor the government coming in and telling companies what they can pay their ceos, or is that a matter for boards of directors and shareholders? >> it's a matter for boards of directors and shareholders. >> thank you. the top 1%, are you in the top 1% in income in this country?

you're an incredibly successful entrepreneur. >> i plead guilty. [laughter] >> you plead guilty. so we've heard a lot of this, a lot of this condemnation of my clients is based on the fact that a lot of these people got rich just, by the way, as you did. you got rich, people on wall street got rich. is it a crime to get rich in this country? >> it appears that it might be becoming so. [laughter] >> so do you -- can i ask you if you makeover a million dollars a year? >> do i have to answer these questions? [laughter] >> well, let me rephrase the question, sir. >> because that would be super awesome if you did. >> how much money do you make -- >> there are people in congress who feel that they want to be so punitive, my clients, that they want to basically have a law that says no one should makeover a million dollars a year. is that the kind of thing you would favor?

>> i think that would be very bad for the national basketball association. >> well put. [applause] really well put. which leads me to a question. if lebron james can make $0-$50 million a year to play basketball, is it excessive to pay a ceo that maybe has control of billions of dollars of assets $40 or $50 million? >> not if he's as good as lebron james, but -- [laughter] >> very well put. okay. finally, and this maybe is most importantly, you started whole foods how many years ago? >> thirty, about 32 years ago. >> how did you get the initial financing and the initial capital to grow your business? >> begged everybody i knew. [laughter] >> banks? did you ever go to wall street? >> to start the business? no. >> ever, at any stage. >> oh, yes, of course, but not when we started out.

>> so here is my question. if we put wall street behind bars and say shut these people down, wouldn't you agree that it would be extraordinarily difficult, almost impossible for businesses like yours that hire tens of thousands of people to get the money that they need to grow their business? now, look, i mean, how are we going to run a capitalist-free market system if we don't have wall street? >> clearly, we need ways to raise capital. that's the purpose that wall street has. unfortunately, it doesn't always follow that purpose, and that's why so many people are angry with it. wall street and the financial community need to remember what their purpose is and why they exist, and i think sometimes they've forgotten that. >> finally -- >> you have 30 seconds. >> are you more angry right now at wall street or big government? [laughter] >> let's see, i'm going to go with the government. [laughter]

>> remember, sir, you are under oath. [applause] >> thank you. no more questions, your honor. >> all right, the witness may be excused. thank you. [applause] >> he just wants me to move the witness chair. is that okay with the rest of the jury? great. very good. mr. frank, would you like to call your next witness? >> yes. may we have mr. george gilder come to the stand, please? [applause] >> please be seated over here. mr. gilder, sit down. i have a copy of the latest edition of "wealth and poverty." [laughter] do you --

>> [inaudible] >> do you swear to tell the truth, the whole truth and nothing but the truth so help you wealth and poverty? >> i do. >> thank you for being with us today, mr. gilder. as you know, the prosecution's case is focusing on the fact that many of the deregulations that occurred during the '80s and '90s led to behaviors that nearly bankrupted the nation. is it your view that if we go back to the legislative era that preceded those deregulations, that companies would not be able to get capital from the capital market as has been alleged? >> well, i believe that during the heydey of venture capital and private equity and the hedge funds that the united states led the world in industrial creativity, in job creation, we were the pioneering, exemplary capitalist force in the world.

and today wall street has gone off a cliff and epitomized by charles prince, you know, head of citi bank saying he has to dance as long as the music plays. but the music he's listening to is the government georgia haven't. and that's true of all of wall street, and wall street has stopped funding the kind of companies that steve moore cited and is now involved in all sorts of currency speculation on the debotched dollar and whoring with, incestuous relationships with the treasury and the fed -- >> earmuffs. >> unless it's entrepreneurial, it's not capitalist. [applause] >> okay. thank you, mr. gilder. i think mr. moore's concern, as i understand it, is that companies be able to get the

capital they need to expand and create jobs. i don't know if you read an op-ed published in "the new york times" in 2006 by calvin trillen analyzing the problem on wall street. it was his view express inside that piece that the real turning point came when the smart people started going to wall street. ..

>> i noticed companies that back against all the fake scam securities and sub prime mortgage concoctions were mostly hedge funds. 80% of hedge funds for leave the u.s. regulatory structure and register in the cayman islands. the u.s. is so hostile to creative finance, people have to go outside the united states seeking better regulatory structure. i don't think we are underregulated. we are overregulated and this overregulation transforms was would-be entrepreneur real capitalist institutions into

extensions of government. the epitome of the corrupt incestuous -- unfortunately has come to represent wall street. venture capitalists and private equity people, what mitt romney did was superb and michael jensen incidentally has studied the effects of private equity during the 1980s and early 90s and find them overwhelmingly positive. this was a time when the u.s. was creating forty million jobs and this was a time when wall street managed some 43,000 m&a transactions. it is bad when it is all embroiled in government shuffles.

>> 30 seconds. >> and housing finance. >> the prosecution has not proposed putting wall street behind bars and what we expect is the different sets of governing rules for wall street. if you have ten seconds what would you say those should be? >> put jon corzine in jail. >> your witness. >> you have written eloquently your best selling book about the virtues of capitalism. i learned my respect for capitalism from your book many years ago. i wanted to ask you this. can our system of free-market capitalism and entrepreneurship you have been talking about for 50 years, can that continue to flourish without wall street?

>> it has come we epitomize a series of big banks too large to phalange incestuous lee embroiled with the treasury and the fed and the white house and that system should act. [applause] >> they should have been allowed to go broke. >> let me interrupt you right there. you talk a lot about this. i will concede the point there is too much of an incestuous relationship between wall street and the people who are supposed to regulate them and congress men who were supposed to oversee. is the solution to this incestuous relationship more government and more regulation? >> absolutely not. >> the next question is this looming tax increase. how does this attack on wall street because it gets rich, is

there anything villainous that we should disrespect about people getting rich on wall street? >> if they extract it from the taxpayer. >> wouldn't that be a result of the fact -- are you in favor of bailout of big banks? >> no. >> auto companies? or the bailout of aig? were you in favor of -- >> i was in favor of keeping greenberg head of aig and he could have prevented the $2.7 trillion -- >> it seems to me -- >> overregulation. not overregulation. >> will raising the capital gains tax make the capital market operate better? >> no.

>> will the dividend tax make the economy work? will raising taxes on small business make the economy better? >> absolutely not. imposing 3.2 excise tax on medical instruments -- >> last question if i could. we were supposed to overcome these problems with wall street that we have been talking about. problems with my client with the dodd-frank bill. did that bill accomplish what it is supposed to do or made wall street a worse place? >> it is legal. >> thank you very much. >> with time to spare. you guys should take on the road. that was like vaudeville. you have any further witnesses? >> do you think you helped the defense? >> we will make the best case we

can in some asian. >> thank you. >> i would like to take this flight to the jury right now. just kidding. i would like to call my first witness, the great hon. steve forbes. [applause] >> mr. forbes? will you be seated? >> i have a copy of how capitalism will save us:why the -- free people and free markets of the best dancer in today's economy by steve forbes. put your hand on.

swear to tell the truth, the whole truth and nothing but the truth so help me by best book. >> i have a better book coming. it can be ordered from amazon. >> thank you for being here. i understand you own the yacht. does that make you an evil person? >> i think it makes me a person of there would like to be. >> please tell -- >> as my father likes to say money may not buy happiness but it sure helps. >> let me ask you this question. do you think getting rich is an evil pursued? >> real entrepreneurs get rich by providing needs and wants about this by providing services. if you get rich that way i have no problems with it. get rich from chronic capitalism that is a problem.

>> do you think wall street -- there was a period of access in wall street that the prosecutors are alleging and people were paid on wall street and are a bunch of greedy people? >> to say greed caused the crisis is like saying gravity causes airline crashes. doesn't explain much. we have a situation. there were excesses on wall street but why did it suddenly happen? you hit on it in the beginning at this trial because of excess money creation from the federal reserve. you could never have house debate at housing bubble without the excess money. and government failed here. wall street being entrepreneur responded to the crazy alice in wonderland conditions that washington created so if you want wall street -- if you want lower salaries and not so many

smart people, start by having the gold back dollar, note more volatility in currency and trading profits and opportunities go away. >> you think people who make millions of dollars or billions of dollars -- do you think that is successive? should we have some policy in america that restricts the pace of ceos and wall street firms? >> in free-market absolutely not. i don't want politicians determining who gets paid what at the end of the day. they get paid more and the rest of us get shafted. what does it take to get the talent needed. sometimes you pay the talent and it doesn't perform. we see that in sports all the time. the talent that can run these organizations one way or another. many of them do it not for the pay but because they want to get something done.

if they get rewarded so be it. john mackey of whole foods has done very well. i don't regret him. i like going to his stores at least at the checkout counter. >> one last question. we heard from a witness for the prosecution. making the case that it is more difficult for companies i mentioned, walmarts and microsoft and apples, you get those companies finance on wall street and this kind of era of a entrepreneurship has come to close. >> i don't think it has come to close. it had detour. start with something called sarbanes oxley which came from the government, not free market. what wall street did during this

whole period, derivatives and the like and crazy instruments came in response to chronic instability, interest rates, currency caused by mistakes made by the federal reserve and others. chaos in the markets and people take the chance to make money off of it and markets are about that or try to hedge themselves against it. one thing that is wonderful about wall street and finance as a whole the extraordinary adaptability and creativity george gilder mentioned, hedge funds and the like. they were able to provide gains to pension funds one markets were stagnant and the creation of new instruments and crazy instruments created in recent years in response to the chaos created by government. >> wall street or government should be on trial here? >> that is easy.

big government. [applause] >> your witness, mr. frank. >> i wonder if i could follow up on the issue of crony capitalism by focusing on one particular example. i refer to the goldman sachs purchase from a ig of some $12 billion of credit default swaps to insure against mortgages that they would get a payment in that amount if the mortgages went belly up. goldman at the time knew or should have known that the only way those mortgage bonds would go into default was if there was a radical decline in housing prices and also should have known that if that happened, aig was unregulated and had no reserves, that goldman sachs

would stand to correct. do you think that was because they knew that treasury secretary paulson would be presiding over the decision how much they should be reimbursed in the event that aig was threatened with bankruptcy and receive 100% payout and is that what you mean by crony capitalism on wall street? what should we do about it? >> should goldman sachs have got 1 hundred cents on the dollar? absolutely not. should be treated like any other creditor. in terms of why you have this crazy thing, because of hubris, not greed. these financial instruments, complicated mathematical equations they could do away with risk and even if you had

defaults of mortgages they have enough reserves because they are sophisticated instruments and would be covered. what happened, looking at that exit sign if something happens here we go for the excess. and 2,000 other people going for that exit so it did not work. they should have learned that from the long-term management capital disaster of 1998 but they went back to the drawing board and thought they could insure risks because of these 40:1 debt to equity ratios. that wasn't badness. they overestimated their brilliance. they should have been allowed to pay the phrase. >> in your estimate, the problem is not a structural one. [talking over each other]

>> innovations work. some do and some don't, take commercial paper which allows medium and large companies to get from the banks in the 60s and 70s and when penn central, commercial paper market dried up and scores of companies nearly went under. that doesn't mean commercial paper was bad. and a bank line of credit in back of it if there was a problem in the market you could get bank credit and cover it. new things come along and you'll learn how to deal with them like highways when cars came along you had to learn about speed limits and car inspections and insurance and that ray of other things. innovation. talk about what the weather has done to video and audio distribution. still trying to figure that one out. >> you disagree with alan greenspan's assessments on reflection in the wake of financial crisis when he

testified before henry waxman's committee in the house. he said i made a mistake presuming the self-interest of organizations was best capable of protecting shareholders. >> he should have amended that statement. i made a mistake by not doing what i knew when i was a young man but forgot when i came to the federal reserve and that is half a dollar back to buy gold. we never would have had these accesses in the first place. >> 30 seconds. >> do you acknowledge the existence of situations in which private actors legal incentives lead them to act in ways in conflict with the public interest? >> depending how you define public interest. if somebody commits fraud you don't need new laws on that. >> here is the example i had

[talking over each other] [talking over each other] >> investing hundreds of millions of dollars in a computer program that would execute stock trades more quickly than the existing methods is the gain they proceed from that investment privately on par with the gain that society will get if they and their rivals make the same investment? >> if they make the same investment, everyone went into a pcs and most of them did not survive to tell about it. and two seconds quicker, they were writing about being on the lecture circuit talking about new career opportunities. [talking over each other] >> i will wrap it up. you may step down. [applause]

>> i call my next witness. [applause] peter ship. >> welcome. if you will sit in the witness chair please. please place your hand on the real crash:how to save yourself and your country. do you recognize this? >> i am your book. >> these were to tell the truth, the whole truth and nothing but the truth as he tried to do in this book? >> absolutely. >> mr more! >> thank you for being here today. let me ask you this question. is a crime of wall street loses money? >> it is not a crime. is unfortunate for their investors.

because of government regulation. >> you are involved with interchange -- these were the movements that helped bring my clients to trial and i wonder whether you agree with the sentiments of the occupy wall street people or think they were misguided? >> i thought they were misguided. that is why i went down there. it is not the investment banks on wall street but the federal reserve banks. the federal reserve are the biggest counterfeiters of money. the big destroyers of capital. they are financing this massive growth in government spending and the federal reserve working with congress that has corrupted wall street and resulted in crony capitalism that we are talking about and so i wanted to let the people at occupy wall street know that there a anger was misplaced. i share their frustration with

government and central banking and central planning. not with capitalism. >> did you get the message across to the people? >> i don't think so but i did get it across to hundreds of thousands of peoe who saw the encounter a newtube. >> if i could follow your logic to its extreme, maybe these people should occupy washington? >> that is what i said. station occupied pennsylvania avenue. the white house. there were a lot of institutions that need to be occupied but not wall street. of course wall street's made a lot of mistakes because they were all liquor up by alan greenspan's alcohol. i said this many times. president bush often accused wall street of getting drunk and i agree they were drunk but so was main street. the whole country was drunk.

alan greenspan was the bartender. he liquor everybody up and people act stupid when they were drunk. you should have seen how people were acting up last night. >> let me ask this question. this is an important one. [talking over each other] >> you missed out on a pretty good part. in the absence of my defense of wall street. >> the hangover from that of all wear off. >> this is the question. at least when wall street made bad decisions the people who lose money are the investors and people in wall street themselves. is that the weight should be? >> that is not the way it is. >> the point i am getting at, a protective bubble over wall street and over the big banks with too big to fail land all these bailouts so now we have a

system that wall street almost incentivized to take the big race because of fannie mae and freddie mac and too big to fail. and investor money and tax money at risk. >> something calls moral hazard and all the too big to fail banks instead of failing are now even bigger and still going to fail. now it is going to cost even more because we have taken troubled banks and made an even more toxic. with the stimulus novocain. it is going to wear off. >> we got rid of too big to fail and wall street bailouts and big bank bailouts wouldn't wall street be a healthier place? with investors make more money? wouldn't mom and pop stores get access to more capital? isn't government -- they provided this incestuous

relationship between government and wall street? >> absolutely. part of the problem is so much money wall street isn't fulfilling its function as an allocator of scarce capital. it has been turned into a casino by the federal reserve with zero present interest rates. that destroys capital because capital comes from savings under consumption and no one will say the return on savings are zero. instead of having legitimate savings we counterfeit money out of thin air and see it through the economy but that is not producing a legitimate economic growth. >> to you think -- >> and with everybody else. but particularly the rich. >> you think the rich pay their fair share? >> no. they pay a lot more than their fair share. >> thank you. mr. frank? your witness.

>> thank you. is it your view that the high paid days on wall street have board the best and brightest to go there in disproportionate numbers? >> yes although i don't know if they are as bright as they think they are that they are there. >> 44% of the graduating class took positions in financial services industry in 2007 and they're very bright. whether they are as bright as they think they are is a good question. can you think of anything useful having all that talent on wall street has accomplished? >> you mentioned the great success stories. apple -- when they were able to increase their scope or scale because they are able to tap into many and public offerings, the government to the detriment

of the real economy. subsidies need to end. when there is not so much government money, and what occupiers were upset at when government is for sale because the rich were buying influence and that is true but the problem is once you give the government influence to peddle you can't blame the private sector for trying to have the power used for their benefit in their detriment. if we do that, there won't be these oversize profits on wall street and more people from princeton or howard alma mater doing something more productive with their lives. >> would it be better if more of them went into engineering,

medicine and research? >> better off if people skip going to universities all together. i think you could learn more on the job, and they ended up teaching. [applause] >> that would be. let me see if i understand the question correctly. government has given wall street the power to write the rules and their own interests which in turn resulted in enormous paychecks for them, that in turn has drawn a lot of talent into wall street. whether it needed a fancy degree to be smart is an interesting question we will put to one side and i agree. can we then agree a witness for

the prosecution whose case is based exclusively on the idea that government needs to take away the power they have given to wall street to create these enormous reds that bringing all the talent into the industry. >> not quite. we need to take power away from government and then the power will leave wall street. the people who should be on trial are the government operators that made it possible. wall street is playing the distorted back, if you level the playing field and have a free market and take away subsidies and guarantees and go back to sound money and let interest rates go up so there is capital production and funding of resources and if we get the federal reserve out, printing of the money to finance. >> thank you very much.

you may be excused. [applause] >> any further witnesses? >> how much time do i have? ladies and gentlemen of the jury it was george washington who said -- >> he goes first. he gets his closing first. [talking over each other] >> give my closing statement? am i out of order? >> you are out of order. ago ahead. >> it was george washington who said government was the first match. we learned that with wall street. what we learned in the last hour or so is wall street made mistakes and there were accesses on wall street and the people should pay for those mistakes

are people invested in these banks who made the mistakes themselves but government stepped in and became so involved in everything wall street was doing that it corrupted wall street. we have created, eisenhower said be aware of the military-industrial complex. we have become a government wall street complex and that has not worked for taxpayers or investors and it has not worked for companies and what i would submit to you is the villain is government and the politicians and i'm not the only one saying that. even the prosecution's own witness said the government is the root of evil here. and the incestuous relationship between government and wall street we can solve some many problems and a bull market expansion we have never seen

before. i believe that if you hold my client's guilty and the problem in america is wall street and not big government you will be doing a great disservice to the future economy of this country. we will have government directing the investment in this country. just look what happened with solyndra. we will have 10,000 solyndras, and the one last point, the collapse of the housing market. they brought down so many banks and insurance companies and financial institutions in housing. why was there such a massive overinvestment in housing and the answer was because of government and fannie mae and freddie mac and the federal

housing administration and federal rules, federal bank regulators were the ones who commanded that these banks's own mortgage-backed securities. the worst possible investment that they could make federal regulators commanded those banks have to hold those mortgages. those federal regulators and federal rules are responsible for bringing them down. this is my message to you. if you can restrain government if we can put a muzzle on government and get rid of dodd-frank, and tax increases. and mom and pop's investors we will all get rich and government can be small enough and drown it in a bathtub. [applause] >> it is time for your three minute closing statement. >> i agree with the defense contention that government is a

big part of the problem. and the rules benefited wall street enormously, and huge paydays payable 4 winners in that casino that drew a lot of talent, and they deserve a full measure of blame. what should be the rules that govern financial services? is very important that you understand the housing bubble wasn't an accident caused by big government stupidity exclusively but government stupidity certainly played a role. without fannie mae and freddie mac there would have been a housing bubble and a financial crisis. they permitted mortgage-backed securities that enabled lenders to bundle their loans in

securities and sell them to other investors. once they sold them they no longer had a strong stake. and if people defaulted on their mortgages they got their pay-out of it. lenders are less vigilant in their scrutiny of borrowers. they made loans to people they shouldn't have made loans to because they can sell their mortgages and bundled securities downstream and once that happened banks who thought the derivative securities insulated them from risk start taking much more risk in the lending practice. when i bought my first outside put twenty-five% down. my kids buy houses with nothing down and get low-interest teaser loans. they have balloon payments after a few years. many people were critical of homeowners for borrowing too much and getting in over their heads loans they couldn't repay. john mccain was sharply critical of homeowners in that bucket but i think that underestimates the

incentives confronting homeowners. that back and recognize that the main goal of a young family is to send its children to the best possible school. a good school is a relative concept. it is one that is better than other schools in the ariane where are those? and more expensive neighborhoods. the simple implication of that change of logic is to send a child to school that least average quality you got to outbid 60% of other families for a house in medium quality school district. if banks make it easier, more than they were for housing. you can sit idly by and watch kids go to metal detectors in front, and 20% reading and you could borrow up and get a load over your head and hold your place in the educational q. it is a serious mistake to blame parents for choosing that latter option. all of us would have chosen that when we made a decision.

it is important to recognize that no industrial country has unregulated financial sector. when you turn them loose there's always successive leveraged and asset bubbles and financial crises that result in protracted perfect of depression in their wake. the question is what should the rules be? the government is largely at fault for the explanation for why we have such bad rules and we need to get more people sitting down at a table but to allow wall street to continue business as usual as if there is no problem is to miss one of the most important economic handicaps the country faces. >> thank you very much. >> now ladies and gentlemen of the jury you have heard expert witnesses and a statement from the prosecution and defense that is now up to you to beside the guilt or innocence of mr. stephen more and supporters of

wall street is your job to determine whether the preponderant assists--evidence supports the prosecution on balance wall street and financial services industry investment bank's brokerage firms and hedge funds have misbehaved sufficiently during the ongoing financial crisis and guilty of greed, corruption, excess compensation, undue influence and other forms of malfeasance. the form and will tally the votes and he will announce the verdict. the jury can vote by majority vote that does not require a unanimous decision. is that clear? does anyone have any questions? very good. [inaudible] >> miss frank? [inaudible] >> you have two minutes to answer that question and make a

decision among yourselves. >> the prosecution charged the industry was buying the set of regulations that were bad for the country. >> should we start pacing? >> doing handstands, everyone. >> don't leave. the best part is yet to come. >> did you hear me last night on the street? it was good. that will be part of what recent tv video coming very soon. ♪

♪ >> is this anonymous? i am just wondering. people might feel -- ♪ >> ten seconds. you guys can exchange names and addresses and facebook friends information after the proceedings. i can't even touch this.

>> have you reached a verdict? >> yes we have. >> it is? >> unanimously not guilty. >> unanimous! [applause] >> stephen moore the win. >> and i am not even a lawyer. >> e.u. ok? >> i will get over it. >> go drown your sorrows. that is what i do. mr moore, you have been found not guilty. you are therefore free to go. enjoy a night in the city of las vegas. the city of secular entertainment and the world known as sins city where you can enjoy all the pleasures of insider-trading, taxfree casino gambling and the the the need to borrow interest free up to $1 million from the federal reserve for any losses incurred over the next 24 hours. case closed. good night.

[applause] >> thank you very much. thank you very much, men and women of the jury. a fine job. >> ladies and gentlemen of the jury please clear the stage. you are all dismissed. thank you so much. [applause] >> you are watching 48 hours of nonfiction authors and books on c-span2's booktv. >> crown publishing is a division of random house publishing. joining us now is the director of publicity, campbell wharton. what new books to you have coming out? >> some exciting book this fall. rod stewart's memoir which is highly anticipated celebrity book this fall. we have the first book from the

george w. bush institute which is the policy think-tank at the presidential library and the series of hilarious and controversial rents, a rising star at the fox news channel. and a really big one, one of the nation's foremost authorities on education. that is coming out at the end of august. fire in the ashes. >> your publishing the bush institute and -- >> we do both sides of the aisle. we published barack obama and george w. bush. we publish everything for everyone. >> what is the policy book after the bush institution and who wrote it? >> the 4% solution and it is a series of essays from well-known economy san nobel prize winners about how we can achieve 4% growth. president bush has written a

forward to this book. he is excited and eager for the book to get out. look for this one. the first book from the bush institute and there will be a lot of noise about it. >> coming out before the election. >> yes. the 4% solution can be thrust into the dialogue. >> one other thing it is doing. crown is doing more politically oriented instant he books. >> the instant apatite of political junkies and instant e-books is a way to feed the advertising instantly with a really great slates of political writers that ride a few chapters very quickly about current