major points driving what we do with drug policy. >> host: the book is called "high price" a journey of self-discovery and it challenges everything you know. our guest has been dr. carl hart. he is not only an author, but he is an associate professor of psychology at cornell university and a member of the national advisory council on drug abuse rate a board member of the college on problems of drug dependency. he has some 22 years of research in neuropsychopharmacology and dr. carl hart, it has been a real pleasure to learn about you. this is a large part autobiography as well as about drugs in society and race. thank you for coming on the show. >> guest: thank you for having me.

>> that was "after words", booktv signature program in which others of latest nonfiction books are interviewed by journalists and public policy members and others familiar with their material. "after words" airs at 10:00 p.m. you can watch it online as well. click on the series and topics list on the upper right side of the page. >> next on booktv, professor anat admati sat down with booktv to discuss her book, "the bankers' new clothes: what's wrong with banking and what to do." it takes a look at the clothing industry and argues that the system can be made safer without adversely affecting the public. this interview is part of the booktv college series.

>> what is this cartoon on the front of the book? >> well, this mother in china child a kind of staring at each other. and it represents the book. >> you open the book with the emperor's new clothes story. >> well, when people say something with a straight face and a dress nicely and they appear like they know what they are talking about, people think that they might be missing something or they might not understand a word that is just not good business to say something -- it can be enough to challenge what they say.

[inaudible] [inaudible] >> when it comes to this, what is your opinion? howell quickly was "the bankers' new clothes: what's wrong with banking and what to do" written? >> you know, it has been part of this in different job. there is a big problem. and that is what i have learned more and more as i became involved. that's not always the issue. it is not necessary or sufficient to be successful in

its way. >> why is that? >> well, there seems to be some intense misunderstandings affecting us and it is held by all sorts of people. and i think that there are other things that follow mine with this as well. a lot of times they are talking about this part of the banking industry and here is the economy, we have a lot of economies that do things, they like what they do. that is somehow a part of this. they are allowed to say things that you would think would not make any sense whatsoever. and then some have said that this is just okay.

>> one of the arguments revolves around us in many ways. what are the arguments and what they stand for? >> well, some of the insidious things that are going on have to do with capital. and we need to really understand what this means in this way. you know, in the way that we have done is, it can be a deduction and oftentimes we need to talk about the whole sacrifice. and this is part of the rainy day fund, part of this structure. but that's not what we are talking about. we are talking about other

things. what they did with most companies, whether they have this money, sometimes the way in which they use the money, it is their decision and that is they are responsibility but they don't accept the responsibility. almost everything they do revolves around borrowing the money. sometimes it can be investments that don't work out. it can be very challenging fundamentally with what is going on. it is essentially between a borrower and a creditor. in this case between borrower and taxpayers. >> the you write that think that is often 90% plus of the bank's asset. is that too much? >> that is way too much.

we don't see companies funding things that way. there is a reason for it. somebody who borrows so much, in fact, i mean, any borrower, it can be just so different. they have other ways to try to fund the debt. of course, we are not going to go into that in this discussion. but the borrower can get highly indebted and it can start getting constrained in what they do about the risk they take and these distorted decisions can really play a part. some of the downside of the decisions is borne by the creditor. it might be having private insurance pay or the government pay or whatever, then the

creditors are nicer to them than they would be to other borrowers. and that is how they get to borrow as much as they do. other people kind of wouldn't be able to wear wooden shoes to be a part of this. so the banks are fundamentally pushing us and that includes the basic tendency in the fact that we feed on the addiction and allow and encourage it perversely to keep doing it by encouraging harmful things, as if we were to subsidize somebody polluting the river. it's a very perverse system. >> anat admati teaches the graduate school of business here at stanford university. professor, what role, in your view, did the banks play in the 2008 crisis? >> a major one.

they or other financial institutions, it is not just what you might call a bank. investment bank, holding companies, is it as an insurance company, financial institutions are all connected together. we explain in the book how that sort of dominoes and they are very interconnected. how they got themselves to take risk and all the various different ways about what was actually going on or. and meanwhile, to do this for themselves and put the rest at great risk. the regulators and the politicians, they like the good days when they allow the debt to build up in a way that really was harmful it ended up being harmful. the reason they keep doing this, the crisis didn't get resolved

in an appropriate fashion. so we are still in danger. so we wrote this book with great urgency and great concern that we have the system that is just about as bad. we are not even out of the crisis and in the united states we are not out of the crisis. so we are not done with that. of course, one of the things we explain in the book is that we only borrow so much. sometimes it can look okay. because leveraged borrowing tends to magnify this. so it means doing really well at times. that is the nature of risk. and it doesn't work out, it's often too late. >> who is your coarthur?

>> he is someone that someone that was a little bit ahead of me in graduate school. that was in the 80s. he went on bioelectrical studies martin hellwig researched on the public goods or something like that at the time. after the crisis i started wondering what was going on in the financial system. what created all these problems and was there something to do about it wasn't like a perfect storm and we couldn't do anything. i started reading the narratives

and the proposals and the more that i looked, the more disturbed i was. there's a whole part there that i don't have time to get into. i didn't like what i heard. i didn't like what i didn't hear. the fact that i wasn't hearing certain things seemed obvious to me. i started asking questions. then i came across a lecture that martin gave about the crisis. that made sense to me. so as i entered this and started writing, we started exchanging views and ideas. i wrote something that he said made sense to me, which is what a lot of other people said did not. and so it was like i'm a newcomer, i come from corporate governance and that is a really

strange industria times. very strange. so it's like, okay. blow. to the point that i said okay, there is a chapter about taking the gamble. it's kind of shocking. but anyway. so the spring of 2010 ,-com,-com ma toward the summer, i decided that basically i have heard enough nonsense. i was not just going to, you know, say something and kind of complaint to my friends. fortunately i kept silent. and then i called martin and i was alerted actually that there

were some flawed things going on with where negotiations were talking about the capital regulations. i was alerted by the people involved once i started speaking up and asking questions but somebody needed to talk about what the issues are around the debate and why people were saying it was wrong. so i decided to discuss more of what was being fed. said. so the four of us wrote an agreement and put it out there and the book was kind of written after that, 24/7 into the debate. and it's like, well, even for someone like this with some difficulty viewing any impact on

people didn't want there to be an impact. the book is for the broader audience to say, this is what they are doing right, what if something needs to be done. here's our story and how we want to teach it. >> who is this book written for? >> well, it has -- it is written on multiple levels at the same time. this is a serious book about banking. but yet you don't have to read about that. but you can read it but you don't need to know anything. to answer your point, allow the struggle with how to enter into a mortgage. we need an understanding. people need to understand what you do with that and what

happens when you don't pay your debt. liquidity problems, what does all this mean. we unpack a lot of the lingo around it. so everything is in terms that you know about, pretty much. and everything that is not essential for just reading through it and getting an understanding of the underlying forces that are at play here. why are people wanting to do this and what are the motivations for those involved. we kind of go to the heart of it and it is not a crisis. what i really wanted to avoid was to start with a story. i am so sick of it i can't even stand it. that's really about financial crisis is. it is really not a healthy system. every day it can be muddling

along or even looking okay but still is distorting the economy and does not have its right place in the economy. so i think that a lot of things are wrong with this. there's a lot of nonsense as well. >> historically has banking never been rightly position in our economy? >> you know, this inefficiency of banking is, i think, i think it is basically fundamental. sometimes people say, oh, banking is nothing new, something like that. and you can understand not as you try to give a flavor for why that is. but it does not follow how efficient it is. because really what happens, you start with the positives.

the positives are like a roadster sure, like infrastructure. so that is how it started. we are were giving the money to the banker. in the banker, there is not a suitcase that you need. we depositors when the bank's money. so obviously for not going on, bankers have this money. there are also people needing loans, so they thought, okay, let's invest some money. and the question is when they make loans or whatever it is that they do with the money, risk is taken. all kinds of risk. what could go wrong. well, many things can go wrong. the question is what happens

then. so the word bankruptcy actually has a word bank in it. and it means broken bench. so when the depositor came in the money wasn't there, all they could do was break the bench of the bank. that shows you kind of the control problem between the borrower and the lender. so on the downside, it is everyone's problem. and now they move forward. lots of things happen. sometimes things are told to invest in only a particular area. as was said. they might sometimes be fragile because they are not diversified

but if you look at the history of banking, they had limited liabilities at times with what they invested in. where there was a lot of collateral damage, private partnerships with the owners and they had 50% of their funding and 50% of deposits. so then as the 19th century took place, banks were actually not last. things have liabilities so they could walk away. so but still in banking crisis,

shareholders were broke. not the depositors. even in the u.s. going into 20th century, there was limited liability for banks and shareholders and you can actually double that or be liable if the bank lost money. in any case, then we have the depression and there were a lot of big huge problems. mary poppins, it's a wonderful life, a lot of very good movies. so the banks established a

positive presence. so the depositors kind of felt secure. over the years, they stopped putting their own money along mess. but to the original question i never would've imagined that thatntees. guarantees. you want to live a little bit more on the edge. sometimes it is a little bit more biased towards risk-taking and diverse to saying things. because once it is in place, the upside gets magnified even more. >> all that being said, have we

put in the reform into this since the two dozen a crisis and what would you like to see primarily have been? >> welcome in the system is fundamentally fragile. one thing that people talk about is the too big to fail. do we explain how this comes about. it comes about because certain institutions would have a lot of system making. good job a lot of dominoes if they fail. so there are relatively small banks compared to today. the banks would tell you the capital requirements. my favorite line is they always have to say how much bigger they were in the requirements are so ridiculously low that it's not even worth this is a very large

number. so it was 2% of something and it is between four and a half and seven and the numbers just don't seem to have the right digits. in the backstop is 3% and you do not find any industry like that. for example, they could do what warren buffett does with the equity. >> what you mean? >> if you take a second mortgage on their house, you deplete your equity on the house. if you keep investing in your husband and you do not take any money out, you build up your equity. some don't borrow at all.

some of what they do is to borrow. but that's not to say that they can't actually back up their liabilities without this. like they can be more normalized without other corporations of 20 to 30% equity. instead it allows for these kinds of numbers. they are fragile enough that just a small loss would start getting people nervous but getting them to be less able to land. they get into a situation where bc credit crunches and that's where we have to start investing in them and all of that. but there's no reason for that. many times they lost with previous investments. that way so next time is not somebody else's problem. >> i banks fundamentally

different than other corporations? >> well, there you go. [laughter] >> they would like you to think so. >> they respond to the things that they are given in an understandable way given what we allow them to do. the problem is the issue of risk, they are corporations and that we need them to be safe and then we need them to -- we end up providing unsafe demands because it is incentive to take more risk and it is a downside to others. part of this is countering that addiction instead of feeding it. unfortunately, this is up being messed. if you think it is like a

disaster that's waiting to happen, you know, having resolution and all that. an ounce of prevention is worth a pound of cure when it comes to what to do. the first and foremost thing is you have to understand the funding, which is unnecessarily unhealthy at times. this allows them to do everything. this allows them to do everything more consistently. the reason they are not doing it is because they are somehow confusing us to thinking this is somehow the way it should be. it is just wrong. >> she also serves on the systemic resolution advisory committee. >> this is part of the dodd-frank act. what it does is creates an alternative to bankruptcy for more institutions.

so right now the creation of this, the fdic knows how to take over the very small banks. the biggest is that maybe it wasn't a mutual or whatever. but with any theory, we are asked to talk about this in a crisis or not in a crisis. the fdic now has authority to do this probably for the best, they are the ones that are the best to have this authority. we basically resolved and created some site content kind of a process. creditors will somehow be paid, functions will be maintained,

with a kind of set the prices and sell off the pieces, they could create a better idea than just bankruptcy. so whoever is gaming the systemic, the fdic is charged with the straits i'm going to say that we have the divide on this process and this committee. a number of other people. so there are a lot of meetings that were presented on this issue. it is very good to be here because it lets us ask a bunch of questions and this is what i consider right now to be the best regulator and one most concerned with the public, which is the fdic.

so we asked the question, could we eliminate the problem just by being able to allow them in this way, which is one more thing that a company does. usually you can't go to bankruptcy if you don't pay your debts. that can be the issue. well, it's very problematic. there are some things are supposed to help. but there is all kinds of issues there. supposedly they would be great supervision and preparation. let me just say that this is a good time to do this. but it is not the point you want to get to. when you get to the point where you want to trigger