barriers to getting those networks in place building out these networks is our priority. so sometimes there are local issues, sometimes there are federal rules that might affect how we deploy things are what the impact on historic sites or the environment. we want to make sure that we are sensitive to those issues. at the same time we want to make sure we move forward because our customers, those who use these devices every day in their lives depend on having a good strong connection on getting the day to day wants when they want and where ever they wanted. that means having a robust wireless network. >> the wireless infrastructure monday on "the communicators" at 8 p.m. eastern on c-span2. >> more nonfiction authors and books as a booktv continues. charles calomiris analyze the banking systems in the united states, the united kingdom, canada mexico and brazil going

back several decades to find out what makes banking systems unstable. he concluded that the deciding factor is the level of political interference in the system. this last about one hour. >> good afternoon, everyone. welcome. we're going to start our program. i'm david cowen, president of the museum of american finance. we're joined today by chairman of the board and our friends from c-span are taping today. our guest lecture is charles calomiris, professor financial institutions at the columbia university business school. he also teaches at the school of international and public affairs. charles received his ba in economics from delhi university where he graduated magna cum laude and matriculated through stanford when he cut his ph.d in economics. he is a member of the shaft open market committee as well as the financial economists roundtable and the federal reserve's

centennial advisory board. charlie is well-known in the field. am quite poor that two of the many accolades that he has received. one is about a year ago the university of battle gave him a moderate doctor for outstanding achievement in the field of banking history, banking regulation and financial fragility. and if that is a site of the times, financial fragility is a few. he has been named by the economist in 2011 "the economist" magazine one of the most intellectual people in economics. why is this? charlie is a prolific thinker and writer. he's got about 50 authored or co-authored articles in peer-reviewed journals. 80 articles are co-authored articles in non-peer-reviewed journals, 60 chapters in books, and 28 the books or reports or pamphlets he has authored or co-authored charlie writes books faster than we can read them. his latest and therefore, his

most important is the book he co-authored that he will talk about today, "fragile by design: the political origins of banking crises and scarce credit." is my pleasure to introduce professor charles calomiris. [applause] >> thank you so much for that introduction, and i really do feel like i'm in a second home there. i did an enthusiast and supporter of the museum of american finance since its very beginning. and the member since its very beginning and i'm really pleased at the leadership that david and dick have been demonstrating here at the museum. and if you haven't been to the exhibits upstairs treat yourself because they are really good. they would intellectual a gold bar if you ask really nicely. no, they won't. i'm here today to talk about a new book with professor stephen haber which is called "fragile

by design: the political origins of banking crises and scarce credit." i appreciate that you are all here, and i'm going to tell you i will not be able to give you the full gist of the book which is about 600 pages. what my plan is, is to give you just a sketch of some of the important ideas in the book over the course of about 30 minutes of lecture and then restore the remainder of the time for you to be able to ask questions and make comments and have low bit of a back and forth. let me start with questions really effect. we are currently living through an unprecedented era of systemic banking crises, and although we are all for me with the one we experienced in u.s. recently it's important to note that this is a worldwide phenomenon. we've had more than 100 major

banking crises in the world over the past about 35 years and you can see that only about 29% of countries have avoided having at least one major banking crisis. about half of the countries in the world have had one and the remainder have had more than one. by the way the united states is in that category of more than one. we have had two major ones in the past 35 years. the first thing to note about this is economist tend to think about this phenomenon in a way that's not entirely helpful. what's the cause of these banking crises? i think it's fair to say that if you are reading the economics literature about banking crises, what you would read is banking crises happen for two reasons. there has to be a big shock.

it could be a collapse of some prices in the country. if you're in chile let's say maybe copper prices collapse, or a big shock. but it also has to do with the view that things aren't inherently fragile. why? because they have assets that are opaque, hard to value and the of liabilities that are typically short-term debts. and so is the big shock happens and you can't do whether you're banks, because of their uptake assets, are having trouble based on the shock or not and if the banks are reluctant to willingness to roll over on the debts, have very high frequency, you can see that could lead to a banking crisis. it's a lot of withdrawal pressure from the banks, a lot of concern that might lead to can a contraction bank credit, some banks and and that's i think a reasonable store that economics gives us about banking crises. you need a big shock and banks tend to be inherently more fragile than, let's say,

non-bank corporations. the problem here is that this story must be only part of the story. the reason is because in some places, sometimes even though we witness really big shocks and a lot of banking, we don't see a banking crisis. so if banking crises don't always happen when there's a lot of banking going on at a really big shock, then we are missing something with the story that i would call the sort of standard economic story. and, in fact the variation over time and across countries is quite dramatic. for example the first era of what's called financial globalization that happen for roughly the 1870s through world war i was a time of massive capital flows, lots of banking going on and yet during

that period, despite the abundance of bank credit, and lots of trade and growth and a lot of volatility in terms of the relative prices of exports and imports lots of shocks going on during this period, suffice it to say. and yet during that period the total number of banking crises by the measure i'm going to use which is i would call the conventional measure, also the following see a imf -- valencia measure which i think is a standard measure for look at current data, and that measure is either a lot of banks are failing with large losses relative to gdp or even if there are not lots of banks and with large losses relative to gdp there's a very disruptive event where banks are under a lot of withdrawal pressure, maybe even forced to suspend some kind of emergency measure. so by that definition as i said

in the period from about 1980 to the present we've had over 100 such crises as they document. but if you go back to the period, the first era of financial globalization, the number of crises was about 12. six of which were and solvency crises, and six of which were not, were just liquidity crises but also six of those happen in the united states by the way. and the and solvency crises by the way that happened during that period were not nearly as severe on average. they were about one-third as severe on average as the ones during the current year we are living in. so spending time on this because i think it's important to emphasize, we are living in a period of banking crises that we've never seen before. but it's not just about there's a change over time despite the fact that banks in many ways are

very similar, based on that first economic story i was telling, but there's also differences that persist across countries. for example, some countries have been crisis free forever. canada, for example in spite of being a volatile commodity export economy, in spite of having to withstand with the u.s., lots of problems during major global shocks like the great depression, in spite of that canada has never had a banking crisis. the u.s. has had 17 since 1792. canada has had the zero. that's very interesting. it can't be the absence of shocks in canada because actually they've had more volatile gdp and very big shocks. can be the absence of banking because all showed there's been a lot of banking going on in canada. it must be something else.

what is it? is it regulation? i think the answer is yes. there's a lot of evidence that it is regulation. in particular the combination of generous protection of banks, which is really a phenomenon of the last 35 or 40 years worldwide. combined with inadequate prudential regulation of banks leads to what the, sometimes called moral hazard and adverse selection problems, basically what it means is if banks can take risks on the public dime they're going to take more risks and you're going to get people in banking or maybe even shouldn't be in banking because they are tolerated because of this protection that comes from government safety nets. i think the story of increased protection and inadequate prudential regulation is a pretty good story for understanding why things have

happened differently across time and across space. that is, i think there's a good story to tell that the canadian banking system has been regulated better than the american banking system. there's a good story to tell about the increase since the 1970s and the protection of banks without adequate prudential supervision. i think this story has a lot going for it. there's a large literature. in fact, i would say it's probably the least controversial literature that i know of in financial economics that pretty much documents that this is the right way to think about this topic. but there's a further problem. that just begs the question why is it that in some countries regulation has been successful and in other countries it hasn't been? women look at the history particularly with comparison with u.s. and canada, it's particularly striking because the u.s. has been unstable over and over and over again. and people have actually been looking at this topic. we didn't just start the day before yesterday thinking about

this topic. they pretty well understood the nature of the problem or a long time. and so then you wonder, why is it that we don't fix it. so i think the answer is pretty obvious in a sense. and that is regulation is a political outcome. and so we have to go beyond just pure economic financial theories of banking instability to try to understand why some political systems end up with very fragile banking systems and others don't. so that's the first fact that it want to talk about that we deal with in the book. and our way of dealing with this is to think about the political process that gives rise to regulation as a game. we call it the game of bank bargain. our point is basically that

there's a process that takes place in every political system, every country in which some groups in society working with officials in the government basically form a coalition that determines the outcome of this game of bank bargains that determines the regular outcome. some people are not part of the coalition. they are left out, and its inherent in the way this coalition works that it's going to try to use the banking system as a way to great favors, typically subsidized credit favors, that will benefit some people and, of course if you're grading subsidized credit, that usually means you are greeting subsidize risk that usually is associated with some kind of fragility. banking systems are especially useful as ways to great these kinds of transfers, precisely because they're not on budget of the government.

and so you can do a lot in a banking system that might be more difficult to do politically with legislation because a lot of these deals don't require legislation. so these are the kinds of basic political insights -- i'm not going to describe in great detail, but i think you get the idea. these are the basic political insights that are driving the outcomes. there's a second fact, a second problem i also want to raise. because there's another major dysfunction of banking systems. it's not just fragility. it's also credit scarcity the inability of some banking systems to deliver adequate supply of credit to the economy. so here's the puzzle. we have about five different literatures looking at this

question from many different perspectives, many different countries, of the question of does credit supply hope for economic growth? does it help for promoting the end to poverty? does it help for reducing inequality? all of these good things. and the answer is to all these literatures whether you're using basque country steps, cross times that is, cross industry studies, all all of these very solicitor's arrived at the same conclusion which is you know, it's really good to have credit. not surprising. i just saw my friend did not dissent because of course he is one of the authors of some of the studies i was just talking about. it's demonstrated how important the financial revolutions that provided adequate credit word to the creation of success, growth. but it's not just growth because imagine it's also economic opportunity for people who are not already rich.

so you would think that this would be the biggest no-brainer in history of the world. everybody should be developing economies that are abundant in credit supply. to further add to the puzzle, the basic tools of commercial banking, things like deposit accounts, lines of credit, arrange banking, the clearing of transactions through a coordinated banking system, all of that was developed by the middle of the 18th century in scotland, and in some of the places even earlier, but the full commercial banking model that we can recognize today has been out there for more than two centuries. and yet many countries are dramatically credit constrained. and many countries have a persistent inability to generate banking credit. so why does this happen? again come it brings us back to

politics, we show in the book into the game of bank bargain. one simple explanation where much of the world still is ruled autocrats. in autocracies there's a big problem with setting up a bank. the big problem is that the governmengovernmen t is so powerful and can act so arbitrarily that it may just decide to take all the money away from the people who invest in the bank. so expiration risks which is inherent to the lack of checks and balances that exist in autocracies just has an inherited -- inherent negative sort of incentive consequence for the creation of bank credit. to give you a bit of an idea will go through some the sex a little more now but if you look across the world, you can see that the ratio of private bank credit to gdp many credit from

the banking system provided to the private sector relative to gdp varies enormous across countries. you can see here the uk is the one and a half times the gdp. you can see in canada by this measure it's about equal to gdp in the u.s. it's about two-thirds of gdp. you can see brazil and mexico, these are all countries we study and a book, much less but then if you go down to the democratic republic of the congo, you can't even see the ratio of private credit to gdp because it's so close to zero. these are averages. and what they're telling us is that many countries just can't have a banking system. that's very strange. this is not rocket science creating these banks that were so prevalent and successful in scotland in the mid-18th century. so again our point is it's a political explanation. i talked a little bit briefly about the autocracies as an

example where ex-appropriation risk makes it very difficult for anyone to create a bank because if you do, you're going to lose that one way or the other very quickly. that's just one small point of the many points that would make in the book that come down to pointing out that its political differences that are so important for understanding these to dysfunction that i've been putting too. fragility and a lack of supply and credit. now, just to illustrate this again, the main thing we do in the book is going to the detailed histories over a few centuries of five countries so that you can really see how politics shapes banking regulation overtime in each of these countries. i just to get started, suppose we took the laeven and valencia database i referred to before, the imf the database, it would look at where financial crises have happened, banking crises

have happened and we asked where has been sort of a reasonable amount of supply of credit and no banking crises. and the answers which only come up with six countries in the whole world that fit that over the past few decades. that's a very small number. and what was interesting to us is and this actually was something we do toward the end of our book, talk about these six countries, what's interesting is they really fit in very much with the store that we want to tell about the five countries in our book. noticed that the first three of these six our country that you would describe as city states or island states. one of the key features of the city state or an island state like these three is that there really isn't a great deal of economic heterogeneity. think rural versus urban. in the u.s. as i'll talk about in a minute, throughout the u.s.

history one of the main divides where they came of bank bargains has been played has been one or the other, initially rural and later urban group's sort of forming important political alliances that use the banking system to transfer resources from the of the group. but in these cities to if i was there really aren't these natural divides that lead to this kind of segmenting of political interests so that you have one group the winner in the game of bank bargain benefiting at the expense of the others. the other three countries, and particularly canada and new zealand in this respect, are countries that have long histories of what we call anti-populist constitutions. meaning that the constitutions go out of their way to make it very difficult for these coalitions to actually form in a way that can use the banking system as a political football if you like something to

extract and transfer resources from one group to another. so we think a very interesting fact that pops up to us as a look at this list is all of them have in common that there are places where it's very difficult to play the game of bank bargains in a way that segments people into two groups, winners and losers where the winners use politics to use to employ the banking system to transfer from the losers to the winners. now let's look at the other side of the coin. countries where we tend to see very scarce credit and a lot of instability. and the answer is first of all, they tend to be autocracies. with the exception of a couple of democracies, colombia and costa rica, most of these are among the most dysfunctional political environments in the world, so it's not a coincidence that this group of countries is

also the group of countries in which 19 credit tends to be very rare and fragility tends to be very great. so as you can see just coming out of this very simple exercise which usually not the main focus of our book but it's very much part of the story of the histories that we document in our book. so what you find is non-democracies are systematically less likely to be able to create stable and efficient banking systems. at you also see something else. democracies do 10, while the uniformly tend to agree more bank credit, some democracies like the u.s. in particular, are not successful at creating stable banking systems. so i mentioned that canada and u.s. were very different. since 1840 which is in some ways is a fair comparison of the two systems, you can see zero

banking crises in canada and 12 in the u.s. but it's not because canada has been and underbanked economy but you might think maybe ken is so successful avoiding bank crisis because they don't have banks. quite the opposite. the canadian credit to gdp relative to the u.s. has been equal for much of the history and since the 1980s candidates credit to gdp has actually outstripped the u.s. significantly. mainly because canada has not experienced what's called india's history the financial disintermediation period from the '70s going on. decoration of all those nonbanks that were so important in the u.s. as a reaction to high inflation regulation, a few other kinds of problems in the u.s. candidate hasn't had any of that. one of the interesting things that can do today is the banking system's balance sheet today doesn't look that different from what look like 100 ago, special in terms of the high reliance of

banks on retail deposits. so canada versus the u.s. poses a real problem -- puzzle within democracy provides at some democracies are more successful than others? i've already hinted it has something to do with populism and constitutions that are different between u.s. and canada. and for the remainder of my about 10 minutes i'm going to talk about just those two examples, the u.s. and canada. these are the questions we will be addressing in the book. and i'm not going to dwell on this the framework of order outlined for you is that we have to be looking at strategic interactions and why some rules of the game, some political rules of the game called and constitutions, tend to come especially within democracy, promote this kind of outcome of using the banking system to

transfer resources in the way that's risk creating from one group to another. the five countries we studied in detail on the united kingdom the united states, canada from mexico and brazil, pretty much from about 1600 to the present. the first three of these for most of their history are democracies. the last two for most of their history are autocracies. said that going to doctors about the u.s. and canada i just wanted to briefly about the autocracies, one of the things we discovered when we were writing this book is all autocracies are not created equal. in mexico, the soda autocratic banking system, when you work in a chaotic sort of revolutionary period, took the form of what was commonly called crony capitalism. that is a network of insiders, political insiders who were very important in industry, also had their control of banking resources and were part of the

winning political coalition of the autocrat. they did tend to create something credit, though as i've already mentioned given high x. of repression, the mexicans are is a story about how an autocrat tries to do with the exit program risk that comes from its own limited power. that's really in a sense the plot line that runs through all of mexican taking huge but it tends to result in scarce but some private credit. brazil is a very different country. unlike mexico, which is really since the aztecs been able to have fairly highly centralized and powerful central government brazil because of its pattern of early colonial settlement because of its geography, because of what its rivers work, because of the way the ocean currents work in brazil, has been a very difficult country in which to establish centralized political power.

and that's a constant theme of brazilian history. another theme of brazilian history has been any quality the importance, particularly of the african slave trade for the development of the brazilian economy, and the growth of these are powerful local elites. and they were very resistant to also the creation of any kind of national governmental power. so the combination of patterns geography and other circumstances of brazil, with those inequality problems early on, meant that brazil was very much a decentralized economy. the only thing the government really, center, really had effective control over was the charter and its banks. so if you are a federal government and you have a hard time collecting taxes, direct taxes, but you have one thing that you can do which is charter banks, how i going to collect your taxes?

it's going to be something we call the inflation tax. you're going to use the banking system and you're going to share installation tax collection with the banking system i haven't the banks maintain their interest bounces at the center bank running a highly inflationary monetary policy and fiscal policy where you're spending is basically financed by inflation. the highly progressive tax but of course, in an economy of this kind of inequality with this kind of elite political structure, the regressive taxes are going to be very welcomed. so what's interesting is you might think that all autocracies are the same. i'm not going to talk much more about them but to say they are not. centralized our autocracies tended to give rise to the sort of very effective, and limited credit facilities through crony network. but autocracies that have less centralized power tended to give rise to almost the complete absence of bank credit because the banking system is so busy from filling the fiscal needs of governments which requires

inflation taxation at the expense of private intermediation. so you can see where we can get a lot of understanding of autocracies and the particular kinds of differences in their outcomes for banking systems by looking at the history of these two very different countries, mexico and brazil. in the last couple of minutes i just want to talk about the u.s. of course from the very beginning in the u.s. there was a lot of political discussion not least by james madison about different kinds of goals for democracy. and in particular what we call in the book the goal of liberal democracy, classic liberal democracy, which is to maximize individual freedom. and some of the concerns which

of course, people in the u.s. have, which were especially visible in the french revolution where they can become tyranny, a reign of terror being a great example of that. and so the u.s. constitution as every school child in the u.s. knows was designed to great checks and balances through federalism and also through separation of powers through legislative and executive branch to try to limit the populist pressures. so from that standpoint you may say it's a little strange to point to the u.s. historically as a place that is such a populist democracy, that is created so much financial fragility through this game of bank bargain that i mentioned. but the key point to recognize there is that despite these checks and balances on our constitution, and you might even say because of them coalitions formed to get around having to go through this very difficult

legislative process. and instead to be able to reach deals that didn't require legislative agreement precisely because separation of powers made that so difficult. so one of the ironies of u.s. federalism and separation of powers and various branches of government, that the banking system was particularly subject to populist pressures because other parts of the u.s. government weren't. there are several errors in the u.s. we want to talk about. the important three we divided in three -- erez your the first is crony capitalism, one in which one of our favorite people at the museum here and also my personal fave, alexander hamilton was himself involved with creating monopolies within each of the states, a monopoly at the level of the nation, the bank of the dreaded, and advocated these monopolies at least as a first phase of the

development of banking system. many of these were chartered under, by influential federalists politicians and bankers, and entry was not allowed for a long time. this comes apart in the 18 teams, the 1820s, and we get the development of a new agrarian populists unit banker partnership. and what's amazing about that and the second phase is a faster and loaded -- very long time but less from let's say roughly 1830 until about 1980, 150 years. what's going on in this partnership is a sort of mutual agreement -- remember, these deals are being made at the state level because of federalism, because federalism leaves the bank legislation bank regulation being determined by the individual states. these are state level decisions to structure banking systems on a unit basis, meaning you can't

branch. not just across states but they can't from most of us is in most states, they can't even branch within states. why would that be something anyone would want to? you can see what individual bankers might want that. because they get local monopolies. because the overhead costs of establishing a second or third bank is so great, that if you're the only bank in a town you might do very well. and, in fact there's evidence that that was the case. but why would the rest of the population be in favor? and the quick answer to this, of course we know that the main people who were in favor of it was the so-called agrarian populists. think william jennings bryan. but why were they in favor? one argument which i've argued elsewhere, and we argue in the book, is that if you are a corn farmer in a that primarily produces corn and if the price of corn goes down that means the

price offered land goes down that means your credit worthiness also goes down. it might be beneficial to have the banker on who you're depending for credit have no other options than lending against corn. the great which to the ethnic the banker be local. of course, that might mean corn prices collapse yucatán and the banker goes down. but absent that when corn prices are just declining a bit you're going to have a sort of captive supply of credit because that's like credit doesn't have a lot of options. that it's very much what people were saying about why they like unit banking to this was a very important platform of the rural movement. of course, things changed, and i'll talk about that in a minute, but not for too long and after 1980 that whole coalition fell apart. we got the transformation during the 1990s from a unit banking system to a nationwide mega branch banking system. along with that we've had a new

partnership was formed. now instead of the rural or agrarian populist partnership with unit banks, what we see is an urban populist partnership forming with the megabank. and that's the partnership that we have really, we are still living with since roughly the early 1990s. give you a little bit of an idea of what the old system looked like as in 1920 you can see you've got about 28,000 banks, not even 1000 or so branches, and that itself is again a four byte about three states. so for most of the country it's very much a fragmented unit banking story. of course, we all lived through this, the transformation of the banking system, the dramatic decline in the number of banks and a dramatic increase in the importance of branch banking the blue line here. why did this happen? despite the fact that this early

world unit banking coalition managed to survive the civil war, the banking reform movement after the banking panic of 1907 bio in particular, the national monetary commission in 1910 commissioned studies of all the world banking systems. they understood very well. they had three different books a canada, three about the uk three about germany. they understood very well that the u.s. was a peculiar country, the only country where this unit banking system dominated and they understood that that was explained the history of fragility in the u.s. you might say given that they understood that in 1910, why didn't they recommend that we adopt branch banking? the answer was it wasn't on the political menu. so they did what they thought they could do, recommend something called the federal reserve system to try to smooth seasonal flu chua shows in its own supply of credit. it wasn't because we didn't

understand the problem but it was because they correctly international monetary concluded that they couldn't fix the problem. and this coalition also survived the great depression which was again a unit banking catastrophe, but we didn't change an banking after the great depression despite the fact that it was so obviously the cause of the -- problem that we were expecting. so what finally i'm bound to? it's a long story. a big part of it was technological. another big part was demographic. people moved. there was also some a people, a big shock the big shock being the banking and savings and loan crisis in the 19 it was great loss of interest in people to allow branching. if all the banks around you are collapsing it makes sense to

allow banks to outside your state to come in and take over those collapsing bridge but also intense for the fdic to maybe save some money by having that acquisition take place. so you can see the political stars were finally outlined in the 1980s along with reflecting demographic trends and technological trends to get rid of this horrible system that had plagued the u.s. for 150 years. but politics didn't disappear. what happened instead was a new coalition was formed. it was a coalition of urban activist groups because they saw this merger wave as an opportunity. it was a great opportunity. they were allowed under the law to express opinions about whether the banks had wanted to merge to become the megabanks the too big to fail banks, call them to express their opinion about whether those things were good citizens. and what better way for them to determine whether they were good citizens and how much money those banks willing to give them a? and so was born a political

coalition. how much money are we talking about? i'll show you in the graph in a minute, quite a bit. so the deal in a nutshell was that the megabanks got to become megabanks getting huge economic benefit, let's call them rent if they were willing to share those rents with people who would testify that this was a good thing to do. and, therefore, take a lot of the wind out of the sails of potential detractors from this big merger wave that we were having. by the way i was in favor of the merger wave but also detractor on some of these specific transactions. and i can tell you that in a couple of the cases that it was very clear that these transactions should not have been allowed at the time that they took place. and these happen over the objections of some people. very much as a result of political power. it wasn't just the power of the big banks. a big lesson from our book is

the big banks can never do it alone. they always meet bankers to get what they want and legislation always needs allies. epic allies during this period where the urban activist groups. and then as we point out in the book that also didn't just mean relying on the bank merger process, but also going to the government to ask for a change in the role of the gses, fannie mae and freddie mac to assist that same process of creating transfers from the banks to the committee groups. in other words, getting the gses mandates to have to purchase from the banks much of the risky lending that the banks themselves were agreeing to do. okay how big were the size of these agreements? 1992-2007, the explicit agreements made to get people to testify at these merger hearings totaled $867 billion of credit

been agreed that would be transferred to these community groups to basically allocate to their constituents. that is a lot of money. and you can see here are the mandates that it doesn't the gses also what fraction of their portfolios, their purchase portfolios have to be devoted to serving particular constituencies in these urban areas. so this was a pretty clear deal. and, of course, it contributed very greatly to the debasement of hundred standards of the mortgage market. you can see here that the percentage of mortgages in the u.s. was effectively zero down payment, 3% or less. in the 1950s zero him in the 1980s it is still zero. by the 1990s, it is still about 10% in 1999. but by 2078 is 40%. this is a huge transformation in underwriting standards. that wasn't the only thing that happened.

also underwriting standards changed with the gses not only would erode the 800-pound gorilla and the mortgage market decide what these standards would be, not only decided to allow zero down payment mortgages but also in 2004 they took all the limits off of the undocumented mortgages. they did that very much explicitly, as you can read in the e-mails within those organizations between the risk managers and ceos that are now public, they did it very much because it was the only way they could meet the mandate. in other words, politics was very much driving the underwriting standards. i want to emphasize another point. once those standards were debased, they were to base for everyone it wasn't just the urban poor who are participating in this debasement. in fact, if you do a comparison by some studies you find that the total amount of sort of bad mortgage making that was done was just as prevalent for all income groups. that key was though that the

political push especially that empowered the urban poor, ended up creating changes in standards that applied to everyone. why didn't canada run into any of these problems i've been talking about, either -- new the early period of the agrarian of unit banking agreement on this more recent urban populist too big to fail bank agreement? and what we point out is that it's not that the canadians didn't have the same political pressures within their economy that we have. they did. you can see in canadian history that there's an agrarian populist movement just like the william jennings bryant movement. but what happens is every time that movement tries to pull together a coalition to a

certain banking predatory out, it fails. and it's clear that it is hidden because of the structure of the canadian constitution and particularly having to do with a fuse features, one being the centralization of power so that the country had to decide the banking system, not the individual states, and the other important factor was that the canadian senate was and still is appointed. it just before lunch by the queen of england. -- it used to be for life. and most of these pompous measures run afoul in the senate the canadian senate. that's where they don't get past. and, of course there was no merger wave to happen in canada and in the 1990s because they started off as a nationwide branch banking system from the 18 teams. so they didn't go through the

coalition air because of the canadian constitution, and therefore, they were subject to the urban populist errors because the banks were already merged. but that begs the question, why do the canadians end up with a constitution that was so different from the u.s.? and the answer there is it made perfect sense for the people who are in charge of tracking the constitution. and this was not an accident. this is very much an intent of the british government, which starts off, remember, in an environment of horizontal geography where the dominant group within the economy, affect the entire group when britain wins the battle of québec, the people who hate them, the french canadians are very reasonable the british had even taken over the country. and there at the absolutely crucial junction in the country from an economic standpoint,

québec, the route to the atlantic, and the entire beloved i think you're a canada depends on being able to get past that point. and, of course, the french recognize that and they want to use it to get independence for themselves. so it was actually an experience with this early system and the french canadian recalcitrance to any sort of economic projects that would benefit the interior and ultimately a french canadian a price in 1837 that let the british to decide have had great a new political system of high centralization but democracy but also with checks and balances. they couldn't get bridge citizens to migrate to canada to develop the interior but they needed it to be a limited democracy because the french were inherently not in agreement with the aspirations of the british government and needed to be effectively diluted in terms of their impact on economic

policy politically. the canadian constitution is basically a mechanism for diluting french influence. coming to the end now, some quick takeaways from what i can tell you. of course, this is just scratching the surface of what we do at much length much greater length in the book is first of all let's just talk about the democracies. democracies tend to very low its appropriation risks of have a lot more credit typically. some democracies, however, tend to be stable with abundant credit in some tend to be unstable, and that depends on how much the banking system into being used as a populist tool. the last point i want to make is that there is no getting around the inherent political process of banking regulation. there is no way to get politics out of the process of banking regulation. you might say that's a depressing message because ultimately there's no way for us

to some to decide to become canada i'm guessing that we necessarily would want to but that if we did it would be very hard. i gave this to a libertarian group, this same topic and somebody said why can't we just to be canada? i said how many of you would like to have the u.s. senate appointed and touted by the queen of england? no hands went up. [laughter] so the u.s. was from the very beginning of place that revolutionary ideas about individualism which translated into a particular kind of populist government outcome which we are living with right now. i'm not saying that it's impossible to change it but i'm saying it makes a lot of sense the store click here and a final depressing thought, i would say there's really no reason to believe that the history of financial fragility that has so characterized the u.s. and been so absent in canada is going to

change going forward. thank you for your attention, and let's have some questions upon.[applause] >> i think there's a mic, or not. i'm not sure. >> you haven't said anything about management, ownership or structure. for example the s&l industry used to be -- [inaudible] >> i like the point and i think it's a reasonable point that you'd want to look at all of those issues, but our point is that those are also predatory outcomes. those are political outcomes. so i think that when you do look at of course with greater

competition, which finally came about in the 1980s and 1990s, mutual institutions have largely disappeared. not entirely in the u.s. but much more compared to what they were, the savings and loan industry being an obvious example of the kind of unit banking mutual kind of arrangement. so i think that, i haven't thought a lot about the particular political preferences that gave rise to mutual, but i would say that there again we see that that outcome changed a lot as a result of the creation of competition. so maybe the mutual form as an ownership structure wasn't ideal, but any system of unit banking you could tolerate those less efficient times ownership structures. whereas once the system became more competitive they weren't able to be tolerated. i think there's an element of what you're saying but again i see that as an outcome of the political process, allowing that competition to take place, or not.

>> you sort of brought up the history of unit banking, and more recently had the urban this is such a big financial crisis we had. isn't shifting us into -- like you see things being a new era the next 20 years? >> so, it's hard to say that at the end of the book we talked a little bit about this. on the one hand, the mergers have already happened. you all already seen the largest banks going from the very highest cra ratings in a more satisfactory cra rating. they don't have to engage in any more in this contracts, and so you could say the alliance is going to change going forward. on the other hand, if you've noticed some of the proposals having to do with the mortgage market, are talking about disparate impact as prima facie evidence of discrimination, meaning that it is a mortgage standard it tends to mean that

poor people can't get mortgages as well, which is sort of in the underwriting standard would kind of say that. what that means is you now have committed discrimination. that has not become the rule of the law in the united states yet, but it's a series of proposal. so it's hard to say how the coalition will emerge going forward. there's some evidence that branches have been reduced in inner cities, community reinvestment ratings are declining a bit to satisfactory. so you might say it looks like things are changing. on the other hand, we are seeing these coalitions tend to reassert themselves in some other area. so i was a we have some further articles but if you go to our website by the way fragile by design.com, we have been writing some further articles even after the book talking about some the changes in the political coalition and how they are evolving. so it's hard to see. it's a great question.

i don't have the antics of to say that i wouldn't conclude that just because the merger wave is over the it's the end of this second coalition to it's a very powerful coalition. >> three of the countries that you mentioned that did not have a banking crisis all had a british imperial heritage. what was relationship to that, how come you didn't put england obvious, but what policies did they follow that the six that did false because i agree with you we do mention in a book that all six of those success stories are former british colonies, you're right. of course, there are lots of former british cars that are not on the list. but i don't think it's just a coincidence. i think you're right that there's something about the legal tradition and -- favorable about political democracy, and i told you that canadians story

explicitly. in new zealand it's very similar where the minority are playing the role of the french in terms of the development of the new zealand constitution path we think. we didn't do a whole chapter on that but we have a few paragraphs in the book about it. so yes, i think it's not just a coincidence. there's definitely some favorable features of the british legal tradition that you could point to, but i think i can the key dividing line is that whether you're a british colony or not, but whether you through that evolution, ended up being a country in which this kind of political use of the banking system was relatively unlikely to succeed. but i agree with you to the point. >> the german banking system has a different tradition over hundreds of city owned banks in germany seem to be quite stable the last 100 years. and likewise the state-owned bank of north dakota seemed to

be quite stable over the last 100 years. candies publicly owned banks also provide abundant credit without crises? >> well, i think actually the german example answers your question very definitively. they are a complete mess in germany, so state involvement in structuring those banks has been a catastrophe. the spanish, a similar story. so i think we wouldn't want certainly what we know of a state owned banks, they are lossmaking enterprises to allocate credit on political basis but i think that they are catastrophic. but i would point to the german system of the major banks as being, i would agree with you that those banks were traditionally relatively stable also. we do talk about the development of that, because in particular he might say well germany wasn't that bismarck fellow, was he an autocrat?

we did talk about that a bit in the book, and the quick answer is it wasn't autocracy but with lots of checks and balances -- it was -- limiting acts of repression risk that democracies often fulfill relative to autocracies. i think we do have some interesting things to say about the german banking system. just one more. actually a few. [inaudible] the repeal of the glass-steagall act of 1999. we were told they would have firewalls put in place that would protect the commercial -- [inaudible] but then and '08 the distinction

seemed to disappear. [inaudible] >> it's a big question that you're asking. you know we do talk about this a bit in the book, but let me answer it in a quick way. which is to point out, we've got the volcker rule, which is limiting proprietary trading now by banks -- [inaudible] >> well, it's actually limiting by bank holding companies. but guess what the big exemption for it is your for the volcker rule. so you can still set up funds as a bank, like the funds that were set up a goes into trouble because the exception is as long as it's mortgage finance, you can do it. i think that's very telling. this wasn't a crisis that had to

do with the relaxation of glass-steagall. this was a crisis but proprietary trading but even paul volcker doesn't claim was. it was a crisis that had to do with a subdivision of risk and mortgage credit and it's very instructive that despite all of the regular changes in 2010 that you are always our specific carveouts from risky mortgage credit which tends to also get beneficial treatment in terms of very low capital requirements. that political deal of course is exactly the political to affect us into this mess, which is low capital requirements and carveouts to encourage risky mortgage lending. because of the politically popular. and before any of us blames the big banks can we should all should take a close look in the mirror to see if we were part of the political constituencies maybe individually like getting all that cheap mortgage credit. thank you very much. [applause] ..

>> transfer tax at hunting down and capturing the second-largest number of facets ba history. these crimes was when it be a principles past with rooting out in building the case against them. this is about an hour. >> we are very fortunate with us to have cmd grants this afternoon. she is quite a remarkable story to tell. a story from inside the cia where she worked for years hired by the cia right out of college in 1967. sandy said to not decades rising through the ranks, working against the soviet union and eastern european countries. she was about to reside in 1999 when she was asked to stay for one more assignment. that assignment involves a five

person team figuring out why so many cia boasts values soviet assets have been executed or present several years earlier. the investigation and that the exclusive one of the most struck traitors in u.s. history brick step three counterintelligence officer presents his conviction, said three has in serving a life sentence. a circle of treason is the first account from inside the cia that only a pilot aims was caught but as demand that he betrayed. sandy worked with jean another longtime agency member who participated in the investigation. their book was first published a little over a year ago it 2012 and jean passed away at the end

of 2012. but their story has gained fresh attention as a result of the eight part abc miniseries the assets which started airing last month. there's been a lot of focus lately on women of the cia. the move easier a character he played a pivotal a female undercover officer tracking down osama bin laden and the popular showtime series homeland revolves around feed the analysts. sandy's real-life facts about the drama. she told me one of her conditions of their putting together the essay was that her character had no affairs. she put her foot down there. the sandy remains a very bright

and determined intelligence professional who did our country a very great service. review of her book in the "washington times," call "circle of treason" and the most gripping account of a counterintelligence operation that you are ever asked to read. ladies and gentlemen please join me in welcoming sandy grimes. [applause] >> thank you very much. can everybody hear me? i have to take my glasses on so i can see my notes. i am delighted to be here to talk about her book transcendent. before i get started, my remarks are going to be fairly brief because they want to leave a lot of time for your questions and i'll be glad to answer isam most of them won't be able to. i also want to say i'm here to represent my good friend and

co-author, jean berger say. as i tell you about our journey to determine who or what caused the wholesale loss of her soviet assets in 1985 and in 1986. in 1991, that led us to search for a trader in cia. to make matters worse, we knew he would be a stranger. he'd be a coworker a colleague, someone with known for a very long time and someone we probably saw every day in the hallways of our headquarters. but "circle of treason" is not just a story about how we identified a spy. it's much more than that. for the first time jean and i are able to tell the history of cia's contacts with the stick guns. many of their stories are ours

as well. we participated in the handling of the number of these cases and we watched as those we knew were arrested and executed. always concerned that we might have made a mistake, which led to the deaths as a burden no one wants to kerry. but i have to be completely honest. that is what a number of us and cia had to do for the next eight years. until our mall was identified. you may have noticed i have yet to mention his name. we all know it aldrich ames or rick as he is known to us. and yes he was a colleague. for me personally, he and i were carpool partners in the mid-1970s and on april 16 1985, rick james decided to walk

through the front for the soviet embassy downtown washington d.c. 16 straight and volunteer his services to the soviet union. two months later, he also decided to provide its kpt handlers with the names of identifying information on every single one of arguments sources reporting on the soviet union. those currently reporting long retired and no store that. in doing so, he knew full well what fate awaited them. they would be arrested. they be interrogated. they face a trial. they be conveyed to it and they'd be executed. a bullet to the back of the

head. now it's 1985 and our nightmare begins. lake mary g are your assets will can't whom whom are in athens, greece receives a cable from his headquarters saying you are to return to moscow. he decides the factory break and safely to the u.s. early on us kbg asset in late host nigeria is arrested in moscow during a home leave. sometime between late august and early at cooper, r. g are your asset in lisbon, portugal is also arrested in moscow, also during a home leave. november 6, our kbg asset here at washington d.c. boards and air flight at the last bound for

moscow. over and back from a short trip. we never see him again. again early november our kbg asset and bottom with germany travels to east berlin for a three-day conference. he disappears. and into 1986 february, our kbg asset in moscow is arrested. june or july as best we can tell, our g are you asset and moscow is arrested. july 7 1986, our long retired gru asset on a general dimitri of the cost is arrested in

moscow one day after his 65th birthday. he's the highest-ranking highest-ranking soviet intelligence officer's this government has ever run. and unfortunately in 21987 our kbg asset also in moscow also long retired is arrested. so here we are. it is the end of 1985 and obviously some seriously wrong. two possible explanations. we either have a human penetration at cia or our communications have been compromised. in other words, they are reading our traffic. what do we do? our first action was taken in response to a new volunteer. in january 1986 a soviet

intelligence officer volunteered to cia. our goal was simple. we've got to try and keep this one alive. we had no idea whether the trader or technical penetration so we have to guard against each possibility. with respect to the trader side of the equation we institute will be filled to prefilter thursday affectionately call turkana and measures. we simply eliminate almost everybody from those who are aware of pardue asset. now we've got to address the technical side with respect to our staff communication and the possibility the impeding traffic on her soviet cases. well, this one is more difficult so we basically put it.

rearguard staff communications. the racier table traffic between headquarters and the field station where a new asset was located. we went back to basics to communicate. as we also say it wasn't the stone age, but it was pretty close. although we did have a technical something that was sort of out of this world at the time. okay, so we have our new asset. he's okay. we are keeping this one alive. enter my co-author, it gene berger say who is on the side in libreville as his chief of station. she returns to headquarters in the middle of 1986 and she is tasked with trying to determine

what the heck happened. she is a small task force of people who begin this effort. now at the same time jean and her people are looking at our losses. the fbi has also established a task orders. they suffered similar problems with their soviet cases during the same time. this week. now we're going to have to fast-forward. it's early 1991. a little over five and a half years later we still do not have a clue as to what happened. not a clue. that's not to say that there were plenty of explanations, plenty of leads. there were laws. each was fully investigated and each was discarded.

meanwhile, the fbi also doesn't have a clue as to what caused their losses. however there is a bit of good news. since the answer to the district attorney in security measures, we have not lost a single news source and the number of virus working sources on the soviet union had continued to increase and we were able to keep every single one of them alive. because of this, there were some people in senior positions in cia who believed what had happened in eight 1985 and 1986 was largely an historical process. and maybe nice to know the

answer but it was not affecting our current operations. we were doing just fine. where once again back in business. all right. enter jean again. she was facing mandatory retirement at the end of 1992. she still felt terribly guilty she had been unable to answer the question as to why we suffered so many losses. during that awful. and she wanted to spend the rest of her time until mandatory retirement taking one more look at these old cases. there has to be an answer. that said 10 feet this is a solitary effort. it would only be jean looking at the old records. however, that was soon to change and again, i have to be

completely honest, it is really due to happenstance that i ended up working with jean looking for the answer asked it to fbi employees. one is special agent and won a soviet analyst. eventually we added a fifth member to our little task force, cia officer. our office of security. now, the book takes you through our search for a trader out of approximately 160 cia employees who over the years had access to information about one or more of our cases. the investigation itself and i will use one of genes favor of words was many wrong and it

really involved simply months of mindnumbing work. with the occasional nicad which kept us going. now that is not to say there wasn't a eureka moment. there was. it occurred in early august 1992, just a little over a hereafter are group had been assembled. at the time i had been given the task of creating a chronology of all of rick's activities are made teen 85 until the present. 1992. that particular august morning i was able to connect the days of meetings rick was having with a soviet developmental contact here in washington d.c. with cash deposits that he had made

to one of his local checking account. this was the first link that would lead to his arrest and his conviction. it was cash. it was after meeting with the soviet national who was not an intelligence officer. not gru not kbg. he really was what he said he was. everyone of these departments at that time only three we have records of everyone was below the 10,000-dollar reporting requirement that the feds had put on the banks at the time. lastly were set time and i am very afraid that rick ames was going to get away with treason? you bet we wear. oddly enough it happened just about her task force trying to

close in early 1993. several prior at the fbi analysts began to repair a report of our fine aids. now this was not a cia document. it was an official at di document because we were turning everything over to them. jean and i certainly did have a say in the pages of that draft paper. but the final wording was beyond our control. as we understood it when the report came out in march 1993 it did not identify rick ames as the primary suspect. they did however have his name -- include his name on a short list of other possible suspects. for jean and myself, it was a

pretty difficult time. we were absolutely that rick ames was their trader, then we spent two years looking for in our analysis proved that to be the case. we also know obviously the fbi did not share our belief and would continue to focus on others under new short list. but thankfully and it truly is painfully, additional information became available which didn't identify rick, but it certainly identified his direction. they forced the fbi to open a full scale investigation of rick ames. one year later february 21, nate t. 94 president dey

government holiday and we were at work. rick james is arrested by the fbi around the corner from his house. not too long after that he was on his way to cia had orders to answer if it dishes cable. however, not too long after that, his wife are sorry i was arrested home. both eventually pled guilty to espionage. the sorrier received five years which she served in a federal facility in danbury, connecticut. upon a release, she went straight to her u.s. citizenship. she was a naturalized citizen and reported to columbia. rick received life. you know, i was just thinking it's almost 20 years -- coming up on 20 years. the federal island pennsylvania is still residing. as i mentioned at the beginning

jean and i are most proud that we have finally been given permission to be able to tell the story of our assets. they're about real people, real spying and real contribution and most important as jean and i and certainly so many others understood, when these intelligence officers volunteer to the united states government a nuclear protein or lives in our hands and we, meaning cia, failed then. we couldn't repay them for their sacrifices and research they couldn't repay their families for their losses. but we did go to each and every one of them in an error.

that was so cool. that was their mission and that really is the story of "circle of treason." questions on that? [applause] gas. >> so this happen 20 years ago? with today's technology, data mining and predictive analytics committee think that would've accelerated you or helped you in your search? >> no, not at all. i will just use this as an old. rick ames had no personal meetings here in washington d.c. all of this personal meetings with his kbg handlers for her art. he managed like hot pants and then the fbi if you keep it simple, it tends to work.

the basics usually don't fail you. he voted jobs. he may signal sites. he unloaded drops and he had complete kabul is under complete technical coverage by the fbi and they are very good at. the funds were about. there are cameras everywhere and it wasn't just that his house. it was cia headquarters. they were weak and dishonest car. so no, all of that stuff not in the terms of the spying that we did. questions please. [inaudible] -- increased affluence and it's been a long time.

i remember questions about how can people not see the affluence and why does that raise questions? >> risk and is increased consumption and the one thing you read in the papers all the time was his red jaguar. let's put it this way break as i said walked in started to work for the soviet in april april 1985. you size your change and rick ames until he returned from a tour in row and that was in 1989. he was still the slovenly rick ames i had always known. truly. but rick said this was his cover story, that he had gotten the money from his wife's family

rosario. her father had died in the had died in the mid-80s. we knew they were from a well-connected family in colombia. as a matter of fact the family as it turned out gave the land to build the largest soccer field. rosario who met rick when they were both assigned to mexico city at issue is with the colombian embassy there. she got her appointment from the president of colombia. so it was not out of the question that obviously some of this money came from her side of the family. but i always say this with respect to that red jaguar. rick and i parked in the same garage and this is why we were on the task force. i had to walk past green bay jaguars before i got to my car and one was bricks. so you know, this was an out of your area.

the same and i might add that somebody didn't ask the question with respect to rick's drinking pg and i had known him for over 20 years. i did socialize with rick a day. we were not close friends but we were close in age in which grown-up in the organization. even at the christmas parties, which were very nice affairs in the olden days, i never saw a rick drunk driver. so you read all this stuff. i think though he was a binge drinker and particularly after he married rosario. this was his second marriage. whenever she was out of the country or out of town he would get drunk. it was sort of this at all myself on.

i never met rosario, but she was so difficult her lawyers couldn't stand her. even her poor euro prize listening to the phone. this artwork was abused. [laughter] a human touch to ames. i will add one thing. if you had told me a rick james is going to be one of the worst traitors this country has ever seen, i would've said no and the early days. not a rick james i know. i knew him since 1973. >> were there other people around you other than rick ames bedroom or suspicion and have you thought about what was distinction between him and the others that he seemed to be not suspect to such an extreme

degree? and do you know whatever happened to rosario? >> i'll answer that one first, what has happened to rosario. i don't have a clue. i suspect she is alive and well and living the good life for her family is. they did have one child. paul is his name. he's in his 20s now. when rosario went off to jail, her mother took paul back to via where he was raised. who is five or six at the time. rick had no children by his first marriage. now whether my aunt during? what was the question again? >> why he was so not suspect. >> well i am not going to tell you their names. however, this is a story --

fairly long story. when we started the task force, here we are. the sky to hundred 60 people. we immediately have a terrible problem. no way we can investigate 160 without an army. so we have to find some way to prioritize. this was jean's idea. innocent hole, not same toothache and i will save roundly criticized by people in positions of power after fix the rest. but it worked. what we did was we asked -- we had the four members of our task force commenced in a gene and the two from the fbi six other individuals. for from cia, two from the fbi. we asked them to please privately write down on a piece of paper -- i'm almost embarrassed to tell the story.

i told you so many times. the names of five or six people who made them uneasy. don't forget, we are looking for a trader here. made them uneasy and individual state that we should take a close look at first. okay then we asked them to please put them in rank order. the one that nature to most nec second and so on down. as we say this is not a contest you want to win. we took a submission. we totaled all the numbers and a real surprise. rick ames came out on top. yet the most points. 21. and i will tube my own horn here. as they say i will use gene's words. of those who voted c&d gets the

gold store. we have a new shortlist because rick wasn't the only one who got more than one or two points. what we did go we looked at the small group first. eventually james became our primary target our primary focus. that is not to say we didn't continue to look at the rest of the people. by this time 152 on our list. but we did concentrate on those on our short list. so that is how it is sorted out. >> said these events were 85 86 87 and the task force was formed when?

>> 91. >> and a timeline question. how long did before the meet before you zero dan in god that he was primed? was immediately? >> it was about a year. it was less than a year. it was less than a year because the eureka moment came a little bit more than a year and then there was no question. there wasn't a question to sandy and jean. [inaudible] >> exactly. and then what happened did bureau in 1993 came in after we got that additional information. they got the fisa approval is than it was an investigative affair. obviously we are very involved

with the justice department and the attorneys because they want evidence to be able to prove espionage charges. one of the worst cases in the world to have to try it so they catch them in the act. the mac had a day that the members of the program to make sure you weren't the mall. that must've been unbelievable. do they take a chance? i'm very curious. >> i have to say you're the second person to underestimate question. i think it's a great question because it would be the first i would ask. jean and i had to be read pauly. it was crazy. we were fortunate in that while she and i knew almost all the sources, we had been doing

different things in 1985 -- 84 and 85. she was unaware of some of these new sources, the current one and i was handling all of iraq dvds related to soviet and east european in africa. now i certainly was aware of one of the cases. he was one my branch was responsible for keeping alive an oscar and a policy of who is in legos, nigeria. so i was aware about one. but because we had insufficient knowledge, but you are correct we both did have to be read pauly and it had been determined that sandy and jean were going to work together in the fbi guys were going to come over. so then we got news coming to have to go have a polygraph. i'll never forget that day. she said to do just fine.

i said that's because i have to go first. but i got a speeding ticket that day on the way to the polygraph office. >> for the five if you aware that you were in the middle of this times? aristocats quieter? be that we didn't keep it from anybody. i think that's an important distinction. this was not going to be a paper exercise. but the first time around. we were looking for human penetration of cia. rick was aware of it. he even interviewed rick. people who are aware of the operation to gather more information about how paper was really handled. you know, you could read what it says in a file. nowadays and e-mail but you really don't know the interaction of people.

>> two questions. i am surprised that he could walk into the soviet embassy in washington d.c. and most of the embassy under surveillance? two, i just wonder if there was a moment where he was arrested when he realized he knew who he was or if not what was that like to have to work their? when he realized it was him but he hadn't been arrested, how difficult was it to have to deal with him? >> it was more than difficult. you know, most of the time we are pretty good actors and act as his, but that was tough. i will say personally confession, i smoked during those days. you couldn't smoke in the building so go out to the courtyard to have my cigarette. brick was a very heavy smoker and because we are friends you

know, acquaintances, he would always come over. were you doing today c&d? how's the search going? i stopped smoking. i was so afraid i was going to mess it up. but you know, and heinz sight i didn't have anything to worry about. rick was so arrogant. there was no way it to ladies and add to fbi guys are ever going to catch me. it was really sad. [inaudible] >> surveillance. you're absolutely right. the bureau has coverage. so what did rick do?

after he leaves the soviet union -- the soviet embassy, he called his buddy, i assume it was the washington posts. assume it was the washington posts. they went into the embassy at 1:15 p.m. today. now she had sort of an excuse for being there, sort of. we have cia had quarters of earnings that he what to do the embassy. until later during the investigation you know, when the bureau was basically handling things. however, at the time beginning in early may 295 rick was developing as i said is soviet national. he was an arms control specialists. there is nothing out of the ord

mary rick doing this job. his contact was known to have a headquarters come to cia headquarters. he reported the contacts to teach during the developmental phases and that particular day rick was scheduled to have a meeting with chewbacca and at the mayflower. chewbacca and who doesn't want anything to do -- brick was an alias, this american. if i have something to do with this american apache reported to the survey. that is not something most soviet citizens want any part of. so they kept ignoring rick. that day scheduled lunch. chewbacca doesn't show up again. third or fourth time. register is down three or four vodkas.

little courage and decides he is going to walk right into that embassy and if he's ever ask him how say you know, i got sick and tired of being stood up by this punk. so i walked in. guess what it. he showed up for the next scheduled meeting. he had cover for action as we say. >> you had mentioned that it was the finding of the fbi report and the way it was structured that could have either made or broken your case. was it an internal path within the cia that you would have thought otherwise that they would've followed up on their own based on a level of effort you put in?

>> i don't know the answer to that question. i don't know. all i know is i only know two aims. one, when g and i first started this, we always knew we able to identify who are trader was. and our wildest dreams would never, ever imagine that he would be convicted and go to jail. i just wouldn't happen. we would be able to answer the question internally and the fbi report -- i don't know. it was an official fbi document. did we make mistakes? yes. do we talk about in the book that we certainly should have to but we didn't really even think about it. these are our buddies we are working with. the fbi and cia. these were not strangers here.

there's no question we were surprised at the final report. how and why that happened is beyond me. i don't know. but in hindsight, we probably when that came out, we should've done that ahead of time on the off chance because we didn't know what the official final paper was going to look like. we should everett around. rick, bob loblaw and that's the reason. we didn't and that cost of problems. yes. >> this is about the tv programs. i watched the two episodes that were aired. is there anyway you can see the other episodes? i would like to see that as well. >> i will say this, there is hope. and the reason there is hope is because the president of abc

announced to the press that the assets will be shown in some format whether it's cable, netflix back on abc proper. now he said that one week after he canceled us. but now, i have hope. it's sort of one of the stay tuned. i did get to see episode three and i have to say it's much better than the first two. [inaudible] >> yes, there is still hope. another thing i'll say for any of you who watched it there is some creative license. number one, i've never made pancakes in my life and i certainly have never prepared a

hot breakfast for my family during the week of her -- ever. it was always cold cereal in the car for the process they took them to the babysitter. and no milk. drive. >> minus 30% question. what did you think about the new tv show? >> well, it is a word i doubt he say never been a part of. i will laugh though. i wish that it had happened maybe 20 years ago. a lot more fun. however, for you ladies here are, the day i was on "good morning america" i had a professional makeup artist who traveled with me he had tired

day. it was wonderful. i didn't wash my face for about three days either. and false eyelashes. it was fun. >> thank you. >> you're quite welcome. >> he said that you check his bank records. i am just wondering in terms of employee confidentiality and staff, due to aging -- cia agent sign a release -- >> it's called the national and tell a chance for something like that. >> i was never involved in personnel security, but it is part of the authority of the director of cia.

the only in the counterintelligence cases. in other words, there has to be some suspicion. [inaudible] -- evidence? >> i wouldn't call it evidence. the research is circumstantial. now, it also included bank account checking accounts. however, they could save now and in rick's case they did. but the big thing was part of it wasn't just his bank accounts, credit card accounts. and they were little things that would come up. i can't believe he was so sloppy. well, i guess i can. he would charge an airline

ticket. new york to vienna austria. and we were her the rules and regulations as a cia void out of the country, whether it was for pleasure, you know, vacation, you have to get approval from the office of security to do that. of course rick had done that and of all the places, dns austria the hot it is buying east and west. so there is little things like that. i have to say is we were going along it's probably like a police investigation if you're looking for a murder suspect. you are trying to eliminate brake as your suspect. every piece of information. you don't want to get the wrong guy.

>> how did you determine where his motivations for spying? >> simple greed. it was money. no money was again a little bit of a twist. jean and i are absolutely convinced of it had not been for rosario, rick never would have committed treason. the material things were not important to him. but in early 85 he was facing a divorce, although he hadn't told his current wife that he needed a divorce because he had promised rosario, who is now an estate that they were getting. in august. rick knew he had to divide up his advanced assets. there weren't a lot. basically it was $20,000.

that's really all he needed and he said they could have come to the agency. we help our employees and he chose not to. however he never, ever would have been able to keep rosario in the stylesheet that she was accustomed to. i mean, neiman marcus and up the ladder. that's all she was concerned with. >> you indicated in the book that getting the manuscript vetted by the agency was a struggle. you finally got about 90% of what you wanted it hurts. you think it would be a story that the agency would run out. why the difficulty? >> first, let me tell you we didn't start to write "circle of

treason" until nine years after rex arrived. the first time they put pen to paper. then it was four years later after several serious medical issues, and that we had our first draft. we submitted to cia publications review board for approval. it was painful. that first draft -- we were just kind of shocked. in his pjs of black. so it took us three years of back-and-forth. i think a big part of the problem was the story of the assets. you know, this is the secret world. however, every one of those guys -- they were gone. and the kbg knew more about the

operations than we did because they were able to interrogate them. there were some other things that the agency asked that we remove. they didn't tell us why although we sort of had an ink queen. times change. things that might not have been classified. when you're dealing with human beings things that i not have been classified in 2004 there can be a circumstance that would require the story not be released at that time. for the most part, i would say say -- sorry, sorry. for the most part, 90%.

the 10% one where circumstances had changed and the others were just. in this sense when you read the book you will see people their first name and the first initial of their last name. i don't know. i think it was like working for an insurance company. there's there was just on the rules and regulations. it didn't make any difference if these people had retired under cover. it didn't make any difference they passed away 20 years earlier. it didn't make any difference that their names were in books all over the place. so finally, we just gave up on that and said the heck with it. but i would say it was one of these -- it was just hard for them to accept that this kind of material should appear in

public. do you paid for it. >> you mentioned that you did a straw poll and discovered that amongst the investigators for lack of a better term you did a straw poll and mr. ames made people of the most and easier whatever the rate reveries. in the wake of always find the last 10 years or more about the concept of brilliance and genius and it just manifests itself after years of experience. did you sit with them marcucci articulate now what made you uneasy about him? >> it was his ego. it was so huge to the point that even his posture changed.

that is the difference when rick left for rome he was a tall guy. and always says i said a slob. he was erect. he was in charge of every day. he was smarter than anyone in the room. and we all knew that that certainly was not coming from cia. his career was a dad. -- a dead end. he was a gs 14 and that. and all of his classmates are rising through the ranks. but it didn't make any difference. you have never seen anybody with such a frightening ego. it really was almost right name. it was so huge. that was as i say in the book that was said to rick ames i had known. he was a gentle soul.

it was really a personality change. but you have to remember, we worked with all of these people. it was a pretty small group and we had known them for years. i'm certain if you asked the same question yourself to your own organization, you know you could look in your office and say that person would never be a traitor. you know, hopefully. and it was really one of those. i know the guys in the bureau said i just can't believe were doing this. we said trust us. jean and i could never find a spy in the fbi. we don't know the people. we don't have the people and we don't know how the game is played. that does make a big difference. so yeah a lot of it is we could

never find a spy working for the chinese. the reason we couldn't do that is we don't know the chinese services. we knew the soviet services. we knew then probably better than any individual working. at times you have to think like the opposition. it's that old story there are a number of key here beside george c. scott in patton, when he said u.s. obe i read your book. and that is really what it is. that's part of it. any more questions?

>> not wishing that on anybody, if all of this evidence and he's >> not wishing that on anybody if all of this evidence and he's committed to -- why was he gave his life instead of the death penalty? >> a good question. that was all that was on the federal books at the time. i think this would back and i am not positive. i think this might take years to frank church, the church committee. i think that is what it was. i think it was death only in times of war and it might not have even been that. what did happen because it aims the death penalty was put back on the books and robert hanssen face to that. but instead he got something even worse. he went to super max in colorado. that place. that's the reason. >> was his sorry out a spy and if not what she convicted out?

>> i had to look this up in all honesty. broussard was convicted of two things. espionage was one and income tax evasion was the other. [laughter] she signed as 1040s. she did not know rick was spying until about a year -- and their stories match on this one. until about a year and a half before he was arrested. ..