they have given you a solution. here's the solution to the problem. let's just do this and let's not worry about lynching people and finding out the names of the high-frequency traders that did this in embarrassing people on national tv. the more of that there is the less likely there's a solution for the people who have been perpetrating the problem feel like they are really exposed. let's just fix fix it fix it. >> host: do you think congress and the fcc have the technical ability and knowledge to look at this problem? >> guest: yes i actually do and of course the question is is the money that was funneled into to the process by people making lots of money and is the advantage on exchange is going to overwhelm the debate? what you see is a fog machine and side of congress and inside the fcc with lots of numbers and data that don't mean much or false. my hunch is that now the problem is exposed in the way it has

been exposed that the problem can be dealt with. the regulatory process can do the things it needs to do which isn't necessarily introduce one new regulation. you see what happens with a very well-meaning regulation. i think the two things that people in congress who are concerned with this issue and regulators should always keep in mind is that everything should be in the direction of increasing transparency, genuine transparency not the radical transparency where people will know what is happening rather than digging through 800 documents. actual transparency and two being very sensitive to the incentive system they are creating in the financial markets. people respond to incentives. that is the story of wall street and the various crises we have had. people are just answering the call of incentives and when the incentives are bad the behavior is bad.

>> host: finally michael lewis i was a little confused by the last chapter. we need to tell everybody what it is and they can pick up the book "flash boys" and read it for themselves. are you previewing your next book lacks or is it something else? >> guest:the book ends, it will take a long time to finish. the book is like a bike ride writing along the fiber-optic cable and cut off for high-frequency traders. no one who is around knew what its purpose was. this thing is like a beast underground. i went writing along it on a bike and see while i'm writing on the bike a newly constructed chain of microwave towers covering on the hills in pennsylvania. those microwave towers are there

because they are able to move a signal at couple of milliseconds faster than this line put in three years ago. the mystery is who did that? i right up to one of the towers and i list the fcc number on the tower and i say go figure it out. there's an interesting story about who did this and why. it's not my next book but that the bottom of the story is the question. people want to know enough to find out how our markets work. go on the internet and you can figure out what's going on. >> host: the subtitle a wall street revolt in the name of the book is "flash boys" and michael lewis is the author. >> guest: thank you.

>> edison really was a plant scientist as well as interest and the other sciences and the story is that he knew that it didn't freeze in fort myers so a lot of the interest that he had here in this area were based on his love of plants. by the 1920s the united states was relying on foreign rubber and we were headed into war. at that point they decided the plant material and the process should be done in this country. edison ford and firestone were traveling all over the world collecting plants and in fact had hundreds, thousands of

people all over this country collecting plants in sending them back here to fort myers to his laboratory to find a source of plant material that could produce rubber efficiently and effectively commercially. so the laboratory was put here because of that reason, because they could grow the plants your own site and action to do the preliminary research on site so it's a really exciting project are the laboratories interesting for many reasons. one of them was at that point in american history there was no patents process for plant chemical patenting so part of the reason why this land was so important was that it caused the u.s. government to come forward with what was called the patents, the u.s. patent law which then said that if you invented something with plants and it was a process that was worthy of patenting it was issued a patent.

>> next on booktv charles calomiris and stephen haber analyze the banking banking systems and united states united kingdom canada mexico and brazil going back several decades. to find out what makes banking systems unstable. this is about an hour and 15 minutes. >> i am russ roberts of stanford university's hoover institute. welcome to the special edition recorded in front of a live audience at the hoover institution's washington office. he can't talk is part of the economics and liberty a weekly podcast on economics philosophy history psychology and whatever

i'm interested in actually. sometimes daily life. you can find us on itunes and our archive is that econ talk.org or there are over 400 episodes going back to 2006. today is february 5, 2014 and my guests are charles calomiris and stephen haber. charles is the professor of financial institutions at club universities bratches school of business and he codirects the hoover institution's regulation and rule of law research initiative. stephen haber is the aaa and gene welch milliken professor of humanities and science at stanford university and a senior senior -- at the hoover institution. their book is "fragile by design" the political origins of banking crises and scarce credit which is our topic for today's episode. charles and stephen welcome to econ talk. i want to start with the fundamentfundament al claim in

the book. you reject the idea that bank crises are just bad luck or perfect storm or random events. rather you argue that banking crises consists of fragile by design. what do you mean by that claim and what is the justification for it? >> the basic idea of the book is that banking systems are fragile by design because it is impossible to take politics out of bank regulation and it's impossible to do so because there are inherent conflicts of interest between government and the banking systems such that banks need governments and governments need tanks. those conflicts of interest basic to boil down to three features. first, government simultaneously regulates banks and borrow from banks. second, government simultaneously use their police power in order to enforce debt contracts on behalf of banks but, people who are being let's

say forced out of their houses because they defaulted on a mortgage are -- so when banking crises occurred governments often have reasons to not enforce those. third, governments are in charge of liquidating failed banks but the biggest group of creditors when a bank is liquidated arts depositors who are voters. governments have incentives to change the rules governing deposit insurance to political ends. they will often extend deposit insurance. because of those three conflicts of interest it's extremely difficult to remove politics from banking. governments have parties inside the government having an inherent reason for wanting to use the banking system for their

own ends and at the same time bankers need the government in order to do things like enforce debt contracts. there's no way of getting politics out. >> the book is a remarkable history of nanking and the banking industry in five different countries and the incredible work of scholarship and economic history combined with the political economy that we are talking about. charles i want to talk about the game of bank bargain which is a central concept in the book. tell us what that is and how do you apply it? >> the game of tank bargains is a phrase that we invented to describe the fact that the outcome of the rules of the game of tanking reflects political alliances that are formed between always involving the parties that are in charge of the government and some other

parties that alight together and form an alliance with the government to determine the rules of the game. the wind is that in the game of tank bargains there is going to be a group of people who are in charge and there are going to be a group of people often who are left out. it won't be a big surprise to you that the people who are in charge will use their power in this game to take advantage of the people who are left out. >> of course they are not a monolithic group. >> in fact be key in this is one insight that i think is important in the book. it's a little different from the way some political scientists think about political struggles where they tend to think struggles are between political parties. one of the points we make in the book is the coalitions that have been involved with say in u.s. history to design the rules of the game of banking have often been bipartisan. in fact they purposely have

structured themselves to be fairly immune to electoral partisan outcomes. and so just as you would expect if you wanted to have a long-lived invaluable coalition you would want it to be fairly robust electoral outcome so sometimes you get a very unlikely person who ideologically or culturally socioeconomically don't see eye-to-eye at all but find a convenience in being allies on a particular arrangement. >> the way i think of it is the democrats and republicans are the same. they have both like to give money to friends. they just have different friends but they have one friend in common which is the financial there and they both scratch backs and get their backscratching return. >> i would go farther to say that sometimes they may pretend to have different friends more

than they really do. >> do you want to give us an example of? >> i'm sure we are going to talk a little bit about the current u.s. crisis eventually but one of the things that i think is really interesting is that one of the contributors to the crisis was mortgage subsidization policies in the u.s.. >> homeownership. >> encouraging homeownership precisely and make way by creating subsidies for taking risks in the mortgage market. if you can encourage homeownership in a lot of ways but it was interesting if you look at the last 15 years or so at that policy what we see is george h.w. bush followed by bill clinton followed by george w. bush followed by barack obama and even though you might think of those people is very different ideologically they actually were part of a continuous thread of very

similar kinds of policies from the standpoint of somebody issues we are talking about here >> i would have to that that unlikely coalition members that set underneath these bipartisan agreements in the case of united states we have activist groups allied to bankers that were in the process of creating megabanks through the 1990s merger movement. to the point that at the federal reserve board hearings activists would show up for example from acorn and testify on behalf of the bank of america merging with nationsbank so this is not the usual roles that you would imagine an activist group taking vis-à-vis a bank merger. so you have these very unlikely partnerships precisely because they straddle partisan bonds are extremely durable and it abe very hard for any party to

deviate from the agreement. >> gets an answer sting coalition because as you point out a lot of voters in this discussion are the homeowners. there are clearly a lot of a lot of those that generally democracies they get treated particularly well so what i see is my somewhat cynical perhaps realistic take it that they are a vehicle that you cover giving money to these much smaller and lyrically powerful groups, the realtors, the homebuilders and the banks that financed them through the political incentives in the system. >> they got everybody who is part of that winning coalition in the game of bargains and did quite well thank you. so the total amount of subsidized credit that was contractually agreed as a quid pro quo for those activist groups to show up at the merger hearings which is an understatement that now they

actually received was almost $870 billion over the period 1992 to 2007 so that is not chump change. >> we have got into the weeds a little bit here and that i think we have to do a little bit of verifying. you were talking about the reinvestment act which i'm going to push back a little bit when we get to it more in detail but we should mention here that people who blame the reinvestment act and playing a role in the financial crisis get challenged. that goes back to 1977 but the peak of the law took place in early 1990s when it became the determinant of whether bank in whether bank emerge or not and that is what started to have an impact grade i just wanted to get that straight. let's go back in history a little bit and we'll start with united states. i wish we had a five or six hour hour -- but we don't. i know you don't like to stay for that but we will not be able to cover all the aspects of the

book but let's start with the u.s. and going back to the history of the united states. you talk about the 19th century as a particular era of banking united states. steve, tell us why the u.s. was so prone to crises. back in the teen century they said oh my -- there was bank run after failure. why why was he was so unstable in that era? >> with the say i'm appalled and the shock that we don't have five hours. i was counting on it. second to answer the more specific question the u.s. in the 19th century has a banking structure like any other country on the planet. it has thousands of banks, thousands of banks. >> tens of thousands. >> by the end of the 21st century tens of thousands which are in most states unable to open branches so every bank is what you would think of as the branches of tank unto itself.

that means in the event of a bank run you can't spread risk across regions if you are tied to the local economy and it meant that tanks couldn't capture scale economies in the so banks were very efficient. >> all this thing seemed pretty obvious. they are an efficient and they are stuck in the local economy. >> so there's a political deal underneath this and essentially just like we were talking about the coalition between populist and bankers and mega-bankers in the 1990s and the early early 2000's there is a coalition between small bankers and farmers in the 19th century. their concern is to get credit to small farmers and small farmers are opposed to big city people and big-city aristocrats.

so you get an alliance of small bankers and farmers against these bankers most particularly and famously is the unraveling of the bank of the united states first in 1811 and the central government realizes it needs a bank and then it gets unraveled again during the jacksonian period. and so in order to make sure than that tanks would not have to face competition in our markets in the early years of bank regulation in most states what happened is they made it illegal for a foreign bank to branch into your state meaning of bank from rhode island couldn't branch into massachusetts. they also made it illegal for a bank to open a branch. most states had laws that precluded branch banking. the point they make in the book

in the take-away of this is and i'm sure someone could write down an economic in which this made sense. you can write down lots of models. that was a joke but this is clearly a political arrangement. there is no efficiency or stability criteria by which to do this. it did however work quite well for local bankers because they had local markets. essentially they ran local anopheles and it works well for relatively prosperous farmers in a particular community because they knew that bank had to lend to them and nobody else because the cost of gathering information at a distance until the 1990s most bank lending in the united states is local really until the computer revolution. that created a sort of cozy arrangement good for local farmers, good in the north in the midwest and good for unit bankers and bad for anybody else who wanted access to credit.

every decade there was a banking crisis. >> is hard to remember in a world that we live in where agriculture is 2% of employment in the united states. in 1900 to about 40% so it's an important sector. people who are in port in that sector will be politically powerful in that region but as we go forward from continually through the 20th century and starting at the end of the 19th agriculture becomes less important as an economic fact your. why didn't the coalition unravel sooner? charles it's a nice story. it's easy to tell a story after-the-fact. explained why did it unravel and why did it not unravel sooner? >> first i want to emphasize how striking it is that it lasted for about 150 years. many things, there were lots of

shocking things going on in the u.s.. two world wars, great depression, a lot of banking crises during the late 19th and early 20th century. even the savings and loan crisis in the 1980s which finally contributed towards its demise but what's interesting is over 150 years of turmoil and inefficiency it persisted. part of the story is federalism in the u.s. because starting from the very beginning the states had authority over deciding what the rules of the game of engagement for banking were going to be within their states and also they had the authority to restrict state banks from participating. so that meant that if you were in kansas or illinois or many other such states the

agricultural interest there wanted to maintain unit banking they just had to win the battle at the state level. so it was a lot easier for this agricultural interest to win the battle at the 50 state levels then it would have been if they had to fight that battle on a centralized basis and we make that argument sort of at length in the book why that is and it contrasts in particular one of the things that explains why the u.s. has such a hard time getting a nationwide banking system going was the decision-making about the loss was at the level of the individual banks. in the 1860s we create the national banking system that sounds like something the federal government is going to do that could have been a nationwide banking system at the bank of the united states or the second bank. what happens is the comptroller of the currency in congress would not let the comptroller decide differently but the comptroller decided that

national banks had to be unit banks. >> a unit banks means one building basically. >> so national banks out in the middle of nowhere. that was it. >> what was the actual amount? >> the charters were the same. they were operated under the same rules under the same chartering authority under the same supervisory authority but in terms of the business they did because one is in the city and what is in the country very particular risks. they couldn't diversify across regions of the u.s. was understood practically making fun of us. canada especially looking at the united states and saying what a ridiculous banking system these people have but it persisted because it was actually pretty challenging to create a nationwide branch banking

movement in the environment of political decision-making that was so fragmented. >> one of the reasons it doesn't unravel earlier is the establishment of the federal reserve which was a lot of people think of the establishment that they fed the central bank of the united states as well while bankers get greedy and people get greedy and they get out of control. they run amok and then he needs someone to clean up the mess neglecting the fact that the mass was baked in as you use the phrase in the fact that they were in a unit banking system. the fed politically was away to mitigate some of the worst effects of the system and keeping it going longer than it would have. is that correct? >> what you you have seen is the reaction of a panic of 1907 and 19 away. there is a national commission created to look into how to fix the banking system. one option they had in fact they

said a banking systems in other countries including mexico which had ranches of two of the largest banks nationwide. they studied canada and they studied mexico and they studied germany. they were quite aware of what the other models were. they rejected all those models in favor of retaining unit banking by propping it up by creating 12 regional fed banks that essentially lands to unit banks by increasing liquidity in times of crisis. >> essentially a safety net for them. >> essentially a safety net or the banking. the same thing happens in the great depression where i'm sure everybody remembers in their high school textbook which talks about how the new deal saved the banking system by creating deposit insurance. what they don't remember is that

that -- i helped my daughter study for the apt test. >> did you do well on that exam by the way? >> i got up for it. >> when my daughter to the exam i panicked. i'm going to hurt her chances. >> i usually did that at english classes. my daughters decided my father does not know how to write. probably right. in the great depression not only did my clients get these in english but the response was again to prop up the unit banking system. >> he could've said this is incredibly messed up. we have thousands of banks fail. instead they said let's move this lever. >> in order to prevent the consolidation of banks which is what would have happened in the

absence of for example deposit insurance which made it illegal to pay interest on checking accounts and the interest rate paid on savings accounts. all to discourage banks from competing with one another and doesn't discourage people from moving their savings from one bank to another. what i want to drive across here is this comes back to something charlie said. there is a coalition of populist in unit bankers that drives that decision. fdr was against deposit insurance. >> when he was governor of new york. explain why. it's important to a starkly understand that. >> actually when he was running for president in 193032 visa deposit insurance would make banks riskier because they would take excessive risks. we call that the moral hazard problem when you ensure someone

against risk they tend to take more risk. he was definitely against it as was the federal reserve by the way as well as the treasury department as was carter glass who had been the architect, one of the architects of the federation way and was the architect of banking reform, some of the banking reform strain the 1930s. steve carreon. >> that someone was in favor of it and someone is the congressman from alabama in the house banking committee and he is determined to protect bankers. he ran deposit insurance through at the last minute and what is interesting about it is it is put in place as a temporary measure that was only supposed to affect very small deposits and years later it is log world and made far more expansive.

.. >> the protection was only on small deposits. now you understand better why he liked deposits. it was clearly a transferring

mechanism from city banks to small country banks, so if you're an alabama politician, it looks good. there were 150 attempts from 1884 until ultimately 1933 to bring the federal deposit insurance legislation forward, and they were all done by similar people under similar circumstances. they never got out of committee until finally in the 1930s. >> so why did the populous coalition fall apart suddenly? >> there's a couple pieces, and we can bounce back and forth about this. one is consistent with changes that were occurring in the banking industry. y'all remember the -- well, you guys are too young. i remember the introduction -- >> oh, the people out there in the audience. >> we're all the same -- we grew up in the days of disco. [laughter] you remember that the 197 os for both famous for district and the

atm. >> yeah. >> and what's interesting -- so the network atm and computer technology that goes with it allowed for two things. first, computer technology allowed bankers to assess borrowers at a distance. they were not seal into a local unit bang, but banks could skirt the laws governing branching by simply opening up an atm anywhere they could rent six square feet of space. >> like a small branch. >> yes. in fact, they took big banks to court over this claiming that the opening of a network atm violated the law. those lawsuits went all the way to the supreme court, which finally in 1885 ruled an atm was not a branch. second piece of this had to do with the fact that a system in which there are regulations

governing interest rates bank can pay, regulation cue, only works at a time when inflation is very low. so, certainly, in the early 1960s, they are dragged by lower inflation. beginning in the later 1960s and especially through the 1970s. government is running big deficits to simultaneously prosecute the war on poverty and the war in vietnam. as inflation climbs off, interest rates paid on deposits become strongly negative. even post-modern english professors i understand under those circumstances take your money out of the bank and move to another vehicle, and so you see the deposits leave the banking system in mass, going to money market business funds and the like. the third part of this -- >> putting banks in great

difficulty because they now department have the flow of funds to pay off the promises made. >> right. this precipitates what charlie wrote about, the savings and loan crisis of the 80s, which is the debt now of our commune advance. think of the s and l crisis, about savings and loans institutions, but it's about not just savings and loans, but lots of small banks heavily invested in real estate. the most technological changes and pressures put on bank by virtue of the fact they compete in a difficult environment and now taking big risks, that precipitates, and there was also a number of shocks that precipitated the crisis, and it's not until the resolution of the crisis that both state governments and federal government begin to seriously reconsider the wisdom of the advancement. >> it's interesting to compare and contrast, but the savings

loan crisis with the fact of the 1920s and 1930s which were times when bank were killing, and what's interesting is i think if henry and those people had not -- already seen in the 1920 #s, almost 20 states from the 1920s until 1939 had relaxed banking restrictions, and we saw exactly the same thing happening at the state level from 1979 until the early 1990s. what -- when banks get weakened and states see a lot of banks failing, they start thinking, well, maybe allowing nation bank to come in from another state might be worth doing, and then the fdic says that makes sense, reducing our cost of supporting that failed bank, and so what's interesting is it did not work in the 20s and 30s, pushed back by stiegl, but in the 1980s and the 1990s, it did work.

part of the story is demographics, that so many people -- >> there were not as many people who were part of that coalition anymore. part of the story steve mentions the atm and that the supreme court decision, i think we could go into other elements, but one very important almost -- element was that the u.s. banks, at this point, internationally, were getting globalizations beginning. globalization of finance. the u.s. banks are losing market share in the 80s, not just outside the united states, international banking, but within the united states. they were starting to see major entry. you may not remember this, but it happened. in the early 80s, japanese banks, german banks, british banks enter the u.s.. it's starting to look like we're really going to be a player in

the global drama of banking, and alan greenspan articulates the problem, and i think that many people are realizing that the u.s. if it wants to continue to play, it has to get serious about creating an efficient banking system. the pieces come together at the same time and push us to a different outcome which now, of course, is irreversible because the federal law in 1994 and branch banking -- once it happens, you can't put the genie back in the bottle. >> move north. let's go to canada. tell us why -- how different canada's experience is from the united states and why that is the case. continue. what happened in canada? >> well, -- >> it's rather remarkable. >> the most important thing to say about canada is what didn't happen, you know? canada is a very boring place. thank god. >> charles, come on. >> from a banking stand point.

>> first you slam the post modern banking professor, and now you're making fun of the canadian neighbors. >> no, no, sometimes boring is good. >> oh, okay. >> canada never has a banking crisis, ever, ever. in 1837 and 1839, some of the problems in the u.s. banking crisis sweeping the country here created a couple of weeks of minor disruption in canada, but no bank failures and no problems. canada never had a banking crisis. this recent turmoil did not cause a crisis in canada. the great depression did not. the 1830s didn't. >> when you say "didn't cause a crisis," not just did their banking industry weather the great depression better than ours, but they had virtually no failures? >> no failures from any bank of any significance, and banks did fail -- small banks failed in canada occasionally, but it was -- >> management. >> yes, mismanagement.

another interesting thing is not only did they not have any bank failures, but their total amount of credit relative to gdp was comparable or better than the u.s. during this history despite the fact they had lesser density of population, other things that might make you expect a very different outcome. they had more abundant credit, more stable credit, and, by the way, analysis of how competitive the banking system is also shows it was more competitive. it's really quite a remarkable difference, and i should mention, also -- >> all that prowess. >> something else, canada did not create a central bank, like a federal reserve system, until 1935. it was not that it was a particular wise central banking policy, they didn't have deposit insurance than much more recently than the u.s., and so

it's really a story about a particular set of rules for engagement, in canada. now, part of that, myself included in the past people looked at this and said, well, that's because canada had nationwide branch banking, and, of course, but nationwide banking was much more efficient, greater diversification of risk, all those things are true, but, you know, as we learned in our own crisis, nationwide branch banking does not always give you stability. that's why we spend a lot of time in the book asking the questions, what was it about canada that made the political rules of the game in banking so successful, and when we dug deeply into that, we found that there was a lot to be uncovered in the political history. >> tell us some of it. >> one of the fundamental differences looking at the basic institutional structure of the

united states and canada. united states found 13 independent colonies. nobody imagines anything other than 13 sorch states which will be brought together in union and the debates is how strong the central government will be. in canada, there's a basic geographical difference. all 13 kohlnys in the united states faced the sea board, and they could trade directly with england. in canada, the best agricultural lands in the timber resources are in the center of the country, and present day ontario in order to get to the sea, you have to pass along the st. lawrence river through quebec. we tend to forget today, but at the time the french pushed the -- the english pushed french out of canada, canada is over 90% french speaking. that creates a very difficult

problem for the british commonnists and british government, which is trying to create a viable coolingny out of canada so that it does not meet the same spate state, and gives rights of suffrage to the population, and at the same time, limit the numerical power of the french in quebec who occupy a key geographic position along the st. lawrence river because right in front of the city of montreal are the machine rapids, building a canal around the rapids, but if the french wanted to hold up british commerce and develop in the interior of the country, all they had to do was block canal development, and, in fact, the british complainedded about this repeatedly. that means in the long and short of things, most of the time we talk about this, basic geography drives institutions, banking

institutions then drive the banking system, that drive, centralization of banks' chartering authority in canada in the central government, it drives the 1860s when given sovereignty and drives decisions in canada that all legislation, all authority, not specifically begin to the provinces goes to the central government, exactly the opposite of the united states. all power is not vested in central government by default go to the state. also, at the time, gives explicit rules that state if the central government will be in charge of banking policies. right from the very beginning, they go down a different route from the u.s., going down the different route in large part for geographic or geopolitical reasons internal to canada, and they then create a set of institutions that are designed

to make sure that the french can want block canada's development. they essentially disenfranchise the french population, and the way they do this is in the senate which is unelected and still is an unelected upper house. officially canada senators serve for life, but now only until late 75. >> close enough for government workers. >> they still actually, unlike the british house of lords, have veto power over legislation. if you look at the issue of canadian banking, there's key moments where legislation that would have, for example, created a step towards deposit insurance policy or a block in the senate and key moments where there's an imptous towards unit banking, and they are blocked in the senate. >> in fact, every one of the sort of populist ways that's happening in the u.s. where banking issues are being brought to the floor, they're happening

in parallel in canada. the difference is that those groups lose in canada because they can't cobble together enough political support within the centralized and sort of blocked political arrangement, but they win in the u.s.. that's what is so interesting. >> this, to me, is the key insight to the book, and this whole approach which economists have, i think, a tendency to see finance as they see many things, essentially, it's just a mathematical problem, figure out the incentives, fix it, and they tend to ignore political side, so if you heard this story, if you think about, well, united states has all these crisis, bank runs, failures, disasters. canada has this fabulous run of great success, well, now we know what to do. be like canada. give me your statutes, and we'll put that in place. economists make that mistake. well, we know the right

solution. we'll advocate for that. it's not that it's, quote, inpracticeble, or too theoretical, but, chaferls, d but, charles, explain why it is -- we want a stable banking system, go to canada, okay, use theirs. why doesn't that happen? >> well, as i was explaning to one person who asked that question once, well, how would you feel about the idea that we would have our senators appointed by the queen of england? [laughter] >> that's a negative, probably. >> they -- that was inconceivable. >> yeah. >> and the reason it's inconceivable is this a country born from troublemakers; right? it was -- it's the farmers armed from the teeth, from the very beginning, who created a revolution and were not about to not be vested with authority in a particular way. canada was a country designed by

people to avoid a revolution that created institutions that specifically made it a qint sensual classical liberal democracy meaning that it created all barriers to various kinds of special interests or even ma senior tearian tyranny, and, in fact, as was said, it's ironic that the u.k., which gives us voting power over money legislation of the house of lords in 1911, canada's senate was modeled on that, but canada's senate persists. the house of lords is pretty much emasculated in 1911. >> in england. >> yes. what so interesting is the whole history of canada is a history of people trying to prevent certain bad things from happening. we've got to get brits to migrate to canada. give them enough democracy, but they don't if the french belong

everything. we have to create democracy that's not going to be a french tyranny. also, there are a lot of -- we want to get people no migrate from the united states to canada, quite a few loyalists left canada, and so it's an environment of people who are trying to find a way to have a democracy to have freedom, but to still be within the british embassy. >> that's a positive story, way to tell. let me give the negative story. any reform of the u.s. financial system that takes large sums of money away from people already getting the large sums is not likely to be successful. barring some radical change in the political incentives. do you agree, steve? >> i think there's always been a temptation and certainly since the 1970s in the united states, the look of the banking system as a vehicle for income redistribution off balance

sheets rather than -- >> from the u.s. government? >> yeah. that temptation has been large for governments regardless of the ideological stripes. parties of the stated ideology. that makes the -- it's that basic problem, right, that no party realliments to give up on this. there's parts of the republican party that do. >> that say they do. >> and i believe them. okay? it's not as in -- but that's not a winning coalition. the fundamental problem facing the creation, i think, today, of a stable system of banking in the united states is that bank rules are arcane. hard for the public to understand. coalitions can get created that are designed to channel, to share credit or channel credit to particular groups. those rules are going to apply

to everybody. you know, we're in a democracy after all, and that's going to restore everybody's incentives. borrowers and bankers. the result is that the u.s. is set up because of its sort of long poppism to be crisis prone, and it's a paradox, and what i admire most is the troublemakers; right? farmers woo are willing to go toe-to-toe with the british army, that took a lot of guts. >> yep. >> that didn't happen in canada. one morning people woke up, oh, we're independents. >> it was something of a snow. they terrify the fact they beat us in the war of 1812, not their independence from england;

right? that means that in the u.s., we have a sort of paradoxical history #* that we admire, but generates this sort of use of the banking system for redistributed purposes. that creates this sort of urge by politicians to redistribute rather than using the official system using the banking system and because it occurs off the budget and because it occurs in a way that's very hard for the average person to understand is because it's not -- you don't pay for the bill in the the crisis occurs and everyone needs a bailout, it's not seen. there's a strong temptation to do this. >> if i can just build on that briefly, one of the interesting things about the u.s. is that all of these checks and balances all trained in grade school, what are we talking about? u.s. is liberal democracy, and

we have checks and balances, and checks and balances work to thwart physical policy like inequality, but then there's still a lot of freedom to do things in a hid p way off balance sheets. the support of the gses. >> the government sponsored enterprises. >> right, or the creation of regulation. most people don't understand the arcane aspect of bank regulation to understand whatever implicit transfers in taxes are involved in that regulation, so that means that if you are an ideologically republican representative who wouldn't want to be associated with a particular transfer, you're safe. >> because nobody knows. >> because nobody knows. you can do your feel in a hidden way. ironically, a lot of people that put faith in the checks and balances of the u.s. system are missing the fact that

particularly in the area of banking regulation, which is very big and very important, that that's an area where we have sort of addressed problems, especially inequality problems, instead of addressing head-on, we've addressed them in a droughtive way of using subsidies through a financial system that tend to destabilize the system as the way to do it. you know, even if you're looking at housing policy, australia, which is unicameral legislation is a country that's been stable in terms flghts financial system, but australia, in many ways, is a populist country, addressing issues of inequality directly through fiscal policy. for example, what's an affordable housing policy? australia? giving down payment systems to first time homeowners. that, by the way, creates stability because is subsidizes

more down payments that stabilizes the housing market. what we do is, because we have to do it through the back door, we do the only thing we can do which is to subsidize instability by subsidizing leverage. >> yeah. >> the point is there are some flaws, i say, i don't want to be too judgmental here, but i say there's flaws in the way we address certain problems that kind of push us as steve was pointing out in the direction of using this hidden stuff, and it's coming through the financial arrangements. >> just to echo that, i find it remarkable how little we've learnedded in the financial crisis in terms of the hidden door, subsidies, left pushes back against any attempt to stop subsidizing mortgages, and basically, right now, the federal reserves finances the mortgage market in the united states. this is not what the founders of the federal reserve had in mind or is good, stable policy, but

it's politically attractive to do that, and it's nuts. seems to me. let's talk about the crisis because i want to let you put your exercise on the table, and i want to push back. you put a lot of stock, to my surprise, in the community reinvestment act and fannie mae and freddy mack. they were part of the problem, but you don't talk much about the large private investment banks that if you priefize them, which were enormously large part of the runup in the early 2000s, and, to me, without that, you would have had an unpleasant system, fannie mae go broke, but loans made were not made under the reinvestment act, and seems to me the moral hazard problem is a bigger problem than cause. to me, the housing market, the place that oozed out into, could have been something else. who wants to go first? >> i'll start, and then charlie

will finish. all right, so i think it's important to get the chronology of the facts straight. as i mentioned, private investment banks get in in the early 2000s. >> they see a market opportunity that fannie and freddy placed for them going back to the 1992gse agent. that act has several euroyows features, one of which was it told fannie and freddy they had to repurchase loans from banks that met affordable housing standard criteria. >> they had to give a lot of money to poor people, in poor neighborhoods. >> up until 1992, total cra lendings, 8.8 billion. a lot of agreements between activist groups and banks, but very little lending.

beginning in 1992, and incidentally, this is legislation which is crafted under the first bush administration. to be clear here, this is not a democrat or republican issue. the basic problem that the community banks have or community groups have is what they want to do is get access to more credit, credit channeled through the organization to the constituents, quite reasonably. that's the stated job. banks want to merge. in order to get approval for merger, and i think from the vantage point of today, we don't have aceps -- a sense of how rapid fire and dramatic mergers are. bank of america is essentially 37 different banks in the 1990s. in order to get approval for the mergers, they go before the federal reserve board. community activists show up at those merger hearings and say they can bloke them, and, in

fact, community groups write handbooks how to block a merger. you can download them off the web. they partner with the community groups, and they agree to channel credits through them, but they don't want to hold the loans if they don't have to. they tell the community groups, the activist groups, there's a limit to what we're going to do. the activists, particularly, acorn, but also the neighborhood assistance corporation of america, go to congress, and they push, particularly acorn, and senate hearings in 1991, this is a whole decade before the investment banks get in. you know, this is a story that people like to tell as fannie and freddie followed private banks. they followed them in the sense they are dragged in kicking and screaming into the deal. they don't want to buy the cra loans banks are making. the activists pushing congress to basically make them do it, and the thing they extract in return is two crucial features.

first, they are subject to regulation not by the fed, but subject to regulation by a unit of housing and development. >> their own regulator. >> their own regulator. >> sounds bad, but it's actually -- >> worse than it is. it sounds bad, and it's worse. >> good for them, bad for us, turns out. >> yeah. second, they are given capital requirements that are about 50% -- 40% below those for commercial banks. >> allowed to be highly leveraged. >> that means fannie and freddie can get into the following business. you're a commercial bank. you sell me a loan. you had to put $4 in capital behind that loan while you held it, the prudential reserve. i add fannie or freddie only have to put $1.6 o behind the

loan because -- excuse me, $2.50 because i have a different standard. if i now create a mortgage backed security using all these loans chai charlie and the others sold me and put a guarantee on it, charging 45 cents per hundred dollars for, i now create a mortgage backed security backed by 1.50 and capital of the mortgage backed security and the 2.50, and then i sell it back to you. this creates tremendous incentive for me as a government gsi to be in the business of buying your bad loans. >> i understand. >> i want -- so the banks only lead fannie and freddy into the extent that it's in their interest they get into the difference, extract confession, and later on once this process is underway and mortgage standards are written, the basic

game is organized, that's when investment banks get into the game. it is no accident that when the crisis occurred, well over half, perhaps as much as two-thirds of all the others sit inside fannie and freddie. >> i don't know that that number's true. there's controversy about it. the fact is, though, a lot is sitting inside privately run, not subject to the act, privately invested in, highly leveraged investment bank like behr sterns, lehman brothers, and goldman, like they were just -- they set aside, they did not. they did do as much, a little more cautious, but hundreds of billions of dollars of mortgage backed securities were packaged, had lending arms, own originators, and so, charles, how do you explain their -- let me ask in another way.

okay, fannie and freddie could have gone broke making bad loans about the political pressure, which i think is true, and it would have been expensive, but to get a collapse of the shadow banking system, something else seems to me, don't you agree? >> well, there's two different issues here. one of them is your first -- your first question was, weren't there a lot of private players using their own money these investment banks and citi groups. >> not their own money. >> their stockholders' money. >> well, kinds of. >> and taxpayers' money. >> implicitly. >> weren't they making decisions? >> yeah. >> that's one question, i want to turn to that. there's a second question. >> we have five more minutes. >> i can do it fast. the key thing to recognize is that fannie and freddie were the 800-pound grill gorilla in the mortgage market, giving people effectively regarded to as a put option. in other words, they were the

mortgage market where mortgages could be dumped. they were -- this was especially important if you talk to people in the industry for explaning why there were so many violations of the various limitations on portfolios structured because as long as they gave them a wiping and a nod, it did not matter what the rules were because you knew you could sell the securities. the thing that people didn't really know was the total aggregate amount of crappy stuff originated, and the region that they didn't know it was because there was no correct ag gages going on where that you could turn to and figure it out. only after we started seeing the default experiences in some of the categories of mortgages did we realize they were effect evely sub prime quality, and the reason was because of the -- starting in 2004, the rise of the so-called at a nondocumented

mortgages, we didn't know how severe risks were until we saw it starting in 2007. people were actually very convinced, and that option would have been good if there had only been half a trillion of the crappy mortgage, and as we know from the fcc's settlement with fannie and freddie, they were holding $2 trillion of the mortgages, and so that put option, as we know from having bailed them out, was no longer good. i think a lot of the explanation for why private parties engaged in this was they did not realize the put option would disappear. the second explanation, of course, and we get into in the book is actually you're partly right that there was other stuff going on. it was not all the story that we're telling. we think that that's the dominant sort of thrust of the story. there's other narratives out there doing with monetary policy

that we think contributed also, but you wouldn't have had the two requirements to have a banking crisis, which are extreme risky assets banks hold and tolerance for extreme leverage of the banks and gses if there's not a political deal that underlaid it all, and one final sentence about this. the key thing is fannie and freddie, when they relaxed the standard, they did not just in the affordable housing area, but relaxed for everyone. if they said, we're just relaxing in this area, they couldn't have defended it. they had to pretend they were not doing something imprudent, and that's what opened the flood gates for everyone. >> i wish we could talk more about it, but we're almost out of time. i want to try to sum up a little bit, which is that 2008 was a bad experience for the united states, a lot of countries. how much was due to bad social

policy? expectations of credit or bailout, which, i think is hugely important, which incentivized investment banks and the gses and everybody to be imprudent with the money they were able to borrow which otherwise wouldn't have been able to borrow. we tried to fix it a little bit. most economists think our attempts to fix it were a failure, standing on the edge of another crisis in the next years. we don't know what that it, but things are not good. where does that leave us? as cynic would say, well, you just have to -- that's just the way it is, going from crisis to crisis. seem to be accelerating, actually, worldwide. you have any reason for optimism, or do you have any hope for a different set of political incentives? part of the theme in your book is, this is the way it is, folks, might wish for otherwise, might have a better idea, but the political incentives don't lead to do it so it does not matter.

that can lead to an unrosey view of the future. one says -- which is the pessimist? >> i'm more pessimist than charlie. >> you go first. i want to end on an optimistic note, and them we'll open it up for q&a. >> the difference between optimism and pessimism is i say things that are possess mistim, and so does charlie. one of the reasons why we wrote this book is not just because we wanted to understand how things work. we wanted the public to understand how things worked. >> good idea. >> to come away from reading this book was just texting when the financial system is headed off a cliff, and they should start to become weiry, not just, you know, public in general, but also financial journalists. i think that i would end here by saying if there's a lesson --

there's two lessons that the public could extract from the book is first. if you're counting on your elected representatives to be watching out for your financial interests as an average taxpayer, think again. second is that any time politician tells you he's found a way to create a free lunch and that there's going to be a marvelous subsidy and nobody pays for it, reach for your wallet. especially when that subsidy is coming through the banks because what's going to happen, what happened in the years leading up to 2008, the not that the community reinvestment act was a bad idea, but the logic of the act coupled to make a merger movement, gave rise to incentives for fannie and freddie to write it, and once it happened, they lower for everybody. the whole society could pile

into deals that were too good to be true. any time, one of the reasons we wrote the book is that it makes it clear to the public any time a politician says i have a deal that's too good to be true or what bill clinton calls the third way, it's time to get very nervous and think about voting for somebody else. >> i would just add to that, letting charles finish, that the push in the 1990s through both republican and democratic administrations to raise home ownership rate -- won't cost us anything -- slightly overly on optimistic. charles, finish us off. >> to end on an optimistic note, we can't throw away our institutions in history and pretend we're canada. that will not work. what we can do is learn. democracies do actually learn, even populist democracies. we mentioned the u.k., for

example, became a legislature, no separation between executive and the legislators, so we say, in a sense, very populist and particularly after world war ii, and they naturally -- they had extremely high tax rates, but that created some pressures on the economy, and in the 1970s and 1980s, we saw extremely high inflation, low growth, and guess what? it was unpopular. the rise of margaret thatcher was not just about tacher's leadership. it was about the fact that the median voter in that populist country was sick of it. it's an interesting testament that the changes that were brought under thatcher persisted and now part of the mainstream status quo broughtly others. the key thing is we're on optimistic in the sense we spend effort hoping that the education

of the people eventually leads to some sort of positive response. it's hard in finance because it's arian keep. it's all too easy for politicians to give you the flimflam. let's be optimistic. why not? >> more educated areas after they read your book will be less susceptible to the flimflam. our guests, steve, charles, gentlemen, thank you for being a part of the discussion. >> thank you. >> thank you. >> opening it up to q q&a, and then food and drink. please, when you're called on, identify yourself by name, if you could, and down here in the front. you, if you could. >> okay. i'm arnold cling. i'm trying to figure sort of what makes canada's bank stable and the thing that comes to mind is charter value, that the, you

only have five much them, and they are profitable, and they don't want to lose their charter that stabilizes things, and first of all, i wonder if that that grew that, and secondly, if you do, what are forces that keep that from happening in the u.s.? i mean, i think you mentioned, you know, the populist sentiments don't want banks to be profitable, the government wanting to use banks, you know, for redistribution purposes. is there a way to head towards a system where banks have valuable charters, and if so, how can we head that way? >> okay. i'll take a stab at it. first of all, i want to be very clear here. banks have charter value because, for two reasons, one is because they run a business very

well, and the other is because they are endowed with some monopoly noncompetitive rights. in the case of canada, there's a lot of evidence that the second is not true and has not been true despite the small number of large banks. by the way, of course, there's thousands of banks in canada, but there are only five that are very big, but if -- the literature on competition among the banks has uniformly found that the banks are extremely competitive, but there is an element of importance to what is being limited in the chartering in canada, and that is the exclusion of the yankees. that is a very important part we believe of the political bargain, and we are not the first ones to have pointed this out, because look at it this way, first. the cay theyian banking act is remade every five years. the banks' charters expire every

five years. banks are on a fairly short leash in canada in that sense. also, part of the banking law effectively excludes u.s. banks and other foreign banks from exeating on equal footing from the canadian bank. we think that is a system that's very conducive to the banks also behaving well in the eyes of the regulators, and as long as the regulators act in the public interest, which they have, that helps things. i think that the exclusion, charter exclusion that matters in canada is not one that's creating monopoly represents within the domestic system, but one that's creating a vested interest of the canadian banks and not messing up their deal to exclude the americans. >> any way to create a charter value in the u.s. or you don't think that's an approach you would -- >> well, i think -- you know, i have a recent paper on looking at charter values of u.s. banks,

and most of it is dictated by other banks. there's not a lot of monopoly rent to be allocated. it's really about being able to do your business relatively in certain areas better than other banks. >> another question? yeah? >> hi. benjamin kay. my question is, so, financial crisis can be optional in the sense that perhaps the cost of stopping them is -- destroys -- prevents real projects from being funded, and so one thing that was not in the discussion from the last hour was basically what, if any price in terms of the first time allocation capital does canada pay for the -- for the decisions they make in the industrial

organization of the banking industry? >> good question. it's an interesting create. it creates a technical problem because you have to be able to sort of model what canada would look like if it had more expansive banking policies, and, therefore, had sort of more volatility in credit. we can't observe that in canada. we can observe the canada that does exist. what has always struck me about canada -- an exaggeration -- has not always struck me about canada. it struck me about canada from the time i realized as a new yorker it was actually a separate country. [laughter] what struck me about canada is the fact this is a country with a very small swath of land that you can actually grow anything on. you get a hundred miles north of the border, and it's too cold to grow anything. there are pockets of natural resources -- execht hockey

players. natural resources spring here and there separated by vast differences. vast distances. nevertheless, canada is a country with a tremendously high gdp by world standards, and, in fact, has accomplished that even though it's a primary -- mostly a primary product producer which means it's subject to big fluxuations in terms of trade. a lot of that, i think, is due to the stability of the canadian financial system, so i'm -- i would be hard pressed to make an argument that canada could have dope better had it had the u.s. financial system which would have created much more volatility. they've done remarkably well given the resource space they have. to give you a sense of it, the state of iowa has more farmland suitable for growing corn and wheat than the entire country of

canada. okay? this is -- so it's remarkable what they've done begin the constraints they have. >> i want to add to the question because it raises an important point that i wanted to get to that we didn't get to earlier which is we have an obsession with never having any kind of crisis, and i think the right analogy is the forest fire angie. forest fires are not good, unpleasant, burp things, things die, can burn your house. forest fires are bad, we won't have any. when you do that, the tinder and kindling and other undergrowth builds up to such an extent that when there's eventually a fire, you can't put it out. it's so much worse than a lot of little fires. that's what we've done with the financial system. we publicly say we're trying to find the perfect way to prevent crisis or disdress, and as a result, it works well until we do not, and then we have the

yellowstone fire, which is unbearable, unpleasant, high cost situation, and i think that's our question, said the right way, have a system that, when it breaks, we cope with it rather than one that never breaks. never breaks can't happen, but we have an idea it's not going to happen, and that's a mistake. any other questions? yeah. >> patrick kennedy. so, one of the themes, i take it, from the earlier part of the book is that federalism is not always functioning as a check and balance the way we think of it in preventing bad policies, but sometimes enables just other types of bad policies, and my question is, do you think that's unique to finance or as the country's debating continually national government against states' rights types of issues and health care and everything else, is that unique to finance, or do you think this is a, you know, more generalized political

issue? >> it's a great question. i think that it's not unique to finance. i think -- it may be somewhat related to how complex the issues are in the particular area. it's interesting to me that one thing -- we also discover was that mop tear policy in cap da has been better than in the united states. in terms of the inflation of the 1960s and 70s in its volatility, canada managed to have a better experience there. i think in trade policy, you can also point to superior outcomes in canada relative to the u.s.. i'm not sure. it's -- i do think there are these general kinds of issues that apply to other policy areas, but i want to take them one at a time. >> i'm going to answer that and say that i think you framed a

question for political scientists to address. i don't think that there is a consensus answer to the question because the question's never been framed quite the way you put it. in most of the literature about federalism, it's about markets prereceiverring federalism. federalism's always good, and there is a flip side of it, but it's been under researched, and that's, you know, graduate students thinking about a dissertation project, this would be a marvelous area to jump into. >> i agree. >> one last question. anybody out there with one more question? yeah. >> when my european friends and interlock tiers say this global mess is as a result of the united states of america, what is the short answer to that? >> no, they have their own mess.

[laughter] >> well, i think -- >> you wanted a short answer. >> yeah. [laughter] the short and true, actually. >> the view this is -- that came out of the boom rang thinking that everything kind of is traceable to the u.s. sub prime crisis, i think, is obviously wrong, and that the european problems have been brewing on their own for quite some time. i think there's some truth to the idea that the u.s. has done more than its share to destabilize a global finances over the last couple decades. >> on that cheerful note, we'll adjourn. i want to thank our panelists here, our authors. >> always such a pleasure to work with you. [applause] >> they are available for book signing, and there's books vail out in the hall. thank you for coming. help yourself to wine, and say "hi" to our authors. >> thank you. >> thank you, this was a great opportunity. [inaudible conversations]

>> seep your writer for the research ender talking about a poll from last week showing a

rise in stay at home mothers. let's just begin with why we have a rise and who the moms are. >> sure. thank you for having me. what we're seeing is the share of all moms who are staying at home and are not working outside the home is up to about three in ten as of 2012, up from about a quarter in 2000. who they are is interesting. some might be surprised to hear that stay-at-home moms in general are not necessarily the college educated affluent moms we see in journalism stories. in fact, they are by and large less educated than working moms. they are more likely to be immigrants. they are more likely to be in poverty. there's a variety of moms who stay at home, not just the married moms with working husbands, but a growing share who are single or cohabiting, living with a partner. now, as to the why, that's the

$64,000 question. there's a lot of things going on. we think it's a mix of factors. certainly, there's an increase in mothers staying home because they say they can't find a job. that went up to 6% in 2012 from 1% of mothers in 2000 who also think that the increasing share of immigrants in this society may play a role, about 40% of immigrant moms are stay at home versus a quarter of moms who are born in the u.s.. similarly, increasing shares of asian and latino women who are also more likely to be at home could be driving this. beyond that, of course, there is societal factors. we're not sure how they play in. americans continue to be am biff lant about whether -- ambivalent whether it's better for a parent to be home with the child, good for the child, good for the mom, and so that may be playing in, and, of course, every decision for every mother is ultimately a personal one.

>> host: what about the money factor? >> guest: sure, that could well play a role. as i mentioned before, single mothers are more likely to be -- excuse me -- stay-at-home moms are likely to be in poverty more than working moms. this is true of single mothers, most of whom are in poverty if they stay home, and true of married moms with a working husbands. they are likely to be poor than their counterparts who are working. we think it could be the cost of child care, which really hits hardest at those with the lowest incomes, could be playing a role. we had a look at the cost of child care. it's. going up. inflation adjusted over the year, and hits pretty hard, as i mentioned at lower income people, and, n., we've looked at it, and it could be as much as 40% of income to pay for child carement some are doing an economical collation saying it's just better off if i stay home. >> host: look at the trend

over the years from the research center. after decades of decline, a rising share of stay-at-home mother,? nine, 23% of all mothers stayed at home, and in 2012, 29% of mothers were stay-at-home. is this surprising looking at it in a historical context? >> guest: it is a big divergence from the past. look at it as the flipside of what's beginning on with women's labor force participation, especially mother's labor force participation. there was a steady march upward in the last half of the 20th century where more and more mothers, fist of older children, then younger children, began taking jobs, going into the workplace, full or part-time, and then it it was not really until about 2000 that we saw that begin to turn around, and that the share of mothers in the work force began flattening and perhaps going downward a bit. this really does represent a

change from past pattern, at least for the last half of the 20th century. >> host: what did going on in our economy that is a factor in this, if anything? >> guest: well, one thing we saw when we looked at the recession years is that the share of mothers who were at home stalled out, the growth stall, and it resumed after the great depression ended. we think what might have happened is that some married women might have entered the labor force when their husbands lost their jobs because of the recession is called a "mancession," harder on men who lost more of the jobs. there's other research showing when a husband loses his job, a wife is more likely to enter the work force. that may have happened to slow down the rise of stay-at-home moms around the 2008 and 2009, but growth resumed afterwards. >> host: what is the public opinion of stay-at-home moms

versus the working moms? >> guest: us a -- always a good question. the best you can say is people are ambivalent. .. for working moms. people do think it may be best for children to have a home. only one question from the poll earlier this year. we asked if a child is better off with a parent at home or is a child just as well off as a working parent he echo 60% said child is better off with a parent at home. we see numbers fluctuate through the years but there does seem to be a strong feeling by many people that a child is better off with a parent or mother at home. what about stay-at-home

dads he echo guest: -- stay-at-home dads? guest: stay tuned. we did a number of reports on fathers over the years. what on the rise of single fathers which is a fat her and another on the ordinary dad and a third that contrasted moms and dads in looking at modern parenthood. you know what we know is today's dads are more involved with their children if they are living with them and dads in the past so we like to take a look. we still think stay-at-home dads are dads are a small slice of all fathers. when we looked year ago or so jesper married and partnered dads and not singled as we found 6% were home with their children. i think we may be doing more work on this. >> host: we want to get you involved in a conversation so we have divided the lines like this morning. if you. if you're a stay-at-home stay-at-home mom would let you to colin at (202)585-3880 and a working mother call us at

(202)585-3881 and all others who want to join in as well 585-3882. you can also send us a tweet at c-span wj or e-mail us journalist c-span.org. we will get your questions in a moment. what about the stay at homes moms when they try to return to the workforce? >> guest: we didn't look at-bats in this particular report that we have certainly done other research on women who go in and out of the labor force. what our analysis here found is that a higher share of moms with children younger than six are at home and that makes sense because a young child takes more intensive care and many of these moms will want to go back in the workforce when their children reach school age. we found through previous polling that a fairly significant share of mother say they have cut back to care for another child or a family member and in some cases they found it

difficult to come back in the workforce. certainly we know that anecdotally in response to this report. we heard from some others who said they were having that kind of trouble. then we asked do you regret cutting back her spending that time and family care and the answer was overwhelmingly no. hosts that when they decide they want to go back what are the challenges? what are moms looking for to get back into the workforce? >> guest: one strong preference we have been tracking is for part-time work. when you ask both stay at home and working moms what they prefer the plurality say i would like to work part-time. a smaller share wants to stay at home full time or work full-time outside the home but that preference for part-time has really been persistent.

>> there is an old saying that victory has 100 fathers and defeat is an orphan and i wouldn't be surprised if information is poured into you the recent activities. >> we are just talking about the fact that the interrogation last week of the senate committee senator goldwater asking questions about the use of a carrier aircraft, the aircraft to the carrier essex. we figured somebody over there has told them about that thing on wednesday morning and

goldwater's going to spring it. they will spring it in such a way that it looks like you were wrong and i was wrong in saying there wasn't. >> next the impact of virtual currencies like bitcoin on the future of political systems. bitcoin is a decentralized internet-based system for conducting financial transactions. hosted by the atlantic council, this is an hour and a half. >> good morning everyone and welcome to the atlantic counsel. i am very pavel the director of the brent scowcroft center here at the council. thanks for joining us to discuss

this what i would call disruptive technology application but i might have different words when we are finished with this event on bitcoin and the implications of virtual currencies but also other block chain based applications for the future broadly and i will get into that and a little bit. the atlantic counsel is a nonpartisan organizatorganizat ion that promotes constructive u.s. and european leadership in the world to meet today's challenges working with our allies but we also serve a public education function. i really can't tell you how many people from what i would call our traditional constituency here at the atlantic counsel which is a long-standing institution in washington how many people have come up to me and said what is this thing called the decline and what do i need to know about it, how important is that? is going to fail tomorrow or will it be here in 2050 and that was part of the reason i decided we should really have an offense

that performs these functions and i tried to bring together a nontraditional panel of a lot of distinct experts from different disciplines and i'm thrilled and honored that they are here today to explain what bitcoin is and what it means for the future of currency and finance and what it might portend for the future of our society and for our security as well. so our focus today on virtual currencies is just one area of a body of research that we have done on disruptive technologies particularly those that empower individuals relatively more than nationstates at the brent scowcroft center strategic foresight initiative here at the council. the last year we have published analyses on such issues as the impact of robotics on the future of manufacturing, how big data will influence decision-making by corporations, individuals and companies and governments. a major report last december on

how the united states can harness the technological revolutions that are ongoing including biotechnology, three-dimensional and four-dimensional printing and other technologies that are really changing our operating environment and our world and pretty soon we are going to publish a new concept on how the united states and sees its role in this dynamic world and a new concept for national security strategy. it will be an in major conference here may 14 on foreign policy and defense policy aspects of these issues. a discussion on that day will be ticked off by the chairman of the joint chiefs of staff general martin dempsey who might've been discussing these issues and will be in interesting presentation by him as well as the director of darpa which is the pentagon's advanced research projects agency and the number of other very important and interesting speakers. i would really commend may 14 if

you're interested in the conference. last december we hosted in this room all recall the form which gathered top thinkers to engage in very deep conversations again on how to harness these technological disruptions to be better prepared for trends that are really looking to move us toward a very different world where natural resources are much more scarce, where individuals and small groups have a lot more power to do things, to do things that are very good and advanced society and strengthen our security but also each of these technologies has darker potential applications that can cause significant new security and military threats and a number of other sources of instability. so there is always a positive and negative of all of these technologies. bitcoin itself to me as a clear marker again another innovation that empowers individuals and

democratizes a task that traditionally has been reserved for government and here i'm talking about the regulation of currency. it's something i think we couldn't even really fathom just a few years ago and now it's upon us and we will talk about how it is upon us today. so a significant set of questions we will try to address with this panel. if peer-to-ppeer-to-p ear engagement is displacing government in such tasks what other government functions that we are used to them performing might also soon be disrupted? what does this mean to the security of our finances? how might international affairs be affected? how might national security be affected by the digitization of services like this in a number of other questions. i would like to introduce our experts. it's a really excellent panel. i'm really thrilled. first to my immediate left is mr. ronald marks at the george washington university homeland

security policy institute. he is held a number of increasingly senior positions with the cia so yes he could kill you. as an intelligence counsel for former senator bob dole during his cia career the things that i can talk about special assistant to the associate director of central intelligence for military support. he was at the state department as a program director for law enforcement issues in russia and eastern europe and a senior budget director of the national reconnaissance office. he has been a senior defense contractor and software executive. he testifies before congress and commons extensively on the range of defense and intelligence issues on television and radio. i'm thrilled to have run here with us today. to his immediate left is mr. mr. kevin houk who is currently a freshman in the honors program at penn state university. he has already an established bitcoin minor that's minor within e and not an all. he studied security and risk

analysis and cybersecurity. he will be working for block chain.info this coming summer in and accompanies elected office. he serves as captain of the cyberpatriot competition team which he led through a nationwide competition with 1600 teams competing to test how well computers protected from backdoor approaches and his team came in second place among the 200 teams are not bad for the work that he did. in 20:12 p.m. turned with the northrop-grumman foundation conducting penetration testing and cloud research when i will will -- which i want to ask them about it. we also have mr. jason healey who is here the director of the cyberstatecraft initiative that the brent scowcroft center. as director for cyberinfrastructure protection at the white house from 2003 to 2005 jay helped devise the president coordinated u.s. efforts to secure cyberspace and critical infrastructure.

immediately after the 9/11 tat attacks his efforts as vice chairman of the financial services information-sharing and analysis center created ons between the finance sector and government that remains strong today and i think most recently he edited a book called the fierce domain conflict in cyberspace 1986 to 2012 which really is the first history in cyberconflict. it's a really interesting book with a lot of anecdotes in addition to analysis. i strongly commend it and it was reviewed favorably by the economist when it came out. certainly last but not least we have dr. chris brummer who is the c. boyden gray fell at the atlanta council's global business and economics center. he is also the project rector of the councils transatlantic finance initiative. he leads the councils work in regulatory and. policies and provides bipartisan analysis on transatlantic economic cooperaticooperati on issues. he serves on the nasdaq delisting is panel and has been

appointed to a three-year term at fin arose -- finra adjudicatory council. he received his j.d. with honors from colombia law school and his ph.d. in dramatic studies from the university of chicago. i'm going to turn to run now. please join us on twitter using the hashtag used for events like this hashtag ac disrupts and with that i will turn to mr. ron marks. >> all right but may be disrupted. i was trying to think what is going to say here today that would allow me to be friends with barry and maintain my membership on atlanta council. let me relate to a little family history and a little context. i am a spy and that is what i was trained to do but i also come from a long line of people who have well let's put it this way slightly questionable reputations. thank you very much. they ran booze during

prohibition. my grandfather was someone who is from boston originally part of something called the ponzi scheme. he made a lot of money added and he got out early. my father, i was born in 1956. my dad was born in 1906 in the first 25 years of my fathers life he he lived through three depressions. three depressions. if you think the last one was bad, 1907 and again in 1929 brady had more than double-digit unemployment. banks failed. people do not necessarily trust the government which frankly wasn't all that involves so growing up with my father and listening to him talk about banks and the depression and by the way he was a lobbyist here in washington so you can imagine his opinion didn't -- wasn't high to begin with. i grew up in a different time

and we grew up in a different time for the most part. my memories are of post-world war ii. 1944, july i believe, somewhere in the hampshire place called bretton woods new hampshire the mt. washington hotel. people from united kingdom the u.s. and other countries gather together to figure out how in the world we would survive after world war ii because we had just gone through 10 years of depression, 10 years of terror phrasing in the 1930s which pretty much stifled the world economy. now two things happened at that conference. one of which john maynard keynes was about ready to die. he was trying to hang on whatever shred of dignity the british had in the marketplace they were bankrupt and by the way the british went bankrupt almost twice beforehand just after world war i and by the way just they paid officers a couple of years ago to us.

they almost went bankrupt in the 1930s and by 1944 they were broke again and living essentially on our monies. the largest empire in the world was essentially living on the u.s. dollar, borrowing on the u.s. dollar. that conference in 1944 was essentially about how the united states and others were going to rule after world war ii. some of these delightful buildings that you see around town world bank imf in those little places all came out of that. the british pound going into world war ii was about $4.60 and went down to $4.5 and at the end of the world was $5.60. the dollar was going to reign supreme. we had roughly half of the world's gdp and they pretty much called the shots. by the way the decision was made at that point to have a dollar which would not only hold value around the world but was actually exchangeable for something.

$35 per ounce of old. believe it or not that was the number, $35. it was amazing. some countries slightly higher than others. again if you are an ancient guy like me and an old spy you believe in a spy called james bond. do you guys remember it the movie goldfinger? the movie goldfinger was about gold arbitrage which was being done during that period of time because 35 bucks an ounce if you have the right to have it and move it to europe or it might be $42 an ounce or into the middle east like india for instance or pakistan where it would be $300 an ounce. so there are ways of working around the system and i might also add that my father and uncle during world war ii or shortly afterwards relating in paris and i wouldn't be surprised in the stories related to me how these to take suitcases of dollars and exchange them for other things.

we grew up in sort of a stable time. the last 70 years of our existence has been based on bretton woods. the u.s. dollar has been dominant during that period of time. out of 50 some odd countries in this world and nobody turns down the bug. even russia and the battle days when the currency was exchangeable wood and turned on the dollar because it was considered of value. by 1971 we went off the gold standard. why? it was a tremendous desire to have the u.s. dollar overseas and those people in turn wanted to convert that. the french in the 1960s demanded a whole lot of gold. there was an attempt in the early 1970s to demand gold out of fort knox. you don't physically shifted. you literally put the sticker from one side to the other but it was going to be a drain on our gold reserve. president nixon made the decision at the time that there would be no more drains on our

reserve so the united states dollar since 1971 has been based on the full faith and credit of the united states. so it is not an exchangeable thing in terms of silver or gold you had these old silver certificates on the wall. there were dollar bills etc. etc.. that next system lasted pretty much the 1990s. they won the cold war or as i like to think of it as i won the cold war and then between 1991 in 2001 we drifted along fairly well. since 2001 and certainly since the last we will call it a depression starting in 2008 the recession in the depression by the way differs as follows. if you have a job it's a recession and if you don't it's a depression. we have seen other parts of the world begin to move forward. china in particular. we have also seen a world that has been increasingly allowing itself, connecting itself.

there are 2.5 billion people in the internet right now and we'll probably head to five shortly. they belong to some 200 countries. not all of whom have stable currencies. i consider right now and recite for you which new pay so a new whatever else has been promulgated by different countries over the years or who slashed a couple of zeroes zeros at the end of their currency. asked ask me what that does to people when they start thinking about stability. so you guys are probably too young to remember but even in the late 1970s i remember parking money in a cd at 19.5%. why? because mortgages were charged a 16.5% in the inflation rate was running 12 to 15%. that was unusual in our circumstances. it's not unusual around the world. when you start asking other people to have full faith and credit in their money they look at you and smile and nod their heads and go on their merry way

thinking i'm going to do what i have to do to survive. i was just recently spent three weeks in the uae. there is an enormous amount of bracelets necklaces and whatever else made out of gold. nine out of 10 of the population of the uae are expats in the vast majority come from pakistan and bangladesh or burma and they want to get money out of the country and they don't trust the local currency. so what i'm asking you to do essentially is to get yourself out of the mind frame of the 20th century america and get yourself into the 21st century where the power of the united states is not as straight as it used to be. the power of the dollar is not as great as it used to be and we have to start thinking about a way of dealing and communicating with each other in which borders and boundaries don't matter all that much anymore. so when i look at bitcoin and i purchased one by the way just

because i like to live you will pardon the expression put my money where my mouth is. i think to myself okay is it the be-all and end-all of this? i don't know. is it a ponzi scheme? i don't think so but we will see doesn't represent value and an ability to exchange across borders? like money and the answer is yes. does it represent a threat to nation-states? take a look at china. they are doing their level best to make sure that the bitcoin doesn't exist if at all possible however and i will probably conclude in less you let me go on forever i will conclude on this one out. one of the things i spend a career doing is getting around the rules and around orders and getting around different places in the world where somebody told me i couldn't do something. if you don't trust the currency, if you think there's a better way of exchanging value to your

family and your friends you will use money orders like to wallow. you will use bitcoin if possible can it be forged? can it be copied? is at all that it's cracked up to be? i simply ask you to look at what has happened to the regular currency. this is subject to something? i don't know. this guy does so on that happy note why don't i sit back and let him talk. >> thanks ron. give us some education on the basic aspects of what the coin is. see sure. basically it might get a little bit complicated and i will definiteldefinitel y do my best to, with bridges for you to help understand the process. but basically through all this just keep in mind its dollars, computers in exchange to one another. this dollar, bitcoin can be

written on physical paper if you want to put in one way or another it has to talk to another computer if you want to exchange the funds. so the way bitcoin is revolutionary is that encryption, decryption has been around for a while but bitcoin was the first to use encryption specifically asymmetric encryption to have a value of money, have a value of bitcoin and the value of bitcoin is basically him which people perceive the value to be. this works on the principle of when somebody wants an address or think of it like a paypal e-mail what they do is they a button whether it be a program on a computer and basically it will create two keys for you. one key is called your public key and this is your paypal ebell a dress. this key you can give to anyone who you want them to send you bitcoin so they will have this key and they will send funds through this public key but when

you are creating -- it's two sides of the same coin so when you create this public key you also create a private key and this private key you use to unlock all the funds sent to this public key. if you give anybody a private key that could very well steal all of your money. and so you can look at a minor over there. that's one of the models i built. there is no central company of bitcoin. it's not an authority like paypal. everything is distributed and everything is peer-to-peer. something that gives more power to the people and this works on a basically a minor will take 10 minutes worth of transactions so in 10 minutes people will be making transactions. i will send the bitcoin to my mom and whoever will be sending bitcoins in these transactions

are floating in the bitcoin namespace. in the meantime there are people running programs on the computer that basically check that these transactions across the network. so the way that they do this is something called the blog chain which he mentioned in his opening speech in the block chain is the thing that bitcoin gives to the world. that is the way that you don't need a central authority and the block chain is basically a very large ledger. it tracks all the transactions since day zero of bitcoins creation so if i were to say i have one bitcoin it will say okay you got your bitcoin from fred, fred got his bitcoin from bob and bob got his bitcoin from where the bitcoin was minted. your private key is valid. i will go ahead and send out for you. so the way the miners do that is it's a race to find out which one is going to solve the puzzle.

imagine a very large sudoku puzzle and the only way to solve it is for a minor to throw random numbers or a computer to throw random numbers in the pseudo-go puzzle check to to see the tried and they are doing this for million times a second so they will try another one. they will just be throwing numbers across the world. finally one very lucky minor will throw a right combination of numbers into this at duca puzzles saying i got it and then they will broadcast that answer to the world to the bitcoin world. and so when you have a solution to the sudoku puzzle it's relatively easy to check. it's hard to find the answer but it's easy to check the answer so in the network confirms that yes you indeed have found the answer that minor the one that founded is awarded the bitcoin for its work. the bitcoin reward is decreasing so a couple of years ago every minor was given 50 bitcoins for

solving this puzzle. today the reward is 25 bitcoins and next time it will be 12.5 and so on and tell the cap of 21 million bitcoins is hit. once that 21 million bitcoins reach there will be no more report for fighting finding the answer to this at duca puzzle. once the minor finds the answer to this at duca puzzle it does one last check with these 10 minutes of transactions in limbo to make sure nobody is arbitrarily saying i'm going to transmit 100 million bitcoins because they will fact check you and decide that you are wrong. basically they will go through all these transactions. they will use the answer they have gotten from those who do go puzzle and compress all these into a block and added to the block chain and then once those confirmations hit and they add it to the block chain they work all over again. they start the next puzzle in the puzzle will change every single block. in order to keep the program

itself is designed to be every 10 minutes that compression will head and the new bitcoins will be minted. really it can be every two and a half minutes, every 20 minutes but the way bitcoin was designed it wanted to be 10 so if they block takes more and more people mining if a block takes five minutes to mine than with what the program will do is it will make this a duca puzzle harder. it will make a bigger so you have to spend a little bit more time throwing around the numbers in order to find the answer. once this is confirmed then you have successfully made the transfer of bitcoins and as more and more blocks are added to this block chain your transaction becomes more and more final, more and more etched into stone because the further back in the block chain this transaction is the more that this transaction basically is as good as gold.

>> a couple of questions. tell me why 21 million is the magic number. >> like i said with a block time being 10 minutes that's just the way the program is designed. i don't want to blow your mind too much but there are a bunch of old coins. bitcoins introduce cryptocurrencies so there's a bunch of different cryptocurrencies like light claim. like coins current value i think is $11 a coin. it's cap is four times as bitcoins and it's every block time is two and a half times. it basically was created by an m.i.t. grad. .. more informational passions i'm going to move on to the panelists. when we had