radio. and for background while you watch, order your copy of the companion book. it's available for $8.95 plus shipping at c-span.org/landmarkcases. >> you're watching booktv on c-span2 with top nonfiction books and authors every weekend. booktv, television for serious readers. >> here are some of the programs to watch this weekend. on sunday we are live with nationally syndicated talk show host tom hartman on "in depth," where you have the opportunity to ask authors about their books and careers. on "after words," martha kumar talks about the transition between george w. bush and barack obama in her latest book, "before the oath." also this weekend, the 20th annual baltimore book festival.

margo jefferson recalls growing up among the black elite in america, will haygood on justice thurgood marshall. booktv.org for a complete schedule, and a reminder to follow us on twitter, facebook and instagram for updates all weekend. booktv, 48 hours of nonfiction books and authors. television for serious readers. now, we kick off the weekend with two authors in a mock trial from freedom fest, a libertarian conference. robert kuttner defends the federal reserve, and robert murphy prosecutes it. lisa kennedy montgomery, host of kennedy on fox business, acts as the judge. >> hear ye, hear ye, freedom fest court is now in session for this trial about the most important subject of our lives, money. [laughter] and how the government's central bank, the federal reserve, influences our lives every day.

judge kennedy is presiding at this hearing. all rise! [cheers and applause] >> let's hear it. hello, everyone. how are you? ladies and gentlemen, members of the jury, we are gathered here in this great southern state of nevada to -- sovereign state of nevada to decide of the fate of the federal reserve. we hope to discover whether the federal reserve has kept its promise to provide a healthy economy and banking system, full employment, stable prices and a lender of last resort, or is it responsible for a series of banking crises, a boom/bust business cycle and loss of purchasing power of the very engine of inflation and of the average citizen? is this economy more stable, or is it less stable because of the fed's existence? did the fed exacerbate the

financial crisis of 2008, or did the fed keep it from getting worse? on net balance they must decide this, are we better off without the fed, and if so, what shall we replace it with? should we go back to the chat call gold standard? -- classical gold standard? do you love gold? can i hear applause for the gold standard, whoo! in this trial we hope to find out the answers to this most important and pressing national issue. and representing the defense today in court is professor robert kuttner. professor kuttner is cofounder and co-editor of the american prospect magazine and professor of -- [applause] whoo! yes, let's hear i. big fan, big fan. that's right, he's professor of social policy at bran d.c. university. he was a longtime columnist and continues to write for

huffington post, the "the boston globe." very impressive, very impressive. he's the author of ten books including "everything for sale: the virtues and limits of markets," and the 2008 bestseller, obama's challenge, america's economic crisis and the power of a transformative presidency. amen, thank you, hallelujah! his latest book is debtor's prison: the politics of austerity v. process perty -- process parity. professor kuttner, would you please remain standingsome oh, very good. as a hongstanding defender of central banks, as a monetary institution and the obama administration since the financial crisis of 2008, you and other establishment economists have been accused of supporting a monetary system

that failed to monitor and repair a fragile banking system, made the financial crisis of 2008 inevitable with its easy credit policies, bailed out the treasury with its quantitative easing programs, financed the obama administration, ruined deficits so that the national debt now exceeds, say it with me, $17 trillion. holy underwear. and has manipulated interest rates far too long for the american economy to fully recover. how to you plead? >> not guilty. >> what? oh, yeah, i've heard that before. we will begin the proceeding with five minute opening statements first by percenting attorney robert -- prosecute attorney robert murphy. put your hands together for robert p. murphy, author of the acclaimed new book, "choice, collaboration, enterprise and

human action." it's my favorite kind of action, i love -- i love animal action too. i'm a libertarian, i don't judge. [laughter] senior economist with the institute for energy research. he's got so much energy, he could be his own can of red bull. he received his ph.d. in economics from new york university and has taught at nyu and worked for laffer associates, very serious place. he's author of seven books, and they include politically incorrect: a guide to capitalism. he has been a longtime critic of the fed and after the opening statements, each of our extraordinary attorneys will count two, count 'em, two witnesses who will be subject to cross-examination. that's where it gets kinky. we'll have time for table tennis, and it will be quite fun. afterwards the jury -- look at this handsome collection of nevadans and international lovers of freedom and liberty.

that's our jury right here. give it up if -- up for them. [applause] they will rule on the case. if, if, if if the death is found guilty, i will impose a harsh punishment. let me give a few instructions, okay? let's keep it careen, i know it is nevada. you will listen carefully, and at the end of the hearing you will be required to determine whether there is sufficient evidence beyond a reasonable doubt that professor kuttner and the defenders of the fed are guilty of public malfeasance. the decision will be based on a majority vote by the jury. it does not have to be unanimous, although unanimity is so much fun. is that understood? very good. all right. dr. murphy, you may begin with your opening statement. >> thank you, your honor. >> you're very welcome. >> ladies and gentlemen of the jury, distinguished guests, i

stand here to bring the case against the federal reserve as the judge has outlined. i'm going to be presenting expert witnesses to go through step by step how the financial crisis was caused by and then exacerbated by the federal reserve and how the recovery was repressed by the federal reserve. in these opening remarks i don't want to cover that ground, i want to just step back and provide a more general argument against the federal reserve as an institution. and for that let's look at the 1977 federal reserve act when it was amended at that point. of course, the fed was formed in 1913, but in 1977 the act was amended to say that the fed's duty should be, quote, promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates. so let's look at that. has the fed, in fact, fulfilled its duty? stable prices, clearly, the fed has failed miserably in that regard. what perhaps you don't know is

that this isn't simply a fact of nature. no, it's a fact of the federal reserve's policies. from 1790 through 1913, it's hard to summit these things -- estimate these things because they didn't have accurate statistics, but back in 1790 if you had a consumer basket that was priced worth $100 at that time, in 1913 that same basket of consumer goods would be about $108. okay, so that's a cumulative 8% price inflation over that entire span. so the point is money used to be stable in purchasing power. >> whoo! >> and the point is since 1913, of course, i don't need to quote the statistics, by various measures the dollar has lost 95% to 99% of its purchase aring power since then. some people will say, yes, of course, when we say stable prices, what we mean is a stable fall in the purchasing power of the dollar. but even on that criterion, the

fed has failed. there has not been predictable price inflation since 1913. there have been volatile periods. all of us are familiar with the high inflation period of the 1970s, but there's also from 1917-1920, each year the consumer price index rose from between 15-18%. so, again, clearly the fed has pailed when it comes -- failed when it comes to stable prices or purchasing power of the dollar. let's move on to maximum employment. well, has the fed done a good job stabilizing the economy, preventing crises? well, there's the great depression. that's kind of a strike against it. there's the great recession. so the two worst calamities in u.s. history happened on the fed's watch. some defenders of the fed will say, okay, if you throw out the great depression, everyone gets a mulligan -- >> i love golf. >> thank you. [laughter]

glad someone got the joke. if you throw out the great depression and look at the great recession and look at post-world war ii volatility, just on that focus, gnp or gdp was more stable than the pre-fed area. but actually there's a paper in the journal of macroeconomics that shows using mainstream economists including christina romer have said, actually, a lot of the criticism of the pre-1913 era is based on fault i statistics. they were looking at commodity series. more generally, if you just look at output as a whole, even just focusing on from the world war ii period on, the u.s. economy has been less stable than it was -- >> one minute warning. this is your one minute warning. [laughter] >> they teach that in law school. >> they do. [laughter] >> so, therefore, just hooking at the statistics here, this isn't abstract theory, this is

statistics as published by people like christina romeer and other mainstream economy uses who say -- economists who say there's a very plausible case that even from world war ii on the u.s. economy has been less stable than it was before the establishment of the federal reserve. in terms of its policy objectives, the fed has clearly failed. finally, let me just point out that it's ironic at a meeting like this that we're arguing over do we need central planning when it comes to money. if we were picking any other topic, yesterday when there was a certain economist up here writes for "the new york times," i won't mention his name -- [laughter] when he alluded to the federal government to run health care, there was booing. and yet for some reason even free market economists, many of them think the one reason where we can't trust the market is money. that doesn't make any sense, i submit to you, ladies and gentlemen of the jury. the federal reserve is an

unnecessary institution. my expert testimony, witnesses will show that it whatser based and, in-- it exacerbated and, indeed, caused the financial crisis. >> come here, dr. murphy. [applause] well done. i'm totally impartial. that was such an impartial hug. >> everything's gravy from this point. >> well done. thank you very much. well, now we are going to hear from professor robert kuttner, the defending attorney in the case. professor kuttner, you have five minutes. will you give us your opening statement, please? >> thank you, your honor. >> order, order! i'll have you thrown out of here so fast, it'll make your head spin like you're in the exorcist. you'll be spitting pea soup. sorry, five minutes. >> ladies and gentlemen of the jury, i am here to argue that we are much better off with a central bank than without it. to demonstrate why, let me take

you back to the 19th century, a period when we had no central bank, no elastic currency, only the gold standard and the money supply dictated by the vagaries of gold discoveries. gold determined the availability of credit, and this was a period when hard money was scarce, banks issued notes of varying reliability, and the money center banks tended to call in loans just when farmers needed them. the quantity the i and the cost of credit bore no relationship to the economy's needs. as roger lowen steven recounts in his new book, "america's bank," the economy oscillated between credit booms and credit busts. full-scale financial panics broke out every couple of decades with severe crashes in 1873 and 1893 and the most serious depression of all, 1907. depressions that lasted four to five years, all driven by

monetary volatility and credit crunches. it was only after the panic of 1907 that populist, rural interests, business leaders and wall street bankers who distrusted and even detested each other agreed that some sort of central bank was necessary. and so for the first time since andrew jackson had killed the second bank of the united states, we got a compromise, central banking system that was fed rated was based on the model of federalism of the united states. the fed has three indispensable functions that markets cannot perform for themselves. first, it regulates the volume and the price of credit, something that money markets cannot do for themselves because of their tendency to overshoot or to undershoot. this is a balancing act of providing the credit the economy needs but also taking away the punch bowl in arthur burns' famous metaphor when the economy

becomes overheated. secondly and even more importantly, the fed functions as a lender of last resort in a crisis such as the collapse of 2008 and in lesser crises that might have blossomed into full-blown depressions such as the flash crash, the latin american and asian currency crises, the collapse of long-term capital management, the october 1987 stock market crash. it did not do that lender of last resort job so well after 1929 pause it had neither -- because it had neither the current tools or sophistication, but it has institutional memory, and it learns from history. third, it seeks to limit the unfortunate habit and conflicts of interest of financial engineers who often create products for their own enrichment and deceive investors, create bubbles and then crashes. the better the fed does that job of keeping financial markets honest, the more it can keep interest rates moderate to make

capital available that the real economy needs without setting off bubbles. and finally, since the humphrey-hawkins act of 1977-1978, the fed has also had a dual mandate to troy to promote -- try to promote high employment and price stability. and janet yellen is doing that job better than her predecessors. now, despite all sorts of new technologies, money markets cannot regulate themselves. on the contrary, the ability of financial engineers to create dark pools of super money, everything from credit default swaps to exploding subprime mortgages to products that are deliberately -- >> one minute. one minute warning. >> so the financial engineers can bet against them at the expense of their customers. such techniques require a central bank to govern both monetary policy and financial regulatory policy.

i say this in full knowledge of the fact that a human beings and public officials are fallible, that politicians can be captured. indeed, i've been a critic of the ped. the fed -- of the fed. the fed has often been too close to wall street. but history shows repeatedly and vividly that in the case of money creation, the perils of market excess are more extreme than the risks of regulatory excess. thank you very much. >> if you had to choose between janet yellen and christina romer for a spouse to have racist, superior children, who would you choose? >> happily, i only have to choose one of them, not to be my wife. i'm happily married. >> it's a hypothetical. >> thank you. >> thank you very much. [applause] [laughter] thank you. very good, professor kuttner. now, dr. murphy, will you please call your first witness. >> yes, your honor. i would like to call johnalson

to the stand. >> yea, john allison. [applause] come on, give it up, people, come on now. let's hear you participate! this is freedom fest, this is not a library. [applause] >> mr. allison, please raise your right hand and place your left hand on this copy of your favorite book that you make all of your employees read, atlas shrugged. [laughter] do you swear to tell the truth are, the whole truth and nothing but the truth so help you ayn rand? >> i do. >> beautiful. [applause] >> mr. allison, could you please state your current occupation and expertise in the field of banking and monetary policy? >> >> i the very recently-retired president and ceo of the cato institute, and before that i was chairman and ceo of the tenth largest financial institution in the united states. and i was a ceo for over 20 years, the longest serving ceo

of a major financial institution. >> okay. perhaps have you written any books that might be relevant to your testimony today? >> i have. the financial crisis and the free market cure which was a "wall street journal" bestseller. >> very good. now, mr. allison, could you explain -- i think a lot of people when they think that the fed did a good job and they justify it, they take these crises as given. do you agree with that, that the fed needs to be there to rescue the situation? >> i do not. you know, i do believe in a free market. you're going to have some cycles, and i think the cycles are good in the sense that markets have to clear and get rid of weakly, poorly-run companies. but certainly in the last financial crisis the fed played the primary role along with government housing policy. in early 2000, alan greenspan who was head of the fed, we were having a little economic correction that we needed, but he didn't want that to happen. he wanted to go out on a good

term, so he created negative interest rate which created a huge incentive for people to leverage and buy houses. that was also facilitated by two unite corporations, freddie mac and fannie mae that only exist because the government guaranteed their debt. and when they failed, they owed $5 trillion and had $2 trillion in subprime mortgage cans. by the way, the bubble wasn't just in the housing market, it was also in commodities markets and the stock market. where the monies come from for above what the fed then created. >> so just for the benefit of our jury here, could you elaborate on that last point? because i think a lot of people believe it was policies end counseling sub-- encouraging subprime lending. are you saying that wasn't the only reason that there was a housing bubble? >> there was a -- the bubble got focused in housing because of the subprime lending, freddie

mac and fannie mae. the federal reserve created the money to create a massive bubble that was way beyond the housing market. people forget there was a bubble in car loans. there was a bubble in markets, and that simply is mathematically impossible without the fed creating the money to make it happen. >> now, mr. allison, i'm sure some defenders of the fed are going to say we don't know where the crisis may have come from, perhaps the fed was responsible, surely the fed did a good job in handling that situation, would you agree with that? >> no, i wouldn't. i went through the financial correction of the early '80s and early '90s. definitely in the early '80s we had a worse economic environment, and yet we didn't have a crisis. the reason we had a crisis this time and, unfortunately, this was under the a republican administration, was that the rule of law was suspended. the fed, for reasons that were absolutely unclear to anybody in the market chose to save bear

stearns. later on they let lehman fail. they saved citigroup, they let wachovia fail. rule of law was gone. so we were going to have an economic correction. we'd created a housing bubble, and we needed a correction. but a lot of the damage was done by the panic which was absolutely unnecessary. it was -- there was no rule of law. and the beginning economic environment wasn't as bad as the early '80s and arguably the early '90s, and yet we had this panic. by the way, i don't -- there are a lot of big banks that i would have let fail, but they were the secondary effect of the crisis. the fed enabled the crisis. >> i wonder, mr. allison, could you briefly comment on the notion that perhaps banking was deregulated, and that might have contributed to the instability, and it clearly wasn't the fact that the fed was too interventionist but, in fact, it kept a hands-off policy.

to you agree with that? >> absolutely not. there was a massive increase in regulation under george bush. there was a massive increase in regulation. banks weren't deregulated. you can just go count the pages of the federal register. there was a massive increase in regulation. banks were misregulated, not deregulated. a lot of people point to glass-steagall, and glass-steagall played no role in the financial crisis. banks like washington mutual and countrywide had no glass-steagall operations. maybe citigroup was worse, but they've been broke three times by the federal reserve before there ever was a glass steigel. the industry was not deregulated, it was misregulated. >> the last question i have, mr. allison, obviously, you're familiar with the work of ayn rand. do you think the federal reserve for fans of ayn rand, it lives up to the ideal she expresses in her work? >> no. [laughter]

i would go beyond that. i've had the opportunity over the years to talk to heads of the federal reserve because i us with a longtime ceo, and i've asked them a simple question. i said do you believe in price controls? in other words, could a group of experts in washington, d.c. set the right price for an automobile? to a person they say, absolutely not, that's crazy. and i say, well, isn't the fed setting a price as a group of experts in washington, d.c. knowing more than billions of can competitors in a global market knew about the price of money? and isn't that the most important price and the most complex price and when set wrong, the most damaging price? and they had no answer. >> well, thank you. i have no further questions for witness, your honor. [applause] >> very good. would you like to cross-examine the witness? you have five minutes. >> thank you. >> sip coe. >> mr. allison, you referenced countrywide and washington mutual.

these were financial institutions that originated subprime mortgages and then securitized the paper, turned it into sliced and diced securities that were then sold off to various investors. would you say those securities were priced accurately by financial markets? >> i would say that they were underpriced in general but primarily because freddie and fannie were making the market. when you have one competitor, a government-sponsored enterprise that has 55-60% market share, they're driving the price in the market. and they were under pressure to have at least half their loan portfolio in subprime mortgages. so they had to keep buying deeper and deeper to reach these politically-correct imposed standards. so that was bringing down the pricing on the whole marketplace. >> well, would you say the securities were priced accurately before they collapsed or after they collapsed? >> they were only priced accurately after the crisis was over and the market cleared.

when rule of law was suspended, the prices fellower than they would have in a free market. they were too high going into the crisis because of freddie mac and the huge amount of money the fed was creating that was driving up prices, of course. >> so can you describe as a banker what occurs in a credit crunch when one institution is so uncertain of the ability of another institution to pay back its debts that things freeze up? what is that like on a trading floor? what actually, what actually happens? >> are i have never been through that. it certainly didn't happen in 2008. >> it didn't happen in 2008? >> it was a huge flow of money to strong institutions. bb and c was -- it was a flight to quality going on. and the bank deposits went up when you actually look at the numbers. now, what was happening, the

lousy institutions were getting punished by the market and were getting ready to fail. how much damage would have been done by that is a hard thing for me to know. but if we hadn't created this arbitrary -- and we let bear stearns fail when they should have failed -- i'm fairly confident we would have had a more severe short-term correction, but we'd be radically better off today. i don't really know what the fed should have done once it created a panic. it's like a fireman that started a fire. maybe they kept the whole town from burning down, but they burnt down half the town. [laughter] [applause] >> what a great analogy. >> let me understand what you're saying. your testimony is that the collapse of 2008, leaving aside freddie and fannie which i completely agree with you were badly run, misconceived institutions especially after they were privatized -- >> you say that now. >> but leaving aside freddie and fannie, your testimony is that the federal reserve created the

collapse of 2008? >> my testimony is that the fed created the bubble that led to the crash. they were like, they took us on a party to the caribbean, encouraged us to drink a lot, and then we had a hangover. and the reason that it turned into a panic was because of the arbitrary lack of rule of law. when they saved bear stearns, didn't save lehman brothers. and markets can't operate when you don't know what the rule of law is. when they paid off washington mutual's unsecured depositors, people can't handle that. maybe when they pumped in a bunch of money after they'd made a mess, maybe that was okay, but it was, again, after they burned half the town down. >> well, what would have happened if there had been no central bank and a panic like this had broken out as panics did break out at regular intervals in the 19th century -- >> one minute. >> -- and there was no central bank to provide liquidity to keep money markets functioning, what would have happened?

>> well, i'll tell you first, we never had a free market banking system in the united states. we had state-run banks, and banks were highly regulated in a different and inefficient way. and secondly, when they did have panics, they had much more severe corrections, but they were very short. markets cleared and things went on. i would argue if we had -- in canada there was no banking crashes, and they had no central bank. going through the depression in scotland, they had a hundred years with all totally private banks that actually printed money. there was no central bank at all, and they never had a serious correction. ..

you can call that analogy. >> thank you very much. john allison, let's give it up. robert murphy, collier said and a witness. >> i would like to call to the stand mr. steve forbes. [applause] >> steve forbes. any forbesians in the house? >> place your hand on the arm -- 400 riches. these were to tell the truth, the whole truth and nothing but the truth so help you god?

>> god and man, yes. >> all right. could you please state your occupation and your qualifications to provide this testimony force today? >> i am editor-in-chief and chairman of forbes and media. you have been following the mack nations of the federal reserve and the deception, my grandfather wrote the story about july and which created the federal reserve bank in 1912, 1911, the fed action was created in 1913, the mechanism was put in place before that. i recently co-authored a book called money about how the federal reserve has made things worse, not better. >> let's follow upon the last point for the jury. if i may. how has the federal reserve, a lot of people's that the fed was there to provide a system, you are arguing it made things

worse. could you explain? >> every major economic crisis like the great depression, the great inflation of the 1970s and this recent debacle were all caused by government mistakes, errors in government policy. the 1970s it was the fed that printed the money that cause that terrible inflation and wreak havoc around the world. in the 1980s reagan stopped. people said the head of the fed didn't stop inflation, he set the fire and then put it out but why set the fire in the first place? john allison pointed out in the last decade the fed went on a binge again creating excess money that led to the commodities bubble, the housing bust and the other thing that is not fully recognized as since the crisis of 2008-2009 that it is the principal reason we have

this bump recovery today, they put in monetary policies that the big government and big corporations with pricing of credit, starting credit for small and new businesses, so-called zero interest rate sounds great but as they sit in the soviet union, the health care is free but you can't get it. [applause] >> i am confused. the mainstream media says low-interest rates are the medicine and that it is doing what it can to bolster the recovery and you seem to be suggesting the opposite. >> like doctors in days of old when you had an anemic patient, you bled the patient but that did more harm than good. in this case by wrecking the credit markets, putting in price controls like rent-controlled just when it deteriorates, you don't get housing properly functioning housing market anymore. in terms of what they have done

with the credit markets by mixing them up they made short-term credit available to small and new businesses. by miss pricing credit, banks, if you don't know what the price of something is you will get less of in the marketplace and in terms of what the federal reserve has done, bank regulators, the federal reserve's biggest bank regulator, they pound on banks when they make loans to small and new businesses as risky and when they applied when you lend them the government government gets free money. at the end of the year the federal reserve turns over all of the interest, most of the interest after expenses on its portfolio. it is like you have a mortgage and at the end of the year the bank pays you back and thousand dollars isn't of interest you pay on a mortgage, that feels pretty good, uncle sam gets it back from the federal reserve, trillions of dollars of government bonds the federal reserve, interest back to the

treasury department. bad deal for the american economy. >>-and this hard to believe. you tell me when the federal double isn't established but the reserve that it did so partly to benefit itself? this seems inconceivable. >> an outrage. >> governments are always selfless. reminds me after world war i historian discovered in the 1950s when the british who had the largest navy in the world downsized the navy and when the navy was being downsize the agency running the navy got bigger, more bureaucrats. that is what happens with government. you see in the defense department today, uniformed personnel down -- >> you have thirty-second. >> one final question. you may have heard that defense has argued the fed needs to be there to be a lender of last resort to provide liquidity. do you have any thoughts on

whether that is the justification for the fed and its policies? >> if done right yes, the bank of england in the 1860s showed that if you have a credit crisis you could go to the bank and above market interest-rate with good collateral and short-term loan and then you are out of it. that could be done in a matter of weeks. in the united states and other countries where you don't have a central bank you could have not in the u.s. but a country's banks coming together and pulling money and making emergency loans. we had a lot in the 1900s that prevented that from happening in switzerland, canada and the like. so you didn't have any effective lender of last resort but banking systems are capable of doing it if they know what the rules of the game, you go out, let the bad go, preserve the good. >> very good. >> no further questions. >> your witness, robert kuttner. stand over here for analysis.

>> mr. forbes, are you on the forbes 400 list? >> no. that is why i read for. i am trying to get on that. [applause] >> i was intrigued that you said that the fed was responsible for the collapse of 1929. >> i didn't say that. i said the great inflation of the 1970s. >> i see. i am glad to correct that misperception. after that collapse, secretary of the treasury andrew mellon infamously said that all of these cascading business failures would purge the rotten as from the system. to you subscribe to that view? >> that crisis was caused by government. in 1929, 1930, that legislation started to make its way through congress. that is when the markets

collapsed. you can go to the daily headlines, the way the world works shows when that legislation could be halted, the global trading system, stock market recovered. when it became a reality the stock market crashed lisa in number 2 was when the contractions started government raised taxes catastrophically. they did it in germany, britain, the united states raise the top income tax from 25% to 63%. you wonder why the economy continues to contract? government played a role there. i don't worry about andrew mellon. i worry what government does when they miss the trade. >> okay. i am attributing what you said to the fed. i want to talk about what government did or did not do in the 20s. if i read my history correctly the 20s was a period of almost no financial regulation. the federal reserve was the new institution and financial

engineers on wall street invented stock pools, a gimmick swear bankers were borrowing from their own bank to speculate where sketchy loans in third world countries were secured and sold to customers where public utility holding companies wanted stock, and passed the costs to ratepayers. how was government implicated in these inventive activities of the private markets? >> when you have a bad product in the marketplace eventually get fleshed out if you let it get fleshed out. >> we had stock market tumbles before 1929 and after 1929. for example in 1962 we had the most terrible day in stock market history but we didn't go in and massively raise taxes and destroy the trading system and the market recovered. in terms of stock-market crashes the stock market crashed in 1929

not because of pools and the like but because we are destroying the global trading system just as what happened with world war i destroy the global trading system we did it in peacetime when the shooting came later. >> 1929 was not a bubble in your view? >> you may get a bubble but then you have a correction and it goes back again. you get enthusiasm. in the early 1980s we had great enthusiasm for personal computers, everyone knew this was a big deal so everyone piled in, the inevitable shakeout and the industry came back again. in this country in terms of automobiles, a huge industry in the elite part of the last century, we had over a thousand automobile manufacturers, people saw great opportunities, it gets fleshed out and the winners go on and prosper but that is normal. you will always get ups and downs. the economy is not a machine. is individuals. get over it. [applause] >> where is the inflation that

folks have been predicting as a result of the fed's bond buying program? >> have you seen the price of a roulette? >> where is the catastrophic inflation that has been predicted? >> you had some inflation but what you also had, this is the big difference between us and the 1970s, you had enormous regulation on banks, not to leverage reserves into loans. that is why the money supply numbers have been anemic even the reserves of grown at twice the rate they did in the 1970s so you have a combination of zero interest rates benefiting government and big companies. why would apple with $150, because they could. and so again markets operate, they usually work pretty well. human beings are not perfect but they're better than government. >> there supersexy. thank you so much the forbes.

[applause] high five from the jury. a good sign for the prosecution. anymore witnesses? >> no more witnesses, the prosecution rests. >> a good, they are addressing, their sleep, that means it is robert kuttner's turn. >> i would like to call alexander green. >> yes. >> on the oxford communique where your face is apparently on it. tell the truth, the whole truth and nothing but the truth on your own face? >> motrin. >> thank you for being with us, state your involvement in wall street? >> i will start with a confession. i spent 30 years as of money manager, research analyst and financial writer and i am currently chief investment

strategist. >> terrific. when you say you are a left-wing her? >> i'm a wild ride libertarian. that is the mating call right there. >> is that a:in your pocket or are you just happy to see me? >> given your views and experience do you think we are better off with the central bank or without one? >> i won't argue we are better off with the central bank but i would argue the cost of what the central bank did during the financial crisis we are better off. >> why is that? >> because cash and credit are the lifeblood of the economy. they grease the wheels of commerce. >> i love agrees the wheel. >> where was i? >> that is what i said this

morning! >> you were saying -- >> the mating call. >> the economy agrees with congress. >> when the financial system breaks down to the point where morgan stanley doesn't trust merrill lynch enough to lend it money overnight the whole system is in danger of imploding. and no one has stepped in and done anything, we have a collapse in financial markets and the deflationary depression and business owners, investors and every day americans would have suffered more than they did during the financial crisis. >> you heard expert witnesses for the prosecution say this is no big deal, let markets take care of themselves, shakeouts our normal, why is this kind of credit crisis, credit crunch different when the hole money-market is like this? >> extraordinary circumstances require extraordinary measures. ordinarily i would be a non interventionist but when you

have a situation like this where for instance we were

dangerous deflationary situation japan has suffered with for 26 years and that is what scared of that and what the spigots have been wide open, it has been very difficult ones deflation takes hold to turn things around again so they took extraordinary measures to keep us from extraordinarily bad -- >> it is like economic herpes. when you got it -- >> it is all of. >> thank you very much. would you like to cross-examine? whatever you want to do? let it go. it is like frozen, go for it. >> i believe was i correct in saying you are not going to sit here and argue we are better off with the central bank and without one. did i understand you correctly? >> yes. >> that would have qualified you to sit on the jury. >> can i change places? >> i hope your next witness actually agrees with you. of day.

is your argument basically that given that the fed may be at that institution overall, the thing is under consideration for this trial, put that aside, is it your position that given we were in the midst of a financial crisis what the fed did was absolutely necessary? >> yes. in my judgment what the kid did was hasty and improvised and in perfect but it is better than having done nothing, absolutely. >> could i put issue further. i use saying, you are open to the idea is that it would have been better had the fed not been there in the first place? everyone is looking to the fed to do something perhaps it needed to do something rather than nothing but it is conceivable that that situation itself was because of the existence of the fed. >> can you repeat the question? >> could someone read it back? let me rephrase.

we had other expert witnesses appear saying we should not take the crisis as a fact of nature, the reason the panic was there was because the fed and other officials had been picking and choosing bailing out some firms, leading markets to believe they will rest u.s. and shocking everyone by saying we will let lehman fail for example. do you agree with the general spirit of that criticism? >> no i disagree. the fed perhaps did the interest rates too low for too long going into the housing bubble but housing bubble was created by both political party encouraging people who could in no way for a home to buy one. that was problem number one. they also exempted the first $500,000 in capital gains fueling the fire further to buy real estate. then the bubble got underway, animal spirits got this and started getting up to crazy prices. i don't blame all of that envelope that. the housing bubble burst, the sub prime market collapsed. >> we have ten seconds.

>> quick question. ever been to a bowling alley? >> a couple times. >> they rent shoes out there. would you trust -- would you trust a group of officials in washington to regulate the price and quantity of bowling shoes? >> probably not. >> but you would with money. what kind of libertarian would say that? no further questions. >> thank you very much. [applause] >> he is good, i am not even lying. if you have a second witness you would like to call? >> professor steven miller of the university of nevada in las vegas. they differ joining us. >> nice to see. welcome to the court room of freedom. >> can you tell us -- >> brain hiatus here.

>> where is the bailiff? thank you. >> i have been trying to save some time. >> those weed. little lamb chop. free to choose. we don't really trust you. the grand erie. [applause] >> at the same time these were to tell the truth, the whole truth and nothing but the truth? >> you got it, partner. >> between friedman and canes we have the truth. could you describe for the jury in the nature of your academic work? >> imac raleigh economists. i have been doing this for 45 years, 31 in connecticut, 14 in las vegas and more recently i have been doing some work on the volatility of upward growth, i first did it for the united states and in japan and a bunch of the oecd countries post world

war ii data. the most recent paper looked at the united states from 1876 through 19, 2012. over a century of data and the result of that study suggested that the samples divided into four periods, the gold standard period, post-world war ii for 1981-1981 to the present. >> would you say that the economy was more volatile back in the era when we didn't have a central bank? >> in fact the measures i looked at suggested the economy was more volatile in terms of real output growth both in the gold standard period and the inner work period, the world economy decided to go back to the gold standard, they set some bad parity isn't it did not work. >> why would the economy be more volatile in the period when there was no central bank? >> the central bank can play a role when they do things

correctly in controlling the movements of the economy. that is not always the case. the great depression was an example. i am sorry. >> here we are, great. >> the great depression is an example when the central bank failed in their activities. >> we have more financial volatility before there were kardashian? >> the kardashians contributed to the financial volatility. >> fair enough. >> i was asking you, what were the -- in the period we had financial panic in the nineteenth century, every 10 or 15 years, what was the role of the absence of any central bank? >> couldn't step in and try to prevent a bank panic from getting out of control and leading to a recession or depression. if you look at the time period

you notice during the gold standard and the interwar period we had many more cycles than we had after world war ii. the cycle's last four years, two years of recession, a little less, three years of expansion, since world war ii the expansion of got longer and recessions of gone shorter end i mean on the audience we are now looking at the seventh year of the current expansion which is average for the 1981 period. >> i take it you don't endorse every single thing the fed has done but on balance you think we're better off having a central bank and not having one? >> the fed is on lots of things that are not correct. you have to consider the central bank is like an insurance contract. you buy insurance on your home because there's a small probability and identify rant lose the whole investment so the fed is an insurance contract against a fire in the economy.

>> thank you very much. >> dr. miller. >> a lot of doctors here. >> can i take the fifth? >> if you want. i wouldn't even mind. >> when was the federal reserve established because >> 1913. >> when did great in happen? >> 1929. >> the great depression, the worst crisis in u.s. history happened on a fat's watch. >> exactly. >> the most recent financial crisis pales in comparison to the great depression and a lot of the recessions in the gold century. >> [speaking in native tongue]. just to follow up, you're saying we should give the fed has because this last one was not -- >> don't give the fed a pass. they were responsible in large part for the great depression. >> okay. speaking of that, ben bernanke was governor at the time in november of 2002, milton friedman at 90th birth day, gave

an address directed at milton friedman, let me end my talk by abusing my status as an official representative of the federal reserve. unlike to say regarding the great depression you are right, we did it, we are very sorry but thanks to you we won't do it again. do you think that is something he is proud of, that statement? >> he was accurate in saying that. >> because the fed is not caused another great depression, merely a great recession? >> the great recession was a lot shallower than it would have been absent the knapsack and. what one can debate about how the fed got isn't that crisis, my view of the housing crisis, sub prime lending problem and the collapse, financial collapse, everyone in this country was guilty.

[laughter] >> one final question for you. one of the previous witnesses eluded to the dictum that in a time of crisis -- >> i didn't even know him. all right, go ahead. >> same character. financial crisis, if you're going to have a central bank what it should do is lend freely, but at a penalty rate of interest. i you familiar with that dictum? >> my view is the number-1 job of the central bank is to be lender of last resort. there are a lot of things they do. i would prefer they focus on inflation control and not get involved in an employment and output. >> do you think -- >> you said that is your last question. >> line of questioning. >> one more? >> one more.

my -- >> given the fed will be there to provide liquidity as lender of last resort you think the public which have oversight or the like the current arrangement that when congress called ben bernanke in front of them in late 2008, the duke of trillions of dollars in loans to and he said this is a paraphrase but very close to spirit i can disclosed the recipient because that would defeat the purpose of the program. >> you have ten seconds. >> the issue is whether the central bank needs to be independent and if damocles's sorted hanging over the fed, the regulation might be changed, government might decide to do this, disband the fed, and get rid of the fed, that inhibits their effectiveness in implementing policy in my view. >> thank you very much. [applause] >> any further witnesses? >> simply made our case, thank you. >> very good.

we are going to conclude these court proceedings with closing statements to the jury. we will have robert murphy and robert kuttner, we don't have time. what about a minute? this is out of my hands. this has evolved into utter chaos, don't know what is going to happen at freedomfest. that is why it is a beautiful banana split. william mentally, for five seconds, transit your thoughts to the audience or the jury, ready? that was awesome. very good job. thank you very much. ladies and gentlemen, you heard various witnesses to the proceedings, it is up to you to decide the guilt or innocence of the federal reserve, it is your job to determine whether the preponderance of evidence supports the prosecution, the federal ballot has a dangerous powerful institution that they

are powerful institution in today's economy, encouraging irresponsible banking practices, stimulative artificial booms and buss allowing the government to grow by leaps and bounds all the while depreciating the value of our currency or do you think the fed has gone on that balance a credible job of keeping our economy strong and stable, defending a strong dollar, protecting as from another panic on wall street or even another great depression? the floor person will tally the votes and announce the verdict. the decision by the jury can be by majority vote. it does not require unanimity as we discussed earlier. the questions? here is what we are going to do. they will decide among themselves, who is your floridaperson? they have already written things

down, so organized. it is like the o.j. trial, like they decided when they started deliberating. what fun! i love this stuff, so legal and binding. she will tally them in secret. how is everyone doing? are you feeling good? you, feeling lucky? who is going to be the robert redford to your w more tonight? i think that is what everyone has to ask. you know what i am saying. ever in of the world even better than last year. >> you might be the best libertarian judge on planet earth. >> brian. >> is counting. it is like from votes. and is going to walk away with a

big crowd? >> we need the jeopardy theme music. >> give it to the judge. >> members of the jury, have you reached a verdict? very good. will lead defense attorney robert kuttner stand and face the jury? >> the defense counsel. >> that is okay. >> how do you and your fellow jurors decide? >> 9 in favor of guilty, two for not guilty, one for abolish the fed. >> was! those are some powerful votes. thank you so much. there you have it, the fed is guilty, guilty, and guilty,

guilty, guilty, guilty, guilty! you and your fed supporters have been found guilty of subverting the public good with failing and therefore by the powers vested in me i hereby condemned you and all fit supporters to the fed prison and this is about to get good, where you will be under obligation to pay the toxic debt of all freedomfest attendees tonight. you may have lost your collective shirt that the crap tables, you could only get out of debtors' prison if the federal reserve finally raises interest rates. take them away! >> i am not lawyers! the bank would tomorrow night -- >> i am a lawyer. >> he is a lawyer. the night is young.

robert kuttner, robert murphy, jurors and our star witness and freedomfest attendees, thank you very much, court is now adjourned. god bless america and may you always ride on let eagle of freedom, good night. >> booktv isn't miranda facebook, we want to hear from you. twitter.com/booktv, or post a comment on our face book page, facebook.com/booktv. chelsea clinton is next on booktv, her book "it's your world: get informed, get inspired, and get going!" talks about what she sees as the world's biggest challenges, is young people making an impact