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>> >> his mother was the vicious. she would lean over the piano and sing. i could never match that.

and with that inadequacy. >> and with that musical interest as a professional musician bought was and attempt to get into these spotlight through that ability. and then people come back to that. >> americans will read i grant tends to happen around 19 years old with the adl of that libertarian vision and

he met him when he was older -- he met her when he was older and must acquit him around age 50 as the chairman and through that allen's mother and had a profound effect on his development. >> day think she changed his mind or reinforce his views? with the great man and certainly with the individualism quite. >> he was somebody was withdrawing live and in his own head as a child but would he went to college in

1945 with a most pro-government generations with the gi bill in history before that libertarian seoul meeting ayn rand to reinforce that to build the whole philosophy of world view that he was more concerned than the socialist vision but ayn rand brought into the political economic agenda. >> host: tell us about the numbers fascination he just loves statistics and numbers quick. >> that is his passion as the child they would ask him to do complicated edition as a performance art.

>> host: that is the thing that the fed he also likes baseball. [laughter] there is that baseball tradition of economics other democrats call the new york school based in in new york focused on the aggregate data which has not existed in the '30's. so the creation of data is how he got his start her not taking that data for granted of that complex mathematical connections but that's how one does help them of that

productivity data and the crucially from the late 1990's but there was an incident because those modelers because the unemployment was so low and then say idol see this. so if profits we're going up in to make more money and so he wanted to look into that.

and that showed apparently mason added can be that. and then they are producing less so they are looking under their hurt that leaks to the post mortem of the 2008 crisis because one of those common obsessions was that was all tied up in his model. and with sap particular model they were willing to question it to stress test the data.

and they wanted to choose the fed chairman who was intellectually prepared not to be trapped you may have chosen alan greenspan. so they pulled out a stack of printouts. [laughter] and you talk about inconsistencies sister with the nice anecdote so can you say edward about that in consistent use of the gold standard quick. >> like ayn rand he believed in the gold standard. that goes with the characters in her book that

believe with of a gold standard and when "atlas shrugged" was published he presented her to celebrate the publication that was also his world view. >> and you don't need the central bank if you believe in the gold standard. >> guest: right. one of the things that i discovered. and in with a fantastic fighting system. and then i came across the quotation with the creation of the federal reserve so

talk about inconsistency clacks quicks so then you need the fed. so all the right to the other extreme. >> host: and you don't need that monetary rule and that that was espoused and a freedman rule and and with that discipline. and maybe what you hinted that earlier including himself. >> host: yes but he was

also shy and not scheerer of his views. early to see the crash of 1929 and yet by the 1990's to worry about the stock market bubble from that time one dixit exciting discovery was the ayn rand speeches he talked about it to friends of labatt that magic the disappears when after he became fed chairman.

and they wanted to see what was in bed. rhino brcs opposed to -- i know that we are supposed to and his eyes would go like this. indyk to see the fat binder on the shelf. that it would be great to have your ph.d. thesis said when he gave it to me and i read it in which as you say it's all about how the central bank must respond to the asset levels based on the 1920's experience that says compared to the inventory cycles the asset boom and bust the central bank's but that was the of

prescription that greenspan did not follow that. >> talk about the doc, bubble? >> you will correct me because issue were there but what i saw from reconstruction from of uh transcript is essentially that with the collapse of long-term capital management . and russia was just up as well. ended the three interest-rate cuts.

so things were stabilized. once the crisis was past they were not. and was the crucial period and deliver my high too crazy high. but then that was not so crazy. and with the irrational exuberance to send a signal with that. >> and then you have almost shakespearean tragedy.

to talk about irrational exuberance with those asset prices late news that could be very dangerous live all the intellectual formation to respond to that attack bubble. >> host: i would argue that we did not have the right tools. budget for the short-term interest rate that was very very high. doing us a lot of good. the lead ingested with you or robin greenspan with that consensus but i disagree that knowing what we've

known now is worth reducing in the short to medium term so that trade-off so when retrospect we lead that. >> but all bubbles are not the same. that stock market bubble did not have those consequences but the housing doubled in accommodation with that bond market bubble blacks talk about that with that engagement because as you say the credit bubble with other beverage then --

leverage with a complete meltdown. so if they themselves are not leveraged but the reason i am not sanguine about the unleveraged stock market bubble when the fed was confronted with the collapse of the tech bubble in 2001 and the consequence of the stimulus the interest-rate and when you read the fomc transcripts through 2004 and this is what is happening. and it is accepted as a trade-off.

we have the tech bubble that blew up that we have to compensate for a the corporate investment alabama level and the real-estate investment. >> that part is true that there were other regulators that is egregious. and they were very concerned about that peseta and the other regulators they focus

on what was happening to these disasters that. >> this is another area where research is with the story because in 2001 through the freedom of information act disclosure ruling on the sub prior mortgages they are particularly dangerous type of sub-prime mortgage in particular an insurance product that was a rip-off to consumers that is not allowed any more. actually they were on the "frontline" want to debate in the past the rules at the time may be one-third would be prevented and the sub

prior mortgages but that larger message is that and of vulcanized regulatory system into pass the rule to see that and forced. >> i think that is right. but most of of bad stuff in the fed regulated institutions and greenspan could have gathered there is bad stuff water we going to do about it?

with the rapid decline of funding status with the is bad loans with those eager buyers. >> i want to stipulate there is a lot of truth to use said to describe that crazy securitization that is going on because he lived through previous derivatives there was orange county 1995 procter and gamble there were other problems and i agree we should have done more. >> it is easy to focus on

alan greenspan and the apparent superhero. >> that the message may be under appreciated is that there were instances as alan greenspan tried to push back >> host: months talk about that he was very worried. with the law high leverage from freddie mac and intent and more then once with

these institutions that were lending to much. and then to be on the same pages him. and with the dnc -- gse one of those clearances on the topic in then to clampdown on those mortgages. preventing us from having the american dream. and then to face of a barrage. to what those regulators could do. >> a thing that is true.

as the of lobbyist fannie and freddie. that alan greenspan was sorry about fannie and freddie and with those private financial in situations? gimmicky had a recent to be more worried because there was a government and it looked more obvious because the taxpayers for of the book and then the crisis but they regretted that so you

are right those private banks that were engaged, but i do think that he tried doc and the aegean seas size with the one beverage before me that regulation politically is very hard to do you have to be willing to consider interest rates at those low close. >> c. have to me you willing to do regulation better. there is more systemic risk. to be very interconnected. what if it went down? and then to come back

personnel was mad at espousing that but that was a curious incident. >> guest: in some ways to have his emergence with his political except in some washington to crystallize in 1993 when he endorsed the clinton budget package and that will raise the deficit. and with the "state of the union" speech and then hillary clinton was clapping . and as a deficit hawk and did in 2001 and greenspan endorses him.

so if that budget surplus evaporated then that should that they know that the sunset clause. soap he made a compromise with his conscience and those of the motion attrition wanted. >> and publicly about the large surplus and what the fed did to execute monetary policy. if we did not have a national debt. because of the socialism of that magnitude and otherwise

to do monetary policy. and where would the fed beat greg. >> so if we pay off the debt than the government would have to stop buying corporate equities into the private markets and he raised of those concerns but was still a very big national debt and they said mr. chairman then we will have a discussion about that >> host: that was not likely to happen in. but that great moment of yankee's in windows computer

systems reset with that shortcut to to cause those programmers around that rollover. and then there was concern people could not get many had of the atm or checking accounts would not make transfers where there be computer infrastructure. the data might freeze up. in the regional depositions the liquidity lines and in

some ways enacting that safeguard and in the end yankee's turn out to be cash registers. >> host: there was and incidents in japan but because they fix did. >> the and i remember those meetings about yankee's that knew how to program so they needed help they could call on him. [laughter] . .

and by the time he got there, the team was pretty much in control of the crisis response, and the interesting thing that is revealing about the personality come he didn't march in and demanded the control, he was quite happy letting the others to the crisis response because what really interested him was to think about the right interest rate policy in response

to -- >> host: it didn't matter to him very much. >> guest: it was thought to be an assassination threat and he hid away bhad away by himself ao me you know in a time where individuals retreat to their comfort zone and for me it was to go off by myself and look at the data. >> host: fast-forward to after 2008 and he had to come to terms with the very role of could he have done things differently and was he in part responsible as many people were holding him for this. can you talk about how h she cae to terms with that?

>> guest: this is something he testified in congress and cross-examined about getting it wrong. he had financial companies and banks and not being as crazy to blow themselves up. now that's stuck and it gave rise to the unfortunate presumption and the debate that the reason we have a crisis in the self policing control and we

got rid of that belief we would have a safer financial system because if we understand the markets undershoot and w then wt make the same mistake again. it is a commonplace and mistake. they understood the banks could blow themselves up and he understood the 1920s and 1930s so i found the flaw interchanged and he didn't really mean there was a deep wall because he knew that finance is unstable.

that was central to his writing. the world has burned a lesson from the alan greenspan legacy. they think we had a crisis because of the intellectual heir but in reality we had have a cs because the political constraints on what the regulators can do and as we look at the current political season it would be foolish to presume. >> guest: there were a lot of reasons that came together for the perfect storm rather than this crisis probably was but there was a widespread phase that somehow an ended they would

manage risk while. managing risk was very complicated and why would we all believe that do you think? >> guest: it was arrived at because the system is even less compelling. people understood finance could go wrong and they would lift through the failure in the collapse into bankruptcy of new york and watch to understand the first thing that happens by 23% then there's the mexico crisis and one crisis after another.

why was there that apparent faith but nonetheless the financial institutions would manage their risk is because the alternative that the government could look over the shoulder of bankers and be smarter about identifying the risk and that makes it seem even less believable. what are the chances that somebody who is supervising the different institutions and the government comes and visits jpmorgan and is better at understanding jpmorgan than the people that are there all the time i think it was an wasn't te markets were not perfect but the government was also in perfect. >> host: come back to the housing bubble. alan greenspan made some

statements about housing markets thaseemed in which respect actuy naïve and that we couldn't have a national housing bubble. what do you make of that? >> guest: he came out and said this is what you described. i think that is a very strange one and hard to explain except i think what happened was in the transcripts you see him privately debating in the credit market problems in housing markets they debated this might be creating instability in 2004. >> host: very worried about credit cards for example.

>> guest: why did he arrive in public and say don't worry there won't be enough of a bubble. i think it was the national cheerleader that he found he had to be reassuring and something i create in my book talks about him becoming as reassuring to the american public as prozac. >> host: you talk with out him as uncle alan. >> guest: yes. it became whether in housing or stalks and once he became that almost despite himself it was hard to go out and be the bringer of negative news. maybe that's shy personality

raised by a single mother in the 1930s and like like to confront societsociety that gives you jut to risk the popularity if there havhad been more natural confide in the affirmation in some ways maybe he would have done it differently. >> host: could it have anything to do with his admiration of the great railroad tycoon that they are talking more about the financial institutions that these smart people creating and running major financial institutions couldn't get it wrong? >> guest: there is a strand strn his mental history that had to do with jpmorgan that when he was a jazz player and that there was a break he would be reading economic history for fun including the story of james

morgan into the creation of the great morgan bank in the 19th century and early 20th century and he had a reference that only grew when he was appointed director of the company and sat on the board in the late 70s and early '80s and jpmorgan was the perfect example of this likely conservative professional kind of think and i think that an image did affect that lesson he must have learned at the same time from watching bankers trust blow themselves up. >> host: come back to the

derivatives for a moment. the fancy financial instrument that most of us struggle to understand were exploding and though we've had derivatives before, this was new and nobody very well understood yet he resisted any attempt to regula regulate. >> guest: one of the things that drew me to writing this book is the public life was essentially for decades in which modern finance was created. there were no financial derivatives as well as there being the fixed exchange rate and so they were created in this

period that he's at or near the debates of this is the question why not do more about the derivatives, they had caused trouble and they didn't debate about trying to push them from the bilateral swaps between one bank and one company to the exchange they could be better monitored. i did and more of that happens up there was a famous moment when the chair of the trading commission advocated they should be better regulated by all of the others in town including alan greenspan. i think when you look at that story why didn't they do more,

there's a couple of points and one is that they approached this with this mentality she was correct in the direction of policy and how it should have gone but she wasn't a good politician in terms of building alliances around town and so by aggressively demanding action as opposed it was a battle as well so he had become an opponent because of the issue. the other thing we have to remember that comes back to the earlier discussion is there would have been massive lobbying by the derivatives business against this reform that would have gotten to the prophets and

you only have to look at the way the financial modernization act that we remember as graham leach bliley passed after multiple attempts in congress, it failed passing new financial rules that was extremely difficult and i think that bob rubin and greenspan and summers and anyway you can speak to that, they were a reasonable view that says we might want to regulate these more and if we try to fight for that we will be killed by the lobby, we won't get anywhere and we will have burned for energy when we should have used on something else. >> host: that is one more example of very powerful people speaking a huge amount of money on the status quo and then it's hard to change the status quo and nobody stood up against that. i thought actually you didn't

mention enough the element of greed and profiteering not alan greenspan that all of the sector from the mortgage originators and on the that were profiting so enormously from this that the financial center grew from all of the proportion. >> host: does that mean we have to live with that? >> guest: my book was the history of hedge funds and so i have done greed but you're probably right that the whole story of the power of extremely profitable financial institutions is something that i could have played out more.

i think i do get through it through the example of the instance of a very profitable. companies that use the profits to lobby and run through the ads to perpetuate the regulations that give it the prophets so regulation perpetuates the regulations and it is a terrible insidious group. >> host: and they were not just companies, they were government sponsored enterprises government-sponsored enterprises with a business model that couldn't work. they were being pressure on the one hand to make money for their shareholders and on the other hand to foster more home ownership. >> guest: if people knew and

others who were watching over the financial system understood a lot of these issues, the respect was the new but they didn't act, and that goes into this political economy today of why not. >> host: he questions whether they knew that it could be this big of a disaster because a financial crisis in the stock market is after all not of a crisis of an asset that is so widely held and if somebody loses on the stock market, neighbors are not affected and if your house is foreclosed on some of the neighbors suffer. >> guest: one of the things again, talking about the phd

thesis, one of the central things was this idea that later became known and this is the notion that when the price is right, first individuals feel rich so they spend more, but as the wealth effect. second, companies which see that you can sell corporate equity for more money are likely to go out and create more corporate equity. they might find another company. corporate investment is likely to go up at the time when the secondary market is valuing the market more highly so this is central to his thinking in the 1950s and so it followed from that when they were zooming up to astronomical heights it must be pushing an investment boom that would lower that and the fiber optic cable was being laid in the ocean, the investment

driving the economy upward. when it collapsed in 2000, 2001, there was a drying up of the investment and although as i said before, they do have an affect through the investment channel and alan greenspan of all people had written about it. >> host: again i come back to the whole economic establishment to pick this up, but the wealth effect on the downside was enormous when the asset in question was housing and that certainly took it down further than we might otherwise have. how did you spell that out in

his achievements and failing? it's been an interesting chapter in the end of the book. >> guest: he was really sensationally good. he was able to say that they were resulting in inflation and he was right in the opposing the price controls that proved to be true. he was right in the seeing how the early activation was creating a kind of conundrum like the one that came back to bite so a lot of these things he predicted accurately in 1996 we

talked about that. so as an analyst committee was great. now as opposed to a watcher, he was left. >> host: he liked being an analyst. >> guest: in personality terms, and that comes to understanding the man. so that's right. then that gets into the question of why didn't he act more. personality is part of it, political constraint is what he thought he could get away from it. it's a very political person who had to learn all kinds of tricks working with richard nixon way back in the 60s and you know, that's why it's a story not just about economics. it's also a story about human frailty and machiavellian politics. >> host: yes and i think about

the collective mindset and if you will about greed because one of the reasons it's a so hard to make the right call is that some people are making an awful lot of money [inaudible] >> guest: that's why it remains today extraordinarily difficult for the central bank to raise interest rates because people own those assets and if you can't prove that you needed to do it you do it operated on the presumption that the prices may be valued and you cannot over prove it. it's very hard to be the passenger that pricks the bubble. >> host: but that's why we have an independent central

bank. >> host: in the face of inflation, he was less comfortable with the asset price bubble which i would argue would have bought him into the regulatory domain rather than just the interest rate domain because -- >> guest: i'm glad you say that because that really was another interesting part of the story in the george h. w. bush administration. that was the tenure and we forget it's now a little bit but he was under immense pressure to the point where the budget director was going around and whispering thunder gulch amana 65-years-old and lives by himself and calls his mother every day. isn't that creepy and remind you

of alfred hitchcock's psycho. this is a really nasty political tactic and despite all the pressure, alan greenspan stood up and in a way almost created the fed's independent. perhaps that sounds like an overstatement towards the en bue end of his tenure, paul volcker, the giant big headed old testament prophet who we remembered as the giant who made inflation was surrounded in his last years by the reagan appointees. he was out voted by his own board once on interest rates and twice on regulation and his authority was diminishing. alan greenspan really rebuilt and i think the term when experts are under attack from politicians it behooves us to study the model with somebody that is the expert who parlayed

that expertise into political influence. >> host: it also behooves us to figure out the proper role of the central bank now that we have had it proven beyond a reasonable doubt that financial instability is a terrible thing to have happen to an economy whether it's a domestic economy or world economy. thank you for its perfect book that i think eliminates not just the career of alan greenspan that this complex era in which we've been living and operating and i predict it will be on the shelves for a long time to come. >> guest: thank you very much.

modern presidents are so obsessed with talking and campaigning and going places that they fail to take the time to think about the third step of leadership which is implementing policy. i start the buck with a quote from thomas jefferson. quote, the execution of the wall is more important than making them. if you think of leadership is three tests, getting the answer right from th, the policy right, communicating that and then implementing it the argument i make in this book is that presidents that spent so much time on communication is leaves them little time to think about how they are going to implement the policies they want to

implement, and that involves understanding something that into business schools they call organizational capacity. in other words is the piece of the federal government that you're getting this job to come it isn't capable, is ucome is uo the job that you're asking it to do.

.. >> welcome back to booktv's live coverage of the miami book fair. now and its 33rd year it's held on