the fdic had really developed what seemed in the midst of this financial crisis a relatively efficient system whereby in many cases the banks would announce they were closing up on a friday afternoon and on saturday morning people could get their machine and the new branch had been acquired. it's not been that long. tell me what you really think worked well and those things that wowoff done differently now that you know what you know? >> that's a really good question. i think the first thing, one thing i do regret is when any bank closed. that was an accelerated failure. that bang was quickly becoming insolvent. it had a liquidity run caused by a senior public official questioning its financial stability. we saw massive am amounts of

uninsured deposits going. that was in july of 2008. early on. we only had a handful of failures. the primary regulator of the bank wanted to close it a few hours before regular closing hours to facilitate calls to members of congress to let them know the bank was closing. which is usually a courtesy. i question that, but i went along with it and i wish i hadn't. what happened was the bank was closed by the primary regulator a few hours before normal closing. you still had people coming to the bank. there was a loop on some of the cable network shows showing a woman i'll never forget banging on the door. i was just horrified. and the irony was we had arranged for a press conference, a telephonic press conference friday after indy mac was closed for press to call in. we didn't have a buyer. we set up a bridge institution. the fd,ic took management control of the institution.

hardly anybody called in. as soon as the loop of this woman knocking on the door, you probably remember this. >> yes, very well. >> it really just scared people. i was annoyed with some of the cable news networks that they were hyping this up so badly. but i regret it that we did not wait. after that, the rule was we do not close any institutions until after regular closing hour. one thing we did do right that i think helped us with that one and the subsequent failures. that was the only time that ever happened is we started a public education campaign in the beginning of 2008 in conjunction with our 75th anniversary. we thought it would be a good catalyst for having a fairly aggressive public education campaign about deposit insurance. we had this benign period in banking for so many years. people forget about it. we did start that early.

that did help us. we ramped up the efforts. we had ads out and psas. we ramped those up. since that was already happening it really helped. the other thing which i had done earlier there was a lot of controversy about whether hedge -- nontraditional investors like hedge funds should be able to charter a -- get a bank charter or bid on a failing bank process. and we stepped our toe. we put our toe into that. in 2008 we really -- we needed bank buyers. we needed new capital coming into this system. it wasn't like we were going to be choosy, well you can come in, but you can't. we try not to exercise judgments based on business models anyway. if you've got capital, you've got good management, you should get a charter. nonetheless, these nontraditional investors. it's not a regulatory culture. so we started letting them bid. other occ and the states started chartering their new banks. so we let them into our bidding

process. i really saw some things that were quite troubling. particularly part of their proposal being that they would flip the property. first flip the property very quickly. flip the bank very quickly. i wanted bidders, but i did not want people coming into the banking system that were not looking at this as a long-term investment. they wanted to provide banking services. we did. a few of them slipped by. we got some of them out and a three-year lockout as well as some other restraints. and that pretty much put the end to that. a few got through before we did that. those are the two things i would have done differently. overall, the fdic performed very well. we closed about a banks.

60 minutes did a piece on a bank failure. that was a high risk decision i made. you let the crew in you never know what's going to happen. i had faith in our resolutions people and our process. we let them accompany our resolution team on a bank failure and it went just as smooth as silk. they all did after indy mac. it was wonderful. a gentleman and his wife came in with his suitcase with his wife he was going to pull all of his cash out. we had greeters at the door talking with him. and after they talked with him more, he decided okay, i'm going to leave my money in here and "60 minutes" filmed the whole thing, when he was leaving he was saying how wonderful the fdic is. it was a very big confidence instilling process and worth a lot more than all the paid advertising and public service messages that we had done. it was really -- it was -- it

turned out to be a very good thing to do. >> what's your sense -- i don't know if your friend peter schefft is still in the audience? are you here? i'm going to ask a question he would have asked. mostly because he told me he was going to ask it. to what degree -- larry lindsey pointed out, i don't know how he figured this out. he felt that this aud might be a left from center audience and he comes from the center right. you certainly from an economic perspective didn't come from the center left. and yet you are a strong regulator. you believed in more leglation. to some degree you're still talking about things that are a good amount of regulation for the banking system. how do you square that with a world talking about less regulation for the financial services even though the public isn't necessarily seeing it this way.

>> i believe in basic republican philosophies. ronds reagan is said the role of government is not to protect us from ourselves, it's from each other. markets need some basic rules. if you don't have some basic common sense rules that are enforced, innocent people will get hurt. and innocent people got hurt in this crisis. they get paid a lot of money to manage their banks. but nonetheless, government does

have a rule -- we'll always be there. you need some basic common sense rules. we forgot that. we got carried away with this idea of self-policing markets. it just didn't work. i like regulations based on re-enforcing economic incentives. that's why i like capital standards. make it hurt if they take risks and lose money, make it hurt for them. not the government, for them. risk retention for securitization. making people with securetized loans retain some downside risk if those loans and mortgages and securitizations go bad. i think activities based regulation is good. if i'm going to have a rule, you need these types of rules, too, that says you can only make mortgages where the borrower can repay the loan. that's going to get you into

1,000 questions. there's lots of questions you can ask. if i ask this person if you originate this loan for every dollar of loss you're going to take five or ten cents yourself, they're going to stop and check. >> i wanted foe invite some v those of you to get questions to the mics. some weeks ago you were on a show with me. ed clark from td bank was on as el. he was crowing about the canadian banking system. is canada it? is it somewhere else? >> canada they've never had a

banking crisis as far as i can tell. they're clearly doing something right. i do think the regulatory culture in canada is stronger. we clearly went too far in one direction. so i do think we have some thing to learn, we have a stronger acceptance of regulation and better industry support. >> volker said forget financial innovations. it didn't do any good for us. >> warren coats, retired from the international monetary fund. >> you just threw that out like it was nothing. >> still actively consulting with them, by the way. market dismin of banks relies in

part on depositors carrying which bank they put their money in. deposit insurance removes that particular incentive that is normally focused on smaller deposits. the coverage limit was raised recently and was pretty high to begin with. do you think it's too high in terms of getting the right balance between protecting -- >> that was raised on your watch. >> that is a very good question. that the folks that are under those insured deposit limits are going to add a lot to market discipline. certainly the average main street family are not going to go to the fdic website or go

through reports. you're not going to get a lot of market discipline from main street depositors. i do think it's important for them to have peace of mind. a safe place to keep their money that it's readily available for them. i do think that large uninsured depositors as well as bondholders need to understand they are at the risk of a loss. that is one of the reasons i'm opposed to too big to fail. at the end really bondholders and shareholders say you're not going to take any losses. the government's going to come in. these large bond investors are quite capable of looking or getting answers from a large financial institution, analyzing what's on their balance sheet and asking questions.

that was the driver of this crisis. i think a lot of investors were not providing cheap funding to institutions assuming the government would never let them go down and they proved to be right. which is why we fought so hard in dodd frank to make sure the fdic would have the tools toim pose losses on any unsecured creditor. >> final question. >> i'm a business reporter at the huffington post. my question is do you think the financial industry in its current form is hurting economic growth in any way? and what do you think the government needs to do to make the financial industry a more sustainable source of lending and growth? >> that is a really good question. we do what we had to do in 2008 and 2009. in 2009 we could have done a better job of forcing banks to clean up their balance sheets. fortsing them to shed bad

assets. we could have gotten mortgages restructured if we had forced banks to do a better job of cleaning up the balance sheet. we didn't do that. that that's water under the bridge. i think that our economy would be stronger now, too. the problem is when you prop up the inefficient players you have a bloated sector. there is a correcting mechanism in the market. financial services got too big. we left it big with the bailouts. nobody except for lehman brothers and wamu were allowed to fail. so you proup up the inefficient. they're still there to compete with the efficient. you have a very large financial sector. if you look at the bank balance sheets, i'm delighted that banks are getting healthier and they're in better position to lend. but fw you look at the balance sheets, the revenues are going down. it went down last year. it's a smaller pie. there's a lot of them out there

competing for it. i do think that is going to continue to be a hindrance to the economic recovery that it's just over time going to have to downsize instead of having done more quickly when these institutions failed in 2008. >> unfortunately that's all the time we have. thanks very much. always a pleasure talking to you. [ applause ] >> this afternoon the president obama will sign the jobs act. it includes initiatives to help startups grow through initial public offerings and reduces regulations on how small businesses raise funds. the signing will take place many the rose garden and c-span will have live coverage at 2:10 eastern. today marks the second anniversary of the worst mining accident in 40 years. 29 workers died in the upper big branch mine in west virginia. a house committee recently held a hearing on mine safety and lessons learned on the accident. we'll have that hearing at 2:20

eastern. at 5:15, a welcome at president obama's 2013 budget request for the defense department. defense secretary leon panetta is joined by joint chiefs of staff chairman dempsey in explaining the spending plan to the house budget committee. you can see the hearing on c-span3. >> this weekend marks the anniversary of the bloodiest battle to be fought during the civil war up to that point. the battle of shy low with almost 24,000 casualties. and we'll tour the battlefield with chief park ranger stacey allen, saturday at 6:00 p.m. eastern. sunday night at 7:00, the angel of the battlefield, and founder of the red cross, claire ra barton operated the missing soldier's office in a washington, d.c. boarding house until 1868. join us as we rediscover the third floor office as it's prepared for renovations. this weekend on american history tv on c-span 3.

economist allen metzeler disagreed with the federal reserve's handling of the economic crisis. he says he'd verse policies and slowly raise interest rates. he explains his stance in this half-hour session hosted by the atlantic magazine. [ applause ] >> well, this is quite a parade of talent that you've got unfolding in front of you. i do want to commend this -- this interviewee. to you, who don't know, he is one of the most eminent economic scholar in the world. he is an author of a wonderful two-volume history of the federal reserve. we'll start right at the beginning. alan i know you're in the in the bernanke as hero category. you've been cite critical in thins you've written for "the

wall street journal" and elsewhere. tell us why? >> i do think -- i commend him for responding to the crisis which he helped to create billeting lehman fail. at least he responded to it. he didn't let it destroy the financial system. so i applaud him for that. now he's doing the administration's fiscal policy. that's not a good thing for the central bank to be. the proof of the pudding is going to be whether he's a hero or goat is whether he is able to get rid of the $2 or $3 trillion that he's put on the balance sheet and shrink it back to $1 trillion. my guess is not without difficulty. that difficulty has been compounded because now the european central bank is adding fuel to the inflationary fire. the bank of japan has decided that it wants to inflate, too when you see all the central banks in the world running --

the countries are running big deficit. central bans are printing money as rapidly as they can. then you know that inflation is coming. and people say to me, well, where do you see inflation? i see it in a lot of places, but one of the places i see it in is unlike the federal reserve, i think that bubbles are caused by people getting out of money. that the exchange rate is declining because the fed is printing money. so just to give you a few little examples. when president nixon left the bretton woods system there were 360 yen to the dollar. there are now .8. ú

bit, you know, the first part of what you said when you said that the fed is doing the government's fiscal policy. just, i mean, help people to understand what you mean by that, in what sense is the fed doing the government's fiscal policy? >> when it buys a trillion dollars worth of mortgages, it's doing the government's business. it has no business buying long-term assets. central banks -- well-run central banks never do that, and the fed in its history only did it during its 100-year history, during wartime.

now, it's doing it fairly well. that's government policy. why? well, the treasury, the administration can't go to congress and say we want to spend more. so, the fed is doing their work for them. it's also doing the work of, which i much deplore of recapitalizing the banking system by keeping interest rates low, letting the banks borrow at very low interest rates and lend at somewhat higher rates and now, heaven forbid, they're saying to them, well, you know, now you have all this capital you can pay dividends. you can buy back shares. you know, this is our taxpayer money that we're going to pay for in inflation. i mean, it's a ridiculous policy. >> let me push back a little bit. put myself in the position of a, you know, of a fed official. i'm sure that listening to you, they'd think, well, you know, we were forced to do a lot of unorthodox things, a lot of things that made us very uncomfortable. the fed is split right now on whether to persist with some of these policies or begin to reverse them. >> i have some friends there.

>> but i think a fed official would say, but what's the alternative? i mean, you know, was the government capable of doing what perhaps you think it should have done? the fed stepped in because nobody else would. >> i heard paul volcker speak at lunch. and you know, i've known paul volcker since we both worked in the kennedy treasury way back in 1962, and we didn't always agree, but -- but, he said something very important. we have a long-term problem. that's my view. we need a long-term solution. we're not going to solve our problems by printing a little more money today or having a bigger deficit tomorrow. what we're -- what we need to do and what i would want to do is to say, we have a long-term problem. in fact, a number of them. so let's find some long-term solutions. let's say how the central question is, how do we get back

to a long-term growth path for the american people that has low inflation? that's what we want to do, and we want to develop systemic stabilizing policies over a long period of time. does the federal reserve do that? no. does the congress do it? no. does the administration do it? no. do they even think about it? no. that's the worst part. you know, just to finish this, i read more federal reserve minutes than any human being ever ought to read. you never see a sentence which says, if we do this today, where will we be a year from now? never. the exception was the volcker years. volcker knew he couldn't end inflation in a month. so he had a longer-term policy. it will disappeared after he left. you know, it's all about what are we going to do this quarter and how will it affect next quarter. well, that's not the way to

stability. in fact, it's a way to disaster. >> i mean, i've written so many columns over the course of my career in favor of central bank independence, which i think is goes to the heart of what you're talking about here, but i have to say that the, you know, the crisis has rattled my confidence, and the correctness of that view, the correctness of the central bank independence precisely because central banks have to accept the political constraints that confront them. don't they? i mean, they can't wish them away. so what i want to ask you is, let's suppose you've been running the fed which is not such al outlandish supposition. >> what a terrible idea. >> let's suppose that you were doing that job. and you confronted the problems that confronted bernanke in '08. what would you have done?

>> well, let's see what he did and what i would have done differently. i lauded his response to the failure of lehman. even though i disagree with the idea that in the midst of a recession, without announcing it in advance, you change the policy that's been in effect for 30 years without telling people you're going to do that. i mean, that's enough to scare the bejeebers out of anybody. but he did that. then he cleaned up the mess. when he did it he said, look, these are short-term securities. so they're going to run off. but they didn't. when they started to run off, he bought long-term securities. that's when i would have gotten off the train. when the long-term securities began to run off he bought mortgages. i wouldn't have gotten to that step. i would have stopped before that. and i would have said, look, my policy is to get back to long-term growth with low inflation. and so i'm going to do what i can to prevent -- to clean up the mess. but i'm going to do it in a framework which says i know where i'm headed over the next three to five years, and i'm

going to consistently go there. >> but if you'd stuck to that -- you know, that purist line, you might describe it that way, what do you think would have happened to the economy given the fact that congress hasn't been in a position, hasn't chosen to do its job since the lehman collapse? or at least so one might argue. i mean, you know, what would you -- what would you have expected to see happen in the wider economy if you'd taken that hard line on monetary propriety? let's put it that way. >> i would have assured people that if there's a crisis i will respond to it. but i will try to strengthen their expectations. just the way paul volcker did when he was reducing inflation. you know, that wasn't a popular action. >> no. >> there were demonstrations against him all over the place. but here's the lesson which i think is very interesting.

in january 1982, with the home builders on their back, worse than anything in this current recession, he went to las vegas and talked to our home builders. he said to them, we either end inflation now -- if we give in, we're going to start over again. and it's going to be even harder. they gave him a standing ovation. you know, why? because he was telling them this is where i'm going. get ready for it. bear up, because in the end, it's going to be better. and he was right. and that's what i would try to do, get them to believe that what you're going to do is really going to be in their long-term interest. because that's the only thing that policy can effectively do. >> now, i understand, of course, you know, the -- i think many people, most people, would agree that volcker was a hero and what he did was both brave and right. but one might also argue that the situation confronting the

u.s. in '08 was even worse. i mean, one could argue far worse, in fact, than the situation that confronted volcker. and if you'd -- if the fed had stuck to its guns and said, we do monetary policy and we do it with an eye on the long term, if congress isn't capable of mitigating the short-term crisis, tough. i mean, how bad do you think things would have -- would have become? >> well, you know, volcker did this with the reagan deficits. you know, he just didn't buy government bonds. now the fed is buying the bulk of the government bond issue. is that a good idea? i don't think so. and i don't think they're going to think so when it comes time to sell. the important question is not whether what he's doing today, tomorrow or next week is a good idea. the question is, how is he going to unload a couple of trillion dollars. trillion, that is, with a "t."

>> that's right. >> you know, is he going to sell a trillion dollars worth of mortgages into this mortgage market with this housing thing? not on your life. you'll hear the screams from honolulu to portland, maine. >> i want to ask you about the -- you know, the reversing of the policy in a moment. at risk of being, you know, overly persistent, let me just press one last time on how bad you think things might have got. i mean, if i understand you correctly, you aren't saying that the fed failed to soften the recession. you aren't saying the fed's policies failed in the short term. you're saying that was the wrong goal. they shouldn't have concerned themselves with the short term. that leads me to ask, how bad might the short term have been if -- if you'd been running the fed?