have to pay. an institution can get a fresh start. we should have played by the rules. the problem is that now we have created a concept not only that some of the big banks, big, big banks are too big to fail, they are even too big to be financially restructured. .

the free trade is only good for the multi national corporations. that's the only winners in the whole mess of that free trade thing, and i mean, they go in and they cut down the trees in brazil, and you see it in some whole trunk of tree in some rich man's house, and i honestly belief that capital sism good, but somebody's got to ride a donkey.

you know, we can't just have the multi national corporations going in and reaping the harvest of these countries and making mega abucks while everybody else is suffering. host: vivian. if you get rid of free trade, what do you replace it with? caller: i didn't see anything wrong with tariffs. it's workable. you can have a workable trade system without the multi national corporations being -- environmental or union regulations, you know, how we envisioned, what we envisioned in the first place is beautiful indian fabrics and textiles and everything, well, no, that's not what happened, they took all our jobs. host: go ahead. guest: well, there are several issues the caller raised. one of the issues is the fact

that our mining companies and our timber companies and those from other countries are taking advantage of the less-developed countries, taking advantage of our natural resources, often sweetheart deals with dictators or governments. that's a real problem that in many ways we are pillaging the natural resources of many of the poorer countries, and what is of particular concern in this era of global warming, the threat of global warming. it's -- for us to preserve the rainforest, try to preserve the rainforest, and rather than providing incentives to cut down the forest, we ought to be providing incentives to maintain the forest. it's important initiative being pushed by the rainforest coalition, to do precisely that, and hopefully it will be

one of the things that will come out of the copenhagen summit this year. the other question raised is what is the role of trade-free trade in our society? trade, if it's managed well, can increase the standards of living in both sides, both trading partners. unfortunately, we don't always manage trade well. and quite often, jobs are destroyed, and we don't do enough to create new jobs in their place. so the concerns about trade are understandable. but the answer isn't to stop the trade and think about it -- we couldn't live without buying all kinds of things from other countries. it's trying to figure out how to manage trade better.

and the caller is right that too often our trade policy is dictated by large corporations. i've seen that when i was in the council of economic advisors. i saw it over and over again, the role of big corporation in dictating our corporate policy. the answer is not to walk away from it but to try to reshape our trading regime. >> i want to get to another area that you write about toxic methods. this has to do with privateization versus liberalization. you said privateization meant foreigners could buy mines and oil fields developing countries at low prices and liberalizationment that they could get high returns on their loans meaning the screws were put on entire populations to pay back. it meant, too, that foreign firms could wipe out nascent

striss suppressing the sbrep nouriel talent. explain what you meant by that. >> that's exactly right. guest: in a way what was going on in developing countries forhad owed what happened here in the united states. in our banking sector, our banks walked off with billions and billions of profits. our bankers walked off with big, big bonuses, and they gambled. they knew that they were gambling. they had incentive structures that encouraged them to gamble. but they knew when the gambling didn't pay off, the taxpayers would come in and pick up the losses. so heads they win, tales, we lose. this had been going on for years in developing countries, in east asia. there was the east asia crisis while i was chief economist at the world bank.

there were private loans, american banks and some european banks lent money to private borrowers in east asia. and then some of the loans didn't go well. they were supposed to do a good job in assessing credit but when they didn't do well, they ran to government. these are the same people that were criticizing government for having too big of a role. in this case they went running to the i.m.f., u.s. and other governments and said we need a bailout. and they got literally tens of billions of dollars. seemed like an enormous amount of money then of course the american bailout now has put everything in a new perspective. and the citizens of these countries who had nothing to do with the bad lending practices had not given any of the benefits for bad lending were made to pick up the tab for the

bad lending practices of american banks. this is what i call socializeing the losses while you leave the gains in the private sector. now that's not capitalism, it's not the way a marked economy should work, and as an economist, all economists would agee on this. it gives the wrong incentives for due diligence in lending. and the banks saw this. and as we did this more and more and more, the credit standards got less and less, and we've had problems, not just in indonesia and korea and thailand. we had bailouts in brazil, argentina, russia. and now we've had -- you might call it the mother of all bailouts here in the united states. >> next up, host: st. louis, missouri, dan, thanks for waiting. caller: sure. no problem. hi.

i was wondering if you think -- they are considering more sustainible economic decisions where as sustainibility means decreasing the disparity between the hierarchy of people in different -- society -- the u.s. is going to make more sustainible decisions with more socialistic economic policies or more free trade capitalist policies if the goal is to decrease the hierarchies in our society? >> joseph stiglitz? guest: one of my concerns in the past is we have not focused adequately on sustainibility ethey are in in the sense of environmental sustainibility or social sustainibility. we haven't looked at these broader issues. one of the problems is that some of the things that are

scaresest in our society we treat as good. air, having an atmosphere that works, avoiding global warming. we get to pollute without having to pay the consequences of that. and if you are able to use something that is scares without paying for it, you're going to get bad decisions. you're not going to get sustainibility. the same thing is going on in the context of the growing inequalities in our society. as our inequalities grow, it's going to be hard to maintain the social fabric in our society. one of the things that concerns me is the way we have gone about this bailout of the banks . it has the potential of increasing inequality. think of what we could have done with the hundreds of billions of dollars that we poured into the banks. and we weren't saving so much

the banks but the bankers and their shareholders the result of this is we have less money available to meet our basic needs. to address the problem, you know, we put our money in failed institutions rather than putting our money, for instance, in new research and making our economy more competitive. in providing health care to the 50 million americans who don't have adequate health care to make them healthier and stronger and more productive to improve the education of our education system. we have inadequate education system from k through 12. all these things we could have done with the hundreds of billions of dollars that we squandered to save the bankers and their shareholders. >> host: let's take this call from austin, texas, on our republican line from steve.

caller: thank you for taking my call. i want to get off the world stage and just go with the concept with government. and what i see going on right now. as i think there's more andened more -- more and more movement towards people becoming more subjected to government control. by government taking over certain situations, the banking industry, car auto industry. the cap in trade. people are becoming more subjected to government control, and once the people start becoming subjected to the government, the government owns them and freedom goes away. and i believe in free trade. if i believe free enterprise. and i believe that the cause of this economic meltdown, and i want your take on this. but this is my concept of the research i've done going back is coming to fannie mae and freddie mac that they had grown in size to holdings greater

than even greater than the u.s. treasury. and politicians had stopped tony snow's effort to put in supporting the regulators to get this under control. and pressures were put on banks to give lending practices to people that would normally not qualify for banks. and the books were cooked. and it got into the stock market, and when the stock market started to fail, all these home loans started going bad, then all of a sudden the wall street was blamed for it and not the politicians, and the politicians and research has shown where fannie mae and freddie mac, this was nothing more than their biggy bank. host: leave it there, mr. stiglitz, go ahead. host: i think the banks were great at propagateing the fact that they were the innocent

victim, but let's look at one key issue, the derivatives, the gamble that is they made with each other that blew up. that had nothing to do with the housing risk and it was these driven tives that were the critical piece that brought down the financial system. we spent almost $200 billion in aig. that had nothing to do with the housing but tip phi it is irresponsible risk-taking of the banks. and let me emphasize it had nothing to do with the housing problem, and to try to shift the blame to fannie mae and freddie mac is just wrong. now phan fan and freddie mac did make some big mistakes, but they didn't get into the bad home lending until well after the banks and mortgage companies were already into it. the problem is that we privatized fannie mae and freddie mac back in 1968. and as private existence, they've looked at all the money the banks were going and said we ought to imitate that.

and as they started imitating, they actually took off some of the responsibility from the banks, and they imitated what they did, and that had disasterous consequences. but no one ever told a bank to lend to somebody beyond their ability. no one told a bank to be bad in their accounting practices, so bad that the banks themselves didn't know what their balance sheet was and that's why the banks -- they didn't know their own balance sheets, so they didn't know the balance sheets of any other banks and weren't willing to threatened to anybody. no one told them to engage in those kinds of irresponsible lending. even alan greenspan pointed out that he made a mistake. he thought the banks were sufficiently responsible that they would have enough self interest that they would not engage in successive risk

taking. but look at the banks. it's happened over and over again. we had the s & l bailouts and mexican bailouts in east asia, latin america. each of these bailouts had nothing to do with the governments encouraging this kind of lending. there's just a long, long hirst of banks not doing what they are supposed to do, which is assess credit worthyness. >> host: there's an article in the financial times with the headline "growing risk, appetite hits the dollar" by peter garn you mean who is quoting halpenny from the bank of tokyo mitsubishi and mr. hall benny says monetary policy will not undergo any changes anytime soon will encourage participants to use the dollar as a funding currency as the risk appetite trades persist in the line with the steady

release of improving economic data. what's your response to that? >> well, i just got -- participated in a large meeting with the u.n. 192 countries talking about the impacts of this global financial crisis, and the innocent victims of the mistakes that occurred here in the united states and in europe. one of the points that was raised over and over again is the problem of the dollar as a reserve currency. a lot of people are holding dollars as the backing often their country, the currency. and there's a lot of worry, quite frankly. as the u.s. deficit is soaring. as the deficit this year's expected to reach $1.8 trillion. as the national debt is increasing. as the balance sheet of the fed

is increased. there are worries, quite frankly, about inflation. we're not talking about the next six months, even the next two or three years. we're talking about holding these assets over a longer period of time. what many countries that are holding large amounts of money are saying is right now we get almost no return, but where our risk is going up and up. this system, which contributed to the volatility of the dollar and growing instability, the dollar system contributes to the global imbalances, long worry about this the disorderly un winding, part of what we're seeing now is part part of that disorderly unwinding, there's going to be a move away from the dollar. and the real question facing us is do we want this to happen in

an orderly way or disorderly way. and as part of the conclusion of this conference was that there ought to begin a discussion of creating a global reserve system. we have a global economy. every national economy has a national currency, but we don't have a good way of diversifying risks, and mitigating risks, and the result of that is a weaker global economy and more unstable global economy, and so i think you're going to hear articles like this. sometimes people say -- host: yeah. i was going to say -- go ahead. finish your thought. guest: oh. the result of this is going to be sometimes people are going to say more into the dollar

sometimes more out of the dollar. the result is there's going to be a lot of volatility until we create a new system. host: and our global reserve system there's an article in this morning's "wall street journal," "china seeks new global reserve currency" they write that china will push reform of the international currentsy system to make it more diversified and reasonable and to reduce executive relines to be people's bank of china said friday how much of an effect will this have on the trading of global currency if china pushes further to review or to change the global reserve currency system? guest: well, china's statement is really quite in tandem with this conclusion of this international meeting here in new york yesterday. china holds $2 trillion of foreign reserves. used to be almost all of that

was in dollars. estimates now maybe $1 trillion of that. very important. they've been a very important lender to the united states. but there is quite honestly anxiety. i go to china quite often. you talk to both government officials and people in the street. they don't want to see the value of their safings, money that they put aside, eroded. they worry about inflation in the united states. they worry about a decrease in the value of their treasury bills. they worry about a weakening of the dollar relative to other currencies. and with all these risks, it is very natural holding a trillion of u.s. t-bills and other bonds , that they want to see the

world, and explore a better way with which they can hold their reserves. and with their being such a large player, and it's true they have talked to the other countries that hold dollar reserves, i think there's going to be a lot of pressure to create a global reserve system. i head ad commission for the u.n. that explored an expert commission that explored alternative ways by which we could go from the dollar system to some alternative global reserve system, and there are ways that we can do this st in an orderly, stable way. but if we don't do that, there are so strong forces already at play that's going to happen. there are regional initiatives that the initiative that is called the shanghai initiative in asia. at the meeting in new york there was discussion from the -- those in latin america

creating a regional reserve system in latin america. so the reality is it's coming. and the question is how we go about managing it. and i hope, i hope that the united states takes some leadership and says, you know, we have allowed globalization to proceed. it's benefitted us, but it's also had some costs, particularly to developing countries, innocent victims of this crisis. let's try to address the problems of the global reserve system and let's try to create something that is of benefit to us all. >> joseph stiglitz, former global world chief bank economist and "toxic message" column in the july issue of "vanity fair" and a hyper link through our website, c-span.org is our website and you'll find

that article hyper linked there. ben on our line for democrats, go ahead, please. caller: good morning. thank you for your time. and being on the program. mr. stiglitz, i have couple things. one, whatever happened to anti-trust laws? why are they not being applied to the banks? and the other thing is you mentioned earlier that the government started to guarantee some of these very exotic bank -- i call them manipulations -- whatever they are -- devices. how do we start guaranteing anything but savings? you know, anything in the stock market having to do with banks, that's gambling. since when do we start to guarantee other people's gambling? host: mr. stiglitz, guy ahead.

guest: those are good questions, the fact that banks are too big to fail or too big to be financially resolved is a real problem. it's a real problem because if the bank is too big to fail or be financially resolved it means it has a one-way bet. if it makes a lot of money and it walks off with it. if it fails it knows the taxpayers are going to give it money so that gives it an snove gamble. we predicted this would happen unless you had good regulation but deregulators didn't understand that. didn't understand this. it confirms economic theory but unfortunately at a huge cost to our society and economies all over the world. i was at a hearing in congress with tom from the kansas federal reserve simon johnson, the former head chief economist at the imf.

we span the political specktrum from throift right. one thing we all agreed on was banks being too fwoig fail was a real problem, and i can tell you we are all disappointed with what has come out of the o'bam a administration because in their regulatory revamping, there's nothing being done to really break up these two big failed banks. we ought to use strong anti-trust laws but go further than existing anti-trust laws. 100 years ago when teddy roosevelt began dealing with the problem of anti-trust, what he was worried about was not just conventional senses of competition. he was worried about the political power of these large organizations. and what we've seen in this crisis is the political power of the big banks, they

squeezed. they induced first the government to deregulate. then they made a mess of things. then they induced governments to give them hundreds of billions of dollars and now they are trying to persuade the government not to impose the kinds of structural change that is will protect our taxpayers from the from another occurrence of this kind of event. so i think very high on the agenda is limiting the size of these too big to fail banks to make them not too big to fail. the second point is gambling. and there, you're absolutely right. we shouldn't allow the gamblers to come under the protection of our depositting insurance. but we have. and again, it's something that is not adequately dealt with in the administration's regulatory reform. we should not allow these banks

to engage in a lot of this risk taking. there are other places for risk-taking to occur. hedge funds. the question isn't whether this kind of activity should occur, the question is where and what about the backing of the u.s. taxpayer? i feel strong it it should not. >> good morning. i want to go back to a comment you made earlier about bush not signing into law that bill that children not being covered. firm, and i may be incorrect, but it was a pretty good figure, a 60,000 to $80 a year. my husband makes $42,000 a year working three jobs. we cover our kids. we are not expecting the government to help us do that. we chose to have children. we've adopted children, we must take the responsibility, which brings me to my next point. everybody was complicit between

fannie mae and the bank and the government, everybody had their hand out somewhere along the line, but so did we, the people. i've seen many, many stories where people were making $30,000- $40,000 a year buying homes $60,000 no california with no down payment. i stink at math but i can figure out i'm not going to be able to do that for long. you know, if you can't add two and two, you know you can't take on a home or a mortgage or any kind of debt of that size. >> joseph stiglitz, go ahead, sir. guest: well i strongly believe individuals should take responsibility for their lives but children don't get to choose their parents and if they haven't had parents that have made the decisions they did make, they can wind up with scars for their lif