WEBVTT - Joseph Stiglitz 0:00:00.200 --> 0:00:03.360 This is Alec Baldwin and you're listening to Here's the thing. 0:00:04.240 --> 0:00:06.680 I don't know about you, but I never read the 0:00:06.720 --> 0:00:09.800 business pages of a newspaper before I was forty five. 0:00:10.600 --> 0:00:15.680 Then something changed My interest in banking, financial markets, technology 0:00:15.760 --> 0:00:18.959 and its effects on our lives. My whole view of 0:00:19.000 --> 0:00:22.880 the role of economics shifted. Today it's the first section 0:00:23.000 --> 0:00:25.080 I go to in my own case, It's the New 0:00:25.120 --> 0:00:30.280 York Times because I have questions, lots of questions. Roughly 0:00:30.400 --> 0:00:33.519 three years along from the economic meltdown that still affects 0:00:33.560 --> 0:00:36.680 us all, I made a call to Dr Joseph Stiglitz 0:00:36.880 --> 0:00:42.120 at Columbia University. Dr stiglets is a rare contradiction, a 0:00:42.200 --> 0:00:46.680 Nobel Prize winning economist who speaks in plain English. He's 0:00:46.720 --> 0:00:50.240 a renowned expert on taxation, trade, and development who would 0:00:50.280 --> 0:00:54.600 also be good company at a ballgame. Presidents continually turned 0:00:54.640 --> 0:00:57.600 to him for guidance. Under Clinton, he chaired the Council 0:00:57.640 --> 0:01:03.400 of Economic Advisors from five but he shows no restraint 0:01:03.400 --> 0:01:08.440 when unleashing criticism of their policies. Of President Obama's financial 0:01:08.480 --> 0:01:11.959 rescue plan, Stigletz said that whomever designed it was quote 0:01:12.160 --> 0:01:15.760 either in the pocket of the banks or incompetent unquote. 0:01:16.200 --> 0:01:18.880 Stiglets was the chief economist at the World Bank for 0:01:18.920 --> 0:01:22.120 three years until January two thousand, when he resigned in 0:01:22.200 --> 0:01:26.560 protest over the bank's policies. He wanted more transparency at 0:01:26.560 --> 0:01:28.800 the Bank and felt that the money doled out shouldn't 0:01:28.840 --> 0:01:33.720 have so many strings attached. Joseph Stigletz gets around. He's 0:01:33.800 --> 0:01:37.800 lectured all over the world and taught at Yale, Stanford, Duke, Oxford, 0:01:37.800 --> 0:01:41.120 and Princeton. I met him at his office at Columbia University, 0:01:41.160 --> 0:01:45.560 where he's taught since two thousand and coming here today, 0:01:45.720 --> 0:01:49.360 I was reminded of why they have orientation weeks at colleges, 0:01:49.400 --> 0:01:51.440 where you spend the first week just finding where all 0:01:51.440 --> 0:01:54.760 your classes are. It was like an assure print getting 0:01:54.800 --> 0:01:57.120 here to your office today. With Stiglets, you're in no 0:01:57.240 --> 0:02:00.120 need of an orientation, even if you're talking about the 0:02:00.120 --> 0:02:03.440 financial crisis. Joseph Stiglitz calls them like he sees them. 0:02:03.560 --> 0:02:08.840 Where both Bush and Obama made a fundamental mistake is 0:02:09.240 --> 0:02:16.600 they didn't distinguish between saving the banks and saving the 0:02:16.680 --> 0:02:22.120 bankers and the bank's shareholders and bondholders. It was both 0:02:22.120 --> 0:02:26.280 an economic and I think a political mistake, because what 0:02:26.480 --> 0:02:32.519 Americans saw was that hundreds of billions of dollars were 0:02:32.560 --> 0:02:38.200 going into save the bankers, their shareholders, and their bondholders 0:02:39.520 --> 0:02:42.440 without any constraint on how that money was going to 0:02:42.480 --> 0:02:45.880 be used, paid out in dividends, paid out in bonuses. 0:02:46.600 --> 0:02:49.640 Do you think that because of the urgency, do you 0:02:49.680 --> 0:02:52.360 forgive them and say there wasn't time where they should 0:02:52.360 --> 0:02:54.960 have known that there should be less discretion for the 0:02:55.000 --> 0:02:57.079 banks to distribute the money as they saw fit. I 0:02:57.120 --> 0:03:00.239 think there was no excuse for what they did. The 0:03:00.400 --> 0:03:03.760 UK did a much better job in terms of playing 0:03:03.800 --> 0:03:06.480 by the rules of the game after we did. They 0:03:06.520 --> 0:03:10.079 did it roughly at the same time, and either there's 0:03:10.120 --> 0:03:15.160 a fundamentally different mindset about investment banking over there. What 0:03:15.320 --> 0:03:18.680 was quite remarkable is that in the UK banking was 0:03:18.880 --> 0:03:20.920 even more important than it was in the United States, 0:03:21.320 --> 0:03:26.040 but the government there had a greater sensitivity about what 0:03:26.200 --> 0:03:30.080 needed to be done, so their view was just like 0:03:30.120 --> 0:03:33.320 in the United States. The argument was we needed to 0:03:33.720 --> 0:03:37.160 keep the flow of money lending going if we're going 0:03:37.200 --> 0:03:40.520 to keep the economy. And that was what was so 0:03:40.560 --> 0:03:44.880 absurd about what both the Bush and Obroma administrations did. 0:03:45.200 --> 0:03:49.760 They gave money to the banks to recapitalized, to lend, 0:03:49.880 --> 0:03:51.800 but then they said, by the way, you don't have 0:03:51.880 --> 0:03:55.600 to use that money to recapitalize and land. You can 0:03:55.680 --> 0:03:59.080 use that money to pay dividends or to pay bonuses. 0:03:59.680 --> 0:04:02.600 The question is was there something else they could have done? 0:04:03.560 --> 0:04:06.560 There were many other things they could have done. One 0:04:06.560 --> 0:04:08.880 of the things they could have done is in giving 0:04:08.920 --> 0:04:12.600 money to the banks, they could have said, you have 0:04:12.800 --> 0:04:16.600 to continue lending, especially to small and medium sized enterprises, 0:04:16.880 --> 0:04:19.240 and not use the money to pay out bonuses or 0:04:19.240 --> 0:04:21.960 to pay dividings. The second thing they could have done, 0:04:22.360 --> 0:04:23.919 the banks would have done a response to that, what 0:04:23.920 --> 0:04:26.919 would they have said? I think the banks had no choices. 0:04:27.120 --> 0:04:29.480 What prevented them from going to the banks and saying, 0:04:29.520 --> 0:04:31.800 we're going to give you seven hundred billion dollars or 0:04:31.839 --> 0:04:34.159 whatever the figure was initially, and we're gonna give you 0:04:34.200 --> 0:04:37.720 this money and you are forbidden from using more than 0:04:37.760 --> 0:04:41.640 a certain percentage of it for distribution in bonuses and 0:04:41.680 --> 0:04:45.480 in shareholder dividends. Why don't you think they did that? 0:04:46.279 --> 0:04:51.960 Very simple politics? Uh, they got a lot of money, 0:04:52.200 --> 0:04:54.600 and who do you think was the person that was 0:04:54.600 --> 0:04:56.600 was it Paulson? Was the one who was telling when 0:04:56.600 --> 0:05:01.000 your estimation, well, I unrestricted money. I think it was 0:05:01.520 --> 0:05:08.200 a broad consensus between Paulson, Bernanke, and Geitner, who was 0:05:08.240 --> 0:05:11.400 the head of the New York fat which was playing 0:05:11.440 --> 0:05:13.960 a pivotal role because it was the big banks in 0:05:14.000 --> 0:05:16.240 New York were still in Bush's term and it's the 0:05:16.279 --> 0:05:20.320 first bailout, and Bernanke and Geitner are predisposed to this 0:05:20.400 --> 0:05:24.359 as well. Exactly why do you think why? I think 0:05:24.600 --> 0:05:30.200 they panicked, and I think they brought into the mindset 0:05:30.560 --> 0:05:33.919 and the arguments of the banks. Not a surprise that 0:05:34.000 --> 0:05:37.920 the bankers tried to instill fear. But how does someone 0:05:37.920 --> 0:05:41.360 instill fear? How do bankers to say, if you don't 0:05:41.360 --> 0:05:43.760 give us this money unrestricted, this is what's going to happen. 0:05:43.839 --> 0:05:48.960 What's going to happen? The fear, I think was that 0:05:50.120 --> 0:05:53.599 the banks would never be able to get private money, 0:05:53.800 --> 0:05:57.320 people would leave banking. Now, to me, it was pretty 0:05:57.320 --> 0:06:01.520 clear where the bankers going to go, especially as the 0:06:01.520 --> 0:06:04.840 economy goes into a downturn. It wasn't as if there 0:06:04.960 --> 0:06:07.360 was a lot of offers for these guys who have 0:06:07.440 --> 0:06:11.360 brought the economy to the brink of room it didn't 0:06:11.400 --> 0:06:13.520 look good. And you're talking about private money, so you're saying, 0:06:13.520 --> 0:06:16.359 if you don't give us this money unrestricted, so for 0:06:16.400 --> 0:06:19.599 that shareholders can be rewarded. Shareholders will view this as 0:06:19.640 --> 0:06:22.520 a very very bear market in a bare environment, and 0:06:22.560 --> 0:06:25.760 you won't be able to raise additional money, and to 0:06:25.880 --> 0:06:28.919 keep the banking system going, you'll need more public money 0:06:29.160 --> 0:06:30.839 and that's going to be very difficult. Do you find 0:06:30.880 --> 0:06:32.719 that on Wall Street? Because what this sounds to me 0:06:32.800 --> 0:06:35.320 like that there really is just this kind of generic 0:06:35.480 --> 0:06:38.719 sense of an administration, of an sec of a white 0:06:38.720 --> 0:06:41.480 house in a treasury department that are Wall Street friendly 0:06:41.520 --> 0:06:43.560 and those that are not Wall Street friendly. And what 0:06:43.720 --> 0:06:46.880 defines Wall Street friendly is you just don't tell us 0:06:46.920 --> 0:06:48.880 what to do. We completely run our own shop, and 0:06:48.920 --> 0:06:51.719 you just stay out of it. That's right. We're the experts. 0:06:52.160 --> 0:06:55.039 Don't mess with us because we're vital to the economy. 0:06:55.400 --> 0:06:57.720 If you get us upset, they're like a terrorist with 0:06:57.800 --> 0:06:59.880 a bomb strapped around their body. If I go down, 0:06:59.880 --> 0:07:02.400 your all going down. You see it in in so 0:07:02.520 --> 0:07:06.280 many different contexts, for instincts. When A I G was 0:07:06.320 --> 0:07:09.200 bailed out to the tune of a hundred and fifty billion, dollars. 0:07:09.760 --> 0:07:14.600 A critical point in that bailout was that a I g. 0:07:14.840 --> 0:07:20.560 The government brought back the derivatives and they paid for 0:07:20.680 --> 0:07:25.200 those derivatives on the dollar. They didn't want to say 0:07:25.200 --> 0:07:28.880 where the money was going. Eventually pressure was put on 0:07:28.960 --> 0:07:33.320 the Fed to tell where the money went. The largest 0:07:33.320 --> 0:07:37.720 recipient was Goldman Sacks. There are other instincts is with 0:07:37.840 --> 0:07:41.440 the banks did in the process of foreclosure, the robo 0:07:41.560 --> 0:07:44.360 signing where they were signing ALFI David's that they had 0:07:44.400 --> 0:07:48.080 inspected the records and that these people deserved to be 0:07:48.120 --> 0:07:50.840 thrown out of their houses because they owed money they 0:07:50.840 --> 0:07:54.880 had not. We basically had a banking system where writing mortgages, 0:07:55.680 --> 0:07:58.840 the banks and the lenders didn't care whether you could 0:07:58.840 --> 0:08:01.800 pay or not. But because once they made those loans 0:08:02.040 --> 0:08:04.559 and those loans crapped out, they believed what the government 0:08:04.600 --> 0:08:06.440 was going to step in email m What was actually 0:08:06.440 --> 0:08:09.800 worse than that because they were engaged in predatory lending 0:08:10.160 --> 0:08:14.160 and discriminatory lending. So it wasn't just that they didn't care. 0:08:14.960 --> 0:08:19.560 They went after the poorest, at least financially sophisticated Americans, 0:08:20.560 --> 0:08:22.960 and they tried to move the money from the bottom 0:08:23.000 --> 0:08:25.800 of the pyramid to the top in a way that 0:08:26.080 --> 0:08:29.960 was unconscionable. When the bank shift to, as you said, 0:08:29.960 --> 0:08:34.360 both predatory and discriminatory lending, having a market which a 0:08:34.400 --> 0:08:38.640 wholesale number of people default on their mortgages. What were 0:08:38.679 --> 0:08:41.160 the banks hoping for in that market that they created, 0:08:41.280 --> 0:08:43.040 which was that the god from what would swoop in 0:08:43.040 --> 0:08:45.760 and bail them out? A couple of interesting aspects of 0:08:45.800 --> 0:08:51.680 their strategy. One was this financial development called securitization. So 0:08:51.720 --> 0:08:54.640 it used to be there. When banks wrote a mortgage, 0:08:54.840 --> 0:08:57.439 they hold onto it, and because they hold onto it, 0:08:58.000 --> 0:09:00.520 they wanted to make sure it worked well. But once 0:09:00.559 --> 0:09:04.080 they started selling them, once they started securitizing, selling them 0:09:04.080 --> 0:09:08.960 to others, their object was simply to write a product 0:09:09.000 --> 0:09:13.160 that others would buy. So when the sale by the banks, 0:09:13.160 --> 0:09:16.680 by the mortgage lending institution, by the securitization of those things, 0:09:16.760 --> 0:09:20.160 when did that start? Well, the process really began in 0:09:20.200 --> 0:09:25.839 the early nineties. I wrote an article in around anticipating 0:09:25.960 --> 0:09:29.400 that this whole securitization was going to end in disaster 0:09:29.679 --> 0:09:34.080 and saying that they were going to underestimate the probabilities. 0:09:34.080 --> 0:09:36.040 Is the thing You've won your greatest number of awards 0:09:36.080 --> 0:09:41.400 for but it was it was interesting to see the 0:09:41.480 --> 0:09:46.520 extent that I had to anticipated what what had actually happened. Namely, 0:09:47.040 --> 0:09:50.520 they underestimated the likelihood the prices will go down. The 0:09:50.600 --> 0:09:54.600 models they rating agencies were using assume that prices never 0:09:54.679 --> 0:09:56.720 go down, when in fact you look around the world 0:09:56.760 --> 0:09:59.079 you see they often do go down. Let's stop there 0:09:59.800 --> 0:10:02.559 to about the rating agencies, you must be a profound 0:10:02.600 --> 0:10:06.520 critic of the ranging the rating agencies believed. You might say, 0:10:06.520 --> 0:10:11.560 in financial alchemy, you take a bundle of mortgages that 0:10:11.640 --> 0:10:14.720 should have been F rated, and you put them together, 0:10:15.120 --> 0:10:19.760 and you convert bad mortgages into an A rating security, 0:10:19.760 --> 0:10:22.520 but you dilute them. That that was I can't have 0:10:22.520 --> 0:10:24.199 a whole bundle of all f and coll and A 0:10:24.360 --> 0:10:26.600 can you. Well that's what they did. So they took 0:10:26.600 --> 0:10:31.160 what was homogeneously bad bundle, well not all bad, but 0:10:31.240 --> 0:10:35.800 there were a very large fraction of bad and and 0:10:35.840 --> 0:10:40.280 what happened was that these bundles collapsed. The rating agencies 0:10:40.320 --> 0:10:43.640 are they serve at the behest of who The rating 0:10:43.679 --> 0:10:47.520 agencies are paid by the investment banks. So it's like 0:10:47.559 --> 0:10:50.440 playing in the NFL and the ref won't throw the 0:10:50.480 --> 0:10:52.640 flag because the ref isn't working for the league. The 0:10:52.679 --> 0:10:54.880 ref is working for some ref work for each team. 0:10:55.000 --> 0:10:58.839 For each team, they had incentives that we now know 0:10:59.320 --> 0:11:03.360 Districkler to distort the facts to give a ratings. Uh. 0:11:03.480 --> 0:11:07.360 They helped the banks design products that met the minimal 0:11:07.440 --> 0:11:11.479 standards that were Where do people turn for an unbiased 0:11:11.600 --> 0:11:13.840 rating of a securities? Though? Where do they go? That's 0:11:13.880 --> 0:11:19.760 the fundamental problem that information on the kinds of securities 0:11:19.800 --> 0:11:23.800 that arise out of the securitization process is very difficult 0:11:23.840 --> 0:11:28.920 to get unbiased information, And there's a quandary. If the 0:11:28.960 --> 0:11:32.480 producer of the securities the investment banks pay, you can't 0:11:32.480 --> 0:11:37.160 trust the rating agencies. But it's very hard to get 0:11:37.200 --> 0:11:43.560 the consumer to pay because one investor might pay, but 0:11:43.600 --> 0:11:47.520 then that information can spread to others, and it's hard 0:11:47.520 --> 0:11:51.680 to create a viable business model that will provide the 0:11:51.720 --> 0:11:55.840 finance for the supply of information. Does any arm of 0:11:55.880 --> 0:11:59.840 the government have any legal authority over the rating agencies 0:11:59.840 --> 0:12:04.360 to force them to adjust their standards and to adjust 0:12:04.400 --> 0:12:10.400 their methodology. The answer is no. UH. They've tried to 0:12:10.520 --> 0:12:14.880 claim that it's just a matter of free speech. My 0:12:14.920 --> 0:12:18.000 own view is that there needs to be more accountability 0:12:18.080 --> 0:12:25.920 than that this is Alec Baldwin. You're listening to Here's 0:12:25.920 --> 0:12:42.160 the thing more in a minute. This is Alec Baldwin, 0:12:42.280 --> 0:12:46.480 and I'm talking with Joseph Stigletz, Nobel Prize winning economist, professor, 0:12:46.600 --> 0:12:50.119 and author. We met in his office at Columbia University. 0:12:50.480 --> 0:12:53.079 He spent a good part of his career advising world 0:12:53.200 --> 0:12:56.840 leaders on economic issues. But Joseph Stigletz is no stranger 0:12:56.880 --> 0:13:00.679 to the world of academia. I went to MS colleague 0:13:01.040 --> 0:13:05.680 as an undergraduate. I began studying physics. I just love 0:13:05.760 --> 0:13:10.680 the elegants the mathematics, but sometimes in my junior year 0:13:11.000 --> 0:13:17.760 I decided that my real passion was economics. I had 0:13:17.760 --> 0:13:22.640 grown up in Gary, Indiana, which was in some ways 0:13:22.640 --> 0:13:26.080 an amazing industrial town in the southern shores of Lake Michigan. 0:13:26.640 --> 0:13:30.240 It was founded by U. S. Steel as the largest 0:13:30.280 --> 0:13:33.040 integrated steel mill in the world in nineteen o six, 0:13:33.720 --> 0:13:38.920 and it typified in many ways America of the twentieth 0:13:38.960 --> 0:13:43.000 centiartland America, and you saw both the strengths but also 0:13:43.080 --> 0:13:46.120 some of the weaknesses. So as I was growing up 0:13:46.600 --> 0:13:52.240 very aware of very serious poverty, the economic system didn't 0:13:52.240 --> 0:13:56.520 always work well. We had episodic and appointment business cycles. 0:13:57.400 --> 0:14:01.840 You could see around you lots of crimination, and it 0:14:01.960 --> 0:14:05.600 just didn't seem like a system that was working. Um, 0:14:05.600 --> 0:14:08.040 it was working for some, but not working for an 0:14:08.040 --> 0:14:12.720 awful lot of people. So in my junior year in college, 0:14:12.920 --> 0:14:15.640 I decided I wasn't going to become a physicist. I 0:14:15.679 --> 0:14:18.960 was going to be an economist. I went to my advisors. 0:14:19.520 --> 0:14:22.000 They said, you should go to M I T. And 0:14:22.040 --> 0:14:25.720 so I went to M I T. And began doing 0:14:25.760 --> 0:14:29.240 work trying to understand why markets often didn't work as 0:14:29.240 --> 0:14:33.960 well as those people who said the markets were working perfectly. Uh, 0:14:34.120 --> 0:14:38.120 free free markets, people like the University of Chicago economists 0:14:38.120 --> 0:14:41.760 who talk about Freedman. Freedman. I grown up and I 0:14:41.840 --> 0:14:44.880 had seen the markets were not perfect, But I want 0:14:44.920 --> 0:14:47.240 to know why they weren't, what was wrong with our 0:14:47.280 --> 0:14:51.240 analysis with their arguments. But then I very quickly started 0:14:51.280 --> 0:14:54.080 working into one specific issue that turned out to be 0:14:54.800 --> 0:14:59.680 very important. What are the consequences of imperfect information and 0:14:59.840 --> 0:15:04.840 so obvious ones related to what happened in the recent crisis. 0:15:05.160 --> 0:15:09.120 It was the presence of imperfect information that allowed the 0:15:09.200 --> 0:15:12.600 banks to take advantage of others. No, no, when you 0:15:12.640 --> 0:15:16.080 say this idea of imperfect information. Do you think that 0:15:16.120 --> 0:15:19.000 the system has grown and has evolved so quickly over 0:15:19.080 --> 0:15:22.520 the last let's say, twenty years, that the government can't 0:15:22.600 --> 0:15:25.560 keep up to the Goldman's sexes of the world and 0:15:25.600 --> 0:15:28.480 do all the most I don't want to say predatory, 0:15:28.520 --> 0:15:33.800 but the most veloci raptor esque investment banking houses who 0:15:34.000 --> 0:15:38.080 just are devouring profits and just devouring equity. Is it 0:15:38.200 --> 0:15:41.160 because the government just can't keep up with them. No, 0:15:41.320 --> 0:15:43.400 I could have done a much much better job. So 0:15:43.400 --> 0:15:46.200 you believe that's a profound statement. You believe the government 0:15:46.240 --> 0:15:49.040 could have prevented much of what happened. It could have 0:15:49.080 --> 0:15:51.720 prevented much of what happened, saying that in hindsight, at 0:15:51.720 --> 0:15:53.600 the time, they knew there were steps they could have taken. 0:15:53.800 --> 0:15:56.720 In particularly, there were people even on the FED that 0:15:56.760 --> 0:15:59.920 warned them. Ned Gramlick, he was on the board of 0:15:59.920 --> 0:16:04.440 the FED, and he said, something wrong is going on 0:16:04.920 --> 0:16:07.520 in the mortgage market in terms of the securitization problem. 0:16:07.600 --> 0:16:11.040 The problem was that you had that they had fed 0:16:12.000 --> 0:16:14.920 some people who believe that markets always worked, that there 0:16:14.920 --> 0:16:18.040 weren't such things as bubbles. The most people in your field, 0:16:18.120 --> 0:16:22.720 the most sophisticated, most knowledgeable minds and economics today. Do 0:16:22.760 --> 0:16:25.440 you find many of them view these bubbles like people 0:16:25.480 --> 0:16:29.080 in California view the San Francisco earthquake. That's a total anomaly. 0:16:29.440 --> 0:16:32.240 What happened in the twenties would never happen again. As 0:16:32.240 --> 0:16:34.560 we get towards oh seven away, no matter how the 0:16:34.560 --> 0:16:37.320 the house was shaking, they said, it's not going to 0:16:37.400 --> 0:16:42.080 be like again. If you look at the history of capitalism, 0:16:42.200 --> 0:16:47.160 there have been bubbles, panics, and bubbles that broke repeatedly. 0:16:48.240 --> 0:16:51.360 With each bubble, they look at the past and say, oh, 0:16:51.440 --> 0:16:54.920 those guys were very stupid. We're smarter, And of course 0:16:54.960 --> 0:16:58.840 that was true. In the last bubble, they believed that 0:16:58.920 --> 0:17:01.480 it was not a bubble because bubbles were a thing 0:17:01.480 --> 0:17:04.320 of the past. We are smart people, we don't have bubbles. 0:17:05.119 --> 0:17:08.800 But in fact, the telltale signs that there was a 0:17:08.800 --> 0:17:12.639 bubble were there for anybody who wanted to look at them, 0:17:12.680 --> 0:17:16.280 and there were instruments that were there to anyone who 0:17:16.320 --> 0:17:20.720 wanted us to tame the bubble, like raising the down payments. 0:17:21.320 --> 0:17:23.679 What does Vulcan saying that you agree with or not. 0:17:24.760 --> 0:17:28.880 I think Bolger is one of the heroes of this story. 0:17:29.000 --> 0:17:35.359 Um Vulgar realized that financial markets needed to be regulated, 0:17:35.440 --> 0:17:38.000 and that was one of the reasons that Reagan looked 0:17:38.000 --> 0:17:42.760 for somebody to replace him. After all, in terms of 0:17:42.760 --> 0:17:46.720 what central bankers normally are graded on, he had brought 0:17:46.800 --> 0:17:50.399 down double digit inflation down to very low levels, and 0:17:50.480 --> 0:17:54.359 that would normally have been rewarded by a reappointment, but 0:17:55.160 --> 0:17:58.240 he was dismissed. When Reagan comes in, people view this 0:17:58.280 --> 0:18:03.000 as this watershed in that area, that about smashing government regulation. 0:18:03.320 --> 0:18:05.960 What did reagonomics mean to people? Throw that word around 0:18:05.960 --> 0:18:08.719 like it's this magic dust. You know, what did Reagonomics 0:18:08.840 --> 0:18:11.600 mean to you then? And what does Reaganomics mean to 0:18:11.640 --> 0:18:17.560 you now? Is a Reagonomics as perhaps another act in 0:18:18.040 --> 0:18:23.240 a long standing battle about the appropriate balance between markets 0:18:23.280 --> 0:18:29.640 and government. And Reagan came in and try to put 0:18:29.680 --> 0:18:32.359 his hand on one side of that balance and say, 0:18:32.480 --> 0:18:36.400 let's get rid of government, let's just let markets rip. 0:18:37.640 --> 0:18:41.000 Why do you think I think it was just ordinary greed, 0:18:41.440 --> 0:18:45.359 the belief that we got rid of the regulations and 0:18:45.440 --> 0:18:48.440 all the cree could make more money. There was one 0:18:48.480 --> 0:18:52.960 other argument that in a way shows the naivety of 0:18:53.040 --> 0:18:58.080 their reasoning. In the decades after Glass Steagle, which was 0:18:58.280 --> 0:19:03.240 this law that separated investment banking from commercial banking, that 0:19:03.320 --> 0:19:06.119 had tried to put restraints that avoiding some of the 0:19:06.119 --> 0:19:09.120 conflicts of interest that had marked the past. In those 0:19:09.200 --> 0:19:12.280 decades after the passage of these whole series of laws 0:19:12.320 --> 0:19:16.080 and the Great Depression, the country had been remarkably stable. 0:19:16.119 --> 0:19:20.000 There had not been a financial crisis. And because there 0:19:20.000 --> 0:19:23.240 had not made a financial crisis, they made the wrong inference. 0:19:23.600 --> 0:19:26.159 They said, financial crisis are a thing of the past. 0:19:26.640 --> 0:19:29.000 But they were a thing of the past only because 0:19:29.080 --> 0:19:33.760 we had the regulators. So once you repealed Glass Eagle, 0:19:33.960 --> 0:19:36.439 once you got rid of the regulations, once you started 0:19:36.480 --> 0:19:40.960 going into deregulation, you started having crisis after crisis. Do 0:19:41.000 --> 0:19:42.800 you think we should be institute class to Eagle or 0:19:42.800 --> 0:19:46.159 a modification thereof something new. What is clear is that 0:19:46.200 --> 0:19:50.119 we need to have stronger regulation. The vocal rule is 0:19:50.200 --> 0:19:52.680 one way of doing it. How would you characterize the 0:19:52.720 --> 0:19:54.560 vocal rule for people who don't know what happens. The 0:19:54.640 --> 0:20:00.400 vulgar rule is a restriction that says banks are supposed 0:20:00.400 --> 0:20:04.560 to be serving their customers, not making money for their 0:20:04.560 --> 0:20:08.720 own portfolio. So it's an attempt to say you can't 0:20:08.760 --> 0:20:11.959 engage in what are called proprietary trading, trading on your 0:20:12.000 --> 0:20:15.399 own behalf gambling against your customers in the way that 0:20:15.480 --> 0:20:19.120 Goldman Sachs did. It just opens up such a can 0:20:19.160 --> 0:20:23.119 of worms that it's very difficult for government to stop 0:20:23.200 --> 0:20:27.919 it once you open up that possibility. Barney Frank, what 0:20:27.960 --> 0:20:30.159 did you make of what happened with him, with Freddie 0:20:30.200 --> 0:20:33.440 Mack and Fannie man With what the issues were that 0:20:33.480 --> 0:20:36.520 people were contending about Frank and what he did? A 0:20:36.560 --> 0:20:41.480 couple of points. One, He and the Democrats more generally 0:20:41.840 --> 0:20:47.080 were very instrumental in ninety four giving the FED scope 0:20:47.720 --> 0:20:52.720 for regulating better. They were more pro regulations, and had 0:20:52.760 --> 0:20:58.200 they had the Fed implemented the regulations that they had 0:20:58.200 --> 0:21:01.920 the authority to implement, we would have avoided the crisis, 0:21:02.000 --> 0:21:05.920 at least the worst parts of it. There's a very 0:21:06.000 --> 0:21:10.720 large controversy over the rule of Fannie Mae and Freddie 0:21:10.760 --> 0:21:14.600 mac in the current crisis. In my own mind, there 0:21:14.600 --> 0:21:21.320 shouldn't be any controversy. The evidence is overwhelming that they 0:21:21.359 --> 0:21:25.439 were a late comer to the problems and basically a 0:21:25.520 --> 0:21:30.040 side show. The fundamental problems were created by the private 0:21:30.080 --> 0:21:38.359 banks in their subprime fraudulent predatory practices. The if you 0:21:38.440 --> 0:21:40.080 go in your mind, they don't deserve to be lumped 0:21:40.119 --> 0:21:43.959 into the same categories. Definitely, if you look at their 0:21:44.040 --> 0:21:48.800 default rakes, their problem rakes, they performed far better than 0:21:48.840 --> 0:21:54.560 the private sector. Now, after they collapsed, the government began 0:21:54.600 --> 0:21:56.840 to use Fannie Mae and Freddie Mack in part to 0:21:56.880 --> 0:22:00.760 bail out the private banks and to buy bad portfolios 0:22:01.080 --> 0:22:03.640 and so forth, and they became part of the resolution 0:22:03.680 --> 0:22:08.879 mechanism trans fery money from the public sector to the 0:22:08.880 --> 0:22:11.960 private sector. So you can't look at some of the 0:22:12.040 --> 0:22:16.160 things that have happened after the government took them over 0:22:16.960 --> 0:22:20.520 and the collapse of two thousand and eight to make 0:22:20.560 --> 0:22:24.240 inferences about the kinds of lending they were doing before. 0:22:25.200 --> 0:22:28.480 Now you have been out of the government since two 0:22:28.480 --> 0:22:33.600 thousand correct, I've actually been out of government six I 0:22:33.640 --> 0:22:38.920 was in the World Bank from do you miss that world? 0:22:40.600 --> 0:22:42.440 Think about going back to where it's been a long 0:22:42.480 --> 0:22:51.000 time now. It's very exciting. It's both frustrating and satisfying. 0:22:51.880 --> 0:22:56.439 Really difficult problems shaping public policy, figuring out what to do, 0:22:57.320 --> 0:23:00.720 then persuading others. Because we live in a democratic society, 0:23:01.400 --> 0:23:03.840 I can't just decide what I think is the right thing. 0:23:03.960 --> 0:23:09.320 I have to persuade others. This idea that government officials 0:23:09.560 --> 0:23:14.000 work nine to five is absurd. We had our first 0:23:14.080 --> 0:23:17.119 meeting at seven am, and I had to prepare all 0:23:17.280 --> 0:23:19.399 kinds of work before that, So that meant you had 0:23:19.400 --> 0:23:22.680 to get up at five am, and we had meetings 0:23:22.680 --> 0:23:25.680 that would go on to midnight. If you went back 0:23:25.720 --> 0:23:29.879 into the political sphere, would you do things differently? Do 0:23:29.880 --> 0:23:32.760 you think you would have approached your work differently? In hindsight, Actually, 0:23:32.800 --> 0:23:36.240 I feel reasonably satisfied about what I did with the 0:23:36.280 --> 0:23:41.359 battles I fought, uh I thought against the deregulation of 0:23:41.440 --> 0:23:43.720 the financial sector, and when I was there, we did 0:23:43.760 --> 0:23:49.000 not repealed Glass Steagle. I guess I would have hoped 0:23:49.040 --> 0:23:51.439 I would have been more successful, and some of the 0:23:51.480 --> 0:23:55.720 battles you always wish you could have done more. So 0:23:55.760 --> 0:23:59.919 you you come back into academia and have students changed. 0:24:00.800 --> 0:24:03.040 One of the things that I think that has changed 0:24:03.080 --> 0:24:08.800 certainly since I was a gradual student is that there 0:24:08.840 --> 0:24:13.040 are overall fewer of the very best students to go 0:24:13.119 --> 0:24:18.000 into academia into public service. One of the major miss 0:24:18.000 --> 0:24:23.160 allocations of the financial sector is the misallocation of our 0:24:23.240 --> 0:24:30.040 scarcest resource our young people, and many of them could 0:24:30.080 --> 0:24:36.560 not resist the temptation of these outsized bonuses. Many of 0:24:36.600 --> 0:24:39.919 them went in thinking that they would work for a 0:24:39.960 --> 0:24:43.600 few years, make their fortune, and then do what they want. 0:24:43.760 --> 0:24:46.960 So they'd rather be Lloyd blank find than Joseph Stickles, 0:24:47.040 --> 0:24:49.320 many of them, and in terms of in terms of 0:24:49.359 --> 0:24:53.399 the career path, unfortunately, I think a disproportionate number. I 0:24:53.440 --> 0:24:55.760 don't think they think of it as Lloyd blank blank find. 0:24:55.840 --> 0:24:59.800 But I think the thractions of the lure of money 0:25:00.240 --> 0:25:07.240 was irresistible and still today but more guarded because more 0:25:07.320 --> 0:25:10.920 of them see the problems of the financial sector, more 0:25:11.040 --> 0:25:17.400 are aware that money doesn't buy happiness, and they want 0:25:17.400 --> 0:25:20.280 to feel good about their lives and what they do. 0:25:20.280 --> 0:25:24.240 Do you see yourself in that room? Sometimes? Um, I 0:25:24.359 --> 0:25:27.800 find that there are a few students who have that 0:25:27.960 --> 0:25:31.720 kind of deep curiosity, a few that have a real 0:25:31.760 --> 0:25:37.160 commitment to help our society, help developing countries. Would I 0:25:37.200 --> 0:25:42.640 find also extraordinary disturbing is the kind of you might 0:25:42.680 --> 0:25:45.879 call I don't want to say fear, but the worry 0:25:45.920 --> 0:25:48.439 are they going to get good jobs? Are they going 0:25:48.480 --> 0:25:54.760 to get promotions? Does the economics profession care about the 0:25:54.760 --> 0:25:58.560