if we cannot see her the on the victim store, then it's a shame on us. the dalai lama said, if you cannot respect those who serve, then better not served and. because they would steal if you do not respect them. >> you can watch this and other programs online at booktv.org. >> coming up, "washington post" columnist neil irwin presents is reasonable, "the alchemists: three central bankers and a world on fire," at a 2013 gaithersburg book festival in gaithersburg, maryland. >> he has an mba. most importantly though he covers the federal reserve for
the post all during the financial crisis that at least according to the book started in 2007, and, frankly, we hope that crisis is over now. this book is great, buy this book. this is really the untold story of how the world works. most people don't follow this stuff but let me tell you, follow the money. for me, we think we're something to do with that. policies are pretty clear and understandable and, of course, it's easy to blame us for whatever is going wrong in the economy. if it's an issue you can pose out of office but really if you follow the money according to neil irwin's book, "the alchemists," it's essential banks of the world and their unelected leaders that make the truly important decisions. to have a complex strategy, that
control how the money flows and how well economies function and, frankly, how well the voting public is doing. when was the last time you voted for a member of the board of governors of the federal reserve? not. neil irwin's book is really a fascinating account of how the central banks, the federal, our federal reserve bank because and if you ask me, established monumental monetary policy is that with international markets over the years and probably kept as all from really major turmoil. likely for everyone the world is too big to fail. on a personal note as person of swedish descent, i love that the first central bank started in sweden. and, frankly, i'm tempted to put in a bill requiring that all books about history have a timeline just like yours. it's really terrific. and with that, i'll turn it over to mr. irwin.
[applause] >> thank you so much. i'm so excited to be here in a together to book festival, which is a mouthful, and thanks so much for your interest in the book. so this is $20. you can use this to buy a couple of tickets to a movie and buy hot meal. you can take it over there and buy a book if you would like. but why? it's just a piece of paper. doesn't have much going for it. and has the treasury secretary signature but the important part is on the top where it says federal reserve note. what makes this money? what makes this something you can use to buy the things you want and need is that the federal reserve in the building down constitution avenue in washington a time see a group of economists and bank regulators said around and decide how much money they're going to bump into or sucked out of the u.s. economy. they the one to make a legal
tender. there's a simpler way to put that what you do in the book and is a bit of oversimplification but not all that much. that piece of paper is worth $20 thereby a ticket to move your hotmail or a book
because ben bernanke says it will. what we often think of is, as the power in society and what drives economies. it's the labors of millions around the country but the financial system from the system of money is what creates the bedrock that allows all that. is a platform on which it stands. that raises an inner question, why is ben bernanke and of those words federal reserve note, why does that matter and white does that make that money than the. and for that, nancy alluded to, we have to do a little history. i'll give you a very brief history of what central banks are, how they came to service great power or the world, great power over society. so as mentioned minute, 1650
sweden, way back. sweden was an emerging power at the time. a controlled great empire. consider controlling most of scandinavia and the ukraine great. they were a great empire. they were on the rise. as in most of europe at the time the money
was based on metal. metal was how you bought goods and services. and most of europe that was gold or silver. sweden ahead more copper so they use copper and had the giant copper plates about this big, weighed about 40 pounds. they were hell on the bank tellers back. you can see the problem. having big copper plates is not an efficient way to conduct commerce. if you want to go distort it is not coming very handy. they need a system of having money out and their economy that could be more efficient. that's what first central banker comes in. and hear him give you a preview. the first central banker was, a pretty shady guy when you get down to it. hans with macker and latvia. he moved to amsterdam where he
learned the banking business. he spent time and again is prison and then he got out of prison and reinvented himself. he moved to sweden, changed his name to johan palmstruch. established himself in swedish society and we don't even really what you look like or what his personality was but i can only guess that he was someone who instilled confidence, that he seemed completely credible sober minded serious person that the elitists of this country in the 1600s thought we would trust that guy with our money supply. so johan palmstruch got a license from the royalty to start what became stockholm debacle for the first central bank. very simple and people would take the place, deposit them in the bank, get the notes, paper
notes and what they realized is what you meant, why should we only get the notes equal treatment of money, and amount of copper we have in these faults? why don't we actually make loans, do something? not everybody needed a big copper plate at the same time. what these notes began with the first paper money in europe and it created a boom. suddenly you could go to the bank and you could use your collateral or inventory come your business as collateral and get the paper notes that were unconnected from the amount of copper in the bank. the economy boomed, things seem to be going well. until suddenly there was a devaluation in the dollar, the big copper plates, and everybody at once said i think i want my copper plate after all and they showed up at the bank. so you seem "it's a wonderful life." i will would like to imagine time one was kind of like george bailey. no come you don't understand, i don't have your money, it's tied up in ms. christensen to stay.
it's tied up in mr. nielsen's swedish pickled herring inventory. i don't have your money. now, you can see what people were not very happy with this. what happened was ultimately a collapse of the bank and a collapse in the swedish economy. it did not end very well for johan palmstruch. he was brought before court, since the death. his sentence was commuted but he died a couple years later anyway. it was not the most frightful, most a history to start something that i think many people would like to as a sweeping success. but they did invent something very important in sweden in the 1650s which is the idea that money can be paper and money is not so much a physical object, it's in a fault, it's an idea. a way of keeping track of the economy and that's why i called this book again. around the same time you had people across europe and the arab world as well who were trying, to all kinds of methods to try to turn base metals into
gold and silver. sir isaac newton it has been said was not the first modern scientist. he was the last of the optimists. samore hucksters and frauds and didn't have much going for them but the truth is what the experience of johan palmstruch and stockholm debacle proved in the 1650s issue don't need oceans and magic and all kinds of elaborate chemistry to try to create gold and money where there was none. what you need is a central bank with a printing press and the authority of the state to create money. and that became a model that one by one of the countries of the dance world started develop and started putting in place. so that was the first not terribly frightful, not very exciting story of where they came from. not always successful. so one moment that a lot of modern central bankers look back to is the 1866, the bank of
england. once again, britain is a great empire. we think of all the reasons the british empire controlled much of the globe. one overlooked what is the power of the british financial system in the 19th century. what the british banking system was able to do was final the savings of millions and millions of farmers, merchants all across england, all across britain through the city of london through the financial sector into major investments that fueled industrial revolution. one person can really easily come by the money to build a massive textile factory or underwrite a shipping voyage to india or hong kong, but banks by taking the savings everyone and funneling towards his investors were able to do that. the bank of england which was greater not too long after this swedish central bank was a key part of the financial system. so there's a story that gets told a lot, walter back it was a 19th century editor of the economist and he wrote a book on this in 1866. there was a bank that resembles,
like wachovia or bank of america, the banks that ran into trouble during the recent crisis. and since they were both a bank that had its roots in the countryside i think with the kind i find it, came to the city of london and was a major force. so over one day in a tactic piece of paper to door saying closed for business. and the run had begun. suddenly no one had faith. if overland would go under what's the next thing to stop london i'm going under? you had this wave of panic were settling assets that would be completely normally traded freely in normal times, called discount bills, nobody had trust that they would maintain their value and the flow of commerce shut down in the city of london. so the bank of england stepped in and said, our role is to be the lender of last resort. we're going to stand your and
any collateral that would be good in normal times we will take it and we'll give you a short-term loan in exchange. will keep the flow of money happening in this economy come hell or high water. that's what the bank of england. walter bagehot wrote a book about and that establish some of the doctrine of what central bankers have been doing since 200 years since. you're the lead of last resorts your you lend freely at ability rate. you stand ready to make money available when it is otherwise not. it's not a seamless progress of, for the good when you look at its history. a lot of you probably know the stories of the 1920s what happened in germany. the power of the central bankers use and it sometimes misused. so this is a prime example. after world war i there's reparation payments the german government is supposed to make. and a mannamed rudolph was the central bank for germany in the early 1920s and he saw it as his priotic duty to print money, however much was needed fund the government to meet
its obligations. you can imagine how the story ends. you just print without regard what happened to the price level. it becomes an inflationary force. he had this odd obsession with physical technical job of printing its money. so he was very proud of this capacity he had to print billions of rice marks an issue become out to the country. the stories from that time, there's a million of them but you need a wheelbarrow to go to the grocerbuy your groceries or the market went from four to dollar at the beginning of the end of 1919, the 4.2 trillion to the dollar in 1940. what we also learn from history is not just give you pretty much run there will be inflation and they'll be very destabilizing, of high inflation is destabilizing to societ the socs well. it was a very weak that the hyperinflation taken it would soon bring in a new, more credible central banker and ended. that's very weak. yog hitler led and
trying to come to glory and the power, it's very much a case that when central bankers fail, society still. that's all the more true about 10 years later in the early 1930s. is a monster the greatest good of the greatest central bankers that history has seen. you know, the stock market crash of 1929 in the united states, the kind of thing that happens very often. stocks go down. there's a reason that should've cause a global catastrophe. there's no reason you a stock markets dropping 20% should lead to the german economy collapsing or the british economy collapsing. the reason it did is central bankers of that era didn't have a robber common understanding of what their obligations are to each other, to the world, to society. they were so committed to staying on the gold standard, keeping the price of the currency tied to gold and not doing the steps to support the banking system that a deflationary spiral set in and
the entire commerce shut down. over the last seven years i think the central bankers spent a lot of time, effort, trying to learn from those experiences trying to apply analytical tools to come up for better and just how to guide the economy and guide the future of the world. by 2005 they thought they figured it out to be honest. this historical section of my book, by looking at the 2005 jackson hole conference, an event that happened an event that happens every year in jackson hole, wyoming. the central bankers of the world come together and they talk, the exchange big ideas. this was alan greenspan's last year as chairman and there was a sense in that room 2005 at the great masters of the world economy have been solved but we know how to deal with this. we know how to fix this. japan is a bit of a mess but europe have become more unified and peaceful and prosperous. the u.s. economy is to agree. there's some bubbles are in there, maybe housing is
something to watch, maybe certain credit markets are out of whack. we've got this. after all, this lon long historf solve the mystery of how to corral these forces that have caused booms and busts over the course of history. well, let's fast-forward to august 9, 2007. this was about a year before what most of us think of as the crisis, but for the central bankers this was the beginning point. it was a thursday. the governor, the president of the european central bank was on vacation on the coast of france. his phone rings about 7:30 a.m. it's ahead of the market desk of the ecb in frankfort. we have a problem. so the problem was that the major european banks had lost faith in each other. they lead very heavily, bought a lot of the subprime mortgage securities and u.s. those are all on their books and those he could return that were not worth as much what people
thought were. things that were aaa were not at all to play. so what happened is they weren't sure how much, what degree of losses they incur. they weren't sure what the other guys in the. if the bank down the street you know have a lot of subprime mortgages, you don't want to lend the money because you're not sure how bad it might be. so the interbank funding markets shut down and suddenly, normally deutsche bank would lend to other banks and the british banks and swisher banks. it's a very free flowing market. that they on thursday -- that day on thursday, august 9, 2007, they had to decide what to do but. gathered executive order take on a conference call going. the european habit of taking long august vacations made it tricky to be born different villas and resorts in greece and italy and switzerland. but they were able to get everybody on the phone. they had to decide what to do. they said with a lender of last resort. when banks will not lend to each other we will step in and be the
source of funding. essentially what the bank of england did in 1866 for modern age. they decided to great a facility and say we will offer you all the money you want, fixed rate, full allotment. if you need money, coming get it. 49 banks to 49 billion euros that day. same day. across the english channel in london, mervyn king, the bank of england was on vacation. he was going to watch cricket at the kennington oval in south london. he told his staff, don't call me unless it's an emergency. i'm ready to have a day off. so that great a bit of the situation. they first have to decide is this a big enough deal we will interrupt the governors of vacation to a decided yes, it was. there's a metaphor there. mervyn king was off at a cricket match of the day in the sense of the bank of england, those are days of the crisis, they felt like these banks bought all these bad security, that's their
problem. they need to suffer the consequences of their bad decisions. let's sit back and let them deal with it themselves never bank of england in those days was more hands-off than the ecb or the federal reserve. same day, august 9, 2007, ben bernanke wakes up and is driven to his breakfast meeting at 7:30 a.m. with hank paulson, the treasury secretary. it's nice to their own police force. you can go through traffic like. ben bernanke is on his way to meeting with hank paulson. he gets an e-mail from a man named dave skidmore who is in the public affairs office. this e-mail says, i'm paraphrasing, hey, just thought you should know i got a call from this guy at reuters, apparently the ecb is doing some dollar-denominated thing with deutsche banc. you know, the reuters guys heading to the present early and we will see what this is. translation, the most powerful
financial policy the world is learning about this from a garbled message from a reuters reporter which is not a great way to run a railroad. so are 90 has his meeting with hank paulson. they eventually get more complete information on what happened, what the europeans have done. and what became the global mega- crisis had become. it was the first intervention by central bank, the first unconventional step. i'll tell you muzzle personal site. about a year after the events of this garden, september 14, 2008, a sunday. i was a federal reserve reporter for the "washington post." i had a long few weeks because if you remember the fannie mae-freddie mac bill about was the week before. i haven't had a day off in forever. sunday september 14 there was a few days before there was a cartoon in the financial times saying, please hank, take the weekend off. people were hank paulson to take the weekend off and not bail anybody out that we can.
september 14 come to those in a, i was washington -- watching the redskins play the new orleans saints. i get an e-mail in the first quarter from a source. the e-mail says hey, are you in the office? and i respond, should i be? and they respond, you might want to be in the office. so i respond, can it wait until halftime? and their responses, you might want to be in the office. that, of course, is the day that lehman brothers was about to go into bankruptcy. it was also the day the bank of america bought at merrill lynch. debate the wall street changed forever. events that followed in this ugly weeks of the fall 2000 have been chronicled in a lot of books, and it sure most of us remember history, it's edgy, t.a.r.p., all these ugly bailouts and all these really economic calamities that was happening at that time. i'm going to focus on a couple aspects that are important in understanding what this is bonds was on a global level.
so if in the 1930s the central bankers didn't understand each other, didn't communicate, didn't act with common resolve, that change by 2008, and by the time 2008 rolls around there is a sense of common purpose among these guys. they need many times a year, six times a year they could've also switzerland. there two days of meetings and long discussions of economic forces. they also they do that is the world's most exclusive dinner party on the 18th floor and basel switching. it's the most intimate opportunity for the links of the bakers the world exchange ideas. they eat delicious food, drink good burgundy but the joke is they call it, very good wine. one central banker told me sometimes in crisis i feel like we see each other more than we see our wives. wives. so with us and the common person
how to the deployment in 2008? here's one aspect i don't think people pay much attention to. it's called swap life. the basic idea is simple. european banks had all these euros dollar in him it assets. at deutsche bank and german and french and dutch banks have spent all this money to buy u.s. dollar-denominated assets by the ecb cannot lend them dollars in a pinch. when the markets shut down, when they couldn't get dollars on a private markets they had no way of getting the dollars they need. so the ecb and the federal reserve and the swiss national bank in the bank of england and canada came up with this arrangement where if you're the ecb and you have your banks need dollars, you go to that and say i need $10 billion but to give the fed and put him out of euros, you have a contract, 90 days later you unwind the whole thing. the fed make some interest money on it and then ecb is able to land those dollars out to european banks. people pay attention to the
bailout in 2008. aig was $85 billion bailout. advocate for swap lines added up to $585 billion. this is an untold story of how the sense of trust, of common purpose enabled them to respond in a coherent coordinated way to this crisis affected the world. so that was the most intense days of the crisis, then it was a calamity spreading in every market every part of the world and it was ben bernanke and mervyn king who are cutting interest rates. they were creating all these innovative ways to pump money into the world economy. it adds up to a wall of money. they surrounded this crisis and that however bad it gets we have in our power bottomless capacity to great money and we're going to stand and keep it from spiraling into something worse. since the crisis ended in 2008-2000 that's not the end of the story but i think we all know if you didn't already that
that was really only the beginning of a much bigger story. it's a story that starts in subprime mortgages and lehman brothers and all those things from 200 2008 by spread into eu, it spread into sovereign debt, greece, ireland, spain but it spread into different -- the european banking system, the world trade system. this was not a one a story of crisis response. it's all a. so that's what i do in the book is tell the global store and always interrelate apart. warren buffett has a line from you don't find out who is naked until the tide goes out. the greek government was a naked one in this case. the crisis expose some long simmering problems in their excessive borrowing and bad governance that a think we just didn't understand or didn't say when things were going better. and it was his receding tide great by this crisis, the meccas crisis -- the mega crisis. so let's talk about how that
came to be. the european crisis is a hard thing to get your head around it i spent a couple years covering it. i would open a good bit and i still feel like it's something that is not easy to get a good grasp of. so i start that story in october 2009. what happened is a new government came to power, the socialist party increase came to power. three days later after they won the election for new finance minister with any meeting with the central bank governor increase. all the important people in the situation named george which makes it confusing. so when george said to the other george, well, there's something you need to know. the deficit this year is going to be a lot bigger than we expected. it's not nine or 10%, its 13 or 14% of gdp. the finance minister just took this job, just one election, he asked are you sure? are you sure? because suddenly they felt their
be able to enacted after winning these elections was not going to be possible, is going to be a time of austerity and budget-cutting rather than doing new things. the european crisis i think it's a challenging was an american to understand because the political context in europe is messy and different. what we saw over and over is the ecb in brentford is the unified central bank, it works very effectively not unlike the federal reserve of the government and a 17 governments in the euro zone, that create some very trying times. i remember when i but in the world was worrying about what slovenia was going to be. slovenia say country of 3 million people. if department did not approve it in those what could have resulted? we're all waiting on slovenia. if you think having u.s. congress and having to see what they do, imagine you get 17 of them to deal with. that has been the consistent
shots of europe over the last few years and one that i tell about in the book. so in europe you have a situation where there are number of governments and large deficits. markets were turning on them. so the question is what you do if you're a central bank? in the u.s. you could have a monetary policy, a set of policies intended to economy. in europe the greek economy, spanish economy are different situations. as a result you don't have that pool of monetary policy to allow these adjustments, these imbalances that been building up over a decade. you didn't have a way for those because you didn't have a pressure valve that would allow those to escape. so the adjustments in the past would've happened by greece devaluing its currency and then there's inflation and people less wealthy but suddenly there economy can get back on track, that pressure valve did not exist. you had that same force happened through different measures and that became the trillion of. the years be unsettling, the
international monetary fund and the european commission would come together increased demand island of portugal to say okay, here's the thing get a did receive this, and these are very detailed document, long documents. you need to make these reforms ttwo pension system. you have to make these reforms to your procurement. it was the least bad option for this country but it's also a very unusual moment. you have these elected officials in frankfort who are dictating his which are going to do on your pension system, on your health care system. and everything else. so that's one prime example of why the democratic questions that arise from this great power exerted by the central bankers is at its most extreme. anytime you're central bank is dictating what you're going to do on your pension, something has gone wrong in the world. so one more story i want to kind of tell and help characterize what this saga has been,
quantitative easing. so we get through this dark stage of the crisis, 2008-2009 and you find yourself in an economy that it was not very good at all. u.s. economy through 2010 starts growing, starts recovering in the summer 2009 but doesn't feel like much of recovery. it's not rapid growth, not enough to make up the lost ground from the recession. that's kind of the recovery we have had ever since then. you get to the summer of 2010 and there's a decision to make for the fed, for ben bernanke and the federal reserve. growth was very slow. there was evidence we might have been slipping back into a double dip recession in 2010. inflation is quite slow. the fed aims for about 2% every year. it was running more like one, 1.2% in the summer of 2010. the fed has to side with interest rates at zero since december 2008. do we do more? do we come up with something we can do to pump more money in the economy, increase the money supply? get hopefully get growth on
track? and the answer they come up with is quantitative easing. what that means is we are the fed, we are going, whatever target for short-term interest rates at their but we're going to go by longer-term bonds. we're going to create money out of thin air, i billions and billions of dollars worth of bonds and that money will be out in economy and will help the markets and the economy recover. it's funny can we think of this process of creating money is interesting and you i think it's a grand scheme for something grandiose. i've seen how they do it. i was in the room at the federal reserve bank of new york where they could have quantitative easing and is pretty unimpressive deeply the trees. is what it looks like. you go into tuesday morning, little conference room no bigger than this stage, a little bigger than the stage, and you have some guys that computers on one wall. you have a supervisor watching everything. he have a tech person in case
the computers break. may be more senior managers will stop by most days. you have cnbc going on the wall to of a digital clock, get all your financial data and they said okay, today we will by $3 billion worth of bonds. ago in the market, but also primary gives, the 19 largest banks in the world that have the official relationship with the new york fed and say okay, we are looking to buy $3 billion worth of bonds, what do you have? they make offers. they say we have this bond we will sell at the at this price. it's a reverse auction process. they find the price at which they can hit the 3 billion-dollar number. click, click, click. what happened is $3 billion that had not previously existed on the book of those bank and those bonds are on the books of the new fed. it's all over before lunch. it takes about 45 minutes. like i said, it's a surprisingly banal little room. now, this is what you are going to put money into the economy
but we found over the last few years is these unconventional ways of doing monetary policy are not as effective as the normal tool. the fed has not done more than $6 trillion. they're doing $85 billion a month right now in additionally facing trying to buy more bonds and it hasn't, it's been enough to keep us away from deflation. we haven't had falling prices like the japanese the last one years but we haven't had a double dip into recession but we also haven't had the kind of robust growth that everybody is trying to get. so the question is are the at the end of the road? have it done everything they can or are we out of tools? i think what we've seen out of the bernanke said is a real capacity to look around and say okay, what's working, what's not? if it's not working we will dust off the playbook and try something new. that's what they've been doing with communications. in december and september were not just going to buy all these bonds. we're also going to use communications, tell you what we'll do. we are going to keep pumping
money in the economy until we're on track, keep interest rates very low until it unemployment drops 6.5 is in or inflation becomes a problem and gets up to 25% figure to use communication and since that this is the plan, to instill confidence and get growth on track. so far the this economy has done better this year but it's pretty modest. now the question is what have all the global central bank been doing for the past five years, what's the cost and what are the risk this creates? the truth is we have been in uncharted territory and this is true for 16 years now. inevitably, there are kinds of things being done now that involve these trillions of dollars of taxpayer dollars, euros, yen, everything else. there could be consequences we don't fully understand and don't know what they will be. so far inflation has not been a problem. will that change? it certainly could. but asset bubbles emerge that are really problematic? stocks have been rising a lot the last couple of years.
it's a good thing if you have a 401(k). at some point to the get beyond fundamentals and create a new risk of bubbles? right now some of the corporate bond markets, the junk bond market does look a little bubbly. the question is do they have the tools and capacity to deal with is on the back into? the real thing is to not worry and that's it will be on the fed's capacity to do with future inflation but political will. let's say that some of these productions of inflation turn out to be true in a couple of years. of the future fed, not bernanke but whoever the champ chairman is then, what he or she had the resolve, the ability and the courage to say, all right, the party is over and now's the time to start tightening the money supply and prevent this problem that they face. at the same time i think my take and i say in the book is ultimately it's unnerving in a democracy to have this small group of people who exert this fast car, who deployed trillions of dollars and euros on behalf
of the public. it's certainly troubling as a reporter. i like to believe in transparency and people being clear about what their doing and not lurking in the dark shadows of a building and basel, switzerland. at the same time again and again what we've seen the last six years is that these were the guys who have the capacity and the will to act on a scale commensurate to the crisis. at a time the democratic institutions who slowly move to cautiously come as a central bankers who have the ability and power to prevent money to deal with the crisis as it unfolded. so i think it is troubling from a democratic perspective that this is how it happened but i also think it's been better than the alternative in something that we certainly can be grateful to ben bernanke and his colleague for keeping things from getting worse. it's not that this is a great economy but it's a very difficult environment, unemployment is still close to 8%.
that's not anything to be proud of both when you look at the grand artistry of what can go wrong when central bankers do not respond on a scale commensurate with the scale, a disaster how bad things can get. in short, a catastrophe averted is no small thing. but, you know, the fed has a 3 trillion-dollar balance sheet. those of taxpayer reserves the acting is all the more important given all the been doing and will pay attention and ask those hard questions. there are mechanisms for accountability, journalism and what people report and what i do is one of them. another is congress. ben bernanke goes before congress. is doing it this wednesday and factor for our lawmakers ask this question him make sure we as a society understand what they're doing and why and what the risks are and hold them accountable if they get wrong i think that's one of the most important things we can do in this world where they are deploying this vast power on behalf of all of us. so that is my take and that is the story of "the alchemists." i hope you read the book and enjoy. i would love to answer your
questions or hear your comments. [applause] >> in if you ask the question, can you please go to the mic in the back? >> from what i read, this austerity that has been pushed by congress has been debunked. the study was absolutely wrong, and i don't know whether bernanke has the power or the will to come out and say, no, this is not the time for austerity. we need to spend federal dollars in order to get an employed populace. you are never going to lower employment unless the fed to can print money start printing it
and hiring, and hopefully replicate what happened during the depression years. can he speak out, or is it an unwillingness? >> that's interesting. it's funny, there's been almost two conversations over the last two years on austerity and went to cut deficits when you have large deficits. one view that is pretty widely held is via steering -- austerity be. if you have large deficits you have to reduce them and that will instill confidence that will in turn create growth and is what we have to do. that is what europe argued that the policy pursued by britain as well. as you allude to, that is not looking like a good set of solutions to european economy is still disaster. the british economy has been stagnant for three years, and even one of the studies that provided some of the intellectual foundations for that idea that said if you get over 90% gdp thing of lower
growth, there was a major flaws in the. what's amazing is how on the other side of the debate you have very good consensus. so paul krugman is the most visible and very aggressive and assertive of his way of writing about it but i think the truth is where krugman is an where ben bernanke is, the international monetary fund, where a lot of the mainstream economist at the big banks, the big forecasting firms are not so different. they might be different in tone and have a talk. inequity or ben bernanke talk to how paul krugman does in his column on capital next week. but in substance they're not as far apart as you might think the bernanke is been consistently in the last couple years been the voice of caution and telling congress yes, we need to worry about long-term debts and entitlements and focus on the long-term issues that could make our economy more competitive, but in the short run there's a lot of risk if you cut too far
too fast and you can suck the wind at a growth. we saw in the last federal reserve policy statement a few weeks ago they explicitly said fiscal policy is going to grow. the widespread view is look where doing everything we can, we're trying to spoil this way. don't mess it up, congress. and what we have had a super surprising deficit reduction. we were 10% of deficit to gdp four years ago in 2009, and we will be about 5% this you. about two or 3% in 2015. so that's been a pretty rapid pace of deficit reduction that comes about because of the expanding economy, the fiscal cliff, tax increases, the debt ceiling negotiations that involved spending cuts but i think what you'll see as bernanke goes to congress this week and any future is he will be very polite about it but he will say watch it, guys. this is too much budget cutting too fast. this endangers our economy.
>> yeah, i understand that there's not much of any regulation on some of these economic toys, like derivatives, and i guess that a lot of others i don't know about, but i was wondering, is there any protection against common man against some of these inventions of high finance? >> i think it is one thing we learned from this entire episode the last several years is how unimaginably complex the financial system has become and how much of that complexity can endanger the rest of us, can endanger the entire a good of the world. i wrote about the stuff. i thought he knew a lot about the financial markets work and
it turned out there all these corners of the financial market i had never heard of the even a lot of the regulators were not as fully versed as you might expect. one small example, these things called structured investment vehicles. back in 2007 that were essentially a way for the big banks to create a kind of shadow bank on the side that wasn't under balance sheet but in a guaranteeing anyway. that was one of the earliest phases of this crisis was those imploded and endangers a lot of big banks. i think the lesson here is that we need better financial supervision. the question is do we now have that. the dodd-frank active regulars a lot more power to have windows into the banks come into other institutions. can use it properly to help this in the future? one example, aig bailed out by taxpayers can $85 billion was essentially regular by nobody but for the. as it can't come out o god frot
now the financial -- under dodd-frank they can say okay, you, mr. insurance company or non-bank lender your system of important so you be regular by the fed. there's a new office of financial research in the treasury department that is charged with finding new ways of pulling up statistics to understand where risks are building up. now we'll all that be enough? to the regulars now have enough information and enough weight to understand what risks are building a system? i sure hope so because if not we haven't learned anything. but if they feel it's not for lack of trying. it's because the sheer complexity of what the financial system is doing is really hard to keep track of the. >> i was one what the reaction of the bankers has been to your book? >> is interesting. i'll be honest i'm pretty tough on mervyn king in this book.
it's clear they're not happy, the bank of england them with about. mervyn king is an interesting have to but he's a brilliant economist. he shared an office we would ben bernanke in the 1980s but he's also, he have sharp elbows but he rubs a lot of his colleagues the wrong way, can be a little imperious and tough in getting his ways. so has a lot of enemies in british politics from the bank of england but i tell some of the stories from different colleagues of his complaint about his men over the years and how he steamrolled them. so it's clear the bank of in the is not terribly happy. the rest, there's so much i can say but it's funny. you try and tell a story and try and turn this five years of history into a narrative that makes sense and hopefully they can at least respect what it does, which is try and take is really complex stuff they've been doing procedures across three continents and turn into a
single narrative that makes sense for people who don't understand the inner workings of monetary policy, which most people don't. >> thank you for your talks. one question which i think is pretty quick. how do you think that would reconcile these issues with the fact, al of those 19 things that you mentioned, many of them don't serve american inches. and if you could also kind of try to weave in the confluence of those overseas interests with the fact that the federal reserve is actually private and not really a federal entity. >> yeah, so first on that last point, on the federal reserve in private, that's not exactly right. a lot of people say the. it is too that the reserve banks, the 12 reserve banks around the country technically are owned by the banks that are in their district and that the regular. that's more of a accounting convention that a reality. the federal reserve board is a government agency in washington.
its leaders are appointed by the president and confirmed by the senate. it's a government agency like any other. it's covered by foia and all that kind of stuff. the reserve banks are a little more strange but it's kind of weird hybrid structure to the profits are all returned to taxpayers. so when the new york fed makes money off all these programs that money gets returned to taxpayers. they have had record earnings lately because of all this money printing, i believe $90 billion last year. but it is a strange structure where the presidents of those reserve banks are chosen by a board of directors that includes a lot of local businesspeople and they have to be approved by the fed aboard in washington but it's, i don't think it's a simple essay is owned by private interest but i can see why people would say that. it is cleared the case, so the fact that european banks were major holders of all these american securities, you know, it's amazing to think about but if you took out a mortgage in
2005, 2006, that mortgage was very likely packaged into a very complex security that then was sold to somebody and in a lot of cases that somebody was a german bank or a french bank or a dutch bank or a belgian but thank the guy greatest global crisis in the way i think a lot of people didn't understand at the time and a lot of those early steps by the fed including the swap lines i talked about, these unconventional ways, really were about providing dollars to his european banks. so there's two ways to look at the pic on one hand this is a u.s. taxpayer resources, why is only going to european banks? the flipside is th the european banks of the one supporting u.s. economy and lending money to use homeowners and other kinds of people borrowing money in the u.s. the questions what is the alternative. if the banking system had imploded in 2007, 2008, 2009, with the u.s. economy be better off? i would argue no because if those were the institutions providing the capital for u.s. mortgage lender, think how much
mortgage lending froze up. imagine how much worse it would be if the european banks would not keep buying the security. it's not an ideal system as i say. if you care about accountability and transparency it's not good, but it may be that the alternatives. and with that until so much for coming. i will be signing books in just a bit. [applause] >> booktv is on facebook. like us to interact with booktv guest interviewers. watch videos and get up-to-date information on events. facebook.com/booktv. >> what are you reading this summer? booktv wants to know. my book for the summer happens to be andrew billingsley's book "yearning to breathe free," which is a book that i was honored to have written the foreword for, and it's about the
life and legacy of robert smalls. robert smalls was born in south carolina, beaufort, south carolina, in 1839, born a slave. he died in beaufort in 1915. now, the reason i am spending time with this book this year, and i've given two lectures on it, is because i see what is happening today here in the country, supreme court decisions, legislation at the federal and state levels. reminiscent of what happened during the life of robert smalls. robert smalls, after gaining his
had been granted former slaves with the emancipation proclamation that went into effect in 1863 your robert smalls in that time from after gaining his freedom and at that convention became a member of congress. spent five years in the congress. he was one of eight african-americans to serve in congress from south carolina before i was elected in 1992. now, smalls was also a delegate to the state constitution convention of 1895. in 1895, all those rights and
privileges that had been given back with a constitutional convention of 1866 were all taken away in the constitutional convention of 1895. and if you look at what was taking place between 1866, i guess basically 1876 because it was the 1876 presidential election that created the opportunity and atmosphere that led to the ending of reconstruction and which eventually led to the creation of jim crow -ism come and what i often call apartheid in the southern part of parts of my states of america.
now so if you look at was going on from 1876 up until 1895 in that 20 year period, we saw the beginning of the end of the full citizenship of african-americans in this country. and so by the time of robert smalls died in 1915, he died a broken hearted, and financially not near as well off as he once was. and so i have spent a lot of time with groups talking about the history of this, as they used to say, to my students, if
things have happened before it can happen again. and we see all the speculation of a what the supreme court is going to do with the most important civil rights act which i think was the voting rights act in 1965. and most experts think that that's about to turn into a significant, and i call, a noble end. programs of affirmative action simply means that you can take positive steps. you can't be passive. you've got to take positive steps to overcome the current effects of past discrimination. it's just not going to happen by itself. if you bring that to a close,
and there are people who are speculating that that is about to happen, in fact i saw a few days ago one of the leading scholars, legal scholars in this country, who is saying that he believes that chief justice roberts planned to be the chief justice to bring in close to the civil rights movement as we know it. and i don't know if anybody can look at the numbers and see that unemployment in the african-american community, the community runs about twice where it runs in other committees, where women are still earning 72% of what men earn in our society. and to think that the glass is
full. the glass is maybe a little more than half-full, but it's not full. there's still a lot of work to do. added don't think we are going to successfully navigate through this if you don't understand fully exactly what it is you're dealing with. i think it wa was said best wins that different people failed to learn the lessons of history, of history, they are bound to repeat them. and i'm trying to sound an alarm here to make sure that people who have risen educationally and gained significant wealth, just to remind them, look at the life of robert smalls and you can see all that, with the stroke of a pen and a few court decisions
can transfer history as it once was. >> let us know what you are reading this summer. tweet us at the booktv, posted on her facebook page, or send us an e-mail at td. >> type the author or book title in the search bar on the upper left side of the page and click search. you can also share anything you see on booktv.org easily by clicking sure on the upper left side of the page and selecting format. booktv streams live online for 48 hours every weekend with top nonfiction books and authors. booktv.org.
>> we would like to hear from you. tweet us your feedback, twitter.com/booktv. >> making the transition from journalism to books is exhilarating and completely overwhelming and frightening. but wonderful. >> why did you make that choice? >> i had long wanted to be working on a book just because the freedom that it allows you to really dive into a topic and lose yourself and go off on tangents. and have enough time to really explore fully. ..