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tv   Book TV  CSPAN  March 17, 2013 1:40pm-3:45pm EDT

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way through. >> host: professor gould, has technology changed how you teach? >> guest: yeah, it has, and it's changed it probably for the better, but a little bit for the worse. the way it's changed for the worse is we have to compete with all the other sorts of calls on students' attention. they come to class, the cell phones with them, the smart phones, a lot of other things they can do if they are not excited about what's going on in class, and we have to compete with that. at the same time, we can use technologies like skype to bring the outside world into the classroom. we have these jiecht video monitors now that we can really make some of these things come alive for students and give them the opportunity to test what we're talking about in the classroom under these theoretical issues, with what really is happening out there in the real world. >> host: is it important to give students a letter grade? >> guest: important for whom? them or for others? i don't know it's that
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important. i don't find it to be as useful as others might, but students m them, and they want them because that's what they are used to. that's what they have all been competing for that, and that is what employers want. frankly, we can get more out of me writing evaluations of them in a more detailed way that talks about the strengths and weaknesses, what they brought to the table, more like a letter of recommendation than a letter grade. >> host: do you find a difference between students who take out student loans or students who have their parents pay for it or have -- >> host: not that, but there's a difference between students who work and those students who don't. the students who are working, this is their money, right then. students who take out the loans, it is eventually going to be their money, but it's going -- to them, it's kind of somewhere in the future. those who work, they're putting in the sweat and equity in right
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now to get the education, and i think they are generally more serious students, and they demand for of -- more of us in the classroom. >> host: in the book, "how to succeed in college," you have a chapter, a sub chapter called "the liberal ivory tower," can a conservative student -- can a student who is conservative be successful at a harvard, at an american, at a u penn? >> guest: absolutely. take that term, it's in the book to dispel the myth. they are not unfriendly to conservatives. what we're after here at the university is if i'm doing any job right, any student who comes in here is going to have his preexisting views challenged whether they are liberal or conservatives. those kids are going to be challenged to think about what they really believe in, to take in the information we're offering, and to leave with their own view of the world. now, if i do my job right,
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that's what is happening, and that ought to be both exciting and probably, to some extent, frightening, to students no matter what their view because we want them critical of information no matter what they end up believing. >> host: you say that college professors and campuses are more liberal than society in general. >> guest: but i say really that's not so much about being a college professor. some of that is about generally people who have more education, who have ph.d.es, tend to be more liberal than others in society. that's something about, face it, chose of us who are college professors decided that money is probably not the most important thing for us because we'd be out doing other sorts of things. now, that said, whatever our perspectives are, whatever the ideologies are, and they vary, there's conserve titch professors in the institution swelt liberals, if we do our
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jobs right, our students don't know the ideology, and it says in the book that the best compliment given from a stupe was the one who had no idea what my ideology was until she came to babysit our kids and saw the wife's bumper sticker on my wife's car because what a really good professor does is take him or herself out -- or his or her background out of the conversation with the student. it's not about us. it's about them. again, our job is to challenge them to be critical consumers of information. >> host: dun tenure help students be successful, does college professor temperature euro? >> guest: well, i think it helps faculty to be successful, and if we're successful, they are more successful. it begs to question, well, what does tenure get? it gets us freedom of inqir ri allowing us to look at what we think is important without having to worry about someone looking over our shoulder saying, well, that's an
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unpopular idea. if we are all worried about unpopular ideas, today, we wouldn't understand gravity or the world is a sphere rather than square. that's what tenure gets us, getting then faculty who are able to really do a full inquiry, grow the knowledge, grow the science, and students benefit. not only because we impart that, but students participate in the research projects. if i'm a critical consumer of higher education, if i really want my money's worth as a student, i'm in favor of that. >> host: professor gould, what do you teach in law school? >> guest: criminal law in the law school, and i actually also teach over in the college of -- school of public affairs. >> host: what do you teach there? >> guest: law and society. >> host: what sparked you to write "how to succeed in college"? >> guest: great question. i taught for over 20 years now, and i saw some of the same problems from students over and over and over again, things like not understanding how to cite
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material and inadvertently getting in trouble with plagarism, a student seeing college, take advantage of everything in the classroom, and i e-mail students with hints and the like, and i sent the same e-mails out year after year, and i thought, you know what, time to write the book to say, "buy the book," and i don't have to send the e-mails out. >> host: what's the best thing parents can do to prepare their kids? >> guest: a couple things. one is the academic side. the best thing that students can do to be prepared for college is reading and writing, and i know that sounds old school, but it is true today as it was when i went to college in the olden days, and that's the best thing that we can do to have them prepare, but the other thing parents can do is they can get the students ready to live their lives on their own, so we hear so much about helicopter parents today. really, the most important
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things parents can do is get their students ready for the parents not to be there. this is a simple as, okay, how do you do laundry if you're at college? it's really much more to the point of, well, ho u are you going to get up each day and go to class and do what's required of you? how are you going to balance a social life with academic life? those are -- as a friend says, those are life skills, and those are the kinds of things that parents ought to have their kids ready for. >> host: talking with american university professor john gould about how to succeed in college while really trying, and, professor, gould, thank you for being on booktv. >> guest: my pleasure, thanks.
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>> we are standing in the conference room of the arlington county sheriffs, and this shotgun was used, and selected in 1903 as the commonwealth attorney for alexandria county, and he conducted a series of raids where he shut down brussels and saloons and dangerous places using this shotgun using those raids. he was from south carolina. his father was a prom innocent
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judge and author. he moves here to be a lawyer and got involved in the politics up here and northern virginia area. what's significant about the time period is that he was part of a progressive wing of the democratic party at that time, which was split between a more conservative section and a more progressive section. this was a time when there was no republican party to speak of, and the only real politics had to do with which faction of the democratic party was sort of in charge, and so the conservative wing of the party was run by a political machine that was operated by thomas staples martin, running the martin machine, and when he became interested in politics in the late 1800s, early 1900s, he got involvedded in a group of progressives that were trying to essentially take over the state government, and one of the first major campaigns was the
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gubernatorial election of 1902, he went down to the convention to support the candidate at that time, andrew jackson month hue who was successful launching his political career. when he was elected in 1903, he wanted to go after gambling houses and the saloons and the sunday bars, and he wanted to shut them down. he had resistance from the sheriff who wanted nothing to do with this aligned with the political machine. he, as a prosecutor, put together hides own posse of supporters to conduct raids without much help from the sheriff. he sent out letters to the political supporters saying what he was about to do, the raid to conduct, training to get people interests if they wanted to be part of the raiding party, got a good response, and so the elected prosecutor took this shotgun as short of his totem to the placings. the shotgun is, really, an
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interesting piece in history because it's associated, but it's been passed down over the years through various hands. it's the property of the arlington historical society, but then at some point, it was displayed here in the arlington county sheriff's office; and the story is the society has their own museum, and you can go there, but they were concern about the gun because it's an actual weapon thinking it's a liability to have a weapon in the museum, so they gave it to the -- they loaned it, technically, to the sheriff here in arlington county, in the possession of the sheriffs ever since. now, the prosecutor, the mod earn day prosecutor here who i interviewed for the book was a little upset because the shotgun is associated with a prosecutor, and it's not in the prosecutor eats office, but sheriff's office, ben more to the point, he's one of the chief enemies in the time in office was the sheriff who was aligned with the
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corruption, political machine, and so the modern day retiring, he felt like the shotgun should be in the possession of the prosecutor, not the sheriff, so i also interviewed the sheriff, and asked her about this, and she said the shotgun is ours, and we're keeping it. today, his name has been largely forgotten. there's a couple places where you can learn, one is here where you look at the shotgun he used, and also there's a park, we're not far from it now, that the area they are in are where all the saloons and brussels and sunday bars used to be. he would like to be remembered as someone who played a role in creating the mod earn, northern virginia. if you get on the metro system today and get out at the stop, there's a huge ease cay later, -- escalator, a me troll pal tan
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building, a lot of people, not like the ramshackle, muddy streets where you would be shot in an alley and people were afraid to go out apt night, and so today, you can walk around the streets, and it's a nice place, won't fear for the life, and i think they find that the greatest legacy. booktv tourings locations with strong, but not necessarily well-known historical value with the help of comcast, our local cable partner. author michael lee pope described each location discussing the importance of alexandria's history next on booktv. >> hidden history of alexandria dc, and the last part of the title is important because it's not about alexandria, virginia. it's about the period in history when the district of columbia
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included parts of what's now virginia. what i wanted to do was look at the 50-year time period and get a sense of why alexandria was part of the district of columbia, what went wrong, and why it left. what i wanted to do with the book is give people a sense of what life was like in this time period. firefighters, for example, was different in this time period. crime worked very differently. slavery played a crucial role in the business world of this time period, and politics were very different. i have a lot of research on the politics of this era. it was a big town, and what was essentially a democratic city, and so i thought that was interesting because, today, in the modern world, it's a democratic town and essentially a republican state so from that sense there's sort of a through line that you can look back to the time period and see there was a political division then that still exists today. when i was doing the research for the book, i found three places that i would really like
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to take you to give you a sense of what it was like to live in alexandria dc. one is jones point park where you find the original boundary marker for the southern most tip of the district of columbia, and the other is the dualing ground where a very famous dual took place between henry clay and virginia senator john ran doll of. the other place i was interested in taking you is the infamous slave pen in the slave dealers, which is where we're headed next. this is the hidden gem. this is the infamous slave pen at the franklin slave dealers. located in the basement of the northern virginia urban league. this was, at one time, thee most pros pows slave business in america. franklin and arm field rounded up slaves from all points, virginia, maryland, even delaware, and they would bring
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them here, process them, and then they had camps. there was a men's camp op one side of the campus and a women's camp on the other side of the campus. they were not allowed to comingle with each other, and they were kept here until they were sold in large quantities down south, and so they were transported, either via ship or marched on foot down to mississippi and louisiana. when the union army invaded alexandria, one of the first places they came here was the slave pen because it was an into maws spot in slavery. it was featuredded in all the papers at the time, and when the union soldiers came here, they came here to the basement where we are standing and found slaves shackled to the wall. slavery played a very important role in the history of the district, the early history of the district of columbia, and played a very important role in why they wanted to leave the district of columbia. if you were to take a look the the 50-year time period that alexandria was part of the district of columbia, you'd see
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that the business of slavery was thee predome innocent business in alexandria, where all the money was at, and so this slave trading operation we're standing in right now was thee most, one of thee most successful businesses in alexandria, and it was so successful, as a matter of fact, that the threat posed by the potential outlawing of slavery in the district of columbia was enough to push this movement forward for what they called retrosession, which was alexandria leaving the district of columbia. slavery played a very important role as the pre-- predome innocent business and why they wanted to leave the district of columbia. we're standing now at the dueling ground in north arlington, a famous spot where the duel happens between secretary of state, henry clay, and virginia senator john r, ran
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-- john randolph. they are two titans of politics. e qaif lent is john kerry against virginia senator mark warner. they arrived on the day of the duel after randolph gave a speech calling clay a blag leg, essentially, a gamble. they arrived here. on the morning, they were handed we haves, shot at each other, both sides missed, handed new weapons, shot at each other and missed again, and then so they came together and so he said to clay, you owe me a new coat, mr. clay, because a bullet pierced the coat. he said, well, i'm glad the debt is not greater. right now, we are at joarns point, standing on top of the southern most tip of the district of columbia here, and this is the boundary marker laid in 1891 when the federal government was creating the
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district of columbia. when you look at a map of the district of columbia, it looks like a diamond shape, but if you look at a mod earn map of dc, it looks like moths ate the southern half of it because the virginia part of the original district was retroseated back to virginia. this point is very significant because it was the original boundary marker of -- there were a number of boundary markers laid all around the area to point out the diamond shape, the actually boundaries of the district, but this was the first, and it was also -- there was a lot of ceremony that was involved in the placement of this stone, in 1791, that's when it was placed here, and so the significance, actually, it's a long story dating back to 1784, at the end of the american revolution. the congress was debating how they should have a capitol city and whether or not they should create a district. a guy by the name of elbridge
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jerry, who we know from jerry mannerring suggested a -- gerrymandering, that there be a district. one was trenton, new jersey, and the other was georgetown, maryland, and so the congress debated it, and, eventually, they chose trenton, and then they backtracked and approved funding for georgetown and tren torks with the idea they would move in different times of the year, trenton in part of the year, georgetown the other part of the year. virginians were really willing to go to great lengths to ensure the capitol was placed here on the river, and one of the people that played a key role in this is a guy whose name has been lost to history, but a man by the name of david stewart. this was a friend of washingtons, actually related to washington. he was a business partner of wash. interestingly enough, david stuart laid the corner stone here in 1791 rich chew, the into
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maws compromise of 1790 sealed the deal with the assumption of debt. after the revolutionary war, there was a whole lot of debt taken on by the various states. ..
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in exchange for the b. in place right here in the potomac river. for the act of 1790 with the deciding during creating the district of columbia. they came to the spot were standing on now and had a masonic ritual. the masons have dared a burdensome trowel trowels encored audio in the case and speeches right here on the spot. the ceremonial day of the southernmost marker, which is however standing over now. that's how the district was created. >> and 73, someone takes a look at this dodd-frank farmer protection act and argues that
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took based on a false narrative of what led to the 2008 economic collapse. he spoke about his work at the american enterprise institute in washington d.c. this is just over 90 minutes. >> ladies and gentlemen and welcome to our discussion of mayonnaise distinguished colleague, peter wallison's new book, said three. but start with a quotation. quote come of this legislation will safeguard and stabilize america's financial system in put in place permanent reforms so these problems will never habit again. it's been president george h. debbie bush 1889 after the passage of the financial institution or for recovery and
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act. president bush's prediction was of course a very bad one as we know and leads us to say similar and equally bad predictions have been made about the effects of the dodd-frank act which will be discussing today. such predictions had a project will cycle in the wake of financial crises. there's the inevitable political reaction based on political, not necessarily economic or financial logic and the political logic goes something like this, i is the politician that's dissenting. what can i possibly do? i can always expand and reorganize regulatory bureaucracies, even if you'd over time it doesn't work or indeed is perverse to do so.
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a famous military theorists talk about the fog of war and a financial crises we have the fog of the crisis followed at the fog of legislation. but it's even worse at the voluminous legislation not only reflects the fog, but is based on a wrong idea, a faulty understanding or is peter persuasively argues the flood ideological narratives. peter walston is the arthur f. burns fellow and policy studies at aei. his latest is a full book to give its full title, "bad history, worse policy: how a false narrative about hte financial crisis led to the dodd-frank act" is what we are here to discuss. in addition to his constant flow of commentary and financial issues and regulation peter is
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also the author of ronald reagan, the power of conviction and success of his presidency, a great book that should be read by every student of the u.s. presidency. of competitive equity a better way to organize mutual funds. privatizing fannie mae, freddie mac appeared were still working on that one. the gap gap an optional federal churning of the church. here is our book. i hope you read his whole book. in case you are intimidated by the thickness of that, please in any case read the closing chapter on the burdensome blunders of this dodd-frank act. it is a sustained and compelling case for the prosecution with dodd-frank in the dock to which
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the jury of time will surely respond guilty of the judge straighten him out. peter will present his book in about 25 minutes. i'll then have three expert discussions who will introduce after peter smirks for 10 minutes each. what is your chance to respond to discussions among the panel and then we'll open the floor to your questions about 1:45 unless we run out sooner we will adjourn to a coffee reception. copies of peter spoke are available at no cost. should we run out and you don't have one yet, sign up to get a free copy of peter will sign books during the reception. tanks to you all for being with us. peter, we're looking forward to your comments. >> thanks an awful lot, alex.
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the reason for the free books infinitely i thought it might explain this. this book was written with a grant which we received a generous grant to publish my financial services outlooks, the one favorite over the period of about eight years. when it was published, we learned the actual publisher had faced a very high price on the book of $90. i generally refuse to speak at a conference where they were going to sell a book for $90. not worth it. but without well okay, we can buy books from the printer as part of arrangement and we can buy them for much less come as soon as look at them away. we did not advertise for free books are going to be given away
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today because that was afraid that we try the crowd. i'm happy to see that people can not knowing that. i appreciate all of that. thank you. now "bad history, worse policy" makes a simple point that every major public policy is based on a narrative. a description of how a problem came about and what changes are necessary to resolve or present a recurrence. in cases involving major national issues, there's a debate about the substance of the narrative in which differing views are heard and evaluated. an example of the process of the current debate about whether human activity is causing global warming. there's an ongoing controversy about the facts in which each side understands that dispute arguments of the other. eventually a decision will be made. not everyone will be reconciled,
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but everyone who wanted to have a chance to speak or express an opinion love had that opportunity. other examples in a similar process of resolution or immigration, gun control, entitlement spending and in these cases issues have been joined in the debate will eventually produce an outcome. the abortion issue is what happens when the process is not follow. there the matter is decided by the supreme court before in a public debate and the result is continuing turmoil and even violent. in the book come i argued there was never any significant debate about the causes of the two guys in a financial crisis. although there were two narratives about why it happened, only one was except to and propagated by the media. in effect, the necessary competition and ideas never
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occurred. as a result of the policy about it, this dodd-frank act is not soundly based in any political consensus. this will leave the legitimacy of the act for the foreseeable future. the dodd-frank act is based on a narrative developed entirely by the last. it places responsibility for the financial crisis wholly in the dirt and particularly in the loss of wall street commercial and investment banks. if the extent of the government had any role in the financial crisis, it is failing to regulate adequately either those institutions or the mortgage originators who profited by selling mortgages to people who couldn't afford them. the book traces the influence into the specific provisions of this dodd-frank act. i argue in the book that this
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narrative is false. it was bad history and they produced worse policy. it is certainly true the private sector have some role in the financial crisis, but this is relatively minor point of care to the government after throughout the clinton in a part of the bush administration's to degrade mortgage standards in order to increase homeownership. this contrary view was never put for the american people in time for its implications to be considered in the debate over dodd-frank. if the debate had occurred, it is unlikely to dodd-frank act would've been enacted in anything but his current form. i did this debate not occur? why was there no competition in ideas on this matter? that his little lurches talk about today. for those not familiar with the
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argument that the financial crisis was caused by government policy, let me state a few i can. before 1992, the vast majority of mortgages for prime mortgages for down payments of 10% to 20% in may to people with good credit records. fannie mae and freddie mac are the principal enforcers of these rules. delinquencies and the false virtue. in the 292, congress adopted legislation that required cnn friday to meet what were called affordable housing goals. legislation initially required at least 30% of the mortgages had to be made to people who are at or below the median income in the places where they lived. hud was given authority to increase the quota and it did
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so, raising the 50% by the end of the clinton administration in 255% in the bush administration. statements throughout this. made clear the agency's intention is to reduce the underwriting standards were prevailing in the market energy make mortgage credit available to its larger number of borrowers. there is no ambiguity about this issue. it is difficult for fannie and freddie to find prime quality blockages among borrowers at or below the median income, especially when the quota had been raised to 50%. in the mid-1990s, they began to reduce their underwriting standards come accepting 3% down payment spinning to 95 and zero down payments of the year 2000. acceptable barware ficus scores were also reduced.
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because stan and freddie were dominant players in lurches set standards for the housing market and mortgage market that were underwriting requirements spread throughout the market, not just of those mortgages to qualified for the affordable housing goals. the availability of government support for low-quality mortgages and the easy availability of mortgage credit efficiently increase demand for housing and built an enormous bubble, nine times larger than any previous bubble between eight to 97 and 2007. by 2008, half of all mortgages in this bubble that was 28 million mortgages reset pram or otherwise low-quality. of these, three quarters around the books of government agencies such as fha or other entities
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controlled by the government such as dna and freddie. dishes incontrovertibly and maybe you for demand from us came from and why these mortgages proliferate. when the bubble finally deflated in 2007 at two guys destiny, bunce defaulted an unprecedented number errs driving down housing values and weakening financial institution in the u.s. and around the world. but lehman brothers collapse, a financial panic ensued inks and other financial institutions hoarding cash and refusing to lend to each other and that was so they notice the finish finnish increases. it's not as know these facts are unknown or unknowable. danny and freddie were two of the largest financial institutions in the world and
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were taken over by the government before lehman brothers failed. you don't become insolvent by acquiring and guaranteeing prime mortgages. included in this book is an essay that charlie calaveras at columbia business school that he and i wrote in september 2008. the same month laymon failed, outlining cne and freddie's role in the crisis. republican members of congress and conservatives inherently skeptical of what they were told that the news media were able eventually to put the facts together. so it is now widely believed by policy conscious republicans and conservatives that the financial crisis was caused by the government's housing policies. every major republican candidate for president in 2012 said
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during the primary debates that this is the cause of the financial crisis and marco rubio repeated in his response to the president's state of the union message that in one sentence this is the cause of the financial crisis. even church to the oppression is not ours to make it he'd make a mistake in giving excessive support to increase homeownership. the left seems desperately afraid that this idea will gain wide currency. although there was only one sentence on this subject inside arabia's speech last week, the left blogosphere from paul krugman on down exploded with rage. idiotic, server refuted and the perennial favorite, if survivors to rave reviews, characterized. my aei colleague were once
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accused by joe nocera in his "new york times" calling him a visa in the big lie technique for suggesting the government had a major role in financial crisis. it doesn't get much worse than being compared to joseph goebbels. [laughter] most americans have no idea that there is an alternative view of what caused the financial crisis. the result is a nightcap in public discourse on this issue. when interviewed about the financial crisis, i'm often asked why no bankers have been sued personally were tried criminally for causing the crisis. to respond by saying i don't think the bankers caused the crisis. this appears to interviewers to do these interviewers dumbfounded. they have no frame of reference
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to interpret this response. i then have to explains the actual causes of the crisis and in other listeners perhaps have to take it in this rather complicated description of an event that in many cases they've heard for the first time. this would not have been in an interview about climate change. if the rest of the deal should reduce reliance on fossil fuels in order to prevent climate change, listeners would understand there's two views of the subject, those who believe human activity is causing climate change and desk at all about it. if i respond that he think we need more study of the issue before we take steps to hinder economic growth, most listeners will understand that he is underlining iraq's even if they disagree. they've heard the narrative if we reduce fossil fuel use, we will suppress economic growth.
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however, because most americans have not heard anything about an alternative explanation for the financial crisis, they have no frame of reference but they've been a disaster caused by the wall street banks. why did we have the unusual gap between public knowledge that one of the most significant economic events of the last 100 years? obviously there is a major flaw in india coverage of the reasons are not hard to discern. it is no secret the media is dominated by the left in the left has always had suspicions about capitalism as an economic system. not only is capitalism regarded as darwinian as an enemy of equality, but also seen as inherently unstable and prone to crashes. immediately after the default
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and the resulting chaos was full of commentary that this was the end of capitalism. pitted family revealed itself is too dangerous to be allowed to function without firm government control. the fact women's default in the ensuing chaos agree so completely with a few of the u.s. economic system allowed many on the left and the media to view it as a confirmation of some pain they had always believed and not a debatable issue. in the sense to this script, at their explanations were de la torre and a waste of time. the crisis also served another group at the lead voice in the subject of financial regulators. while familiar with remarkable effective regulators, alex talking about this, get more power when they fail. witness sarbanes-oxley, i will go into with these names mean.
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miniview city banking law and financial level know it. each was a new set of powers for regulators who had recently failed. in the case of the financial crisis, regulators are quick on the draw with new regulations that would impose more controls on the financial industry. the site, which arguably was most involved for failing to see the crisis coming at the most new powers becoming that buber regulator of the financial system with the potential eventually to regulate large insurance companies, finance companies, hedge funds and money market ritual funds as well as banks. this is truly a case of not letting a good crisis cutaways. where has this steam come out of the regulatory engine yet. if you read the speeches of officials and other regulators around the world come you'll
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find are eager to somehow get control of the securities market. the code words here shadowed the king, a clever suggestion the securities industry engaged in banking on the sly without necessary regulation. the reality is the security industry as a more efficient supplier of funds to the real economy than banks. it's simply less costly to sell bonds, notes and commercial paper to investors and to borrow from a bank. the mid-1980s intermediating transactions, the security industry has supplied 15 times more financing to the real economy and banking and has done so without government regulation. when the financial crisis came, lipid regulated investment aches like bear stearns, lehman brothers and merrill lynch did
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no worse than heavily regulated fdic insured commercial banks like waconia, washington mutual and indie mac. it's hard to see more and tighter regulation is the end there. what we are watching the name of prudential regulation is the government squeezing the life out of the banking industry through the interstate commerce commission gradually squeezed the life out of the railroads. if we let the government insurance provide regulation to the security business for some regulators have now proposed will pay a heavy price in lost economic growth. finally, it even natural supporters of free-market and members of the financial industry were shaken by the crisis ever slow to resist the tide of adverse commentary in the media. without an alternative explanation for what happened,
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officials at banks and other financial institutions had to admit that they did many of the things now being cited as the cause of the crisis. these uncoerced confessions came because they had no idea what they had bought, hot and securitize some pride mortgages, the government had done the same thing with pretences many. i was not reported in the media without the information information was possible private actions could have been responsible for the financial crisis that they saw all around them. a good example of the phenomenon is the chief investigator at jpmorgan chase. circulates a newsletter to friends and clients and to does the 90s it to blame banks for making the irresponsible and risky mortgage underwriting
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decisions that brought on the financial crisis. this was to be expected. the only information that is what he had read in newspapers or saw on television. he did not know what the government role had then. one day he ran across my dissent from the majority report of the financial crisis inquiry commission in which i argued it is the housing policy and particularly the affordable housing requirements imposed on fannie mae and freddie mac the drug on standards, built an enormous bubble and caused the crisis. elected to data assembled and concluded he had been wrong. it's not that jpmorgan had not done the things he had initially stated, it was just that the contributions of the banks and private sector institutions generally were only a small part
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of a much larger picture. once he was aware of the picture, he used his newsletter to issue a retraction of his earlier judgment. what the media and the regulatory apparatus all singing from the same hymnal in the or unaware of what really happened, very few people were willing to question the claim that the financial crisis was not -- was caused by the private sector. even if there were voices in defense of capitalism, their views are seldom given tension in the media. i had a particularly remarkable experience: member of the financial crisis schedule several public hearings which are televised on c-span. the media were present as observers over watching the proceeds -- proceedings on television. in several hearings i asked witnesses whether they were
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aware that there were 25 million subprime low-quality mortgages in the financial system in 2008. before the financial crisis. that was the number i had at the time at work has shown there are in fact 28 million low-quality mortgages in 2008. all the witnesses asked this in all the cases were people who should have known that they never heard of such a thing. in fact, 25 million subprime are nonprint mortgages in 2008 almost half of all mortgages was undoubtedly news. i might've been wrong, but of his newsday saturday. it had never been reported before and it's a shocking number. yet i've never found a single reference in any major media report on the fdic hearings when
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he made the statement and i never recall receiving from a reporter, asking me where i come up with that number. publication of the 25 million number would have led immediately to questions about how so many weak mortgages on into the financial system in the first place and where they were located. i would've been to show only a minority of nonprint mortgages on the books at banks or other private financial institutions and most of them were in the books of government agencies. get my statement every vote this latest media interest and of course is never covered the report. in addition at the time the fda sees report risk published i issued a 43,000 word dissent with a great data showing the housing policies and not the price you're agreed or the
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irresponsibility had caused the crisis. the substance of the dissent that no more than a sentence in any major newspaper and was not covered at all in any major broadcast and cable media. in the months that followed, only fox news interviewed me about my view of the financial crisis and that was part of a program to fox's credit included a lot of material but also pointed to privacy or responsibility. i was never interviewed at all about my dissent on abc, nbc, msnbc, that goes without saying in the "pbs newshour." despite the fact the same data i have included in the dissent had persuaded republican senators and members of congress to vote unanimously against the dog frink act. it's no wonder the american people still believe the banks and other financial institutions
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were the sole cause of the financial crisis. the polls all show this. they're still has been no competition in ideas. if it does nothing else the risk of essays, that history and worse policy shows from the beginning that there is a competitive and competing narrative. before the opening bell has sounded, the referee had declared a winner. thanks very much for your attention. [applause] >> thank you, peter. i have three expert discusses to address this book in various ways i'm sure. let me introduce them.
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first will be john allinson who is president and ceo of the cato institute. for jini cato uses that the 10th largest u.s. financial services holding company, which during his two decade, tenure as ceo grew from $4 billion to $152 billion in assets. john has been recognized by the harvard business review is one of the top 100 most successful ceos in the world over the last it did. he serves on the board of visitors at wake forest university, duke university and university of north carolina at chapel hill. our second discussing will be mr. purse, senior research fellow at the mercator center at george mason university. before cheney served as senior counsel to senator richard shelby steps on the senate aging committee as council commissioner paul atkins at the
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securities and exchange commission and a staff attorney at the sec. research focus on regulation of financial markets and recently released the lack of economic analysis by regulators who were entrusted with an lamenting the dodd-frank act. finally, we would hear from wayne abernathy, executive vice president for policy and regulatory affairs at the american bankers association where he oversees policy development, regulatory and compliance issues and general counsel securities and investment, derivatives posting risk management. what was previously assistant secretary of the treasury for financial institutions and member of the board of securities investor protection corporation and staff her of the senate banking committee. needless to say, when response after the senate banking committee was dodd-frank was
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enacted. we're looking forward to your comments. yet the floor. >> good afternoon. it's a pleasure to be with you. i want to begin by congratulating peter on what i think is an outstanding book. i think his name is very important. the statist enemy and believable job of creating a minute to peter described as financial crisis qualified banking industry and greet on wall street are one of the ironies was not deregulated. we had a massive increase under george bush. the privacy act, sarbanes-oxley and the whole idea there was a plague agreed on wall street assigns strange. there's not one shred of evidence there is any more grief than usual. that's just something made out of. nowhere came from. i have to acknowledge a real day
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to peter and alex and add. i also got a book called the financial crisis and i used a lot of research peterhead done in my book. he's the one person that searcy put together the numbers some of us in the industry intuitively saw was happening. his work has been very valuable to me. i very much agree with the arguments presented in these individual papers. reading peter's book was easy for me because i dirty read his papers. i read that when i was running bb&t and they help me make the decisions. we know to be very helpful to have facts to encourage us not to do things that got a lot of trouble. one reason is the argument that
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peter was presenting that we are influencing and reinforcing what we intuitively know is happening. some of his themes are particularly important. the role of the housing policy going back a long time, but particularly the 1990s and the impact on the economy that caused the bubble at the role of thank you of ready-made. he also deals at things that are nontrivial or academic but important. things like this are the nature of fair value accounting and the myth of the shadow banking system. there's nothing shadowy about it. the myth about the rule of derivatives and credit default sobs. he destroyed one by one those minutes as causes of financial crisis. just a text about the rule of regulators in manchester to be sure to regulation. the lesson that they're neutral.
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they were huge incentives for destructive it committees. they were negative policies. in all of these things i think peter's work is important. i think it's more convincing if you think about the fact he was writing this while this is happening. in many cases you can see him projecting were going in every case he projected for turns out to be true come which makes it much more powerful argument. one of the things you're supposed to do what you do this is say where would you disagree with peter? i know these things are not focus in his book. in my book, the real cause of the financial crisis were errors made by the federal government. but another private monetary system. if you have problems with the monetary system, they are by definition caused the government policy and the federal reserve has been very disturbed event
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created, and cycles. in this case alan greenspan make a bad mistake but he wanted to go out a hero. he created negative real interest rates come which is a huge incentive for people to buy her when house prices are appreciating. bernanke created a yield curve, which the banking business was by short and one long had negative spread, a whopping incentive for one of the reasons stubble and exponential to last for years. the context in which these mistakes we made really federal reserve policy on the cover effective the housing market because of policy, specifically freddie mac and fannie mae overinvestment housing is particularly to start it and that's why it unusually big bubble pushed further but also very striking because housing is consumption. you can see my house so we
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incentive a massive overconsumption, analogous in agriculture just one reason we had a hard time getting the production crisis going again and which have millions of people to build houses, the mortgage bankers and learn new jobs so housing investment in the context of federal reserve monetary policy is particularly destructive from an economic perspective, something we've been trying to recover from. the other thing i don't love that we disagree, but that is time for a more radical solution. i do not believe as long as the federal reserve and fdic insurance exists, it is naïve to believe the risk is increased by the system itself. it's not big tanks they create risk. if the federal reserve and what they are doing today's incredibly risky to our economy, office chairs.
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i don't care how big a bank of the run at the federal agency is such a sin in itself, the system is risky. it is riskier today. it's the individual institutions can't manage risk in the context of a bigger systematic risk. i've are going to private banking system used in a the standard. if we are doing that, by a recommendation, a step we can take to have much more capital than they do today is that they had a private banking system, something like 20% pure equity in retail 95% including 100% of dodd-frank m. at the market take care of the allocation of capital. it's a better solution than what we're working on today. i would share peter's enthusiasm and maybe more personal about
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repealing dodd-frank. it's hard for the average person to realize the banking system in the united states is very much controlled by the government today. if you want to control an economy, control the allocation of capital. and if you don't get blamed when things blow up come exactly what happened with subprime lending so they can dictate the banks allocate cap gold and in the banks when it doesn't work is far more powerful. it's a much more serious solution and the reason the left jumps on the issue is justification to never get justified in the reason they have so much intent is they are really scared about any attack. they really depend on the smiths. i did interviews with numerous reporters, some of which claim to be economists. anytime you bring up the solution is not they argue with
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you. they get emotional intensity because if you undermined the myth of everything that's happened since the crisis started doesn't make any sense. it's a real threat and they want to make sense. so peter is right. this is a big important issue about the future of our country because controlling capital can grow some economy. [applause] >> mr. >> thanks for the chance to be here today to discuss peter's boat, which was excellent. it differs from dodd-frank in several ways. one, it is well-written and is an attempt to do with issues totally unrelated to the issue at hand.
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but there are similarities. they're both really long. i would categorize them both as tearjerkers, meaning they make you cry at the seat of our financial regulation. the third similarity is neither been written if we just listen to peter earlier. peter was one of the first voices, the first people to shine the light on the gics, which he points out are so central to the crisis. in the book he talks about the rise of the gse come incredible power they exerted on the ability they had to shut dissenting voices down in their attempt to stave off political consequences of that. he talks about early republicans than enough for the bush administration offered to rein
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in the gics and then he talks about the situation now, with the gics are not dealt with an emphatic dodd-frank took under attack the private securitization market and as a result end up with a much more heavily concentrated government financed with fha pricing as the next bailout candidate to be in the private securitization markets unable to restart. starting the book refocusing was very helpful because it lays out a model for what we are going to see what dodd-frank come in the future dodd-frank has created, which is a future of gics. the gse are systemically important financial institutions from which includes ink designated under dodd-frank and any additional entities that financial stability oversight
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council designates as the gics. these institutions will have an implicit guarantee from the government. they will be a partnership with the government. the government will tell them what to do wendel respond. as peter points out, this will be to an advantage that will drive competitors out of the market. if there's problems that these entities, regulators will have a real incentive to come in and rescue them because the failure would reflect failure of the regulators. peter points all of these problems we can expect. peters book also explains why we are ending up creating a new set of sub 61 alas gses for the crisis. if you tell a story often enough
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it becomes true and that's what happened. the congressional inquiry into the cause of the crisis and solutions for the underlying problem was a first. hearings were held for the sake of having hearings in the hearings were also held for the sake of fortifying an already existing narrative. that narrative is one that fit into the wish list as peter pointed out, folks who ultimately believe the market solution to market discipline arbor solutions and regulatory solution. still in the narrative plays into the role of regulators are the thoughts of information and discussion, enabling them to keep america safe and sound and as a result of the two control
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competition. peters still talks quite a bit about aig and along the narrative and i want to talk about that for a minute. is that so iraq aig was central to the narrative. people pointed and said look, derivatives called the crisis. in doing that, and it is the fact some of the problems come in many of the problems that aig had nothing to do with derivatives. the regulated insurance subsidiaries had themselves invested and residential mortgage-backed security and not also posed a problem. the aig narrative didn't talk about that because it was inconvenient to the end goal, which was to regulate derivatives. the aig narrative also didn't talk about the fact that aig was likely insolvent because that was inconvenient. the government needed to distinguish aig from lehman.
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the private syndicate though that could aig would've taken a different view and concluded aig was left out because they were convenient to the narrative. even after dodd-frank had passed, we see the aig incident views to increase authority. so kind of a tabbed phrase that gary gensler uses, chairman of the commodity future trading is that aig, this one in subsidiary almost brought down our entire economy and uses that to argue that maybe the cftc should be regulating activity among them as well as the committee in new york. peter has been very good. it's very effective at challenging the narrative. his right to point out we need to challenge the narrative in order to make changes to
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dodd-frank and to prevent the further acquisition of power by regulators who have already gotten a fair amount of power in dodd-frank. he's willing to take on what no one else is going to take on why is it the fdic became the entity in charge of the orderly liquidation authority. why is that the fed, which has no authority or experience in regulating insurance for hedge funds can suddenly become an insurance or hedge fund regulator? he asks the hard question. i do have a few questions after reading the book still remain open. one of those is good the orderly liquidation be a force for good stories properly for the first time? the citibank has problem. could regulators use the authority to send a message to the market that there will be
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consequences for failure and would that be effect of a change in the town of the ola. another question is peter and secretary baker agreed he can't find what is systemic until circumstances occurred and you realize this is systemic. ignorance response is less regulators do whatever we want. we'll figure out the right thing, trust us. what is peter's solution? will he do during the crisis? what actions by the government are appropriate during the crisis? look forward to discussion of these issues and congratulate you on your book. [applause] >> wayne. >> it's an honor to be here with you and to comment on peter
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spoke. in the mid-1960s, not in friedman and anna schwartz set out to do a difficult thing, a herculean task to challenge the prevailing narrative for what caused the great depression. in so doing, they threaten the underlying rationale for a whole system of major laws, federal agencies and the very way policymakers at the world. they were not immediately successful, but because they were right and because they were meticulous and careful in their reasoning and because they were not less and didn't shy away from controversy, they had success. the role of the federal reserve and contractionary monetary policy at the heart of the depression is now well recognized. so much so that it is a guide later to chairman of the federal reserve some 40 years later when
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he faced a site similar crisis and recognize the role of the federal reserve and contractionary monetary policy. of course it also shows avoiding one major mistake is an insurance against committing others. hence the importance of peter wallace and spoke. as he said himself, a task no less daunting than that faced by friedman and schwartz to turn around the prevailing narrative of the financial and economic disasters we've recently faced in the wrong lessons learned that led to policies and institutions that unless change to bring on further calamities. they greatly applaud the effort and appreciate the format of the book. when i first got the book i thought right, 700 pages of new writings from peter. and i thought this is stuff i've already read. and then i realized there's new
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stuff in there too. these essays the point has been made are important because they were written while the crisis was upholding it in fact they begin the kindling with that to the striking of the match to fan the flames and the continuing willingness to allow the inverse disorder rather than putting them out. wouldn't we have loved to have had similar assays by friedman and schwartz during the depression? their time came after that and they were looking backwards. we have the opportunity to have lived with essays that talk about and comment on the situation as it unfolds. i'm struck with the breadth of issues covered, striking insights and remarkable consistency throughout the book in the essays were written. to these the book has new commentary and a primitive
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suggestion the first chapter to read is the last job your the really post altogether. it is a long book, but one that can be taken by a bank they buy the race organized. it's still short of the dodd-frank out for several hundred pages and costs a lot less. even if you pay the advertised price. like all good books, peter spoke steadily sinking in for a few minutes i'll touch on a few of thoughts that come to my mind as i've gone through the book and reread some of the things i've read before. bad history goes back results. the act has succeeded in replacing financial crisis of the regulatory crisis. the government accountability office report that came out last week revealed 10 of the federal agencies tested in 19 dodd-frank
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had hired or reassign people to work on dodd-frank is a comparison the office of the comptroller of the currency only is 2700 people in offices nationwide. in addition to three per iteration ceases agencies is sweeping new powers, every financial regulator is coping with changes in the indy of structures and duties and some of the same people involved in musical chairs at the same people given the task to write regulations and oversee industry of all that's going on. we're extremely fortunate was dodd-frank has been unfolding, we have not had another financial crisis because the people that would doubtless it had been distracted during that time. but i would say the preoccupation with the regulatory crisis is probably the reason we've heard nothing
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from the regulatory agencies and especially from the outside it's given responsibility of the ongoing bubble in treasury debt securities or the effects of the wall of new housing and mortgage regulations that are industry is about to hit just as the housing markets are starting to recover. one of my favorite essays in some deregulation in the financial crisis, another urban dance. i've been through much of the legislative efforts of the 1980s and a 290 cents did mr. allison and i did not feel it deregulation. many mandates imposed in the industry in the market in much the broad discretionary authority was given to regulators. in each of these new offers, with each of them some would characterize as deregulation. each of these, some kind of additional price type or new regulatory burden.
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i like the one i'm most familiar with, which is the graham leach bliley act that created a whole new regime of privacy regulation, subject to the new bank and on the other financial services to this regime in the banking industry for the first time had been acted to sec's supervision for new security activities. that's something glass-steagall didn't even do. by the way, peter emphasizes theropod station houses for the third 1999 legislation enabled banks during the recession to play a major role in taking up and taking on the ceiling on banks to ensure some of the more function continue to operate in an uninterrupted fashion. i do believe and take issue with someone's paper on the stress test. peter correctly demonstrates the
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stress tests were very rigorous. in fact be assumed obama administration's recovery program would fail, that it would not only fail to make things far worse, which is curious given the entity that created those stress test is a treasury department given the task of promoting and carrying out the recovery program. it's not the writer of the test i questioned, but rather their necessity. peter seems to accept the assumption they were needed in or to restore investor confidence in banks. peter is correct the test or something of a gamble to secretary geithner. but perhaps an unnecessary one. investors were already beginning to return to banks long before the results of the stress tests were reported. i do agree with the assessment of the outcome peter makes. it exposed alarmism of expert
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for what it was. another important conclusion that peter elaborates as they show how far off base mark to market accounting is for evaluating a set that banks tend to hold. banks hold their assets for the cash flow, not for firesale value in the cash flow of assets performed far better than the mark to market estimates reveal. one more thing. slaves in the paper the stress test demonstrated that he suffered two losses on slots, derivatives and so-called exotics. reasonably tolerably well they observe those losses. ..
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>> how to reform what was done. much of that second thinking might have been avoided had there opinion a more bipartisan approach throughout, one that looked at the issues more broadly. but reform will be welcome, on
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time or late. the later reform comes, however, the more herculean the task. avoid reform too long, continue down the destructive lines too far, and the task may evoke comparisons, comparisons with hercules' fifth labor, cleaning the stables. [laughter] thank you. [applause] >> thank you, wayne. and thanks to the whole panel for a very articulate, focused and helpful remarks. i want to give peter a chance to respond to any of the ideas that came out of the comments, and then we'll give the panelists a similar chance on a second round. peter? >> i was just shocked that there was criticism coming. [laughter] that wasn't the arrangement. [laughter] um, i thought johnallyson's
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point was right and very important about the federal reserve's role in creating at least the bubble. and i've looked at this because many, many people -- economists who i respect -- have taken this position. what, i don't have a chart here that shows this, but if you look in my dissent and some other stuff that's around, maybe it's in the book, there is a chart that shows the growth of the bubble that began in 1997. by the year 2000, that bubble was already larger than any bubble we had had. um, it was already above 10% in size, it was probably 12 or 15% by that time. by the year 2003, it was three times the size of any bubble weed had ever had. now, the reason i mention 2003
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is that the major proponent of the idea that the bubble, that the fed caused the financial crisis with its lower interest rates as john b. taylor who you all know, probably, and he's a professor at stanford. and he has, he has -- a monetary economist and very, very well respected. i've talked to him at length about this subject, and he a agrees, at least he agreed with me, that the bubble was initially begun by the government's housing policies. that they create -- the housing policies created the huge growth in housing values, housing prices up through 2003. it was between 2003 and five, he argues, that the fed's
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activities did accelerate the bubble that was already created. so i think i'm going to rest in the shadow of john b. taylor here and say that i don't have any better opinion than that. i do think that what happened was that the bubble was begun by housing policy, created much more demand for housing. it, the bubble grew to a very large size by 2003. john b. taylor then picks up at that point and argues that that's when the acceleration occurred as a result of the fed's lower interest rates. um, i think i'll stick with that. my view is that without the housing, um, problem that was created by the government and the government's housing policy, we would not ever have been in a position where the fed's lower interest rates between 2003 and
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2005 would have caused, um,, any kind of financial crisis. one other thing i'd like to mention that john sort of inferentially touched on, and that was dodd, the importance of dodd-frank as a, as a legislation that takes over an industry. people have not, the book covers this, but people have not noticed that this is very much like obamacare. in obamacare the same thing was done, and that is the industry is left in private hands, the shareholders are still this charge theoretically -- in charge theoretically. but the industry is so heavily regulated that it has become, basically, a ward of the government. so there are two, these two major provisions that were passed under the obama administration both have the same characteristics.
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hester talked about safe -- sifis and referred to them as the biggest issue, and i believe that's true. that is the thing we have to look at most carefully. that is the area that creates the greatest danger here. i didn't talk about it in my talk, but i spent a lot of time on it in the book. as a, as a foundation for crony capitalism, there is nothing better, nothing greater, nothing more dangerous than what has been done, um, with the fsoc, the financial stability oversight council. it will now have the opportunity to declare that certain nonbank financial institutions are dangers to the financial system and have to be stringently regulated. what that will mean over time is more and more of those institutions are pulled into that select category, and the
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fed will have an opportunity to control what those institutions say or do on all matters of public policy. and if one of those institutions should suggest that they oppose the administration on some issue whether it's a tax issue or it's a trade issue or something else, there will be a discreet warning from the fed that, well, you know, maybe you could tone that down a bit. we really don't have to have this kind of controversy, do we? that kind of message to the ceo, um, is the very essence of crony capitalism and will be made possible by the fed's control over all these other large institutions just as it has that kind of control right now over thebacking industry -- the banking industry. i don't want to take too much time here. i really am doubtful that the ola could be used, the orderly liquidation authority, could be used effectively to wind down citi. as soon as the fdic makes moves
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towards citi, everyone would run from citi, and the institution would become a shell. so, um, i think it's quite doubtful that the ola works. my own view is that we really have to beef up the bankruptcy law in order to deal with failing financial institutions. and in terms of wayne, if i can respond to some of the thing wayne said, all of which were very insightful, i thought, the 2009 stress tests. i was originally very skeptical about those tests, but i had to admit that after the fed, um, reported on the stress tests and reported that none of the 19 major financial institutions were, in fact, insolvent even after the stress tests were done -- although some needed more capital, none was
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insolvent -- that seemed to me to ease the concerns in the market. and that fit together perfectly well in my mind with the problems of mark-to-market accounting. because it was mark-to-market accounting that had really caused the panic among investors all over the world. and once the fed came in, looked at them, said they were not insolvent, the anxiety that was created by mark-to-market accounting was relieved, and at that point i thought, um, the stock prices, the equity prices of those 19 institutions began to rise again. so although i was skeptical of it at the beginning, um, i came to support it afterward and said so in one of the essays. the important thing, though, is that it was an ceant dote to a
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terrible policy. it was one of of the major causes of the financial crisis. this will all be detailed in full in the book i am now writing. and i would note that in sunday's -- sorry to mention this -- it's called "the new york times." in sunday's new york times, there was an article about the fact that fasb that makes the rules on things like mark-to-market accounting has rethought the whole question of mark-to-market accounting and is now taking the position that banks should be able to treat their assets according to how they use them. if they use them to produce cash flow, then they should value them that way and not according to what the market, which can be panicked at any given time, might treat them. thanks. >> thanks, peter. i want to give each of the panelists another one or two minutes max if you'd like to add something, and in the same order
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we'll go, john. something else? >> i just wanted to react to -- [inaudible] look the at the numbers, yes, we had a budding housing bubble -- >> there you go. >> i want to react to the federal reserve issue. if you look at the numbers, we did have a budding housing bubble, but in the early 2000s if the fed hadn't stepped on the gas, the housing bubble would have gone ahead and burst right then, and it would have been radically less destructive. the numbers went exponential after 2005, they went off the chart exponential after 2005. so, yeah, we would have had a correction, but it would have been a healthy, necessary correction. and by stepping on the gas, and i think primarily driven by the fact that greenspan wanted to go out a hero. not understanding the motivation of some of these people, because it's a very uninteresting kind of thing. they have their own personal agendas, and i think he wanted to go out a hero, stepped on the
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gas and then they couldn't pull it back in. yeah, there was a budding bubble, but it went exponential with the fed policy. >> having stepped on the gas previous times had made him a hero. >> exactly right. one more time. [laughter] >> i just wanted to highlight something peter mentioned which was of the potential for crony, i would call it crony statism rather than crony capitalism, but it means that banks will pay more attention to what regulators and politicians think is important than to what their customers think is important, and that's really a sad, um, change and certainly not beneficial for the average consumer. and that's the cost of dodd-frank that, i think, sometimes gets lost when we think about costs. >> wayne? >> i would echo that point that hester's made. i think one of the things about dodd-frank is it really is changing the nature of where
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banks look. prior to dodd-frank, banks looked to their customers to drive products, prices and all the other things that they did. now they look to the washington bureaucracies first. look at how all the banks were waiting with baited breath to see what the consumer bureau would do with the qm rule, the qualified mortgage rule, because that would guide how they could interact with their customers. one other serious problem, dodd-frank gives so much power to the federal reserve that i fear that it has turned the federal reserve into another political player here in washington. and in doing so, i think, undermines the independence of the fed. >> thank you all very much. we're about to come to your questions, ladies and gentlemen. let me just make one comment first. we talked about the federal reserve, and we talked about sifis or systemically important financial institutions. i have a favorite line some of you already heard which is the biggest sifi of them all is the federal reserve. it has the biggest possibility
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to create risk and to create booms and busts. in the economy. and if i could get in a quick advertisement, about a month from now in this same place we're going to have another book event on a book written by a friend of mine, brendan brown, entitled "the global curse of the federal reserve." so if this is interesting to you, come back for our next, our next book event. um -- [laughter] all right. let me, as we go to your questions remind you of aei rules. please wait for the microphone so we get you properly recorded and people can hear you. tell us your name and your affiliation and then ask your question. if you sneakily put a statement first in the form of a question, that's okay as long as it's brief. and if it isn't, the chair will remind you that your statement time is over. okay.
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questions? we have one here. up here in front. >> good afternoon. my name -- [inaudible] i have a question, and that is to mr. wallison. that has to do with it's one thing to say i told you so after the fact, and i realize that you've been writing all along and looking for opportunities to be opposed with a variety of broadcast media. but i wanted to ask you what would have been your solution legislatively and if, in fact, did you have an opportunity to speak directly with mr. greenspan who, by the bay, mentions publicly that he didn't think dodd-frank would be strong enough or favorable enough, nor would it have been implemented to the fullest potential. and only about a third of the acts of dodd-frank that have really been utilized. so it didn't really reach its full strength until i'd say more
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recently. so my question is what would have been your predictions, and how would you have solved the problem four years ago, and if you had brought this book then, would it have been worth even more than $90? [laughter] >> well, if i were right, it would have been worth a lot more. that was a question that came up, i guess, from some of the commentators, and it's very difficult, it seems to me, to put myself in a position where i could, um, provide any kind of alternative solution. because things had gotten to a point by the time the financial crisis came about that there was almost nothing that could be done that could prevent it from, um, running its course. and i think probably my solution -- or, it's not a solution, but my preference
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would have been to allow the financial crisis to run its course. we've had financial crises that are something like this. in 1907 there was a financial crisis. um, the panic of 1907. and it, and there was a very similar kind of drop in equity prices and, um, a panic throughout the market, hoarding of cash, and a year later it had come back. the entire market had come back, the economy had come back, and people functioned about as well as they had before. the fact that the government has tried so many nostrums of various kinds to prevent things from happening when we have a panic like this has caused more uncertainty, i think, for many of the players. and the result of that, um, it's taken much longer for the economy to come back. obviously, if you believe that the cause of the crisis was the
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government's housing policy, the first thing you would do is to say we are changing our housing policy. but that wouldn't have solved the problem because the bad mortgages were already out there and were already causing tremendous losses. so we should have a system for resolving these large financial institutions that had gorged themselves on these mortgages. a good bankruptcy system would have done that, and then we'd get, once we resolved those issues, it's over. and the economy would begin to come back. but putting in many place a new -- in place a new law that causes as much uncertainty as this one has in all different areas of the economy is guaranteed to make the recovery much slower. >> okay. over here, please. >> my name is dmitri, and i don't know if i am public policy student at university of
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maryland baltimore county. i have three questions, but i guess i'll ask just -- um, part of the, um, part of the argument for too big to fail that financial institutions would need that bailout is because they are going to, there's going to be a crisis so big that in the short run it's not going to be functional to go through, and has to be sacrifice such as much slower economic growth. so this for that. what is your reaction to that? and second, i read, i read a little what you wrote about the volcker rule, and, um, as far as i read from somewhere -- i might be wrong, i'm not very familiar with the financial policies
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yet -- but the volcker rule, um, prohibits -- [inaudible] as long as if the financial institution proves that its customers are going to get benefit out of it, it can, they can do prop trading. am i mistaken on that? >> okay. so we have the too big to fail and the volcker rule question. >> right. um, too big to fail. the -- i've written a lot about this, and we don't have a really good, um, way of evaluating whether an institution is too big to fail. but what we do know, i think, now after lehman's failure is that an institution that is $600 billion in size -- and that was lehman -- is not too big to fail. because lehman actually dragged no other institution down with
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it. and that is the whole idea about too big to fail. that is, the theory is that if a large institution fails, the losses that are suffered by all others who have, who have lent money to that institution will be so large that they will all be dragged down. that's why the fsoc is given the authority to make this decision about what institutions are interconnected. um, but when lehman failed, no other institution failed as a result of that with the one exception of one money market fund that, um, held lehman paper, commercial paper and broke the buck as a result of the losses on that paper. that is one example of it. but you'd have -- for an institution to be too big to fail, you would have to have many, many other firms failing, and we have no record of any other firms failing when a $600
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billion firm failed. now, what would happen if a very, very large bank like jpmorgan chase failed? we don't know. but what we do know is that almost everyone keeps track of their exposure to everyone else. um, that's part of the business of being in the financial area. you do not get to exposed to any one of your counterparties. and as a result of that, i think the likelihood is that even a large bank could probably fail, could be taken over by the government or the fdic or through bankruptcy it could be taken, it could be resolved. without too big to fail, the issue of too big to fail being raised. on the question of the volcker rule, i don't think you have it quite right. the danger of the volcker rule is that it says that institutions that are connected with banks in some way are not
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permitted to trade for their own accounts, to trade assets, to trade financial instruments for their own accounts. they can trade for customers, they can also hedge, they can also be engaged in market making. and if you can tell the difference between trading for your own account and hedging or market making, you are better than all of the regulators that have been trying to settle on language for that rule. [laughter] so, um, i don't know what to say about the volcker rule except that it was badly conceived, and it's almost impossible to implement. >> john? >> yeah. i wanted to add a little bit on the too big to fail. i was actually in the tenth financial institution of the u.s., i i was in the back room while all this stuff was going on, we were making decisions of who to fund, who not to fund. and first, when lehman brothers failed, we didn't lose a penny
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because of what peter just said. we managed the risk. if bear stearns had failed, citigroup had gone, we might have lost a little bit of money. the losses would have been trivial compared to the losses we took with remember den cial builders. -- residential builders. the systems risk is grossly exaggerateed acting as if banks don't manage those risks. the derivatives risk is grossly exaggerated. whenever our exposure went over x amount, you had to put up cash collateral. and so -- and, by the way, there was a huge inflow of cash. we were buried with cash, and people were paying us to take the money. what there was interesting was a flight to quality which one can argue exactly what should have happened, right? to peter's point, if we'd let this correction happen, people like citigroup would have been out of business, and that would have been good, not bad. it's good that washington mutual's out of business. it's good they're out of business. they should have tailed.
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and the -- failed. my career in citigroup's failed three times. in 15 years they'll fail again because the temptation when you have an implicit government guaranteed to take too much risk in the good times is enormous. i agree with peter. it wouldn't have been much fun, but we'd be a lot better off today. >> could you give us about a half minute on your view of the volcker rule, john? >> i think it's a waste of time. [laughter] i don't think it had anything to do with the financial crisis, and i just think it's a -- i don't think, on the other hand, it's a big, huge negative. i just think it's a waste of time. >> thank you. other questions? i'm going to go to the back, and then we'll come up and get you in the front. back, the gentleman in the -- yep, there we go. >> hi, matthew with the competitive enterprise institute. this is for mr. wallison. i'd like to get your take on the narrative behind interfinance regular lairvetion, so basel iii in particular. did you find the development and
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implementation of that was similar to dodd-frank and, also, how was it different? >> well, it's somewhat similar, but, of course, it applies only to banks. which is somewhat different from dodd-frank which is intended to apply to the entire financial system and in the case of what are called systemically-important institutions, that would, could be any kind of financial institution. so there are, there are some similarities, and there are some differences. the thing about basel is that in applying it to banks they are trying to micromanage the kinds of assets that banks hold. and we should have learned the lesson from what happened in the financial crisis that seems to have been completely ignored. and that is that banks were herded into owning not only mortgages for which there was a much lower capital charge for owning a mortgage, but also into mortgage-backed securities.
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so all of them were doing the same thing at the same time because of the basel regulations. that's a huge mistake, and we paid for that mistake because, um, when that particular asset -- mortgages -- declined in value, mortgage-backed securities also declined in value. all the banks looked weak at the same time. especially when mark-to-market accounting was applied to them. so it was a big mistake to regulate them through basel i and ii in that way, and they're doing exactly the same thing now with basel iii. so it seems to me the right answer is to have a leverage ratio of some kind between assets and equity, and real equity. and then spanks are free to make -- banks are free to make any kind of investment and asset that they want to carry. and that will mean that they will look different.
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and so if one gets into trouble, it doesn't mean all the others are also in trouble at the same time. >> two quick footnotes to that, an even more egregious example of risk-based capital encouraging banks to buy something they shouldn't have was the treatment of preferred stock in fannie mae and freddie mac which, as a matter of government housing policy, encouraged banks to buy, and those securities became and are worthless. a second point is that, of course, governments are always interested in having banked lend money to the government. so one of the rules of the, of basel is always to give preferential treatment if you're willing to lend money either to your own or friendly governments. going to take one more question, right up here. and then we're going the wrap up.
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>> hi, my name's -- is it on? my name's amanda house, and my question is if things such as the cra are to blame, why was the mortgage bust a global phenomenon especially in spain and ireland? >> interestingly, um, the banks in europe got into trouble because they bought u.s. mortgages or mortgage-backed securities based on u.s. subprime mortgages, for the long time buying a u.s. mortgage was considered one of the best investments you could possibly make because the delinquency and failure rate was very, very small. now, in ireland, in spain, in a number of european countries they had very large bubbles which is really interesting phenomenon, and many people have said, well, they had bubbles without fannie mae and freddie mac. the difference was their bubbles
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did not contain subprime mortgages because by and large their government policies didn't permit subprime mortgages to be made. and as a result of that, their losses were tiny. there's been a very good study done of that by dwight jaffe who is a professor at berkeley in california. and he went to europe and studied the mortgage systems in europe and the losses that resulted from the deflation of their bubbles and found that the losses were very small. the main problems that they suffered came from the fact that they all owned very substantial amounts of u.s. mortgages or mortgage-backed securities. >> you we have come almost to te end of our time. i want to give each of the members of the panel in reverse order a moment for a parting shot if you have one. so, wayne, you can start. >> well, thank you very much. and i think what the book that peter has written demonstrates to us is the need to bring in as
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many different points of view on these important issues as we can and never at any par particular point to say the debate is done, let's vote. there's been way too much of that in recent years. the debate is never done. because dodd-frank act was created as a partisan law, we will be forever reforming it because no consensus was established underneath it. people ask ask me be when will dodd-frank be done? never, because there was never a consensus formed. we will continue to work on it. which means that our laws and our regulatory program will forever be in flux. >> thank you. hester? >> um, i'd just like to close with a warning that we should all be paying attention to peter's arguments as we watch regulators make calls for more authority, um, which have been coming, as peter mentioned, quite rapidly recently. and i think it's really important that we focus on the right narrative before those requests get enshrined in legislation.
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>> i want to rerecommend that you read peter's book, and you get your friends to read it. [laughter] i think this is an important issue. if we let the myth survive, we will lose long term, and this is a very well thought out, dock ute united attack on the myths the state has created. >> peter, last chance. for now. >> how can i beat that? [laughter] thank you very much for coming. this was a great opportunity for me, and i do hope that you'll look at the book. it's long. you can, you can venture into it and read a few of the essays that are included within it, um, and if you have questions and would like to send me an e-mail or give me a call, i'd be delighted to hear from you. so thanks very much for coming out on this rainy day. >> look forward to having you join us at the reception, getting a book, getting it signed if you'd like, and let's show our appreciation for a really excellent panel. [applause]
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tweet us at twitter.com/booktv. >> here's a look at some of the upcoming week fairs and festivals happening around the country.
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>> please let us know about book fairs and festivals in your area, and we'll be happy to add them to our list. post them to our wall at facebook.com/booktv or e-mail us at booktv@c-span.org. >> next, bob matteson, author of "walking with washington," takes us on a tour of several alexandria, virginia, locations that were important to george washington. >> i retired about 15 years ago, i was looking for things to do, and the alexandria city archaeologist was looking for somebody to do, the to develop a walking tour of alexandria sites
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associated with george washington. so i agreed to undertake that project, and i researched, i spent about two years researching alexandria history, and i came up with 140 sites. and i think she was looking for a brochure, but i ended up writing a book. it's called "walking with washington," and it, of course, contains walking tours of alexandria sites associated with george washington. george washington enjoyed a long 50-year relationship with alexandria. from the time alexandria was founded in 1749 when he was 17 until he died in 1799 at the age of 67. he participated in the political life of the city, he was a trustee of alexandria, and he was a justice of the peace of fairfax county, he represented alexandria in the houses of burgesses, the virginia legislature, and even when he was president he made sure that when they chose the new, this area to be the new site of the nation's capital that alexandria was included in the original
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district of columbia. the george washington memorial towers over the city, and alexandria has the large george washington's birthday parade in the nation. al sandalexandrians like to says george washington's hometown. the three locations include carlyle house where george washington slept there and dined there many times, we're going to go to gadsby's tavern which was probably george washington's favorite tavern here in alexandria and to christ church where he worshiped regularly. this is carlyle house and, yes, george washington did sleep here. it was built by john carlyle who's one of the founders of alexandria, and lawrence washington also was a founder of alexandria. lawrence washington's wife was the sister of john carlyle's wife, so you know the two families got together frequently. the carlyles would go to mount vernon, the washingtons would come here. you could see how much he would
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tip carlyle's slaves when he stayed all night here. and even after john carlyle died, george washington continued to come here to visit with members of the carlyle family, he came here to dine carlyle's daughter and her family. let's go inside and see where george washington would dine with john carlyle. this was the dining room at the carlyle house where george washington dined many times. this room is all original, original hand-carved woodwork, original flooring. the collars are based on paint analysis, this was the actual color it was when george washington dined here. in 1755 general braddock came to town for the french and indian war, and he chose carlyle house to be his headquarters because this was the grandest house in town. and general braddock called a conference of the colonial governors. again, john carlyle wrote to george back in england, this was
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the grandest congress, and it probably was until the continental congress in philadelphia 20 years later. five colonial governors came in and met in this room to plan the french and indian war, and one of the things they talked about was paying for the war. and what they suggested was taxing the colonists. you can trace the beginnings of the american revolution back to this room. and now the room is shut up for dinner, and this is the way it would have been when george washington came here for dinner, when he and martha and the family would come, it very much might be like this. he not only dined here, but he also dined at various taverns around town, so let's go over and see gadsby's tavern which was probably george washington's favorite tavern. [background sounds]
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>> this is gadsby's t.a.r.p., probably george washington's favorite tavern. he dined here frequently. there was a tavern on this site as early as the 1770s, and in the current building where the museum is today was built sir v.a. 785 -- 1785, and the new addition on the corner was added in 1792, so it's over 200 years old too. besides george washington some of the famous people who dined here included john adams, thomas jefferson, james madison and james monroe. thomas jefferson had his inaugural dinner here. john gadsby had a terrific reputation for hospitality. he was known for the really great dinners that he would serve, so he was well known all over the area. that's why the presidents of the united states would come here, because the it was probably the best place to eat in this entire area. he left here to establish
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restaurants in baltimore and then in washington city. when you think about george washington, you always think of him as winning the revolutionary war and being the president and being this real stiff character on your dollar bill. but here at gadsby's tavern what's neat is you can see him as a human being. you see him dining and drinking, having a grass of madeira, dancing, he loved to dance, telling stories, meeting his friends here, having conversations. you see him as a real person here at gadsby's tavern and not as a statue by houdin. we're in right now the ballroom of gadsby's tavern, and george washington loved to dance. and all the ladies really wanted to dance with him. to dance with the most famous person in the united states was a big thrill. and they had birthday balls here for george washington in 1798 and 1799. he and martha came here for birthday balls. when george washington was here for a ball, the music was played up on the gallery which is kind
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of neat. to to get onto the musicians' gallery, there's a ladder out in the hallway, you have to go up through the door to get in there. it would have been packed. virginians loved to dance, and to have a dance that george washington was going to be at, everybody would have come. so this would have been the highlight of the social season, to come to a ball with george washington. in my book, "walking with washington," we mention a number of alexandria sites associated with george washington, and so now we're going to go to christ church where he would worship. now we're standing in front of christ church which george washington attended frequently. today it's an active church, and you can still go to church services here on sundays. and when they're not having church services here, you can come and go inside and sit in george washington's pew. this church was built between 1767 and 1773. when it was built, it was known as the little church in the woods because it was on the outskirts of alexandria. today it's in downtown
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alexandria, you can hear all the traffic noise. this is george washington's pew in christ church. he purchased pew number five for 36 pounds, 10shillings. he'd be sitting here with his family, martha and depending on what time of his life it is, it would be her children or her grandchild. so probably would have been a pretty full pew. if he had the whole family here. george washington was baptized in the anglican church at the age of two months. he was married in the anglican church, and he was buried in the episcopal church. his religious life was what you'd expect of a man of his means. he supported the church financially and also helped out poor people. and he supported, as president he supported religious freedom. we've only looked at a small number of the sites discussed in my book, "walking with washington," but i sort of want people to realize that george washington was all over alexandria.
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george washington was an important part of al sand drink, and alexandria was important to george washington as well. >> for more information on booktv's recent visit to alexandria, virginia, and the many other cities visited by vehicles, go to c-span.org/localcontent. >> here's a look at some books that are being published this week. award-winning columnist and author zev chafets with an inside look at the president of fox news in "roger ailes: off camera." in "chasing gideon," washington post magazine writer karen houppert chronicles the stories of defendants in criminal cases who rely on their constitutional right to a free attorney. she also recounts the history of gideon v. wainwright, the u.s. supreme court case that led to the extension of this right to indigent defendants in state criminal cases.

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