tv Sino Tv Early Evening News October 28, 2010 5:00pm-6:00pm PST
♪ >> welcome to the eternal. i am brian thomas in berlin. >> and i am peter with the business news. >> support bill said an eu summit with the german proposals to trade the list of trading. german parliament was to extend a life of the nuclear power plants. the death toll from the tsunami in and new shut rises to more than 350 with hundreds still missing. -- in indonesia to more than 350 with hundreds still missing. >> the european union has backed
calls by germany and france to shore up europe's defenses against any new possible financial crises. at a summit in brussels, eu leaders approved calls to set up a permanent system to bill eurozone states of a possible financial trouble. the plan will protect europe and threats like those faced by greece earlier this year. >> chancellor merkel appeared confident of winning as she arrived to the negotiations. together with her ally in the matter, french president nicolas sarkozy, she hopes to persuade the other leaders to agree to changes to the lisbon treaty. to protect the euro in times of financial crisis. >> i want to emphasize here that in my view, policy which endangers the bureau as a whole is policy which shakes the foundations of the european union. so we will discuss this very controversial topic, and i will keep it on the agenda.
>> most eu member states the advantages in introducing such a permanent crisis mechanism, which would also force private creditors to help out. but the franco-german call for deficit offenders to lose voting rights has proved to be widely controversial. >> those are not saying that germany and france will fail. suggesting that despite all the agreements to the suggestion that we need a permanent crisis mechanism, there is no consensus for the idea of the voting rights for deficit countries could be withdrawn. >> angela merkel and nicholas sarkozy are working hard as they try to achieve unanimous endorsement of their proposals. >> for much more, let's go live to our correspondent at that summit. jeff, quite a change over the last 24 hours. can you fill us in on some of the new details? >> it shows you with the franco- german alliance can do when it
dries. when we think there's no question of reopening this treaty 10 days ago. basically, there is support for angela merkel. not so much for the voting rights thing. that is a very contentious. but as i have been saying, the was never any doubt to the people agreed with the reasons behind the german chancellors decision to reopen the treaty. the big question that remains tonight is, do we have to reopen this treaty with solid kymmene for extended renegotiations, but the convention? we have to do that to achieve what the german chancellor ones. or can it be done by much more cynical procedure which will need a few meetings and signatures and we do not have the public relations disaster of reopening the treaty? what is happening at the summit is the chairman of the summit is being sent away with a mandate to look at all those options, how to achieve what it is a german chancellor wants to
achieve. and then it may take months for him to do that. but there is still pressure tonight at the summit to avoid reopening the treaty. yes, tried to do with the german chancellor wants, because they agree it is needed. a permanent crisis mechanism, maybe not the suspension of voting rights. look first and civic can be done without opening the treaty. >> what about ireland, portugal, and spain, they already have high deficits. can they put in place government spending projects to create jobs now or is that impossible? >> well, it can be done. but i think this summit is being driven by the bigger countries. obviously germany, france, great britain, and others. yes, they can of the smaller countries are looking at this very closely to see what the implications are of any changes that might be made. it is in everyone's interest to make sure there's a permanent mechanism in place to ballade countries that need bailing out.
we did not know the greek crisis was limited two years ago. it can happen again to anyone, especially in an economic recession still continuing. there is support behind this. but no so much support your angela merkel's apparent readiness to reopen the treaty at whatever cost. >> thank you for that update from the summit in brussels french rail and air transportation workers are staging a protest against pension reforms, although legislation on raising the minimum retirement age was not adopted by the national assembly yesterday. the strikers are causing widespread travel disruptions adopted half of all flights and train services have been canceled. legislation has to be signed into law by president sarkozy and raises the official retirement age to 62 in france. over the last two months, millions of people have taken part in protests and strikes against the reforms. here in germany, parliament has bowed to extend the life of the country's nuclear power plants.
the opposition party rejected a proposal to keep the 17 nuclear power plants on line for an average of 12 years longer than was permitted under law passed just a decade ago. they say they will challenge the vote in a constitutional court case. >> as the nuclear protesters gathered outside the parliament, but as expected, chancellor angela merkel's center government has enough support to extend the life span of nuclear plants in germany. during an almost six-hour long debate ahead of the boat, the opposition accused the government of steamrolling the bill through parliament. >> you were trampling over the rights of the minority. you are trying to avoid the second chamber. you are in breach of the constitution. you are dividing a society already in agreement. that is the result of your policies. >> on average, germany's nuclear
reactors will be allowed to operate for 12 years longer. the opposition says there are security concerns, but the government said the extension is necessary for the transition to renewable energy. >> this is about active climate protection, about ensuring the reliability of energy supply, and about affordable energy. >> your stoking fear because it serves the country? no, you think your party will benefit. you underestimate the intelligence and responsible nature of the voters. >> members of the greens were black to express disapproval. the opposition and several german states have vowed to keep up the fight and said it will take their case to the constitutional court. they want a vote in the upper house where the governing coalition does not have a majority. >> a new book that shows our former nazi officers kept their jobs in the german foreign ministry after world war ii has been released in berlin. over 880 pages, it documents of
the respected institution managed to cover up this part of its past for decades. even though germany has subjected the nazi era to intense scrutiny, the foreign ministry was largely immune. in 2005, then it foreign ministry demanded the review. >> the committee officials have been over there finding stood with the german foreign minister. four years of research went into entering the extent to which german diplomats colluded with the nazi regime. >> there's nothing to justify and nothing to gloss over. this book will leave an impression on everyone. it shames us of the foreign ministry and many of its associates brought heavy guilt upon themselves during the nazi or ashamed. >> the report says german diplomat stated in the murder of millions of european jews.
in bed a after the war, the minister actively tried to keep its nazi past quiet. >> a version of history was developed at intentionally aborted the dip like that -- diplomatic corps is not the past. marginalized the extent of their involvement. >> the report will not become mandatory reading for aspiring diplomats. the minister plans to continue researching its past in order to fulfil its historic responsibility. >> peter is here. the german job market is the best it has been in years. >> it is good for the government. the number people unemployed in germany has a drop below the key 3 million mark level, with the government attributing this dog job creation here to a mixture of fiscal measures and market reforms. is good numbers, in the wake of a better than expected economic growth this year. there represent the country's lowest jobless level in almost
two decades. the positive trend is expected to continue in the coming months. >> companies are hiring. the number of jobless in germany has dropped to its lowest level since 1992. >> unemployment has fallen to almost 3 million. the number of people in work and paying social contributions continues to grow, and they're still high demand for new workers. >> that has even raised the pr employment. defined and germany as a jobless rate of under 4%. that is still a long way off from today's 7.5%. >> considering the current development, the lack of skilled workers, and demographic trends as well as continuing unemployment due to poor education and training, we estimate that achieving full employment could take until 2020.
>> for now, the government hopes that the level of unemployment remains under the 3 million mark during the next few months. >> corporate news. shares in lieu of bonds that were among the day's most active in frankfurt today followed by automobiles and telecom as investors reacted to strong earnings. our correspondent in of frankfort, dorothy, has more on the day's trading. >> on good news, investors have been following this stock market. a truck maker has been affected. a couple reports have been very good. nothing to complain. the company raise the full year target, but shareholders cashed in after a strong rally this year. left on some was more successful. the overall mood was pretty good. german companies are doing very well. this is a reason to buy the shares, as traders said. >> and looking in several market
indices in more detail, we stay in frankfurt. the blue-chip dax index closed up about 0.4%. the euro stoxx 50 was up about 0.5%. we see across the atlantic, investors are ignoring the unemployment report today and focusing instead on mixed corporate earnings reports. the dow industrials closed lower at 11,109. finally, the bureau is treading for $1.3927. well, looking into other news, and this of course might make a lot of people served depressed. the cold and rainy summer in germany is likely to take its toll on the country's grapes and wine harvest this year. they are already expecting the worst harvest in 25 years. the volume of grapes is forecast
to tumble 30% to 50%. that is compared with less year. this drop in supply is expected to push wine prices in germany slightly higher. analysts did not expect the higher prices to make up for the smaller volume, because their harvests elsewhere. europe was much better than it was here. that will make it difficult for german winemakers to hold on to their market share in the coming year. >> well, in indonesia, the death toll from the tsunami there has risen to more than 350 people. authorities say another 400 are missing, and they fear many may have been washed out to sea. >> entire villages were literally swept away by the tsunami on monday when waves of to 3 meters high it the remote islands. hundreds of houses were submerged or destroyed. poor weather had been hampering relief efforts but up but the
first supplies are slowly beginning to arrive. it takes some 10 hours to reach the island from mainland sumatra. on monday night, there was a 7.5 magnitude earthquake, and that triggered the tsunami. there were reports the warning system put in place after the 2004 indian ocean tsunami was not working properly. an indonesian government official said two detection boys of the islands were not working properly but the warnings would have come too late in any case. >> further south on an indian mission -- ndf -- indonesian island, a volcano has been erupting again. a mass burial has been held for some of the 33 people killed when it first erupted on tuesday. two people are still missing. most of the residents have been evacuated from near the volcano. seismologists are morning there could be more volcanic activity in the weeks ahead.
argentinian 7 paying tribute to the former president there who died of a heart attack on tuesday. the body is lying in state at the presidential palace at the capitol. huge crowds gathered outside to file past the coffin and pay respects. the widow, the current president of the country, was joined by latin-american leaders and members of her family to mourn the former president. and now this, russian prime minister vladimir putin famed for his action man image and robust health seemed to be wearing heavy make up with what looked like some severe bruising around his left eye during a press conference in ukraine. the 58-year-old usually avoids make a televised meetings, but journalists know this is great -- his face was covered in a yellow foundation. >> vladimir putin's bruised eye is the talk of the nation. russian media pounced on the story following vladimir putin's
appearance in the ukraine. speculation as to the cause of the birds range from sporting injury to plastic surgery. >> maybe he was doing judo. >> maybe he walked into a door. it was at night and he forgot to turn around the lights. >> he is always in great shape, youthful and athletic. that is what i like about putin. >> a spokesman was quick to play down the speculation, blaming the discoloration on poor lighting and the grueling workload. putin has been very busy lately. touring through siberia and a lot. visiting a biker clubs and helping to cal wells. his heavy media presence is also been stirring up speculation of a different nature. many observers believe it is already part of a plan to retake the kremlin in russia's 2012 presidential elections. >> that is a mystery.
>> welcome back. even though germany has subjected the nazi era to intense scrutiny a different stages since 1945, the country's foreign ministry was largely immune. that changed in 2005 when the then foreign minister authorized a historical reassessment of its ties to the nazi leadership. the results and now been released in berlin. the authors of the 880-page book contradict the long-held belief that most foreign ministry officials did not support nazi policies. >> the book contains revelations that broke a shocking and serious. it explodes the myth that the german foreign ministry was not
actively involved in the holocaust. and it shows how the world diplomats in the third reich have been played down here for decades. this historian co-authored the book. he was one of a team of historians who researched the role played by the german foreign ministry during the nazi regime. >> the foreign ministry during the third reich was the foreign ministry of the third reich. that means they did not just deal with each other. our research has confirmed that at the beginning of the third reich, foreign ministry diplomats put their professional skills at the disposal of the nazis immediately and almost without exception. >> historians are granted access to files that had been classified for decades. their research revealed that during the third reich, foreign ministry diplomats played a key role in the genocide perpetrated by the nazis.
take otto. the german ambassador to paris. following the killing of some german soldiers by french partisans, he ordered the deportation to extermination camps of up to n2,000 french jews. another example is frank, the foreign ministry official responsible for jewish affairs. he said he had visited nazi- occupied serbia to supervise the "liquidation of jews in belgrade buehrer codey was sentenced to prison terms, but many other officials guilty of atrocities cut jobs as the diplomats after the war in a newly established foreign ministry in bonn. in the early 1950's, a christian democrat with both chancellor in foreign minister of west germany. >> he originated this wonderful sentence that is typical of its pragmatism and sometimes cynicism. he said, you do not throw out
the dirty water when you do not have any clean water. but he had his reserves, and they made it relatively easy for him. just like they had in 1933, the diplomats adapted to the new situation in 1951. this time, it was a positive change for the better. >> historians say there were more former nazi party members among the highest ranks of the foreign ministry in 1951 than there had been just before the outbreak of the war. it was the death of one of those officials that said the ball rolling on the subject and later led to the publication of the book. france, seven years ago, an obituary of the man who held a senior position at the foreign ministry appeared in an in-house newsletter. what the article failed to match and was the fact that he was a war criminal and say nazi prosecutor. the san the death warrants of
hundreds of so-called enemies of the third right in not-occupied jiggles of akia. when then foreign minister fisher of the greens got wind of this in 2003, he banned the obituaries of former nazi party members from the newsletter. two years under, he set up the commission with -- which authored the report. but why were the revelations so long in coming? at the end of the 1970's, he was even awarded a first-class federal cross of merit. but talk to the government have been unaware of his past? former state secretary was his closest adviser the time. he says he is surprised by the book's revelations. >> we knew lots of them were former nazis. but we did not comprehend the full scope. we had no idea they had been really active.
no institutions in the third reich were able to escape the clutches of the government and its policies, but it seems with it went much further than that. i am eager to read it. >> the historian's account also confirms the fact that not every member of the nazi party was a war criminal. the foreign minister says in the future it will look into each case individually before publishing obituaries of former officials. >> of course, there were also opportunists in the ministry, informers, carrierers. it does not make the criminals. it is human nature. you cannot punish everyone who is still alive today for not being prepared to monitor themselves to survive. that would be going too far. >> whatever the role of the majority of wartime active accounts, the report brings the german foreign ministry much closer to confronting the truth about its nazi past.
the current foreign minister has suggested the book to be made mandatory reading for future dybbuk -- diplomats. courts would have been talking to our political correspondent about this. we began by asking him to give us more details on the story that led to the commissioning of this book on the activities of the gerund -- german foreign ministry in the first place. >> it is a remarkable story and sheds a lot of blood on the machinations and the rivalries, the tensions and the mood of the foreign ministry here in berlin. it all begins with this story of a 92-year-old woman. she worked at the foreign ministry until the late 1970's. so she knew how the place worked and knew a lot of the personalities. that is an obituary we heard about. the king to her attention in to thousand three for the man at a record of grave work times. she was disturbed, shows she wrote a letter to the then- foreign minister. she did not get an answer.
so she wrote another letter to the then-chancellor. he was up in arms. as a result, fisher issued this man on the obituaries appearing in the house magazine, the internal magazine for the foreign ministry. there was a test case for that about a year later when a number -- and a former ss man, they wanted to publish an obituary for him, but it was going to be a whitewash job. but the ban applied here. and then 128 former diplomats, former members of the double beds from the foreign ministry, they have the temerity, one has to say, to put a huge, a prominent, very expensive one- page of death note for this man in a leading german newspaper. this was an incredible affront to the foreign minister. he was angry. that is when he gave the order to get this book commissioned. i think he is feeling vindicated today. >> what does this tell us about
how germany is approaching this dark chapter in its history? >> i think most people in and outside of germany think germany has been doing a relatively good job of coming to terms with its very difficult history. with its terrible nazi history with school programs and that kind of thing. but when it comes to is to blame, publicity, it becomes more complicated. it was all planned on hitler and the nazi party, but that has begun to broaden. and it blame is going to other social groups like entrepreneurs are the churches or the regular armies. in recent years, we have seen professional groups in germany, like doctors and judges and university professionals, even historians themselves, having their role exposed in august. but the diplomats have managed some towns -- somehow to reference themselves away from this complicity until now. now they have been exposed.
♪ - hi, this is bob scully, and welcome to another edition of the world show: entrepreneurs: the dobson series. this week, the dobson series pays a visit to the doctor--dr. reuven brenner, that is--our favourite economist. why? he's fed up with all these stimulus packages and the john maynard keynes school
of economics, and he's going to tell us why, and how that applies to the american economy right now. dr. brenner, you are doubly a doctor to us today, because we want to cure the economy here, and you're our favourite economist, and of course on the dobson series, entrepreneurship is the key word. and i'm going to read from an article you wrote very recently in first things, where you say, "it would appear that america needs a miracle to escape the new normal of low growth. we know of no means to induce miracles, but there is a next best thing. perhaps it is not accidental that the holy land was called the land of milk and honey, rather than gold and oil. you need skilled farmers to manage the capital of bees and herds properly to assure living from their returns only while not using up the capital", which is one of your obsessions--to conserve capital, and you believe in human capital. of course this is a theme that comes back. entrepreneurs are human capital at its best, and
you say america now is slowing down in that respect. - yes. a very specific human capital, but before i go on, just one thing: labelling today an economist, i think it's like an astrologer. - really, eh? - when you interviewed me about ten years ago, the forbes articles about putting me on the cover just came out, and they also asked me how to label myself, and i said, "just don't call me an economist", so they put a box in there... - right in here they call you an economist, too. you see, you're stuck with it. - yeah, i'm stuck. - they call it the dismal science, too. i'm sure you agree. - yes. - so, entrepreneurship, and america losing its dynamism, that's what struck me in your article. - well, it risks losing its dynamism for two reasons: because capital markets were shut down three years ago inadvertently, i would say, for a combination of a lot of
mistakes, and it hasn't reopened yet. that's one. second, what made the us, in my view, a lot of its prosperity during the years between the second world war and the 1980s was that, if you look at it globally, there were altogether about a dozen or so countries where capital and talent could flee from communists, from latin- american dictatorships, aegean horrible experiments with dictatorial regimes... so, uh, even if during those times the tax rate in the us was, let's say marginal tax was 70%, or even in the uk it went up to 90%, still for those escaping those regimes, this rate seemed like paradise. so the us and so forth got these entrepreneurs, got the capital... plus the population was much younger. so today you have a kind of most unusual
situation in the sense that these mistakes happened and shut down capital markets and a lot of venture capital and experimentation. and, at the same time, it happened at the same time that the population in western europe and in the united states were ageing relatively. if you think about it, capital should actually flow--if, let's say, we abstract for the moment from the political situation and so forth--from the older to the younger generation. they are the future. but because, still, even though china--well, because of that one child policy will be ageing faster, but maybe it will be corrected; but india has a good demographic prop via latin america--still, capital is still flowing to western countries, because these countries cannot, with their financial markets at this stage, absorb all the capital, or--let's take the case
of china--the communist party doesn't want really to relinquish control. - so it's flowing into north america, let's say. but what are we doing with it? - well, that's the problem--that it is financing the government deficits in a way. for a while, when capital markets shut down... and if the us government is able to borrow at one, two percent, yes, temporarily it's not a very bad thing to take, but the question is, what does the government then do with the money? the government will not invest in entrepreneurs, because there is nobody able in the government to decide on the ventures and to structure them properly. so there is a huge danger that the money is now flowing to the federal government, which is expanding very fast, and meanwhile the capital is not flowing to entrepreneurs. there are more and more restrictions on, strangely enough, exactly the qualified immigrants that the united states would need.
- the immigrants would, according to you--that's one of the points in your article-- immigrants would correct the demographic imbalance in some of these other countries. - you have two solutions, really: you either can let the young people go to where the capital is flowing because of political stability and the rule of law and so forth. or, the countries like, say, india, or the others, are changing fast enough their administration and politics and so forth, so that they have the young population there and then the capital would flow there. but today we see that to some extent, but not enough. - so america should become again ellis island, but you also say in one of your... you know, welcoming, the statue, and everything... but you call it "the muddled masses". that's the title of your article. you say that, whether it's in arizona or elsewhere, there is good reason for people to be angry at illegal immigration, so which is it? what do we want here?
- yes, because we are not in the condition of ellis island, because today immigrants who are coming... first of all, the us became a welfare state, so somebody who is landing, we don't make the selection based on what happened, let's say, in the 1910s or the end of the 19th century. at that time, say, an italian immigrant was coming to the us. he left his family behind in italy. he was working. either he succeeded and then he brought the family to the states, or he went back. today that's not the case, because from schools to health care, all the things that the taxpayers in the us now pay, attract a lot of immigrants who are not necessarily entrepreneurial. you just have a good example what's happening in france. everybody is up in arms about sarkozy throwing out the gypsies. what nobody is mentioning is that once you have a kind of welfare system, you cannot just accept anybody to
land in your country without education, without health, without anything, not working. actually he's not throwing out people who have work; only those who cannot show that they have an income. that's one. and he's throwing out people who just squatted in lands that belonged to others, so it's not exactly the way it is portrayed here. - but how about the very cynical explanation from some people who say, yes, but those are the very people, maybe they come in and they sponge off the system, but they also do jobs no landed immigrant or born american wants to do. and you see a lot of that, a lot of illegals doing back-breaking work. - a lot of illegals, but i would say not the gypsies, as far as i know. i grew up with them, so maybe i am a little bit biased. - but that's the gypsies over there-- - but those are the gypsies who are coming to france. - right, but then, let's look at the us. it is true that a lot of backbreaking work--as maids and everything else--is done by
people who are undocumented. and how do you solve that? - actually the europeans, to an extent, found a solution. you give a kind of status of foreign worker, which the us doesn't really have. you give them limited access, or you allow them to buy insurance to health care, or they pay something for schooling, but you cannot have just, say, 15 million people landing in the united states and having immediate access to all the schools and all the benefits for which these original citizens have paying taxes through their nose. so you give them a different status. there are alternatives, and i think gary becker has been suggesting to have a kind of auction market. if you want immediate access to benefits, have a kind of bidding. well, i don't think that that can solve the problem. - but you're a big fan of gambling as a human activity, as you've often said, because you say you can tax something
where people are ready to be taxed, and we had a green card lottery--i think it still exists, actually. - it still exists. yes. - so maybe some of those principles could be applied. - well, but the lottery's on a limited basis, and it's limited, constrained by country, so it's not exactly a kind of out-of- the-blue lottery. it has its rules around it. obviously you can complement the system by a lottery, but that's a very limited number. - but how would you have the immigrant stream that you liked that came from europe--like you say, people really determined to work and bring their families-- how would you suddenly get that going again? turn on that tap again? - you give exactly, you give them a kind of status: you have the right to work, but you don't have immediate access to all the benefits that us citizens already paid for. yes, absolutely, come here. so, actually, that would be a self- seduction, because only those would come who really expect to contribute or to create, to have a high enough income to be able
to pay for those benefits, and then, eventually, get the citizenship, say, in four or five years. - and another article you've written recently that fascinated me, "the keynes conundrum"... you quote--amusingly, i have it here--keynes himself said, "the most practical man of business is usually the slave of a defunct economist", and you're saying we're all slaves of keynes himself now. - some of us. - it's true that we use his vocabulary: austerity, stimulus, and so on. but somewhere else in the article you say there was some good to that initially. - well, because if you go back to the debate during the great depression, there were a couple of elements to that debate: one was what to do about the currencies, because, a little bit like today, currencies were extremely unstable after the first world war, and countries experienced inflation during the
first world war, and the big issue was how to re-enter the gold standard. so, england, for example, for a year they debated at what price to re-enter the standard, whether or not at the price before world war i, or at the new price of gold after the war. for various reasons, churchill--he was the one who made the decision; he was at the treasury at the time--he made the decision to re-link it to the pre-war level, and that was a huge mistake, because you don't have to be an economist or anything to predict that there would be huge deflation, because all the contracts and all the nominal wages were already adjusted to the new price level, and england was not the only one who made this mistake. france didn't do it, and that's why france actually avoided... they re- entered gold at the proper level, and they avoided those
great unemployment levels that characterized england. so in that sense, that part of keynes when he said--he was looking at a very short-term analysis--so when he said, "okay, how do you solve this problem?" he doesn't mention in the book anything about gold, about re-entry... he takes it as given, because it was a decision, and he said, "okay, what do we do now?" and in that sense his policy prescription for that very short term, for a closed economy... there is not a chapter, not a word about exchange rates in his book. so in that sense he was kind of accurate. - but let's jump forward, because it's a kind of keynesian approach that was taken by mr. paulson, and the succeeding administration. - i would say today it's inapplicable only in one sense: that if a series of unintended mistakes brings about the
collapse of capital markets, and in that situation the government is the only one who has access to borrowing, then yes, until they restore the capital market, the payment system, yes, the government has a role. but once it settles this issue of the payment system, then it should get out. - but you call them mistakes, but the other people would say crimes and misdemeanours and so forth. the inflation in derivatives, where all kinds of funny paper was sloshing around the world. - robert, thanks for asking that question. - that's not a mistake; that's greed, that's people-- - no, no, no, no, no, no, no. - no? - no. no. actually, it's very good that you asked it now, because it directly links to the exchange rates. look, you would not have all these derivatives in foreign currency or interest rates and so forth if you had a stable exchange rate. i mean,
think about all the derivatives. why do they exist? because the exchange rate fluctuates so much. - don't you want to go back to fixed rates between currencies? - i would say fixed rates, with the price of gold serving as an alarm signal, yes. - boy, oh, boy. - look, actually it's funny, people think, "boy, oh boy", but if you look back at paul volcker's memoirs, with his japanese counterpart--i don't remember his name--well, he describes just how randomly, without any analysis, they shifted from the fixed to the floating. really, they were going into uncharted waters completely, and he regretted that. you read that book, he's in favour--he was in favour then--of stabilizing the exchange rate. - well, people don't know where value is any more. that's the
thing with floating... - yeah, but you just mentioned why you have this huge explosion of derivatives. well, if i am any kind of company in the united states or france or england, and i want to stay in that line of business, and i don't want my profits suddenly to be wiped out because my currency goes down by 30% relative to the us dollar or the canadian dollar or the euro, well, what do i do? of course i have to... - but it went further. all the brainiacs at these wall street firms created derivatives of derivatives, and, you know, they sold it to each other, i mean... - wait. there are two things: first of all, as you notice, in the foreign exchange--i thought you were asking me about the foreign exchange--nobody is discussing those derivatives, although it is, you know, in the... in the trillion cent... - yeah, yeah. - and it's working very well, exactly because of this reason. now, obviously, a lot of hot shot managers--hirsch and
others--got very rich because of these ex fluctuations, but that's a mistake of the central bank of the way today currencies are being, i would say, mismanaged by central banks. the mortgage-- let me just answer--the mortgage, those derivatives that you refer to, those things, i would say, could have never developed to the extent they did... first of all, again, if the central bank didn't pursue those very low greenspan... you know, that 0.5% interest rate policy. that's one. second, think about now how basel iii came out about the banks. but if you remember, fannie and freddie-- - yeah, they insured everything. - no, but, they are in fact banks. i mean... - but they're backstops. - but they are exempt of basil. i mean, that was clinton's decision to exempt them. - and they gave everybody a false sense of security. - exactly, they and the rating agencies. so, i would not...
human nature doesn't change. people are all the time breeding, you know, from prehistory to our day. nothing changes in human nature. what changes is the incentives and the institutions, and this is where the mistakes were done. - so, for instance, basel iii. those new rules on collateral-- that banks... lowering the leverage they can have--are not severe enough. that's what volcker says. they should be much tougher on collateral. - the issue, as i would say, they can never be now a fraction of the banking system. it really doesn't matter, i mean, if you are at two--it's marginally... it matters a bit if you are a two or eight or twelve. if the times are bad, you can go banker, or if you don't have bankers--i would say what happened in the last crisis, is also the banks stopped fulfilling in the united states the role of bankers. they stopped doing due diligence. why? there was a reason for that, only then another institution should have done the due diligence: because once the
mortgage securities were invented, then in fact the banks no longer... they didn't think that they had to... they were just market... the thing was just for info... now, who did the due diligence who were supposed to do the rating agencies? well, they didn't do it, or they didn't-- - a couple of guys did it, and made a killing, like paulson. - sure. each time somebody makes some big mistakes--especially in government... you cannot make billions of dollars from mistakes of private companies because those cannot afford these types of huge mistakes. governments can. - i want to go back to the keynesian thing. when you say, when government is the only functioning, living, breathing-- - intermediary. - then it can do things like that. was the government... the two major decisions were bear stearns and lehman brothers, and they went in different directions. bear stearns was propped up or sold off, but kept going, and lehman was allowed to
drop, and then aig was outright saved. let's take those three decisions. good or bad? take them one by one, briefly, but good or bad, by and large? i mean, you have to look at it from the point of view of the guys in government who are facing this awful tsunami. - look, the way i look at all these things, anybody--whether in government or the private sector--all the times that you deal with kind of first-time situations, it's a trial and error. so, you know, it's very easy to go back and blame--why did you do this with bear stearns, and why did you do something else with lehman? some people are saying that's because of politics, others say it's personal sympathy between paulson and the fed and things like that. i take it with a grain of salt, and i give the benefit of doubt that it was a learning... - was it good to prop up the system? yes, or no. you would say yes.
- if it was good to... to counteract this, you have to interfere. that was one. second, yes, take fannie and freddie. if you ask me did the central bank have to interfere at that time and buy up all those securities and so forth? in principle, you would say this is fiscal policy and the government should have done it. but there was no time for that. they had to act very, very quickly. the government couldn't do it, so the federal reserve... that's what i'm saying--that when you find yourself suddenly in a unique situation with unique institutions, with constraints from the past about what you are allowed to do and not to do, then you choose the way, so... - so, stopping disaster, let's say, overnight, that was okay. - yes. - but is president obama caught up now in a stimulus mentality, where he has to keep pouring money in? that's the mistake. - yes, because at the beginning,
you had to save the payment system, because... in a way, you can look at capital markets segmented into three categories. you have the payments. you have the long-term investment when you invest for 30 years, for 50 years, innovations and so forth. societies can get along without the existence of that type of capital market. look at communism. it existed for 70 years--not very well, but they managed. then you have the shorter-term capital markets, you know, for inventories, daily business and so forth. if that shuts down, still you can exist for about three, six months, or let's say a year. - barely, though. - barely. but the moment the payment system shuts down... with the lines before the bank, when you really don't trust the banks that you can take out your salary and so forth, then society collapses, because
that's it. you lose credibility. so that was the fear, and that's what led to those very quick, i would say, interventions, and in that sense, i would say, yes, those were right, because you had to save the payment system to restore the credibility. - but then it became cash for clunkers, it became stimulus. that's keynesian. - that's already the mistakes, i would say. because, why would... how can they... you say here we go back to keynes. macroeconomics and keynes... in those models, it almost doesn't matter on what the government spends the money. it just aggregates demand, your government increases spending, it increases aggregate demand. everything is wonderful in those two stupid equations with two unknowns. it's ridiculous, how that withstood for 50 years, i mean, it boggles the mind if you really look closely at it. - because they just inject cash, and it sloshes around, and it doesn't matter...
- it doesn't matter. that's why in keynes book you will not find anything about does it matter on what you spend the money. he has the famous sentence somewhere in the book that even if you dig holes in the ground, just spending, he says obviously the government can do better than digging holes in the ground. well, even that. that's why... once you take that approach, then you say, "well, why shouldn't i have my union friends, or others who will anyway work for me, since in the aggregate it doesn't matter, so... - but there's a bill coming to you, right? i mean, somebody has to pay for the party. that's what everybody sort of fears. how bad will that be? - here, for the moment, with the united states, i think of the old saying, "better to be lucky than rich". it applies also to countries, because luckily for the united states, the other countries around the world--many others--do stupider mistakes, or as stupid, and then money is still flowing to the states,
because this situation could not happen--the united states could not have borrowed at those low interest rates--if you had another reserve currency, but you don't. - they're trying to start one, but it doesn't work. - because for that you need a reliable kind of government behind that money. so what do you have in europe? well, you can say it's a mess. nobody knows, and the ecb was created so that they would not buy up various government bonds, and then they are buying up, they changed their constitution... china, it's a communist country still. you cannot... you want to rely that the un will be... anyway, they don't want, they cannot, they don't have the financial package for it. - so the us is lucky because it has the world currency, but it will still have to pay for the party. - yeah, but for the moment, look, the interest rates are so low that in spite of this huge increase in debt, the total interest payments in the united
states went down, so for the moment, you know, you can get away with murder. - so, dr. brenner, i'll take two aspirin and call you in the morning. i'm not sure we have an answer, but it's been, as usual, very enlightening and a lot of fun. thank you. - thank you. - dr. reuven brenner was our guest this week on entrepreneurs: the dobson series of the world show, and that's our program for this week. i'm bob scully. thanks. closed captioning by sette inc.