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now joining us former silicosis adair has a lot of fun terms lesson sloan
school of management at m_i_t_
of the one of the people that writes for the
very well regarded financial blood that baseline scenario
and the author of thirteen bankers
simon jobs
press just by you for joining us
alright for sila talk about my article you wrote today
saying that tim geithner i'll bite
might be on the ropes
uh... what gives you an indication of that might be the case
well avn a couple of good shortened indicate at the white house it at least
considering opting people
who might make a good except that it can go there now the timeframe is not at all
clear i don't
i think they're trying to get rid of him right away
but they're very fact that this subject is being brought up bite by the topic of
administration project that they move
them you're going to happen sooner rather than later
and anything would be a agood replacement for
well bernie my index the m and i quote company
sympathetic and for the fed you very tough on on the biggest thank you kelly
fed official or actually government official in and i think you've come at
really clearly consistently against the so-called too big to fail bank
and he had he had a very good fat report of the dimension too i think evoking a
republican according to another and that he would go a lot of democratic support
as well thank you be able to get confirmed in the senate almost to that
question
this sort prayer that a democrat could ever get constructs
we have found to have a democratic administration right but it seems like
we like pretty pleased if we give you a republican you consider it
at what type of product up four crewmen
four cabinet that
i actually woot woot woot thirty genuki opposed bembenek you getting a second
term
and um... you to put their effort into a dumb thing that the because of uh...
spoke with an alternative to going to vote it is a very mcconico nobel prize
in and he's written super stuff but about the technical level and a on a
broader more popular apple for you know two decades of on the issue to be
thankful for what at
but it was credited self benefit rather wrote a quick republican a hundred blog
saying no no no i would never get confirmed at that
felt that uh... i've given up on democrats would like to four crew will
cripple krugman that and i'm going with a republican
with the paragraph
melt for
for the fed position i suggested joseph stiglitz
when burnett he wasn't trouble another nobel prize winner and and a former
chief economist the world bank
by the second birthday as suggested was u
south africa but since you guys are clearly for finance reform it appears
you have no check
it uh... definite check again here right now electric
articulating but i will come and visit the kind of of reform with the times
the people who
here if you want to change
that the trucks it all the and demand
cubic failed banks are too big to to exit
but that i did not get turned that they're going to take these didn't put
obama
in daughter the so-called polka rule
while
i'm i'm not sure the purpose of that yet have tremendous symbolic value that put
a lot of people
on all the wrong fortune on the defensive too radical for a while
because dot
heroic except in the right direction but the long way to go
supersonics i sought we voted for a guy who was listening inouye
and i thought we give sixty senators gigantic lead in the house the work with
but apparently that was a clear enough of a message so we gotta wait a little
longer for change okay
so it's not about what's happening today about the times today because
it appears to me that or bomber has made
some
tougher proposals and i want to know if i'm i don't want to get excited for the
wrong reasons
with party got through that
and numerous number of times already you know bob administration or the new
proposal as well as the vocal rule of the bonus attacks are
uh... or even the taxing in in getting the offshore accounts of the
corporations etcetera
or those actually tougher and are they enough
coming from the obama trip
there are a little bit proper but they're not enough
that live online
at the focal rule for example faith they want to catholic side to the biggest
bank going forward not allowed to get me bigger
fine but why would you think that after thirty years div
crazy unregulated gross domestic crisis
and the most generous bailout in human history that you have the right side for
banks it doesn't make any sense of it
filled the bank that they have to get smaller
and the probe
if it where they want to make them they want their belmont high bop some of
their activities takeaway
socal proprietary trading that's okay but it is that very small chip off the
ice earlier thankful that instead of his that was
uh... uninhibited story that ballot weekly but
over to where that fish india is a lot could see bankers themselves what would
be came up quite easily weight they would
circumvent that these restrictions
and even that looks like it's going to be still in the senate we have reports
from numerous sources now saying senator dot is
negotiating with the republicans in the spirit of bipartisanship
to make sure we have no reform
uh... mgso when you look at what the senate is doing
is this the capture of the government that you're talking about
well the capture the government it very political it
across executive branch and in much of comic
i do think that again opinion will change i do think the mainstream
contented
he should be on the computer predictions that that i would take it and i my
colleague about the year ago
perhaps a controversial and and
seniors radical
by two other people at that point now we have a lot of people uh... on board the
vocab our book that they've been mentioned thirteen bankers
we've got endorphin from the left and from the right from people in the
financial sector
and people who were independent
the thinkers about these issues
incorrectly people realizing that
if the major problems that can be that would need to deal with and i think
the content that will change
it's not going to change in the next six months that's not
what happens the consensus is like that
it'll pay good two three five years
particularly the right direction
you're a little more hopeful that i'm stuff records on the sidelines alsa
former chief economist for the i_m_f_
professor at m_i_t_ now martha thirteen bankers i saw the rave reviews for the
refer you for the book and it makes perfect sense and
what you write about is
intellectually appealing
but i can be that's not the question the question is
are the people in power
do the people in power give a damn about was intellectually feeling or what the
mainstream consensus is
because right now if you look at america's population of a firm processes
stopped giving in to the bankers
yet here we have democrats as well as republicans
looking to find ways every conceivable way to help the bankers
you you're right about that importantly money looking at the lobby
how a lot of money and they have a tremendous benefit
but i put a big ticket if you read if you campaign for office
saying i want to build somewhat dangerous because power stations but
don't worry because
particularly cheap electricity
he wouldn't get elected on that they could get what they got great people
architects but don't have any regulation over juggle pharmaceuticals
uh but let's go back don't recall what we did a hundred years ago
you wouldn't get and he worked in the primary
and i think that's what habitats what will happen with regard to financial
sector *** attitude towards big banks
you know what if you're going to be acceptable
sane
reasonable activity
who could be the banks have to have to change mad
thinks the professors that captured my interest about your writings in the
beginning was when you talk about your experience of at the international
monetary fund
and how of
are the united states now begin to look like countries like russia et cetera
by that were captured by an oligopoly thing it does a little bit more about
that
equity absolutely i work on crichton
and difficult economic situation twenty twenty-five years and in many of these
places you have a uniform oligarchy so explore group of people
who make a lot of money
one way or another they have economic how do you think economic power
to get himself political party
it's very old phenomena actually aristotle wrote about
long time ago
uh... and we created many many times victory
the court the differences oligarchy that posted throughout the type of oligarchy
the conduct the interview
like very much about the madeline family
that the russian title oligarchy
well to put it very much about enough people who have access to collect a
fourteen people got them from oil gets a critical moment in the recent past
and that the american formal oligarchy which is not based on on corruption all
report
pictorial captive capital
amore didn't more on you're buying favors
typically that that the mechanism that you
they perform dot breakthrough for intellectual capture and cultural
equation for that
that the banks the to the big banks have convinced
the policy makers and and often
treat people even outside of washington
finances good unregulated finances better and completely unrestrained ***
finances better
you know i think the intellectual catherine is very persuasive this place
is in regards to
people like that brittany intended who i think there
you know i can point lee
say there are
can be tool
rules of wall street
but when it comes to politicians and the rama manuals of the world and senator
dodd and even
president obama
i don't think that there that on sadly i think
did they see the macro picture on the macro picture as
that you know or and this was the old way of doing things like that the think
things are changing as you say but
we get corporate money lobbyist money
republicans don't get it we were no lectures
you know so i think there's there's a lot of that too i think it sets old
school
but not bribes but
political bribes anna manners
amply right up show that the defendant of that
it's ready money
and the democrats have done well with it
but now that you know that they could be consequences in
people i talked to capitol hill
made many many people most democrat
outfield extremely uncomfortable that situation they've gotten filled
preventive
and feel that uh... food
they fit
policy towards the financial sector really have to change dramatically
it will take a while but i i think people have a veteran
looks a little bit about the books thirty bankers first question that i was
never decide as or the thirty back what what is happening
well that would not put the bad already because i
app and blow it out dot given that the good over into the book at the combat
he needed to talk about these bigotry of of the fact that uh... if the united
states
an anecdote back defeating a republic actually it and try to put
today problem
indicated historical perspective
uh... i think it
it's very different from but it but a knife
i think at least with a knife
contrast with andrew a focus group to be kicked out because that would very much
about the micro details of the crisis
who did what to whom it is going to with what kind of lead
up ok it i think you know that fact look at this
over to his look at the last thirty years to do you think the reagan
revolution
how exactly did finance
get *** can feel powerful injected rations
and how would the big
over the top of connecticut dealt with in the park
protected recognition joanne and what's left of complete withdrawal madam if you
mind argue it depict fairly depict with it
the republicans will say look that we have boson booms of business are for all
of history
this is absolutely no more that maybe the problem was over-regulation
is there
any shred of the litany that or is that just like the guys to cover up
for the banks of
made a lot of money from this and contribute to the problem
promoted to cover up although if you put that
a moment ago the bangkok to contribute to the democrats so it's it's a cover up
the works
with looks of both sides of the aisle
potentially it deregulation up when you deregulate and you have been very
unregulated parts of the economy pop the financial sector you get money moving
in-and-out
between the p radio fine and that's a lot more regulated part
and the way you briefly that that kind of friction
you can get out the regulation of the leading everything will completely
deregulated you'll be fine
uh... i think that this is ludicrous
perhaps was not supported by the same you know the details yet using use a
couple other analysis elders i tell you sports analysis if we didn't have any
rats in any of the games
my guess is that we would have a lot more files
and her and so there at the republicans are basically asking for an arrest now
i think it was of course born parcel one we did that we had a collapse with i
want to get a sense from you something that i still don't have as good handle
on as a is i think i should which is of the importance of uh...
of that would
then they could credit default swaps of the derivatives with no underlying
assets the casino gambling if you will
was that s at
a small part of this or was it a gigantic part of what
caused the collapse great question
according to the the financial crisis inquiry commission
headed by filling treaties might she gets to the bottom of my fence right now
based on what we feel is is that it was a relatively
pot i mean it they departed i couldn't fix out of order very sharp pointy pa
didn't do a lot of damage
still the only the tip of the iceberg
really underneath it
and what will really caused the damage was reckless replaced by bank thought
they could get away with it
and from the date of course after to get with it they drop the money
ind in fig two thousand
deep that makes two thousand nine of them i'm sure of the blue bachi
twenty ten
but i think if the attitude the diya
failure risk management the
effective
uh... an hour of the behavior of the effect
part of which come through
in in that behavior the critical for market but i i think that that the
manifestation
that's interesting so that receiving lisa problem for and
obviously the these jurors are a large part of it but
the so is a bigger problem
then leverage because steve
if we don't allow them to take that much less risk is there with more money that
they don't have with that solved agree part of the problem
but that may be required in order or capital d_ would the flip side of of
leverage
right that would make a difference than it used to be the case
before the mid nineteen thirty two before nineteen fifty when if ever there
was created
but american bank carry a lot more captivity today
at the way the region of twenty to forty percent capital to act that ratio which
pretty typical you go back to the late nineteenth century walkout yet exactly
who helped her and where are giving quite strongly that
at part of the the changes that should be implemented
the capital climate of across the fact that you should be increased
not back to those thank you thank you leveled but leapt into the twenty to
twenty-five percent range
you do that over a period of time of course that changes the nature of payoff
from finance it doesn't make fine n unproductive or unable to operate
remember the venture capital at the present at the part of the american
financial machinery event that that that equity type financing and the people who
put the money that venture capital fund understand that the return will vary
according to howl expect full
the 'em underlying the thuc
and i think it could be very careful not to cut the law though
they have more equity chi payoff from it
financial structures baked on
share of equity and of course most in the game for shareholder to the chivalry
itna group should watch more much more carefully over the bank
you know i have a hundred more questions for you but were well i have only a
minute left we're going to simon just not author about coming for thirteen
bankers also on the salvo requirements listed his staff thought
what's the chances that we get real legislation they're you know
are they working towards that is a realistic in the short term to be able
to get the kind of capital requirements you're talking about or what's the
numbers are pushing for
the number that putting forth the number that we mean
brother pat the day before it failed
about eleven or twelve percent
they'll get that but you have to up to get into the day
path
developing a brother pat but with the help
quick really didn't do that more privileged scott simon johnson
i thank you so much for joining us we really appreciate like that