Billions of pounds into the economy. Joining me on leaders with lacqua, former bank of england governor mervyn king. Thank you so much for speaking to bloomberg tv. It is always a great pleasure. What lessons have we learned . Learned thehope we lesson that this was bigger than financial crisis. It represented a serious problem in the world economy. I think that is the most important lesson. Second, we learned we need to worry not just about the amount of Equity Capital banks issue, we need to limit the leverage, but we also need to tackle the problem that banks are inherently unstable. People take their money out, or they dont roll over there letting, and we need to do that. Francine did we see early signs of it . Mr. King i think we saw signs in the world economy, and we should have given more weight to the rise of leverage in the Banking System. At that point, the banks themselves were deeply reluctant to admit what was going on was not sustainable. Francine at what point in the lead up to the financial crisis did you think there was something seriously wrong . Mr. King i give a speech before the crisis erected in 2007 at the Mansion House in london. Ignore the unsolicited emails that rained down on us offering unwanted credit. I received one last week that began, we have the solution, mervyn, for your bankruptcy. [laughter] leverage iscessive the common theme of many earlier financial crises. Are we so much cleverer than the financiers of the past . That was not a welcome statement. It turns out we werent. I dont think it is ever easy to say that that particular level of leverage was going to generate a crisis. There is an element of randomness in these small events that triggered the crisis. It was clear that the system as a whole was in trouble. Francine with hindsight, would you have done anything differently . Mr. King i think the things we had to do have been identified before. We did not have a resolution framework to deal with the failing of the bank and the u. K. Every other g7 country have one. We did not have 100 deposit insurance. That was bound to mean once a bank run were to start, it would be rational for other depositors to join it. These things were understood and well known. I dont think that make the judgment of whether we were about to go into a banking crisis any easier. What we knew was the system was not as resilient as it should have been. I am bringing you the session report on the subprime fallout that is spreading across the atlantic to the united kingdom. Who knows whether your money is going to be safe . I do want to transfer my money. Francine this represented the first bank run in britain in 150 years. Depositors were demanding money back after was revealed the bank had tapped the bank of england for emergency funding. The run did not stop until the government gave a taxpayer backed guarantee that all existing deposits were safe. Jonathan we were they mr. King we were the lender of last resort. Right until they could not give us any collateral to lend against. The thing that is odd about that is people seem to think we did not lend to Northern Rock. We landed a vast amount to Northern Rock. The conversation i had with them in 2007 was if it comes to her, we would be a lender of last resort. The problem was, Northern Rock, which was not doing anything other banks themselves were not doing, had a Business Model that ended when the market for Mortgage Backed securities they had very high leverage at that point even though they met all the International Capital standards. It was not as if Northern Rock was somehow taking big risks with the definition of capital that the standards said they should hold. It was just that the structure of the bank, which was borrowing short and mortgage lending meant they were not required to hold much Equity Capital. That is what made them very vulnerable. You could draw a timeline and no one the bank would run out of money. It did it exactly that point. I remember when the government appointed Goldman Sachs to help them find a way of selling Northern Rock. When i met Goldman Sachs for the for something we agreed within a few minutes the only end result was nationalization. If we had dealt with it over one weekend, it never would have become the new story it happen. After the fall of Lehman Brothers and then needed to be a gourmet did signal that we would do whatever was necessary to keep the Financial System going. Move in october 2008 originated in a phone call conversation with ben bernanke and myself. I said i thought it would be a good idea because we were probably considering a cut in Interest Rates, we agreed that he would speak, and i would speak to some others, and it would become a g10 movement. It took about a week to put together. We changed the time of our normal meeting so we could announce at the exact same time. I agree we informed our politicians just before we did. The house lets know that the governor for the bank of england has Just Announced a 0. 5 cut in Interest Rates. He has done in a corrugated action around the world in which u. S. That has cut fed has cut Interest Rates by 0. 5 , this was have the swiss have cut Interest Rates, showing global problems are best out with by global action. Not brief theid political world because that, im afraid in modern circumstance, means inevitably a leak. That would have undermined the operation. Francine is that what makes the difference between Central Banks and the politicians . Mr. King yes. I wont go into detail, but if i disabled is the big difference in the crisis, i could talk to another central banker confident it would be a conversation in confidence, and it would be treated with discretion. I think whatever discussions took place with politicians, they seemed to end up in the media. Withine how did you cope the financial crisis . What are the attributes a central banker needs for working under extreme pressure . Francine well before mervyn king set foot on threadneedle street, it was an academic teaching in the university of leverage, harvard, and m. I. T. , where his office attached to them bernankes. He brought his quick thinking to the bank of england as its chief economist, moving up the ranks to Deputy Governor and then to the top job. It was a long way from his humble beginnings. What do you want to be as a child . Mr. King i wanted to play cricket from a county, worcestershire. I would play for the full season apart from the last week of june and the first week of july, and i would take two weeks off to defend my singles title at wimbledon. Francine that did not work out. Mr. King it did not. Francine are there similarities between sportsmanship and mr. King there are. One reason i encourage children to play cricket in competitive sports is it is a way to learn in on this environment that it is important to compete, and the ability once the game ends to be friends with people. In Business Life it is important for people to realize they are competing. It is not just a happy game. You are competing against each other, but you can still have good personal relationships outside. You learn how to win and how to lose, something which some politicians have, but not all. These are lessons for life, which are very important. Francine how did you get this love of sports . Mr. King yes. I was growing up, my father was a schoolteacher, we moved around a lot. We lived in york short a while. We were living in a council house. I was a small boy listening to the ball on the backs outside my window. Francine did your family have a big influence on you growing up . Mr. King yes, i think my father particularly. He could have gone to university had his parents been able to afford to send him. He could not. I came from the lucky generation, people born in 1948. We did not have to fight in the war. My parents did. I went to an education that i had free of charge. I was sent to the United States on scholarship. I paid nothing for that. Favor,ing worked in my and young people today are facing a more challenging environment. They have to pay for their college education. There are good reasons for that. Many more people go to college, and it is not obvious why the people who dont go to college who earn less should pay for people who do go to college who earn more later in life. Nonetheless, it is tougher for the younger generation. I think it is beholden on the older generation to recognize we will have to make some sacrifices to help the younger generation. It about what was Central Banks, academics, studying . Mr. King no doubt my academic background was fundamentally important in being concerned alltime about what is the fundamental reason this is happening . Have we seen this in the past . I was much less concerned about the movement in Financial Markets moment to moment because it was not clear that met a great deal. It was a symptom of a deeper problem. That was fundamentally important. The other thing was a number of people i have known well in academic life like ben bernanke, janet yellen, stan fischer, larry summers, a were all in policy positions. It was a natural ease of having a conversation about these questions. Tim geithner, who do not have an academic background, but he had been in the treasury a long time. In him beingrtant able to interact with people around the world because he knew them all. I think if he arrived in office only six months previously, it would have been very difficult. To have expense in the Federal Reserve bank of new york and then the u. S. Treasury, the continuity there, knowing people, having had a long time in your career where you have had a chance to think through what you really believe about why Banking Systems are fragile, what causes disruptions, what is the right way to respond to it, these things are important. One of the problems the political side had is that deep down they did not really understand these issues. They thought it is a crisis, we have got to find a way of it, but they were not able to conceptualize the nature of the problems. Francine how do you cope with the financial crisis . What are the attributes essential banker needs for working under extreme pressure . Mr. King you generally need to know what is the right thing to do. Both ben bernanke and i benefited from a study of financial history, which meant that the problems that were coming up were not unheard of. We knew these problems have occurred in the past and what we had to do about it. I dont think in that sense that we were reacting i saying, my goodness, what is going on . Francine their critics that say Central Banks play a key part in inequality i putting money out there. Mr. King that is a misleading way of putting it. There is no doubt in terms of wealth that by allowing Interest Rates go to zero and buying assets, undoubtedly the apparent inequality of Wealth Distribution has increased, and that is only a temporary phenomenon that will last as long as Interest Rates stay low. Lifes undoubtedly made much more difficult for young people that old people because people who are buying houses for the first time now are likely to find themselves buying houses at the top of the market and later at be selling much lower price levels relative to their income. There is an intergenerational effect, but i think that brought apparent increase in wealth inequality will reverse themselves as Interest Rates get back to a normal level, if we can find a way to get back there. When it comes to labor incomes, i dont think Central Banks have any responsibility for what is going on. This is partly a function of technology, trade and globalization, and we should not shy away from admitting that fact. It is the failure of politicians for confronting that and saying their benefits for the country as a whole for having cheap imports from china, but we must as a society protect those for losing out. Francine how do you explain brexit . The governor of the bank of england, sir mervyn king. 2015, he stepped down as the governor of think of england. He did not stop sounding warnings that the world faced a new crisis unless there was reform in the financial sector. Where do you think the next crisis lies . Mr. King i would guess that it would be in the area of high amounts of debt, which the debt in the world today is higher than it was years ago. There will be some defaults around the world, which will not look coordinated or related, but actually they are not on effects that will lead other people to default. Once that happens, youll find the Banking System once again looks overleveraged or undercapitalized because the losses that they will take as a result of these defaults will eat up some of the Equity Capital that they have on their Balance Sheet at present. I think that is where we may see we can see examples in china. There been some defaults. Greece has effectively defaulted from hard of its debt part of its debt. Indeed, the Banking System does not look resilient. Francine what will the u. K. Look like in 10 years . Mr. King i dont know because there are big challenges facing the u. K. I dont think brexit is the biggest economic challenge. I think the biggest economic challenge is as a nation we are saving less as our National Account than any other country in the g20. We are not saving enough to finance our pensions. We are not saving up to finance care for the elderly. We dont seem to not to finance the National Health service. We still have a large budget deficit. The biggest risk to the u. K. On the political side is a model thinking. Of muddled thinking . Francine on brexit . Mr. King on all these issues. That we of thinking now can all have a softer, cuddlier brexit. This fails to go with the reality of it. I think there are two positions you can take on brexit, both of which are logically coherent, but neither which seems to represent the politicians are now saying. One is to say that we really do want to stay in the Single Market and customs union, in we are effectively in the european union, and we should confront that fact, and politically going way to deal about is to have a second referendum and to argue we should reverse course. Francine do think we will have a second referendum . Mr. King that is a political judgment. I dont think it is unlikely, but it is at least coherent to say that if we want to stay in the Single Market, we should stay in the european union. The other coherent position is to say no, we have said we will leave. Theveryone made clear in campaign, we would leave the Single Market, and having made that position clear, u. K. Would first be able to announce its new u. K. Immigration policy and save our partners in europe that we would like to negotiate a Free Trade Agreement at least in manufacturing. What is not coherent is suddenly to say we are leaving, which was the position of the manifesto in at thejor parties, and same time, we really want to stay in this in the market and customs union. That is not coherent. Francine how do you explain brexit . Why do people vote for brexit . Mr. King there are two main reasons. One is that it was unclear that the only way the u. K. Could control immigration was to leave the european union. The government had promised it would control it. It had not done so. It did not seem to show much remorse for that fact. Oft orders did want control integration, and being in the eu met that was possible. The government simply avoided the issue of immigration. Migration,argue for is simply avoided it. That was a powerful motivation. The second was both sides talked down to the voters, and, in a sense, the only thing the two sides in the campaign had income was the belief that anyone who voted for the other side must be ignorant or stupid or uneducated or even racist. This actually did more damage to the government than it did to the probrexit side. Beinge exaggeration about 4300 pounds or saw for each family did not have much traction because people knew no one could be that certain. It looked as if there is a Propaganda Campaign going on. If the government had said this is a difficult issue, arguments on both sides, which is why i understand why some of our colleagues want to leave the eu, indictment favor of it, but the unwillingness to admit it was a complex issue with arguments on both sides i think played badly for the government side because it played to the issue of trust. How can you trust these people when they are saying things that no one could conceivably know . Francine thank you so much for your time. Mr. King thank you. Are you on medicare . Do you have the coverage you need . Open enrollment ends december 7th. So nows the time to get on a path that could be right for you. With plans including aarp medicarecomplete insured through unitedhealthcare. Call today or go online to enroll. These Medicare Advantage plans can combine your hospital and doctor coverage. With Prescription Drug coverage, and extra benefits. All in one complete plan. For a low monthly premium, or in some areas no plan premium at all. Other benefits can include 0 copays for an annual physical and most immunizations, routine vision and hearing coverage, and youll pay the plans lowest prescription price, whether its your copay or the pharmacy price. Or pay as low as zero dollars for a 90day supply of your tier 1 and tier 2 drugs, with home delivery. Dont wait, call unitedhealthcare or go online to enroll in aarp medicarecomplete. Sfx mnemonic emily i am emily chang. This is best of bloomberg technology. Where we bring you all of our top interviews from the week in technology. Cuban speaksrk out, weighing on bitcoin and trump. Also, how a. I. And technology can best serve society. First, our lead. Here at the establishment summit in l. A. , i sat down with outspoken o