That the American Financial system. Kind of in 1858 in lynchburg virginia and grew up in the reconstruction self. Is this policy on the role of government was shaped by the views of thomas jefferson. For just 70 miles north. From 1903 until the early 1940s they played a key role in every important legislative debate. Its colleagues in the house, later in the senate, both democrats and republicans, as the go to expert when it came to baking issues. Our glass was a consummate politician. He was an expert when it came to reading the political tea leaf and crafting compromises that could be passed into law. He was wheeling to empower the federal government in his judgment circumstances were warranted. Twelve roosevelt progressive, he shepherded the most important progressive new deal reforms through the senate. Turn class had assault, he can be grumpy, but mostly in private. He was not a proponent of racial equality and thats putting it mildly. And he was a democrat. That was a joke. [laughter] but different than in his conservative approach towards government and legislation would probably be out of place in todays democratic party. And is surfing more than 35 years in the house, as secretary of treasury, and the senate, he separate interview with the tribune, and the en route, he is quoted as staying, i have acted in the way i felt i should let the people decide for themselves that they approved of my actions. Ive never considered that affect my actions would have upon the continuance of my public career. I did what i thought was best for the country. Bleacher make use of the more politicians that acted like that today. In his new carter glass biography, mathewson does a tremendous job of recounting the live and times in the accomplishments, this outstanding and colorful statement. In the end, he came to believe that carter glasses trip, ring true. Im now hoping to introduce our featured author, beth you thank. Before he became a celebrated author, matthew worked at the Investment Company institute. The National Association industry. He not only worked there from 1971 to 2004, he was the president of the institution from letting anyone to 2004. Is the director of the often mutual funds, and a director of Retirement Income industry association. Hes authored several articles on Mutual Fund Industry and his history of mutual funds, the rise of mutual funds and insiders view published by oxford unity unit University Press in 2008 was such a success, went on to a second edition. And was updated to the 2008 financial crisis. He is an honor graduate of Brown University and harvard law school, and like mick jagger, he also attended the London School of economics. Please join me in welcoming matthew sake. [applause] thanks so much paul and thanks for having me i see friends from all parts of my live here. Its amazing. I started the book on glass, because i kept running into him in my career. When i joined the investment because companies do which represents mutual funds, i found the work regulated by the fcc and then i asked everybody at the fcc and ate the ici when did the one you come from, the roosevelt new deal reform agen agency. I did Little Research, that was wrong, roosevelt opposed the creation of the fcc it was carter glass who got it. And so on and so forth and all their laws blasted so was interested in class. So about six years ago i started doing a Little Research and reading it i found it was much more interesting than just the things he had done because is the paradox about glass and thats why my book is entitled the unlikely reformer. Because generally was a racist and highly conservative in fact very reactionary. He made a staying in virginia, the 19th century, in the constitution amended, to deprive 95 percent of black residents to vote. It was very hard thing to do, and he did it. They stay that way until this alike. Very conservative, he opposed, leaning democratic opponent of the new deal. He has an 80 percent anti new deal voting record. There he was a democrat running in this new deal. His personal live, as paul alluded to he was a reactionary. He hated the modern age. He was a stuffy old man or whatever angry old man, grumpy old man, he grew up with horses and when automobiles came, he want to get rid of them anyone to go back to horses. We need was elected in the senate, the senate had a telephone system to call the operator and that it switched to dial phones, he insisted that i go back to operators and the senators agreed with them. So went back. He lived from lunch virginia, he went there on the weekends, but during the weekends or during the week he learned at the mayflower hotel. He lived there for 25 years. He went in one money and found the lobby had been remodeled with the mayflower. So glass was a whole reactionary. That is one side of him. The other half, was he was the author of three of the most important and progressive financial laws in u. S. History. The Federal Reserve act of 1913 from the glass of 1933, and portions of the Security Exchange act of 1934. That created the fcc. So that was a paradox. I can give you a conclusion. Because i spent a lot of time researching and thinking and writing. The three points to remember about glass. I want to give them at the beginning to make it easy. Number one he generally opposed any federal action. Number two, he made an exception with the action would occur wall street. Three, he did not believe a way to address wall street was through regulation. It was like brandeis and others with regulation never works. Always failed so instead, he believed in breaking up concentrations of financial and political power. This of the three main points i thank you know about glass. Ill give you a summary of the book. He was born 1958 just before the civil war. In virginia, a very southern city. His family was white dog by the civil war and reconstruction. He had quit school at age 14. So is largely self educated. He read shakespeare, the english poet in ancient greece, lincoln, he was very self educated and very well educated. At age 14, he started selling newspapers in the corner, even became a printer his assistant. And the reporter for the papers and editor of the paper than the editor and then when the owner wanted to sell it, he arranged for glass soap could buy it with a loan from him. Given the state of virginia and south, after the civil war glass did very well. He was very successful businessman in a context of reconstruction both civil war devastated south. Sligo lot of successful Business People he went into politics. And theres one party to join, it democrat. In this party, and as i said earlier, he made his fame as a virginia senator member, and coming up with a way to the constitution to deprive almost all blacks in virginia of the right to vote. That made him a figueroa. To white virginia. So in 1902, he was elected to the United States congress. This comes at a time when republicans dominate the federal government and they largely sensible civil war. The thousand were strongly republican. Today roosevelt was in the white house, etc. At a young not so young, democrat like glass, nobody ever heard of him him. He was very much of a non entity. He liked your the farm relations committee, which is interesting to him. Foreign relations company. But instead they sent him to a bank committee. If im right, theres not been a major bill since the civil war. So glass sent to a complete no mans land, but being a very bright studious and energetic guy, glass viz. The years reading everything he can find his hands on about finance. So he becomes an expert. Both of anybody knows that, i dont know but glass really reads everything. At that time, beginning of the 20th century, United States was the only Major Industrial country that did not have a central bank to manage the currency and fight panics. Nobody thought about it very much. There were a few professors and reformers this edgy we had have a National Bank. Things were going so long pretty well and the republicans who control the government wonder if you know interested. Teddy roosevelt found making very boring. I thank hes right. So nobody paid much attention. Then we have a major panic in item seven, the biggest financial crisis until 1929. Banks and trust companies in new york say left and right right and Insurance Companies about to go down the New York Stock Exchange about to close. No federal or state authority to address the panic. It is addressed by an individual j. P. Morgan, who control the Investment Banking firm, j. P. Morgan and company. Voting is around to his buddies and other Securities Firms, making firms in the u. S. Treasury, and put together rescue packages on a voluntary basis. Now saturday series of Financial Institutions. So we get through the crop panic then theres a bad depression coming up. Now washington is staying jesus and baby do need a central bank. With not here and markets i had to be here forever. So republicans in control, name the most powerful republican senator, not in the committee. But most fat powerful Nelson Aldrich of rhode island. Very powerful guy. Cant thank of a comparable person today. Maybe like a Lyndon Johnson or very strong guy. He is to develop the republican version of a central bank. He goes and consults the committee, hires experts, they go over the u. S. , they go all over europe and they me with english and the bankers and german central bankers in the french central bankers. They take those long time about this. As you read about it, it looks like they had thought they had forever to come up with something. Because they been in power since the civil war and that they were going to be in power for the next hundred years. There was no rush. In 1911, baldridge releases his plan. It calls for a National Bank and a very powerful National Bank single bank, probably to be located in new york and is to be run by private bankers and owned and run by private banks. It is a typical conservative oldfashioned good old republican bank. I thank if he had put it in 1908 or 1909 or maybe 19 and ten, aldrich wouldve been the figueroa. Enactment of the bank but he waited is it too long. I miss an opportunity because it was a rise, progressive is an populism in the country. The democrats take the house, in november of 1910 if my dates are right, so 1911, the bill comes out and the democrats and liberal republicans have no interest in it and the aldrich plan, this pinnacle of central banking, just guys. The democrats are now in control and the democrats have to name somebody team up with their version of the bill and glass is the only guy probably the whole congress who knows anything about making. So they pick glass. And to draft the impact version of central bank. And he comes up with something the very few people of ever thought about bloody comes up to a prequel pretty quickly, he does not want a single central bank in new york, he wants several reserve banks 15 to 20 in different cities around the country, so that those reserve banks will help the local banks who will help the local economy the local farmers and merchants, its a big country and we dont want all of the money being going to new york. So he wanted to diversify and decentralize the system. That was his main thing that he calls for. Wilson gets elected president , and comes up with this before we knew the president his going to be in 1912. Dear member, famous threeway election. William howard taft was in present, republican, Woodrow Wilson the democrat and Teddy Roosevelt comes back in the new progressive parties. So glass comes out with his plans for a decentralized reserve system, he doesnt even over the next president s were to be. Result is wilson. So he goes and meets with wilson and they love each other. They never met before but they both virginians and both races in the both dont like the powerful federal government, there jeffersonians, but yet reformers, this money can abide in wilson loves glasses plan. Its right up his l. A. Over time he makes two changes to it. Much more than to be the two big ones are glass had these reserve banks and all of them he would put in control of the currency just make sure they work hard nor did it coordinated. Wilson says, the control is is it too busy and doing other stuff in there running National Banks. When we trade and altruistic lord of good people who will oversee the system the Federal Reserve board. And also the governors of the Federal Reserve board, glass say most will be chosen by the president and approved by the senate. But if you will be picked by the private bankers and wilson no that no private bank controls only going to be chosen by the president. So that is the Federal Reserve act that glass comes out with. He walks into a giant political tangle or tangles of monumental proportions. First of all the republicans hate it because they want a Strong Central Bank all of the aldrich plan. And this is some screwy democratic populist decay coming out of his ears, coming up with this centralized system. Secondly the radical democrats from the left largely, let someone dont want any kind of bank. They thank all banks are evil and thats what you see the cover of my book has a cartoon the use, and so glasses it from both the left and the right, because everybody wants to get into the act. Secretary the secretary was to get into it, the secretary of the state williams was to get into it, brandeis wilsons advisor wants to get into it, and glassself negotiating and forgetting the bankers, the bigcity makers in the small country bankers and so glass has to balance hundred, rises and lo and behold, glass gets a bill through his house of the house of representatives and then we need goes to the senate, glass is the guy who gets it through the senate. So we end up in 1913, i thank christmas day, wilson signing the Federal Reserve act using the decentralized system that glass came up with. And as i said this is the first illustration of glass not liking regulation liking fragmentation. He doesnt want one powerful central bank, he wants a series and we end up with 12 Regional Reserve banks. Glass now, nobody heard of him made clear before now is National Figure for people who care about the self. Secretary of treasury, Virginia Center dies in the governing names glass the seat. The u. S. Senate, and glass proceeds to get elected former times for the u. S. Senate. So glass is now a senator, the great accomplishment and great people thank a lot of him. Now the 1920s, the late 20s, we have a roaring stock market. Fueled largely by people buying securities on margin. There were no federal or state limits, on how much of bank could lend you. And typically, people bought stock with 20 percent down. You could buy 10000 of securities with 2000. This works terrifically with the market is going up like it doesnt 27 and 29, is terrific leverage on the upside. In glass, remove the Banking Committee minority member looks at things and sees what later refers to a river of gold coring to wall street. Because the banks around the country, the banks in lynchburg, the banks in wichita kansas and Sacramento California are not lending to local emergents and farmers where they can earn 5 percent there lending to banks in new york, Manhattan Bank because they can get a percent and those banks lend that money to Merrill Lynch who lends it to my wife his grandfather and my uncle. For margin loans. So the money is pouring across the country. With local banks using their deposits and other funds to lead to the new york brokers market. Glasses outreach. The diesel deeper and it gets worse. These 12 reserve banks are lending to the banks in their areas to lend to the new york city banks to lend to Merrill Lynch to lend to the customers. The reserve banks are buying the paper the loan paper, the commercial banks in these different cities have lent so the reserve banks are funding this huge flow of money to wall street. There was a system that glass created to decentralized things and have local economy supported has now being used as mechanisms to get money from the countryside to wall street. Glasses outreach. Because of the floor of the senate, he writes editorials, and above all, he goes to the Federal Reserve board which he had created, as of this outrageous and its not by the system that god created, he was the creator you guys have her stop it. In the fences will thank about it. A good. Well thank about it. Basically does nothing. In glass gets more and more outraged. And glass becomes a real stick in the side if thats with the expressionists. Two fed and the Banking Industry because glass is almost out there alone screaming that this awful thing is happening. So they get a professor at princeton joseph, to write a book for wall street and washington published in may of 1929. Its the stock markets very efficient, great that this money is going there, really making a great economy in the city of glass country boy, barely were shoes, doesnt believe in creation, darwin idiot. And that publishes in may of 29. That adds insult to injury, prison of course is the home of glasses zero Woodrow Wilson. So glass really is this year. We all know it happens next, a couple months later, october, a huge stock market crash. My wifes grandfather and my uncle all got wiped out. People across the country were diving out of skyscrapers. In all this is happening. And people said by god that idiot glass was right again. He predicted this. The senate is still with control and very lopsided leap by republicans. This is 1929. And guess who they pick to run a committee or subcommittee to look into this and come up with legislation so it wont happen again. The democrat class. I dont know if this ever happening in American History but heres a case where one party select somebody very deeply and the other party had a very important subcommittee. Celeste now has a subcommittee that isnt going to develop is that glass elect. I remember, for other reasons, glasses main goal is to prevent Federal Reserve banks from lending for speculation, and to limit how much commercial banks can lend in speculation. And against those provisions in the first draft is built. And at that. , he was probably ready to go home. He has his main concern, but two other things happen which we know about now looking back, what kind of overshadowed that. What is federal deposit insurance federal insurance of deposits. In the late 20s in the early 20s, five or 6000 banks failed nor the country. Mostly in the rural agriculture and wheat stays in the midwest and codices in the south and local banks are lending to farmers. We have been a big articles for depression. So those banks failed left and right and theres a public outcry for the federal government to ensure the deposits. The depositors got wiped out also from local communities, theres no source of money in these communities anymore. And also from small bakers. And theyll demand better depositaries. Everybody in the country who has more than a High School Degree at the time these federal deposit terms are the is the worst idea ever. President uber and governor Franklin Roosevelt from new york and glass and people in the Federal Reserve board, people of had to take banks, and if they thank that it is a crazy system to have all of the powerful wellrun banks in the country pay premiums every year to shore up badly managed small makes it ought to go out of business. But there is a tidal wave of in the depression is worse and worse, tidal wave of public demand for deposit insurance. Glass hates the idea. We need learns that unless he puts it in his bill, he will not get his bill. That will restrict lending for speculation. So glass reluctantly puts the deposit insurance in his bill. The third area, the other when it comes up that will thank about glass, its not anything anybody thinks very much the beginning. Thats banks being in the securities business. This gets a little technical but let me just say this, and the beginning of the 20th century, large commercial banks mostly in new york, largely citibank, First National city i thank it was called man want to get into securities underwriting and dealing. But the lawyers, sherman and the other downtown law firms look at this law in the National Making act as in the civil war that says National Banks can do and it doesnt say you can do securities. So they cant do it. But their smart lawyers so they come up with lets create a Sister Company called a securities affiliate. It can do securities. And we can tie it to the makes in two ways. You have the same officers and directors of the bank, and secondly the certificate for 300 shares of citibank or chase manhattan, also add to that certificate, 300 shares of citibank securities affiliate. In return enduser security certificate now you get your new one as an estate ownership of both the bank and the securities affiliate. So the affiliates become a big thing in the 20s, using this device and fact become the biggest Securities Firm in the country. In 1929, the largest Securities Firm was citibank securities affiliate. And where is citibank, the bank then could only operate in new york state because we did not have cross state banking in those days. But the securities abilities in 50 states and housing busters. And its headed up by a terrific salesman charlie mitchell. The big deal. And the question comes up what to do about the securities affiliates. Classes first bill, since they are to be regulated National Banks affiliates to be the control of the currency. Security of affiliates state banks that are members of the Federal Reserve system should be regulated by the Federal Reserve board. And glasses and focus on it is it too much but his next bill that year or so later, is way beyond regulation to going for the abolition of security affiliates. And i thought it would do years of research and find will make last move. And i have a dozen things but i am not sure which so i will just take them off. First of all, class was around 1913, is what he was appointed to run the subcommittee that he grabbed in the Federal Reserve act. Democrats commit have another committee, peugeot committee, to look into the money trust and it came out with a bunch of recommendations. One was to outlaw security affiliates. So glass obviously remember that when they looked at this 20 years before, that there were affiliates by outlining them. Second, classes first proposal is to have the fed and the controller, regulate the affiliates but glass does not have much faith in regulation because he just came through. We need yelled and screamed at the feds to do something about speculation and the fed blew him off. So glass its not exactly enamored with regulation. Thirdly glass as hearings, the Federal Reserve board justified before them. Blessed mr. Chairman, mr. Deborah, what he thank you are going to be about security affiliates. He answered it with a lot of problems if we could do it all over again, we would have them but its very hard to unscramble the omelette. But yet if you want, heres a piece of paper which has legislative language to abolish them if thats what you want to do. I thank underneath, negative by the fed itself indicating it doesnt have much faith in regulation. So glasses probably teetering at this. Within two things things happen as they often do in live. The push away over the line. Place glasses hearing major new york bank make the United States fails. Its not one of the big wellknown banks. In his bank for immigrants in the garment business. And fails spectacularly leaving tens of thousands of new yorkers that went out any deposits they were wiped out. This one by two semi trucks. And it hasnt 59 affiliates. Mostly real estate and not security reels affiliates but all of a sudden the middle of the hearings to thank about what to do about security affiliates, this Gigantic Institution fails in the biggest city in the country. With a bunch of affiliates. On the second thing that happened in response to that, the new york state superintendent of banking, joseph introduces legislation in the New York Legislature to prohibit new york charter banks from having security affiliates. These recent are why it moved to separation, abolishment rather than regulation. Limits or prohibitions on speculation, federal entrance of deposit and making it clear that banks cannot be a business but also cannot have affiliates in roosevelt the same way they handed a draft to the Federal Reserve and they get elected and glass hands him not fully done but most of them. And presented to roosevelt. Get connected in the first hundred days of the new deal. I think what is reflected to some degree is glasses idea that regulation is not the way to address financial problems fragmentation, decentralization so trying to regulate inc. Security, abolish them. There is one more actor want to discuss. That is the next year Security Exchange act of 1934 crated by the fcc. Way back in the committee in 1913 to other forms recommended, new securities to give disclosures to the public and the second was to regulate the Stock Exchange and brokers. And guess who they had as a regulatory authority, the post office department. Because they are very concerned about federal jurisdiction in the constitution gives the federal government the right to regulate the males that he is and easy way to regulate. Nothing happened to the recommendations, then they turned to security valu regulat. First they do the security active with 33 requiring disclosure and they debate who the church exchange go to in roosevelt people select the federal trade commission. It was an agency traded in the wilson ministration in jampacked with liberals and they take up the harder issue of Stock Exchange and broker regulation. The new dealers come out and say heres what we want to regulate the Stock Exchange and we will use the same agency as the federal trade commission. The New York Stock Exchange was much more powerful than we can imagine today. It was a dominant, American Financial institution. It was not just a simple, it was very powerful economically, politically, socially and the New York Stock Exchange goes crazy over this proposal that a bunch of liberals at the federal trade commission regulate the New York Stock Exchange. They go nuts. Its a very bitter fight between the new dealers who have a bill that would give the federal trade commission and authorities to the Federal Reserve and margin standards, they go crazy. Theyre not trying much interest but he now steps in and proposes to create an agency for the commission and provided with authority to do with margin. Glasses is for two reasons, he does not like to march in and see doing many things. He wants especially Security Agency rather than the ftc that does 20 other things, and miss fragmentation approach, secondly he does not want the fed having anything to do with the stock market, he doesnt want the fed doing margin soy puts in a built Avenue Agency which would regulate the Stock Exchange and you margin. Roosevelt and his aides oppose it and there is a showdown both in the senate Banking Committee and this is 1934, the height of roosevelt in new deal powers and glass pecan 10 8 and they vote to grade a new agency, they dropped the margin and it goes to the fed but glass beads roosevelt at the height of the new deal and instead of having security for the federal gre regulation revenue fcc thanks to glass. No one to wrap up, im probably 50 minutes. I want to say a few things, we have these three laws, the Federal Reserve act, glass steel act, they all have been amended over time. And they largely are in place today. Not that they have been changed over time as people of different events and different theories, there largely in place today. The Federal Reserve that was a amended in 1935 to give them more power than the 12 reserve banks and theres a movement to have a few real centralized bank but it still is decentralized and for example the open Market Committee which is the committee for Interest Rates has seven people from the Federal Reserve board and five people from the Regional Banks. It is a deep centralized system, the Security Exchange act provided by the fcc, every year since i have been around any administration, republican, democrat, liberal or conservative, for the fcc has to be rolled up into a Larger Agency they will emerge in with a Trading Commission and that will emerge six together and there has been 100 proposals, none have ever gotten anywhere. The fcc is still a small specialized Security Agency like last wanted. The biggest changes was the fed by ruling in congress in 1989 got rid of the prohibition on security affiliates. So officially 1999 congress blessed the fed attempts and banks were permitted to get back into the business for security affiliates. All other provisions of the act are in place. Banks are limited how much for speculation, Federal Reserve banks cannot lend for speculation. Was the whole federal deposit insurance, most remains. It is interesting that the structure today is largely what glass first came down with. I want to make three last comments. One, glass approach favoring decentralization or fragmentation, whatever we want to call it was not unique to glass. If you go back and reprint guys, that is what they were talking about when he wrote the big business and the antitrust falls, he was not acting to give lower prices for consumers, he did not like government, business or anyplace else. A lot of people in addition but glass was the guy who got it done. They gave speeches, wrote opinions but glass got three laws an enacted that were reflective. Since the Second World War we abandoned this approach and gone to a regulation approach, opposing work more regulation. The high point with the dodd frank act which came after the 2008 financial crisis which is a regulator stream, the act is 848 pages and it would cause to adopt 243 new worlds to undertake 67 major studies and prepare the reports. If you like regulation, this is what you ought order off the menu. Despite this, there was a widespread belief that dodd frank is not going to stop us having another financial crisis. My book is full of quotes from people of former special Inspector General of the treasury said we have a system that was broken and the fundamentals have not changed. The question is not if the u. S. Faces another financial disaster its win. On top of this, for whatever reason policy or the economy we have fewer banks than deposits. Today you seen recently in the last couple of years politicians like john mccain, sanders, warren for restoration, some people will call for stronger, not just separate banks and securities separate from Asset Managers and finally to compose a limit on the banks that i have no more than 3 of deposits. The last thing i will say, this is gone dormant i no doubt will hear more as a 28 candidates keep jabbering away and if there ever is a financial crisis, this will come out of the medicine cabinet. The last thing i would say, all the issues are still with us today and i think it was faulkner in glass is that the past is never dead, it is not even the past. Thank you. [applause] like his classmate, mick jagger, its a hard act to follow. We have two expert discussions, were lucky to have that, speaking in alphabetical order will be wayne, first wayne joined the American Bankers Association in february of 2005 and serves as the executive Vice President for Financial Institution policy and regulatory affairs. Before joining the aba he served two years as treasury assistant secretary for Financial Institutions under george w. Bush and received the Alexander Hamilton award and recognition for his service. Prior to his work in the treasury, he served as a staff director of the senate Banking Committee under senator phil gramm who was one of the authors which ended the glass fetal act. In here down the street at the International Study of school of advanced International Studies at john hopkins, speaking second, he is a professor at law, George Washington university he joined the faculty in 1986 after 11 years in private law practice including a partner and he is the author of more than 40 articles and book chapters in the fields of banking law and american constitutional history and the coeditor of a book, the financial crisis of 2008. In 2005 the American College of Consumer Financial services lawyers awarded him a prize for the best law review article, i could go on and on but i will not. You can read about online. He has testified before u. S. Congress many times and he was a consultant to the Financial Inquiry Commission that looked into the financial crisis, he has a ba from Yell University and his law th degree from harvd law school. Both of our experts, thank you for coming and the mic is yours. Thank you for coming. This is an important issue because of the very important book in a very good book and a fun book, it is an interesting book to read which is unusual and you say i want to read a book about somebody whos involved in Financial Regulation and you say let me know how that goes. [laughter] it is actually very interesting book and an enjoyable book in this biography is so enjoyable because unlike many biographies of financial folks and others, it does not paint a twodimensional person, it has a very threedimensional way which also makes it difficult to put a label on him. He is a very interesting person and multi dimensional person. Second reason why this book is very interesting, its a great study in the legislative process, you learn a lot about how to make laws in the way carter glass was involved. It supports my own conclusion that based upon watching the Financial System close, that it is hard, you have to really work at it to make financial legislation partisan. It naturally tends to go towards bipartisanship and even when they try to go forward with the democratic approach in the end you end up with legislation that was bipartisan in each of the significant pieces he was involved with and that the reason why i say this book is interesting and readable. He is deeply involved in many significant pieces of financial legislation and in some ways for very important reasons. He was willing to be involved which reminds me of the senate i worked for phil gramm who is known to have said in washington if you are willing to take on the tough issues, people will stand aside and proceed to the front. That was the case with glass, he would take it on because nobody else wanted to get involved. If i could all add a fourth point. This book relies at the fourth point because it relies upon what happened in the years after words. Which matt talked about, thats despite carter glasses policy of intentions and hard work. Things did not turn out the way he envisioned or wanted. And thats a lesson to be learned much of the story comes together in the depression. Perhaps is the climax of the plot of the book if you will. It was a real world dystopia, it was a market recession intensified in a long by the search for utopia or application of utopian ideas. The foundation was the government planners that were smarter than the markets. Yet they were ignoring what they were doing and what they planned to do in making sure that wouldve been as deep recession and improved recovery prolonged for a decade. Carter glass plate and unwitting well intentioned role. For what is told in the biography glass sought to legislate with sincere beliefs and the desire to solve what he saw as real problems. To do that he enlisted the successful legislator gift of knowing when and how to make a compromise that brought people together to pass legislation. Surrendering some details however, prized they might event, excepting others that might not of been favored but they were not showstoppers. And they did this to achieve the overall purpose of what he is trying to compose and the legislation and as matt points out in the book, glass combined technical mastery of complex issues, political and fierce determination to achieve a series of legislative victories in the financial arena. He understood the job in the process of legislating which is becoming a dying art elise and the congress in the last ten years or so. Based on having worked there long time and seen operate differently. Legislatures are based on a recognition that no one person knows it all. And that multiple viewpoints have to be brought together and accommodated to some degree if youre ever going to pass anything. And they do an excellent job showing as a master legislator glass brought forward the Federal Reserve act and the Security Exchange act. I want to turn to congressman glasses work 100 years ago, that led to the Federal Reserve act. It arrived at maple energy from the financial panic of 1907. An early proposal was led by senator nelson of rhode island and congressman edward of new york. The yankees all. Which the quiet virginia congressman at the time. The emergency currency act became the subject of the first policy speech that carter glass gave on the floor of the house. Because the law focused on what was then called currency in elasticity. It only focused on coming up with solutions in the time of emergencies. In glass felt they needed to be more available and he compared it to miltons paradise lost, the matchless act picked poem which everybody praises and nobody reads. He was sure that was true the legislation, i think that is true, when he put it forward. And then a bit of foreshadowing. It was insightful that not only was it applied to the legal act but a characterization applied in todays discussions as well. I rarely hear anybody who understands what the glass steagall act did. How it was functionally applied in the modern economy and what problems it would actually solve. The 1912 election brought together virginians, wilson and glass to bring the Federal Reserve act in 1913 when that act did more in less then glass wanted to have the structure that was discussed about creating something that you dont find anywhere else in the world, a Monetary Authority based on a decentralized structure which was 12 Regional Banks, thats a structure to some degree continues today. Glass was nervous about the idea of placing power in the hands of what he was sure would be the new York Financial interests or the new york powers of washington. Now whether how much of that remain, i think not as much as one would think, lets move 20 years later. With the economy and mired in the depression, a very different experience than the panic of 1907 called carter glass expressing his hope with the time of creation. In the first legislation a careful revision and the wise preparation of the Current System of the United States whereby panic may be prevented or if not prevented an which violence may be diminished. And the evils consequently invaded. To what extent were these wishes of carter glass that failed 20 years later . I fear that we must say, however, wellintentioned they were wholly on the field. Panic was not prevented, the violence not diminished but stimulated. In the eagles rather than abated were prolonged. Strong cases made because this is rather than in spite of the Federal Reserve. The tragedy is, senator glass at that time did not examine and how to address is laws. He did not consider application of the popular monetary doctrine of the day starving the economy of liquidity. Probably because he subscribe to the doctor. It was a highl. It just made things worse and worse when the Federal Reserve governors were thinking why is this not working. Were doing everything we should in all the indicators of Monetary Policy indicates everything is going as its supposed to and yet making things worse all the time. The economy was in decline and the fed reduced the supply of money and continued to do that throughout the decade. The tragedy, again i say tragedy is that he did nothing to review the feds horrendously wrong monetary policies. They devoted his energies and skills to slay the mythical dragon of banks having security affiliates. Glass more than believed in the problem, he felt that the 1929 star market crash at its core was caused by bank owned security affiliates. He felt no need to find supporting data. His intention was turned away from the Monetary Policy, his formidable edges later skills help produce the glasssteagall act. It would be in banks and being involved with security firms. Now as i turned to another book, this is called the separation of commercial and Investment Banking, this was about the worst boring book i ever read. And you really have to strain through, this is written by george j princeton he was a professor at everett university. And he combed through the legislative record behind the glasssteagall act for the basis on with the provision of separating banking from security affiliates was based. He found nothing. There was no factual basis for it. There were people quoting one another in reporting ensuring each others opinions but they did not look at the data. That is probably why after five years after the passage of the glasssteagall act that they did not restart public confidence, Economic Activity remained depressed until 1941 or 1942 in security underwriting did not reach predepression levels until 1950s. In particular he searched for the factual support as a mention and this was his conclusion after going through the entire record, the evidence from the glasssteagall. As evidence of the depression before that it is totally inconsistent that banks, security activities or investments cause them to fail. Or because the Financial System to collapse. Those who claim otherwise intimates red the record or did not look at the actual data or simply uncritically believed made by senators and their staff. So let me sum up with the lessons we might learn from all of that. In the following 60 plus years, much of what it been put in place, the market erode and take away in the lot that i was involved in passed in 1999, it did nothing new. In the act was put into statute with what the regulators had only created to keep up with what the markets were doing which was to expand the number of bingo moment and others in other Security Markets. And they want to be able to do a lot of stuff at the same place. But the point is, they point out in the biography and its a good read if you want to see how humans are involved over a long period of time dealing with financial problems and they do their very best and when they Work Together maybe get better results but the important lessons is whats needed for the policymakers is a certain dose of humility. Because the markets and others may very much change what he thought out to do. Thank you. [applause] thank you to paul for inviting me too join this discussion. Thank you pat for a wonderful book, great read and certainly the issues that matt discusses in the book and the issues he dealt with orbital relevant today. I agree with wayne that this is a very good read. I like the fact that its a political history, glass was very difficult in Economic Issues but i think what is great about the book they gives you the clinical, personal background that his own personal daughter explain about the perspective that he brought to these issues. I mentioned the very interesting between glass and brandeis, they both grew up in the south importantly before the civil war, they both were progressives but unlike the new deals, they were decentralized, they believe in resisting centralized power either Financial Economic or political and they also understood that centralized financial power and centralized economic power almost always lead to centralized political power and vice versa. In the new deal centralization of government power. Interestingly he was involved in two major decisions that struck part of the new deal. And as Madison Point out its most outspoken congressional opponent of the new deal on the democratic side, he gave a very broadcast speech against the Court Packing plan and they also did not support the fact that centralized financial power, that does tend to tie together the experience of the committee in 1913 in the ac in the glassl act of 1933. They were both distrustful of wall street. And citizens of the south and Small Midsize bit a hundred cities they were aware of wall streets economic financial power and aware how it could pull money through the Correspondent Banking system and with the assistant of the Federal Reserve from all different parts of the country and put it into purposes on wall street. They understood that very well and they thought that was defective in the development of the whole country. In the destructive of the whole company and country. Because there was a series of economic and financial panics leading up to the 1907 panic and ever since the civil war, many causes but a lot of them tended to end up connected to wall street as security speculation. Then his book, he is no longer with us so my criticisms will be brief but i think he overstated the claims against glasssteagall as much as the supporters were the case for glasssteagall. The fact is, your massive speculation on wall street in the 1920s. Your massive speculation and foreign bonds that were extremely hazardous and mass speculation and Corporate Bonds and corporate securities that were extremely hazardous in the banks security affiliates it was the biggest point, chase is the second but there are many others in the use the security affiliates to promote the sales around the country to unsophisticated investors, small banks, small Insurance Company and those small banks and small Insurance Companies were blown apart when the crash happened. Glass and his patriots knew exactly because they had people telling them and wall street had the securities industry does. And theres lots in the record about how that happened. Its an abundant record. There are people who have attacked it but in my view the record is abundant. There was plenty of security speculation that was very destructive in the wall street security affiliates were a key part of it in the Securities Broker were part of it in one place the other two greater extremes. Lets jump forward. After that we had a stable Financial System until 1980 and then the glasssteagall act was picked apart by regulators as been said here. And eventually after being picked apart by regulators for about two Years Congress repealed it. That was a ratification but far more than a ratification, gave Legal Certainty to the glasssteagall and also gave 100 repealed. The regulators have not been able to refill 25230 , congress in 1999 was double the rest of it apart. What happened after that . Pretty soon we had another massive episode that was very risky real estate loans were into r b us residential mortgagebacked securities and collateralized at obligations, those are spread around only to the country with the world, they were spread around by the integrated banks for their Security Operations. They were competing with big securities and once again the banks in the security firms pushed each other for excesses in the absence of speculation in the promotion of hazardous securities was just as bad or worse in the 1920s and the result was equally disastrous. I think people will tell you that correlation is not causation. But it is very interesting that the two times when banks became deeply involved in the Security Market, the 1920s in the 2000 after the repeal of glasssteagall, those produced the biggest boom cycles in the most instructive episodes in the greatest Economic Disaster this country has experienced at least since 1907. Both were worse in 1907. So the correlation causation in my opinion is more than correlation, its more than coincidence, i think the feeling that if we should risk another episode of the same is worth asking. We now seem new buildups particularly on the corporate side, household side we see risky debt and things like automobile loans, cdls are coming back prime mortgages are coming back, im not sure that weve learned a lesson that glass tried to teach us. He is very concerned about conflict of interest in the Banking System. Banks giving Investment Advice and loans, to the most important things they can do. But if the bank is lending to support the security venture, it is no longer an objective lender, is lending to support another venture its trying to push, if the bank is trying to encourage its customers to buy securities that the bank has underwritten, is no long and objective advisor. For glass, that was country that were some thinking principles. He also thought it was very dangerous for banks that have unique access to depositors which is the cheapest one to get on the part of market. But look at what your bank page two,. 1 , point to if youre lucky. Thats the cheapest money you can get in the private market. That money being used two speculative Security Operations is a very great sensation to the bank and very dangerous temptation. Last thought the deposit should be not used for specular person under purposes. And in glasses warnings about what he injured that we can learn from and revisit. And because i grow up in a small town also, i certainly see the wisdom of brandeis and glass who thought the all wisdom was not centered in washington and york and desirable to spread the wisdom around the country. Again, congratulations on writing an excellent and timely book and i certainly learned a lot from reading it. Thank you. [applause] i did not know we are going to relitigate glasssteagall here again. [laughter] matt canepa your best carnation and split the baby between these two,. Like a lot of people in this room, 20 years of my life as an advocate to preserve glass steagall and i tried to stay neutral in the book. The best talk ever heard was from a lawyer who joined the staff of the committee, i am noisy of her name she said she talked to the club and she said that shed been assigned to work on glasssteagall she had known it for six months, she did not know much about economics or politics or banking but she did not have to because she was from a religious family reform from michigan, detra from and she recognized glasssteagall was no fact what change anybodys mind. The belief that glasssteagall is holy writ or the devil then no fact will change anybody. Second, anybody who disagrees with you is going to help. I am currently i am of not stick on the issue and theres no way to split the baby. I think people look at the same evidence and start with the visceral approach. Other things the more they change the more they stay the same. Carter glass birth the Federal Reserve in 1913, it was decentralized. Aaron comes around and Roosevelt Watson to be chairman and he says im not quick to do unless you change the whole structure and giving more power. Roosevelt has his people go along with it and carter glass is not happy about it. He intervenes at the last minute, changes that back and keep the decentralization in it. There is a big debate with the bankers in the country, they still have a say. I think it shifted the balance over 70 32 reserve bank. It shifted it 70 30 the other way. So they did not totally shifted because the open Market Committee is still 70 people from the Federal Reserve. Finish the story, the more they change the more they stay the same. In 2006, the Congress Gave the Federal Reserve a part of the interest on bank reserve. But they give the part to the Federal Reserve board, not the fmo and c. That is the policy of the committee thats possible all monetary the principal Monetary Policy is now fully controlled by the Federal Reserve board. If the law does not agree with what happened, over time you will see arguments that the president and the reserve bank that come to washington to be appointed by congress in using this debate continue on. The more things change the more they stay the same. None of these issues one interesting fact, on open markets the policy issues, almost no different from the members of the board. There is an unwritten rule if youre on the board you dont descend from what your chairman or chairwoman wants. But it will come from the resource. Its actually the Regional Bank president s that have been willing to dissent when the board will not. I think that is a healthy thing. That is healthy. We talked about glasssteagall and reserve act, independent of the fed, what would glass think of a president who wants a name came in seymour, glass had his own dirty hands in this. He wanted the fed to be independent but was going to be five members in the secretarytreasurer. When your secretary 1919 he leaned on and used his position to lean on the fed to sell war bonds. He actually violated this idea and i guess where i come that a bunch of president s have leaned in i think the idea that trumpets whale the reservation is wrong. His style may be cruder and more exaggerated but the fed is not simply institution immune from politics. [laughter] and would open it up to the audience, hopefully they will have some questions for you. Please raise your hand and tell us your name and wait for the microphone. Right here hi my name is mark, once upon a time i used to write about regulatory policies. When we think about regulation we often talk about cost and benefit. We abundant in terms of glasssteagall we know about the allegations of the cost of abolishing it. And to financial crises may be caused by that and maybe not. What im having trouble understanding, what is the benefit of getting rid of glasssteagall, the usual argument is we get rid of it and lead to innovation. But i am squarely in the camp of worn buffet or probable core who said the only useful innovation that theyve created is the atm. A mortgagebacked security at the very least is a mixed bag. So i would ask that the gentleman from the bankers association, what exactly other than jamie dimon bonus, what is the benefit of getting rid of glasssteagall. Ill make two comments, first of all things have been involved in a lot of innovation. We find in the Payment System and a lot of things you never see in the Payment System that makes it work so well because things that the banks have done. And think they been doing you take the checkbook, that was crated by state banks, credit cards by National Bank. In other sorts of payments. With regard to repeal of the glasssteagalls band banks affiliating with security firms. That allowed to eliminate inefficiencies in the Financial Market and allowed them for 20 years to provide a wider range of Financial Services to people throughout the United States of all kinds and all type of Financial Services and made them more competitive. And when i was working at the Senate Banking community in the 90s, there was a tremendous concentration of power if you will, in the Security Market. It was a very small handful in a very large security firm. When the banks got involved they got up a bit by bit and they got more and more involvement. Again much more competition so the cause of being involved in the Security Market has gone down dramatically. I remember when you cannot price below a nickel on your securities, about security the other day, the price was. 000013. 000013per share. I can even tell you what that is. But the efficiency of that is tremendous. Of a question, why do we go with you in then you. Tell us who you are and make the question brief. My name is mark im an adjunct professor financed in Georgetown School of business. My question, to the panel, there seem to be consensus that speculation is bad, bad bad bad. But risktaking obvious is at the core of capitalism and entrepreneurialism and it seems to me as i was reflecting your definition of speculation when people are taking too much risk with too much leverage so it was really leveraged that was distinguishing risktaking from speculation. I guess, are we stuck with the speculation of risktaking not working out. In effect things happen . And thats why we call it speculation. It seems to me that you cannot have and create a destruction without risktaking which occasionally is another form of speculation. My view is risktaking being done by the private sector or being done by piggybacking off the federal safety net . Bank under banks take deposits and effectively we proved in the last two crises that the deposit will get paid off 100 cents on the dollar. People will not lose their deposits. There is 110 enter deposit insurance. The web banks pay. 1. To percent on shortterm deposits. That is federally insured at that money. To put that money into the Security Markets or the capitalist markets is fundamentally saying had they hi win, tails are loose. Loans are different than, these are longterm investments, these are not shortterm with the movement of the market. I think theyre good at making loans, should they be regulated, absolutely. I think the Capital Market should be over here, thats what glass siegel had understood. They should be over here which is not the longterm lending to people who cannot get to the Capital Market and Small Businesses that cannot go there to get money. That should but hasnt technology in money markets obliterated all the distinctions between the Capital Markets, banking weve allowed that. That brought us to the last crisis and itll bring it to the next if we dont reconsider that. I figure the Current System, the banks and the Financial Market are completely integrated and there is no distinction. That is a dangerous move but many people disagree. You keeping the bank makes a loan, you know any banks that failed because of security positions . Yes they would have. That is not true, if you look at the history he looked to have anything during the depression these are all security systems. You said there were any. Im just saying. Look at the actual history brings during the depression did not fail because of the security position. They feel because of loans, why did banks fail in the last recession, 400 or so because of the lending position, not because of the security position which were the banks that were the strongest to rescue the failing institutions, those of the diversified banks that had a variety of different activities in which they were involved. Citigroup was involved in while kobe was insolvent. The facts do not show that. The thing about citibank, we had a book about here a while ago they been insolvent for five times in history and probably four or five times more before its all over. Thank you very much. And thank you mr. Fink for this book. I think it would be o a perfect couplet to offer this to the lords of finance about how central banking because the depression. And carter glass is certainly a player in all of this. I am john, White House Correspondent for newsmax. You brought up the president attempt to appoint the politically herman cain and Stephen Moore to the fed, would he have felt that Something Like this was just a part of history and did he have a lot of comments on similar appointments through the year. Wilson having giving the fed treasury secretary fdr naming jean meyer, catherine grahams dad to the fed. What would he say . I do not recall reading any comment, maybe im wrong but as a politician he would be less surprised than the echo that we here in washington of an unprecedented thing trumpets thinking about. He did not like echoes. They were enemies. But that was the policies, they were running the fed. The other president s have been involved and when he was on the fed and try to get the fed to do things that had nothing to do with Monetary Policy. I think he would not like it but hed be more understanding. One of the provisions of the Federal Reserve act, and the law that is often just barely obeyed is that you cannot have more than one person from the same district. It is quite interesting creativity as to how they pull one from the other. One went to college 20 or 30 years ago. But the idea was, to check to make sure you generally have people from all around the country. They are to political or too sympathetic and they were not qualified is kinda crazy. There is no qualification in the law to bs Federal Reserve for governor. The only one is politics. You have to be liked enough that he nominates you and that they will approve you and thats nothing but politics. The only qualification is to be politically connected and those arguments i think theres a lot of colts in this town but the strongest one is the fed and people refer to as the temple. Those people put on their pants the same way we do and ill tell you one quick story, whose greatest Public Servant id ever met. The question is the fed in the 70s is debating if they should impose reserve requirements on money market funds. They had them on Checking Account but not on savings accounts. Because they do not turn over. To reserve bank studies that showed that they were acting like savings accounts not Checking Accounts. People were not transacting very much with them. I want to see poker with that and he said my wife is a bookkeeper for a Small Company in new york and she pays the payroll by writing checks on the money market fund. Here mr. Great genius was facing National Policy on his wife occupation. [laughter] it was firsthand evidence. One more question. Good evening, this is an excellent panelist. My name is julian from the American University in washington. I served as the associate director correspondent 2011 at the white house. And im not turn to get anybody in trouble but i want to know in the 60s, president kennedy, in regards to Federal Reserve what did he try to do . What could or should he have done and could you just talk about his presidency in relation to the Federal Reserve . I have no knowledge on that. That is even young for me. [laughter] i was watching cartoons on saturdays, the governor after inflation starts going Lyndon Johnsons relationship martin had a colorful career and that becomes interesting. Truman appointed him and he was in the treasury and he helped truman negotiate any got truman to nominate him as governor of the fed and very quickly he started doing things that truman did not want, raising Interest Rates and truman was angry about it and he was later on the street saying that was the worst decision i ever made. He was the one that coined the crates that the feds job is to take the pocketful away from the party as it starts to get going. That was volker and martin afrin them. And i dont recall that kennedy did a lot but Lyndon Johnson really, martin actually resisted political talk to lower rates under kennedy. But johnson put the can wash on him and johnson were at loggerheads. But i dont think kennedy was so successful in choosing martin to do the white house. But johnson got to him in the end. Thats my recollection. Thats a different book and a different topic but thank you for the question. We have time for a couple more questions. What is the panels opinion or prognosis if one of the 28 that are advocating for doubling or quadrupling the Capital Gains tax rate would have on the economy and or the Unemployment Rate . By the way, volker bigot. I would hate to see the Capital Gains tax rate. My general view, was the communist day this, whatever you tax to get less of, if you go you get less capital return, less Capital Investment and if you get less of that in the end it will affect productivity in productivity ruins and becomes eroded. Lets get back on topic. You made a terrific presentation, question you focus on carter glass but you dont mention what was going on in the hospital. The question for me, he says there was no data to support the separation, how did they sell in the house if there was no data. What were they operating on and how did they go along with what carter glass wanted to do . They were concentrated on the fdfdic insurance. They did no heavy lifting on the separation or his other policies. Steagall was a guy who happened to be there and not particularly in expert, they just took what glass had done. They fully agree. You can find the speeches in the house. There was a lot of public hearings going on and they were vilifying in new york that this was the same time that the United States bank failed. They picked up on that blasted national city, the biggest security affiliate in the country. Its all in your book. The congressman of connecticut says i believe in the biblical view you cannot serve two masters, and we have to get banks out of the security business. And there was applause that the whole house applauded the speech. It indicates what the state of mind is. The whole public i gone through a horrible banking crisis were many people lost everything that they had in the bank. And there was a stock market crash. Normal people cannot separate out what is going on but the public wanted something done. It was a very serious thing at the time, the Banking Industry did not oppose because they were rat were making anyth. So they thought if we could get rid of the securities there is a price to pay. It. Its a big bank, small bank thing. The Banking System is not a monolith. The big institution in the Small Institution in the big have context to the Baseball Team and politicians in soccer teams. They did not have soccer back then but baseball. Last was a big figure. He wrote the banking act. The huge detriments paid to him in the house. They are all upset that hes the guy driving the chain. I think they were focused on america up or go it was 1913 good value for go i have to pull the punch bowl. [laughter] [applause] [inaudible conversations]
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