we haven't fixed the financial system and its ability to take on reckless risks and do well when things go, when they are lucky and to show that frisson to us in society when things go badly. goldman sachs is a big backer of a chinese car company who bought a volvo from ford. that's a risky investment. i'm a professor of entrepreneurship at mit. i'm not opposed to risk i think it is a driver of growth in the world. but think about goldman sachs, goldman sachs is a bank holding company and became a bank holding company in september, 2008 as a to save it from collapse. has access to the fed discount window. it's private equity does well i can assure you they will make all like bandits to use a technical term. if it goes badly whose problem is that? is a bank with access to the discount window. we cannot let these banks fail. and goldman sachs says okay we will just not be your bank. supplement guys, they were a rather loose not entirely accurate term the they were not regulated by the federal reserve. and they took a lot of risks and they were on the verge of failing for no fault of their own in the book they would like to defer if you let them out of this size with these characteristics of this relation to the rest of the system and they get in trouble again he will give them access to the federal reserve and you may promise up and down know, we won't do it honestly we promise you can pass as many laws as you want at the end of the day when faced by calamity the government will always have the power to do what it takes to save the day. that's the nature of power in the united states. and if you don't like you can take it to the supreme court and good luck winning that case. they would let goldman sachs back in. but that is not the worst of it. two big to fail is bad and has these characteristics but that's not the worst. the worst is too big to save. if you look what's happening in europe and what they allow the banks to do and the case of ireland or of the united kingdom the united kingdom became one bank, became had a balance sheet 1.5 times the size of the u.k. economy. in ireland of the three biggest banks together had balance sheets to times the size of the irish economy. in iceland well iceland how could we become like iceland? iceland the banks became 11 to 13 times the size of the country. i think the banks are getting bigger. next time they fail, there is nothing i can assure you in economics orval law or physics that says the amount of offsetting impetus to can provide the economy through monetary policy or for fiscal policy will match the negative sharp targeting from the collapse of the financial system. in 1930 if the federal government had wanted to do a sensible what we regard as a sensible fiscal policy and a fiscal stimulus because they were having a major problem they look to this estimate that the federal government could have done a fiscal story was of 1% of gdp because the government was much smaller than now. that wouldn't have made a difference. we increased over several years 40%. next time 83 the next time we may not have the capacity to increase the debt. the federal reserve cut the rates down to zero and engaged in all kind of imaginative and i think probably this successful form of so-called quantitative easing. next time are the -- will that make so much difference? i have no idea. i don't know. no one can tell you. the idea we offset with these think broadly sensible government measures that's roughly what happened. next time we may not able to offset, we may lose 8 million or 20 million jobs. easily. next time we may not go down and then come back but struggle to come back. we may go down and stay down a long time. that is the experience of a lot of countries and the united states in the 1930's. the big banks are becoming bigger. to be to fail now and they will become too big to save. they have a funding advantage and their attitude is let's get bigger. the markets allow them to become bigger. this is not a market outcome economy in this regard. this is people who captured the state and the intellectual rall missile but is not that of the left as site thomas jefferson but i would stress for the modern thinkers how much we john johnston cord university chicago professor in the free market school who was worried about regulating capture and absolutely right to worry about that. but what we see is state captured. he got a prize for this work. it's take that further and think about the state being taken over and twisted to the end of your particular interest group. how did we get here? how did we find ourselves in this awkward on a pleasant secretion? the answer is pretty simple. i mean i know there are many dimensions to what happened prior and we go through that in the book and there are many pieces that can together for the nature of the crisis but we need to go back further to add least 1980 and into the 70's and look to the nature of the regulation in this country. some form started under president carter and impetus under reagan and it's a big part of reagan revolution. some parts for sensible and some parts i would not want to roll back. i like cheap air travel for example. but deregulation in this applied finance has led to great danger. if you look at what has happened to compensation in the financial sector the past century it's interesting, some good work done and we will show them aplington as key figures in the book. facial enough rich compensation compared to the private-sector wages in the 40's, 50's, 60's and into the 70's banking was not particularly well paid. there was a 363 banking which was a 3%, when the 6% and go play golf by 3:00 in the afternoon. also known as foreign banking. now what was in that lifestyle, don't get me wrong i don't think there were a lot of poor bankers but it wasn't sexy fast-moving huge fortune being made like what began to happen in the 1980's. michael lewis of course is on the news now with his interesting book the big short-term but we site at length and my favorite book is still a wonderful moment he captures in the 80's about the speculative side starting to find its feet and become bigger but 1. i would stress and we make this point in the book is the people you worked with at solomon brothers that speculating outfit by the modern standards was tiny. the legendary so-called king of wall street in the mid-1980s wouldn't even rank in the top 20 and the fact the largest hedge fund we have in the country which is believed is approaching the headcount the solomon brothers at the time michael lewis wrote his book. you've read michael lewis book and recoil from the attitude and the culture i think certainly now many of you would put the was just the beginning to read everything that came after scaled that up and the key thing about -- and they paid a lot more money. the compensation went back to what it was relative in the private sector what it was before the reforms of the 1930's but fdr ran been speaking with finance and ended up cutting their pay. he didn't target the pit that is what happens if you make banking boring. now, the nature of american democracy as you know is such that if you have money you can be heard and make campaign contributions. i think you know all about that. you can also in the press people and become really compelling and fascinating and central to the culture and that is what happened to finance. this idea that greed is good which i think a lot of us don't intend in wall street as a cautionary tale in a statement of excess actually that became the motto of the 1990's and the huge irony, i think it is an irony it feels like an irony looking back is that the reagan revolution applied to finance reached fruition during the clinton administration particularly with robert rubin was the treasury secretary and of course the same people who are now responsible for helping clean up the financial mess hopefully worked with mr. rubin during the 90's. that is a great opportunity for them to make amends. still waiting to see progress on not but we all did it together. the culture shifted. wall street became good. the percentage of graduates from top universities who went in to finance as far as the key figure from the data was about 10% at the peak of the sub prior boom it was 40, 45%. it's money, its power, its ideology. i spent a lot of time talking to people in washington. i live in washington and spent a lot of time with people in and around the consensus, politicians, their staff and the attitudes have begun to change. not at that level people's thinking isn't what it was before september 2000 but people think that unregulated finance is better and unfettered mega banks are the best. this idea is wrong and dangerous and must be stopped. how are we going to do it. >> of the biggest banks have to become smaller. people say to the sign in, there's a lot in the financial sector is complicated. the size doesn't matter to which i respond really let's talk about citigroup. citigroup when it failed, i'm sorry, ran into liquidity difficulties. [laughter] i always forget, and fall of 2008 was 2.5 trillion of the bank including off-balance sheet liabilities they had to bring back, to .5 trillion. let me ask you this if citicorp had been a 5 trillion-dollar bank in september 2008 with the problems the better or worse? what if citigroup started to approach or jpmorgan chase by the we started to approach the size of the bank of scotland will the to to the u.k.? what if we had a bank but was $10 trillion or $20 trillion? and don't say this couldn't possibly have been the increase of scale. it absolutely could happen. look at the increase of scale the past 15, 20 years and the advantages they have now. making our biggest banks smaller is not a sufficient condition for financial stability and avoiding major crisis in this country but it is necessary. it is what i was arguing on capitol hill. show you how to make goldman sachs safe without making it smaller. a lot smaller. the largest financial institution we would fail last year was the csat group that had a balance sheet of about $80 billion, 80. goldman sachs balance sheet was 1.1 trillion before the crisis fluctuated around 800 billion. the c.i.t. screamed if they were not -- there was a lot of discussion whether or not to rescue them and to their credit the administration hoped i think by sheila bair the fdic decided to step back and let them sail. you cannot find the consequences of that failure today. they were bluffing. goldman sachs 800 billion is not bluffing. if you let them fail you have a problem. that is how the administration sees it and i agree. people say simon we have the resolution of 40 in the dodd bill supporters a qtr geithner. it will allow us to manage the contraction of the liquidation of mega banks when they get in trouble in the future with all due respect to people who work long and hard on capitol hill and i do have respect for them the resolution authority is a unicorn. a unicorp is a magical beast worth recuperative power. it's also a myth. check with your children if you don't believe me. if you call for a unicorn it doesn't come. the resolution authority cannot work because the resolution authority passed by congress would be a u.s. resolution of 40 would not apply to the cross border operation. citigroup does business in 100 countries. lehman brothers when it failed at more than 600,000 ( evidence contracts in london. the london operation of lehman was of the trade it every day. there was no warrior on the monday after of lehman brothers field on sunday night. the u.s. government doesn't have the legal right nor will it ever have the legal right to manage what happens to that subsidiary of lehman or the next equivalent in another country. you can go talk to the g20 actually you probably can't but i can and i have and i put it to them like this that they will not allow and agree to a cross border resolution author ready which is would be required to apply with the treasury says it is doing to make it work across the world. the g20 will not agree. they can't even get one with in europe. the imf has been urging the european union and even more specifically the year roseau which is no share of currency, one central bank has been pushing them hard to come up with a cross border resolution of 40 or mechanism to deal with the failure of banks within europe that have operations in multiple countries. they haven't done it, they can't do it, they won't do it. countries will not defend the sovereignty. they will trust other countries to act and they are right. i've also had the opportunity to bring this up with leading proponents of the resolution authority from the private sector. i take every opportunity i can assure you to debate in public particularly with cameras on leading bankers. there are not that many opportunities that will come out and talk to me that often. but i did have the opportunity to speak to the head of a big part of some of the global banks. actually there were no cameras this was in front of the g20 deputies and this is a very smart person with great credibility and legitimacy in front of the former regulator actually has many of the people are and i said to him explain to me, your posting the resolution authority and your boss is pushing the authority has the magic bullet as the measure that will end to big to fail. explain to me in front of these experts how that will help us manage another bank like citigroup. he wasn't from citigroup and this gentleman to his credit and i think a deep reflection on his honesty said is that the time i have to go to the airport. that was his answer. there is no answer. the resolution of 40 is an illusion. there's a dangerous illusion actually. if you take that off the table and remove that from the rhetoric you see and the proposals before you and congress you have nothing that would deal with too big to fail. you have some measures the would protect consumers. we support that in the book and i think elizabeth morgan has led the charge on that admirably and has helped shift the consensus and that is what we need to do now on to big to fail on the size of the bank's shift the consensus. there is no evidence and i mean really no evidence. economies of scale or scope or other social benefits to an increasing banks' caleb of $100 billion in total assets, and we are talking about banks in the trillions of dollars. we could go -- we can argue how compelling the evidence is for social benefits for banks about $10 billion. but above 100 billion there's nothing. there are claims jaime dimond from jpmorgan chase made this claim to the shareholders this week it's not true. it is flatly not true. the book goes through this and has the evidence to read the book has been in the hands of bankers for a copy years. i am one of the top generals. i make this presentation of law school and talk to the big d.c. law firm at manchester day. i give this talk endlessly. i even said it to steven colbert. [laughter] was line of questioning was not so different from what you're on capitol hill. but anyway there is no evidence, none. what does it take to change the consensus, two of the opinion of people like you away from perhaps being worried, that's why you're here tonight, to begin convinced this is an enormous problem and making it the largest banks smaller is essential. in 1902 teddy roosevelt, the president of the united states, decided to take on the northern securities which was a massive monopoly, railroad monopoly trade by jpmorgan and some of his colleagues and when teddy roosevelt did that nobody understood why he was doing it. nobody thought he had a chance. the senate was called the millionaires' club for a reason and actually there was no seeley about why this was a good idea. all of the modern antitrust thinking came after roosevelt decided to confront jpmorgan. jpmorgan came to the white house. he was upset. and he said if we have done anything wrong with regard to the structure of this monopoly send your fantasy line and we will fix it up. teddy roosevelt and his attorney general slander said no. we don't want to fix it up. we want to stop it and we are going to go to the supreme court and they did and they 15-for in the supreme court and from the decision came the modern antitrust movement. and by 191210 years later, this movement was strong enough. the thinking and the consensus behind it and change of consensus was dramatic enough that standard oil was broken up into 35, 37 pieces. now standard oil was the lifeblood of the american economy, this is a manufacturing economy, transportation economy. that was the fuel of the economy. but people have become convinced because the leadership of teddy roosevelt that while big could be beautiful and america under some circumstances and it certainly had lots of private benefits big to also be dangerous to society. it's a very simple point and roosevelt i think was a simple and direct thinker on this issue and he was just as much concerned by the way about the political implications of these massive trusts come it was the industrial trucks and railroad trust that drew his attention. he was just as worried about the political side as the economic side. the economic side is important. the economic side is where we develop a lot of the fury and practice. let me ask you who in this room -- most of these come. john d. rockefeller did well in the town of williamsburg did even better. i think he was trying to make up. who in this room would like to recreate the standard oil monopoly? okay at lunch time there was one person. now we've got nobody. that is an improvement. he said he was from the energy industry. of course not. of course it's obvious. it is obvious. it is intuitive that if you let one company control to a substantial almost complete degrees leal distribution and even production in this country that would be bad for society. good for the guys that run the company and may be good for the shareholders depending how that works out, not good for the united states it's always complicated. there's always back-and-forth. i'm an economist. i'm dismal and i'm cynical. and we make this very clear in the book. but there is no way that it is acceptable for these large banks to operate at this size with this kind of risk profile with this political power it must stop and these are six banks, that's it. our proposal, the argument we are having on congress and we will see how many we can bring with us, a lot of people are interested but a lot are afraid it's about limiting the power and size of six banks. that's the blind spot in the legislation, six banks which operate it is true very much in the interest of people who control them. we are talking about several hundred people and we won't take them on. we are not ready to take them on. andrew jackson fought the second bank of the united states was too powerful in the 1830's and a lot of people thought andrew jackson was crazy. he took a bullet building his career and they said the lead is the ball at. the second was a well-run bank. nicholas biddle was a charming character by all accounts, and jackson was struggling to get his point across the he didn't have that much support on capitol hill and even less support once nicholas started to spend freely to encourage people to vote in his direction. but as he fought back and extended equivalent of the campaign contributions, and as he sat on contracting credit to make the point that you cannot train dustin people began to understand that jackson was on to something and this is what jefferson warned about. jefferson and hamilton debated these in the beginning of the republic and hamilton was right on most or much of the economic substance but jefferson this is how we start the book jefferson had a very important point whic was absolutely correct which is you must fear the arrival and entrenchment of the financial aristocracy. that is what jackson faced and prevailed against canada's what teddy roosevelt faced and that's also what fdr faced in the 1930's and fixed for 50 years and i think honestly that is as much as you hope for these things do not stay fixed forever. that is the story of the public is a repeated cycle or confrontation between concentrated financial power and elected democrats and principled leadership. we need to find teddy roosevelt again and have it to the roosevelt moment. he acted in a preemptive moment. he didn't act in the face of a crisis reacted because he thought power to veto finance had become too powerful and dangerous. if you wait for the key will fix this eventually. but you will fix it after another all of crisis. he will have fdr i think i hope will come in and fix it, but why wait? and also if you don't get fdr. when you have an economic collapse you don't always get sensible leaders. you often get chaos or craziness. a lot of the popular indoor riding on this issue a lot of people angry from left and from right have a very important point and the book is designed in part to speak to that and help articulate that anger into sensible policy proposals. but it may not happen and then you just have anchor, legitimate tender but unproductive anger and all kind of crazy things can happen happen. in conclusion, i just would say that we need to fix this. it is a fixable problem. there are many tough problems facing the economy and many that are hard to address. in economic terms, in terms of, in ethical terms and a broadly speaking political terms this is not one of those problems. this is a financial system that got on of control. its structure has become dangerous. it must be fixed. if bridges were falling down because of a poor design we would fix the design of the bridges. there isn't a country degano denial but we are not doing it because finance is very powerful because the big financial players have