Transcripts For CSPAN2 After Words 20151109

Impressive book the courage to act you began to write this you have blue jeans with a polo shirt go into your first day of working and began to write this 600 page book impressive in linkedin detail and recall. This was on the stands by october 2015 so not much more than a 18th month process. How did you do that . Guest i started right away cry left the fad the fed and saturday and monday and was working on the book i had a lot of materials for emails because i managed by email i had dozens every day it was very useful because you could see in realtime we were thinking what was happening so i had a wealth of material and i also had some help as a Public Affairs person who held made to the started on the process. Host eight decade that the fed early in our lifetimes you didnt have time to reflect on Economic Policy so what did you learn about yourself . The big purpose was to have the whole process. En to go through the experience there is a lot of hindsight bias as we create a story that this had happened and that had happened that in the fog of war as things are happening one risk against the other i see myself as a risk manager to find the right way for word but it was very difficult to know with any given time. Host i remember many years ago Readers Digest to say to be proud of the man i have become. And for narcissistic man or the egocentric person generally as you reconstruct from emails and conversations are you pleased with what you did . We made mistakes coming up to the crisis balancing against other risks through august 2007 to recognize it was getting quite severe then we were very aggressive and redid to help the economy recover. Just like a war plan to contact the enemy there were lots of things on the margin but once we determined we would hit that aggressively i do feel we got it right. Host lets talk about your background and a small town jewish kid in your book and as you said before a dodger fan because aseity koufax. But they may have been surprised you worked at south of the birder per south of the border. I know the dieter we go to in cleveland but everybody tells me Everybody Knows that. But you are middleclass but what did that do for you . A place with the Economic Situation is tough i worked in my dads drug store in a glass of appreciation for how hard it is to put food on the table especially if you dont have a lot of education. To be a jewish family most of the town was Southern Baptist but i went to the Public Schools to note everybody in town my bader offered credit to whoever he felt he could trust the really facing economic challenges spiritoso reserve your grandmother in connecticut but talking to her about the depression the parents or grandparents talk about depression but your grandmother living in connecticut because the great thing about that story is that virtually for the country talking about the depression that led to economics to study the depression but talk about that paradox. I used to sit on the front porch you would tell me stories about her youth and she was living in connecticut she was very proud to serve children could go to school and have new shoes every year the bill as it did not have issues because the shoe factory had shut down so there was not enough to see all i concealed had to do was open up the factory and kids would have the issues. That is the parts that the factories are there in the workers are there but it isnt happening but the system isnt working i dont want to pretend that i was inspired by a when i came back to it in graduate school i call it the holy grail of macroeconomics. And with that paradox to go down into economic history. And then i came to the senate and put on a committee that was called the sleepy Banking Committee that where i came from it was different to now live in a zip code 44105. In the first half of 2007 there were more foreclosures than eddies of code in the United States of america. And it seems to me in 2007 and 2008 with bear stearns there wasnt all that much from the fed because the thought was a crisis was so whole lot of reasons it was predatory lending and was happening so why was the government overall there were places all over the country . Ohio was the middle of this period it had more foreclosures per year all over apple asia why did we not see that as a Country House serious that was . Guest with your characterization i spoke of foreclosures a number of times before the crisis my concern was some were probably unavoidable but it seems like there wasnt enough made where they could stay in their homes and obviously we are very concerned about the Housing Market and by talk about foreclosures in this subpar mortgages so we thought about that from a Macro Economic perspective the we did worry about the communities and affecting local tax revenues. I see that but the Consumer Protections to stop predatory lending at had particularly private prior to you but if the inky were more attuned than some of your predecessors but i begin to hear from people in in cleveland on Consumer Protection that the fed nor any regulator was there for us. Host your use of the word predatory is critical because i talk about that at length so i have to go back before the time i was at the fed with some of these issues when one of the big distinctions was between predatory lending that got people in trouble almost immediately and then some of prime lending that was touted as the development it will allow people love modest means to counteract the redlining. And quite honestly one of the reasons there wasnt more of an effort the strong distinction between predatory lending it was a question of enforcement with that certain kind of thing. Also talking about how good the staff was and i think they were captured of their own career or financial interest but they were open to interest a Regulatory Burden of a competitive Market Forces with for lending practices i work getting institution the lobbyists were omnipresent they may or may not have been the same people as the chief lobbyist said now we will lobby the regulators. I am at a place in the senate were lobbyists come after you regularly because you and i and our staff and regulators tend to hear from the most seats easy to get socialized and then say i have to go get my Public Opinion backed the doesnt strike me as a place to say go out and smell like a flock. It seems the fed is less likely how they really know people and are likely to see that and understand that. Guest our reserve system there is one in cleveland and with housing it isnt wrong at all but well before the crisis was of philosophical perspective that it should be less regulated. But greenspans view was if the fed banks have sufficient capital it should not be too burdensome. End i understand. Why did t. A. R. P. Funding with baker bailouts work better than what we try to do with other programs like hamp as you push through congress the elected members what did they try to do for homeowners . We needed to stabilize wall street and then to stabilize wall street is really wasnt a Federal Reserve possibility and then fannie and freddie by that time were partially partially nationalized by treasury. The one that was created to oversee the t. A. R. P. Many but there was a lot of effort were you doing and can you do more . People didnt its respond to the calls after the modifications were done. Allied did get done but i share your frustration but the administration was working on this. You spoke to Congress Many times and you didnt show it in your face by a understand from your book you were not having the time of your life. In to give you more of a chance. That criticism can comeback but here is a hero. To testify i always dislike them. I thought it was contentious. It wasnt about informing the oversight it was about the Hearing Committee there was a lot of conflict involved in title like conflict i didnt many times for the necessity to do it in to be as transparent as possible but that doesnt mean i had to enjoy that. For the viewers interest and knowledge the fed share testifies twice a year by bob, was to the Senate Finance baking committee and house financialservices. In this is what makes it different from european banks it has a dual obligation and then not to fight for employment by word compliment you you seem to take the employment side of that dual mandate seriously and with your time south of the border. And me talk about the first time with a cast of 10 others had a serious sobering conversation. In the Industrial Town we got a call from the majority leader said we need you on the phone at 2 00 with chairman bernanke and secretary paulson this is before the 2008 election and. And i remember how also bring back called was as you spoke to was to outline the problems then secretary paulsen data on the phone to say we need legislation. Recollection recollections said it is four or five pages we need you to pass it immediately. With a hard approach i write a reason to be for and against and talked to staff i remember writing at the top of the page best approach i will ever cast worst political vote it was painful and nobody wanted to. And then as it dropped in the stock market then youre right about that end you remember that well. End of my state what came next was of immense importance. So to talk about even brothers and the t. A. R. P. Issue itself the talk about chapter 18 from the financial crisis from the satisfaction of you and treasury and the others it is hard to forget details. I believe you go from manufacturing jobs and you write over andover had this will help with the taxcut stimulus that he supported in retrospect we thought it was inadequate but important tough it in retrospect was inadequate. Im sorry here is my question. Why was it so hard . You know, what happened after words Republican Opposition to spend money why was it so hard for you in secretary polls in . And why was it so hard for the two of you to convince republicans to step up of the fiscal policy to grow the economy . People had the wrong idea that started said jitter it have fear mongering leading to high Interest Rates ended in the u. K. Result even more rapid prosperity. And there is a simplistic vero i remember specifically getting this question if she overspins the creditcard and where you giving your teenage daughter a credit card . That is another question that many viewers will wonder and the difference is Government Spending or tax cuts could help the economy recover by increasing tax revenue. So those are the ideas that led to resistance and to be honest saying that we turn to austerity too quickly that that federal stimulus was offset of the local level lot of spending takes place at that level in the budgets were deeply cut. So that fiscal support was less. Host with those local level in the reagan years the economy began to come back with significant job growth with the state and local levels but with this mower recent recession with the job growth since the autumn of rescue there was ted dragon of that with federal hiring but you use the word a head wind the you were doing everything you could for the Monetary Policy level. But as was suggested in the 30s that public spending could replace private spending. With shortterm interestrate already years he wrote it needed fiscal help tax cuts to promote private spending or both. To renew the fall to the point in the fall of 2008 the wall street journal editorial endorsed obama for president. Was not endorsing a candidate but a program from a fiscal stimulus and one of the things you said at the time the biggest frustration was not accessibility it was to get you to talk more precisely have prescriptive the about what we needed to your do. And with your republican critics we have to pass a transportation bill. We have to do public spending, Interest Rates are very though. So why couldnt you be more prescriptive even though your predecessors did not act that way . This is an extraordinary time. You think that led have worked . Because of moves congress. I was cautious. I did say quite often we need to do this now because we need to get more jobs but why wasnt i more explicit . I was concerned about overstepping of Monetary Policy. So my general rule was to talk about the direction of policy to have more fiscal support whether that was a thing congress can work out among themselves but i was reluctant of that infrastructure verses a tax cut by five do more harm than good. But you say that so many times how surprised you were from conservatives of both houses even more traditional conservatives to believe the fed to blame fannie and freddie. Tsa you should not pass the transportation bill to think of tax cuts but something that had to bother you precisely was though whole idea every year were to a group of members of congress print to shut the government down no question that hurt the Economic Growth did you speak about that . Guest i did. That was easy. Austerity reduces the deficit but dead debt limit people didnt understand it isnt about completing Government Spending but it is the bills that have already occurred that would be very dangerous for the u. S. Economy not to pay its bills i was very clear about that. Of course, ill let treasury take the lead3 of course, ill let treasury take the lead but the fed was engaged in that consistently. Okay. One of the things that happened was a concern to some of us increasing consolidation that i believe 15 years ago they made up 18 of gdp because of what happened with bear stearns but by 2010 it was almost 60 percent of gdp and has not changed much since then as a result of dodd frank. Bloomberg has calculated those large banks had 80 basis points because of the Financial Markets that they are too big to fail and it gives the big breaks another reason bloomberg said 80 billion social we be concerned about that . Upwards of 500 billion some say too big to regulate should we be concerned about their political power . That steady with that too big to fail funding advantage so what i would say is dodd frank and that space agreement we had nationally but in general there is a lot of cost imposed so for example, the biggest banks have to have more capital the biggest firms are subject to a higher percentage of capital. And are subject to the tougher regulation and oversight from the fed. But ultimately to give the fed and the fdic the ability to unwind it the ability to be done so the main thing i would point out youre making it more costly and what you see in the news is companies with ge capital just today there was the discipline dash and the discussion that agee should break up to see that oversight but not on top of this we had their requirements and how they would be wound down to show how they could be simplified and why is it a necessity . And into the hands of regulators better intently focused on this problem to move in the right direction and over time. Host the pronouncements of ben bernanke dont move markets. But give us a little prediction that the fed looks at the big banks and says to them if you cannot be unwound from t. A. R. P. Infusion or go through bankruptcy and then you have to you divest. But you think the living wills will precipitate . I think that can happen in. The alternative would be with the determination and go into a recent development to oppose that total loss absorption capacity rule that big banks have to have enough capital but in addition to having a longterm bond converted tier capital should they come close to failing. And then once again things are pushing so the trick is to simplify and downsize with a Large Financial Institution it is often lost they do provide jobs it isnt really feasible to break them up into Community Banks so how can we get them to move in the right direction and the best way to do that to make it tougher is take away the funding of vantage advantage. Host you say they did not cite then yesterday the you are arguing much of that is flat . Guest the gao says that but this is just anecdotal evidence that those are no longer assuming Government Support and i want to overstate this to say the problem is solved but there is attention paid over time it does have tools for the right place. Host review concerned about dodd frank at 500 billion tears strip away of all the court needed panels from treasury and fdic . Some of the languages about eliminating dodd frank of the whole that is very constructive you dont have to inspect every single clause but i hope we come to a situation to where changes could be made before the most part. Perhaps those two biggest initiatives we dont debate making adjustments rebated of the collins ruled. With a repeal or not. The one proposal is to eliminate title to authority was that the lesson not to do that . What the grossi does the goal is to protect the creditors to major the bondholders to get as much as they can. But at the time when Lehman Brothers collect collapsed we were concerned of the overall system. They ended up losing a lot of money which by the way it goes against the idea they were phased. The trouble with bankruptcy laws it is to prevent the collapse of the overall system. Is a lot of discretion to do what is necessary to stabilize the system without being constrained that gives the of highest return that is the difference about preserving Financial Stability and to protect creditors in general and also the system that is my preferred to ca liquidation that is dedicated to the proposition of the main object3 that is dedicated to the proposition of the main objective. Host a preface to an earlier question that ben bernanke dont move markets. You joined the administration in 2002 and then to go back as the chair of the fed you had to be more precise how did that workout at home . How does bear may react . I talked differently. [laughter] host i get accused by wife talking like at at home [laughter] and i understand the pressure that was on new. My whole life was a tremendous relief and to give a sanctuary into think about Something Else as a change. Host on page 42 you talk about the book you were writing in 2002 for the called the change your life to go to washington to be appointed to the Federal Reserve you were working on a book called the age of dilution house central bankers created of great depression. But what will the next ben bernanke . What title will they give the at the solutions put though the gap. To be too complacent or Something Like that one of the aspects of the nineties and early 2000s to be stable overall the not only in the housing sector that led to the conflagration so in terms of the period before the crisis and in some ways to be the problem if you ask about the future with thought with dodd frank we have to be vigilant because you cannot assume anything with a workout. One of the first things i thought about was how so many people on wall street and financialservices were rewarded for risktaking with huge numbers of lost jobs were losing a hundred thousand jobs a month. And a lot of that has come back. But i was talking about the currency and tom currie talked about how culture has changed is every major Financial Institution is the goal as a risk officer to have the stature and compensation theyre not making any money for the firm berbice doing that well enough with the authority in the gravitas to tell a company you cannot do that . I an not sitting at the fed and bed jimmy ellis it janet yellen is testifying right now but they had risked officers but not given enough attention so is the big part of the supervision the risk officers have a high profile tabby information they need. Suppose house prices dropped 20 and they say get back to us in a couple of weeks they cannot give you a quick answer in now to pay stress test to pay dividends you have to show you have capital and the ability to monitor Risk Assessment with the pressure for the regulators but one of the problems they pay bonuses you can take risky and earn money than move to another company the neck of the regulators are insisting on compensation packages to end up losing money for the money that you received to create a of a longerterm perspective so there is the change in the culture but the direction is very clear. To other reputation and to send people to will street with those complex financial vehicles are young people less likely to do that. But statistics show the best and the brightest is a from the navys earlier in the 2000s. Host but to make things but what they do is not important but there is a of a different balance. Item noted is far enough but that is where theyre going. Host i have two more questions. Talking about my frustrations am looking at what we need you dont have any of those straitjackets give me your vice on what is most important whether fiscal policy. How do we get the economy to grow better . To fix immigration in particular. With limits on high skilled immigration skills and training is critical in the government needs to keep the role in our and the technology to fund basic science. Host i would consider that infrastructure. Guest the private sector will move forward but the governments job is to provide the foundation for that. And it has been hard in a to get by a mud dash bipartisan support and that is a light growth has not grown as much as we would like. A lot of things we could do to make the economy more fiber. Host one of the most important things we can do to see the issues of globalization. Guest i want to caution is a very longterm trend i aint there long term associated with globalization and a variety of things so the tools that we have are a transfer policy the other is skills and training to make sure everybody has a contemporary labor market. Even with the quality and in many ways parallels with the wealth distribution. Host would you read about the tax policy . Guest this is congresss decision but one tool you have as a legislature is tax rates, it is and come wealth, a Corporate Taxes lot of improvements could be made i am not advocating a particular tax rate that is not my role but it is the tool with the trade offs. Host it is and your role other than Congress Speaks with a louder voice than almost any other distinguished economists and you will not let me pin you down on the tax rates but i would like to hear your assessment of what were doing right and wrong from income tax credits to a state tax or Corporate Tax or the personal income tax to a when you mentioned areas the earned income tax credit and other critics credits that reward work and education are constructive and avoid the tradeoffs with a tax on benefits it seems there is a lot of bipartisan agreement to address those territorial issues that is the area of progress could be made. Host i am working with speaker wright and hoping we can come to an agreement to give incentives to have those overseas dollars back home but that goes to longterm the infrastructure but it is with repatriation. Instead of being the one time thing with a more rational system. My last question is about baseball it is what we love but you are lucky enough to see the perfect game in a ninthinning. And in the southern part of my state pierrots i am not asking your opinion he is not because of betting on games in Shoeless Joe Jackson before he was traded to the white sox, so understanding the blemishes the two of them have a rookie player for the giants a cavemen recently because they were playing the cubs last year they won the world series and is actually one this year theyre very close indeed of august existing team not to win a series but how far was that the first base rookie made one mistake and now will be called bonehead for the rest of his life with his five appearances in 15 years in the major leagues . I remember like it was yesterday. It is like to have this neighborhood play you dont really have to touch second base just be in the neighborhood because now with the instant replay that has eliminated that. The standards change and that the time in 1907 as a understand the convention was you didnt have to the game ended so i think it was unfair, is he related to the german chancellor . [laughter] but i think it was unfair the Standard Practice was reversed to allow the cubs to win the world series. Host they give chairman bernanke your book the courage to act thinks for your service to our country