Explosion the journalist contends it both major parties are turning elections into a circus of populous ideas and historian Nancy Isenberg provides a history of class in america in white trash. Thats a look at the books the New York Times has suggested to help understand the 2016 president ial election. Many of these authors have or will appear on book tv. You can watch them on our website, book tv. Org cspan, where history unfolded daily. In 1979, cspan wass created as a Public Service by americas cabletelevision companies and is brought to you today by your cable or satellite provider. Sebastian mallaby discusses the life of former Federal Reserve chair Alan Greenspan in his book, the man who knew. Hes interviewed by alice rivlin. Sebastian, welcome. Im delighted to do this and i think its a fabulous book. I have known Alan Greenspan for many many years and we worked together closely when i was his vice chair and hes a complicated man and these are complicated times and i think you got it about right, but lets start at the beginning. You wrote interestingly about the influences of his parents. Could you talk about that on his career choices . Guest Alan Greenspan had an unusual upbringing in the sense that raised in the 1930s he was the child of a single mother. His father left his mother when allen was only three and there was this distant figure and unreliable and would sometimes see his son and not show up and i think that probably reinforced a tendency that allen said had to be introverted and that was further reinforced by two things from his mother. First, we are talking about the 30s, the depressions, so she had to earn a living. She worked in a departments are in manhattan, so he was left by himself alonere with kind of distant grandparents who were from a they were immigrants and hemu basically was by himself , but then when the family gathered atat parties and holidays and so forth, allens mother was a vivacious singer and she would sing in the matter of a torchn singer and alan always felt she was the center of attention. And that he could neverr match that, so this was reinforced by some inadequacy. Host he got his musical interest from her. Guest he did, correct. Am a f he became a professional musician for a while after leaving high school. That was in a way an attempt to get into the limelight and be in the spotlight and to match his mother through musical ability. Host may be so, but he genuinely loved music and he was good at it. What about his friendships. How do you think that influenced his thinking . Guest huge numbers of americans are influenced. Host they try to read to see to it tends to happen about 19 years old. Its a College Thing and the idea is that libertarian vision is appealing and the interesting thing about alan is he met him when he was older in his late 20s and then he stuck with it so much that when he was sworn in an age of 50 as the chairman of the advisers under president ford swearin there were three guests at the swearing in. Allens mother,. [inaudible] i do think it had a profound affect on his development. Host do you think she really changed his mind or did she reinforce his views . He was one who believed in the great man and he loved Railroad Builders and things like that and certainly reading this would reinforce individualism and that sort of thing. H, guest i mean, allen was someone who partly because he was withdrawn and living in his own head as a child, he was always cutting his own path. When he went to college in 1945, it must have been one of the most progovernment generations with people on the g. I. Bill paid for by the government yet he emerged as an antigovernment sort of libertarian and he was going his own way. Reading this reinforcedd that drove him to build a whole worldview, which was dangerous before. He was more concerned with teasing out economic numbers than in fact a social vision and this brought him from the data to theag political economicfascinat agenda. Host talk about the number fashion nation a bit. He was a genuine nerd as we would say today, but he just loves statisticsheeled and numbers. Guest that was a passion. As a child he would be wheeled out from the relatives to perform complicated addition as a performance art. Host thats a thing at the fed. Ben bernanke you like space bar. [laughter] guest allen was part of the baseball tradition of economics and also more seriously what i call part of the new york school. In other words, there was a school based in new york around the National Research which was focused on just counting the economy, creating the aggregateomy with data which we now see in the gdp statistics which hadnt existed in the 30s, so the creation of data and understanding how you generated the best quality data was how he got his start, not modeling, not the taking of data for granite and then building this complex mathematical connections between the data points and that helped him too, not just accept that productivity is such and such mls just think about the num motto we might to build with that number. No, he wanted to do segregate the data and see what was behind it and actually form a conclusion that the data was wrong in 1996 and that led him to his most famous challenge which allowed him to keep Interest Rates lower for longer than 1890s. Host i was there at the time and that was interesting incidents because the modelers actually went to the fed to raise Interest Rates this unemployment was so low in theer models without telling them to raise Interest Rates and alan was saying i dont see this inflation. N. Can you tell us more about that . Beest he basically believed that if profits were going up and yet productivity was flatt there was a mystery, i mean, normally if you are making more money is probably good you are producing more per worker and he wanted to look into that and he had the fed staff produce sector by sector what was going on with productivity and it showed that apparently productivity in Service Industries was stalling and he said it cant be falling. It cant be that everyone is getting a new personal computer and yet they areou producing less. So, by looking under the hood he guessed what was going on and he got it right. Now, i think this actually links to the 2008 crisis because after the crisis one of the common of sessions was the economic profession was all tied up in its model and to mathematical, too much faith in the Predictive Power of these models and the interesting thing about Alan Greenspan is that he never had that faith ands was never obsessed with a particular model and was always willing to question it and stress test the data inputs andny so i think the funny thing is that if you wanted to choose a fed chairman who is perfectly intellectually prepared, not to be trapped in cop by surprise by the crisis you might have chosen Alan Greenspan annecy irony. Host i think that is current and i remember once walking into his office to wish him a happy birthday and i said allen, are you having fun and he said yes let me show you this and he pulled out a stack of printouts. In your book you talk about sort of inconsistencies and in a sense this is one of them, but you start with a nice anecdote aboutte the Gold Standard. Can you tell us a word about that and his shifting . Guest as a young person he believed in that Gold Standard and that was magical of fate to believe in the Gold Standard ang when one of the big novels was published allen presented him with a miniature gold bar to celebrate, so this was buried deep in his worldview. Host if you believe in the Gold Standard then you dont need ast central bank . Guest correct. One of the most extranet things i discovered i knew allen had given the speeches and i wanted to find the transcripts, which i knew must exist somewhere, so i went to see these and one of them hidden away in West Virginia in a cabin had a basement with a fantastic system and there was this 300 page transcript of allens speeches in 63 n64 and reading through these i came across this quote, the creation of the Federal Reserve was thef historic disaster, so talk about inconsistencycy and that was part of his view that as you say ift you have the Gold Standard you dont need the fed. Later he became the embodiment of the fed. So, he went all the wayth to the other extreme. Host yes, and even argued you did not meet need a monetary rule, but play it by ear as it were. Guest there was a middle ground , which was not gold, but not just money printing that there would be a fixed amount of increasing the money supply every year and the friedman rule was kind of cause i gold, so to say and alan was pretty determined to reject that in favor of discretion. It was his discretion, of course. Its what you hinted out earlier that he believedd in great men including himself. Host yes, but he was also quite shy and also unsure of his views lets move on. You write that early on he saw the crash of 1929 in the great depressiones and yet by the 1990s he was not so worried about the stock market bubble that we were obviously having at that time. Ng disco guest correct. Its amazing. Just as i said one exciting discovery was one of ayn rands speeches and early on Alan Greenspan had written a paper in 1959, which was sort of lost that he talked about it to friends of it, but the actual paper was in that phd thesis, which magically disappeared from New York University library after he became fed chairman. Ly tried friends of mine really tried hard to get a hold of that thesis when he became a fed chairman because they wanted to see what was in it. They were told they could not find it. I would be in allens office and i would ask questions about his early intellectual development and Alan Greenspans eyes would go like this a bit and a he would look up a bit and i could see this fat binder on the shelf and i said, alan, it would be great to have your phd thesis, guessing what it was and when he gave it to me and i read it there was this 1959 paper in which he said its all about how Central Banks must respond to market bubbles and its based on the 1920 experience and it says that inventory cycles in these booms and busts are much more disruptive to a stable market of economic growth. The Central Banks must deal with bubbles and yet that was the prescription from the young greenspan and as we say the mature greenspan did not follow it. Host talk a bit about the. Com. Bubble of the 90s. Guest so, i will say what i think, but you can correct me because you are there, but what i saw from reconstructing it through the transcripts and through interviews with people is essentially that a key momene came with the collapse of longterm capital management, the hedge fund which blew up in the fall of 1998 and after that the fed cut Interest Rate to stabilize the markets. They cut rates three times. Host yes, we had a world crisis going on. Guest so, there was concernfin with the Financial Market instability and the fed had three Interest Rates cut. Then, in early 1999, in my view, thinks a stabilized and it was time to take back that insurance. The cuts had beend justified and so forth. Once those crisis had passed i would have thought the cuts would have been taken back, but they were not taken back fully until late 1999 and invite my view this was a crucial time when tech evaluations went from very high to absolutely crazy high. Host he had learned earlier about the crazy high when it wasnt a so crazy back in 1996, actually. He made this famous speech about irrational exuberance and it was intended to send a signal with that and he did, but later he was less concerned. Guest this is when you have almost a shakespearean tragedy going on i mean the man who knew, the man who did talk about irrational exuberance andt understood that prices could overshoot and he knew that could be dangerous as it had been in i the fed with the 1920s. He had all the right intellectual formation to respond to the tech bubble and yet he didnt. Host i would argue we did not have the right tools. What we would have had to do for the short term time was at a time when the really economy was doing fine and there was still inflation and, in fact, i kept saying its really important to haverkets yo tight labor markets if you dont have inflation guest this is where i respectfully disagree not just with you, not just with Alan Greenspan and essentially with a consensus and the reason i disagree is because it seems to me knowing what we know now about how bubbles can bebe distracted it is worth reducing growth a bit in the short to make medium term with rate hikes to have more stable growth on a sort of twoyear or three year view and i think that was the tradeoff that was confronting the fed in 1999 per difficult to see at the time, but in retrospect i would say that we have learned bubbles matter. Host but all bubbles are not the same. The stock market turned out not to have such devastating consequences, but the housing bubble combination of housing bubble and bond market bubble and all of the craziness that went on in the next decade, talk about that a bit. Guest this is another tremendously fascinating argument that i engage with in my book because as you say the standards here would be, credit bubbles with a lot of borrowings and leverage and when they blow up you have a complete meltdown and its terrible. On the other hand, its just stocks, stocks rise and fall and if the holder of them stocks are not themselvesra leverage there would beion and a not so bad. The reason i think leverage bubbles are much worse, but the reason of a leveraged stock bubbles is that when the fed was confronted with the collapse of the tech bubble in 2000, 2001 the response was appropriate i mean, you needed to do the stimulus, but the consequence of the stimulus is that you stimulate the Interest Rates portion of the economy in other words real estate and when you20 read the federal open Market Committee transcripts from 2002, 2003, 2004, people knew that this is what was happening. Real estate was starting to take off and it was accepted as a fair trade off. We want growth back up and we have had this tech bubble that blew up and now, we have to compensate for thepe Corporate Investment from the collapse of the bubble by stimulating investments, so one bubble slightly led to the next. Host i think that part is true, but the shortterm Interest Rate is not the only tool. There were other regulators. It was really egregious stuff going on at the level of the Mortgage Originators. They were shoveling out to people who could not likely pay them back. Many were concerned about that. He wasnt concerned so much about the bubble, but those people taking out mortgages that they would not be able tole take back. But, the fed and the other regulators i i mean, it wasnt just the fed. They never really focused on what was happening to these tunes disastrously declining lenders. He guest i think this is another area where my research over the five years helped me to challenge the conventional story because in 2001, and one canio read about this through freedom of information act disclosures, you know, the fed did have new rules on subprime mortgages and the rules said particularly dangerous types of subprime mortgage and we are going to ban them. In particular, there was an insurance product which was a ripoff of consumers and i was not allowed anymore. Dot action, you can read the fed governor on the frontline of this stuff debating with Alan Greenspan and they adopted the rules and in turn the fed staff thought that maybe one third of subprime mortgages would be presented because of the rule, but the problemm was when the fed staff did the retrospective study a fuse later instead of stopping oneprime prime mortgage it stopped 1 so it was too easy to get around and i think the larger message that arises from this is that in a regulatory system like we have in the us its extremely difficult for one regulator even the fed, which is the mostt powerful to pass a rule and actually see it enforced. Host i think that is correct, but there were other regulators and most of the bad stuff was not happening in the fed regulated institutions, at least certainly not the beginning. The fed was the center part of regulators. Alan greenspan couldve gathered the regulators in his contract Conference Room and said there is bad stuff going on what we going to do about it. Of there was a collective lack of concern among the regulators for the rapidap decline in lending standards and the fact that it was being fueled by securitizing these bad loans, many of them were bad loans and selling them all around the world to very eager buyers who thought that they had high Credit Ratings and they were good investments. Guest i went to stipulate that there is a lot of truth to what you said and in my book i do describe the crazy securitization that was going on and i fault Alan Greenspan because he had lived through previous blowouts, i mean, there was Orange County which went wrong in 1995. There was procter gamble, gibson greeting cards and other problems of securitization before and we should have done more. I agree with you. Host we all should have. Its easy to focus on Alan Greenspan because he was so prominence and such an apparent superhero at the time. Guest i think the message, which has made an underappreciated and which i hope my book was slightly cracked is that there were instances in which the fed did try it tried as i said on subprime mortgages and Alan Greenspan tried to push back against the gse penny and freddie. Host talk about that because that was a place where he was really worried and testified and talked and made very clear that he was worried about the highe leverage at fannie mae and freddie mac. In the end he did not push it very hard to. Guest he went and testified in congress i think more than once and he said that these institutions were lending too much in their should be a limit. He had an alliance with the Bush Administration at the time, which was on the same page as him and they were pushing, ith think, as hard as they could to get regulation on the gse. The day before one of the followup congressional hearings on this topic an ad appeared on tv and at the ad showed a hispanic couple saying to each other, oh, we went to buy a new house, but now i hear congress is going to clamp down on mortgages and we wont be able to get a newto house and that is bad because the politicians are preventing us from having the american dream, so essentially this was fannie and freddie putting membersmeon of congress on warningif they av that if they voted to portfolio that they would face a barrage in their district, so there was a limit to whatt regulators could do. Host i think that is true ande they were very powerful lobbyists, fannie and freddie, but you make the point that while Alan Greenspan was very worried about fannie and freddie and what might happen if they went bankrupt or seemed to be going down, he wasnt worried about the other Financial Institutions. Guest true. I think he had a reason to be more worried about fannie and freddie because there was that government subsidy in their borrowing cost and they were growing very very fast and it looked more obvious that the markets were expecting them to be bailed out, so the taxpayers were on the hook for fannie and freddie in a way that they did not look like they were on the hook for so many others. In the crisis host they found out they were. Guest they regretted that and for aig and others and you are correct, i mean, he should have worried more about the private banks that were engaged in the mortgage industrial complex, but i do think that he tried on subprime mortgage regulations and the gse side and tim gardner tried on Bank Leverage a bit. The message from this is that regulation is politically very hard tove do, so you have to be willing to consider Interest Rates other way to push back against a bubbles. Host well, i would take the conclusion you have to be willing to do regulations better that was what no one really anticipated was what would happen if the layman went down. To a different subject for a minute. We will come back. The bush tax cut of 2001, i was personally really mad at alan. Rious dist that was a curious incident. Can you talk about it . Guest it was curious because in some ways Alan Greenspans emergence into data, sort of his political acceptance in washington, was crystallized in 1993, when he endorsed the taxet clinton budget package which raised taxes to reduce the deficit. Host and you know he is anti deficit. Guest he was there at the state of the union speech when bill clinton gave his speech and sat next to Hillary Clinton clapping as bill clinton promised to reduce the deficit. Then, along comes georgelo w bush in 2001, with enormous tax cut and a greenspan sort of endorses him. He endorses it with aha caveat, which is that he wants a sunset clause such that if the budget sort of evaporated then the tax cut shouldau automatically go away, but this is a very savvy political operator, Alan Greenspan. He knows that that clause will be thrown out in the Sausage Maker that is congress and so i think he essentially made a compromisee between what he thought the white house wanted and his conscience giving them some cover by saying there should be a sunset clause, but really he delivered what the Bush Administration wanted. Ri the large surplus, and about what the fed would do to execute Monetary Policy if he didnt have a national threat. I thought that was fanciful both because the surplus of that magnitude ftion not going to materialize and Monetary Policy but he seems to be that this was a concern that we might pay off the debt and then where would fed be when they needed to do open market or operation. Rehad that concern and he also floated the concern that, you know, if we paid off the debt, then the government continued and what would it do, would havg to start buying and governmentti intervention and the private market and raised concerns but, you know, as one member of the senate said to him, mr. Chairman , for right now [laughter] wasnt likely to happen. The great moment of y2k. In 1999 there was fear that when Computer Systems reset for 1999 to 00 there would be a glitch and a moment where computer memory was expensive and scarce. They put in 19 they didnt put enough. And the feds got ready for this and were concerned that people wouldnt get money out of an atm. All kinds of unforeseen computer infrastructure on which the financial Payment System depends might freeze up. So the fed, you know, positioned bank notes in regional and got ready and in some ways it was the central bank acting to safe guard the integrity of the Payment System because it worked brillliantl. There were a couple cash registered. Some incidents in japan or a few other places. Yeah. That was a great example forh which it was fixed we dont remember so much. Exactly. I remember alan green said in that period, meetings of y2k, a programmer that knew how to program in foretran, language of early computers. If they needed help, they can go to him. [laughter] so if you say a role about his role in the 9 141 incident because that was it was such a big thing for wall street and for the country. He wasnt even part of that. Its interesting. He was at a meeting in switzerland at the time of the attacks. He was out of touch. He was in prison. Pretty much. He flu to flew hot headquarters, and by the time he got there the team was pretty much in control of the crisis response. An interesting thing is that this is revealing about personality. He didnt demand to see backle control. What really interested him was to think about the right Interest Rate policy in response to all of this. He was not very interested in Payment Systems. I experienced that personally. It didnt matter to him very much. He was put in a special office and he said to me, in interviews, in a time of trauma individuals retreat to theirvi natural emotional zone and for me to go by myself an just look at the data. So fastforward to after the crash of 2008 he was no longer the fed chairman. But he had to come to terms with his own role, could he have done things differently and was he in part responsible as many people were holding him for this, can you talk a bit about he came to terms with that. Well, the famous line for post crisis Public Statement is. I found a flaw. This is something he said when he was testifying in congress and being cross examined about having gotten it wrong and shouldnt he have said sorry and so forth. He did say i found a floor ande what he meant was he had thought Financial Companies banks and nonbanks and so forth would be looking at their own health, protecting their risk exposures and not for being so crazy as to blow themselves up and take the whole football system down with them. M. This is a flaw that in the end these people did take way too much risk and did blow themselves up. Now, that stuck rather and i think it gave rise to the unfortunate presumption in theeb public debate that we have the crisis, we had a believer in the selfpolicing efficiency of markets and control and if any, we got rid of that believer and that belief, we would have a safer Financial System because if we understand the markets, we wouldnt make the same mistake again. We have known that for several hundreds years. Yeah. A complacent mistake. I know from reading his many writings because i know he bought a seat to make money for the market efficiency. He never believed in efficient markets. He always understood that markets could overshoot andd could blow themselves up. He studied 1930s and when i read the i found a flawwthrew interchange. He didnt really mean it was a a deep flaw in world view. He cant amend that because he c knew that finance is unstable,s that was central to his writing over 40 to 50 years. I think the world has learned the wrong lesson from alans legacy. They think that we had a crisis because of an intellectual era whereas in reality, we had a crisis because of political constraints on what the central bank can do and what the d regulators can do as we have been discussing, as we look at the current political season, i think it would be foolish system that we are any safer now. Well, we had a crisis for a lot of reasons that came together. The perfect storm theory rather than the single cause this crisis probably were Interest Rates were too low for too long and other things were true, but there wasnt widespread that somehow large Financial Institutions would manage risk well. Managing risk was veryisk was complicated and there was a lot of faith they would do it well. Why did we all believe that, do you think . It was a faze arrived at because the rival belief system was less compelling. What i mean, is that people understood finance could go wrong. Anybody like alan green spann who would live to the failure of 1970, collapse of new york and bankruptcy of new york whotc watched continental and would come to the fed, commercial property, the mexico crisis, theres one crisis after another. I mean, who knew that these Financial Institutions could get it wrong. Why was that apparent face thatp nonetheless Financial Institutions would manage their risks. Its because the alternative faith that the government could look over the shoulder of the bankers and be smarter about identifying risk. That government faith seemed even less believable. Different institutions from the government comes and visits jpmorgan and better at understanding jpmorgan than people that work there all of the seem and you have a direct financial interest that try to manage it properly. It wasnt a belief that markets were efficient its just that government was also imperfect and maybe more imperfect. Come back to the housing specifically, housing rather than alan Alan Greenspan, made statement actually naive and we couldnt have a National Housing bubble and people buy houses to live in them not to sell them for a profit. What do you make of that . It really not was one of his better moments and, i think, you know, it is thats a very strange one and very hard to explain except that i think what happened was in transcripts you see him privately problems in credit markets, problems also in housing markets. They debate it, this might be creating instability in early 2004. Yes, he was worried about credit cards, for example. Right. Quite a long and part of that concern was overrule asset market overreaching. I think, you know, if the fed chairman and role as national cheerleader, had to bere reassuring news and something i create in the book, talks about Alan Greenspan becomingss reassuring to the american public. You talk about it as uncle alan. Uncle alan has our back. There were Alan Greenspan tshirts and dolls. He made you see that it was okay to go out and invest and once he became that, almost despite himself, he was imprisoned by then reputation and hard to go out and be the bringer of negative news and maybe a bit of psychologizing here but maybe the shy personality raised by a single mother in the 14930s didnt like to confront society with the bad news and didnt want to risk the popularity. If he had been more naturally confident and needy of affirmation in some ways, maybe he would have done it differently. Could it have anything to do with his admiration of the Great Railroad tycoons that now im talking more about the major Financial Institutions. But these very smart people who were creating and running major Financial Institutions couldnt get it wrong . I think theres a bit of that. I think there was a strand in the mental history which has toh do with jpmorgan that when he was a jazz player, he would be reading economic history for fun including the story of, you know, james morgan and the creative of the morgan bank and he had a reverance and jpmorgan was the perfect example of conservative careful professional nonflashy kind of bank. I think that image of finance maybe did offset that lesson that he must have learned at the same time from what dealers and blow themselves up. 1907 said central bank, lenders last resort and he had been fly trying that role. These fancy Financial Instruments that must of us struggle to understand were exploding and had before. Lo this was a new explosion, nobody very well understood. And he resisted any attempt to regulate derivatives. One of the things that originally drew me to writing this book that Alan Greenspans public time from the time he joined the Nixon Campaign is essentially four decades in which modern finance was created. At the start of the story there were no Financial Derivatives, commodities being traded on the futures markets but no Financial Derivative as well as Exchange Rate and modern system includinn the derivative were created in this period when Alan Greenspan was at or near the center of debate and i think this is a key question, why not do more about derivatives specially since they did show signs of being dangerous. They caused trouble in 1995 and been in debate in late 1990s about maybe trying to tame them, pushing them overger tran countertransactions, bilateral between one bank and one company and pushing them onto an exchange. Exactly. Why didnt more of that happened . Theres a famous moment where the chair of the Commodities Future Trading Commission advocated that they should be better regulated and shot down by all the other agents in town including Alan Greenspan. I think when you looked at the story, why didnt they do more, theres a couple of points, one is that he approached this litigated mentality. She was a lawyer. She was a lawyer. Substantively correct, i believe, on the direction of policy, how it should have gone but not a good politician in terms of building alliances around town and so she blew it by demanding action. For her agency. A battle. The secretary at the time who was sympathetic of regulating drivetist derivatives and she made political errors. There would have been massive lobbying against this reform. In it would have cut into theirth profits and you only have to look at the way that the financial modernization act, what we remember as graham passed in 1999 but after attempts passing new financial rules was extremely difficult. And i think bob ruben and Alan Greenspan and larry summers, i dont know where you with but you can speak to that, there was reasonable point of view, i didnt, we might want to regulate these more. We will get killed by the lobbies, we wont get anywhere and spent our energy onon something and we should use energy for something else. One more example, though, of very powerful people are makingw a huge amount of money on the status quo and then its hard to change the status quo. And no one stood up against that. You didnt mention in your treatment t of hom [laughter] profhe element greed and profit but all the Financial Sector that was from the Mortgage Originators on up, profiting so enormously from this, the Financial Sector grew out of all proportion. Its a fair point. Does that mean we have took live with that . My previous book was more money than god. History of hedge funds. Ive done greed. But youre probably right that the whole story of the power of extremely profitable Financial Institutions is something that i could have played out more. I think i do get to it in the fannie and freddie example where profitable pair of companies that used the profits to lobbyy and run ads to perpetuate the regulations that give it the profit so regulation creates rent for these companies and the used the profits from that rentt to perpetrate regulation and its a terrible yes, and also gss, they werent just companies. Business modeled that were being pressured on the one hand to make money for shareholders andd on the other to foster more Home Ownership and that meant you couldnt be too cautious. Us i think the threat running through all of this is that if people knew, Alan Greenspan was the man who knew, others who were working over the Financial System understood a lot of these issues and the retrospect was that they knew but they didnt act and gets into this political economy debate about why not. Iot question whether they knew that it could be this big a disaster because a financial a crisis in the stock market is after all not crisis that is so widely held if somebody loses on the stock market his navy base are not affected. If your house is foreclosed on, the navy base suffer. One of the things talking about the phd thesis that Alan Greenspan wrote about it and i discovered, became known as tobin and asset prices rise and they spend more and secondly, companies which see that you can sell corporate equity for money are more likely to go out and create more corporate equity. In other words they might make another factory or found another company. Corporate investment is to go up at the time the secondary market is evaluating more highly. This was central to Alan Greenspans thinking in the 1950s. So it followed from that that when the nasdaq and the techch stocks were zooming up to astronomical heights it might be pushing an investment boom. Fine fiberoptic cable was being made. It was going to cause drying up and although as i said before, leverage bubbles are worse, you know, just pure equity bubbles do have an effect through wealth channels and Alan Greenspan of all people had written about it. And others had, again, i come back to the whole economic establishment, but the wealth effect on the downside was enormous when the asset in question was housing. And that took us down further than we might have had. How would you you mean up the career of Alan Greenspan and hi . Failing . My view as an analyst he was really sensationally good. You know, he was able in the 60s the kind of Ken Ji Johnson policies are pushing risks upwards would result in inflation that materialized in the 70s. That proved to be true. C creating conundrum, a one that came back to bite in the 2000s. In 1996 that we talked about when other people saw that. As an analyst he was great. Now, as a doer as opposed to a sort watcher, he was less good. He got comfortable. Thats right. He really like being an analyst. Ga in personality terms. That comes in understanding the man. So thats right. And then that gets into the question why didnt he act more, personality is part of it, political constraints and what he thought he could get away is part of it. T i this is a very political person who had learned all kinds of tricks from working with Richard Nixon way back in the 60s and, you know, thats why its a story not just about economics, its also a story about human frailty and a story about politics. Yes. And i think collective mind set not just alan, but greed but one of the reasons its so hard to make the right call is some people are making an awful lot of money and the thats why it remains difficult for a central bank to raise Interest Rates to proper level because people own those assets and dont want you to do it and if you cant prove that you needed to do it, which you cant, you do operating on the presumption that asset prices may overvalue and you cant prove. Its hard and thats why we have an independent central bank and alan was cranialous in raising Interest Rates. Nobody likes that in the face of inflation but he was less comfortable with asset price bubbles which i would arguewh would have bought him into the regulatory domain rather than just the Interest Rates, the main because im glad you say that thecu courage to raise Interest Rates to fight inflation. That was an interesting part of the story n. The george h. W. Bush administration, that was early on in greenspans tenure. He was under immense pressure to cut Interest Rates to the point that the budget director in the white house Richard Dimon at one point was going in washingtonn whispering that fed chairman is 65 years old and lives byd himself, he calls his mother every day, isnt that a big creepy . [laughter] this is really quite nastyic political and despite all that pressure, Alan Greenspan stood up for the feds independence. Actually towards the end of his tenure the giant eggheaded Old Testament profit, if you remember is the giant who displayed inflation and if he was surrounded in his last years by reagan appointees by the fed, once on Interest Rates and Alan Greenspan who rebuilt the authority of the fed and created it and i think the time to act now when experts are under attack, when politicians it studies the model of study who parlay that expertise into political influence. I mean, that is Alan Greenspan. Yes. I think also behooves us to figure out what is the proper role of the central bank now that weve had it proved beyond a reasonable doubt. I think illuminates not just the career of Alan Greenspan but this complex era in which we have been living and operating and i predict it will be on the shelves of historians of this period for a long time to come. Thank you very much. Cspan where history unfolds daily. In 1979 cspan was created as a Public Service by americasic Cable Television companies andsi brought to you today by cable or satellite provider. A look now at authors recently featured on book tv afterwords. George discussed research on impact of u. S. Economy. And bane capital cofounder authored how income inequality has contributed to economic growth. In the coming weeks on after words, middle east peace during obama administration, majority leader George Mitchell will explore potential for peace between israel and palestine. Also coming up Georgetown University jason brenan will discuss the flaws in democratic system. In this weekend, editor at large for the guardian, gary young will talk about investigation of gun violence in america. Lowincome areas of color where people of color live that that is where things like this happen. And if you young person is shot dead in one of those areas, it doesnt challenge understanding of the way America Works as it confirms it. Its not so surprising that someone would get shot in that area and so it becomes not news, you know. Theres a phrase when dog bites man, thats not news, its when man bites dogs is news. A lot of people are being shot in the area, you have to ask, well, who owns the dogs and why do the dogs keep biting the same people and what can we be doing about these dogs . Sunday at 9 00 p. M. Eastern