He spoke and he understood. Its not like he was not really understanding what was going on. He understood. But he gave very, very few speeches. Only one really major one. On the financial crisis. Explaining what in the world happened to us. What are we going to do about it . Why does that make sense . And hang on, folks, this is going to take a while. Charlie john done a hoe and alan blinder next. Funding for charlie rose was provided by the following. Captioning sponsored by Rose Communications from our studios in new york city, this is charlie rose. From our studios in new york city, this is charlie rose. Charlie john done a hoe is here. He became ceo of ebay in march of 2008 but he is not a founder of ceo like zucker man, page. He rose to the ranks before moving to ebay. Under his leadership ebay has gone from strength to strength including a 75 rally in share price. The Company Started off as an Online Auction house but it became a giant of e commerce. 70 of its sales and also owns pay pal an online payment system. I am pleased to have him here at this table. Welcome. Thank you, charlie. A pleasure to be here. Charlie my pleasure. So when you arrived at ebay and had the kinds of responsibilities you had before, what did you see . Well, the fascinating thing about Technology Businesses in the internet is that a company can become a global brand and get global reach in a stunningly quick period of time. Thats what ebay did in its first five to ten years. He became a global phenom in a stunningly short period of time. Just as you can disrupt, you can be disrupted. Ebay when i got there was beginning to be disrupted itself. Charlie by . The way disruption happens it doesnt come directly at you. Product search didnt exist when ebay started. Google had started. Craigslist had started. What we needed to do was to face up to the reality of the change and in essence reinvent ebay with todays tech, what was todays technology and internet and reimagine, reinvent the company. Charlie did some people come to you and say if you do this, youre going to cannibalize what we have. Absolutely. At some point you have to choice. The dilemma in technology is either you cannibalize yourself or someone else is going to do it. We took the tough medicine, labeled it a turn around. No one liked it at first. That allowed us to focus on fixing the fundamentals of the business which have now turned beautifully. Charlie as you led those conversations, what was your definition of what you wanted ebay to be . Well, ebays purpose has never really changed. Our ebay founder said he measures success by positively impacting hundreds of millions of peoples lives around the world and connecting them through trade. And so what we needed to do was to update that into todays internet and tomorrows. For instance, one of the key bets we made very early on was on mobile. We saw that mobile technology was going to be a profound force in peoples lives. So we bet early on mobile and we bet hard. Charlie what did you see about mobile and what year are we talking . We first started in 2008 end of 2008 early 2009 we saw that the smart phone was changing how people behaved. Charlie heres the interesting thing. It didnt seem that way necessarily for everybody because everybody would have done it. If we now look back it seems obvious even in 2008 that smart phones would dominate the internet. Well, it did. Back then, you could see them being used for things other than shopping. And so what was the bet we made was that people would not just use them to send email oncore seum news but they would increasingly use them in all parts of their lives. The smart phone would become the Central Control device of our lives sniem i want to understand the risk that you took. What did nay sayers say to you when you said mobile is going to dominate . Were there people who said no its not because it has these limitations. People would say theyll never shop on a mobile device because for a minimum they wouldnt feel safe putting Payment Information on. It wasnt safe. People would still want to go into stores or a larger form factor like a computer. We understood mobile to be just another screen. It was another screen by which consumers could access the web seven days a week 24 hours a day. Reporter has it happened faster than even you imagined. Absolutely. I never could have imagined the sea change in Consumer Behavior over the last three to four years around the mobile devices. I mean, charlie, people are buying,000 cars a week on ebays mobile app. 8,000 cars a week on a mobile app. Well do over 20 billion of mobile commerce and 20 billion of mobile payment volume this year. Thats closing on a mobile device. So the shift in Consumer Behavior is enormous. Its having a transformative effect on the two industries. We compete in retail and payments. Charlie but also take facebook. They understand mobile is important. They also are trying to figure out a strategy to advertise on mobile. Thats one of the big issues for them, correct . Yes. But were blessed in that we embrace mobile. Not concerned about cannibalization. We monetize the same on mobile as we two on the web. We only get paid if someone buys something. Weve been able to embrace mobile with absolutely no hesitation. We monetize the same way. Were just trying to focus on following the consumer in many ways. Charlie when you made these decisions and you look forward, what worried you about it . Anything . Did you simply look at it and say, we have no choice . Much more the latter. We were in the midst of turning around the core of ebay business and injecting innovation back into the company. I knew we had to make a couple of big bets. We made two mobile and pay pal. There was no choice about making sure both of those were successful. In hindsight both have turned out as well or better than i could have guessed. Charlie pay pal was disruptive when it came on. Some people worried that pay pal is vulnerable to being disrupted by square or Something Else. Do you worry about that . Sure. I worry about disruption every day. Are you kidding me . I mean if youre a tech. Charlie you get up every morning. If youre a techy youre constantly, i dont care who you are, founder or not founder, youre worried about disruption. Thats what spurs you to do innovation, that what is what spurs you to consistently make change. The biggest change with pay pal is driven by the mobile device. Whats happening in the world of retail and payments is that mobile device has blurred if not obliterated between online and off line between what used to be called e commercial and whats now called retail. Charlie eliminate the e from e commerce. We call it commerce. Charlie because you can go into the store and therefore take your smart phone and do your shopping. Do your shopping. Or that you have total choice. Consumers feel like they have a mall in their hands now. The analogy i use is take your industry, media. Charlie take mine. People talked about the digitization of media. In reality other than music not much really changed until the ipad. I dont know about you but i consume my media very differently. I want my news, my entertainment when i want it, how i want it, where i want it. So do millions of people. Theres been a sea change of Consumer Behavior in the media. The ipad is less than three years old. The same thing is about to happen to retail and payments. The same kind of transformative shift in how consumers behave. Whats similar is technologies enabling consumers to be in charge. Its no longer the retailers saying you can only do this in my store or even an e commerce site saying you can do this on my site. Consumers say i want to do what i want when i want how i want it. Charlie you can go on your splatter phone and say no, thats way out of line because i can go across the street and get it. Really whats happening is people are starting shopping on a mobile device or on a web. Retail last year, the Offline Retail business, there 10 trillion. In over half of all retail transactions the consumer accessed the web at some point in the shopping experience. Think about yourself. How many times do you go into a store now where you havent already done some homework on the web . Youve done a search to say what product would i want . Let me read reviews . Charlie you ask your friends. Ive looked on facebook. And then the choice is, the Consumer Choice were trying to give consumers is do i want to buy it and have it shipped home to me tomorrow . Do i want to buy it and pick it up in the store . Charlie some say you want to be amazon. No, no. We have a very different approach. Amazon is a retailer. Were a Technology Platform that is helping retailers and Small Businesses all over the world. Charlie you might want to be Something Else tomorrow or the next day. I dont think well ever be handling the goods. Well never be a retailer. Charlie the transaction first. Commerce and payments platform that partners with retailers all over the world, large and small, to help them compete in this changing commerce environment. And we will never compete with them. Thats a very important point to these retailers. They dont view us. Charlie retailers will never compete with you. We want to enable you to succeed. Charlie in mobile and in your business and in many other businesses, is Software King . Is that what makes the difference . You have the Better Software . Well, i think the software is the tool that allows you to build a better user experience. And a better endtoend user experience. Software and the internet, the fact that youre connected, is enabling experiences we never could have imagined before. For instance, two experiences. One, i can right now. Lets say i want to get a sandwich downstairs. You want to get a sandwich. You go to a deli. Theres always a long line in the deli so you open your pay pal mobile app. You in essence check in. You preorder what sandwich. When they walk downstairs, now theyll recognize you but if you were an average consumer theyd say hello, youd like the usual. Its waiting for you right there. Youre getting permized service. Youre avoiding the line. And payment is done right there. Reporter you dont have to do anything. So payment will be. You wont even know youre paying. Charlie when you look at the landscape in terms of mobile where will it not go . Is it going to go everywhere . Is anything that you still do on your whatever version of p. C. You have or whatever desktop you have, do you still do anything . Sure. Sure. The way we think about it and the way i think consumers are going to think about it is theyre going to have multiple screens in their lives. Theyll have the mobile device as a screen. Theyll have a tablet. They may have a laptop. Their tv. Their car. Store front windows are going to be screens, right . The screens in the subway. So any of those screens a consumer can access the web and the screens that they control theyll want seamlessness across the screens. The actual smart phone itself may become the Central Control device for all of them. Were working to provide an experience across all of those screens. Understand this simply to be one more screen. Charlie do you expect to grow by acquisition or internal growth. A combination of growth. Were organically growing in roughly 16 to 20 . But well make acquisitions where we see an opportunity to add to that. Charlie, the really interesting thing is the acquisitions have been an enormous source of talent for us. In particular. Charlie bringing in smart people. Smart people and in particular bringing in good disruptive thinkers as weve injected more innovation back into ebay one of the things weve tried to do is buy teams where you have founders who are great disruptive thinkers who have been working hard to build their business but now inside a business they get a chance. They get to a chance to innovate. They get a chance to have access to 120 Million Consumers and 25 million retailers. Charlie how much of your time is about resource management, Human Resource management . Oh, id say a third to half. Charlie half at least . Just basically making sure that you have the right people in the right place and theyre motivated to do their best . Absolutely. Getting the right people. Coaching them. Developing them. Thats probably a quarter or a third of what i do. Interfacing with people around product reviews, around business vee views, around getting out where our people all over world. Thats the people element. So, you know, its the only way you can build an enduring company. Reporter how come you guys couldnt make skype. Skype wasnt the right fit. So when we. Charlie right fit in terms of . When we initially bought skype, ebay is all around connecting buyers and sellers. Our and sellers to do commerce, to do trade. Connected commerce and trade. We thought skype would be another way that it could be used in commerce and trade. It turns out skype was an incredible way to connect people but well didnt want to trade over skype. They just wanted to talk. Charlie heres whats interesting. There was a bad decision. You looked at it. Everybody said at the table, thisco is great. Will you skype to connect people with product . Right . Charlie you were wrong. Fundamentally wrong. Absolutely. Charlie when you look back at that, the lesson is . Its a risk that i think was worth taking. Who knew . I mean at that time. Technology is changing so fast. We got more for it than we paid for it. And the impta point is once i recognized that it didnt have synergy with our core businesses we divested it. Charlie microsoft owns it now . Its a great fit for microsoft. In the meantime its allowed us to focus our core business and focus on the commerce and payments and connecting people where its our strength. Charlie is it likely youll be in businesses we dont know five years from now . Or is your model simply to do what you do better and better and better . Were in two enormous markets commerce. Then the payments part of commerce. So i think well continue to be in those markets. Those are two of the largest, oldest markets in the world. Whats going to be different, i think, is how were doing commerce and payments. You know, the fact that we can now. Well be able to walk into a store and theyll know who we are. Well be able to have a personal relationship with retailers and with stores and. Charlie does that mean that tark it and walmart love you . Well, were increasingly partnering with retailers to help them because retailers recognizing that theyve got to reach consumers online, on mobile devices and on the web. Charlie they need you because you have that many people depending on you through your own mobile, through your own applications and software. And our Technology Platforms. Pay pal is a Technology Platform that enables you to pay online on a mobile device or in the store. Pay pal is going to be a mobile technology where the notion of your physical wallet is going to seem like an arcane thing three or four years from now. Youre going to upload all those cards in your pay pal wallet. Youll be able to pay whether youre in a store or on a mobile app or at home on the couch. Pay pal will enable that. Charlie pay pal has interested me because of the number of people who came out of that to go and do really great things in the text sphere. Those guys who were founders of pay pal have gone on to do other interesting things. An astounding group of people. Charlie dabbing dorsey . No, not jack. And theyve all gob on. Elon musk. Very disruptive grew of thin thinkers. Charlie how do you find disruptive thinkers . Theyre young because they dont know any better. If you look at. Charlie if they knew better they wouldnt start. They wouldnt start. They grew up with the technology that maybe we didnt grow up with. They grew up with mobile. They can imagine things that we cant imagine. And then they perhaps most importantly they dont know any better so they go for it. They try. You know, i love watching Companies Like uber. You would say, renting out . Renting out your apartment . How could that be safe . Charlie the first time i saw that presentation i thought really . And then they have more rooms than many hotels. Very much like when ebay was founded. Two human beings who had never seen other trading from different parts of the world. Charlie and one trusting to send the product and the other trusting to send the money. The same thing is happening now in this collaborative consumption economy. Charlie how much of the auction business remains a part of your dna some. Well, auctions is just a format now in the core ebay business. Charlie its the declining part of revenue as this other thing grows. Exponentially faster. We offer Consumers Choice of how they want to pay. Charlie are people doing less of that then or not or is it just simply less compared to the volume of the increasing thing. The volume compared to the increasing thing. Charlie there are still a lot of people who want to go and rummage in the auction world and find something they like rather than go to a store and find something new. Yes. Auctions are good for things that are. Have uncertain value. So a used item. Or a really scarce item. Auctions are a great format for that. But for most of things, people would prefer to have a fixed price because they want the satisfaction of buying it immediately. Charlie did you have. I mean, if you look at the role that you play today, one of the leading technology companies, do you wish you had a different kind of experience . Or did you have in your judgment looking back the best possible kind of experience . You know, i think the best possible kind of experience in the following way. What drove me to ebay was pierre told me he had two criteria of success. Charlie hes no longer running it. One is that he wanted to measure ebays success on how do we positively hundreds of millions of peoples lives through trade. Two, he wanted to do it over decades. He was Crystal Clear he wanted to build an enduring company. He said to me, john, i dont want just a hospital company. I want one that endures 20, 30, 40, years. To do that he stepped back. He did what many founders do. There are brilliant founders that have grown their companies enormously beings pierre because he wanted it to endure. He first empowered meg. Then he empowered me to take it forward. And to build an enduring company. Charlie the exciting thing about him. Hes an innovator in so many ways but what is, i think, to build an Enduring Technology business, it fakes an incredible focus, an intense focus on the Disruptive Innovation that is unique to technology. I spend a lot of my time on that. But, charlie, the timeless principles of leadership in a business also apply. Those dont get talked about in Silicon Valley. Silicon valley we just spend all of our time talking about the disruption and the innovation. That is the heart and soul, but the timeless principles of management still apply. I learned many of those timeless principles when i was at bane. Charlie from the whole group of partnerships you had at bane or who you were consulting with. Absolutely. Working with different clients. Banes experience. It comes to mind, i read an interesting article over the weekend on lincolns school of management. With the movie lincoln. And it was so striking that the. Some of the principles are lessons that president lincoln practiced back then. Still apply today. If you want to build an enduring company. The ability to confront and overcome adversity. Resilience. The ability to listen thoughtfully, listen to people with all different points of view. And form a perspective. The ability to have enough Emotional Intelligence that you can stay committed to a broader purpose. And yet have the flexibility to make tough choices and challenges. So many of those things i learned earlier in my career i still apply today at ebay. Charlie is that the culture you want to see at ebay . I want a culture that cares about its purpose and people join ebay because of our purpose. I want a culture of innovation and i want a culture of learning and growth. Where each of our people are living up to their full potential. Theyre learning, whether theyre an engineer or whether in marketer or whether theyre one of our Customer Support representatives. Charlie take meg whitman, for example, with respect. Before she left to go into politics and do other things, ebay was a declining company. Does that say that terrific managers have a window in which they can do great things but they shouldnt stay too long . I wouldnt say that at all. Let me comment on meg. Then ill comment. Look, meg was a great ceo for ebays first ten years. Look at what it accomplished. Charlie and then . The second most important job for a ceo is to pick their successor. And meg found me. She said, you know, i know theres a technology shift going on. The next person, its time to lead it. And i think we had probably the most seamless success youll find in Silicon Valley. So i had a fresh set of eyes. I hadnt been part of the past success. I can bring an objectivity and a knowledge that was the future that i had to create. Hopefully ill be the right. Charlie the second set of eyes before you think about succession even. You should be thinking constantly about how to bring a fresh set of eyes in to help us to grow. Absolutely. Charlie there are two interesting stories about you. It has to do with the family and one i think this was at bain. Finish the story. Your wife was an attorney, correct . Yes. Charlie she was going to San Francisco. And you were with great love for the idea of family wanted to take the kids to school. And so you wanted to be there in San Francisco. Bain did not have a single client in San Francisco. But you were therefore going to resign and go do something in San Francisco. There was a guy named teerny and he said what to you . We were actually living. We were living in San Francisco. We were both living in stanford. My wife had just finished law school and she was a clerk for a federal judge in San Francisco but she had to be the judges chambers. We had two young kids at the time. Our oldest two kids were i think 3 and 5. So i had to take them to school every morning. I was on the fast track at bain. I made the. I was traveling constantly. So i walked in to tom teerny who was the head of bain San Francisco office. He is now the independent lead director. Hes been mentor my whole career. I said tom i have to quit because ive got to be at home year to take the kids to school. He looks at me and says done a hoe you idiot. You dont have to quit. I said i have to take the kids to school every morning. He said, well, well put you on a local client. I said, tom, we dont have any local clients. He said, well go out and get the local client. Sure enough we got a local client. I was able to work part time that year. What tom reinforced afternoon what i think is so important about leadership is it cant be all work work work. Youve got to be. Charlie reinforcing that idea it also reinforces the idea that, lets think about this and maybe theres an alternative solution we havent thought about rather than just simply accept ing what is on the table. Therefore, i cant just serve clients around the world. I have to serve clients. We dont have any clients. Therefore its over. Its not over if you can find clients in San Francisco. What do you do to inform yourself . When i sat down i said how much do you read and where do you get it . You said how much is online and we talked about that. Is everything you read having to do with simply being an informed citizen or an informed leader come online . A lot of either the benefit of living in Silicon Valley because i what i need to be paying attention to is where is Technology Going . Where is the internet going . Where are the startups . I spent a lot of time with internet founders, startups and seeing things that, oh, my god, i couldnt imagine that happening. And so the biggest source of new information for me is with often young founders and innovators in Silicon Valley inside and outside our company. I meet with a group of young people inside of our company. Weve got 8 or 10 of the young people who are three or four levels beneath me who we ghettoing monthly. They bring in. What are they seeing at the edge . What do they think we should be doing at the edge . What is possible that i couldnt imagine . Charlie the other thing ive always wondered is why you cant create. Everybody knows this is such a simple idea. A kind of entrepreneurial home within Big Companies that have the kind of market cap that you have or that amazon has. How do you create within the umbrella of what you are the fact that people who are young and aspiring to pursue their own destiny will feel at home there . Well, i think were beginning to do that. As i mentioned weve made 20 ak which sigs over the last couple of years and probably 18 of those have been small companies. Weve been able to retain 10 to 12 of the founders. Those founders feel like they can innovate at scale. Charlie this is what mark said in the New York Times on december of 2012. 20 years ago we did not know how the internet was going to get used by people. We for sure didnt know about mobile or tablets. Mobile is a whole new level of reinvention so it feels like were in the most fertile time of invention since the early 90s. Absolutely. Mark is on our board. I think the pace of change is just beginning. Its going to be impacting big fundamental things we do everyday in our lives like read media, like now shopping and paying. Thats what excites us. Reporter is there a revolution as big as mobile coming down the pike . I dont know if there is going to be. I think its going to be the most fundamental thing that we see in this decade that is impacting our lives. Obviously part of what the internet is enabling is more engagement, more social engagement so i think that it initially starting on face book. But i think that social and that ability to engage and build personalized relationships youll see that coming into commerce and other parts of our lives. Charlie people talk about this all the time. There is amazon. There is google. There is facebook and there is apple. Those four companies. And although in different businesses theyre getting in each others business. Is that the wave of the future. Everybody wants to have a search capability and everybody wants a whole range of social media that they can accent and improve and enhance their own business but also be competitive with the other guy because hes getting in their business . Well, the first thing i would say and theres ebay. Charlie and i would say and theres microsoft. Were a Commerce Platform that touches 175 billion dollars of commerce. Almost 20 of all retail, all e commerce and 2 of all retail. But i think what all those companies the story of technology is and the story of the internet is companies have tended to be successful at one thing at their core. Google is the best in the world at search and the best in the world at advertising. Facebook is the best in world at social connections. We want to be the best in the world at commerce. Those do overlap on the edges but to date no one has been successful in fundamentally getting. Charlie is it possible to imagine. I mean, if this thought has not occurred to you, then id be surprised. Is it possible to imagine in signed of tablet that is created by ebay or some kind of mobile device that somehow enables you to perform the service you do better than any other smart phone that is on the market anywhere . Well, we think about it. Charlie and the same way that people talk about whether face book will develop a phone or somebody else will develop a phone. A question we ask all the time. Sure. But i think those are steps toward broader goal. If our goal is to enable commerce, when i think about devices i go to our customers. So i talk to retailers. And retailers say, you know what, john . Theres no way im going to accept. Im going to handle people that use apple phones differently than android phones differently than microsoft phones. People coming through the line, if theyre going to pay, i want one standard procedure. So pay pal now works with all different mobile devices and all different mobile operating systems so for mobile to have an impact inside stores, its going to have commonality. Same thing with consumers. We talked about it earlier. Consumers are are going to have multiple screens. Those screens will have to be compatible with one another. I dont think youre going to see more closing of these ecosystems like some say. I think youre going to have continue to have Consumer Choice. In our choice i dont believe we have to be a device maker. Charlie im going to throw out names. Tell me what you think about them. Jeff bezos. Done an incredible job at amazon. The resilience to be able to be up down up down and stick with it. Charlie and his approach to the consumer is like razor. Razor focus. Charlie steve jobs. Obviously he was the once in a generation visionary in terms of repeatedly producing products that were beautiful intuitive and loved. Charlie what do you make of the fall in their stock price . I think my guess is tim cook and that team are not worrying about the short term stock price. Theyre building for the longer term and stocks go up and down. If you get too focused on that you get distracted. Charlie larry page. Reated a Great Company called google who is going through their first real challenges in terms of small disruption around the edges. Charlie what is that disruption . Well, the disvupg is how search is being used. Its a different metaphor. Facebook could potentially start searching. Disruption is never head on. Its always around the edges. What that forces us to do is a Large Technology company is to reimagine, reinvent how we operate. Charlie mark zucker burg. A brilliant visionary who has done a phenomenal job with facebook. Charlie did you see social media coming . I saw it in my kids early on when it was just on campuses but for it to be become the global phenomenon, i couldnt have guessed. Charlie great to have you here. Thank you. Charlie, its been wonderful to be here. Thank you. Charlie back in a moment. Stay with us. Alan blinder is here from 1994 to 1996 he was vice chairman of the Federal Reserve board of governors. He was also an Economic Advisor to president clinton. Now he teaches at princeton. Alan blinders latest book is after the music stops, the financial crisis. The response and the work ahead. He says it tries to answer the question, how do we get into this mess and how do we get out of it . I am pleased to have alan blinder back on this program. Welcome. Thank you very much. Charlie ill say this to you. If youre going to write a book, then you need somebody to endorse it. This is not bad. A master piece. Simple. Straightforward. And wise. President william j. Clinton. I have to admit i was pretty pleased with that endorsement. He actually read the book. I thought he would skim it. Charlie could you tell for sure. I wasnt going to do that. I think its impolite to a former president. Charlie you think he read the book. He said he read the book. Charlie here was the question though. Before we talk about the book. Lets talk about where we are today. We had a dip in the fourth quarter. Do you read anything into that . Not very much. We had a dip in the fourth imparter in the g. D. P. We didnt have a dip in jobs you might have noticed. A few strange things happened to make the Third Quarter higher than we thought. One was inventories one was Government Spending. They both reversed in the fourth quarter. We got a zero. You need to average through the third and the fourth to get a clearer picture of what the economy is actually looking like these days. Charlie most people think that the key to the economic recovery is demand. Absolutely. Im one of those people. Charlie where is demand coming from . You know, its not been coming enough. The consumer sort of has his and her oars in the water in the sense that theyre spending in line with their income which is what they should do on average. That means theyre not the big powerful engine pulling everyone else along. Business investment in most of the recovery has been doing quite well. Construction, of course, has been doing badly. Housing has been a catastrophe until recently. And i think thats going to be a big difference in year 2013. Charlie the continued growth of the housing will create demand because it affects so many industries. Yes. You dont want to exaggerate that. Housing, its lower now because of the catastrophe but housing over the long pull is 4 of g. D. P. So its asking a lot for the 4 to pull along the 96 . But the consumer is doing okay. Charlie do you think taxes impact the way business makes a decision about inconvenien inin, about hiring, about expanding factories, that kind of thing. Sure they do. Charlie significant or is it simply depending on demand . I would say first of all if you compare taxes to your ability to sell the product, its no contest. Its not even close. You may remember. Charlie the product. Is the thing that runs the show. Exactly. If your tax goes up a little bit but your ability to sell the product at the same time doubles or triples, youre really going to notice the taxes. Youre going full throttle. If you cant sell it, it doesnt much matter if the government is giving you tax breaks. Charlie some people have since the crash in 2008, you know, have said, well, businesses uncertain about the future. You hear this constantly. Charlie ill mention regulations. Theyll mention the economic picture. Or theyll mention the fact that they develop certain efficiencies. Sure. Theyre trying. But what i always answer to things like that, im running a Small Business myself. What we talk about is all the time is how much of our product can we sell. Everything else is secondary. So the big uncertainty for years now since the economy fell off the table in the fall of 2008 is how much can i sell . Thats a huge uncertainty. Facing many Many American businesses. Charlie do regulations make a difference . Yeah, they do. They do. Charlie dodd frank put a crimp . Does it impede Business Development . Outside of finance, i think no. In the Banking Sector it exceeds some things. I dont think its a serious impediment to bank lending, for example. But youve got to do. Stop doing crazy lending. Thats not a bad thing. It is somewhat of an impediment to. Its meant to be. You know, this is projecting the future since its not really fully in effect yet but its meant to be an impediment to some of the financial shenanigans that got us in this soup in the first place. Its got, for example, the volcker rule in it as you remember. Paul volcker had the idea which he then sold to the administration that proprietary trading based on taxpair ensured money, f. D. I. C. Insured deposits is not a good incentive to have. Theyre still trying to write that rule specifically. Charlie in other words, theyre still trying to write it because . Its complicated. Its very complicated. So how do you tell a proprietary trade . Thats when the bank is betting its own money from mark making on behalf of a customer. Reporter your argument is its too hard to tell. You cant do that. So forget the volcker rule . Well, i favored and still do and the europeans are now starting to do this, a somewhat stronger persian of the volcker rule which would basically hive off the trading businesses into a separate subsidiary. This is where trading happened. Now heres the bank. Trading doesnt happen there. Charlie you can do both but you have to have them in separate places. Each with their own capital. Charlie looking today at the debt ceiling question. Do you think thats more severe and more threatening than any sequestering . By far. By far. The sequester, if it happens on march 1, is going to cut Government Spending immediately by about 85 billion. Thats about 6 or 7 tenths of a percent of g. D. P. And over ten years 1. 2 trillion. If we bump into the National Debt ceiling and by the way the good news is the republicans are talking more and more like this is not going to happen. But if we do, we have to go to a balance budget in a minute. Cant borrow anymore. Weve got a deficit thats, lets just call it morning friends a trillion. The c. B. O. Estimate was a little bit below finally. But around the neighborhood of a trillion. Thats 12 times 85. On top of that, you will. You have the danger of kicking off a worldwide financial panic as people start worrying about, well, is the United States going to default on its debt . If it comes down to paying Social Security payments or the interest on the debt, are we so sure that america will cut the Social Security payments and pay the interest on the debt . And a whole bunch of questions like that that we dont want anybody thinking about. We always want people thinking america is going to pay its obligations all of them. All of them. Charlie and america is. And we always have. I believe we will. But thats why im so worried about even if its a small probability of a cataclysmic crash to the National Debt ceiling, it wouldnt be good. Reporter do you think its essential for the administration to lay out how it were to reform entitlements . Not at this stage. Charlie and therefore be able to generate on the other side a commitment to revenues. Ill tell you why i say no. But i realize this does make it difficult to make a deal. Theyre going to have to give something to make a deal. But people speak about entitlements being the longrun budget problem. Its not real hell right. Its health care. Medicare and medicaid are two of the entitlements. There are other things. Social security is easily fixed. The rest of them are not even big enough to worry about for the most part. Theyre not very generous anyway. The money is in medicare and medicaid. We dont know sitting here in february, 2013, how to fix medicare and medicaid. A huge problem is the rising. Charlie dont have the political will to do it. I think its dont know. Thats difference. You see, Social Security we know how to fix it. You dont have to pick everything on the menu. Simpson bowls gave one example of do boom boom boom boom and you fix Social Security forever. Well, for 75 years. Thats the accounting period. So we know how to do that. We have choices. Its political will. Medicare is drifn. People often say and theres truth to it. Its driven by the aging of the population. Thats true. But a bigger driver is the fact that Health Care Expenditures keep getting more and more expensive. Relative to taxi fares, food, professors salaries. Whatever you want to think about. Charlie we have to deal with that. We have to deal with that. We dont quite know how to deal with that. The obama care as its now being called put in on a trial or a experimental or small scale basis almost every idea that had been suggested for containing costs. But we dont know how theyre going to work. You know, the system is not even effective until 2014. It will be a while. Charlie heres whats interesting about the book. Of the music stopped the financial crisis the response and the work ahead. I cant tell you how many books ive read about the financial crisis. Why do we need another. Youre not the first person. Thats a fair question. I think there are a few reasons. First of all, most people are not nearly as well read on this subject as you are. This sort of tries to put the whole thing together. There were a loft very excellent books that were written early on mostly by journalists. I cite them in here. Theyre very useful for a number of things. But whereas for example there was a very nice book written about the failurelyman brothers. The failure of Lehman Brothers is five pages. Im trying to tell the whole story. Charlie let me stop there. You say the failure of having Lehman Brothers fail, failing to stop the fall, was a disaster. I think it was. Charlie and that they could have allowed baer sterns to fail. I think if we could rerun history and do the experiment, it would have been better to experiment with letting bear go under. Im not saying it was wrong. I dont think if i was pulling the levers i would have the guts to say lets just let them go as was layer done with lehman. But the conjecture of saving bear and lettinglyman twice the size fall six months layer, chaotically was i think the seminal moment in this crisis. Charlie of course as you know the people who were in charge including hank paulson said them didnt have the authority to. Absolutely. Ben bernanke has said the same thing. Theres truth to it. What that means is you would have had a stretch. Right after lehman failed hank paulson suddenly discovered he had a 50 billion kitty of money called the Exchange Stabilization fund that he could use to prevent the money funds from going under. It was there before. Charlie you also think they had to rescue a. I. G. I think they had to. It was on the other side of all. Not all but a huge number of these awful c. D. S. Credit default swap bets. If they had started failing one after another, this crisis which was big enough already would have just ballooned. Charlie is a. I. G. Still getting special treatments . I think the last just ended. They pay back. If youd have asked me in september of 2008 are we going to get all this money back from a. I. G. , i would have said long long odds that we will. I think they just made the last payment very recently. Charlie the same thing about the Auto Companies . Not quite. Were going to get back more than most people thought but the net losses in the tarp when all the accounting is for the troubled Assets Relief Program which got used also for the Auto Companies, more than 100 of the losses in that in the end are going to come from the auto bailout. Charlie you criticized the president. You say two thing. One hes not. Maybe more. Not a good negotiator. Two, you say he didnt explain well what was after steak. Right, right. Lets do the negotiator first and quickly because i want to talk more about the second. In the early stages of the Obama Administration with the stimulus and other things he was giving a lot to the republicans and getting very little in return. Thats what i mean by not a very good negotiator. He was a much tougher negotiator now. Charlie today. Learly. Harlie he learned his lesson. Came in and said were going to have a bipartisan government. The first two letters in bi connote two. You have to have another side. He didnt have it. Charlie he let the Congress Write the Stimulus Program to a degree. To a degree. But hes a lot better now. A lot tougher negotiator now. The communications thing was a disappointment. I thought like many of us americans did that our new president coming in in 2009 look like a great communicator. He was eloquent. He was a role model. He spoke. And he understood. Its not like he was not really understanding what was going on. He understood. But he gave very, very few speeches, only one real hell major one, on the financial crisis. Explaining what in the world happened to us. What are we going to do about it . Why does that make sense . Hang on, folks, this is going to take a while. Were not getting out of this in six months. He should have hammered home that message time and time and time again. I think he just didnt want to repeat himself. Maybe its as simple as that. Charlie i dont think he would necessarily disagree with you. I mean, he has said to me in an interview and hes said it to other people that he got more attention. I asked him about mistakes over the first four years. He said we spent too much time on the content and not enough time on explaining it. Thats not marketing. Although it could be. Its explaining it. Making sure that everybody understood it. You know, why you did what you did. Absolutely. Charlie thats explaining what you did, why you did. Why its important to you. Absolutely. Especially when youre doing things that sound bad and that are counterintuitive. So think about the tarp. The banks did bad things and got all this. Got us all in this trouble so were going to shovel money into the banks. That seems counterintuitive and it offends peoples sense of justice. It needs to be explained 100 different ways. Charlie the Federal Reserve. How did they do . Im going to give them two grades. You already mentioned that they awhroong with secretary paulson letlyman fail which i think was a very big mistakes. They also get a very bad grade in watching banking practices during the crazy years of lending, 2003, 04, 05, 06. They should never have let these banks do what they did. Charlie and the regulators too. I always say. Thank you for reminding me. It wasnt the. It was all the bank reltors. It was all the bank regulators. Once you passlyman brothers, ben bernanke and the Federal Reserve have been creative, gutsy, effective and have really been our main line of defense that and the stimulus against what could have been a vastly worse economic. Charlie i want to run through ten financial commandments. Well put them on the screen and talk about them. Thou shalt remember that people forget. One of the roots is of financial bubbles is that people forget when the good times roll they wont roll forever. This happened abundantly. Charlie thou shalt not rely on selfregulation. There was the attitude during the boom years that the markets were several regulating. They would watch themselves. You may remember Alan Greenspan expressing shock that they let their Risk Management systems deteriorate as much as they did. Well, they did. We the public needs to watch out for that. Charlie three, thou shalt honor the shareholders. Boards of directors let a lot of things happen in this crisis. You mentioned a few. Charlie praws because they didnt know. It has become so complex. Right. That is the job of the board not to know every nittygritty but to know enough to feel some comfort and to ask the hard questions. Reporter thou shalt elevate the importance of Risk Management. Whats gotten out of control is Risk Management. Absolutely. These companies we thought were good risk managers and said they were good risk managers and said they had all kinds of fancy mathematical models to manage risk. In many cases it was a charade. Charlie thou shalt use less leverage. Well, leverage was the key thing that really made this crisis blow. You had a household too leveraged but not putting money down on the mortgages. You had investment banks that were leveraged 35 or 40 to one. 40 to 1 means if you have a 2. 5 diminution in your assets youre bankrupt. How can you operate with 40 to 1. Reporter thou shalt use less leverage. The same thing. I talked about that. Thou shalt keep it simple, stupid. Keep it simple, stupid. Kiss, keep it simple, stewed. Wall street built on top of these sub prime mortgages which were bad enough and some of them were very complicated by the way. A crazy quilt of securities and derivatives on those securities that basically created an inverted pyramid. At the base was maybe only 200, 300 billion of sub prime mortgages. By the time you got to the top of this crazy pyramid you had trillions. Reporter thou shalt standardize derivatives and trade them onexchanges. This is one of my pet peeves. If youve got derivatives things like c. S. D. Charlie which is part of the problem. They were customized. That means people might not have quite understood them but more importantly you cant comparative shop for them. You dont have an exchange standing between the buyer and the seller unlike say Stock Options on New York Stock Exchange stocks. I think a lot more of this business ought to be and can be standardized. Charlie thou shalt keep things on the balance sheet. Banks in particular and investment banks also hived off some of these activities into what were called structured investment vehicles. When the house of cards started crumbling it turned out that even many of the ceos didnt know how many of those they had. Charlie it was being run in a very different way. Big time. Thats a good example about forgetting. We didnt learn. Charlie thou shalt fix perverse compensation systems. So many traders and many of these banks and even in the hedge funds which were not the big problem had incentive systems that gave them a nice share of the winnings on the up side and not much more than a slap on the wrist on the down side. If you create incentives for bright young aggressive people, some of these have been my students, to go for broke, you know what theyre going to do . Theyre going to go for broke. Charlie watch out for ordinary consumer citizens. One of the big surprises of this crisis to me ill admit this was that something that was based on duping unsophisticatedded into contracts they should never be into, im thinking of sub prime mortgages and things, could grow to such a size that it would threaten not just the families. That was obvious but the entire economy could be brought down by it. Thats not a thought that was in my head. Charlie without having you comment im going to read your rehab programs for policy makers. Dont try to do too many things at once. Explain yourself to the people. Say it in language that ordinary people can understand. Number 4, repeat steps 2 and 3. Explain yourself. Step 5 set expectations low. Step 6. Pay attention to peoples at feuds, prejudices and misconceptions and step 7 way rapt attention to fairness. If people think theyre being screwed as they did during the financial crisis and with good reason, you almost certainly lose them. You do. Theres a difference between paying attention and paying rapt attention. We economists pay a lot more attention to efficiency. But most of the people on earth not just in america pay a lot more attention to fairness. Charlie do you think more people should have gone to jail because of what happened leading up to 2008 . I do. I cant name them. Going to jail is a high bar. You have to have a high. Burden of proof. People are innocent until proven guilty. But i look back, for example, at the savings and loan crisis in the 80s and into the 90s. 700, 800, 900 people went to jail for fraud. In this one, i think you can count them, you dont even need all five fingers. Charlie the book is called the financial crisis, the response and the work ahead. Alan blinder, thank you. If to have you here. Thank you for joining us. See you next time. Captioning sponsored by Rose Communications captioned by Media Access Group at wgbh access. Wgbh. Org