Today is december 7th, a most appropriate day to welcome the authors of surprised again, the covid crisis and the new market bubble. Ive read this book cover to cover twice, once in its early stage before it was in print and again in the past week. Its not only an excellent account of the financial crisis that gripped the country as it recognized the severity of the covid crisis. But a very interesting discussion of the Government Policies enacted to counter the economic consequences of the pandemic. After the authors discuss their new book, chris demuth, distinguished fellow at the Hudson Institute and i will react to some of the issues and events. Alex howard discuss in surprised again. Then well turn to the audience for questions, including the online audience who can send in their questions. And if my past interactions with these scholars, any guide, i would not be surprised at. All if we have a lively discussion. Alex pollock is a senior fellow of the macys institute. Between november 2019 and february 2021. He served as Principal Deputy director of the office of financial research. The u. S. Treasury, prior to his governments service. He was a senior fellow at our street, a senior fellow at the American Enterprise institute, and the president and ceo of the Federal Home Loan Bank of chicago. From 1991 to 2004. He has also served as a director of the Chicago Mercantile Exchange group, a sending him Education Group and the great books foundation. Alex his work includes the study of Financial Systems and their recurring crisis the politics of finance risk and uncertainty, central banking and housing finance. Hes a graduate of williams college, the university of chicago, princeton university. Hes the author of two previous books, finance and philosophy. Why . Were always surprised and boom and bust financial cycles and human prosperity. Howard b adler is an author, attorney and former Government Official from may 2019 two through january 20, 21, he serves as Deputy Assistant secretary of the treasury for the Financial Stability oversight council. He was responsible for monitoring the Financial Stability of the United States during the first year of the covid 19 crisis. He was awarded treasurys distinguished Service Award for his efforts by the secretary of treasury. Mr. Adler was a partner for over 30 years at gibson, dunn and crutcher llp law firm where he served as cohead of both the firms Corporate Transactional Practice Group and route practice group. Prior to joining gibson and dunn, he served as executive Vice President of the Riggs National bank of washington, dc. He has also served as the treasurer of the washington d. C. Bar and is on the board of governing trustees of the american ballet theater. His hes a graduate to Johns Hopkins university and the New York University school of law. Please join me in welcoming alex pollock. Many thanks to aei for hosting this event to paul for organizing it and for your introduction to chris to youth for participate. Our publisher, paul dry is here. Thank you, paul. And also Dan Sulzberger is here. Ben was our Research Assistant for this book and did all of the graphs. So which so clarify the various issues throughout the book. Now surprised to get as three fundamental elements. The first is a history of the totally. Unexpected 2020 financial panic. Then the aftermath of that panic, including its massive finance sink by government deficits and Federal Reserve money printing. The subsequent asset price and the everything bubble and the emergence of runaway Consumer Price inflation. All in all, its a fascinating story for present and hope future students of crises. The second part is a macro or a philosophical reflection on the nature of fundamental financial uncertainty, which cannot be eliminated. Id consider for example, that there were no less than 30 official Systemic Risk analysis by all kinds of Government Agencies here and abroad, and many multinational agencies. All of these were published in 2019, trying to say what might be ahead . Well, not one of them got. 2020, right . Not one. And thats because they were not dealing with risk to make a fundamental distinction here. That is to say, theyre not dealing with probabilities which can be calculated, but with uncertainty, incalculable and ineluctable, all in the fog of future financial and economic events. The third part of the book is an examination of a number of key financial problems, all still unresolved. In his remarks, howard is going to discuss issues of cryptocurrencies, insolvent, multiemployer Pension Funds and the utterly failed federal Student Loan Program. Among the other issues, we take up a runaway inflation in house prices now deflating, and the hugely important phenomenon we call central banking. To the max, starting with the 2020 financial panic, the covid Health Crisis turned into a financial crisis. Although great expert efforts, as we said, had gone into trying to assess Systemic Risk. In fact, everybody was surprised again. The constant attempts to foresee the next big crisis failed to see the one that came. And the reason for this was they failed to link the outbreak of the new deadly virus. The possibility or even probability of which was well known to science, that if such a thing happened, it would be linked to a financial collapse and a financial and economic contraction. With more with the prices and Financial Markets all dropping like stones. We start the book with a discussion and i had in december. Of 2019, three months before the crisis began, in which we reviewed all of the issues around and the Financial System looking for the next crisis and agreed. We couldnt see one. We couldnt see that crisis coming at the end of this discussion. However, i said to howard nonetheless, when it does come. We want to see it coming. That turned out to be a good forecast. We didnt see it coming and neither anybody else. And the key reason why we didnt and neither did anybody else is that all finance is political. All finance. And the link, the emergence in china of a new virus to International Financial disaster required forecasting the intermediate step of pull litical actions. Governments locked down huge sectors of the economy. As we know and however necessary. Those actions were financial actors suddenly had to guess what that meant for growth, employment, cash flows, present values, prices of financial assets, and for defaults on debt, all of which just a little while before had seemed so benign. Everybody feared the unknown. So in our book, we ask our readers and we ask all of you this evening, as we wrote, did you excellent readers. And you distinguished audience, a imagine such a link between the emergence of a virus and a financial panic. In 2020. No, you didnt. Did you put even a tiny probability on it as one of your socalled tail risks . No, you didnt. You were, we guess, completely surprised. Again, along with all the experts that we discussed in detail the numerous travails and fears of that time in chapter two, the panic of 2020, in particular, we discuss how financial actors rediscovered the permanent truth that asset prices are ephemeral, prices seem very real, but in fact, theyre ephemeral and they can go down more than you thought possible. They can go up more than you thought possible to. But the going down part is more painful. In april of 2020, wall street journal proclaimed in capital letters that march was the month that changed everything and wrote march with a booming economy and ended with giant companies begging for bailouts by silver. Asian not only giant companies, but everybody else was begging for a government bailout. And the bailouts came in common with the last crisis. The governments and the Central Banks. In the words of former secretary of the treasury paulson had no choice but to fly by the seat of their pants, making it up as they went along. And they did indeed make up a lot of things as they went. Now, walter badgett was, a seminal financial thinker whose major book appeared in 1873. In 2020, governments applied one part of walter graduates theory of how to deal with a crisis, which is lend freely a money printing central bank, in fact, is most handy in the financial crisis. The Federal Reserve was hyper active. If you look in the book table, 3. 4 shows you 49 special financial programs. The Federal Reserve introduced in 2020 and the National Treasury can greatly expand its spending to finance a crisis as long as it has a central bank to print money in order to buy its debt. And table 3. 1, well show you 22 special u. S. Treasury programs invented by the treasury in 2020. These were wild and frightening days, but with the passage of time, now that we know how the recovery unfolded and finally were sold, its already becoming difficult, isnt it, to remember how bad and how frightening it was at the time, how intense the uncertainty was. How dizzying was the sense of collapse . Seeing market prices, and how opaque the future seemed as Financial Markets went into freefall with seemingly no bottom . Now we hope the will help the group memory in the future of what it was like in those frightening days and those days. Certainly included uncertainty, as we said. And thats the second point i want to talk about. And we discuss in the book how a highly placed political officer and a top financial ceo both predicted that another this was after the. 2007 to 2009 crisis. Both predicted that another crisis would not happen, quote, in our lifetime, unquote. Well, that was a really odd call, because the average frequency of financial crises is once about every ten years on average. And they had plenty of decades in their lives. And so they were wrong. Interestingly, once every ten years was the frequency financial crises in pagets time as well as it is in ours. And as paul volcker once wittily said about every ten years we have the greatest crisis in 50 years. Oh, no, the the events of 2020 were hardly the first to demonstrate that highly intelligent, highly knowledge able people in positions of Great Authority may still be unable to anticipate what crises future may bring. And John Maynard Keynes in 1937 described the uncertainty very well or knowledge of the future, he wrote, is fluctuating, vague and uncertain about these matters. There is no scientific basis which to form any calculable probability. Whatever note, all financial models run on calculable probabilities. Keynes continued that our expectation of the future being based so flimsy a foundation is subject to sudden violent changes. The practice of certainty and security suddenly breaks down new fears and hopes will, without warning, take charge of human conduct. The year 2020 certainly brought such and violent changes and new fear marked the first half of the year as people were afraid not only for their lives but also for their money. At the same time, now, a key problem with uncertain, as the book discusses, is that always there whether we feel it or not. The way i feared Federal Reserve staff study of uncertainty, for example, says this large uncertainty, such as those appearing concurrently with the outbreak of covid. Appear cyclically. But note thats the uncertainty that somebody has felt or the whole country has. But the real uncertainty is there. Whether we feel it or not, its there before the when no one was worried about it as well as during the panic, when everyone was worried about it. And its there. And may not even be felt by people who are diligently looking for the next crisis. So we can say the roman poet claudius wrote 6000 years ago is still usefully applied to the economic financial future of today of all times. To wit or race hominem tactical ligne of all, we that is Human Affairs are surrounded by so much fog and the financial future certainly is that and no late in 19 2022 we know that air is coming out of the great everything bubble that Federal Reserve and other major Central Banks and the treasuries intend inflated. And this experience of the deflation of the bubble is a cost of the bailouts. And the key thesis of our book is nothing is free and this is indeed, in my opinion the single most important principle in economics. Nothing is free. And the bailout wasnt free either and were paying the cost. Now, as i said. The book also discusses numerous key problems, as youll see if you peruse the table of contents. I have short comments on just two of them. One on mortgages and the Mortgage Market in the wake of the covid crisis, the United States experienced a runaway inflation in house prices, stoked all the way along by the Federal Reserve, which was still buying and making itself into the biggest savings and loan in the when the when the inflation was roaring in. Amazing. And to me inexplicable practice what we said in the book is, well, if Mortgage Rates go back to normal, which we said would be five or 6 , that would be the end of the house Price Inflation and the house prices would fall. Now, mortgages are about 6 at the moment, and house prices are falling. How far will they fall . Well, one reputable forecast from aei to be precise, is will get a fall of 10 to 15 next year in house prices on a National Average basis, may just make one comment to central banking to the max, which was completely unanticipated and astonishing. This we show in table 12. 7 of the book that six major Central Banks ended the last crisis in 2008. They had im sorry, were at the time of the last crisis in 2008 they had 3. 8 trillion of assets. By 2021. With this crisis, they multiplied their assets by seven times. To 26. 7 trillion. And how that will all play out is still unsure and and they and we are working on it. Well, what next . A nice turn of phrase. One financial analyst said this year we have a six stew of uncertainties. The editors of the Financial Times said the staccato of recent events has created astonishing uncertainty. Well, yes, but nothing nearly as astonishing as the covid panic in spring of 2020. And its the bail outs, the amazing boom, the everything bubble, runaway Consumer Price inflation, and now the deflation of the bubble. Well, in the book, we have an appendix which was polarized. Great idea. Its called your own update, which when you get to the end of the book, you can take set of key analytics that we talk about in the book and put in what they were like. The price bitcoin and the rate of the 90 day treasury and whether or not theres big war going on and what the assets of the Federal Reserve are. And you can put your own numbers in when you read the book. We also recommend that on the other side of that page, its all blank. So you should write down your own summary forecast of what is to come so that in the future you could read what you were thinking then and see how did with that paul, thank you very much again for having us to talk about our book. Thanks so. Please join me in welcoming howard adler to give us the second part of the. Thank you very much. First, let me express my appreciation to for having us here today. Very, very nice of you guys. An amazing institution and its an honor to be here this evening. In the book we look at several sectors of the Financial System in terms of where they stand after covid and the government response to covid. I will focus on three of those sectors cryptocurrency multiemployer Pension Funds and Student Loans emphasize housing. Some Key Takeaways from the book. Cryptocurrency. Cryptocurrency began as a libertad in revolt against government monopolies on money, the intellectual forefather. Cryptocurrency is hayek, who wrote in 1976 that people should be free to choose any form of money in which they have confidence. Private is not new. It has been used throughout history as early as the night the Knights Templar during the crusades. Private banks issued their currencies in the United States in the early 19th century. Cryptocurrency adds the technological innovation using the blockchain, a distributed Ledger Technology to record and store trends, actions in the cloud without the need for a financial intermediary. In chapter six of the book, we tell the story of facebooks cryptocurrency libra. The story is incredibly instruct live and understanding the relationship between governments and cryptocurren