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tv   Book Discussion on Americas Bank  CSPAN  January 17, 2016 9:30am-10:31am EST

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out of the affair of franklin and her social secretary. so she is very damaged goods in a very not with it. she barely shows up to vote election day. she goes back to teach school the night before with lorena hathcock in the car. it is icy. franklin is worried that she's got to go teach some lousy course on the upper east side. franklin both in the morning what i think his secretary, which is another's tory and they are waiting and waiting. you know how it is always. back when the newspapers that people read, you always saw picture in the afternoon edition of candidate showing up early in the morning so their picture
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with you in the afternoon paper. so they always vote early. they have to wait until she gets back at noon for them to vote. when they get back to new york city to the townhouse, she goes off and sees her friends and greenwich village and barely shows up again. this is not what i would call supportive. she must have been an incredibly angry person. some people say i never saw them alone. they would always have a conversation with a third person in the room. a lot of these political marriages are political partnerships. i won't cite recent examples, they say the harding after a while i'm sure they had some sort of accommodation. fellow in the back.
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>> i heard the reason hitler didn't get a majority of the popular vote was he one the liberal vote to a lot of parties. the right-wing vote was saw one man. >> the question is does hitler get the majority of the vote or is that all split up? he's getting the great bulk of the extreme right-wing vote. they should get a long war with hitler and in a way they do. in 1929 when there's a new reparations program been thought up and the nationalists turn on hindenburg. they have a big referendum.
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they are kind of stodgy old kaiser type monarchy guys and they need some muscle on the street. so they recruit nazis. they break very quickly and do not reproach until 33. they surely bad blood between them, but hitler is dead more votes than they do. it is like travel. but his getting? 30%? when you've got 14 other guys, 30% is a tremendous vote against one other guy. it's terrible. the 30 parties is mind-boggling. but he doesn't get a majority until everything is completely made in the fact they have to
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rig it tells you he wasn't too sure he would get a majority. we get to you in the blue shirt? we're talking about all these sure people. >> i don't think i'm popping to join the party. they were very high up that came to the respectable guys who signed on my kid. horace greeley shot because the middle names come from the fact that some american background and was a question somewhere around here after taking power.
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and a guy who puts things together for hitler economically. he ends up in 1944 in a concentration camp. fun popping is really to catholic to be a full-fledged nazis, that is a game player and manipulator in his own right. but he is more of an old mine continental conservative. >> there were four pounds and i don't know if there was waging aggressive war, crimes against humanity and a couple others waging against war might've been a catchall for all of them.
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on top of -- he was in charge of taking over austria. he was the ambassador to austria when the nazis merchant. be sort of get them out of the way, but also he was like that catholic drive as opposed to the anti-clerical guards. you can then than to austria and they wouldn't it too nervous. but that is getting ahead of the scope of my book. >> do you want to throw me out? should i just let it go? five minutes, okay.
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no, the leg and back. >> y with hitler so popular at that time? it was very popular. otherwise with so many intellectuals. i find a lot of politicians -- not many of them have the spirit of service, the ability of service and also the integrity. just kind of the psychopath deeply emotional games and they are good talkers, but not what they say promise. and then a few decades 20, 30
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years. >> one thing i hadn't touched on in that talk is the power of propaganda, which can work for any movement for spectrum of thought and certainly worked for hitler. when hitler is not talking about jews were or strange things like that, he gave it a lot of thought very early on. the uniforms and the flags and really thinks about it a lot. one of his smarter, most evil disciples his verbals. so they leave nothing to chance
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in that regard until everything goes to for everybody. works pretty well for them. thank you all for your interest. it is normally 35. if you're interested i'd be happy to autograph them. before we totally get thrown out of the building. bye, bye. [inaudible conversations] [inaudible conversations]
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>> and now on to tonight's guests. roger lowenstein has reported for "the wall street journal" for more than a decade, and closing for the stock market column heard on the street and the intrinsic value column. his work has appeared in publications from "the new york times" magazine to bloomberg. currently lowenstein maintains a column for his smart money. he's written several books including the bestseller origins of the crash, the end of wall street in tonight's topic of discussion, america's bank. i want to let you know there is a great review of it coming out in the "washington post" tomorrow so we can read about that tomorrow. he had three children lived with his wife in newton, massachusetts. please join me in welcoming
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roger lowenstein. [applause] speenine deborah, thanks very much. i don't know much about of them. what i'm going to do tonight is mostly talk to you but i'm going to read the passages as well but i hope conveys some of what i thought was the drama of the story. those of you who followed my career might know this is my first history and for me was the most exciting project i've ever been involved in because the people i wrote about fernando missed much of the people on the scene today in the book is full of controversies that feel they left off the front pages of today. just last night, anyone who saw the republican debate they have seen ted cruz came out against the federal reserve and
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advocated a system of going back in prison may not have been the federal reserve. tonight i would like to tell you what it was like when we actually had a cyst unlike that back 100 years ago. before i get to that, i want to or was something more basic which is what is the federal reserve and why do we have it today. if you think about an ordinary bank come a day or two functions are kind of self-evident for people who don't have enough money and for people who have a surplus they can go earn interest. besides helping out the two groups of people, they serve a larger social function, which is their way of getting money that would otherwise sit there were ever rich people keep their money and move it to someplace that's useful to society, people who actually have a need for it.
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banks fulfill the social function. a central bank is a banker today, just as some people who have excess funds, some bank have excess funds. they have may have a few extra billion dollars and they can park their excess reserves in any network around the country which is what the federal reserve is. obviously just like some people are in need of funds, sometimes tanks run out of money and they can borrow from the federal reserve had we saw that in a big way during the financial crisis in 2008 in 2009 when the fed he came the classic woes aside for, the lender of last resort. it is really important in a crisis because that happens is that is not only the six banks that stop lending, but the healthy banks. when they see other banks in trouble, they say i'm appalled that. i better stop lending. you get this dynamic where every bank is what it has do to
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protect his love to call in loans that they are all doing something that hurts the community at large, depriving the country of credit and the role of the thunder bank is to lay the wind in length when no one else is. after the mortgage crisis, the editors suggested to me it might be interesting and fun to look at but the country was like before we had federal reserve at them and how got one. so i plunged into archives and i said this is the first time i've done primarily exclusively archival research. that's a really different world for reporting. there were lots of things i couldn't do. i couldn't call up woodrow wilson and asked him why he had done such a such and so on would've been not a very lively conversation. i discovered other things, things that give revealed that
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might not today contemporaneous researcher. the federal reserve act, the peak of the process in december 1910, washington in a very hot place to live. the president by their delicate wife left her in the summer for political spouses in that area. since she was in another town, we have the record day by day of what wilson was writing to her, which committees in congress were in trouble and who in his cabinet was giving him trouble. he wouldn't have that. the first couple would be in the fair city and in other ways and completely familiar to now of great financial distress people
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were angry at the banks. they were angry at ted cruz the populace and not a disparate democrat in the tea party and the republican party. people didn't like big banks. they did like washington and they didn't want washington anywhere near a big tank itself. i might tell the story through the eyes of one particular character who had to confront these feelings. i say confront as he was not an american. his name is paul warburg. he found the attitudes of his adopted country very bizarre to say the least. but he would play a very big role in the formation even though he was not an american
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for the federal reserve. he would later write in his memoirs that his hope was the federal reserve would become a great national monument as he put it rather poetically like the great cathedrals of europe. life is really one long struggle to make that so. he was going to a wealthy banking family in the second half of the 19th century. yet three or four brothers, eddie was set to run the family bank. at that point he fell in love with the daughter of the american banking family. they got married around 1899, 1900. and they first settled in germany, but she wasn't too happy living away from her folks and long story short, they
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relocated to new york. very quickly after he got to new york, he realized how different the system in adopted country was in europe. all the banks had the sentra reserve. in america each bank kept its reserves. rainy day money, extra money. it keeps them in the ball where they might put them in a bigger bank to pay higher interest down the block. a brink into, might've kept its reserves at the bank in seattle and the bank in seattle might've kept its reserves in the bank in san francisco. both system and backup. the bank into, what colin money from seattle. and you would get this money tightness symptoms of panic throughout the area and sometimes throughout the country.
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this is what happened to some extent, every fall when the harvest season came and back then farming communities held more than half the population in the united states. they were a big part of the economy. they would need cash to fund the harvest, finance equipment, green houses, all of that. cash would drain out of the cities. rates in new york would go up to 100% sometimes. paul warburg saw this very after he immigrated to the united states than was absolutely his amish beard i went to take you now to an episode that shows his reaction right after he moved to new york. warburg was shocked by the primitive myths of american finance for banks in germany function with cohesiveness, banking in america suffer from
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and eat those of extreme individualism is credit tightened, each bank audit lungs thereby exaggerating scarcity for the rest. in 1903, soon after plunge on wall street, warburg led onto his brother-in-law and senior partner that he had penned some thoughts on the defects of american banking. the key problem outlined was the lack of essential reads her. he read the paper and agreed with the substance of it. however, warburg had misread the psychology of the american people who would never accept an institution resembling the central bank. he warned his junior partner not to share share his paper with others, but as a teaching exercise, he offered to show the paper on a confidential basis to a well-placed friend, jamesa stallman who was president of the national city bank, forerunner of today's city bank in one of the prominent thinkers
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in new york. a day or two later, warburg looked up from his desk and found stillman looming over him. he was the man of legendary for common system, highly eccentric. he would look at the heavy eyes. finally i got enough talent of sarcasm, he spoke. how is it a financier. he added that might defensively, warburg, don't you think citibank has done pretty well? he agreed that it had very well in deed. why not leave things well enough alone. he hesitated to reply, knew how powerful misters doman was. finally though he said, your bank is so big and so powerful, mr. stillman, when the next panic comes you will wish her responsibilities were smaller. he went off in a half and went back to his work. the warburg had the original
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american conflict between federalism -- anti-federalist than between big government and small, large banks, not large banks in this goes all the way back to the beginning of the republic 1791 and the famous conflict between alexander hamilton and thomas jefferson. hamilton won at the national existed in england. thomas jefferson was basically a farm boy, did like banks, didn't trust bankers. they both sort of took their case to george washington in the early years of the presidency. washington side with hamilton and there is an institution called the bank of the united states. particularly among people from the east coast remained after 20 years congress got rid of that and very quickly after that, if it discovered it needed a bank
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and james mattis and the congress chartered the united states and do the same thing all over again. it was really quite a success. they had all sorts of current these, each bank in every state issues its own currency. the second bank rationalized as. it got the young republic on a more sensible an organized footing. andrew jackson didn't like national banks anymore than it did. in the 1830s was abolished as well. the famous french political scientist came to the united state and was just mystified at the venom americans held for the national bank. he wrote in his famous book, democracy in america that america seem to be obsessed with
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one great air of centralization. paul warburg as he settled into america with just been to that very same attitude that really hadn't changed a web. warburg didn't defy ships, but he began to study this is the more to talk up his ideas at least quietly in small groups. he decided the american system was like a town in which every home had a pail of water but there was no fire department. that might've been fine if you want a drink of water but wouldn't work very well if there was a fire you had to put out. because of the central bank, every individual bank had to keep the reserves in its vault in case there was a crisis that would force it to close down. they lacked the benefit of corrective security that the banks and centralizes gems in europe had.
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he began to expand the stock drain. through the end of 1906 he became very worried about the financial interest of the united states. he was invited to a dinner at the home of the columbia university professor in new york. most people at the dinner were economists and bankers who began to hold forth what he thought was the rows in the country are and to diagnose what he felt for the ills of the american banking system. people were completely mesmerized. at the end of the evening, he said you have to write. you have to publish. you have to tell your new country about this. he said impossible. my english isn't good enough and so on. the next year something happened that there is a terrible panic in the american banking system and suddenly everybody wanted to hear about warburg's ideas. just as predicted some years
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earlier when the panic occurred, the biggest bankers in new york, people like stillman, people like jpmorgan suddenly had the job of deciding which we can banks were worth saving, which couldn't be saved, how to organize loans for the banks that should be saved. this of course is of course was for the ben bernanke and the federal reserve did in 2008. but there was no federal reserve in 1907. i thought we might join the action now when it struck an institution called the knickerbocker trice in new york. morgan on film and had to go to admit or report.
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the knickerbocker was or knickerbocker was housed on 34th street and fifth avenue up holes tampered white to her -- that -- who piled on the counter is besides the colors for the books, is to the consternation of the people in outline, many of the man i knew i shall never forget. friday afternoon on tuesday, october 22nd committee paid $8 million suspended operations. reported he could not in such timed out or solvency. jpmorgan decided not to intervene in leading the knickerbocker, morgan knew he would be unleashing frantic runs
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on every other trust in the city. new york stressed over a matter of several weeks lost a remarkable in devastating 48% of their deposits. even worse at the end of october, the local clearinghouse association of new york banks was forced to take the drastic step of authorizing banks to settle accounts with one another via certificates, paper substitutes for money connecting fans vented overnight rather than cash. the panic had now reached epic proportions. as the path spread, bank associations and scores of other cities they did their own versions of invented money. by mid-november, approximately half of the country's larger cities resembled certificate or other substitutes for legal money. some smaller towns were no clearinghouse existed, local bankers and provides the setting up a temporary committee as they were on the front porch. in two thirds of cities with
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populations above 25,000, bank suspended cash, suspended cash withdraws to a greater lesser degree. for example, council bluffs, iowa, a limit was imposed at $10 per customer. in atlanta, $50 a day at $100 a week. based in providence, rhode island adopted a policy discussion that in the draws on a case-by-case basis. even though the clearinghouse and their invented certificates, substitutes for money provided the measure of relief for generally recognized in a city of issue which was a serious drawback. any are anchor lamented checks and other banks and collection are being returned. money in fact traded at a premium. those who need it -- were forced to write checks for more than 100% of the desire of some. money lost it normal fungible characteristic here to was
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suddenly worth more than one place than in another. and at this point, stillman, the banker who had rebuffed some years earlier, feeling the american system was so strong and viable, they began to experience a change of heart and will follow him now in a brief exchange of c. makes its way. several weeks into the panic, stillman ventured the short distance. unannounced come he made his way to the banker he had first met 40 years earlier. he found him there as he was before. ..
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. >> and possibly recommend reforms. aldrich was named the chairman. on the floor of the senate, he said something that betrayed the impression wahlberg had made. aldrich referred to, and i quote, thoughtful students of the american system. aldrich quickly went on to add that he did not think america was ready for such a step, but
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he said someday it would, and that was a very significant step for a public figure to make. that summer aldrich led a congressional study tour, this national monetary commission, on a trip to europe to study the systems of europe. he hired a harvard tutor, they spent weeks in london and berlin, and the heart were interviews with officials. the aldrich delegation was focused above all on one question. in america banks felt this need to keep all this reserve money in the till, lest some panic come and they be forced to close their doors. in europe where there was a central banking system, how was it different? how did the banks operate? and for the last reading now, we'll join aldrich and the commissioners as they make their way about europe.
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at each central bank, the americans were given to feel like the representatives of a primitive system, one barely above contempt. their astonishment by what they heard -- and, by the way, the minutes were all available to me -- was palpable. the europeans portrayed their institutions as effortlessly superseding parochial or private interests. their policies seemed universally accepted. at the ap gee of the social harmony of prewar europe. had aldrich gone to europe in the '20s, the picture might not have been so harmonious. aldrich pressed their hosts on the question of reserves. who held them? what were the rules regarding holding of cash? the europeans' consistent response was that the confidence in their centralized systems obviated the need for the rigid
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american banking. london bankers could not relate to the the american fetish we las disty. how did the -- elasticity. it was in france where the visitors were truly humbled. aldrich explained that in the united states the question of the proper relation between cash in hand and liabilities is considered very important. what, he inquired, was the rule in france? what pushed the deposits backed by cash reserves? the governor of the bank of france shook his head with a weary sigh. i think, he said, you pay more attention to the quantity of reserves than to the quality. but surely, aldrich pressed, france had laws, regulations, some stipulation governing the proper proportion. no. the reserve requirements were insignificant in france, and i quote, the facilities offered by
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the bank of france for the crisis of banking assets into ready money. the americans persisted. what, they demanded, determined the fluctuations in the value of notes? the governor, despairing of his ability to explain the power of the central reserve to these stubborn yanks, waxed philosophical. it is the sun, he said. or perhaps it would be more correct to say the alternating seasons. now, when the trip, the monetary commission came back, they held hearings led by aldrich in new york city. wahlberg was invited to give a presentation. he spoke, of course, in favor of reform, but by now he was quite discouraged by the climate of the american public and the ability of reformers to go too fast, too quickly. so he gave a rather modest, pitch for a rather modest proposal, piecemeal and so on, so as to not alarm the public.
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when he was finished, aldrich came over to him. mr. wahlberg, he began, i like your ideas. remember, aldrich has just returned from european. i have only one fault to fight with them. warberg, momentarily stunned, asked about the fault. aldrich shot back, you are too timid about it. you say we cannot have a central bank. i say we can. as he was to recall in poignant terms, and i quote: it is easy to imagine but hard to describe the mixed feelings of joy and bewilderment into which this remark threw me. for the first time, i felt confident that genuine banking reform was within grasp of the united states. i don't want to give away too much of the story. there was, there were many twists and turns down the road for aldrich, warberg and others,
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including an incident that some of you may have heard about, but a stranger-than-fiction trip to a remote island where, feeling that the idea of a central bank would be so unpopular, they actually cut the first draft in secret. and the story passed to the democrats soon after that and to woodrow wilson and to his own efforts to get legislation passed over the objections of many people in his own party and, in fact, his own party platform. i'll only say now we can deal with any of this in the questions that warberg was very right to be wary of the public response. i think warberg who, by the way, went on to be one of the ped's first governors as he got caught up in this battle, he changed his citizenship and went on to join the federal reserve when it was formed in 1914. i think today he'd feel,
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unfortunately, very much at home in the climate that we have politically today. there are bills specifically in both houses of congress that would strip the fed of its independence, subject monetary decisions to the whims of elected officials and keep the central bank from making the sometimes very tough and sensitive decisions that it has to make. but there's one difference that i'd like to point out between then and now. in 1913 in the period i wrote about, there were tremendous conflicts politically, culturally. bankers didn't agree with farmers, bankers on wall street didn't agree with bankers in the countryside, republicans and democrats were split. perhaps most of all people on the eastern seaboard and the big cities in the northeast were very much at odds with people in rural areas and the rest of the country. nonetheless, the people who felt deeply about this issue were able to study it quite
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intensively for a number of years. they studied it, they debated it, they cut i through their differences, and they arrived at an enduring and salutary solution. when i look at the political process today, i'm not so sure that we can still do that. so i want to thank you very much and happy to take questions. [applause] i guess take turn going up to these micses. these mics. >> is it true that the federal reserve lobbies not to be audited, and if so, why do they not want to be audited? >> the federal reserve is audited by the gso. the bill that rand paul has submitted to the congress called audit the fed would call for their monetary decisions, so their basic decisions about interest rates going up or down, buying bonds or selling bonds, so on, to receive basically
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day-to-day scrutiny by the congress. so in terms of what's on the books at the federal reserve, what their assets are, that's public. not only public, it is audited. audit, to the fed, is a pretty inflammatory word, and it helps sell a couple books, but it's really about subjecting the fed to the political process. >> when do you think they should raise rates again and why? [laughter] >> you know, janet yellen is in a tough spot. in the paul war bigger era -- paul war berg era, it was limited by the amount of gold, and now the circulation is limited just by whatever the seven governors and five other members of the fomc decide. obviously, they'd like to raise rates. it's not a good idea for money to be free. if a distortion -- it makes it
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too easy or it overly encourages people, presumably, to make investments. on the other hand, the economy keeps sending back the wrong signals, and the rest of the world economies are, you know, basically going the other direction. the u.s. faced this in the 1920s when the federal reserve was very concerned about a depression in england. they didn't want england to lose gold and go off the gold standard, so we lowered rates really to help out england, and that really resulted in the final stage of the stock market boom in the '20s. how much janet yellen pays attention to the rest of the world, i think she's got a real problem because she's going to get into the election season, and that's going to make it tougher. i haven't answered your question though. [laughter] yes. >> hi. i wanted to ask is you about large banks that borrow overnight with other large banks or the federal reserve and their
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modern i.t. systems. are they doing that to balance their books, to have the right reserves because it's changing every 24 hours? is that how it works? >> they're doing it because some are short and some are long. some need more, and some have a surplus. the reserve requirements, it wouldn't be necessary for a bank to be below its reserve requirement to feel that it wanted to borrow more bawrksz you know, you don't want to get down to your last dollar before a reserve requirement. and particularly now when the federal funds rate is so low, what is it, five-one hundredths of a percent, it costs virtually nothing to have more cash. the big problem that faces banks, large and small now, isn't a lack of cash, it's a lack of places to put it. that's why rates are so low. there's an excess right now. >> i just wanted to ask you quickly, do you have any comments on quantitative easing
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or how the fed's going to run off all the securities they have? >> quantitative easing was a program that bernanke instituted unlike the normal policy of the fed of buying treasury bills, short-term securities. it bought longer term securities. and it still holds about four trillion on its books, and it really has two choices. i guess it has three -- it has two choices. it could at some point start to sell them off, and just as buying bonds work to stimulate the economy, selling them off could have the op to sit effect. or -- opposite effect. or it could just wait million these bonds mature and, you know, let it run off over time. my guess it'll be some mix between the two. i would doubt they'll unload four trillion as quickly as they bought 'em, but a they wouldn't want to send the country back into recession. thank you.
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>> my name is john yost. i sit on the board of seattle housing authority, and i'm for the poor and also, too, for the middle income. now, i have a question for you because alan greenspan basically said that we can print unlimited greenbacks because we have our own central bank andal, too, because we have -- and also, too, because we have the federal reserve branch. now, how do we expect that our economy mainstream and also, too, our wall street to exist and to continue with this $17 trillion deficit? now, you know, as we know we all, maybe most of you are not struggling, but if this continues, we will all struggle. and there might be bread lines and things like that. >> so let me just -- i think you've asked a couple questions. let me start to answer them. >> yes. >> okay. so the debt that people talk
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about, the federal debt is, you know, the difference between what the federal government spends each year and what it takes in in taxes. and it's actually 3% or something now. it's not a big deal. it's not a terrible thing for the government to borrow a little more than it spends each year. it borrowed a lot more during the crisis, and that's not terrible either, because that was a good time to stimulate and to be spending more and getting it out there. but that's fiscal policy. that's the realm of, you know, what the congress takes in, what it spends, what the treasury does. basically tonight we're talking about monetary policy; what the federal reserve, in effect, prints and stimulates. and you sort of talked about two risks. and they really go in opposite directions. one is the hardship that people who are in the middle or lower end of the ladder, the hardships that they face; lack of good jobs, lack of affordable housing, all of that. and the other is the risk that if the federal reserve prints too much money, you know, if
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they just start handing it out on the street to people who need it, obviously, the money would stop being worth anything. so it's not so easy to say, well, you know, we should just print unlimited amounts. greenspan may have said that, but he didn't mean it, and he didn't do it. he may have printed more than he should have at times, it's not an easy job. but it's not just a question of printing unlimited amounts because that won't help the people you're talking about. you know, a good example, i think, there was a lot of pressure on the government to make loans, housing loans cheap and easy in the early years of the 2000s. and that was a nice idea, but if you make finish at the end of the day loaning money to people who can't pay it back palpably as bankers who got, you know, got reckless began to do, loaning people 100% of the purchase price, making loans to people without asking to see if they really had proof of their assets, that didn't end up helping them, the banks,
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anybody. you know, we had the crisis. so these things, i think, involve a fine line and a lot of compromise. i'm going to let the next question, because it's -- >> okay, thank you. >> thank you. >> i was wondering if you believe that the federal reserve is instrumental in nationalizing the debt of the investment banks in this last housing bubble, and if so -- and, basically, passing that debt on to us -- and if so, whether it's fair to question the constitutionality of allowing a semi-autonomous organization like that to have that kind of power. >> well, the constitutionality of it was questioned in, before the supreme court in 1918 or '19, mccullough v. maryland, and they said it was constitutional. the actions of the federal reserve say in loaning money to
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aig, congress some years into the federal reserve's existence in the 1930s loosened up the terms under which the federal reserve could lend money to nonbanks such as aig. they did that because the federal reserve's efforts during the depression were notably ineffective. we had employment go up to 25%. it lasted the better part of ten years. people thought if we were going to have a federal be reserve, it ought to at least be more effective. so under that provision, which i believe was legislated in 1935, the statute calls for exigent circumstances and so on. they could do more. the dodd-frank act, by the way, passed after the crisis restricts the fed from doing that. it's not clear now if we had a future crisis and there were an aig about to go down whether the fed could make that loan. in my belief, that was a
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grave -- to make that restriction was a grave error. you don't want fire departments using too much water. but to tell them ahead of time if there's a fire, it's the fault of the people who were, you know, reckless with matches and they ought to learn how not to start these fires, that's a really tough medicine in the middle of a crisis. you're getting a lot of blocks that burn down. the money that went into the banks, i just want to point out, was mostly from the treasury department under the t.a.r.p. bill. and that also, obviously, was authorized by legislation. i, you know, you have to -- there's an old saying about there's no atheists in foxholes. it's really easy to be hung up on a theoretical point when we're standing, you know, on a nice night in seattle. but when you're in the middle of a crisis and bank after bank is going down and there's a run on
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the money markets too and unemployment has shot up, you know, above 10% going who knows where and 20 million americans are, you know, over their necks in mortgages they can't pay back, you know, i'd be in favor of letting the public officials have license to address the problem. not to have another great depression, which i'm glad we didn't have. >> i thought the federal reserve was not a public agency though. >> it is a public agency. the federal reserve -- >> not according to the courts. >> the federal reserve board in washington is very much a public agency. the reserve banks themselves are under the dominion with, the individual reserve banks around the country are under the dominion of the federal reserve and subject to it. they pay dividends to their private banks, but the federal reserve is an organization, and its leadership, its operating entity and the reserve board is every bit a public agency. it was created by an act of congress, and congress could uncreate it in a pen stroke
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tomorrow. it is every bit a public agency. >> so it's appropriate for them to be engaging in a fundamentally political decision to -- >> well, i just, and this is going to be it, because we're getting into debate. but everything that any politically-created body does is ultimately political. after all, the people who are on the federal reserve were appointed by the president, one president or another. so, ultimately, they're going to be political the same way that, you know, people in any agency were appointed by the people at is the sec, you know, the sec, whoever you want to name. the reason that we have an agency structure is to create some level between them and the people running for office so you don't have, you know, congressmen running for office promising people, you know, cheap interest rates and cheap money as a way to get elected. that probably wouldn't be a good way to run the monetary system. but the point you asked about was very much at issue in 1913.
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you know, we didn't have public agencies really except for the interstate commerce commission. that was the only one that existed then. so the idea of us subjecting a private industry to public supervision was very radical. the first draft of the federal reserve act had bankers in the federal reserve board chose by bankers. and william jennings bryan who really had gotten wilson his nomination and because of that was secretary of state although he had lost three elections was still very popular among democrats, said that was wrong. if we were going to create this new supervisory institution, he said, the people on it ought to be public servants. all of them should be appointed by the president. and he threatened to resign. and that would have not only taken down the bill, it would have taken down the wilson administration, because bryon was so possible -- bryan was so possible. wilson went to a very famous
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adviser not quite yet, louis brandeis, and he said i'm in a pickle, what do i do? and brandeis said you're really not in a pickle, because bryan's right. this is a public entity, and the public -- these new governors of this new institution should be responsible to the public, so you should nominate them, and that's what happened. >> thank you. >> thank you. >> thank you for the time this evening. this is more personal than professional, but as someone who has been steeped in the federal reserve and the history, current, present and ideally future, do you have any book reviews as a student? something that you have read other than your own publication that you think would be a wise read for the current political and economic crisis or situation? what book would you recommend? [laughter] [inaudible] >> well, if you want books on financial crashes or so on, i
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really like the great crash by john kenneth galbraith. if you want a book that explains how world trade works, the tensions between people who, you know, want to put up barriers and people who'd like to see trade be liberalized as much as it is and maybe more so, there's a wonderful little book by an italian economist who works in washington called travels of a k shirt. reads like -- of a t-shirt. reads like a novel. those are are two i really like. >> thank you so much. >> good evening. when did we come off the gold standard, and what were the effects? >> so we -- >> let me say, if after answering these other questions, i'd love to also hear the difference between glass-steigel and dodd-frank.
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>> so we came off the gold standard really in stages. the issue with the gold standard was that the federal reserve, u.s. government was promising to back every dollar with gold, and that meant it couldn't issue more dollars than it had gold. and to attract gold, it began to raise interest rates in the heart of the depression, and that, of course, had a very punishing effect on the economy at the worst time. britain, actually, went through the exact same process. they were on the gold standard as well. in 1931 they went off the gold standard which put pressure on us to go off it as well, and franklin roosevelt. he took us partway off, because he closed the gold window to citizens, so people could no longer take a federal verve note
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down to the -- reserve note down to the branch of the federal reserve and turn it in for gold. however, foreign countries still could. the gold system wasn't really operative in the depression years or during world war ii, obviously, but we sort of were on a half-gold system in the '50s and '60s, and the idea was we just printed whatever money we printed and used that in america. but as dollars went overseas, europeans had the right to come back, asians, other countries too, and to turn in their dollars for gold. and that system worked until we had an inflation in the late '60s, the vietnam war and so on. and the french, for some reasons of their own, they were feeling nationalistic and didn't want the dollar to be, you know, king of the hill, they began shipping us dollars and demanding gold. and so nixon one day stunned the world and said the window's closed. you can accept dollars, you can use dollars or not, but, you
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know, if you come here and say, you know, federal reserve note, we're going to turn it in, we'll just give you the same federal reserve note right back. that's all it's worth. and, actually, his treasury secretary, john connolly at that point, put a nice twist on it. he said the dollar is our currency and your problem. he was speaking to other -- [laughter] countries. what's sort of interesting is the expectations were that the dollar would completely lose credence, nobody would want it since we'd been so humiliated, it would be replaced by, you know, first the mark, then the yen, then the euro. this was said again during the bernanke era when there was so much stimulative activity, creating all the dollars. but, in fact, the dollar has maintained its purchasing power and more so on world markets. really the reason people have faith in the dollar, really two
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reasons, because it has purchasing power in the united states and because it's based in a country where the laws and legal system are trusted, and there's a transparency so that, for instance, some people have suggested that the chinese currency will be the new reserve currency. ..


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