tv Book Discussion on Americas Bank CSPAN February 16, 2016 11:17pm-12:17am EST
become the adviser and then the transition in your mind to be much more precise how does that workout at home? how did they react to someone who has to talk that way? >> i a big kiss by my wife to quit talking like that at home. >> i don't do that necessarily. [laughter] but it understated and that pressure. >> my home life was a tremendous relief and my wife is good at giving me the oasis or the sanctuary
to think about something else for a change. is added page 42 you talk about the bookie were riding with the call that changed your life to be appointed to the federal reserve you were working on a book called the age of delusion how politicians and big ears created the great depression and. what will the next call, what title would they give to a similar book describing the lead up? >> probably something like asleep at the switch your too complacent now wind of
the aspects that they is looked stable overall. with that housing eland mortgage sector but it depended on short-term debt that led to the conflagration that we have seen so in terms of the period before the crisis excessive confidence is the problem. to ask me about the future i have to say we have to be sure we're paying close attention because you cannot assume.
>> ian dash how somebody people in this country were rewarded for risk taking and unfortunately the public lost huge numbers of civilians. and then for those were inflicted on that banda lot of that has come back. but i was talking that every major french institution has a risk officer that has the stature to sit at the table table, not making any money for the firm of redoing that
bell and half more to have the authority and the support of the board of directors to tell a company you cannot do that. but janet yellen is testifying and on these issues ended is the ongoing project but they did have risk officers but not necessarily at the table or to be given b.f. attention by the board. seriously enough if it had have a high profile but then the basics can assess their own risk. you could pass them how
would that affect your portfolio? they will say give back to less into a couple of weeks. but now is with the stress test to kill the past and get permission to pace gerald there's but to show that you have the assistance needed the ability to edward to save that it there is consistent pressure the dollar being paid improvement. in another aspect bet you could take a risky and mouflon to move the approach there is more that regulators are insisting on an indefinite loses money
you didn't get your pay back the money received. >> to create a longer-term perspective. >> there is sage he changed. >> and that institution the u.s. taught as those of our route with those various kinds of of derivatives spinnaker the you people less likely to you that now. of princeton in elsewhere that the best and the brightest ahead into austrian lake they did in the 2000's and what that
means for society. in the foot paid to. >> a dodo teeseven i have two more questions. we talk about my frustrations and you answer the question that you were not prescriptive the death with what congress needs to do. you do have those in the end of the una pull things. >> then we need to provide heat and they object to
make sure freddie has the opportunity in did many ways this is parallel to the tax problems -- problems and policies be big this is congress's decision but clearly one tool that you have as the legislature to address any quality is tax rates do did come wealth and corporate taxes from an stick i am not advocating a tax rates but it is a tool to. >> in his food to the chest
and it speaks with the water voice than almost any other e economists said but generally did with the earned income-tax credit and others that we were urged the they were constructive and avoid some of those trade-offs of she created tax on benefits. this seems like corporate tax says have a lot of bipartisan agreement to address those territorial
issues that i speak we should be able to get down. and those overseas in a lavender 12%. so that does not give incentive for companies to go overseas with repatriation spending to have a minimum tax from then on. and then to read that a transition and that doesn't create the incentive. >> unit one of the things that you love about baseball statistics and to be lucky
enough to see the perfect game. and that the southern part of prime state basket for an opinion pete rose is not with the northern part of this state of those blemishes the two of them have on their careers and play the cubs last year with in this world series in 1907 which they were not very close to you doing but how
fair was it how this one and may a rookie mistake and had the nickname for the rest of his life for with major-league baseball with labels him for the rest of his life. >> i remember that like it was yesterday. and there is the idea as the runner slides just bien the neighborhood but now they have instant replay because now they say they really did not touch second base so the standards change. at the time as sanders did it at the convention was you
we have cost dial governments and operations and those who live in san the activist. and it makes sense to divide them up. and many of the tools are simple. and then when i first started to write this for european security many people thank you are wrong and mad. as they started to research this i became more aware of the parallels from the european security order.
that we have those difficulties to resolve them. at the beginning floor academic purposes and then he commerce. to use the internet for commercial purposes. if anybody said we will use it for vital messaging it is called the infrastructure. to say it is not designed for that the are you sure? it works it was cheap and convenient end one of the first messages is that will
with ben bernanke interviewed by sharon brown. >> and now on to tonight's guest. roger lowenstein has reported for "the wall street journal" for more than a decade including his stock market column and intrensic value column. he has written several books including origins of the crash, the end of wall street and tonight's topic of discussion: "america's bank" he let me know there is a great review of it coming out in the "washington post" tomorrow so we can read about that tomorrow. he has three children and lives with his wife in newton, massachusetts. please join me in welcoming
roger lowenstein. [applause] >> debra, thanks very much. a wonderful introduction. i am glad i don't have to talk about dinosaurs. i don't know much about that. what i'm going to do is mostly talk to you and read you passages as well that i mope high pressure c hope conveys the drama of the story. this was my first history story. it was the most exciting project i have been in. the people i wrote about reminded me of people on the scene and the book is full of stories. last night, anyone who saw the republican debate, you saw rand paul came out against the
federal reserve and tasaid ther is no point in having a federal reserve. tonight i would like to tell you what it was like when he had a system like that back a hundred years ago. but before i get to that i want to start with what is the federal reserve and why we have it today. if you think about an ordinary bank they serve two functions. for people that don't have enough money they can barrow and for people that have money they can go park it and earn interest. but they serve a larger function besides helping out those two groups. they are a wait of getting money in other places than wherever you keep money and move it to a place where it is useful in society where people who have a
need for it. banks fill that social function. a central bank is a banker to banks. just as some people have access funds some banks have access funds. they have a few extra billion washing around. they can park their excess reserves in any network of reserve banks around the country which is what the federal reserve is. obviously just like some people banks run out of money and they can barrow from the federal reserve and we saw that in a big way in the financial crisis in 2008-2009 when the fed became the lender of last resort. it is really important in a crisis because what happens in a crisis is it is not only the sick banks that stop loaning but the healthy banks, when they see others in trouble they say i will pull back and i better stop lending, and you get this dyn
dynamic where every bank knows what it has to do to call in loans but they are all doing something that hurts the community and that is depriving the country of credit. and the lull of the central bank is to so-called lean against the wind and lend with no one is. after the mortgage crisis, my editor suggested it might be interesting and fun to look at what the country was like before we had the federal reserve and how we got one. so i plunged into the archives and this was the first time i have primarily done exclusively archival research and it is very different than reporting. there were lots of things i could not do. i could not call up woodrow wilson and asked him why he did what he did. but i discovered things get
revealed to historian that might not to a contemporary historian. washington then like now, washington, d.c., was a very lot place to live and work. ellen wilson, the president's delicate wife left town for new hampshire during the summer, which wasn't uncommon for political spouses. so since she was in the other town we have a record day-by-day what wilson is writing which congress he was leaning on, who in the cabinet was giving him trouble. today you would not have that. the first couple would be in the same city or talking on the telephone and so on. in other ways you would feel completely similar to now. it was a period of great
financial stress, there was a financial crisis, people were angry at the banks, many of the banks misbehaved, they were angry at the public. ted cruz has nothing on the p populus they were democrats at the time but the feelings were the same. people didn't like big banks. they didn't like washington and want washington anywhere near a big bank itself. i will tell the story of one character who had to confront these stories. i say confront was he wasn't an american. his name is paul well burg. he played a very big role in the
story. he would later write in the memoirs was his hope was the federal reserve would be a great m m m monument like the great cuth cathedr cathedrals in europe. he was born to a wealthy banking family. he had three or four brothers involved in the bank business but he inherited the bank and was set to run the bank. but he fell in love with an american banking family daughter nina lowe. they got married around 1899-1900 and paul and nina first settled in germany but she wasn't too happy living away from more folks and long story
short they relocated to new york. very quickly after he got to new york he realized how different the system in an adopted country was. in europe, all of the banks had their reserves in this central reserve. in america, each bank kept its own reserve. when i say reserve i mean rainy day money and extra money. when i say kept their own they would keep it nathaniel philbrick vault or a bigger bank down the block. a bank in tacoma might have kept some reserves in a bank in seattle and a bank in seattle might have kept their reserves in a bank in san francisco. but the bank in tacoma would call in the bank to seattle and the bank in seattle would go to san francisco and you willed
you would sometimes get a panic. this would happen every fall whether the harvest season came in every farming community and back then they were half the population of the united states. the farming communities needed cash to pay the field hand, finance the equipment and all of that. cash would drain dra drain out cities and there would be panning. rates in new york city would go up a hundred percent sometimes. he saw this happening and was absolutely astonished. i want to take you to an episode that shows his reaction right after he moved to new york. he was shocked by american finance. whereas banks in germany
functioned with military cohesiveness banks in american suffered. as credit tightened, each bank pulled loans. after a plunge on wall street they led on to jacob shift, and his brother law and senior partner that he had pinned some thoughts on the defects of american banking and how to cure them. the key problem he outlined was the lack of a central reserve. shift read the paper and agreed with the substance but said he had misread the psychology of the american people who would never accept any institution like a central bank. he warned him not to share the paper with others but as a teaching exercise he offered to show the paper to a well placed friend who was president of the national citi bank, forerunner of today's citi bank and one of
the most prominent bangladekers new york. a few days later he came over to find a man above him starring at him. finally he spoke. how is the great international finance? he said don't you think citi bank has done well? he agreed. why not leave thinks alone? he didn't want to reply. but finally he said your bank is so big and so powerful mr. stillman when the next panic comes you will wish your responsibilities were smaller. stillman went off in a handcuff and warburg went back to his
work. he had stumbled on the original conflict between federalism and an anti-federalism and big bank and small banks and this goes back to 1791 and the conflict between hamilton and jefferson. hamilton wanted the national bank and jefferson was a farm bank and didn't like banks, didn't like big banks. they took the case to george washington in the early years of washington's presidency and washington sided with hamilton, thought he made a lot of sense, and they made the bank of the united states which was a prototype for the federal reserve sorted. but he mistrusted it particularly among world people, people away from the east coast and after 20 years congress got rid of it. very quickly after that the country had a bad inflation and
discovered it needed a bank and james madison and the congress chartered a second bank. it was the same thing all over again. the second bank was a success. before the second bank in america had a poly glob of currency and each bank issued a currency and it got the general public on a more sensible and organized footing but andrew jackson didn't like national banks anymore than jeffson did. so in the 1830s the second experiment was abolished as well. a famous french political scientist came to the united states and he was mystified at the venom americans held for the national bank. he wrote, in his famous book democracy in america, that americans seemed to be obsessed with one great fear which he
described as the fear of centralization. and paul warburg was adjusting to that same attitude that had not changed. warburg didn't defy the shift but began to study the system more and talked up his ideas quitely in small groups. he decided that the american system was like a town in which every home had a pail of water and there was no fire department. that might have been fine if you wanted a drink of water but it would not work well if there was a fire to put out ft every bank to -- every bank had to keep reserves in case they had an
emergency. at the end of 1906, the financial outlook of the united states was looked upon. and there was a dinner and most of the people at the dinner were econ economist and warburg brought forward what he thought were the wills in the american banking system and people were mesmerized. at the end of the evening people said you have to write and publish and tell the country about this. warburg said impossible my english isn't good enough and so on. the next year something happened. there was a terrible panic in the american banking system and suddenly everybody wanted to hear about warburg's ideas. just as warburg had predicted to
james thurmon years earlier when the panic occurred the biggest bankers in new york, people like stillman and jp morgan were thrusted in the center of it. they had the job of deciding which banks were worth saving, which banks couldn't be saved, how to organize loans for the banks that should not be saved. this is work ben bernanke did in 2008. but there was no federal reserve in 1907. i thought we might join the action during the middle of the panic when it struck an institution that was a fairly large sized bank in new york. ben strong is sent to go over the books and make a report.
>> the knickerbocker was housed on 34th street with a temple designed by stanford white. the sidewalk had people with satchels which they hoped to carry off cash. stocks of green currency was piled on the counters. as ben went over the books in the bank he could hear the people clamoring for their money. he wrote the faces of the people in that line millions of many i knew i shall never forget. on tuesday october 22nd, the knickerbocker paid out $8 million and suspended operation. he reported he could not drive there. jp morgan decided not to intervene and morgan knew there
would be a frantic run on every other trust in the city. new york's trust over the matter of a couple weeks went through a remarkable and devastating 48% of their deposits. even worse, at the end of october the local clearing house association of new york banks was forced to take the drastic steps of authorize banks to settle issues with paper substitutes rather than cash. the panic reached epic proportions. half of the country's larger cities were using bank certificates. local bankers setup a temporary committee on the front bank in
some areas. with two thirds of the city with population above 25,000, larger cities, banks suspended cash with drawls to a greater or lesser degree than ordinary depositers. in council bluff, iowa, a limit of $10 a customer. banks in providence adopted a case-by-case bases policy. even though the clearinghouses provided a measure of relief with their substituted they were generally only granted in the city of issue. other banks sent for collections are being returned. money in fact traded at a premium. those who need cash were forced to write checks for more than a hundred percent of the desired sum.
it was suddenly worth more in one place than in other. and at this point, the banker t sorrentino t sorrentino em was . . . . in the panic silver visited the office of a bank unannounced. he went to the banker he met four years earlier and found him as before. where is your paper he barked? too late now he replied sadly. what has to be done can't beep done in a worry. if reform is to be secured it will take years of educational work to bring it about.
toward the end of the year as the panic subsided walburg got the audience we wanted. financial reform was controlled by one man. nelson aldrich was a conservative, he been opposed to central bank or any sort of significant reform in the banking system, since he was the chairman of the finance committee he called the shots. but the panic of 1907 disturbed him and he began to wonder if he should look into possibility the system needed a change. he went to wall street and found his way to ken lobe and came up with a narrow question. he wanted to ask shift how the central bank in germany issued
treasury bills. he recognized an opportunity and said there was someone else in his office who was more qualified to speak on such matters and let him to paul's office. for the first time ten years after he arrived in the united states, he is face to face with someone who had influence and power in the u.s. government. aldrich kept the questions n narrow but he teased him into the broad reform and centralization even. aldrich, just to get out of his room and get on the way, told him he should feel free send him material for further reading. after aldrich left, shift went again, the man of caution adv e advised him he was making a great mistake writing anything further to aldrich.
the very next day, he went aldrich a paper called a plan for a modified central bank. four days later he wrote to him again. the volcano was uncapped. he didn't write. congress created the ngz national monetary commission to study the system and possibly offer reforms. on the floor of the senate he said something that betrayed the impression he made. he said thoughtful students of economic history who are led by the experience of other commercial nations have been led to conclude we should adopt a central bank. and for political cover aldrich quickly went on to add he did not think america was ready for
such a step. but he said some day it would. and that was a very significant step for a public figure to make. that summer he led a national monetary commission to europe to study the system of europe and hired a harvard professor to tutor them and they spent weeks in paris, berlin and london. they met with officials at bank and they were focus above all on one question. in america, banks feel the need to keep reserve money in the till unless a panic comes and they are forced to close the doors. in europe how is it different? how do the banks operate? and for the last reading there we will join aldrich and the
commissioners as they make their way about europe. 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 the minutes were available to me. the astonishments were palpable. the europeans have policies that are universely accepted. they have a social harmony of pre-war europe and in the 1920s, much less the 1930s, if this happened the picture may not have had so much harmony. they questioned who held the funds? what was the requirement? their response was phrased in varying ways but proposed they
didn't need the ridged regulations. the londoned bankers couldn't relate. how did the bank of england adjust to currency supply to meet the demands of commerce? it was in france where the visitors were truly humbled. in the united states the question of the relationship between cash in hand and liability is considered important. what he inquired was the rule in france. what portion of deposits were backed by cash reserves. the governor of the bank of frances shook his head with a weary side. i think he said you pay more attention to the quantity of the reserve than the quality. but surely france had laws and regulations and stipulations governing the population
proportion? nope. for the rapid conversion in a crisis banking assets are made into ready money. the americans persisted what demanded the fluxing of the vote. and he said the inability to explain. he said it is the sun or perhaps the alternating season would be more correct. when the monetary commission came back they held hearing led my aldrich in new york city. warburg was invited to give a presentation. he spoke in favor of reform but he was quite discouraged now by the climate of the american public and the ability of reformers to go too fast and too qui quickly. he gave a pitch for a modest were proposal with piece meal
to not alarm the public. a aldrich came over to him and said mr. warburg, i like your ideas. i have only one fault. warburg moment stunned asked for the flaw. he said you are too timid about it. it is hard to describe the feelings of mixed joy and nervousness. for the first time i felt confidant a central bank was within grasp of the united states. i don't want to give away too much of the story.
there are many more stories of aldrich and others including an incident 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 the democrats shortly after that. warburg was very right to be worry of the public response. i think warburg, who by the way went on to be the fed's first governor, and he got caught up in this battle and changed the citizen ship and went on to join the federal reserve when it was formed in 1914.
i think today he would feel unfortunately very much at home in the climate we have politically today. there are bills that the that would strip the fed of the their independence and subject monetary moves to the elected officials. but there is one difference i would i would like to point out between then and now. in 1913 and the period i wrote about there was tremendous conflicts politically, sexually and culturally. bankers didn't agree with reformers. and bankers on wall street didn't agree with people on the other side. people in the eastern sea board and the big cities in the northeast were very much at odds with people in the rural areas and the rest of the country. none the less the people that
felt deeply about this issue were able to study it for a number of years. they studied it, debated it, cut through their differences and arrived at an endearing situation. when i look at the political process today i am not so sure we can do that. i want to thank you very much and happy to take questions. [applause] >> is it true that the federal reserve lobby is not to be audited? if so, why not? >> the federal reserve is audited. the bill that rand paul submitted call for the monetary decisions, so the basic decisions about interest rates going up and down and buying and
selling bonds to receive day-to-day scrutiny by congress. in terms of what is on the books and what their assets are that is public. not only public but it is audited. audits of the fed is pretty big word that helps sell books but it is about subjecting the feds to the political process. >> who do you think they should raise the rates again and why? >> janet yellen is in the tough spot. the circulation is limited by the amount of gold and the circulation is limited just by whatever the seven governors and five other members of the fomc decide. obviously they would like to raise the rates, it is not a good idea for money to be free,
if distorted it overly encourages people to make investments. but the economy keeps sending back the wrong signals and the rest of the world's economy is going in the other direction. the system in the 1920's when the federal reserve was very concerned about a depression in england and didn't want england to lose the gold so we lowered rates to help out england and that really resulted in the final stages of the stock market book in the 1920s. i think yellen has a problem because if she doesn't do it soon she will get into the election season and that will make it tough. i haven't answered your question, though. >> hi. i wanted to ask you about large banks that bar borrow overnight
with the federal reserve reserve and their modern it systems. are they doing that to balance their books and have the right reserves? because it is changing every 24 hours. is that how it works? >> they are doing it because some are sort and some are long. some need more and some of it is surplus. the reserve requirements are necessary for a bank to lower that to feel they want to borrow more. you don't want to be down to the last dollar. particularly whether the federal fund rates are so low. it cost virtually nothing to have more cash. the biggest problems bank are facing is not lack of cash but lack of places to put it. there is an exces right now.
>> do you have questions on quanatative easing or how the feds will run off all funds they have? >> the quanatative process is a relative new one. it holds about $4 trillion on the books. it has two choices. it could start to sell them off and just as buying bonds stimulate the economy, selling them off could have the opposite affect. or it could just wait until these bonds mature and, you know, let it run off over time. i guess is it will be some mix between the two. i would doubt they will unload $4 trillion that quick because they don't want to send the
country back to reception. >> my name is john yost and where sit on the seattle housing board committee. i have a question for you. allen greenspan basically said we can print unlimited green backs because we have our own central bank and also to because we have the federal reserve branch. now how do we expect our economy mainstream and also, too, our wall street to exist and continue with this $17 trillion deficit? you know as we know, maybe most of you are not struggling, but if this continues, we will all struggle and there might be breadlines and things like that. >> i think you asked a couple
questions. let me skr these. the debt people they can about. the federal debt is, you know, the difference between what the federal government spends and what it takes in in taxes. it is 3%. it is 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 was a good time to be stimulating and spending more and getting it out there. that is fiscal policy and what the treasury does. we are talking about monetary policy. what the federal reserve in effect prints and stimulates. you talked about two directions. one is the hardships they face.