 I have this conversation recently, like if you look at the the collapse of these big exchanges, these crypto exchanges and the collapse of the value of some of these coins, you think like this looks like with hindsight, this looks so, it looks like just have taken out of Kendall Berger's book. It's such a predictable end and you know, but if you'd argued that two years ago when non-fungible tokens and whatever were the latest hottest thing in town, people would have had, you know, all these arguments why this is not a tulip mania, why this is different and with hindsight, it just looks like, you know, a good old financial bubble. This is Rob Johnson, president of the Institute for New Economic Thinking. I'm here today with Moritz Schuler, who's been a grantee at INET, a senior fellow. He's a professor both at University of Bonn and Science Po in France and he has guided a very, very interesting project which is now in the aftermath of a very exciting conference among a new generation of young financial and financial macroeconomists. It's brought together in a University of Chicago press book that we released in November called Leveraged. Moritz, thanks for joining me here today. Thanks for having me, Rob. And so at the outset, I guess I'm curious, going back to the pre-conference, as you and Richard Vague, who's on the INET board and has written a brief history of doom and about debt jubilees and everything else, what were you envisioning? What was the problem that you wanted to address that inspired this entire line of work resulting in this book? Well, we thought there, since the 2008-2009 global financial crisis, there had been a new generation of macroeconomists who thought differently about the sources of endemic financial stability in our economies, in our society. And we wanted to give voice to that new generation, bring them together in a conference that INET and organized. And it coincided with roughly the 10th anniversary of the global financial crisis and we wanted to take stock. And the problem that we set at the outset and our participants and speakers and contributors were sort of given is how do we explain that this drive towards financial liberalization, deeper and more integrated financial markets that had started in the 1970s, 1980s. How do we explain that, you know, it's undeniably, finance is much bigger, markets are more integrated, markets are in a way more complete than they've ever been before. How do we explain that this idea and this process of financial integration had produced the opposite of what it's cheerleaders in this liberalization drive and visit, namely more stability, more completeness of markets, more opportunity and ultimately more growth. And the starting point for this conference was that it seems that market deepening in the area of finance has not produced what I would agree would call sort of more complete markets that are self-stabilizing but an endemic financial stability problem. So at the level of what you might call seeing what might be called false projections of optimism in light of experience, do you then explore, in essence, the nature of the public policy regulating finance or are you exploring things like the spillovers between the financial sector and other sectors or kind of all of the above? What are the deep dives that you find in this book that which you might call unmask some of the false consciousness of that orthodox era and also what kind of things to do to understand it better and to manage it better in the future? That's an excellent question, Rob. So I think we started out with the idea of a diagnosis and the diagnosis was financial liberalization, the deepening and expansion of financial markets has not made the world a safer place. It has not led to more stability and it has not led necessarily led to more growth instead of a lot of what that financial sector that we have right now does is quite far away from what we traditionally would call the savings investment intermediation that is at the heart of finance. So that was the diagnosis and then we said when we invited a number of really excellent outstanding scholars and gave them questions, gave them relatively precise curated questions that we asked them to address and reply. I'll give you a question, one example would be do the benefits of or do the risk and costs of credit booms outweigh the costs? Is the price of risk in periods leading up to financial crisis is a misprice? Do we understand why these over-optimistic periods have another question we gave? Do these periods of excessive risk-taking that ended in financial crisis happen because people have wrong incentives or people have wrong beliefs? So we curated a set of questions that we thought were central to understanding that phenomenon of instability that is with us as a feature financial system that we've created and asked our contributors, our authors to address them in a very concentrated way. One starting point for this project is one that has proven true repeatedly also in recent like in the past two or three years in the pandemic and and after namely the feeling that whenever something bad hits our economies and unfortunately we have had quite a few bad hits recently, the financial system only survives that with an awful lot of government support. Government support I mean also central bank liquidity support. So remember when COVID struck central banks reacted very quickly and flooded markets with liquidity, created facilities for corporate debt markets, for high yield junk bond markets. All of a sudden we discovered that we had to protect hedge funds, private equity funds and and other very risky players in the market because they had become systemically relevant. So the question how we ended up in a world where essentially we've built this very large and enormously big financial sector that seems to be you know only able to survive with a government central bank backstop that's very you know at the invisible hand doesn't do it. It needs a really visible hand of central banks to keep that market together. So something seems to be very fragile, indemnically fragile and that's a central theme that we talk about. Yeah and I gather from my reading through the chapters that there is a great deal of concern at one level just within the market dynamics about which am I called side effects and unintended consequences. There's some concern that if you create which am I called amplifying feedback boom it only leads to a bust and slower long-term growth. But on the other side I sensed the dilemma that sometimes if you don't allow which are called enthusiasm and vitality to bootstrap and jumpstart technological innovation you're almost confining the economy to be in a less which am I called dynamic and evolving way. And so I sense these dilemmas going back and forth in the different chapters but I also sensed and you've said it very nicely implicitly in your in your last comment here. It's not so much about the interactions between different things in the private sector it's about that creature which I might call the mother of all moral hazards. If you see these things these as you said hedge funds big financial institutions etc as being too big to fail and then they understand that they will be bailed out without any kind of system of prior restraint we are which you might call fomenting excess and then the taxpayer who supports the bailout with the funding is subsidizing aggressive risk-taking in the financial sector. And that did obviously after the Don Frank and TARP legislation and so forth appeared to demoralize a lot of people because as Joe Stiglitz said the polluters got bailed out and the polluters got paid and the rest of us probably say bore the burden of the downturn. So I see what I really like about this book is that a lot of these dilemmas are consciously addressed. There's no kind of hiding from powerful sectors in the economy that this young group of people seeing how profound that crisis was in terms of not only economic activity but the credibility of expertise and the belief in governance this becomes a very very important environment to explore vigorously. But there is also a thread running through that book and I think that connects very nice to what you just said which is it's not there is just one side when thinking about financial stability that has to do with the incentives of financial agents and financial actors and as you mentioned the repeated policy of you know going back to badgers and even longer that central banks are the lender of last resort to financial institutions in trouble. That is something that we probably all just as deposit insurance we subscribe to the safety. We think they're tested and proven and we need those but we've also ended up in a world where it seems like central banks assuming that role have to run ever faster just to stand still in the sense that there is this interaction that you talked about between what the financial sector does how it thinks about how prices risk and how it anticipates risk and how central banks then when things go wrong if you will come in as the reinsurer of last resort for finance in the name of protecting the economy and protecting society from the fallout of that and I think central banks you know they have a very good argument they say like why would I hold the economy hostage for the speculations or the deeds of some people on wall street on the other hand with that you know very justified sort of protective instinct of central banks you will not go into a situation where these players on wall street ever take the responsibility for what they're doing is in a way it's only when they fail and when they're in trouble that you actually have the power to regulate them because the moment you've stabilized everything they they're quite healthy again and they influence the political process in their interest so that again the political economy of finance where it looks like the players that often cause like caused the crisis or did the most risky things beforehand get rewarded by getting even bigger after the fact that is another very fundamental question about the financial sector and the economy that we haven't solved and pointing to this I mean the first one I mentioned was how is it possible that more complete markets that we you know growing up as economists you think that more complete markets are great that means people can ensure more there is more there's more choice there's all kinds of mechanisms that make sure that if if you know there's there's a there's a larger and deeper choice of options to choose from then things should be more stable and better how did they fail so spectacularly in the case of finance where more complete markets have presumably brought us more instability and not more stability any other questions how do we ever leave these cycles of these political economy cycles of risk-taking bailouts and and lobby power that prevents you know fundamental change and financial regulation you know you know I thought one of the more innovative chapters was created by Rudiger Fallenbrock where because of what you might call the ex post demonization of financial executives I never met a financial executive that was at the top of one of these institutions at the time of the great financial crisis that was happy about it and so understanding they how would I say we're in charge is different than saying they could feel deeply heads I win tails you lose and while that may seep in Fallenbrock really went through the compensation structures and the incentive schemes and so forth and essentially said what it looks like is a lot of these people had a lot of skin in the game and lost a lot of money personally so perhaps the the question of once again is more about how the taxpayer pays for which you might call it securing the creditors keeping the cost of funding down and all kinds of things so when the crisis occurs the executives are not uh how would I say on the sideline having protected themselves while the ship goes down they are seemingly from this paper people who didn't see it coming perhaps were caught up in the enthusiasm of the boom and didn't see the turning point and of themselves also paid a price which is I think an interesting contribution to the debate to the yin and yang and good and evil that you're exploring here I'm very glad you bring us up Rob because I wanted to also give an example where this new court of economists that we brought together for this project is I think in a in a in a very good way um undigmatic um willing to entertain new hypotheses willing to step outside of the orthodoxy even if that is something that you know we might all consider something that's a truism the truism being that all these CEOs on Wall Street they you know they didn't have enough skin in the game and things would have gone otherwise if I don't know they'd fold with Lehman brothers had um had had more skin in the game and the brutal farm protest in this chapter is to expose very nicely that many of these people had a lot of skin in the game so um and lost a lot of their own money which doesn't mean they you know didn't potentially still you know did things that that were irresponsible um um presumably some of them really did but it tells us that we need to look deeper than like the easy explanations for why financial crises happen and in this case if you sort of boil it down to the question do crises happen because people have bad incentives or people have bad beliefs um Rudi Gafamberhoff makes the point that likely you know Samuel Hansen his wonderful discussion that's in the book um makes the point that it's probably a combination of both there is like just assuming that all these CEOs on Wall Street knew it was a big housing bubble and everything would go to hell in a hand basket also doesn't do justice to the complexity of of of crises and we we've learned in the past you know if you go past 15 20 years the most almost the most interesting research that has come out of of financial economics has been behavioral finance and we've learned so much now about the deviations from national expectations the the the the hurt in the biases that can lead to mispricing and risk-taking and it's set up almost and it's almost I would almost say this is a this would be a great book for a graduate course in financial instability to use as a to use as a textbook because you go through these individual chapters week by week and you address really each week one of the fundamentally fundamentally important and much debated issues is it you know what's the role of incentives versus the role of beliefs or bad expectations what's the role of um of for example spinning the game and preventing risk-taking there's a chapter on that making the point that you know we have very high capital ratios in the 1920s and it didn't prevent the depression and it didn't prevent all the risk-taking that took place um because you know the the potential for for um it's sort of for disciplining risk-taking at the banks through skin in the game might actually be quite limited and and there is no way around the tighter regulation um also on the sort of looking closely at what banks do on the asset side and not just regulating the library side yeah but uh you how would I say when I look at the the good and evil this paper that is about the bankers suffering is distinct from the question of what banks and their lobbyists do to create a which you call a system that's perhaps unduly supportive of their desires so the question of who gets appointed to the fed regulators how often do you have examination super how tight is the supervision these are things that in a world that depends on money and politics that can very clearly be influenced by deep pocketed lobbyists so there isn't what you might call a declaration of innocence vis-a-vis the structural form of finance but that one dimension which is somehow these people are cynical and have abandoned ship and preserve themselves while we all suffer is it's in itself wrong and what like you're saying when you when you think about like the young scholars or whatever making a course out of this book you can see how you might say you as a team you did not blink at exploring any of these avenues but you didn't because of the wave of emotion which was particularly on anti-finance you didn't neglect exploring whether certain aspects of the accusation are without basis and so I can see in the themes of the book these questions of what creates a vital medium-term economy I can see concerns about the incentives of executives concerns about political economy and it would be interesting I think to hear from the collection of writers in which Mark Hall of follow-up what if you said the next course was how do we design what to have in light of what we learned I think it would be fascinating because many of the authors were quite refreshing in saying I don't really know what to do here particularly the earliest the first section of the book which was talking about the trade-offs between what you might call restraining credit allocation and the capacity for innovation and dynamism versus what you might call not getting reckless and having boons and busts is a boom bust economy in the medium term actually more dynamic than one that is tightly constrained and never really develops the momentum that may spur great innovation I think that dilemma is fascinating exactly and that's a that's a fascinating chapter that Emil Werner who is an assistant professor at MIT wrote and then there is an equally I think intellectually forceful discussion of that paper by Holger Miller from NYU makes exactly that that's right how do we know how do we know that a financial system that avoids this boom and bust cycle is ultimately more ultimately in the interest of society or the economy we might think it is and I think I would you know we all have our priors here what would be a financial stability also if you think about the political consequences that it has is is extremely desirable but as you say it's far from clear that restraining making sure that no boons and no no busts ever happen is is in our long-term interest and increases welfare of citizens because you and you you cut down on some dynamism and that's an old question I think that the book addresses just as if I can highlight this another very I think fascinating chapter by ative me and from Princeton who looks at the link between inequality and financial instability and what finance does and the argument there is that you know you can't in a way you can't separate it to because if you have changes in the distribution of income all of these financial flows and income flows are ultimately handled by the financial system so that translates into savings behavior you know more rich people at the top of the income distribution get more income the biggest share of the pie if you will then more savings will pile up at the top because savings propensities are higher that means that there's a lot of savings in the economy that are looking for a home and financial engineers come and find instruments to you know place these savings and turn them into turn them into investments into borrowing of other people and companies so in there I would say that we learned something very deeply about the interconnectedness of of societal trends such as inequality and the risks that poses for financial stability and it all brings us back to this point that I think is for me very fascinating intellectual starting point is we started 30 40 years ago in sort of unfettering finance and in letting it letting it go and grow in the today with saying the naive assumption that this would make up for more stable more complete better functioning pro-growth financial system and then we now stand in front of this you know if you look at the quantitative indicators that as you mentioned Alan Taylor, Oscar Giorgio and I have also sort of developed in the long run as part of our INET grants and INET projects you look at these charts and they all look like sort of hockey sticks where something the last 40 years all these financial indicators credit volumes leverage house prices whatever you look at have have really have have accelerated and have exploded in some cases and we realize today in in in 2022 that we have very very bad idea about sort of how this will actually like what are the deep parameters of this financial sectors you say what's the role of incentives what's the role of expectations of beliefs what's the role of regulators in pushing these booms what's the role of CEO so feels like we've created this enormous enormous financial sector we what we know is that our premises our priors that we had 30 40 years ago were wrong but there's a big void and saying like so what is it actually what how do we think about this leveraged world that we've created maybe it was good maybe better than it comes to actual but to be honest we don't know and I think that's the strength of the book to really clearly point to these dilemma that are out there and I do think there are some which you might call very long term echoes that if you will re-enter the stage and what I'm thinking about is Cain's treatise on probability and ontological uncertainty Frank Knight Kindleberger Minsky others saying this what I'll call engineering like and I was trained as an engineer as an undergraduate engineering like mechanical financial economics is not the right vision when there are unknown and unknowable unknowns in the future we're not doing backward induction this isn't just what you might call smart guys with software and arbitrage who adhere to an equilibrium and maximize everything that fundamental radical uncertainty which George Soros wrote about in alchemy of finance is the context in which all of this is embedded and acknowledging what you might call that humility that even like for instance I'm speaking on the horizon though when you look at climate change the statistical distributions you'd have whether asset prices or actuarial tables or really don't mean very much what a profound new structural challenge emerges you just don't have stability of the distributions that you can count on and work in that kind of algorithmic or mathematical way and I see lots of people in the ESG world and in the insurance business and so forth quite daunted by the challenge of not knowing what the structure which implies survival of the human race will have to look like it's not like we know when we're corrupt it's really that we there may be resistance that might be called damaging to the future of humankind people vested interest I'm not denying that but there is a daunting uncertainty and a financial system that doesn't acknowledge that as the context I think is a mis-specification I think that's an excellent point and I think the point that we make in the book that's related is the idea that people typically households and businesses typically take on debt and leverage up in situation where I think the future is a place they kind of can envisage in a way you have some stable parameter about how the world works that's the situation when people are feel comfortable to go deep into debt doesn't necessarily mean that they expect that the future will be you know puppies and rainbows but situations in which they think there's little downside are situations when people and this is all this is all the Minsk and Kimberberger in a way when when things are stable this is when people become willing to take bets on that stability and by taking these bets on future stability they actually sort of dig their own hole because the increasing leverage means that any shock in the future will have much more much bigger consequences than what they thought it would have and they also miss that everyone else is kind of doing the same so and I think your climate change example speaks to that the idea that coming back to what I said earlier that we live in this now leveraged world hence leverage the title of the books have we kind of woken up to the fact we live in this highly leveraged world and you know and the future doesn't look quite as safe anymore as it as it maybe looked in the 1990s when there was the end of history now now is the end of the end of history the work is not that safe not such a safe place anymore and when we still settled with these large amounts of of debt and then you know I can understand why probably if we were running the Fed Rob you and me would do the same we would probably like whenever there is a shock we would do whatever we can whatever it takes as Mario Draghi said to stabilize the situation but people this is you know this is the irony and then the forward-looking nature of things people understand that we will always do that and they will take this into account and take take on even bigger risks so we are we are in a really in a really difficult position and especially which I subscribe to we are in this world where we actually we can't put probability on the future of history so we might end up in a situation where a lot of this debt that was taken out in the expectation of stability of income stability of interest rates I think that's a good question right now you know how far can the Fed even go with interest rates before reaching some financial stability upper bound if you will you know these are these are certainly there are a lot of people who've made plans in the last 10 years and not assuming that mortgage rates would go up to 7 percent again yep you know well I always remembered when I was an undergraduate flirting with the idea of becoming an economist I took a course with Charles Kinneburger where he was working on his book mania's panics and crashes and one day one of the students very dynamic young guy later worked with long-term capital he said to Kinneburger when are things most dangerous as he said and Kinneburger said when people get optimistic and they think past his prologue is when they're putting their neck in a noose and it's it's that notion that you don't know but you get how would I say calmed and less on guard and then you start with the optimism extending yourself putting yourself at risk for when things deteriorate and the other the other thing that I remember not from Charlie but from others like William Grider who wrote a famous book kind of secrets of the temple on the Federal Reserve was people talk about the importance of the independence of central banks in your book there are a number of passages which talk about which might call electoral cycle boom busts we're extending credit to help people incumbents get re-elected and what have you but the idea once we got to these large-scale bailouts like the great financial crisis was when they said the Fed has to be independent it was like they had to be independent from the electoral cycle manipulation but now the question is who do they have to be independent from and when they'll do the bailouts I never blame a central banker once we're going over the cliff if you've got a choice between crashing over the cliff or having a safety net and getting everybody back from falling off the side you go for the safety because the unnecessary losses are enormous but the question is ex ante can you create a system that's resilient enough that you don't have to exercise that bailout emergency very often and that's where the lobbying and other things come back in I'm curious there's a number of people that have worked with iNet Michael Greenberger in particular who at this juncture is quite concerned about the number or scale I should say of derivatives that are not reported so that there can be what you might call whether it's offshore or whatever it's involved it's woven into the bank holding companies and investment bank holding companies in ways where we don't know how risky things are at the institutions that we have to protect for systemic stability and some some people who have suggested to me Greenberger did allow this research after he left the CFTC for iNet some have suggested to me that this relates to the competition around the world between financial centers less disclosure less scrutiny means that the financial firms will migrate to the equivalent of exchanges in the locations whether it be London or Frankfurt or Shanghai or Hong Kong or what have you they'll go to the places where the regulatory requirements are minimal and then we get into a competition among financial centers to attract market share by making the system actually more dangerous vis-a-vis bailouts and taxpayers I mean I think there was a strong element of this in what we've seen in the crypto space in Wilson years and I mean speaking of it and it's there is a chapter in the book that Juliana Begina wrote she's an assistant president Stanford and Nina Borja Tchenka from the New York Fed also has a wonderful discussion of this which exactly talks about the question of how do we actually understand the risk exposure of banks and how can we how can we think about this in a way that does justice to the complexity of the balance sheets to the arbitrage opportunities that are exploited across you know across jurisdictions across platforms how do you integrate that and yes interesting very interesting ideas in in how you can essentially use techniques from valuing financial instruments you apply those to apply those to to banking portfolios as well but it and I think it prepares us and that's the interesting the interesting a backdoor there and I see that as a policy discussion coming up in various places to think about banking regulation and financial regulation not just as regulating their liability the liabilities of the banking system which as you know is about deposits and how liquid can they be and do we need to ensure them is the deposit insurance it's about capital how much capital it should be but to also look as you say on the asset side on the derivative exposure we need to really better understand um what banks do uh with their on their asset side and maybe get up to speed there with regulation um as well in in ways that we haven't been particularly successful in the past which it in a kind of meta sense you know we we deploy in the private sector people to go into energy and they have solar or they have wind or they have fossil fuels or whatever and what we call externalities of carbon burning upper atmosphere deterioration becomes which might call the public good meaning embedded in all these activities are side effects some can be positive some can reduce carbon but in the financial sector we've treated these entities like they are private entities and in a market-based society more freedom more discretion to use their expertise where they do but these systems the credibility of the systems the fear of collapse the need to invoke the public treasury are all testament that there is an element of systemic design and maintenance that is about the public good it's not just a private entity and the scale and the power the penetrating power of finance has turned it into what i'll call a public system that whose integrity affects us all even if we don't play day-to-day inside of the financial sector i think it's an amazing the powerful dilemma over for we might call architects of future social design and uh and how we like when you'd mention crypto i watched a number of videos at a conference in miami a few months ago and people were acting as though freedom of crypto even on very large scale was about personal freedom as though there were no systemic side effects from which might call massive default propagation that would affect the banking system and other things i found it fascinating how which might say with the history of currencies medium of exchange unit of account store of value too big to fail all of these other things how these people could even be having that discussion without considering the systemic side effects right and i think i mean leveraged as a book title um implies already i mean what you're talking about are the big the the the externalities that might debt your debt our debt imposes on everyone and somehow that leverage isn't that's the externality there the risks that we um that we individually um take that ultimately um both the banks or the other side the the borrowers that ultimately um are too big for us to um they're no price correctly i guess that's that's the that's the um the easy way to think about it so having this enormous amount of debt out there and all this leverage that's been created over the last 30 years is a massive um has created massive externalities um for for the economy and we will so i mean it's a different way of telling the same story um thinking about what i do my decision to buy a house with a long to value ratio of 9010 um effects um disability of the system as a whole and um i might not see the externalities that i create when things go badly but um they're clearly that and and and these um um collective decisions um might might might have brought us to a place and i guess that's in between the lines of the book there is a that is the thesis there that uh had we known how finance operates and what the sort of deeper parameters and the instabilities behavioral issues the regulatory issues the incentive issues are we wouldn't have grown a financial sector as big as we have it now one of the things that i found uh fascinating just about this whole endeavor and i'm i'm taking it back even before this conference is codified in richard veig's book on the brief history of doom because he shows that let let me just contrast it the chapter on the bankers with their incentives also taking a hit it is fascinating with in contrast to richard's work which says you can see these things coming central banks can look at certain ratios and debt and maybe first and second derivatives and so forth and identify ex ante the what might i call zones in which things become dangerous his brief history of doom is about 40 some financial crisis that have common measures that can be seen ahead of time so it's it's a bit fascinating that he can find that and perhaps central banks or particularly people with so much at stake like CEOs of big banks and investment banks haven't assimilated that framework to protect themselves or to manage their portfolio or to manage their society and uh richard who was on the inet board who was the primary supporter of the project that led to this conference in his book i think it's i think his work perhaps in the next chapter might be fascinating to integrate in how would i say if this you i'm a doctor's son so when i heard you early on talking about diagnosis i say okay when the diagnosis is as interesting as this now what are the remedies and it might be interesting to have a follow-on event with the diagnosis and what do we diagnose that's not there that should be there like richard's insights and then what kind of remedies and preventive medicine can we envision absolutely i think the um the historical evidence um that richard in his book um and and the academic studies that have shown this that richard uses in his book to show that crises are not like sworn events there is some there's some indicators there's some things we can look at in a regular way in a systematic way that shows that the risk of a financial instability event is rising uh credit growth comes to mind the combination of credit growth and asset price growth clearly eccentric the single best indicator is probably just the amount of credit and it's change in relationship to gbc so there's much more credit created than the real economy um growth or produces in in in additional goods and services something is some people are taking bets on a future that might not come true um and the fascinating thought then is so why if that is true um to what extent can central banks act on this information um i think they've taken this lesson on board with certain things such as macro prudential policies where they say like okay credit is growing very fast we can increase loan to value decrease loan to value ratios or um or modify debt to income requirements etc but it also raises the question if this is to some extent predictable why does it still happen right and then we bring it we're back to then we're back to square one where we're saying like okay if there must be or likely there is either an incentive that brings people or bankers and maybe even households because you know always takes two to tango so someone also has to borrow um to um ignore the risks and do it maybe knowing that this is kind of a risky little bit too risky actually but i'll do it anyways because guess what if things go wrong um you know there's going to be interest rates are going to fall the central banks are going to do something about it or um i guess also what we've seen a little bit in crypto i mean people tell themselves stories about this time is different and um why the logic of boom and bust and previous evidence on credit growth is gained can be dangerous can lead to crisis why doesn't it apply in this case and i had this conversation recently like if you look at the the collapse of these big exchanges these crypto exchanges and the collapse of the value of some of these coins you think like this looks like with hindsight this looks so it looks like just have taken out of kindleburg's book it's such a predictable um end and you know but if you'd argue that two years ago when um you know a year ago when non fungible tokens and whatever were the latest um the latest um uh hottest thing in town uh people would have had you know all these arguments why why this is not a tulip mania why this is different and with hindsight it just looks like you know a good old a good old financial bubble what so what what i like i've said a couple of times there's a humility and a dynamism and a curiosity and energy that embodied in this book that i find very very magnetic when you talk with your colleagues and when you talk with your the other authors in the aftermath of that conference what do you all see as next steps what's the what's the next thing you'd like to explore so that that's um very interesting so one question that followed directly is one that we have already implemented and you were you were there at the beginning of the year when we had a conference on debt restructuring and on debt forgiveness and on ways to deal with um on strategies to deal with excessively high leverage in in our economies um some of these you know with the student debt relief some of the ideas and discussions from that conference where one way or the other reflected or became reflected in policy and spoke to that recent debate um i think another big open question where um a lot of us are are thinking thinking about right now is what Atif Mian describes as this link between inequality and and savings gluts in a way that um you know some where what are the distribution what's the distribution of them who are the debtors and who are the creditors yes the ultimate debtors and the ultimate creditors and um so in the end it's all about households and it's some it's households lending to other households and so trying to map um if we think about what would happen if we think about debt forgiveness how does this tie into questions not only financial stability but also wealth inequality you know broader political stability um we need to understand how sort of these financial entanglements within societies actually look like and that's a big gap in our understanding we haven't I mean there's great people who started looking at this Gavir Zutman and their mental size Tuma Piketty and others Atif Mian Amir Sufi there's wealth on this question but ultimately we don't understand very well um you know think of the bank as a little bit as an just as an intermediary and on the other side of that bank there are people households having deposits in this bank that you know have the that provide the the funds that then land out so you have these financial relations within societies that we actually need to understand if we want to think about um if you want to think about the effects of policies so that's one and I think the other probably even more sort of directly policy related questions is what does this mean for the business of central banking how do we I think we're right now it's certainly in Europe but also to some extent in the US realizing that that 10-year period of ultra-low interest rates has led to some steps taken by central banks thinking about the balance sheet expansion the large quantitative easing programs that all of a sudden look much more complicated to unwind and much more much much it was easier to do it than to imagine a world where short-term interest rates would go up to 5% and you created all these new reserves in the banks now you have to pay them 5% interest on them and what does that mean for the stability or the financial situation of central banks but also what does it mean more broadly for um fiscal monetary interactions so I think financial stability policy through the back door has brought us back to very big questions about thinking about the coordination of monetary and fiscal policy and might well be I mean it's not my prediction but we could end up saying like we've we've saved the financial system but in the process central bank independence got so compromised that um the um we we will reconsider whether how would the relations between the fiscal the taxpayer the fiscal authority and central banks are simply because um the the amounts of um of fiscal support needed or have become so big and then central banks and fiscal authorities are now so intertwined that it becomes really difficult for example to raise interest rates beyond a certain level without endangering the economy fiscal stability or financial stability so there's a lot of there's a lot of potential for a for a third follow-up conference maybe with a focus on so how do we how do we think about policy central bank interaction going forward um what role does central bank does monetary policy play in creating um you know how does low interest rates and risk taking how they linked we with some ideas but um we have structurally we've we've we've um kept these two parts of central what central banks do monetary policy on the one hand and financial stability are quite separate and um if you're bringing the third which is monetary financial interactions um you know I mean I had this discussion with adam twos a while ago and then we kind of both agreed in the end that the business of central banking in 10 years will look very different from what it is now um anyone's guess how it's going to look like but a lot of the preconditions on what we came to think of as normal in the past two decades including the self-regulating role of finance by the way um are just not true and and we're waking we're waking up to the new reality now