 Thank you all for coming tonight. I think you're gonna see a great conversation. I look forward to it I fully expect that as usual the Ford off-form crowd Will come up and ask some very Good questions educated questions. I just want to talk through the format briefly of how we're gonna proceed tonight And then introduce our speakers The format will be that we will allow each speaker up to 15 minutes to present a point of view On the role of government and particularly in light of the financial crisis And then I will I'll moderate a discussion for a little bit and then as Jennifer said We as always would love to have the audience come up ask questions Feel free to engage in a conversation because that's what the Ford off-form is all about I do I'm not sure if Jennifer mentioned it or not But when you do come up to ask a question at the microphone Please understand you're also ascending to being videotaped because as she mentioned this will be on Online on our website on WGBH's form network, etc So And I do also ask that if you want to come up and speak that We keep it civil we keep it polite And we keep it quick and get to a question, please because I think a lot of people will want to have a conversation here tonight so let me Thank both the speakers. You know, these are two veterans of the Fort Hall Forum. They've both Been involved in programs in the past. They both also happen to Be involved with organizations that the Fort Hall form has a long history with I was actually mentioning to You're on Brooke that You know, I I leaf through one of the recent biographies on Anne Rand And this was the form that she only did in her later years She'd come out every spring and only speak here people would fly in from all over the country It became to be known at least according to one of those books as the Enlightenment Easter because it was every spring and people would come To hear her speak in the late 70s and early 80s and the Boston Phoenix has also been a very strong supporter of the form We've collaborated on a lot of programs and so I thank them both in the organizations They represent because we do have a long history with them So let me introduce the speakers and we'll get right to it first speaker will be Peter Kadzis Peter joined the Boston Phoenix as associate editor in 1988 Became the editor in 1989 and was named executive director of Phoenix media communications group in 2004 He assumed responsibility for all content and operation at his three newspapers various magazines and websites He's also a political commentator on Fox 25 news He is the fair and balanced one according to him, although Cosmo may disagree Mr. Kadzis newspaper career includes work at the Boston Globe the Providence Journal the New York Daily News Money Magazine and Forbes He has covered a variety of topics including breaking news politics Wall Street in the economy Mr. Kadzis also worked as an editorial advisor to the Boston Business Journal before founding its companion publication the Providence Business News Under Kadzis's leadership the Phoenix has been awarded the Pulitzer for criticism and the National Press Club's Arthur Rouse Award for Press Criticism Kadzis in 2002 and 2009 won the NEPA's award for distinguished editorial writing Dr. Yaron Brooke serves as the executive director of the Unrund Institute and the Unrund Center Center for Individual Rights AI is Washington DC based public policy arm He's a prominent advocate for objectivism the philosophy of novelist and round Dr. Brooke is a contributing editor to the objective standard contributing author to the anthology winning the unwinnable war and co-author of neoconservatism an obituary for an idea He's a weekly guest on front page hosted by PJ TV The first center right online television network broadcasting over the internet and makes frequent guest appearances on national radio and TV with Objectivism's unique perspective on current events a popular speaker at universities public forums like the fordall forum Industry conferences academic panels community and professional groups his recent talks encompass the moral foundations of capitalism and Individual rights including the right not to be your brother's health care keeper So with that I will turn the microphone over to Peter Kazzis Thanks for that splendid introduction. I actually feel like I might earn my weekly paycheck after hearing that but let me launch right into this and in in Please consider these more a series of reflections of one of the things I've enjoyed in my years at the forum is Despite how strongly held my opinions may seem I come here always willing to have them Certainly modified but a topic here today is I suppose regulation the word many people consider to be a Dirty one a controversial one Well, I see it that our lives are awash in regulation, you know, we tell our children what time to go to bed We all hopefully obey traffic lights If we're male and 18 years of age, we register with the selective service for the Contingency that the draft might be reinstated the food we eat is in many ways regulated the air we breathe Indirectly and rather less successfully is regulated With the exception of family bedtimes the regulations I detail here are all part of living in a complex society governed by the rule of law These days neither our complex society nor the rule of law is doing very well Things are a mess How we got to the sorry state is no simple tale at all. So let me carve out just a small piece of that story We'll begin in 1978 when President Jimmy Carter followed the advice of a Cornell economist Alfred Khan and Deregulated the airline industry For 30 years the idea that government should leave business industry in Wall Street alone grew in popularity It was truly bipartisan Supported to varying degrees In increasing degrees from Carter to Reagan from Bush number one to Bill Clinton and that found perhaps its purest expression in the administration of George W. Bush The White House like deregulation so did most members of Congress and generally speaking The courts looked favorably upon it For at least 12 of those years Clinton's eight and George W. Bush's first four the Washington consensus was that the less regulation of business Especially the financial services industries the better off the nation would be Then came 912 September 12th 1980 And the collapse of Lehman Brothers and the official start of the worst financial crisis of our lifetime I say official because the crisis had actually begun Much before that Anyway, this crisis of a lifetime by the way isn't over yet, but I'll touch on that a bit later The economic collapse the severe dislocation that followed is a pretty painful story. That's well known to all of us Its cause was policy oriented The Federal Reserve kept interest rates low in order to keep bond rates low to ease the funding for the wars in Iraq and Afghanistan Those wars are the first in our history to be fought without an increase in taxes to pay for them a Pleasurable side effect of this and my use of the word pleasurable as coded with a bitter irony Was the housing bubble which eventually burst It was less the whole bubble in more a facet of it the subprime segment What Wall Street called ninja mortgages? No income no jobs. No questions asked. That was the locus of this catastrophe Nor the only was this segment of the market Underegulated the subprime ninjas were aggressively collateralized and sold worldwide By the worldwide by the well-tailed snake oil salesmen. We all call investment bankers Ostensibly to protect or hedge these new investment vehicles and to make even more money in the process a new form of derivative credit default swaps were invented The problem was still in my eyes that very few really understood how these work Efforts to regulate the derivative markets were killed by the Clinton administration in my mind a Public enemy who has escaped a lot of blame in what has followed Treasury secretary Robert Rubin together with Larry Summers and Fed chief Allen Greenspan Ganged up on a woman named Brooks Lee Bourne who headed the commodities futures trading commission And they squashed her plans to regulate credit default swaps So it was bad policy that is at the root of the economic collapse that was still struggling to get out from under And it was a lack of regulation that made that problem even worse While these were the root causes of the economic devastation that washed over the world They were not very easy to reduce to the sort of black and white story. We in the media like to tell So let's consider the Madoff scandal in which a crook named Bernie ran a classic Ponzi scheme For many many years under the eyes of the Securities and Exchange Commission, you know as Bostonians We should take sort of a perverse pride the Ponzi scheme was invented here in Boston as was the safety deposit box Yeah You know listen it is impossible to legislate against human folly But failure on such a grand scale as Madoff certainly is one for the books, you know This was you know, this was a case Madoff was a case of lax registration Stupid regulation It was regulation so inept is to be as criminal as the very behavior it allowed to prosper But I suggest however that the overall climate of opinion Which had taken root in Washington indeed throughout most of the nation that business was best Regulated by being left alone played a major role in that multi-billion dollar crime It certainly played a role in the catastrophe at upper at the upper big branch mined in Mount Cold West Virginia, which killed 25 miners. I Think it played a role in the explosion in the Gulf of Mexico That killed 11 oil workers in the subsequent leak that is fouling the Gulf of Mexico and threatening the floor of the keys And to return to Wall Street it played a role in allowing Goldman Sachs to help Greece swindle the American the European Union That's a complicated tale to and he is more or less how it went down Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally legally circumvented the European Union's deficit rules At some point the so-called cross currency swaps that was the vehicle they used will mature and they'll swell the country's already blow the deficit This is admittedly complicated and probably outside what we're going to be getting into It's the sort of problem that it really needs to be addressed by International treaty I think but I think it's it worse. It's worth bringing up the Greek Credit debacle in the threat of similar crises in maybe Italy Spain Portugal Ireland Could do what 912 the Lehman collapse failed to do Plunge the world into a deep and lasting economic depression as grave or even graver than the one of the 1930s Obviously the economic consequences of this a dire and the political implications are even more frightening Let's not forget that the economic dislocations of the 30s led to the rise of Mussolini and the coming to power of Hitler these two fascists working hand in glove with Stalin and the military Nationalists of Japan unleashed the Second World War That in turn birthed communist China which within our lifetime may well be the world's mightiest economy Now you might think that this heavy-set cat with a beard up at the podium spins a good yarn and ask yourself What's this have to do with the way? I live my life today. What's it have to do with the way? I'm going to live my life tomorrow. Well, here's my answer What we call Wall Street has for a variety of reasons some good some bad Become almost as powerful as a nation-state To allow it to conduct its business unregulated Unpoliced is to invite disaster Here we sit after the greatest economic expansion in history And what do we have to show for it a? mountain of personal corporate in Government debt and if that debt keeps growing at its current rate it will according to the International Monetary Fund bankrupt the United States in about seven years a Mindset that believe that Manufacturing useful things for purchase around the world was a quaint notion best left to less developed Countries also sprung up during this time No, America said we'll stake our future on the service economy We all seem to have forgotten what Mark Twain once quipped that nobody ever got rich taking in some of the else's laundry To me Reregulating Wall Street is not the only answer to all of our problems But it is part of an answer if you doubt that just ask I just ask you to remember 912 a date that history will will record is being far more significant than 911 Thank you. Well, let me start where I agree with Peter And that is the clearly we are at a point in history where the choices we make in the years to come Have huge implications There is a real possibility of That in our lifetime, we will live through a depression worse than the 1930s And then we will see the consequences similar to what happened in 1930s of the rise of Dictatorships of you know the world as we know it ending I think that is a real possibility and and the debt that Peter talked about is I think the prime the the financial cause of all that unless something is done But when it comes to explaining this financial crisis how we got here And what do we need to do in order to avoid this nasty scenario though that we agree on we obviously We obviously disagree What we faced in the last three years is a debt crisis It's a debt crisis and and what I see it manifesting today is in a sense We've got a rolling debt crisis. It started with housing. It's but we're it's we're Discovering that this debt is held everywhere throughout our economy both domestically and internationally We are over leveraged we have too much debt We cannot afford to pay back that debt and the question that needs to be asked is how do we get Into this kind of situation. How did we get ourselves into this mess? And I think to see this and and we could go back to to 1978 we could go back Because a lot of the roots of I think the problems we have today from an economic perspective You would have to go back to the Great Depression and the policies of FDR Who I think begins it all but that would take us a long time to start back then and to roll this forward So I'd like to I'd like to start with Mommar in history and that is the feds response to 9-eleven and while we agree that the fed lowered interest rates are far too low We disagree on the cause. I don't believe that the primary motivation was to fund the Iraq war I think the primary motivation was to avoid a recession and this has been a Policy of the Federal Reserve at least since Greenspan has been there that recessions are bad things We don't like recessions people lose their jobs. The economy has to be structured. There's pain in recessions And we don't want pain, you know be happy, you know enjoy life go buy stuff in the mall Don't worry just don't worry be happy has been the economic slogan of the last 25 years And in order to avoid a recession coming out of the dot-com collapse and coming out of 9-eleven Alan Greenspan in 2002 lowered interest rates to 1% at the time the lowest rate that ever been Kept them below the rate of inflation for two and a half years and finance. We call that negative real rates of return Basically when you have negative real rates of return The borrower is basically Paying you to borrow money When rates are that low We all borrow money. It just makes sense to borrow money You know at 1% there's a lot of things I can do with that money It does not cost me almost anything and we all borrowed money. We bought in our homes We bought on our credit cards government's borrowed money corporations borrowed money everybody borrowed money and At some point When we had to pay for all that borrowing we couldn't But the source of that is Federal reserve policies it's setting interest rates at a ridiculously low rate and thus incentivizing everybody in the economy To borrow money and I believe that is the ultimate root cause of the housing bubble We borrowed money to buy a home and then the home went up in value so we could sell it and borrow more money to buy even a more expensive home and more people entered the market who could borrow money now for the first time and You know, that's how you get bubbles You get lots of money flowing around into everybody's hands and people go out on buying sprees and prices go up when people buy stuff Now why did it happen? Why did this low interest rates manifest itself primarily in a housing bubble? Well, here you get into the second part of what I think is at the root of this Crisis and that is American US housing policy Again since the 1930s, which is which is the beginning of a lot of bad things But since the 1930s the United States has had housing policy We don't have a free market in housing. We don't let the markets determine, you know Who should live in what house what kind of mortgages should be out there, you know We don't let the market clear. We don't have supply and demand We have a whole regulatory and government structure devoted to Getting people into homes. After all, it's part of the American dream and it's the role of government We are told to make that dream come true and therefore Government has been engaged in trying to make that dream come come true And they did it in a pretty conservative level in a pretty conservative way for many years So they didn't really get into trouble although, you know, I would argue in us, you know Maybe in the Q&A that the SNL crisis is related directly to this issue to housing policy and what how in how SNLs were set up So but that's a crisis. We don't associate with this crisis But it was basically caused by very similar things bad Fed policy and bad housing policy But as long as it didn't get too bad, you know, nothing happened, but Starting in the 1990s. There was a real push particularly for low-income individuals to get people into homes The mandates for Freddie and Fanny to government entities that you know pretended to be private, but really were government entities There was a push to get these two entities to lend more money for homes And to low-income people and to lower the standards for mortgages and it wasn't just Freddie and Fanny There's there's multiple entities that the government engages in so when money became cheap in the early 2000s when money became really really cheap It all flowed into housing to a large extent funneled there through a variety of government policies and a variety of government incentives that Made the bubble happen in housing versus anywhere else And of course it doesn't end there because at day one of the one of the characteristics of this crisis is it is complex so a lot of derivatives and a lot of Interesting and complicated stuff going on but when you start peeling the layers off You always find Governments somewhere down there. So the Fed is a government entity housing policy is government housing policy And you can you know, we can go in any direction we want here And we will find bad government regulations or the very existence of government regulations Distorting markets and leading us to this point. For example, why did banks behave so stupidly? Why did they behave so irresponsibly? Why did the big banks do some of the lending that they did? Well How did they get their money these banks to do these silly things? They borrowed it. Now, why did people lend the money when the banks were behaving stupidly? Well, because they weren't worried they knew they would be bailed out There's been a doctrine in the United States at least since the early 80s called too big to fail and the big banks all Knew that they were too big to fail and they behaved if I tell you you get all the upside on deals And you don't really suffer on the downside if you know if you go bankrupt You take on a lot of risk because you get the benefit when the risk pays off and when it doesn't you just walk away Too big to fail is a government policy. It's not a market policy. There's no such thing as too big to fail in the marketplace You could go on in our credit agencies, you know Why did credit agencies give triple-a ratings to junk? Literally to junk that was created out there. Well, I mean there are only three credit agencies These are the three credit agencies and when Orange County the county I live in went bankrupt in 1994 Had Orange County rated a triple-a the best rating just weeks before it went bankrupt when Enron went bankrupt They had it rated triple-a just before it went bankrupt in a marketplace when you are sowing competent. What happens to you? You get competed out of existence Why doesn't that happen to the credit agencies in the United States? Because they've only three approved by the SEC you can't compete with them. You can't you start a credit agency do better than them Nobody it doesn't matter The buyers of debt have to use the ratings of these three credit agencies government involvement again in a marketplace Wouldn't exist and again, you could keep doing this with every one of these and find government at the bottom Regulations when this crisis began in the financial industry were massive. I think it's a complete mythology That the Bush era was a era of deregulation quite the contrary If you speak to bankers Particularly at the larger banks and you asked them When was there what was regulation less during the Bush era than it was beforehand they would all say no They long for Clinton they all long for the Clinton era regulations are far lower under Clinton Regulators are far more emboldened under Bush and I have a theory that Republicans generally Give instructions to the regulatory agencies to be more vigilant in many cases to prove that they're not softies They're not really pro-free markets like their enemies portray them as So the Bush era was an era of regulation indeed the most massive new regulation At least since the 60s if not since the 30s was passed under Bush Which was Sal Bain's Oxley? Which again you can ask me about and cost this economy trillions of dollars so The Bush era was an era of increased regulations not decreased regulation anybody remember spitzer Remember spitzer Not for the other stuff for the financial stuff That's Regulation spitzer went after Wall Street with a vengeance in the early 2000s the idea that Wall Street was somehow this haven of Freedom of free markets of no government intervention is bizarre and not only did spitzer go after them I would argue he destroyed their business model and Forced them to become the equivalent of hedge funds, which I think they were later in the decade We can talk about derivatives credit default swaps I'd be happy to talk about those if you want to bring them up in the in the In the Q&A. Let me just say one word about a few words about made-off Yeah, what a failure of regulation and why is it a failure regulation? You know the one thing the SEC should do in my view is catch crooks and The one thing they can't do is catch crooks. Why? Because they're too busy They're too busy with a million little regulations that they have to follow They have to check up on my 13 D's because every time I buy more than 5% of a stock of public company I have to let the world know and Then if it's 10% I have to let them know why I own 10% you know What my tensions are and there are a million little forms like this that the SEC has to get there's no fart here There's no reason I should let the world know that I own more than 5% Before I had to let the world know I own 5% before that regulation was passed the financial markets worked fine in the United States So the SEC as most bureaucrats and most regulators are so busy doing the little the little stuff The massive number of the thousands and thousands of pages of regulations who has time to catch crooks Who has time to catch Bernie made of nobody has time to catch Bernie made of and this goes this goes to this idea of Regulations regulations are not telling your kids to go to bed at night and we can talk about what parents and kids their relationships Regulations about the government using force and intervening in voluntary transactions Between consenting adults in the marketplace. That's what regulations did Regulations is about the government bringing its force bringing a gun into transactions between adults contractual transactions between adults in the business world and That is not the role of government The role of government is to protect us from Bernie made off The role of government is to protect us from people who would use force and fraud to harm us The rest should be left alone to market and if we're looking for solutions This crisis was caused by too much government this crisis was caused by too much government at the Federal Reserve level By too much government in housing policy by too much government in regulating every aspect of the financial industry The solution to this crisis is to start systematically rolling back government Ultimately in the long term rolling it back so far that there's not no, you know, that we even do away with the Federal Reserve There's no reason banking and money cannot be privatized. We had that before we established the Federal Reserve And with more stability than we've gotten since the establishment of the Federal Reserve Rolling back housing policy, there shouldn't be no housing policy. You want to buy you want to rent? Should be up to you rolling back financial regulations and it's true Wall Street has become Really really powerful politically powerful But whose fault is that when you regulate an industry? What incentive do you give that industry? You give that industry an incentive to turn around and lobby and try to grab Control the people who are regulating it That's not capitalism. That's not freedom. That's a perversion The way you get rid of that is not by increasing regulation thus increasing the incentive To control the regulator you do it by eliminating the regulations And when you eliminate the regulations Wall Street now has to function by the rules of the marketplace not by the rules of Politics not by the rules of of influence, but just Let Wall Street compete let the banks let Goldman compete with the other financial institutions So the long-term solution to this financial crisis is freedom The long-term solution to this crisis is the recognition of the proper role of government is the recognition that the government in this country Was established to protect our rights our rights to life liberty in the pursuit of happiness and what that means is that the government in this country was established in order to Allow us to live our lives as we see fit without People telling us Forcing us to do the things we do not want to do and as the founding fathers understood the greater Vi the greatest violator of individual rights is government and what we need today is protection against our Government and the only way to do that is to stop rolling that Rolling the role of going to back from our lives from all other aspects of our lives and a recognition and a recommitment to the true role of government as The protector of our rights protector of our freedoms Leave us alone. We can handle credit default swaps fine It's when the government get ahold of them. That's when I really worry about them. Thank you all so To very different opinions You know from I'm gonna try to simplify this as best as I can I guess Peter from what I hear from you is It was a lack of regulation and you're on what I hear from you. It was it wasn't lack of regulation. It was bad regulation Was regulation period I Would say that it's Nor the It was an absence of a certain sort of regulation The market had changed so much in the course of 30 years that they were Regulating As John points out Minutely and often very foolishly things that didn't matter anymore for example Paperwork I see Let me sort of put in the table my my I Generally don't like the idea of regulation. I sort of accept it as Unnecessary evil in terms of businesses in general the financial sector has become So complicated and so large that I Find it hard to see how the economy can really function without Some form of regulation almost in the form of consumer protection In in my view of the world, I think the farther away you get from Wall Street the less Regulation there should be I suspect that you know that out in the periphery we'd probably agree the closer we get to Wall Street There's the close we're going to disagree A lot of what's took a lot of what Took place in Wall Street The whole variety of derivatives They were brand-new things invented To serve some very interesting purposes But they became I can't think of a better way of phrasing this they became almost a shadow economy in and of themselves I don't mean shadow was in you know While they they were certainly mysterious to most of us They were not intended initially as sinister vehicles That's What I think needs to be regulated today These are very complicated. Frankly, I think a simple solution would be just to buy their use all together But that's just not a that that's just not practical in in the international economy It is very complicated. There was one thing Jan said that I found very interesting and that I certainly Agree with and that America has had this bizarre fascination with trying to Shape the housing market and it has been the cause of An awful lot of problem goes back at least to Herbert Hoover who we all think of as a very conservative president Actually, Herbert Hoover was considered, you know, hardcore progressive back in those days and again We don't have to dive into the history of all this but Chasing the American dream of home ownership for everyone has cost this nation and probably more than that's contributed Over the years, but anyway, I'm sorry. Oh, no, no, that's fine. I'm gonna just ask you go ahead Yeah, let me a few things, you know Freddie and Fanny of These were the Government sponsored entities. There were you know, their debt was basically guaranteed by the government and and here were here were entities that did something It was pretty simple. It wasn't that complicated, right? They they they bought mortgages from banks. They put them into packages and they sold them off Relatively simple each one of them Freddie and Fanny each had its own regulatory agencies Responsible just for regulating them nothing else, right? So there was a regulatory agency responsible Freddie and then the regulatory industry for Fanny hundreds of regulators and yet No failure not Lehman not Citibank not a AG comes close close to the failure that is Freddie and Fanny They are clearly the most bankrupt most bankrupt in a sense. They losses of a larger than anybody else and They did something relatively simple I mean, I would argue that the more complex anything is the further away you want the regulators from it as possible They have no clue and this they have no clue What would be going on there? They're incompetent and and there's a reason they're incompetent It's not, you know, if they if they many of them If they were really smart would be working for the investment makes and indeed what happens to regulators If you look at that if you look at the history is That the better ones work at the regulatory agency for a while and they cozy up to the the banks And because when they leave the regulatory agency, they work for the banks and and you can see this rotating door effect all the time I mean, it's it's there is no way To do this even if you thought it was a good thing to do There's no way to effectively regulate Wall Street. The only way you can regulate Wall Street is exactly Peter's Comment that shut it down shut it down Shutting it down would have devastating economic consequence the economy we can talk about derivatives I don't think they're that complicated But I'm a finance PhD, but I Think they serve a vital, you know a vital purpose in our economy I think they are a worthwhile product. I don't think this problem really has anything to do with derivatives The derivative market did not fail and you know if the bailouts would have happened the world would have not if the bailouts Had not happened the world would have not come to an end The the reason the world came close to coming to an end in my view is is the Washington Panicked and and the Federal Reserve panicked and when they panic There's supposed to be the guys who know what they're doing Everybody else panicked and they panicked on their weekend of 9 12 It was a key weekend because they like Lehman fail and they wouldn't let AIG fail And they had bailed at Bear Stearns a few weeks a few months earlier and nobody knew what the hell anybody was doing It was complete chaos And in a regulated world in a regulated world what the Treasury Secretary and the Federal Reserve chairman do is really really important Because they're controlling everybody on a string all these invest all these bankers are being controlled on a string So what really happened there is that the people in charge Panicked and that's one of the reasons one of many reasons why we don't want people in charge in a free market Bankers make mistakes they do they do really stupid things and they pay the consequences for that and the people who lent the money pay the Consequences for that and their investors pay the consequence for that and they go out of business. That's how a market works Systemic risk all this stuff about everything that can only exist and does indeed only exist in a regulated market in which The real systemic risk operator here is the Federal Reserve that ties everybody together and winds them all up And you know the real systemic risk is when Paul said is panicking The real systemic risk is when Ben Anke doesn't know what he's doing because they have an impact on everything not in anything particular And this is one reason I don't think the most important reason why government should not be involved in economics It's they just you know Frederick Hayek and and many of the Austrian thinkers have expressed this quite well They're just not it's just impossible to do the economic calculation that is necessary to do this stuff is Impossible to do and therefore the best thing is to get them out of there I think there's a much deeper and more important moral argument why they shouldn't be involved But there's certainly a valid economic argument that it just can never work So Peter I just want to ask you I'm gonna ask you each a quick question And then if people want to start lining up in a few minutes Over here again, and and we'll take you one at a time Peter. I you happen to have the unfortunate Circumstance to sit next to somebody who works for a heavily regulated industry very heavily regulated industry and I can tell you that What I see on a daily basis What a you know a pharmaceutical company in this case has to go through in terms of regulatory? Responses how you conduct yourselves it is extremely protected already and to be honest a lot of days You know I'm worried about more regulations on this industry and to some extent. It's like when do you do your job? So in some of these industries, it's not just a pharmaceutical But you know in some industries it seems as though we are getting to a point where regulation is so complex That nobody knows what they're doing not just the regulators nobody knows they're doing at the companies sometimes and sometimes you play by the rules The change before you know it so so can it be possible to be over-regulated isn't there at some point we say listen I know I Think it definitely can listen in my little mini history of how we got to be where we are I I cite the deregulation of the Yeline industry wasn't perfect, but I think it was a good move. I mean The the the the trend toward Deregulation was not in and of itself a bad thing I mean I have friends in other industries. I have lawyers who friends who are lawyers who just Sort of chuckle about how much money they make you know Helping these poor bastards who are their clients trying to you know keep keep track of this listen Mine is not a my position is not a defense of regulation per se Do I think you know drug companies like food companies need a degree of regulation? Yes, I do I'll be honest with you. I'm not expert enough to know To what degree and if you would suggest to me that there's too much, you know what I would probably agree with you Um But it seems sometimes the answer is when when a problem comes up that more regulation is you know an instinctive answer Perhaps these days more so when and and you know Leaves the more problems listen a lot of these problems have to do with human nature Take a non-economic problem school bullying which there's been Big headlines here in Massachusetts. We're gonna stamp out bullying with You know new government reform little story my son the fifth fifth grader Was the victim of being bullied We go to the school as parents have for a gazillion years We were concerned because he was really hurt We talked to the principal we talked to the teacher were convinced everyone had everything under control Just happened to be the day that bullying was on the front page of the globe and I said, you know This bullying legislation sounds like a bunch of bologna to me The principal the teacher agreed. They said this isn't gonna help us do anything Yeah, you know we You know, it's not just that we're risk-averse saw that conversely we should go out and embrace risk um We think we can cure every problem that exists and I don't believe we can problems are part of life And I do think there's a worldview that's far removed Listen, I'll tell you I think one reason why Wall Street needs more regulation than it then it might have years before is Because I think the general standards of honesty and morality are lower than what they want Were, you know take a person who today is considered the great, you know, a swashbuckler JP Morgan JP Morgan built his banking empire on being more honest than the other investment bankers You know today you have JP Morgan's mock at equivalent Goldman Sachs in effect colluding To I would say defraud that's I don't mean it Not defrauding in a legal sense because frankly, none of the conduct that's taken place on Wall Street Or I should say very little of the conduct that's taken place on Wall Street during these years has been illegal I think it's been detrimental, but it hasn't been illegal Is old-fashioned as it sounds. I do think that they're a decline in generally accepted standards of honesty is is is part of the problem here, so To some extent I talk about my own personal experience of over regulation, but I do see the need for regulation and perhaps even you know Upholding laws is regulation too. I mean there's regulations to convict the birdie made-offs of the world So we you know we do have to find them and hold them to some standards. So I Guess my question Doesn't regulations provide some stability? I mean isn't it good to know the rules of what you're playing is it the change of regulations? Or is it is it the existence really because I think to some extent stability of regulations Just knowing the rules of the game and you don't play a baseball game and change the rules in the seventh inning That's that's ridiculous. So wouldn't that be more helpful than not having or having a lot less regulation No, I mean the you know every fascist dictatorship has lots of stable regulation I don't think that's the issue. Although, you know, they're not implemented in a stable way But but they're on the books in a stable way. No, I mean, let's let's ask the bigger question Why do we have regulations to begin with? So, you know, I took an elevator up Four stories and at the corner of every elevator in in the entire country there's a little certificate that says that some bureaucrat has checked this elevator and it's okay for you to write it and And and this is a question. Why is it that we believe we need Some bureaucrat to approve the elevator, right? I mean if you think about it put on your business hat I used to tell when I do business seminars. I always tell my you know, the attendees I say, you know You all know that the best way to make money in the elevator business is to build defective elevators and to kill people in a periodic basis And they all look at me like I'm nuts because no real businessman Every real businessman knows that that's not how you make money. So, why do we have them? Why do we have? Elevated inspectors and food inspectors and drug inspectors and why don't we trust the market to deal with these in their ways? Every one of these situations There's a way in which the market has shown and I could show you if the market hasn't existed How the market would deal with it in a much more satisfying way I think than paying some Come an official to come and do it and I think it has to do and this is it has to do with with the the morality The ethics that we as a culture hold a whole dear. So What is it that business is about that that markets are about? What is it that the guy who's building the elevator is about? Well, they're about profit, right? They're about making money. They're about making money for home well for themselves. So they're about being self-interested They're about pursuing their own self-interest and it's not all money. I know somebody will say I'm in business I don't just do it for the money. True. You do it for the passion and you do it for the, you know Love of creating beautiful products like the iPhone you know and so on so But it's all about you business and markets about you and when you go shopping and you go to the mall You're going to stimulate the economy, right? That's why you buy stuff You know, it's also about you. It's about self-interest. It's about pursuing your own self-interest Satisfying yourself, right? What do we know about self-interest? Well, we've been taught since we have this little the self-interest is a bad thing Because we've been led to believe that pursuing one's self-interest is the same as Line stealing cheating backstabbing doing whatever it takes. That's what we've been taught Now I don't believe that's true And I think if you think about it for a little while You'll see that it's not really true that pursuing one's own real long-term self-interest is not and just look at Bernie Madeoff's life and you can see it. Yes, he got a lot of money, but what a miserable human being he was That really if you understand self-interest and what it means to live a full life as a human being all those things are not true But we're mixing the two so automatic our assumption is when we think about the guy building the elevators Uh-oh, he's gonna cut quarters. He's gonna like stealing sheet in order to even though that doesn't really happen when it does happen It's very rare and if it did happen he'd go to jail because he committed fraud or he'd got a business because he built a bad product But we don't even go there right we automatically assume He's a crook and this is when saw Bains-Oxley was passed when Enron happened when Enron happened What did the country say to itself the country said to itself? They didn't say this is what they didn't say Who we caught a bunch of crooks. Let's put them in jail good what they said was You know all these co's are suspect every single one of them is probably a crook We caught a few but though I mean they're all probably crooks I was on Billy Riley show right after during that period now Billy Riley's is is a very good populist he's very good at Sensing the mood of the people and reflecting that back and Bill and I was on the show where he announced that he believed That every seo in America should be fired because they're all crooks And I think that was the mood of the country and what did we get as a consequence? saw Bains-Oxley which treats every seo in America as a crook until proven otherwise That's the whole basis for the legislation passed by the way 97 is zero in the senate for those of you who believe conservatives are pro-business So You know the the reason the underlying reason is that we believe this about self-interest and I think until we change that Until we understand that self-interest is not about lying stealing and cheating And that profit is a good thing and people pursuing their passions and going to them all to buy stuff that Looks nice on them that their passion arrives a good thing until we have a respect and an admiration for self-interest until we say Not that Bill Gates was yeah, okay guy when he made 30 Gazillion dollars, but he's a really good guy when he's giving it away when we started admiring people from making the money For making the most out of their own lives for living their lives to the most that they can be until we do that We're always going to want to regulate now What is is it that we trust about a regulator and this reminds you of j.p. Morgan Because I believe that the federal reserve was established in order to stop jp. Morgan It comes right after the hearings where jp. Morgan is brought in front of congress and humiliated Because he was too powerful. Now. What don't we like about jp. Morgan being powerful? That he's in it for the profit right all everything he does He's he was completely honest and he he was all about character And he did it for their money. He was trying to make money was trying to make money for himself and his company We took that power away from jp. Morgan gave it To the chairman of the federal reserve more power than jp. Morgan ever ever ever had the chairman of the federal reserve If i'm an economic sense is probably the most powerful man on the planet, right? Alan Greenspan certainly believed he was and I think he was Why do we trust Alan Greenspan, but don't trust jp. Morgan? Because Alan Greenspan is a public servant He's not in it for himself He's trying to maximize social utility and make us all better off and we trust people like that Because of what we've learned about ethics when we were little kids And I say that's wrong. I don't trust public servants. I really don't when people tell me they're trying to do good for me I run as fast as I can I I trust people who want to trade with me Who who want to help me By trading with me. They want to sell me an iphone, but for money not for free And I think those human relationships are much healthier the profits seeking human relationships are far more healthy Than the public servant do good public interest type people and type relationships and you know and that's why When government intervenes it fails it fails in the drug business and fails in the bank He was and we can talk about regulations far away from wall street and how disastrous they are Every aspect of our lives today is coming under some some form of regulations because somebody in washington doesn't trust a market You know that sense of trade that's self-interest that is involved in the market transactions I'm going to give peter a minute and then again if people want to start asking questions Please start lining up over here There's a lot squirreled away and what was just said that I agree with but Let me point to a couple of examples Again, I think a noticeable one is In the Gulf of Mexico You know, is it in the interest of an oil company? you know to Reek ecological havoc No, it isn't Could have they've been present prevented This time it could have with the use of a certain valve. I think that's a perfect example of Of an instance where regulation where a simple regulation would have made a difference the same with the mine The the the the problem or maybe perhaps not the problem the tension between our worldviews is that Um For better or for worse, I think I'm willing to accept not willing and unfortunately accept the world for what it is Um, not a very pleasant place and I I don't think whatever we think of the federal reserve bank Um, I was never an admirer of alan greenspan. I mainly because I don't trust the person who I can't understand. I don't have a phd in finance, but I'm not understanding me then he did it on purpose Yeah, I mean I thought I thought the guy Was a was it a tremendous fraud? I mean as a showman a wonderful show But um, I don't see the fed going away tomorrow Um in as much as you would like it It's not and my My less than hot felt argument for smother regulation of wall street Um rests on on my assumption that When well, I'll I'll relate it to my life when when the economic Hazard hit a 912 The boston everyone knows newspaper business is not in great shape The phoenix through a little wit and through being smaller enable a maneuver. We were skating a little bit ahead Of the rest of the business and we were doing not great, but okay Within six months of the big crash The big crash hit us and you know, I took a 10 pay cut people who Made less in the company took smaller pay cuts But you know 912 hit home in the very real way to me. We live in a society so complex that Um Intricate financial arrangements Um, no matter how well intentioned If they go wrong can boomerang and whack out the innocent bystanders I don't think regulation is the answer to everything, but I do think it's something we have to be smarter about Anyway, that was my little great. Thank you Hi, i'm jerry berwick John I have a question for you I mean, I agree with you that people will act in their self-interest and I think that's a good thing But yet mooties and the other Rating agencies rated these toxic crappy mortgages AAA And ford motor credit is given a triple c rating And I think what from what I understand is that uh When the derivatives were being marketed You know they would go around to get it to get a triple a rating or these mortgages would be marketed for a triple a rating And if one a rating agency wouldn't give them a triple a they'd shop at the banks and investment bankers would go and shop it For another agency that would finally give it to them. So then they all played the game I want to know why The the agencies themselves Are not held accountable for what they have done And why shouldn't it and why do you feel that there should be some form of regulation on the agency saying Listen, if you put if you give something at a bad rating And it's it's obvious that you've given it a bad rating that you will not only be penalized Corporately, but the individuals involved in this cannot only can be personally liable for it and criminally liable for it Because this is something this is something that is Endemic to the income tax system and it seems to work pretty well And I think if a person is aware that if he's going to give a bad rate Going to be give a rating that is inappropriate They would be think very carefully before they give a bad rating. I I mean a number of things one is you can't really do that I mean These ratings are hard to do. I mean, let's not let's not trivialize the job of the rating agency This is tough work. Uh, they get it wrong sometimes most of the time they get it right but You know and I'll I'll be very critical of the rating agency in a second But let's first appreciate the fact that what they do is hard and that as part of business they're going to be wrong sometimes I think they're systemically wrong. They certainly were systemically wrong about mortgages. But why? As I said Hating agencies are not a market phenomena and this goes back if you really want to understand what happens with the rating Is that this goes back to irisa the the the regulations that regulate pension plans and insurance companies What irisa said is if you're a pension plan and you're going to invest in bonds The only kind of bonds you can invest are a triple a rated bonds And then it says But those bonds can only be rated by those agencies that are approved by the sec And the sec will only approve three of them So here you have an industry that is shielded by regulation from competition and It's got a customer base that by regulation has to buy their product Right All you have to do in order to fix the rating problem Is and there's actually a proposal in front of congress to do just that right now and actually one of them The amendment passed I don't think it'll make it in reconciliation between the house and the senate But it did pass and that is all you have to do is get the government out of the business of the rating agencies That is don't force pension insurance companies to buy triple a Allow them to make their own judgment about what they bought and allow competition Eliminate the sec's stamp of approval on only three rating agencies If you had competition and one of the rating agencies systematically got it wrong What do you think would happen to it? They'd go out of business the employees would lose their jobs and they'd go out of business Other rating agencies who got it right would gain business. That's how markets work. That's the beauty of it The other aspect of this that I want another element of why mortgage-backed securities got triple rated is is we have to think back to the political atmosphere in 2003 2004 And this is this is true of the bush administration bush gave a famous talk in Atlanta in 2003 Where he talked about home ownership and the need for home ownership and more people need homes This is a big thing for bush And barney frank in in the house and in and christad and and many others in in congress were pushing freddy and fanny freddy and fanny. They're great housing housing housing. This was a big initiative for both parties Imagine if freddy and fanny in 2003 or 4 or 5 or 6 or 7 had said You know All these mortgage-backed securities that freddy and fanny and all these other banks are putting out They're not triple A. They're triple C. You know what kind of political You know backlash they would have suffered they would have come what kind of heat they would have come You know they they would have been driven out of business because it's a business that's approved by politicians by the sec They had strong political incentive to stamp these things triple a triple a triple a Now there are other reasons why there were triple a for example If you look at housing history and they use they use these simple algorithms because that's what the regulators understand So they use them and and the simple algorithms use historical data and based on historical data housing prices never go down And therefore they were triple a well, I don't know that was but that but that really was the whole Major part of the problem. Well, but it's government triple a it's government. Thank you. We're going to move on to the next question Thank you. Did you want to comment on any of that? No, I Agree with a lot of that. I'll make one point in addition to In a way the gentleman who asked that question touched on I hate to keep saying a very complicated There is an oligarchy in the united states the intersection of we're wall street what i'm generally calling, you know Big finance and government intersects and the rating agencies is one of them and It's intellectually very corrupt The corporations they service are part of that same corruption as is the government I mean, this is something right out of Dostoevsky and I'm I do think that Perhaps the only solution here is more competition I mean No one no smart investment manager on wall street is really paying a hell of a lot of attention to those ratings That's for the rest of us schmucks out here I mean, it's it's really true. You know those people do their own due diligence, you know, that's why you can go to You know a good bookstore and and still take out the book that war and buy the book that Warren Buffett bought The rating agencies exist for the schmucks like us And it's as simple as that and it's for our pensions. That's yeah Thank you my name is Bob O'Connell and It was sort of glossed over but the fact that uh during the Iraqi war There were no Tax increases Boy, that's how nice except what happened to the old principles of guns and butter You can't have a war and you can't have a lot of domestic spending and The idea that there was no Uh tax increase. I think it's ludicrous as well as to why It was I mean with somebody comes in with a surplus budget and luckily never had to Have an increase When the wall was going on it's it doesn't make sense because we have to pay for the for the war And as far as the you pay for the war either way right the tax increases you're paying for the war as well The question is do you want to pay for the war now? Do you want to pay for the war later? But there is an alternative, you know, we always think of not have war Could I get right there's one of them not having a war could I get to the other part though? Which is very quickly because we do have a lot of this out the uh federal deficit How can you not have a tax increase? Have a war and increase the deficit to Higher than ever before and as far as the president going on television and saying go out there and spend So that we can have a good strong economy and not spending enough I mean, let's face it. Yeah, it's the leadership But this is this is this is I find that's really interesting because this is a mindset the only alternative is to spending Going on a war which you know put aside whether it's legitimate or not, but sometimes you have to go to a war Oh, no, I I agree I whether you walk was right or not is not the time to debate But sometimes you have to go to war the only alternative to funding that war is tax increases Well, there's another alternative and now the only alternative to reducing deficits is tax increases Well, there's another alternative and that's the spend less elsewhere. That is if you're going to go to war Cuts programs cut programs if we have a deficit right now Instead of you know what the real economic stimulus would have been Take a trillion dollars out of government spending That would have really stimulated this economy So, you know, we should we need to refocus the the debate about about how you how you cover these things Taxes is not the only option I think it's a horrible option The the better option is to reduce the size of government and to limit its scope of activities. Peter. Well in theory That's true Listen the whole idea though of Uh You know forcing the government to financial brinksmanship Was one of the the godfathers if you will of that thinking was Robert Bartley for many as the other of the wall street journal In the not widely read publication on national interest about a year or 18 months ago he Did a In a footnote, but nevertheless he had his mayor culpa saying jeez. That just didn't work Theoretically We We could reduce the size of government. I'll tell you this England's going to find this out in the next couple of years We're going to find this out in the next couple of years the amounts of money We all owe whatever we think about the defense budget whatever we think about The health care budget to come which I don't think anyone Has any idea how expensive this is going to be Um, we're going to get reduced governments and none of us are going to like it But but I think the answer to that gentleman's question is is that americans all of us or many of us have become Intellectually sloppy. We think we can have it all and we just can't Look and so the simple terms if you're going to a war worth fighting is a war worth paying for I happen to think the war in there in afghanistan was a war worth fighting I think the war in iraq horrible person that Saddam usin was was a massive mistake Um, and I think we're going to find that when we pull out when we declare victory and when we pull out We're going to find that it was all for naught But anyway, next question Hi, my name is jeff flaster. My question is primarily for yaron You mentioned panic before and also both of you have been speaking about the possibility that we'll be seeing another depression My question for you is Are you panicked? I have I have a bunch of A diversified portfolio in my ira, which I won't have access for for 20 years I held on to it when the crash hit in 2008 it pretty much recovered now. I'm looking at the dow and I'm saying oh, here we go again Are you know Hold on and hope for the best the days when I'm panicked. Look and this goes to something peter just said Uh, the unfunded the unfunded liabilities of the united states government i.e. Uh us Over the next 75 years for medicare and medicaid and social security according to the u.s. Government and therefore these numbers are dramatically understated No, they are they are because they've been wrong and have been understated every time they mention these And if you look at their assumptions assumptions just unrealistic are 103 trillion dollars That does not include the new healthcare bill which will cost trillions to fund That does not include the fact that every pension plan in the united states Particularly the public pension plans are all underfunded to the tune of several several trillion dollars and the government is a guarantor of all those It has so-called insurance fund I mean you just start doing the math and you could tax everybody in 90 percent and assume they all continued working and you still can't pay for Um, you know, it is we are heading. I like this is an analogy Some of you have heard this analogy because I use it a lot these days We're on it. I believe want a raft on a river heading towards a waterfall That waterfall is this massive depression or whatever it's going to be And the 300 million people on this raft and we're all rowing with the current Right Maybe maybe republicans have little holes in their paddles and they roll a little slowly maybe And maybe democrats have bigger power. It doesn't matter. We're all rowing with the current and That's just the economics Uh of it and I I agree with pete. I think we've seen a decline in the in the quality of thinking in this country I've seen with decline in the horizon in which people think Uh, I happen to think that government is a big part of the reason for that and and if I may I'm going to answer something And peter said that I haven't had a chance at why is what's happening in the Gulf of Mexico happening Why is the mine stuff happening? I believe that a big part of it is That and I think I think we see it in the way we behave towards our banking The big part of it is that we have been dumbed down And corporations are dumbed down and people are dumbed down by Government regulations and by you know, we'll you know, big brothers watching they're taking care of it Don't worry. Be happy. You don't have to you don't have to inspect the elevator Some bureaucrat has already done it for you. Don't think about these things. I think there's a lot of that going on I know when I put money into my bank. I don't care if it's solvent or not because there's deposit insurance You know big deal if I'm a mine operator as long as I get that check mark off from the regulator Even if there's an accident, I'm gonna blame the regulator. I'm off the hook It you know, and it goes on and on and on No responsibility too big to fail. It's all it's throughout out throughout our lives We are taking less and less responsibility for ourselves. So the days when I'm panicked There's a there's a lot of energy behind change Real change not obama's change Which I'm positive about but look once you start projecting 10 20 years onto the future things look bleak unless you start tuning the raft in the other direction And you have to make your own estimation when that happens and and whether it happens in terms of investing Peter yeah, well Let me focus on health care for a second I love the idea of national health care for everyone in theory To me one of the great He has what's crazy about the idea National health care insurance was Invented by auto von bis mach A german who was far more influential and his time. He was in the way the first socialist Mox came up with the ideas, but bis mach implemented them Let's jump ahead. You have an essentially 19th century idea to promote social stability Because things were so unstable with health insurance with unemployment insurance with pensions all things that we take for granted now We didn't have health insurance in the united states Europe has it those Unfunded liabilities Among the things contributing to the coming bankruptcy in europe So what's the united states do? You know we go and we adopt a system a failing system After it's already gone out of date Why did we do it because the american labor movement made of the top priority for endorsing obama um To me the corruption the intellectual corruption here is no attempt was even made With something like say social security to say this would have been much more palatable for me If someone said look We're all By the way, what i'm about to say wouldn't solve the numbers problem But at least it would make some intellectual sense to say all right We're going to all have in the national health insurance and you know what we're all going to pay Something for it the debate was at what point do you start charging people? You know who don't you charge? You know again, let's we have it now we're going to live with the consequences the consequences are going to be much More complicated and I believe much nastier than most people think But in putting the program together we didn't even make a stab At trying to get everyone to contribute to it To me that sort of shows the folly of this thinking You know in a way it's a a form of something for nothing You know well if you need a hot transplant why there's a five dollar copay matter Well, it matters because you stop and think that this isn't a free service Um, you know, I don't see anything wrong with someone making 30 000 a year with two kids Which is basically just above the poverty level. I don't see anything wrong with them making even if it's a token payment to such health insurance We live in la la land Thank you. So we have about 10 just on you know 10 to 15 minutes left here and there are some people standing So if you could when you ask a question make sure to get it quick and I'll ask the speakers to Yeah, I know Well, if we could just try to get through the rest of the questions. Thank you My name is bill mcdermid Mr. Kanzig you mentioned earlier that you thought the bush administration was part of deregulation And maybe a pro-business Of administration. Can you give specific evidence? I'm just as hot on the Clinton administration Oh, I'm just speaking specifically of the bush administration and also, uh, dr. Brook If You said that the bush administration wasn't pro-business. Uh, could you give Maybe an explanation as to why most people think they are? Take it very much. Well, I'll give a quick example. Look, um Uh The way Cheney, um I'll use the word hijacked energy policy behind closed doors By the way, it's the same thing that hillary clinton tried to do unsuccessfully with health care policy You know my take towards government officials is i'm pretty much an equal opportunity's basher It's not so much in the issue of regulation that I think it's going to make a difference I basically see some pretty dire days ahead and i'm hoping that a little smart regulation Might soften the blow I think yan is saying that less regulation might soften the blow We both seem to agree that things are pretty messed up, but go ahead Yeah, I mean in terms of uh, I mean there are plenty of examples where I think bush increased regulations of business subways Actually being the dramatic one But why because I think that bush was was communicated a particular message he presented himself as this Pro markets capitalist, but it was a crony I call it crony socialism because I don't think we're searching these crony capitalism It was a crony socialism and that the bush the the cheney Energy thing. I mean government shouldn't have energy policy I mean what a concept the government shouldn't be in the business of energy Let people go out there find energy and provide it in a market setting by cell Why should the government give subsidies or tax any particular form of energy one way or another? Let the market deal with it shouldn't have health policy the government just shouldn't be involved It shouldn't have banking policy. It shouldn't have housing policy Whenever it has such a policy It messes it up and it has to it always will so there is no such thing in my view as smog regulation It just doesn't exist Next question This actually goes to uh, what your arm was just saying So if I understood the arguments before both of you were agreeing that the problems were in Our result of bad regulation You disagree about what the what was bad about it? But uh, peter's view is that we need smarter regulation going forward and uran's view is that we need to Get rid of regulations So my question is what is regulation as opposed to just laws because you both i'm sure agree that we should have laws So uh, what is regulation such that we should be getting rid of it? I think that the difference is that um, you know legitimate legitimate laws are laws that deal with Crimes that deal with a victim that deal with the issue of Force in some way or another they deal with fraud or force. So so there are laws against theft their laws against fraud and fraud can be complicated So you need a variety of different laws in order to regulate the laws To protect property rights against various types of theft intellectual property rights and so on so laws will lay to Crimes that have to do with theft or bodily harm or some violation of rights some restrict somebody restricting your freedoms um, I think regulations as I try to say effect directly The voluntary transactions between people engaged in the marketplace with forces not a characteristic so uh, I want to um I want to drill an oil well on my land. It's my land. It's my property Why shouldn't I just be able to being a Reagan drill? I'm assuming I'm not Harming anybody else's land around me and so on Yet their million regulations dictating what kind of equipment I can use and and so on that have nothing to do with Just property protection But I have to do with wanting to determine how I use my property or how I engage in business with other people So I think that's that would be the differentiation And I think those the government has no role in those You know if it's voluntary If it's not violating anybody's rights the government should just stay away Peter I'll say in spirit. I agree with I certainly agree with you on its definition But let's take as example of drilling on land I'd have a harder I'd have a hard time generally arguing with that In he didn't make it, but I will drilling out at sea. However, it's a different situation Let me skip from the question in a thought that just occurred to me One thing that's very interesting here is that the massive infusion of foreign capital into the united states Years ago stopped going into our financial markets And that's because I think the japanese and the chinese are smarter than the american investors and they know that those markets are rigged That money was going into Government debt now, of course the government debt itself is is being devalued as the our underlying economy has corrupted And that's where a problem is going to come from but um Anyway, that's just a random thought that I wanted to get out there Next question Thanks. My name is roger zimmerman. I'm a scientist and uh When we uh, hear people bake what seem to be quantitative statements, you know, we like to see if they can Provide numbers that back those up and it seems that It seems that uh, you know the premise on which your argument Is based peter is the notion that the amount of regulation or a premise sorry actually decreased from 1978 when The carter regulate the carter administration started to regulate is isn't there a piece of evidence that could support Could could you show me like some no no that by the way that document that that's a smaller That's a fair assumption to make that that really Isn't and you're forcing me to to think about it in the way. I hadn't before my hunch is that regulation Just kept going why because The government keeps putting out papers the income tax my income tax form has not gotten simpler Based on that I assume the regulation has it. No, what I'm saying is that the world has become the financial world has become infinitely more complex and creative and that regulation Was not able to keep up with it Um, I try to keep it as simple as that and when they're in the when there were A few cases for example, like borksley born who tried to Let's just say level of playing field. That's not the most accurate way They were squashed by You know the the the neoliberals, you know, frankly, I think neoliberal economic thinking Is probably far more dangerous than Classic conservative thinking I'm taking a swerve here But think of it this way the same people that brought you Financial derivatives are trying to bring us cap and trade agreements You know, it's it's a neoliberal con job Can I just make a quick comment about complexity? I would actually argue and and I used to In my days in finance I actually do this that one of the reasons things become so complex Is because of regulation that is because there's so much regulation in the financial industry The banks spend an enormous amount of money and talent and brain power to try to get around those regulations which they should because they're trying to make money and Much of the complexity that exists in the in the international financial market Is a consequence of of instruments and mechanisms to get around Regulations that shouldn't exist and you could even argue That credit default swaps Are mechanisms by insurance That the insurance industry is not allowed to provide because of regulations So and and it's needed the fact is credit default swap something that does something like credit default swap is needed out there They came up with derivatives complex derivatives because that was the best in this regulatory environment That was the best way to do it that fewer regulations you have I think the less complexity You get in financial markets at least in this type this type of systemic complexity because I think much of it is to get around the regulations Folks, it's 803 right now. I just want to let you know we're going to answer these last couple of questions And you'll be out here in just a few minutes Thank you Good evening. My name is Vitaly Vashkevich. I'm a student um question to Peter Kadsis, please By the same reasoning as you claim that and you mentioned oil gulf Gulf oil spill a few times Do you and you claim it happened due to the lack of the government regulation? Do you think The greatest technological catastrophe in the human history Which happened in 1986 in USSR through novel Explosion in the nuclear plant. Do you think it happened due to The lack of government regulation does it happen to And do you think I have nothing but contempt for the soviet union and I really think I think the intellectual basis for the question is just It's a cute line and it's got a great laugh But you know the the the soviet union is one of the original rogue states Um, I think the basis for comparison is totally without merit okay, um another Another question another very uh, we we have some other people. So if it's very quick By the way, we really have to move on. Okay. It was a rhetorical question. Okay. That's Mr. Kadsis when I came here, I expected to see a to hear a very strong denunciation of Mr. Brooks randy and view of things and I'm very pleasing very pleased to hear your kind of Not so radical boston phoenix type view. I can't imagine the phoenix editorializing And with a lack of passion that you've displayed here today Are you willing to say That mr. Brooks view of things if his vision was put into place would not be disastrous that it's his vision is worth looking taking a look at Mr. Brooks's vision in my vision have no more chance of being put into play If they were Well, no because I I think both of us are coming from it very different points of view um It's a very good question But I think unfortunately unfortunately for us we both have a Are very worried about the future Um, I don't think there's much that either of us is saying Is going to make much difference as to what's coming I think unfortunately we're here speaking in a very theoretical realm That the the mistakes whether they're by the way some well-intentioned mistakes human beings make mistakes um but There's a compounding effect and we really have at least 30 years of Sloppy thinking that my kids are going to be paying for anyway Let me disagree with pito and one little thing. Um Finally I have every intention of making a difference I might be wrong Well, listen, I hope I hope you're right. Well, I'm to peter's. I hope peter's defense To peter's defense. I'll tell you that he does try to make a difference You do try to make a difference Fast question. Fortunately, uh, the sec recently filed suit against goldman sacks And I'm curious about the both panelists your comment on that does arise to the level of fraud Their accusations, um And if they don't do you think that goldman sacks did anything on ethical? Oh unethical. Yes illegal. I'm not so sure I mean, I'm not sure that they've broken the law Um, do I hope the guys burn in hell you bet I do but I'm not sure they I'm not sure we can legally send them to jail So finally we're gonna disagree. Um I'm not sure if they broke the law, but I don't see any ethical problem what they did And and this is why, um This is not the case You know, this is not the case that goldman called up their clients and said look We've got a great Instantly to show you You should buy it. We're buying it. We think this is going to go through the roof If they had done that and at the same time we're shorting it. I agree completely unethical bad behavior This is a case in which the client came to them and said look we want to bet on Housing prices continue to go up basically and mortgage is continuing to pay We want to bet on that and the instrument that mogan that uh, goldman sacks are put together is more complex Than uh, then uh credit default swaps. Yeah, it's because it's it's uh, it's not they weren't actually mortgages It was synthetic mortgages and gets really complicated So the client came to them and said we want to put this together. We believe Mortgage prices are going up and mortgage said and goldman sacks says this is exactly what we're here for sure We'll put it. We'll help you put it together Um And they did and indeed not only did they do that but goldman sacks actually kept a piece of this product for themselves So they lost money on it now They had another client who came to them and said you know And this is this is the famous polson who said uh, I want to take the other side of these kinds of instruments This one but others as well because I believe mortgage prices are going to go down Can you facilitate that? And goldman said sure, you know, we're just a metal man here and they let him Short this particular instrument this particular instrument did no better and no worse than any other instrument like it So they this idea that polson actually chose the worst mortgages to put into it is ludicrous because it was just it just did average Like everybody else, which means really really bad But but they all did really really bad Um, you know, and they they were market maker They facilitated the long position that one institution wanted and a short position another institution goldman by the way overall lost quite a bit of money on uh on uh mortgage backed securities One of their divisions made some money because they were smart enough to short But the the the mothership if you will lost quite a bit of money You know, I just don't see what the big deal here. This is the kind of transaction that happens literally every single day on plain vanilla Plain vanilla stuff, but here it's complicated and sophisticated. So, you know, it's presented as some big Fog you learn to unethical behavior market makers do this every day. There's nothing unique here. So Before I turn it over to Jen officially close the program. Will you please join me in thanking these two gentlemen?