Exclusive - Alan Greenspan Extended Interview Pt. 1

  • Aired:  10/21/13
  •  | Views: 67,676

In this exclusive, unedited interview, former Fed Chairman Alan Greenspan explains why bankers are so terrible at self-regulation. (6:51)

[CHEERS AND APPLAUSE]>> Jon: WELCOME BACK.

MY GUEST TONIGHT FORMER CHAIRMANOF THE FEDERAL RESERVE BOARD HIS

NEW BOOK IS CALLED "THE MAP ANDTHE TERRITORY."

PLEASE WELCOME BACK TO THEPROGRAM ALAN GREENSPAN.

SIR --[CHEERS AND APPLAUSE]

HOW ARE YOU, MY FRIEND?

[CHEERS AND APPLAUSE][CHEERS AND APPLAUSE]

HOW ARE YOU?

PLEASE, HAVEA SEAT HERE MY

FRIEND.

>> YES, SIR.

>> Jon: THE BOOK IS CALLED THEMAP AND THE TERRITORY.

>> CAN WE WAIT UNTIL I STOPLAUGHING.

>> Jon: YOU LIKE IT BACKTHERE?

CHOCOLATE BACK THERE.

IT'S A GOOD TIME.

I'M VERY TALENTED.

[LAUGHTER]>> Jon: SO IN 2008

YOU ARE THE FED CHAIRMAN, IN2008 YOU TESTIFY THAT THE

ONE THING ABOUT THIS FINANCIALCOLLAPSE THAT YOU DIDN'T SEE

COMING WAS THAT YOU THOUGHT THEBANKS WOULD HAVE BEEN BETTER

STEWARDS OF THEIR OWN CAPITAL,THAT THEY WOULD HAVE BEEN BETTER

SELF REGULATORS.

>> YEP.

>> Jon: AND THAT THIS BOOK WASYOUR JOURNEY INTO FINDING OUT

WHY THEY WERE TERRIBLE.

PLEASE -- HAVE AT IT.

[ LAUGHTER ]>> I COULDN'T HAVE SAID IT

BETTER.

>> Jon: THANK YOU VERY MUCH IAPPRECIATE THAT WHY WERE THEY

TERRIBLE AT REGULATING THEIR OWNRISKS?

>> I DON'T THINK THEY FULLYUNDERSTOOD THE TYPES OF RISKS

THAT WERE OUT THERE.

IT'S INTERESTING IN THEFINANCIAL BUSINESS TO TRY TO

FIGURE OUT WHY MARKETS BEHAVE ASTHEY DO.

IT'S TOUGH.

A LOT OF PEOPLE THINK THEY CANDO IT VERY EASILY, BUT WE REALLY

CAN'T FORECAST ALL THAT WELL.

WE PRETEND THAT WE CAN BUT WEREALLY CAN'T.

AND MARKETS DO VERY WEIRD THINGSBECAUSE IT'S BEEN -- IT REACTS

TO THE WAY PEOPLE BEHAVE ANDSOMETIMES PEOPLE ARE A LITTLE

SCREWY.

[ LAUGHTER ]>> Jon: YOU JUST LEARNED THIS?

[LAUGHTER]PEOPLE ARE ALWAYS SCREWY.

IT'S GREED, ISN'T IT, IT'S GREEDAND HUBRIS, NO?

>> YEAH, BUT IT'S ALSO A LOT OFOTHER THINGS.

LOOK, I WAS BROUGHT UP IN THECANYONS OF WALL STREET AND I

KNOW WHAT SCREWINESS IS.

I WATCHED IT ALL OF MY LIFE.

WHAT IS VERY DIFFERENT ABOUTTHIS IS THAT WE -- THAT IS THOSE

OF US WHO DID ANALYSIS -- ALWAYSTHOUGHT THAT SCREWINESS WOULD

WASH OUT AND THAT ALL YOU HAD TOLOOK AT WAS THE REAL NUMBERS IN

THE REAL WORLD.

THAT WAS WRONG.

AND I'LL TELL YOUIT'S VERY HARD FOR

ME TO CONVEY BUTTHE SIMPLE PREMISE

WHICH WE ALL MADE WAS THATPEOPLE WOULD ACT RATIONALLY

IN THEIR LONG-TERM SELF INTERESTMADE A HUGE IMPACT IN HOW YOU

VIEWED HOW THE ECONOMY WOULDFUNCTION.

>> Jon: EVEN IF YOU LOOK ATTHE SIMPLE NUMBERS, THESE GUYS

ARE, YOU KNOW, TAKING 30 TO 1RISKS ON STUFF THAT THEY ARE NOT

CAPITALIZED ON.

THAT'S NOT EVEN STUDYING HUMANBEHAVIOR.

THAT'S LOOKING AT A BASICBALANCE SHEET AND GOING WHAT IS

THIS?

>> PRECISELY.

>WE BEGAN TO SEE WHAT WAS GOINGON,

YOU COULDN'T BELIEVE THAT THEREWOULD BE PEOPLE WHO WOULD BE

THAT DISREGARDING OF THEIR OWNCOMPANIES.

HOW CAN YOU RUN, AS YOU SAY 30TIMES --

>> Jon: ON THE LEVERAGE.

ISN'T IT BECAUSE THEY DON'T PAYTHE PENALTY.

THE REWARDS THEY WERE GETTING,THE SYSTEM WAS INCENTIVIZED FOR

THE CRAZY SHORT-TERM BURSTS OFREWARDS.

>> BACK IN 1970, THE NEW YORKSTOCK EXCHANGE SAID THAT BROKER

DEALERS WHICH IS WHAT ALL THESEPEOPLE ARE COULD INCORPORATE.

PRIOR TO THEN THEY WERE ALLPARTNERSHIPS.

LET ME TELL YOU SOMETHING ABOUTA PARTNERSHIP.

YOUR PARTNERS DON'T LET YOU TAKEANY RISK THAT CAN AFFECT THEM.

I REMEMBER THEY WOULDN'T LENDYOU A NICKLE OVERNIGHT AND THE

SYSTEM WORKED.

IT DID NOT GET ANYBODY FAILINGBECAUSE THE EQUITY WAS

PROTECTED.

AS SOON AS THEY STARTED TO GO TOCORPORATIONS, THEY TOOK RISKS

FOR EXACTLY THE REASON YOUSUGGESTED.

>> Jon: DIDN'T WE THENDEREGULATE THE CORPORATIONS AND

ALLOW THEM TO TAKE THE RISKS.

BECAUSE A LOT OF SAFEGUARDS INTHERE WE'RE GOING TO HAVE BUSTS

AND BOOMS BUT THEY ARE NOT ASLARGE BECAUSE THERE WERE CLEAR

CUT REGULATIONS IN PLACE THATCONTROLLED HOW MUCH THEY COULD

LEND OVERNIGHT OR THE AMOUNT OFMONEY THEY COULD SPECULATE FROM

THEIR SAVINGS HOLDINGS TO THEIRMORE SPECULATIVE DERIVATIVE

BUSINESSES.

>> THE EASIEST THING TO DO IS TOINCREASE CAPITAL REQUIREMENTS.

IF THEY WANT TO DO THINGS WHICHMAKE NO SENSE, WHATEVER, LET

THEM DO IT AND LET THEM SUFFERTHE CONSEQUENCES BUT DON'T PUT

THEM IN A POSITION WHERE THEYCAN DEFAULT.

>> Jon: RIGHT.

>> BECAUSE WHAT THE REAL PROBLEMIN ALL OF THESE AREAS ARE, THE

FACT THAT WHEN A BANK FAILS, ITTENDS TO CREATE A CONTAGIOUS

EFFECT AND RUMBLES THROUGH THESYSTEM.

>> Jon: SURE.

>> THAT'S PRECISELY WHATHAPPENED ON SEPTEMBER 15, 2008.

>> Jon: RIGHT.

>> THOSE OF US WHO LOOKED ATTHAT SORT OF STUFF RECOGNIZE

THAT YOU JUST CAN'T TELL WHICHARE GOING TO BE THE TOXIC

ASSETS.

SO I THINK THE ONLY WAY TO SOLVETHIS PROBLEM IS TO GET ENOUGH

REGULATORY CAPITAL INPLACE AND

THEN THEY CAN DO A LOT OF THINGSTHAT YOU SHOULDN'T BE ABLE --

SHOULDN'T WORRY ABOUT.

>> Jon: WHAT ARE YOU SAYING12-1, WHAT ARE WE DEALING WITH

HERE?

10:1, 20:1.

>> RIGHT NOW THEY ARE AT 11%.

I THINK IT SHOULD BE TWICE THAT.

>> Jon: ARE THEY GOING TO DOIT?

>> NO.

>> Jon: THANK YOU VERY MUCHFOR YOUR --

[LAUGHTER]CAN YOU STICK AROUND FOR A

SECOND.

I'M GOING TO ASK YOU ABOUT WAYSTHE SYSTEM CAN BECOME MORE AGILE

BECAUSE IT SEEMS LIKE WE'REALWAYS FIGHTING THE PREVIOUS

WARS AND THEY ARE ALREADY FARBEYOND OUR ABILITY TO CATCH UP

WITH THEM.

THE MAP AND THE TERRITORY ON THEBOOKSHELVES NOW.

ALAN GREENSPAN.

GO GET THE BOOK

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