Exclusive - Alan Greenspan Extended Interview Pt. 2

  • Aired:  10/21/13
  •  | Views: 42,189

In this exclusive, unedited interview, former Fed Chairman Alan Greenspan discusses the need for increased capitalization in the global financial system. (7:08)

[CHEERS AND APPLAUSE]WE'RE BACK.

YOU MENTIONED SOMETHING EARLIERI THOUGHT THAT WAS INTERESTING,

THE BANK'S ABILITIES TO REGULATETHEMSELVES.

THEY KNOW BETTER THAN ANYBODYTHE RISKS THEY ARE TAKING.

IT WAS CLEAR FOR THE 2008FINANCIAL CRISIS THAT THEY

WORKED VERY, VERY HARD TO HIDETHAT FROM ALL OF US.

HOW DO WE MAKE THE REGULATORYREGIME MORE AGILE ESPECIALLY

GIVEN THE TECHNOLOGY THAT EXISTSWHERE THINGS CAN MOVE SO MUCH

MORE QUICKLY.

>> IF YOU ACQUIRE MORE CAPITAL,CAPITAL IS EASY TO JUDGE.

IN OTHER WORDS, A REGULATOR MAYNOT BE ABLE TO FORECAST WHAT A

PARTICULAR SYNTHETIC DERIVATIVEIS GOING TO DO BUT HE CAN

MAKE A JUDGMENT AS TO WHAT YOURCAPITAL IS.

IF THEY REGULATE THE CAPITAL,YOU CARE FAR LESS ABOUT THE

OTHER THINGS THEY ARE GOING TODO.

YOU CAN'T EVEN IMAGINE THE NEWTHINGS THAT WILL OCCUR.

BUT ENOUGH ENOUGH CAPITAL INTHERE YOU DON'T CARE.

>> Jon: WHO IS FIGHTING A NEWRULE ON CAPITAL? WHAT IS

THEIR REASONFOR

FIGHTING IT? BANKS DON'T WANT TORAISE CAPITAL

BECAUSE IT'S COSTLY IN THESHORT TERM.

WITHOUT GETTING TO THE TECHNICALASPECTS.

>> Jon: GET IN THERE BABY!

YOU KNOWWHO IS HERE TONIGHT?

ALL MASTER'S STUDENTS.

CAN I TELL YOU WHO IS HERETONIGHT IN HYMEN -- MINSKI AND

HIS FAMILY.

>> REALLY.

>> Jon: THAT WOULD BEIMPOSSIBLE.

>> HE PASSED AWAY A LONG TIMEAGO.

>> Jon: YES.

>> THERE MUST BE A REASON WHYTHEY'RE ABLE TO FIGHT THAT

AND WHY WE'RE NOT ABLE TODO THAT.

>> THIS IS A POLITICAL SYSTEM.

THE VIEW YOU ARE HEARING NOW ISA MINORITY VIEW.

>> Jon: ABOUT CAPITAL.

>> ABOUT CAPITAL.

I DON'T BELIEVE YOU ARE GOING TOSIGNIFICANTLY IMPACT THE RATE OF

RETURN BY RAISING CAPITALREQUIREMENTS BECAUSE THE SYSTEM

WILL ADJUST.

FOR EXAMPLE WE HAD 30% CAPITALREQUIREMENTS IN THE LATE PART OF

THE 19th CENTURY.

AND BEFORE THE CIVIL WAR IT WAS50%.

>> Jon: RIGHT.

>> THE SYSTEM WORKED, BANKINGWAS PROFITABLE AND LOTS OF --

>> Jon: WHEN GLASS STEAGAL WASIN EFFECT

THE SYSTEM WORKED.

IT WAS ONE OF CLEAREST EXAMPLESAS WHAT ALLOWED THEM TO CAUSE

THE DEVASTATION WHEN THIS THINGFAILED.

>> I'M NOT SURE I AGREE WITHTHAT.

>> Jon: WHO.

WHO IS THE EX-FED CHAIRMAN HERE?

>> I DISAGREEWITH YOU.

>> Jon: MUCH BETTER.

WHAT IS IT ABOUT THAT LAW THATYOU THINK WAS --

>> FIRST OF ALL, THE LAW -- ITHASN'T EXISTED FOR QUITE A LONG

TIME.

EVEN BEFORE IT WAS REPEALEDTHERE WAS A SUPREME COURT CASE

WHICH CREATED A VERY SIGNIFICANTLOOPHOLE IN GLASS-STEIGEL AND

PRIOR TO THE ACTUAL REPEAL IN2000 IT ESSENTIALLY WAS SHOT

FULL OF HOLES.

>> Jon: IT WAS OBLITERATED.

>> AS A PRACTICAL MATTER IT NOLONGER EXISTED AFTER SO CALLED

SECTION 20 AFFILIATES WEREENGAGED BY THE --

>> Jon: THE SECTION 20AFFILIATES I KNEW WHEN IT WAS

DONE IT WAS TERRIBLE -- I KNEWWHEN THE SECTION 19 WAS -- AND

THEN TO HAVE SECTION 20 AS WELL.

[ LAUGHTER ]>> ASK ME WHAT SECTION 19 IS.

>> Jon: I DON'T KNOW WHAT ISSECTION 19?

>> HAVEN'T A CLUE.

[ LAUGHTER ]>> Jon: FAIR ENOUGH.

THESE GUYS THAT CREATED.

THIS THE ONE THING I'M TRYING TOGET AT IS THIS WAS -- I DON'T TO

WANTTO SAY PURPOSEFUL BUT IT WAS

CERTAINLY PREMEDITATED.

THESE GUYS WERE ATTEMPTING TOSUCK AS MUCH AS THEY COULD OUT

OF A SYSTEM UNTIL IT COLLAPSEDAROUND THEM AND THEY COULD GET

OUT.

THERE MUST BE SOME WAY THATTHERE'S A FORCE LARGE ENOUGH TO

AT LEAST TEMPER THE COLLATERALDAMAGE THAT CAN BE DONE.

AND IT SEEMS LIKE ONE OF THEONLY WAYS TO DO THAT IS TO

PROTECT OUR PENSIONS AND SAVINGSACCOUNTS

FROM THIS TYPEOF SPECULATION. >> I DON'T THINK

YOU NEEDTO DO THAT

IF YOU HAVE ENOUGH CAPITAL.

PEOPLE SPECULATE BECAUSE THEYGET EUPHORIC, GREEDY,

WHATEVER WORD YOU WANT TO USE.

YOU CAN'T PREVENT IT IT'S HUMANNATURE.

SO THE POINT TO FOCUS ON IS HOWDO YOU PROTECT THE SYSTEM,

SOCIETY FROM THE STUFF THAT GOESON.

THE ONLY WAY TO DO IT IS TO MAKESURE THAT THE PEOPLE THAT TAKE

THE ACTIONS THAT CAUSE PROBLEMSSUFFER THE CONSEQUENCES.

>> Jon: WHEN IS THAT GOINGTO HAPPEN?

>> IT HAPPENS WHEN CAPITAL GETSUP WHERE IT'S ENOUGH LIKE IT WAS

IN THE LATTER PART OF THE 19thCENTURY.

>> Jon: LAST POINT.

IN THIS REGARD WHEN WE SEE THEDAMAGE THE SPECULATION CAN DO

WHY DO WE STILLULATION CAN DOINSIST INVESTMENT

INCOME BE TAXED AT A DIFFERENTRATE THAN WORK INCOME.

DOESN'T THAT INDICATEINCENTIVIZING WORK AT LESS OF A

RATE THAN INVESTMENT AND DOESN'TTHAT JUST FAVOR THE CLASS THAT

HAS GAINED A GREAT DEAL OF THEWEALTH OVER THE CLASS THAT HAS

HELPED THEM BUILD IT?

>> ONE OF THE ASPECTS OF THE --THE ONLY TIME WE'VE HAD REAL

SUBSTANTIAL TAX REFORM WAS 1986.

AND AT THAT PARTICULAR POINTTHEY MADE THEM EQUAL-- THERE'S

NOREASON WHY THEY SHOULD BE.

THIS GOES BACK A LONG WAY,ALMOST VERY SHORTLY AFTER THE --

THE AMENDMENT IN 1913 WHICHCREATED THE INCOME TAX.

BUT THIS IS A DEBATABLE ISSUEAND I'VE NEVER UNDERSTOOD THE

DIFFERENCES MYSELF.

>> Jon: RIGHT.

BECAUSE THERE'S NO -- I DON'TUNDERSTAND WHY YOU GET TO A

CERTAIN POINT.

THESE GUYS AGAIN IT INCENTIVIZEDRISK TO SOME EXTENT.

IN A WAY IF YOU SAY THIS HUBRISAND GREED IS A PART OF OUR

PERSONALITY.

>> YOU WON'T ELIMINATE THAT.

>> Jon: IT SEEMS FROM GOING TO25% ON CAPITAL GAINS WOULDN'T

ELIMINATE RISK BUT GIVES A FAIRSHOT TO INCOME WHICH

SEEMS LIKE SHOULD BE -->> IT'S A VALID ARGUMENT.

>> Jon: REALLY?

I'M GOING TO END ON THAT THEN.

[CHEERS AND APPLAUSE]"THE MAP AND THE TERRITORY" ON

BOOKSHELVES NOW.

YOUNG MAN, THANK YOU FOR BEINGHERE.

ALAN GREENSPAN.

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