But you know on twenty six.

No You know it's a fuck
you're talking about

things like

overall to

be an order in terms of dressing
doing what I actually did or

actually DID NOT the overall
What Another goal

is when you begin to talk directly but

indirectly you may begin to expect to feel
even a student here at Georgia State.

Dr Kilmallock

you know what you will

probably get on
Georgia State University and

Dr Moore would really like to go up and

over to all the

early screening

here reversibility is
certainly feeling you know

with a series of yours

is a lawsuit for your State University.

You know these are early years and

you are with regards to your is the birth
rate and if you are with yours.

You're still here and
it's very serious you're with various.

Before appearing in your
city organization here with

the story vision.

Well guys first of all of can hear me.

We're listening to this is
that I was going into this

on the my listening so far.

First of all it is always
interesting to have some

of the more in country life than
financial crisis in the United States.

You know I never thought.

Coming from Russia that I would never have
the opportunity to discuss the financial

crisis in the United States because
we're so accustomed to discuss it but

enterprises are rushing in
several of them like it once but

they never solve the problem.

You know the opportunity to discuss it in
the got this book United States is also

interested really interested in talking
about it's always in pieces at the time of

crisis something of
the learned was a forecast or

during the last recession or
perhaps the last longer.

So I invite you to drill
it to business degree but

those are kind of optimistically of had a
feeling on the foundation from the basics

of the discussion in the bowl and that
we're still disassembled into more details

but I was kind of optimistic goal of
the crisis of two thousand and seven and

two thousand deaths.

It seems the disgrace will be
over by twenty down the house or

Hopefully it will be over.

We're going to down but it certainly
started in two thousand and seven.

We're already into the greatest and
two drug cartels and

seven it was obviously the stock market.

You only people that really didn't see
that we were in the crisis were the people

in charge of the Federal Reserve
break up the U.S. Treasury.

And that's what helped a little this
crisis still although it will probably

talk about regulations the need for
more regulations in the United States.

So the need for.

Reduce regulations it's a question
of the debate the regulations got us

into this race.

I don't know the surface it might be
more regulations but at the same time

we really don't have a fully functional
market for some of these assets that lead

us into this and I want me to understand
that the grand national crisis if you

look at the basic point
here in this first flight.

You'll see the stock
markets around the globe

at the start of the end of two dollars and
seven so left of the year ago total So

sixteen trillion dollars in value the U.S.
stock markets the New York Stock Exchange

and the Nasdaq they're
going price of proximately

point five trillion dollars the big
game he's he's a very big market.

In the believe that this is
only the beginning that people

have also developed over
thirty financial markets or

additional financial markets we have a lot
less than obligations we have a whole

bunch of financial derivatives and
options for example.

In addition to that we count
on that option terminology

to the whole bond market
these credit default swaps.

This is nothing but the a blind very
conveniently in the gun textbook market.

If you all.

If you just look at for
example they're going to be

looking according to Bill Gross who is
a fairly powerful figure in the market.

He actually sells the sculpture actually
actually generates three trillion dollars.

He's in those countries right
now if we take a look at

the entire size of the financial
markets around the planet and

up to five hundred billion
dollars Our expansion

over the last twenty years in
the national industry has been or

you know my hundred billion
dollars That's a big amount but

I personally I cannot it's like being
you know did you think about it for

many years and I can't imagine what Julian
Dollar says I can't imagine I see these.

Figures but
it doesn't mean much to me and yet

the size of the global financial
markets is measured in France with my

trillion dollars in the US You know
you can see it by the way you know

if you look at the global G.D.P. It's
about forty four trillion dollars right.

So which basically means the size
of the financial markets the gap

is twelve times the size of
the girl's domestic product.

Well that is fine if everything is fine.

That's not fine.

It's something starts to collapse
that supports this pyramid and

so that's where we are today.

But you know this is this is well
it's a very significant multiple

you know when I was writing this I
remembered Iceland which is a recent

financial crisis in the recent currency
crisis we're putting them in the banks

advice from one of them to
the multiple of the G.D.P. And

we know might appreciate the currency
level of seventy seven percent.

So you know the question
we can both here today is

these are probably going to be guys
can really talk about religion you

bring you back which you got to do
you got to be bigger than the ship.

In the getting stuck with what a seven
hundred billion dollars bailout.

What is it seven hundred billion
against five hundred trillion.

Mark just last month the stock
markets around the planet retreated.

You know by a twenty percent.

I come from a country we're just like what
you decided to do a pretty interesting

trade it went down to percent of want to
date with two percent of the other so some

of these markets are regrettably bought
by it's if you look at the planet you

know when with just a percent decline in
the stock markets in a matter of just one

month the meltdown essentially two places
have done well if you live here for seven.

To deal with all derivatives market.

I'm birth.

You have.

Well the seven

dollars billion dollar bailout vision so

much discussion in the basi
commission created in the U.S.

Congress in the first recommendation
used by somebody else.

You know some people may not agree
with that but in this line of.

The lack of clear leadership in
any crisis environment sending

the slides here with your
basic sleights of looking

at this is the growth in the stock
market over the past seven years.

That's coming from
the original exchanges for

various stock markets around the world and
you can see that the last time we had

the meltdown in the stock market
just doesn't do the Dorrian

was actually witnessing your beloved the
bubble in March of two thousand points in

those levels since the last
remaining uncovered

just in the last couple of months you
know it was a much broader life and

you can see that in the stock buying which
between two thousand Doing two thousand.

So the stock market is a lot of the mind
of those on the blunders went from twenty

three trillion dollars to
sixty one trillion dollars

over the last few years
especially in the United States.

It looks real by you know
we should think about this

in the later part of the fall and then.

In the stock market or
in the form of six was go out soon but

the family actually
intervened significantly and

we used the effect of the bubble but
it shifted the ball real enough the market

into other markets and the housing
market was one of the end of the girls

coming through the rules of the stocks and
you can see it here but at the end of last

year sixty one trillion dollars global
stock market language that's significant.

By the way she and so with this is
something up is starting to decline.

You've never furiously.

I also want for you to see in this line.

You know one of the arguments someone
to make in my presentation here.

Not everybody that's going to be
with me on this I believe the bad.

I have a great deal of respect for

Bernanke and I think they're doing the
Right now they're going to very good job.

They're very good.

Technically the bailout of Fannie Mae for

example to the preferred
stock is an excellent weapon.

You can check them against where it was
needed at the time when it was needed.

So that's that's a perfect solution.

In addition to that or
he simply could be you know be a desire of

the van to expand essentially
infinite currency swaps

to European Central Bank the Bank of
England and it doesn't break things.

It doesn't break stuff but the problem
is if the Treasury seems to follow

after the storm their duty is
to actually be seen to school to

help us before we get distorted
by this massive die away and

not and in that sense like you can see for
example one thousand

market crisis in front of the residential
investment difficult one of the girls

the missing brought the statistic you see
here was available to the vet at the end

of last year he didn't do nothing but
certainly didn't do the six and

you can see the growth in the in that
particular don't want them to be done

negative in the first quarter of two
thousand six hundred seven thousand mark.

Birth is something that is recent and

something that occurred after dolls
instead of the summer season seven.

It's a question of belief in the support

question that's on the housing
market is a cyclical market.

Why the Fed did not prevent
the market collapse last year.

Why were they not lowering
the rate related to the summers.

If you can see here the statistics
are still drug out and

six you know double digit declines
in data not a suggestion that you

literally have a melt in a wing investment
into the house and you could also

see that you're into two thousand people
go off period that this one little very

important role in the growth of the gross
domestic product of the United States.

I don't have always been dismissed here
with him doing this during the night in

night laughs Well you know
if you look at it for

the U.S. It's like a shocking Castle dump
of you know everywhere outside of the U.S.

We have got nothing problems here

the significant economic problems saw the
gun in Germany enough to be an indication

that that's the NOMIC problems
Japan doesn't mean and

sort of last I think what sometime the
Asian financial crisis certainly move down

the engine died during a lot of the sudden
turn that's no longer be in his day so

significantly just because you must was
exempt from that and he was missing

significant foreign investment decisions
all of that money was going for

safe investment was and you can put in the
drove job growth during the night tonight

to see the United States invest in
the morning especially numbers and

the actual best of the what was the engine
of the decision to go to those who want

Yahoo change in the U.S. significant
the growth in nonresidential investment

in the United States go left and
what do you just place.

What's the growth in
residential investment and

of course stuff is a little bit
more probably not to be of job

growth doesn't come from
Billion in the subdivision.

Income from building a new office
complex but that was the case.

After the recession of
two thousand dollars one.

And so people stuck in this and
don't want to get you know can see up here

in change drastically into those and
six and

so we're going to see just rubble and the
wish to really if you live in the beds.

The problem and use of them are above
two thousand seven hundred it's down for

the man acted and I watched it done.

Delegation very nicely because I
actually went to the Bloomberg I did

read the website in the beginning
early morning around seven A.M.

and it showed the Japanese stock
market down nine hundred points

when the Japanese stock market was down
one hundred points in the futures one year

old many of the American markets
are just a significant collapse.

That's for the Fed that that's not the Fed
game through with a couple of percentage

point cut misconducting the many
people seen this nothing is simple.

Benjamin Bernanke Your
isn't the stock market.

You were just a stock but
about this is this is really exciting.

So maybe you can save money in
this risk of illness or so and

it seems to me that this was a serious
issue in the beginning of this we are one

of the this beat monsters market
to start melting away but

the small help the weighing on the basis
of interim you know is a big fire and

we saw that in addition to you know
you want to disappoint these but

we still see here come from the best
presentation to the U.S. Congress.

So this is actually what
the Fed itself presented and

look single day with the goals
writing down starts the birds.

That's all we need to hear an economic
look at the behind the things in two

dollars sixty dollars and some of their
sort of statistics the Fed did not react.

So you clearly see this.

So people can argue Look
you facetious the bubble.

We're in here in two thousand dollars and

two dollars of three that is true but
with discretion the long haul.

So the ball in the Bible wasn't.

Work after and not used to subscribe to.

That's the big Asian speech regional bet
Bubblicious of borderless some Republican

leaning women of the better balance
of these the Legations were doing.

Dela specifically what
fraction of all long long.

You had to work for the needle me and now
go in this market at the back and we knew

it was coming in the back did not respond
in two thousand seven hundred so better.

You can see the breaks
across a major US cities and

if you like a few more details of this
next realtor the war will resent who is of

the distance by everything
you can look at all my life.

The price of land to go off but

you can you see the price collapse
began in two thousand and six.

So let's see an all points suggested
nothing since the beginning.

You can see the door is you
know some prime mortgage

delivers the rates going to
just the radio is that you can

see the jump in those even
darker into that of six.

So once again all one
suggest it doesn't fix

is the current in this market and
the Fed waits until September.

So this is just point
out the door is not just

the rate that there be kind of
at the at the focal point of

discussion today in years and we can see
the most of these little by the way did

the before I hear the article they marry
they go over one hundred seven years.

Daniel Sieberg number correct but
it's going to be an average of five years.

So if you look at this carefully
the crisis is right here.

That's the slow government or the Fed look

we have another wave coming and
we're not out of the woods.

So we're not completely out of
this should have the problem.

Yes of course now to melt
down expedite the process.

There is no way to better shield the risk
in the market than to look at this book.

Between an accident.

You're looking at and the recent
less ice in goal the referee but

by the way I actually don't
understand how much of the recent

less ice in the Treasury bond will
be since our definition that it's

already been trillion dollars and
we're going to be coming trillions.

Probably next year so I don't know how
much of resplendence they are the U.S.

Treasury bonds will be in the future but
right now.

Certainly the market perceive
them as the most responsible for

its kind of cash the company.

If you want to get into the for
it to really buy you know I got

their five year treasury bond against
the mine year venue Maybach and

you can see them under normal
conditions like thousand for

the France to be about
thirty basis points or

you know government agency government
gathers a government agency and

they're perceived to
be very very low risk.

Yes GROSS So you know Bill Gross
is guy the man you make is

really the handler you really are and they
are really helped by the government and so

therefore even you know
even in a terrible storm.

You will still be holding nothing and

the young relatives will
release words not apply.

And I did when he was his biggest
bond seems to be making money.

Well the rest of the market seems
to be I'm living my good otherwise.

So on the basis of this piece
you're relatively small difference.

The difference will be really in the next
implications well estate tax gatherers not

but if you look at this
over the last year.

It starts when you look single this fresh

stuff might mean once the Treasury
secretary said we're going to be a lot of

anyway the war started venting
main box was actually so

let's not or the grocery guys
already committed his resources

to bailing out this and with which

they have to be just again because of
the allow such an entity to go belly up.

Another four trillion in mortgage backed
up you know which backed securities.

But you can see the reason being so
nice priced and

so is a very serious issue
with the recent months crisis.

I can tell you this is not my kind of
personal experience that they have

your results and
some credit flow agreements.

The problem with this
is the liquidity issue.

Imagine my insurer bought

imagine that I still bought the world
precisely magic one of our back.

Numbers.

Burgess along and they want to purchase
an insurance against the government six

Lehman Brothers buying mortgage
collateralized debt obligation to pay

seven percent and what should they want
to love my insurance against a default.

So they can buy what you know we call
the tough but you know everybody

looks at stocks to go after them but
we don't hold here in this market.

We will go into something being in the
same credit default swap in other words

if you ban the bomb just before
the insurable swept them up for

cash and that's what this.

Well it's nothing.

The doctor essentially now happens in this

setting you find sure this
is basically not human.

The riff or what will happen in event
of a glass of this particular security.

Now if this is something made
by you can rest assured.

Once the Fannie Mae Bonds has rights and
liberties.

So he's the one who knew where the biggest
the longest bull the very rapidly.

We basically means tested and

he were insured this case I
will have to set aside more and

more liquidity to unite
myself in the event the bond

is devoted Well that means listed
when he will be available for

me to generate the other
guy's actions other line.

It's a liquidity gradually gradually.

Curtis.

But we are I think we are in
the capitalist economy.

I don't know coming from the Soviet Union.

I'm beginning to see the love of Brazil
to be a facade with what's going

on right now.

You know I go to bed thinking
we have private banks and

we got nation unless you go to Manhattan
you live right with your discoveries.

I make up.

No they're not I go to bed thinking
we have private mortgage market.

I think up north so
the American government.

Not surprisingly so nicely so I'm thinking
that maybe this example stimulus is

sort of this point and you know coming
to us is our original if you like but

also there's a big reason why the U.S.
assault.

I don't even issue she's on the rise
with excessive intervention and

the question here is you know are we hung
up about was this great speech almost

resembles me and
by the way my might be wrong.

Maybe you know maybe I'm the wrong.

You know what why don't
you know I'm an economist.

I'm sorry but in the winter.

You still think of it in this day imagine
there is a violent storm in a corner of

this room and fires and danger of it.

We need to boil it down.

I mean this is awful but
do we use them being ready for

you know the reason we sacrifice
the institutions that are so

important you know free
market capitalist economy.

Remember bailouts.

They love the bench and he said
the supper bigger financial crisis later

are you going to actually
sit behind the regulations.

Don't worry love.

What's the difference if I intentionally
has to go back to capitalism.

One of these days.

Maybe we should worry about maybe we're
being a woman too much of the cost.

This is another measure of spread
this is a little more exciting.

What makes this more exciting is bigger.

This is nothing me this is
not a commercial paper and

so many amazing now I'm
stealing from here.

This is private commercial paper and
you can see.

The spread starts to
increase in some work but

he says nothing younger to do this summer.

Now you know something mining
this like legals up to this now

realize our biggest crisis was that we're
building that's what our stock of life.

So this is kind of mining with but this is
again the difference between a responsible

relatively slow science of persons but we
see Africa and you can see how this market

is now your life when this person like
this when you're writing like this.

The language or
divide racial this response of the last

I'll give you one example of this is
another picture here you have the spread

of then you're missed and great diversity
mortgage backed securities gains love.

So again something that is reasonable and
low and she will be reading

roles sixty percent
rational sixty percent.

You probably I don't know if you remember
this or not A while back to trade a major

company in our in the speed of
our economy created over him.

We've spent a lot of it so those gloves
ledes glove the life debt obligations.

You're linkages in sold at about twenty
two or twenty four cents per dollar.

If I remember correctly.

That's the size of destruction.

Well into a wide range.

Just like this.

And so as the rate goes up the value
of the ounce of guns down and

so the risk of let's do a risk in the
market gives us the money to spend again

wish them to buy the way people say
the funny Ulysse look we're going to get

a five hundred trillion
dollars financial industry and

even drop one percent against
the government really really good.

But what do we really
that much in the U.S.

and China because probably jealous
of life to bring those fields.

Do we really come.

You know it's a simple question
we need to ask the director.

People say that this is
a crisis of one whole string

here this very moment like
it's long past Wall Street.

It's mainstream and not going on for
me to look at the G.D.P. numbers.

This is really depressing.

If you look at the way to first go from
the official numbers reported over

the last year and up and you can see they
look nice for point eight percent growth.

You know from two orders of those to
when they were sent in the last quarter.

The report we gave them.

That's great.

When they were sent by us complaining.

You know what you think the government
out of our growth ruffed percent.

Fine fine fine again
take out the government.

Let's take out the four and
say let's take out free and

look at what happens in
the government if you think

the trade out of the second quarter
numbers for this year a negative.

You recently expanded in the summer
of this year is because foreigners.

You know the reason they bailed us out
is because the dollar was weak but

in the process of bailing us our
economy of Europe you gotta get out of

the government to ban all folded into the
second thing that people are going to get

just don't know that their growth is point
three percent trust me I mean we're He's

now nine months out of win here and
I can assure you they just don't know

the Europeans already know that you're
being behaviors generally very exciting

in regards to inflation up
until two weeks ago and

by the way what they're standing on
the European Central Bank is wise in

an economy of so
many different countries that nearby such

they were got a nice to do anything to get
started this inflation is just in this

point in time during innovation doesn't
prove to me like the correct thing.

So but because of Japan three

decision is dependent on triggers the U.S.
government.

We buy less there or any other
reason we got is buy less from Japan

this whole concept of gobbling
the people were using the samples to me

to the government of the new
economy making the banks.

Thank you.

Bro you're too young to remember
that you know from the viewpoint

of the ninety nine.

Unfortunately I'm old enough
to know that some love.

That's a big might but
the point is if you remember.

Go People were saying in ninety seven.

Then he even you were not in no means and
two thousand dollars debt.

You were saying there isn't a government.

Now it's because the American economy
is about seven percent of G.D.P.

How is that couples get married.

We got a seventy percent
of consumption spending and

other stuff in your sense about
twenty percent of the globally.

If you want to see who
rules the lowly got to

go to your local skills you
need girls in your life.

They are the rulers of the global economy
some local help can we talk about.

So you can take down the tree.

You have taken grow already
you are already recession.

Now let's look at the midst of let's
look at the list you privately

go back to around three that are out
there is I think back outrageous because

we may not be able to count towards
borders in terms of DRI for much longer.

In fact I think within the rating
of go for it even this is for

the want of oil right now.

So you can find out for effect.

If you factor out the public sector.

We have to be considered workers
all induction in the private

sector domestic economic activity.

Well the session is there.

If you look at your limited market see
the bulk of the G.D.P. in the G.D.P.

gives you might.

So we really don't know what the G.D.P.
statistics are you a while for

example in two thousand and one we call
the new year of recession because after.

The third quarter that you're completed
we saw the statistics negative negative

negative first second third fourth in
two thousand new things change than

to negative buzz and negative suddenly
became a slowdown not a recession

the labor market statistics don't change.

This is a delicate surgery.

We can only do in the day when we do it.

Look at this.

You see this is not we're
springing into those amazing.

This is there will be upward
swing in two thousand and one or

the upswing in lengthy
ninety nine the labor market

bills of we are like the session and
if you believe otherwise you're nineteen.

If we continue with this look
this is job losses in the West.

This has been a single mom in
the last year you know over love

you know eight months when we
had a bus and you job growth.

I'll tell you this though U.S. economy
is very large about a hundred fifty four

million people believe we
need to never be stuck.

I'm going to be in the halls
of jobs in each month

just to keep up with
the growing up pollution

really want to do that in fact if you look
at our jumbles it's been accelerating.

But the reason to be bold decisions.

That's not good if you look
at municipal important legs

because you could argue on job creation
is not a collective will of the UN when

changes Well let's look
at the initial wings.

Usually for a living on a we should have
around three hundred dollars by each week.

It's normal to have
people between jobs for

Myriad forces you know
regional including the Kurds.

Well we're nicely jumping almost
five hundred thousand right now

we don't remember you can drink
more than forty right now

the last thing young
British Dutch does about.

Wait a minute that's something
negative about a little red

cent look at the labor market.

We're already in the recession we need
the recession since the beginning of this

is your problem since
December November of last year and

let me show you this kind of
reinforcing the stock market.

If you look at the stock market
over the last you know few months.

Another words from me and I'm here to
come and you can see you know much.

Well our stock markets disappoint
you know this is something

that's between two of them for the job.

Are we headed up the Chrysler.

We begin to twenty percent losses so this
is not even current and this is very bad.

You can see for example the New York
Stock Exchange your stock exchange has

endured to Brasilia during this
period a significant reduction.

If you look at your roles in the market
you can see of all these problems.

We want to go give you five trillion
we might actually buy out if

you get into the conservative Democrats
and her brother who are looking

at which is really a lot of
wealth is being annihilated.

And then we wonder you know
why why the novelty slowdown.

Let me summarize in Yemen if it were
the middle row of redemption here let me

tell you this the great comes
into an marvelous things.

I mean these are bronze in the middle
these new mechanisms that can I

go to let along.

I wake up and all of the sudden
investment firms are mixed.

OK great.

But let me Bof A step into
the next big the idea bus

enough security dollars break.

You know the government very low.

You know maybe he's an excellent
you know made it inside but

we also I think the bailout of Fannie Mae
Personally I think it was very well done.

The problem of anything
was there was no object to

help you solve the problem you don't
buy shares in your stock market.

Do you catch people who
are shareholders like you would die.

What's the benefit of that it would you
prefer Scott you buy the first stock and

inject the guests were lost in
the opening and let's go right quick.

So the big bird monkeys doing this.

I love.

There's nothing wrong with them but

they're not he's a firefighter
who goes after the fire.

It puts him down what I need more is
an emergency response the Gulf War

of the storm.

Why do you want to get evacuated.

I mean look at some of the didn't make
out of the great market or the life.

Not that someone tried the same bits and
pieces of it.

So that's why in my dipole
I kind of said look

this retroactive nature of the VAT
is going to be you know what.

Nature.

You know in my mind suggests I'm
very comfortable disliking prolong

when I was doing the work of commissions a
seizure of which is inventors early here.

You know in the end of last
year I was suggesting that this

should be set the sessions can usually
be shaped me seem to be clear for

decisions but different very big deal.

Let's step you had to be sure
the session by tonight you made what

you should decisions get along but
they're like going to and in days.

It's a painful experience and

so it's not just painful lesson he shaped
recession but the last dog left and

we had the two thousand two thousand and
one and so I come to be shaped recession.

Now I have my doubts and awfully wrong but
the problem with your not

getting is this is the problem with the
bed is this recession spend of you don't

themselves right now being given that
some set of tools place in place here.

Julia the dollars are being bombed into
the system will be because of political or

six point one percent of those unemployed
cannot possibly be the crisis we know

so that basically means we
might be passed to the point of

reminding the city where deception
has begun it will run its course.

No matter what we do and
that's an important point.

And so we have these trillions
of dollars coming in

because we will eventually
bring Bill longer in the bank.

Darling green you know but that doesn't
mean that you're going to have this done.

You know we should look at the done
earlier before the recession materialized

at this point the weapon.

Just think inspire him a little bit later.

So that's kind of a basic summary of
what you know I feel has happened here.

I've all just were taken so
much time but this is basically a scene

from Iowa

really very much for we're here we're not

here we're going to come here with you
know you know these new stuff you do

just as you need to know that you're going
to do this do you remember with a sense of

humanity when it's been staged
where he has you know if he had

been reserved for my three homes.

You know will be turned into thinking

you're going to learn
something from being here.

The member of the reasons you're doing so

well that I'm glad that
you guys showed up here.

Thank you for coming and
thank you for inviting me.

I'm going to try to tell my story
really quickly like separately.

Ten minutes max today.

And then basically my stories
are much more my top story and

I'm going to talk to you
about a couple things.

The four major five
major things decoupling

lenders from Hundred writing and
I have an hour and a half of the homes.

How more to mortgage backed securities.

What a sort of brainchild of investment
banks that has been the way to.

They priced the women and
created less risk or

what looks like less risk is a is
a is an interesting process and

another so how we had expectations
about rising housing prices.

We thought they were going to rise
forever and they immediately agreed

has has a role to play here and
then we have the good old fashioned market

correction which is exactly
what we are experiencing now.

Traditionally when we finance
when we financed home.

The way we did Joe Smith or Joe Plumber.

It's the basis of the saying we're down
to the local bank and talked up for

the local savings and loan and you talk to
the same for a long owner or president or

wherever manager and he said look I want
my house and they did the analysis of

his credit in everything you could imagine
for this but for this particular guy.

They knew the from Joe because
he'd He was in the community and

the game mortgage if he could qualify.

Did the underwriting and

the underwriting process was one
that was very very carefully done.

They did appraisals and very carefully.

Now the only problem with borders is
that they are dealing with in that form

in other words you can't sell because
Joe's mortgage is the sufficient to just

well don't get too excited about
those mortgages did this thing a lot

of the investment banks on Wall Street
created something really neat for us.

They created what amounted to
ways of making these mortgages

tradeable here and they created
mortgage backed securities and

here's the interesting thing about
these things are put in by team.

Yes there's more respect here and

what would happen if somebody
defaulted on the mortgage.

The guy you know the guy who owned
the mortgage backed you in the fifty you

would have to pay him first.

He'd lose his He'd lose his money
first before the theory if you got

really bad whole bunch of
people really and in the third

did the top two tiers with got to be
great again manifest triple again.

Investment quality.

So everybody in this brother
was buying things the market

looked at the investors loved them so
they were purchasing from everywhere.

Everybody did that you could imagine
they purchased that invested just to get

enough blood as these as these mortgage

backed securities became more prevalent
and more lucrative more more people

won and we got sloppy we got
sloppy in the underwriting

process get sloppy appraisal process and
there were just writing

loans like you would not believe
because there were so good things.

Lo and behold what happens is
that we go down to the word

here this of the of this fact here
doctor and they were triple B.

which is more easily ingress investigated
by our investment grade asset.

But you couldn't write them.

Nobody wanted them the market.

Didn't want.
Well they went through this whole tier

process again so that they literally
took an asset that was graded triple B.

and turned it into a AAA So

you could sell more and they sell more and

Bear Stearns and all of these guys
were were selling them and by.

OK So investors just had a good old
time doing this but everybody thought

that housing prices was going to continue
to rise and there was not going to be in

problems they were all you know what what
started to happen the housing crisis.

They started to fall.

They started to go down the things
that the thing that creates the value

in a mortgage backed security and a C.D.O.
which was that third tier they broke out

is the mortgages the tunnel that we need
more to start to when people start to fall

and that's something that's one of
the there now becomes a problem.

These things get each dreamily risky.

When he knew they would get risky
investors started to demand

higher returns because these
things became more risky and

you saw the pressure there always
sprayed skin all you're doing with this

if I can really see these things became
more risky investors want to more money.

Well all of sudden all these little one.

It's companies who was just who didn't
have any money really they were just

making mortgages and then sell them off
and they made you that same money and

make another more gets out they
didn't really have any money.

They were just making money
on this pretty very nice

deal as long as these things are P.C. but

it's not up to the to
the fall the price these

markets Gaz were making loans and
by the time they got to want it sold.

They didn't make enough money
to cover their lines of credit.

So the lines of credit dries
up this is the beginning of

the Swedes now there's no
there's no money to be had and

there was a hope to get just
the vehicles to do this kind of stuff to

buy these mortgage backed securities
is these things called Yes I

have the structural investment
vehicles where they borrow money.

You know.
Commercial paper market which is

a short term market and
bought boys back securities

welcomer most of them the market is very
short time you have to be of the refinance

weekly or
monthly When the greatest start to dry up.

No commercial paper and
I know there is there is no money.

You know here's what starts to happen.

All in the mortgage companies or
those of you get follows

losing losing value and let me give you
an example of something that happened.

Let's say for had a one hundred billion
dollars in assets and head to a billion

dollars in owner's equity which means
that their liabilities was about

ninety billion and
lots of poles then will be the only two

billion dollars in assets which means
dollars Therefore they have to cover.

Now you down to eight
billion dollars equity.

That's a problem because your leverage is
supposed to be tender was what ends up

happening with your life when you go
down there eight billion in equity and

on the second.

You've got to sell off.

Eighteen billion dollars of assets.

Everybody is trying to sell
these things at the same time.

This is the fires that everybody
suffers something nobody buys right

now we have this accounting
process call mark to market

where if I sell an asset for price gains.

Did you have to put it on your balance
sheet in your financials at that price

if that's the going price
which means now every

can offer me to sell my asset I get
a discount if it's hurting you.

Because now you have to put it in your
balance sheet and a lower price would.

The process starts to feed on itself.

Everybody has to say there's nobody but
there's no with me.

This is what happened to many
of the farms that they had

G.'s Bear Stearns Fannie Mae Valmont
is a free man.

All of this sort of thing is
happening in the marketplace.

Now the tricky part was that
our government came in and

start bailing people out and

as you see the size of our financial
markets thinking they can do really.

A lot in these bail outs.

They can spin the plan a little bit
instill confidence and that's kind of what

they were trying to do but
this process was a very very difficult one

because it's like an insurance company and
everybody getting sick at the same

by having an accident say
the problem is we can manage it.

Now.

Yes QUESTION Why is it
the day bailed out here.

So he had to live here.

Well we go back to this.

This is different for the market
to see what you call them credit

credit default swaps.

It's like an insurance policy you buy to
insure that your bomb is going to be good.

Well they are splurging back in May Lots
of these people have lots of these

C.D.'s that's why the Federal Reserve jump
in because they had to make sure that

these folks did not go bankrupt and
all of those C.D.'s were not good.

That was a problem.

So they've been trying to trouble.

These institutions to make sure
that we don't have to collapse.

Now do I think that we're going to hammer.

Absolutely.

The edges No I think the good with what's
actually going to happen is that over time

the markets will settle down and we.

Give it some stability as you
see vibrated a lot early on but

I think we'll get some stability but
we're going to have a recession and

we may already be in recession.

How deep the recession is going to be
it's anybody's guess you never can tell

about it but
the families are happy to get to work and

we get the opportunity to we need
to put in more regulations to keep

these markets like this next few years
from going on right now that's and

that's that's my story is get
over whole bunch of parts but

I am having my colleagues do their
story here we can open it up for

questions Manson's maybe
get more information.

Thanks room right.

I'm going to want to go.

He needs me to do this just this year for

the state of Oregon and
we're going to mean.

So it's going.

So well and nothing more than I
don't know if you're in there

and you're he's going to continue

with the bone companies and he's

going to you know I think it's going to
be with playing both of them with him but

I think you're going to mean anything.

I mean more than he's you know
going to go right think if

I'm going to pick my presentation shortage
because the previous two speakers covered

a lot of cover very well a lot of
the problems going on with this situation.

Some of the skeptics how how
do we get into this crisis.

What is the magnitude of the response and
in my judgment what is the future economic

implications of this crisis on the
financial markets and the real economy.

Come on how did we get here.

We had a real estate bubble we had
a huge run up in real estate prices

in a lot of areas of the US.

I'm originally from Florida.

You had a lot of markets over
a bike year period where real

estate prices grew up more
than twenty percent a year.

It's more fact it was than owning
a stock of people on multiple

homes they were buying houses
they were flipping it.

The following week and making lots of
money and moving on to the next one and

you probably see this going on all these
television shows that came out about on

H.D.T.V. etc The house full of beans and
reviling all these things so

we were caught up in
a real estate bubble and

a lot of areas of the country Florida
California Nevada D.C.'s address and

the worst thing you can have happened
with the bubble is easy credit.

It's like throwing gasoline on
the far back when house prices

started appreciating in
the early two thousand our Fed

had interest rates down the fed funds rate
down to one percent for a good while.

And so credit was very cheap as Professor
Dunn talked about lending standards

were very very poor
documents when house prices

in California cetera more than three times
your median incomes ten fifteen times or

your income and they're not
requiring you to present paystubs or

tax return journey things like that or
put any money down and

you just had this frenzy of buying this
relaxation of lending to hand this

easy credit just exacerbated things and
then

it's because Professor Dunn said you had
all these mortgage backed securities and

I'm from the of an economist with
central bank here who's headquarters and

all right down and banks in general
were making tons of money off

the securitization they would package
these mortgages based on risk pools and

then they would create the securities
that's been talked about and

then they would sell it to Pigeon
funds and insurance companies and

hedge funds and others and
while everyone was making money.

People were appearing on covers of
magazines people were beating Wall Street

analysts estimates everything was good
then the use the word debris debris

hit the fan last year as was talked
about these house prices just like

this if you throw a ball up it has to come
down and so house prices came down and

they die of all these neat new securities
these instruments of financial engineering

fell and you had this mark to market
accounting and companies were having to

write off this and you have hedge funds
who are short selling banks the cetera and

driving the price down and the banks have
capital requirements where they need to

raise capital to satisfy regulatory
standards the problem is they

own all this junk on their balance
sheet and credit markets froze up and

there wasn't any interbank lending
there was a lack of trust trust left

the system along with confidence and
some of these institutions froze up and so

we overlapped except for
this past week and

of these last several weekends we've
had that and Treasury and others

have these weekend meetings and have these
new things that appeared Monday morning.

So we've had all this interesting thing
worn on and so it's both excesses in

the real estate market excesses and
bacon and financial institutions and

the spreading of risk all these
different parties where our system is so

tied together and
this stuff really just hit the fan

in terms of the bailout the idea
was in a sense if you look

at this a lot of countries in Asia
who've got rich off petro dollars and

other things have their
sovereign wealth funds and

before last year they were in a sort quote
unquote bailing us out by buying stakes

and I've been a legend of other
large financial institutions.

So in a sense what this TARP this Troubled
Asset Relief Program which is the seven

hundred billion dollar bailout
is designed to do is to

purchase the securities whose
prices are so low now this far.

So prices in the government hold them on
their balance sheet until some of this

fear and lack of.

It's all comes back and hopefully the
government can sell these securities for

a price greater than
the price they paid for

man either make money for the taxpayer or
partially pay the taxpayer off.

We've also had him whenever they had one
of their meetings a decision to prop up

the nine of the largest
financial institutions

two hundred fifty billion of that seven
hundred billion dollars will be used

to purchase preferred shares in these
companies Bank of America J.P. Morgan is

that you're creating a even larger too
big big to fail problem for the future.

Right.
If you think we've

had too big developments now think about
this in the future because we'll have

a few large banks and with that
new new thing comes along and and

yet there is not the regulatory
framework layer to curtail

excessive risk taking them we'll have
to have a bigger bailout in the future.

This is not only
the US Gordon Brown in England and

the European Union now have also had their
own doubt about when you convert it to

dollars about two and a half trillion
dollars where they are taking stakes in

banks rollback of stock Barclays
a cetera so this isn't just the U.S.

Belle-Isle this is a global phenomenon or
these credit markets is these estimates

are you know linked because of the sharing
or is a good slicing and dicing and

selling them to all these hedge funds and
others that this is a global problem.

That's coming home to roost of what
economic implications are there.

I think of this crisis will continue
to spread to the real economy

as Dr Melnick showed the labor
statistics since January of this

year we've lost seven
hundred sixty thousand jobs.

That's not a lot of jobs if you
look historically at recessions of

go back to the last recession which was
technically from March two thousand and

one to November two thousand and
one you've got to remember that was

the jobless recovery where
Jobs continued to be lost.

Even though G.D.P. had recovered.

If you look at that that's about two and a
half trillion jobs of the twenty March of.

Only one to September of zero three when
we started seeing positive job growth and

so we may see another best case
scenario lose another half

five hundred thousand jobs as many as two
million more jobs in the real economy over

the next year or two out of G.D.P.
We're going to start to see the G.D.P.

numbers become technically
negative as preferred So

now it's that we haven't seen the two
quarters for economists in B.R.

stance of recession we have two
consecutive quarters of negative G.D.P.

growth the last quarter of last year was
revised downward to be a negative number

will but we haven't had two quarters Enter
of I think toward the end of this year and

maybe into next year we'll get
our first two technical orders or

we're going officially same this is
a recession that I don't have to tell you

you know other airplanes that it
definitely feels like a recession

that we're in right now in terms
of confidence in terms of spending

in terms of other things I think we'll see
more bank failures the f.d.i.c actually

has a list that accidentally got out
where they've identified more than

one hundred banks that
are seriously at risk.

They will say the names for obvious
reasons visit I'm going to create a bank

run and part of the policy was
designed to raise the F.B.I.

sea levels from one hundred thousand
to two hundred fifty thousand but

a lot of small businesses were scared and
started taking their money out because

with payroll a small business may have
more than two hundred fifty downs and

so now non-interest bearing accounts is
unlimited coverage by the F.B.I. see.

So if there is more banks to fail
when the F.B.I. sees on the hook.

So it's much more than the seven
hundred billion dollars if you count

the potential losses from
f.d.i.c transfers also be

the Fed has guaranteed in a sense
the commercial paper market.

Dr Melnyk was showing up at spreads busted
down the commercial paper market froze up

firms were unable and
still suburbs to some degree

are unable to get short term financing to
run their operations Ivy look at that.

How much would qualify as about one point
three trillion dollars in commercial paper

that would.

Mollified So

once again much bigger than seven hundred
billion dollars in terms of an adult.

Also this is going to vote out
of that states and cities right.

A slowing economy less tax revenues we
know our own state here has a huge budget

budget gap of Florida California all these
places they get very rich as property

prices went up and lots of property
taxes are now going to have trouble.

It's been announced a budget cuts for
the university system so

us do this may have to face higher
tuition rates because of this.

So it's all good and I'm going to spring
here I guess one silver lining is

commodity prices have started to come down
as you see at the pump your pain a lot.

Now you know we say three dollars.

Well you know we never thought that if
years ago that we would they would get

excited when gas was three dollars you
know but it's actually starting to come

down still relatively high with the start
you started starting to come down so

we should see if there is a global
slowdown in the high end that is

looking at for there to be a global
slowdown the forecast was for

five percent down to
globally three percent.

So it's not recession globally but
it is a slowdown.

I think you should see some pressure
off the pressure off commodity prices

the commodity prices should
continue to come down.

I would have to wait to see Friday.

What OPEC does in the end of that.

Still even if they were to cut
production I think the man has there

will be enough to mean destruction such
that we will get lower energy prices so

if there is a silver lining.

I guess is that you know they I would
say is you're probably going to see

another round of fiscal stimulus as we
start to see these negative growth numbers

I think Congress will
get their act together.

He spoke about that today
they will see in the future.

Another stimulus package.

How much when I'm not sure but I think
that will happen with these real numbers

start to get more negative Also you should
see a probably international summit

get together of Sarkozy
the French president and

others American paper
President Bush over the weekend.

So you should see some international or
international coronation to you to work.

On this problem.

A lot of people say well what do we
compare to the Great Depression.

So it's not going to
be a great depression.

You know if you look at the the real
statistics of the Great Depression person

out there picked the Great Depression
at twenty five percent unemployment

rate right.

Are at a point right.

Since the beginning of the year has
increased one point two percent

to six point one percent as was shown or

less that's about a fourth
of the Great Depression.

So we're nowhere near the greatest
Great Depression strainers richer G.D.P.

for twenty nine to thirty three
collapsed thirty seven percent.

It took until nine hundred thirty seven
to get back where it was before the great

stock market crash of
nine hundred twenty nine.

So in terms a real numbers I think
the real numbers will start to look

worse because of all these
policy ordinations and

when more more confidence
comes back in the market.

We will see bad numbers but

eventually we will get out of
this how long will it take.

I'm not for sure that it is not something
that's going to happen overnight as we

start to see these effects of financial
markets appear in the real economy.

You know we will see it with numbers but
nowhere near and so

I think personally it's
something to keep in mind.

Bernanke is a scholar on
the Great Depression.

One of the reasons I would speculate
personally this is just my own opinion

is one of the reasons that he has done all

this stuff is he doesn't want another
Great Depression to happen on his watch.

So we've had all these tools in place.

We've had all this medicine
being injected into patients and

just like the medicine we take you know we
feel bad and as it merely make as well.

It takes time to the medicine to work and

that's what's going to have to happen
Piers for the time to pass for

things to start to get better and
hopefully in the future

we'll have a better regulatory framework
because I think more than any day of

what was at fault here is regulatory
supervision a lack of lack thereof.

You want to provide good regulation but
not take away the incentive for

risk taking.

But you want to try to prevent
something like this from happening

in the future by the way historically
this isn't something new.

You can go back to look at bubbles
throughout history that happened as

S N L on their real estate problems back
then all the way back to did the fall.

Her calculus right God made money and put
his money into something that was called

the South Sea Bubble and he made
a famous statement I could calculate

the motions of planets but not the Madness
of Crowds right because he loves us.

But he got it to that level so
bubbles are nothing new.

Right.
Is something we have something we

experience it pops up with
we then have show trials and

politicians come in and try to fix things.

Deregulation.

They just move out real commie candidates
here rates for a little little bit of time

then things get better be damn right if
you look at the history of the US between

one thousand nine hundred and two thousand
Real G.D.P. per capita adjusted for

inflation were seven times were up there
as they were in one thousand nine hundred

right if you look at all those times
that I've mentioned the Great Depression

the recession of the early eighties
etc on this long term graph.

It looks like little blips on
the screen while you're in and

you feel the pain right before people
had panels like this in the past.

Right.
It's just something we have to get through

and only time will make things better and
hopefully these policy tools as well.

To the right

from wrong for yourself is going

to be not going to be
the best there will be in

years after you are you sure it
really starts going around her.

You can you have been doing everything

right in the European Masters era

when she's from you know in
America from the American.

I am sure he will.

I mean you know you hear the news
from didn't really hear him.

So we have a I'm not an economist but
I'd love to play one on T.V..

If given the chance to say so
when I was thinking about this

talk I want to answer the questions
where are we headed and

what should you guys do about
it in answer to your question.

It just occurs to me the reason I wind
up as a presenter of the international

affairs as opposed to containment
visits was a recession.

I graduated to the recession of
the ninety's so I am sitting

where you guys were or I was sitting where
you guys are economically speaking couple

decades ago and I want to pick up on
some of the points of the last speaker.

I'm going to be brave and
predict in the future look for

that over the next decade and I'm going to
predict that average economic growth of

the United States economy will be about
three point two percent and everybody.

I see the stock market's average
growth of the next ten years.

It's somewhere in
the neighborhood of ten percent.

Now how can I make these predictions so
goodly Well if you go back for the last

century give or take how much the data is
you plot a lot of relationship of G.D.P.

growth across time you see a pretty
straight line of America the American

growing up there because a growing
at three point two percent a year.

Some years or better than others and
we're going to be worse here this year but

in the long run we average about
to trend about three point

two percent profit we'll have
that stock market same situation.

There's a nice huge blip in
the late twenty's ball buyer but

down in twenty nine thirty three and then
it just resumes that trend of eight to

eleven percent depending
upon which years you pick.

So all this stuff is going to recover.

One thing I have a size of my
international political Going to class is

regardless of what happens.

It's all been done before the textbook
on what we've done not a textbook

of a history book of what we're doing.

If you don't want to see the word but
doing.

Check out a book called manias panics and
crashes by Charles can the burger

was written around twenty
years ago maybe thirty and

it paints out the broad brush strokes of
exactly what we're going to canter it.

You can go back to I think it's
seventeen thirty six speculum.

Bubbles in the Madness of Crowds written
by Charles McCain Google you get

the proper site so many of the reasons
he talks about speculative bulls and

about being an paints and
broad brush actually exactly.

We're going to hear now.

So none of this is new.

It's all in the history books and

you can get some sanity back by
studying what happened in history.

So one thing we're hearing a lot now
is going to be the Great Depression.

You know watch out for
the Great Depression.

So let's compare There's there's
going to the worst scenario.

Let's compare this with
the Great Depression and

I can tell you with fair contest
there are one hundred percent.

I'll just beginning by saying Mark Twain
had a famous statement where he said.

History does not repeat itself but
it does rhyme.

So it's going to be its own beast but
let's take a look at the great person

depression as that worst case scenario
started out with a speculative bubble

that turned into recession that
turn to a deep deep depression and

the question is why did he do that.

Well because of all sorts of policy
mistakes they increased taxes

raise tariffs raised
real interest rates and

vetoed all sorts of welfare
programs into the recession.

So why do you do these things.

Hoover raised the marginal tax rate
from around twenty five percent

to around sixty five percent
going into the recession.

Why.

Well he was an electoral campaign against
the Roosevelt against Roosevelt and

Roosevelt campaign was nailing him for
not balancing the budget.

So he increased tax rate and that was back
in the recession we increased tariffs

on tens of thousands of products
sixty eighty percent and

accurate in a nine hundred thirty.

Well you kill off trade that's
another source of economic growth.

OK I want to know that no these cases
we are not you know we are still we

were talking about odd feeling
better with environmental and

labor laws with trade treaties but no one
is seriously talking about backing away

from free trade or raising tears
as far as the income tax rate.

My goodness.

The worst the worst of the Avengers and
I'm an independent so

I don't care about if I'm
picking parties or can't.

But the worst platform is they want
to raise the marginal tax rate

from thirty six percent
to thirty nine percent.

OK.

Compare that to twenty five
percent to sixty five percent.

So it's not that bad real interest
rates went up nominal history in trees

came down but real interest rates went up
during her ministrations why they were

having to defend the dollar because they
want to close to the gold standard we show

no inclination of defending the dollar
these days and haven't for a decade.

OK vetoed suggested
welfare policies because

he believed and it did doctor the nine
hundred twenty six on a mission and

political leaders believe that government
should be a junior partner to business and

the relationship between government and
individual should go through business.

So you shouldn't be handing out welfare
checks to people you should be giving

loans to businesses and in the employing
people and that's how it'll work.

Everything should go through business
remember Calvin Coolidge nine hundred

twenty five the business of America
is business that was the attitude.

We know now the government has a role
in correcting market failures.

So things the government is and
is is on the job.

It's not be perfect or
to be a lot of mistakes but

it's not going to be the Great Depression.

The interesting part when you
talk about this during the Q.

and A would probably be the sort of
up bizarre unpredictable effects.

There are a lot of programs
put in place by Roosevelt

that were supposed to last as stopgaps and
wound up continuing today.

One fine example is they started
there is a pretty trying to

collapse in farm prices.

So the government was like like
the mortgage out of all jobs don't but

they're always bad mortgage in
front of my mom's mortgage debt.

Well they're in was weak.

So the government started buying
up all this week at one point

thirty one the government
owed something like a third

of the entire We supplied United States
for which there was no market.

So their version of the TARP for

we went bankrupt because every all
the farmers are just producing what

we need to sell right to the government
rather than the market so they scratch

their head in sort of committed Lee
said well rather than paying them to.

Produce we must pay them to destroy we so

they start paying farmers to plough wanted
their crops and we continue to do so

to this day and there are other programs
that that are bad for a lot some good

some bad to get the idea f.d.i.c is
the depression era program also read.

So they'll be immense was interesting
is that he is the politics behind

it the different interest groups are each
going to get their own little piece of

the pie and talk about factoring it your
way are good news there is more good news.

I can say so is there.

If you look back especially in a place
like George attack the Depression was one

of the most technologically from
full errors in American history.

We had tremendous innovation
internals we saw Lucite.

Tough line nylon
revolutionary improvements

in the internal combustion engine if
you compare automobile engines in

the twenty's with those
coming in the thirty's and

forty's huge improvements for what was
the cutting edge technology of its day

we saw the advent of the D C three
airplane which if you talk to your got

your friends over aeronautical engineers
revolutionized air transportation.

It was such a major technological change.

We saw the spread of telephone and

electric utilities we saw
the intensity of television.

We saw these huge project the Hoover Dam
the Golden Gate Bridge the Lincoln Tunnel

all Depression era projects.

Now these are all going to cheapens Now
what do they demand they demand it.

People with real skills real
engineering skills accounting

skills to to sticks math language
is all analytical skills.

So the message to you guys
is to get good skills.

If you get him it's just
sort of a resume filler and

it doesn't really solve anyone's problems.

It's not going to help you on the whole
it I've got a political science degree.

You know.

So if I lose my job and if I what wealth
gets wiped out because the stock market

falls on I stupidly sell at the bottom and
I don't have nothing.

I'm kind of in trouble if I'm
a doctor I could lose funding.

You're still going to need.

I mean if you're going to
pay me to keep you alive.

How real skills that solve
other people's problems

will be fine because there
will be demand for you.

Regardless of what happens
to these pieces of paper.

The problem for you guys especially
if you're junior senior is recessions

are led first by declines in consumer
spending then business spending.

So we keep an eye on the news and see
where we are on stage then we bought sort

of bottom out and then as we recover
the labor market continues on behind it.

So the labor market is not going to
improve until after the economy has

come back and
you guys are going into that labor market.

So expect rough stuff I did
this with ninety ninety one to

the Bush recession and he was miserable.

I said out of resumes got nothing back.

I took it very personally.

Which is ridiculous is just the market now
doing what I did which was sit in my old

Read house and watch T.V.

go out and you this is an opportunity
to build up your skill sets.

If you can you know in turn add
at a business of choice for

free if you cannot but you have any other
choice in this and if you're in this

setting and do good on the condition that
you do so it's going to be real skills and

experience that's going
to build your resume.

If you have the financial capability
a great time to travel travel into that

other country and learn that your language
especially if it's in the Third World.

You know how much money you can save
by living in the third world and learn

a language and get experience abroad and
you bring that georgia tech background.

So when you meet problems all over say and
in development where N.G.O.s are there and

to be involuntary for them.

Wow you're building your resume.

Worse comes to worse and back to graduate
school but all these things in addition to

skills be at the top your class
every once in a student very few

people want the students people in higher
C. students if they have to sort of people

been I don't tell that to my students in
class because you know I get yelled at.

But no one's going to review me here so

I mean we are we're far be
the best you will be fine.

That's you for

room for an OK so

now the first of all visitors business

everything in between
the lines that everybody

understand you know what this
is the more you just kind of

get his brain just ask questions here and

there you graduate here to be.

Have you know how to drop me
how was this ready to very well

assisted I'm thinking right
here like I'm going to probably

question your program

by sharing your money

while just

really very much like

my own

you know what is one of the reasons
is they need so much capital

actually it's idea that you would have one
or a city but the problem is there's so

much shortage of capital they need so much
money actually and that's what the reason

is two hundred fifty billion dollars is
going to be allocated among these nine

banks we should see some smaller banks
also apply for this program as well.

They need so much money and
time is of the essence.

That's one of the reasons the government
has stepped into the shares and

that they're not going to hold up forever.

The idea.

Roughly is like two to three years we
don't have any definite timelines or

anything like that now but that they would
inject this capital non-voting shares

they can vote on anything here it looks
like that they're going to control it.

It's actually a compensation
etc If you take money from this

you have to satisfy certain
requirements because give me an example

take forward who headed Lehman Brothers
the one the government did say

actually over the last few years made
over four hundred million dollars right.

Like I said this is this mortgage
backed up a super look at the write any

of the clip and so the government's going
to invest in it because they need so

much capital and they need to
see targets of the essence and

they're going to control things so
in terms of compensation and

things banks like that
it's not just the U.S.

Also Britain to kill each other ships and
rollback of Scotland Barclays a cetera.

Germany with high per
second largest lender.

So it's also in Europe as well where
they're taking shares of this because time

is of the essence it's hard to coordinate
all these people wanting to put C.D.'s and

things like that the other issue.

The other issue just
that you have to realize

a lot of this a lot of these programs
is just rebuilding confidence.

They're trying to stabilize the system.

So if the governments they are they're
taking they they're taking position

in these companies would prefer chairs and
that sort of thing.

What's really going on is that everybody
feels like something good is going to

happen at least we have a backstop.

So a lot of it is for
building confidence and

there's also another minor issue
with regard to the CD account.

You're mentioning here.

The amount of cash in the system is not
controlled by you and I it's controlled by

the Fed The Fed literally sets the target
for money supply there which means

the amount of cash that's now there is
controlled by the central bank anyway and

if the CD account rates were
to increase all of a sudden

we should because the banks profit margins
don't want to justify that right now but

if they were doing.

Please.
What will happen is we will be called.

Rate our wealth holdings away from
empty N M four and into amp to

induct to create more sale of assets and
do you know dream finance like for

example I may hold all bunched up a four
percent rate of return right now.

And if you offer me a five percent.

She did account I will gladly liquidate
the bunch of good money here but

that liquidation of the bonds is what you
want to prevent me from doing anyway so

and you know the very queer
nation problem as well.

Exist a whole of the most pessimistic
person on this panel because

I was personally motivated by your station
in the great tradition you look good.

I feel motivated but somehow now you
know I've seen crises before and

I know stock markets recover enough that
never did I remember seeing Nasdaq at

five thousand fifty points in March of two
thousand I was sitting and watching it in

front of my computer screen and
I was and the time trading options sand.

I was looking at this and
thinking wow this is great.

Nasdaq dropped to fourteen hundred then we

did recover a little but
the response back today.

How many years.

Do I have to wait the motor to see
very calm very if I mean the stock

market as a whole grows depending on the
years you pick eight eleven percent a year

if you take a subsector the Nasdaq
is heavily technology right.

You're not diversified so
that's going to stick skill.

So they're not diversified
in the region which is.

Well your question is incredibly
complicated Not to mention the fact that

if I knew where the next
bubble were going to form.

I wouldn't be sitting here right now I'd
be in front of my computer screen and

trying to predict the bubble.

So right first of all let
me kind of address it.

Bit by bit.

I do not know if the current decline
in the sound Johnson dust will index

is similar to the Nasdaq bubble I
think the reasons that are guiding us

into the collapse right
now are very different.

I firmly believe in the notion of the
stock market behavior is a random walk and

therefore no to your you can
possibly describe it and

they used to follow in justification to do
that in one thousand nine hundred eighty.

We saw a collapse of the long term capital
venture which was based on the notion of

black shorts equation and
vacuum cleaner in the market.

One of the founders of the equation was
in charge of the company vacuum cleaning

the option market proved to be a very
disaster skeery random shots random

business track theory applies random
shocks occur and it's very difficult to

predict when they will come and
how they will affect the market and

I'm not sure if there is a parallel
on the way to Heroes think you

know we remember the joke that we used to
have a bubble Nasdaq the sardine joke.

I don't know if you know this or
not how things don't have value and yet

as long as people believe they have value
divide them and say cities old they

create value for value for others until
somebody actually opens those surges and

realizes they're rotten they have no value
and then all of a sudden it's a collapse

and this is what happened
with the Nasdaq back then.

I'm not sure because
the government did different

methods to combat Nasdaq disaster.

The Nasdaq disaster was
smaller in scale disaster.

So I'm not sure if what we have now is
the beginning of a similar problem.

I might be more inclined to actually agree
with a much more optimistic view and

that the Dow has a better future purely.

Because the government will do
something but in terms of the bubbles

though what you have basically money
follows the rate of return and

the reason we have all these bubbles
right now forming and we have

four main bubbles by the way if you
believe in the optimistic point of view.

OK Which you was very soundly presented
in the history is on indeed on the side

you know I almost hate to say
that I'm the best finish here but

the history is not on my side.

OK And it is very difficult
to fight against history.

OK So and that is very unfortunate
where I find myself right now.

You know entrenched in defeat in
fighting history but in my defense.

What we've seen is this money hitch
funds are very rapidly moving funds

right now and what you have is
a movement of funds for safety.

The whole Bible in oil
was in part to real.

In part very real but in part it
was imaginary We were looking for

safety and so the price of oil
went up a series a lot of that.

So it wasn't a real demand driving it.

It was actually the secondary
fault of factors.

I'm almost I don't like agreeing
with the OPEC member Sunday S.

but that was their comment all along
during this run up in the price and

in that sense of retrospect
Bhatia lead they are correct.

Now you see another bubble
already in front of you

if you believe in the optimistic scenario
guess where the Treasury bonds will be

the yield of a thirty year Treasury
right now is four point two percent.

Wow that is only sustainable.

If we expect a real deep recession.

You know there were some expect
Seaview unemployment for

a long environment to flow rates and no
contraction in monetary policy in sight.

If you believe that the stock
market will rebound.

If you believe that the confidence
to investors will return.

That's NOT FOUND IT DOES NOT FROM THE TOP.

If you look at the gold market
the gold market suggests.

The opposite picture.

Inflation is indeed coming eight
hundred dollar gold price well gold

was two hundred in two thousand.

So where is the logic in debt and so

we basically have people
gamble on different things.

What's going to happen.

I can't close my eyes and
predict the future.

Only God can do that.

OK When my father went to college
professor used to have a joke about this

you know the best to you guys can do in
the class to see the best I can do is A B.

Only God knows for
a name a father's a musician.

He went to Leningrad
consist a conservatory his

teacher was one of the students of Chico
ski from here from Bay back so but

the problem is I can't
predict the future but

it seems to me the fire sale that has
begun to C.B.S. And what's happened since

the way I look at this once the real
economy starts to produce negative growth.

It will start to change see it

at the end of this month
under thirty five this month.

We'll have the G.D.P.
numbers for the first quarter.

If those numbers come out to be greater
than what the market is built to expect

and the market is expectancy of you
negative growth probably around one

percent negative.

You've the numbers come out about
that the market me stabilized and

then all these medications will
indeed be just a depressant drugs but

I put on my first light you know but
the Digital three declines for you.

There is a more negative picture for the
leading indicators and we know the picture

is not looking bright then we don't know
how much foundation is going to be behind

the stock market the Dow Jones Industrial
Index always will be three cover because

whatever field in company there is no kick
it out you can do to place the index.

So but that doesn't mean that
the stock market will rapidly recover.

I do not know.

So I can tell you if this is the collapse.

I saw the Dow Jones Industrial
reach seven thousand nine hundred

in an intraday trade.

You know got dangerous.

That is very dangerous because
it basically suggested the fall.

Fire sale has already taken place and

the only thing that stopped
it is a massive intervention.

The housing market is dead be
underlying foundation of the problem.

But we don't have a solution to the
housing market the solution to the housing

market is outright economic
recovery could but wait a minute.

The problem is we have wealth effect

a negative wealth effect due
to markets working against us.

And they are doing so.

C B really greatly right now
the Great Depression good knowledge of

the Great Depression is great and
I love it but during the Great Depression.

We depended on credit less we were a much
less penetrated to Qana be a duck point.

So I don't know I think you know I call

you know there is no bubble Foreman
right now but if I were to predict one.

If you believe up to into
optimism the treasury bonds.

If you believe into
the pessimistic view gold sell.

But again who knows
which view dominates and

in terms of connecting this stock
market behavior to the Nasdaq behavior.

I think it's correct to point out that
Nasdaq is indeed not a neighbor See fight.

It's a broad in this but it's not they
were people as opposed to the Dow Jones or

you know Wilshire in the sea.

So I'm not sure if they get will
follow the same behavior Secondly

the crises get underlined prices we
have today is different from the one we

had in two thousand we were able to solve
the two thousand crisis very quickly.

The Fed lowered interest rate by full
percentage point just in January of DOT

year and
the beginning of the onset of the crisis.

Here in the Fed is different.

Bernanke is indeed an expert on
the Great Depression that is true but

as I said in my presentation.

I'm not sure why he waited
the house because he

allowed the housing market to collapse.

Basically he allowed to go last year
of the trap was there he has the trap

was set perhaps even by Alan Greenspan
although I greatly respect you Michael.

Russell even imagine criticizing
him in front of you guys.

But the trap of brick I've said but

it would have been defused at least
both smaller degree of damage and

all the data you saw that yourself
pointed out to death in the first half

of two thousand and seven was the crack
used to place your following the crisis.

So yes we have all these acts on policy
that's why I don't believe the crisis will

the recession will last for
longer than a year or two.

It's not going to be a prolonged
prolonged experience but

it will be painful enough to change
the unemployment outlook for a long time.

Unemployment is indeed
a lagging indicator.

That's true but the G.D.P.

Unfortunately we don't even know until
a while passes because it's still you know

but to answer a question not show
my simple answer is I don't know

what it was the world interest rate

of course was far worse as
with most of the world.

Well if you like I can try and answer
that again in a nutshell say I don't know

because the reason being this recession by
itself will bring down the interest rates

throughout the planet the central
banks of other countries will begin

actively to pump money into their
system and they already started that

the Russian Central Bank made
an enormous commitment for example.

And right now it has the ability to
do that because of the oil money

the petroleum money.

The Chinese central bank
reversed its course.

Earlier this year.

D were aiming to fight inflation they did
things that were up to the Indians and

the Chinese did things that
were unprecedented for

the US standard they knew they increased
the reserve requirements ratio things that

we in the last never touch because
it's like a major canon for.

Higher in that you know a small target but
that was because of their

currency policies in fact the Chinese have
a certain currency exchange rate history

which cost up to Caf to happen now
in terms of where we are today

the slowdown is global a little slow
down brings down the interest rates but

the problem is the central banks will
be pumping money into the system so

we really don't know how the interest
rate will be affected by

that monster recovery
resumes in the system.

What notice how much should we do
we build into the system how much

will be able to take out but have someone
from the banking sector will tell you

more uncle quickly you
can respond to that.

Yeah I have similar opinions because some
countries are experiencing it growth

right now and inflationary pressures
like it like he was saying China and

India were trying to fight
inflation before they

got the policy that they did
actually say you have to look at it.

Of a country by country basis in a country
with problems like ours of the US

obviously parts of Europe a sector that
Asia's cotton it's somewhat immune

to these real estate prices
which have a growing economy but

you think China will
continue to slow down.

It's all relative.

They're going from like eleven
percent to eight or nine percent.

So they're still be growing very rapidly.

So I think you want to look at it.

Region by region basis
because all the world is

a tangle with this they are going
to buy credit markets right so.

So there will be some disruptions but
not nearly what we would good good

through Europe and I could just add
one more thing the linkage is actually

quite interesting because for example
the Russian stock market collapsed.

You know on one day the American
market goes down four percent

ours drops fifty percent.

OK that's pretty bad but then people
ignore the fact that our markets and

you know the value of Russian stock
market transactions on a daily basis

an average is about thirty forty
million dollars considerably smaller

than the American market doing something
in about probably ten minutes or

so but there is an interesting catch.

Why did our market collapse.

Yes we have a real
estate bubble in Russia.

Probably I would think the real
estate in Moscow is about.

That's coming up from something
on the order of I want to say

by twenty thirty dollars per square
meter in one thousand nine hundred

to about twenty thousand
dollars per square meter today.

So there's been
a significant appreciation.

And so

we cover a significant price of course you
know you can only argue a bubble forms.

If the true valuation is unsupported by
what's going on in the economy the real

estate values are supported by what
incomes population density incomes and

official dollars are helping
support that in Russia but

here is a blink it's not it's
actually quite interesting.

What caused the Russian
stock market to drop was not

that the Americans are falling apart and
doubt it has a contagious effect.

You know if anything the price of
well is still as you correctly

without you know we're happy two or
three dollar gasoline but

these days we're happy to see
it to be dollar gasoline.

I mean just just how depressing the state
of affairs has been you know if we

welcome three dollar gasoline we should
be welcoming a dollar gasoline but

that is not in the books so but
the problem is hedge funds that have

significant positions in the developing
countries especially in the BRIC

economies of scale Russia India China
when they started to see all the good

the increase on the margin acquaintance
requirements here in the States.

What do they do they cash their
positions wherever they have value and

good they get out and some of the recent
Our stock market in Russia decided to do

this is because all these hedge funds
decided to drop cash from Russia and

all of a sudden we have capital flight
from Russian capital flight from Russia

would spread around
the Russian banking system.

This is a contagious effect.

Now if Russia has enough
money to build the banks out

everything is great if it doesn't.

We're Iceland.

And the currency collapses debt balloons.

Luckily so far.

Russia has enough reserves to survive and
so does China and

I don't know about India.

But certainly we are kind
of a global economy.

So the B.P. model you know the balance
of payments model within the I.M.F.

eleven model probably called I
don't know I guess enough but

not the entire Windsor
listen it was right there.

It was just we just passed.

You guys thank you.

Our government was a little out
of the door saying you know.