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Charlie Munger interview in 2009 — Transcript

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0:00[Music]
0:04Stanford University
0:09[Music]
0:25Charlie you've often complained that
0:28accountants are the root of much evil
0:31and also even more folly you know as we
0:35look at the current situation that we
0:36have in our financial markets how much
0:39are the responsibilities would you lay
0:40at the feet of the accountant
0:41professional well here I'm a voice in
0:48the wilderness but I would argue that a
0:52majority of the horrors we faced would
0:57not have happened if the accounting
1:00profession were organized properly in
1:04other words they have a position from
1:09which if they behaved intelligently
1:12incorrectly they could prevent a huge
1:16amount of all what's wrong with the
1:18system and they fail utterly time after
1:22time after time and they are way too
1:27liberal and providing the kind of
1:31accounting the financial promoters want
1:36so in other words they've sold out and
1:39they do not even realize that they sold
1:44out which of course is a common human
1:45psychological phenomenon you-you-you
1:51squelch by denial so what do I do
1:54whether if you recognize would make you
1:56think L of yourself or or would
1:58interfere with your income and so on a
2:00subconscious level without any
2:04malevolence the accounting profession
2:07are behaving in a way that makes well
2:13compared to what could reasonably be
2:15with intelligence of Honor the
2:20accounting profession is a sewer and
2:23would you give an example could you give
2:25an example of a particular accounting
2:27principle or practice that you think
2:29they well derivative trading with
2:31mark-to-market accounting which
2:34degenerates into mark to model
2:38two firms make a big derivative trade
2:40and it comes on both sides show a large
2:44profit like same trade and they can't
2:47both be right and it can't both be right
2:49and both of them following the rules to
2:51the tea yes and nobody's even bothered
2:54by the fact that it's happening right it
2:56violates the most elemental principles
3:00of common sense and the reason they do
3:02it is there's a demand for it from the
3:05financial promoters
3:06I remember when interest rates whap
3:10accounting was done on a different and
3:14more conservative basis and the morgan
3:16bank was the last holdout and finally
3:20they couldn't hold their traders and
3:22report the same kind of income other
3:25people reported and so they threw out
3:26the sound accounting and went to the
3:28phony accounting and they they did it
3:33was kind of funny at the time was many
3:34decades ago and so some of the people
3:38were kind of reluctant but they said we
3:39just have to go with the flow it was a
3:42huge mistake is this a problem that can
3:44be fixed with the accounting profession
3:46with the accounting process or something
3:48that well I think you're talking about a
3:51problem rooted so deeply in human nature
3:55that I don't think you'll live long
3:59enough to see it gets 20 percent fixed
4:05in the direction it should go and your
4:08remaining lifetime you'll be a fortunate
4:10man so how do we get there so let's
4:12assume that we would actually want to
4:14accomplish something I don't know how to
4:15transform all human life in the world
4:17we're just talking about the Elliott
4:19early well but accounting is a big
4:22subject and they're huge forces employee
4:27and the entire momentum of existing
4:33thinking and existing custom is in a
4:38direction which allows these terrible
4:41Follies to happen and the terrible
4:44follies have terrible consequences but
4:49we're in now
4:51is and it's triggering circumstances
4:58it's worse than I am that's ever
5:00happened
5:01fortunately Great Depression yes not no
5:03we're not the economy hasn't contracted
5:05as much as the Great Depression but the
5:08malfeasance and silliness it was the
5:13triggering event was way greater so the
5:15short or widespread in the 20s a tiny
5:19little class of people were our
5:20financial promoters and a tiny little
5:22class of people were the people of
5:24bought securities this now is deep into
5:30the whole culture it was way more
5:33extreme so if sin and folly get punished
5:37we're in for a hell of a punishment so
5:39it's it's a more pervasive problem and
5:41it's also a more global problem yes and
5:44do you see a chance that it does reach
5:46to a level a closer to the Great
5:48Depression how bad does this get charlie
5:50well nobody knows that because we've
5:55never done this before it's we have a
6:02bigger credit bubble we have worse
6:04follies more interconnected global
6:08system if we responded to this one the
6:14way people responded to the 30s in my
6:16judgment it would be way worse and we
6:19would have a catastrophe and that you
6:21can argue gave us Hitler in World War
6:23two a lot of things that we didn't need
6:28it was not getting your financial
6:38integrity and the integrity of your
6:39accounting right has enormous
6:42implications for the future of mankind
6:45and and yet very few people realize how
6:52much we screwed up very few people
6:54realize even in leading law school and
6:57tools and business schools how Enron
7:00never could have happened if they hadn't
7:03changed the account account
7:05rules and and what we have now is just a
7:09bigger widespread and you know I like I
7:14like telling my students that no
7:15civilization is greater than its
7:17plumbing and accounting is really the
7:20plumbing of the financial system and to
7:22the extent that that the plumbing can't
7:25serve the function the whole the whole
7:28edifice really in many situations is not
7:33going to work the way that it's intended
7:36idiot bubbles blessed blessed by
7:38accountants are terrible for the whole
7:45civilization it would be much better if
7:50we didn't have these idiot bubbles or at
7:52least if they were dampened very
7:54considerably but people use the idiom
8:00nobody wants to take the punchbowl away
8:02when everybody's having a good time at
8:04the party but that's the accountants job
8:07and that's the central bankers job and
8:09you're never popular I don't have a
8:10business's job and the people who do it
8:12tend to be despised and hated and not a
8:16lot of people are willing to be despised
8:19and hated and ruin their
8:20fellow-creatures parties etc cetera the
8:26main thing you have to realize is done
8:30Franklin's basic idea that an ounce of
8:33prevention is worth a pound of cure
8:37that's understated amounts of
8:40revisionist sometimes worth a ton of
8:43cure and your only real chance was not
8:48to allow it to happen when they put in
8:51the options exchanges there was like one
8:55letter saying we shouldn't do this and
8:58Warren Buffett wrote it and he just said
9:01this is not doing any good for the wider
9:03civilization we don't need this you know
9:06she was all alone and and he was totally
9:10right when we separated banking from
9:14Investment Banking on the theory that
9:17investment
9:18banking had a natural proclivity to get
9:21a fair amount of knavery and folly into
9:23it and that we wanted to protect our
9:25banks from the contagion that was a good
9:28idea when we created margin rules that
9:33discouraged heavy borrowing against
9:35securities just to make more money when
9:38the securities went up in value that was
9:41a good idea when they wanted to make the
9:51market system a better gambling casino
9:55as a side function of unnecessary
10:03capital market with vast profits for the
10:07people who were helpers in the trade the
10:10market makers and the brokers and so on
10:16that created a big constituency in
10:18favour of a dumb change and there was
10:22little Warren Buffett saying this is a
10:24dumb idea we're not controlling margins
10:29if you're having option exchanges and
10:31get unlimited leverage whatever the law
10:33automatically with an option exchange of
10:35course and then the derivative trading
10:39which made the options exchange look
10:41like a benign oh yeah that and so just
10:46one after another we made these insane
10:49departures from the corrective devices
10:54we put in the last time we had a big
10:57trouble and that really worked quite
10:59well the investment banks of yore when
11:03the melons were running first Boston and
11:05Morgan Stanley was a very conservative
11:07place chastened by the 30s investment
11:11banks were partnerships they were
11:13totally private the partners were
11:17dependent for their retirement of the
11:19prosperity of the firms they left behind
11:21and the customs and culture they left
11:24behind and the places were much more
11:28responsible and honorable the old First
11:31Boston come
11:32they had this one it's early employees
11:35or one of its employees a good friend of
11:38mine and when he went there in the early
11:4050s they cared terribly about the
11:43consequences to their clients long term
11:46from a securities they sold that ethos
11:51by the time the year 2006 came along and
11:57pretty well disappeared now you and your
11:59partner Warren Buffett have four years
12:03complained and warned about the dangers
12:05that you perceive in the modern
12:08derivatives markets the particularly
12:10credit derivatives
12:11yeah it'll also conserve it also
12:13concerns about you know interest rate
12:15swaps currency swaps equity swaps but
12:17your real concern has been about the
12:20credit derivative market well the
12:22interest rate swap had enormous dangers
12:24in it given the size of the zone at and
12:28the accounting that was allowed but the
12:33credit default thing just went to new
12:37levels of excess from something that was
12:39already gross and wrong and what
12:45happened there was rather interesting in
12:47the 20s we had the bucket shop all right
12:51and the bucket shop was a term of
12:53derision because these people ran a
12:58gambling parlor they didn't buy any
13:01securities they just didn't abled people
13:06to make bets against the house and the
13:08house furnished little statements of how
13:11the bits went out it was like the
13:14off-track betting right until until the
13:17house lost its money and all of a sudden
13:19disappeared yes or the house made its
13:21money and all of a sudden disappeared
13:23either way but the bucket shop was
13:25regarded in retrospect at the end of the
13:29twenties is a criminal enterprise
13:32counterproductive to the nation
13:35derivatives trading with no central
13:38clearing brought back the bucket shop
13:42but tell me because you could make bets
13:48without having any interest in the basic
13:50security and so and people did in the in
13:54the in the billions and billions and
13:56billions of dollars so so we had a
13:59system in the professions and in the
14:01regulatory agent that that and they and
14:06some of the most eminent and most
14:09admired people in finance including
14:12Greenspan argued that derivatives
14:17trading in the form of the old bucket
14:21shop was a great contribution to modern
14:25economic civilization now the Federal
14:29Reserve is one word for this it's insane
14:33the problem that you're talking about
14:35now charlie is really much bigger than
14:37just GMAC or will the government step in
14:40at General Electric have a look at the
14:42balance sheet of the Federal Reserve it
14:44has ballooned the Federal Reserve is
14:46today buying assets and I think they're
14:48probably doing what's absolutely
14:49necessary in order to keep liquidity
14:52flowing in the short term but they're
14:54buying assets today that they wouldn't
14:56even have considered looking at a year
14:58ago there are over eight hundred billion
14:59dollars of this stuff sitting in the
15:01Federal Reserve balance sheet right now
15:03and that number in my view is much more
15:05likely to double or to approach two
15:08trillion dollars within the next 18
15:10months than any other number that you're
15:12likely to see well I think the problem
15:15is so extreme that nothing an extreme
15:22has any chance of fixing it so I
15:25basically applaud the people in the
15:29government that are doing these extreme
15:31things I'm sure they're making a lot of
15:33decisions that in retrospect will be
15:37seen as mistakes but given the human
15:40condition where they have to do extreme
15:41things under fire I am not inclined to
15:45criticize I I like the fact that they
15:48are are so willing to do things that
15:53have never been done before because
15:55believe
15:55you me we have problems right so never
15:58seen before to so and I'd like the fact
16:02here I am a right-wing we Republican I
16:04like the fact that Obama has put into
16:09the White House Larry Summers who was a
16:13ferociously smart human being and will
16:17try and do the right thing even if it
16:20offends some people I think that's a
16:22quality that we need right now well you
16:26know you mentioned president-elect
16:28Obama's soon to be President Obama what
16:30do you think of the job that he's doing
16:32so far the transition team that he's put
16:34together directions that he's pointed
16:36that he's going to try to take the
16:38economy in well I would argue that he's
16:48given the circumstances and given the
16:52background he comes from I would argue
16:54that he is doing very well indeed and
16:59going back to your observation were you
17:02were supporting what the Federal Reserve
17:03is doing in terms of buying up all these
17:06assets while ago and comment on every
17:08individual decision but sure extreme
17:10aggression and trying to rent the total
17:14collapse of the system feeding out
17:16itself I think is totally correct mm-hmm
17:20I think that both Bernanke and summers
17:30are likely to understand that way better
17:32than most people would I think we're
17:35very lucky to have both of them there
17:38Geithner I don't know but I have no no
17:42feeling that those people look at the
17:49situation that's currently evolving many
17:51people sort of see two problems in the
17:54short term there's a concern about
17:56deflation we have a massive contraction
18:00of credit formation there's deleveraging
18:02that's going on at a pace that nobody's
18:05ever experienced before
18:06unemployment is
18:08be rising very significantly the the
18:11destruction of wealth on the private
18:14balance sheets unprecedented consumers
18:17are going to be spending less they're
18:19going to be trying to rebuild their own
18:21balance sheet and clearly this is a
18:23situation where the government has got
18:25to come in strong and the government has
18:26got to come in heavy do you have any
18:30views on the fiscal side of things the
18:33government's talking now about an eight
18:34hundred and fifty a billion dollar
18:36package the mix of fiscal stimulus tax
18:40cuts and the like not only do we have to
18:43save the financial system in spite of
18:46our repulsion above the way many of its
18:50denizens behaved but we also need a huge
18:55a huge spending stimulus from the
19:00federal government I don't regard that
19:03as all bad at all
19:05I think there's a lot to be done in this
19:07country I think we need a whole
19:15electricity distribution system which is
19:18more efficient and bigger and more
19:20flexible and more perfect than we have
19:22and I think that
19:30this is an opportunity to get that done
19:32I think much could be done and in
19:37medical care and I think the hospitals
19:42of the country are probably about to get
19:44a vast improvement in their facilities
19:49and I think that's all to the good we
19:52have a whole lot of things that are
19:55worth doing Obama is not talking about
19:59scooping of people and having them stand
20:02around holding shovels in the middle of
20:05some forest I mean he is talking about
20:09fixing infrastructure and so on you know
20:14the city of Los Angeles where I live the
20:17streets are a disgrace compared to the
20:19streets in Japan mm-hmm Japan had so
20:21much fiscal stimulus stimulus you can't
20:24find a pothole on side of a mountain in
20:26Japan but you can find but you can find
20:28lots of airports that nobody uses out in
20:30the rural Japan that may be but at least
20:33they fixed all the streets and the
20:35trains and everything else so I welcome
20:39a fiscal stimulus that will now improve
20:44a lot of things but but as part of the
20:47government's response the government the
20:49United States and governments worldwide
20:50are printing money de-facto at a rate
20:53that is absolutely unprecedented
20:56and if you know we know traditionally
20:58that if you increase the supply of
21:00something its price is going to go down
21:02short-term everybody's really too
21:04worried about deflation we would have
21:06been much better if we hadn't worked
21:09ourselves into this position where we
21:11have to do this and you were right to
21:14point out that there are dangers from
21:19what we have to do but the dangers from
21:22what we have to do are less than the
21:24dangers that would plainly come if we
21:30responded as we did to the 30s in an
21:35ideal world of classical economics
21:39you can say just let everybody suffer
21:43and then let it work back itself from a
21:45low level we can't do that with a modern
21:47voting democracy we're hooked for
21:50exactly what is happening and so are the
21:54other advanced nations and sure there
21:57are dangers and we may get some
22:00inflation but a kind of economic misery
22:07that gave us the rise of Adolf Hitler
22:11that we don't want and we should skirt
22:15that danger cheerfully accepting the the
22:21dangers have come from the skirting so
22:23you see the situation as being one were
22:26trying to manage the lesser men of two
22:28evils or the least of many evils as a
22:30practical matter and you know what I'm
22:32hearing from you charlie is is that so
22:34far so good it appears that the
22:36government is on a reasonable track it
22:42is very reasonable to react with the
22:48extreme bigger that's been shown in fact
22:52I would argue in retrospect that the
22:56bigger wasn't quite enough I would agree
22:59with you and I would argue that it was
23:02pluperfect obvious they had to save all
23:04these banks and the major and Desmond
23:07banks so so scale of one to ten how big
23:10a mistake was it that they let Lehman go
23:24I don't think that was a mistake
23:29interesting I think it actually helps to
23:33have one or two go I think you need some
23:36examples and a big mess just save
23:45everybody right no matter how awful that
23:50would have created just unlimited
23:52revulsion in the body politic so I think
23:55I think the people had to decide that
23:59some people were gonna be saved and some
24:01people weren't and I think it was
24:03correct that they decided they'd have
24:05two categories who the saved and the
24:07unsaved and I'm not gonna quarrel with
24:09their decisions interesting I probably
24:12will about lemon go to interesting even
24:14though the markets seized up very
24:16dramatically afterwards and we had some
24:18of the most difficult short-term
24:20financial consequences of that failure
24:24well we needed a total correction
24:27mmm-hmm was system that was evil and
24:31stupid we didn't need all our bright
24:33engineers going into the derivative
24:35trading and hedge funds and so on and so
24:38we have the civilization totally out of
24:40control
24:40are they not going there in the future
24:42and we were not going to get out of that
24:43without a lot of massive contraction and
24:46the mess and contraction was gonna cause
24:48some operations to perish I knew Arthur
24:54Andersen partners who were honest decent
24:56people and who suffered terribly any
25:00situations and others the problem of
25:02moral hazard yes so large that you
25:04really can't have the rule no matter how
25:07awful you are you're always going to be
25:08safe simply because you're big enough
25:10and you're connected enough you you have
25:12to have you have to have a loud failure
25:18for more please visit us at stanford.edu
25:22billions and billions of dollars so so
25:25we had a system in the professions and
25:28in the regulatory agents that that and
25:32they and some of the most eminent and
25:35most admired people in finance including
25:39Greenspan argued that derivatives
25:44trading in the form of the old bucket
25:48shop was a great contribution to modern
25:52economic civilization now the Federal
25:56Reserve is one word for this it's insane
25:59the problem that you're talking about
26:02now charlie is really much bigger than
26:04just
26:04GMAC or will the government step in at
26:07General Electric have a look at the
26:09balance sheet of the Federal Reserve it
26:11has ballooned the Federal Reserve is
26:13today buying assets and I think they're
26:15probably doing what's absolutely
26:17necessary in order to keep liquidity
26:19flowing in the short term but they're
26:21buying assets today that they wouldn't
26:23even have considered looking at a year
26:25ago there are over eight hundred billion
26:27dollars of this stuff sitting in the
26:28Federal Reserve balance sheet right now
26:30and that number in my view is much more
26:32likely to double or to approach two
26:35trillion dollars within the next 18
26:37months than any other number that you're
26:39likely to see well I think the problem
26:42is so extreme nothing an extreme has any
26:49chance of fixing it so I basically
26:53applaud the people in the government
26:56that are doing these extreme things I'm
26:58sure they're making a lot of decisions
27:01that in retrospect will be seen as
27:04mistakes but given the human condition
27:07where they have to do extreme things
27:09under fire I am not inclined to
27:12criticize I am I like the fact that they
27:15are are so willing to do things that
27:20have never been done before because
27:21believe you me we have problems right so
27:25never seen before - so and I like the
27:28fact here I am a right-wing Republic
27:31I like the fact that Obama has put into
27:36the White House Larry Summers was a
27:40ferociously smart human being and will
27:44try and do the right thing even if it
27:47offends some people I think that's a
27:49quality that we need right now well you
27:53know you mentioned president-elect
27:55Obama's soon to be President Obama what
27:57do you think of the job that he's doing
27:59so far the transition team that he's put
28:01together directions that he's pointed
28:03that he's going to try to take the
28:05economy in well I would argue that he's
28:15given the circumstances and given the
28:19background he comes from I would argue
28:21that he is doing the others so so we had
28:25a system in the professions and in the
28:27regulatory agency and they and some of
28:33the most eminent and most admired people
28:36in finance including Greenspan argued
28:42that derivatives trading in the form of
28:47the old bucket shop was a great
28:49contribution to modern economic
28:52civilization now the Federal Reserve is
28:56one word for this it's insane the
28:59problem that you're talking about now
29:01charlie is really much bigger than just
29:03GMAC or will the government step in at
29:06General Electric have a look at the
29:08balance sheet of the Federal Reserve it
29:10has ballooned the Federal Reserve is
29:12today buying assets and I think they're
29:14probably doing what's absolutely
29:16necessary in order to keep liquidity
29:18flowing in the short-term but they're
29:20buying assets today that they wouldn't
29:22even have considered looking at a year
29:24ago there are over eight hundred billion
29:26dollars of this stuff sitting in the
29:27Federal Reserve balance sheet right now
29:29and that number in my view is much more
29:31likely to double or to approach two
29:34trillion dollars within the next 18
29:36months than any other number that you're
29:38likely to see well I think the problem
29:41is so extreme
29:45that nothing an extreme has any chance
29:49of fixing it
29:50so I basically applaud the people in the
29:55government that are doing these extreme
29:57things I'm sure they're making a lot of
29:59decisions that in retrospect will be
30:03seen as mistakes but given the human
30:06condition where they have to do extreme
30:07things under fire I am not inclined to
30:11criticize hi I like the fact that they
30:14are are so willing to do things that
30:19have never been done before because
30:21believe you me we have problems right so
30:24never seen before - so and I'd like the
30:27fact here I am a right-wing Republican I
30:30like the fact that Obama has put into
30:35the White House Larry Summers who was a
30:39ferociously smart human being and will
30:43try and do the right thing even if it
30:46offends some people I think that's a
30:48quality that we need right now well you
30:52know you mentioned president-elect
30:54Obama's soon to be President Obama what
30:56do you think of the job that he's doing
30:58so far the transition team that he's put
31:00together directions that he's pointed
31:02that he's going to try to take the
31:04economy in well I would argue that he's
31:14given the circumstances and given the
31:18background he comes from I would argue
31:20that he is doing very doing which made
31:23the absence exchange look like a benign
31:26oh yeah
31:28and so just one after another we made
31:33these insane departures from the
31:36corrective devices we put in the last
31:40time we had a big trouble and that
31:43really worked quite well the investment
31:46banks of your when the melons were
31:48running first Boston and Morgan Stanley
31:49was a very conservative place chastened
31:52by the 30s investment banks were
31:55partnerships
31:57they were totally private the partners
32:00were dependent for their retirement of
32:03the prosperity of the firms they left
32:05behind and the customs and culture they
32:08left behind and the places were much
32:12more responsible and honorable the old
32:15First Boston company had this one its
32:18early employees one of its employees a
32:21good friend of mine and when he went
32:23there in the early 50s they cared
32:25terribly about the consequences to their
32:28clients long term from the securities
32:31they sold that ethos by the time the
32:39year 2006 came along and pretty well
32:42disappeared now you and your partner
32:44Warren Buffett have four years
32:47complained and warned about the dangers
32:49that you perceive in the modern
32:52derivatives markets the particularly
32:54credit derivatives
32:55yeah it'll also conserve it also
32:57concerns about you know interest rate
32:59swaps currency swaps equity swaps but
33:01your real concern has been about the
33:04credit derivative market well the
33:06interest rate swap had enormous dangers
33:08in it given the size it was on at and
33:12the accounting that was allowed but the
33:17credit default thing just went to new
33:21levels of excess from something that was
33:23already gross and wrong and what
33:29happened there was rather interesting in
33:31the 20s we had the bucket shop all right
33:35and the bucket shop was a term of
33:37derision because these people ran a
33:42gambling parlor they didn't buy any
33:45securities they just didn't abled people
33:50to make bets against the house and the
33:52house furnished little statements of how
33:55the bits went out it was like the
33:58off-track betting right until until the
34:01house lost its money and all of a sudden
34:03disappeared yes or the house made its
34:05money and all of a sudden disappeared
34:07either way but the bucket shop was
34:09regarded
34:10in retrospect at the end of the 20s as a
34:14criminal enterprise counterproductive to
34:17the nation derivatives trading with no
34:21central clearing and to rent the total
34:24collapse of the system feeding on itself
34:25I think is totally correct
34:29mm-hm I think that both Bernanke and
34:36summers are likely to understand that
34:41way better than most people would I
34:43think we're very lucky to have both of
34:46them there Geithner I don't know but I
34:49have no no feeling that those people
34:57look at the situation that's currently
34:59evolving many people sort of see two
35:01problems in the short term there's a
35:04concern about deflation we have a
35:07massive contraction of credit formation
35:10there's deleveraging that's going on at
35:12a pace that nobody's ever experienced
35:15before
35:15unemployment is gonna be rising very
35:18significantly the the destruction of
35:21wealth on the private balance sheets
35:24unprecedented consumers are going to be
35:27spending less they're going to be trying
35:29to rebuild their own balance sheet and
35:31clearly this is a situation where the
35:33government has got to come in strong and
35:35the government has got to come in heavy
35:37do you have any views on the fiscal side
35:40of things the government's talking now
35:43about an eight hundred and fifty a
35:44billion dollar package the mix of fiscal
35:48stimulus tax cuts and the like not only
35:52do we have to save the financial system
35:54in spite of our revulsion above the way
35:59many of its denizens behaved but we also
36:03need a huge a huge spending stimulus
36:08from the federal government I don't
36:12regard that as all bad at all
36:14I think there's a lot to be done in this
36:16country
36:19I think we need a whole electricity
36:25distribution system which is more
36:27efficient and bigger and more flexible
36:29and more perfect than we have and I
36:33think that this is an opportunity to get
36:41that done
36:41I think much could be done and in
36:46medical care and I think the hospitals
36:51of the country are probably about to get
36:53a vast improvement in their facilities
36:58and I think that's all of the good we
37:01have a whole lot of things that are
37:04worth doing Obama is not talking about
37:08scooping of people and having them stand
37:11around holding shovels in the middle of
37:14some forest I mean he is talking about
37:19fixing infrastructure and so on the 20s
37:23as a criminal enterprise
37:26counterproductive to the nation
37:29derivatives trading with no central
37:32clearing brought back the bucket shop
37:36but tell me because you couldn't make
37:41bets without having any interest in the
37:43basic security and so and people did in
37:47the in the in the billions and billions
37:50and billions of dollars so so we had a
37:53system in the professions and in the
37:55regulatory agents that and and they and
38:00some of the most eminent and most
38:03admired people in finance including
38:06Greenspan argued that derivatives
38:11trading in the form of the old bucket
38:15shop was a great contribution to modern
38:19economic civilization now the Federal
38:23Reserve is one word for this it's insane
38:26the problem that you're talking about
38:29now charlie is really much bigger than
38:31just gee
38:32NAC or will the government step in at
38:34General Electric have a look at the
38:36balance sheet of the Federal Reserve it
38:38has ballooned the Federal Reserve is
38:40today buying assets and I think they're
38:42probably doing what's absolutely
38:43necessary in order to keep liquidity
38:46flowing in the short term but they're
38:48buying assets today that they wouldn't
38:50even have considered looking at a year
38:52ago there are over eight hundred billion
38:54dollars of this stuff sitting in the
38:55Federal Reserve balance sheet right now
38:57and that number in my view is much more
38:59likely to double or to approach two
39:02trillion dollars within the next 18
39:04months than any other number that you're
39:06likely to see well I think the problem
39:09is so extreme that nothing an extreme
39:16has any chance of fixing it so I
39:19basically applaud the people in the
39:23government that are doing these extreme
39:25things I'm sure they're making a lot of
39:27decisions that in retrospect will be
39:31seen as mistakes but given the human
39:34condition where they have to do extreme
39:35things under fire I am not inclined to
39:39criticize hi I like the fact that they
39:42are are so willing to do things that
39:47have never been done before because
39:49believe you me we have problems right so
39:52never seen before - so and I like the
39:55fact here I am a right-wing Republican I
39:58like the fact that Obama has put into
40:03the White House Larry Summers who is a
40:07ferociously smart human being and will
40:11try and do the right thing even if it
40:14offends some people I think that's a
40:16quality that we need right now well you
40:20know you mentioned president-elect Obama
40:23of credit formation there's deleveraging
40:25that's going on at a pace that nobody's
40:28ever experienced before unemployment is
40:31going to be rising very significantly
40:33the the destruction of wealth on the
40:37private balance sheets unprecedented
40:39consumers are going to be spending less
40:42they're going to be trying to rebuild
40:43their own balance sheet
40:45and clearly this is a situation where
40:47the government has got to come in strong
40:49and the government has got to come in
40:50heavy do you have any views on the
40:54fiscal side of things the government's
40:56talking now about an eight hundred and
40:57fifty a billion dollar package the mix
41:01of fiscal stimulus tax cuts and the like
41:04not only do we have to save the
41:07financial system in spite of our
41:09revulsion above the way many of its
41:13denizens behaved but we also need a huge
41:18a huge spending stimulus from the
41:23federal government I don't regard that
41:26as all bad at all
41:28I think there's a lot to be done in this
41:30country I think we need a whole
41:38electricity distribution system which is
41:41more efficient and bigger and more
41:43flexible and more perfect than we have
41:45and I think that this is an opportunity
41:54to get that done
41:55I think much could be done and in
42:00medical care and I think the hospitals
42:05of the country are probably about to get
42:07a vast improvement in their facilities
42:12and I think that's all of the good we
42:15have a whole lot of things that are
42:18worth doing Obama is not talking about
42:22scooping of people and having them stand
42:25around holding shovels in the middle of
42:28some forest I mean he is talking about
42:33fixing infrastructure and so on you the
42:38city of Los Angeles where I live the
42:40streets are disgraced compared to the
42:42streets of Japan Japan had so much
42:44fiscal stimulus stimulus you can't find
42:47a pothole on the side of a mountain in
42:49Japan but you can find but you can find
42:51lots of airports that nobody uses out in
42:53rural Japan that may be but at least
42:56they fixed all the streets yeah
42:57and the trains and everything else so I
43:01welcome a fiscal stimulus that will now
43:07improve a lot of things but but as part
43:10of the government's response the
43:11government the United States and
43:13governments worldwide are printing money
43:15de facto at a rate that is absolutely
43:18unprecedented and if you know we know
43:21traditionally that if you increase the
43:22sub and would you give an example could
43:26you give an example of a particular
43:28accounting principle or practice that
43:30you think they derivative trading with
43:32mark-to-market accounting which
43:35degenerates into mark two model two
43:40firms make a big derivative trade and it
43:42comes on both sides show a large profit
43:46same trade and they can't both be right
43:49and it can't both be right and both of
43:50them following the rules to the tea yes
43:53and nobody's even bothered by the fact
43:55that this happening right it violates
43:58the most elemental principles of common
44:01sense and the reason they do it is
44:04there's a demand for it from the
44:06financial promoters I remember when
44:10interest rates swap accounting was done
44:14on a different and more conservative
44:15basis and the morgan bank was the last
44:19holdout and finally they couldn't hold
44:22their traders and report the same kind
44:24of income other people reported and so
44:27they threw out the sound accounting and
44:28went to the phony accounting and they it
44:34was kind of funny at the time was many
44:35decades ago some of the people were kind
44:39of reluctant but they said we just have
44:41to go with the flow so it was a huge
44:43mistake is this a problem that can be
44:45fixed with the accounting profession
44:47with the accounting process or is this
44:49something that well I think you're
44:50talking about a problem rooted so deeply
44:54in human nature that I don't think
44:59you'll live long enough to see it gets
45:0420 percent fixed in the direction it
45:08should go your remaining lifetime you'll
45:10be
45:11ma'am so how do we get there so let's
45:13assume that we would actually want to
45:15accomplish something I don't know how to
45:16transform all human life in the world
45:18we're just talking about the area
45:20Charlie well but accounting is a big
45:23subject and there are huge forces
45:28employee and the entire momentum of
45:33existing thinking and existing custom is
45:38in a direction which allows these
45:41terrible follies to happen and the
45:45terrible follies have terrible
45:48consequences but we're in now is and
45:56it's triggering circumstances it's worse
46:00than anything that's ever happened
46:02fortunately Great Depression yes no no
46:04we're not the economy hasn't contracted
46:06as much as the Great Depression
46:08mhm but the malfeasance and silliness it
46:14was the triggering event was way greater
46:16so the Charlotte or widespread in the
46:1820s a tiny little class of people were
46:21our financial promoters many of its
46:23denizens behaved but we also need a huge
46:28a huge spending stimulus from the
46:33federal government I don't regard that
46:36as all bad at all I think there's a lot
46:40to be done in this country I think we
46:44need a whole electricity distribution
46:49system which is more efficient and
46:52bigger and more flexible and more
46:54perfect than we have and I think that
47:02this is an opportunity to get that done
47:05I think much could be done and in
47:10medical care and I think the hospitals
47:15of the country are probably about to get
47:17a vast improvement in their facilities
47:22and I think that's all to the good we
47:25have a whole lot of things that are
47:28worth doing Obama is not talking about
47:32scooping of people and having them stand
47:35around holding shovels in the middle of
47:38some forest he is talking about fixing
47:43infrastructure and so on the city of Los
47:48Angeles where I live the streets are a
47:51disgrace compared to the streets in
47:52Japan mm-hmm Japan had so much fiscal
47:55stimulus stimulus you can't find a
47:57pothole one side of a mountain in Japan
47:59but you can find but you can find lots
48:01of airports that nobody uses out in
48:03rural Japan that may be but at least
48:06they fixed all the streets and the
48:08trains and everything else so I welcome
48:12a fiscal stimulus that will now improve
48:17a lot of things but but as part of the
48:20government's response the government the
48:22United States and governments worldwide
48:23are printing money de facto at a rate
48:26that is absolutely unprecedented
48:29and if you know we know traditionally
48:31that if you increase the supply of
48:33something its price is going to go down
48:35short-term everybody's really too
48:37worried about deflation we would have
48:39been much better if we hadn't worked
48:42ourselves into this position where we
48:44have to do this and you were right to
48:47point out that there are dangers from
48:52what we have to do but the dangers from
48:55what we have to do are less than the
48:57dangers that would plainly come if we
49:03responded as we did to the 30s in an
49:08ideal world of classical economics
49:12you can say just let everybody suffer
49:16and then let it work back itself from a
49:17low level we can't do that with a modern
49:20voting democracy we have to do extreme
49:23things under fire I am not inclined to
49:27criticize I am I like the fact that they
49:30are are so willing to do things that
49:35have never been done before because
49:37believe you me we have problems right so
49:40never seen before - so and I like the
49:43fact here I am a right-wing Republican I
49:46like the fact that Obama has put into
49:51the White House Larry Summers was a
49:55ferociously smart human being and will
49:59try and do the right thing even if it
50:02offends some people I think that's a
50:04quality that we need right now well you
50:08know you mentioned president-elect Obama
50:11of credit formation there's deleveraging
50:13that's going on at a pace that nobody's
50:16ever experienced before unemployment is
50:19going to be rising very significantly
50:21the the destruction of wealth on the
50:25private balance sheets unprecedented
50:27consumers are going to be spending less
50:30they're going to be trying to rebuild
50:31their own balance sheet and clearly this
50:34is a situation where the government has
50:36got to come in strong and the government
50:37has got to come in heavy do you have any
50:41views on the fiscal side of things the
50:44government's talking now about an eight
50:45hundred and fifty a billion dollar
50:47package the mix of fiscal stimulus tax
50:51cuts and the like not only do we have to
50:54save the financial system in spite of
50:57our revulsion above the way many of its
51:01denizens behaved but we also need a huge
51:06a huge spending stimulus from the
51:11federal government I don't regard that
51:14as all bad at all I think there's a lot
51:18to be done in this country
51:21I think we need a whole electricity
51:27distribution system which is more
51:29efficient and bigger and more flexible
51:31and more perfect than we have and I
51:35think that this is an opportunity to get
51:43that done
51:43I think much could be done and in
51:48medical care and I think the hospitals
51:53of the country are probably about to get
51:55a vast improvement in their facilities
52:00and I think that's all of the good
52:02we have a whole lot of things that are
52:06worth doing Obama is not talking about
52:10scooping of people and having them stand
52:13around holding shovels in the middle of
52:16some forest he is talking about fixing
52:21infrastructure he of fortunate man
52:24so how do we get there so let's assume
52:25that we would actually want to
52:27accomplish something I don't know how to
52:28transform all human life in the world
52:30we're just talking about the a literally
52:32well but accounting is a big subject and
52:38they're huge forces employee and the
52:43entire momentum of existing thinking and
52:46existing custom is in a direction which
52:52allows these terrible Follies to happen
52:56and the terrible follies have terrible
53:00consequences what we're in now is and
53:08it's triggering circumstances it's worse
53:12than anything that's ever happened
53:13Porsche the Great Depression yes not no
53:16we're not the economy hasn't contracted
53:18as much as the Great Depression but the
53:21malfeasance and silliness it was the
53:26triggering event was way greater short
53:29or widespread in the 20s a tiny little
53:32class of people were our friend
53:33promoters and a tiny little class of
53:36people were the people that bought
53:37securities this now is deep into the
53:44whole culture it was way more extreme so
53:47if sin and folly get punished we're in
53:50for a hell of a punishment so it's it's
53:53a more pervasive problem and it's also a
53:55more global problem yes and do you see a
53:58chance that it does reach to a level a
54:00closer to the Great Depression how bad
54:02does this get charlie
54:03well nobody knows that because we've
54:08never done this before it's we have a
54:15bigger credit bubble we have worse
54:17follies more interconnected global
54:21system if we responded to this one the
54:27way people responded to the 30s in my
54:29judgment it would be way worse and we
54:32would have a catastrophe and that you
54:34can argue gave us Hitler in World War
54:36two a lot of things that we didn't need
54:41it was not getting your financial
54:51integrity and the integrity of your
54:53accounting right has enormous
54:55implications for the future of mankind
54:58and and yet very few people realize how
55:05much we screwed up very few people
55:07realize even in leading law school and
55:10tools and business schools how Enron
55:13never could have happened if they hadn't
55:16changed the accounting accounting rules
55:18and and what we have now is just a
55:22bigger moral hazard
55:24yes so large that you really can't have
55:26the rule no matter how awful you are
55:28you're always gonna be safe simply
55:30because you're big enough and you're
55:32connected enough you you have to have
55:34you have to have a loud failure
55:39for more please visit us at stanford.edu
55:43billions and billions of dollars so so
55:46we had a system in the professions and
55:49in the regulatory agent that that and
55:52and they and some of the most eminent
55:55and most admired people in finance
55:59including Greenspan argued that
56:04derivatives trading in the form of the
56:09old bucket shop was a great contribution
56:11to modern economic civilization now the
56:17Federal Reserve is or one word for this
56:19it's insane the problem that you're
56:22talking about now charlie is really much
56:24bigger than just GMAC or will the
56:27government step in at General Electric
56:28have a look at the balance sheet of the
56:30Federal Reserve it has ballooned the
56:34Federal Reserve is today buying assets
56:35and I think they're probably doing
56:37what's absolutely necessary in order to
56:39keep liquidity flowing in the short term
56:41but they're buying assets today that
56:43they wouldn't even have considered
56:44looking at a year ago there are over
56:47eight hundred billion dollars of this
56:48stuff sitting in the Federal Reserve
56:50balance sheet right now and that number
56:52in my view is much more likely to double
56:54or to approach two trillion dollars
56:56within the next 18 months than any other
56:59number that you're likely to see well I
57:02think the problem is so extreme that
57:08nothing unexpected
57:12so I basically applaud the people in the
57:17government that are doing these extreme
57:19things I'm sure they're making a lot of
57:21decisions that retrospect will be seen
57:25as mistakes but given the human
57:28condition where they have to do extreme
57:29things under fire I am not inclined to
57:33criticize I am I like the fact that they
57:36are are so willing to do things that
57:41have never been done before because
57:43believe you me we have problems right so
57:46never seen before too so and I like the
57:49fact here I am a right-wing
57:52I like the fact that Obama has put into
57:57the White House Larry Summers was a
58:01ferociously smart human being and will
58:05try and do the right thing even if it
58:08offends some people I think that's a
58:10quality that we need right now well you
58:14know you mentioned president-elect
58:16Obama's soon to be President Obama what
58:18do you think of the job that he's doing
58:20so far the transition team that he's put
58:22together directions I I like the fact
58:25that they are are so willing to do
58:30things that have never been done before
58:31because believe you me we have problems
58:34right so never seen before too so and I
58:38like the fact here I am a right-wing
58:40Republican I like the fact that Obama
58:44has put into the White House Larry
58:48Summers was a ferociously smart human
58:51being and will try and do the right
58:55thing even if it offends some people I
58:58think that's a quality that we need
59:01right now well you know you mentioned
59:04president-elect Obama of credit
59:07formation there's deleveraging that's
59:09going on at a pace that nobody's ever
59:11experienced before unemployment is going
59:14to be rising very significantly the the
59:17destruction of wealth on the private
59:20balance sheets unprecedented consumers
59:23are going to be spending less they're
59:25going to be trying to rebuild their own
59:27balance sheet and clearly this is a
59:29situation where the government has got
59:31to come in strong and the government has
59:32got to come in heavy do you have any
59:36views on the fiscal side of things the
59:39government's talking now about an eight
59:40hundred and fifty a billion dollar
59:42package the mix of fiscal stimulus tax
59:46cuts and the like not only do we have to
59:49save the financial system in spite of
59:52our revulsion above the way many of its
59:56denizens behaved but we also need a huge
1:00:01a huge
1:00:04spending stimulus from the federal
1:00:06government I don't regard that as all
1:00:10bad at all
1:00:11I think there's a lot to be done in this
1:00:13country I think we need a whole
1:00:21electricity distribution system which is
1:00:24more efficient and bigger and more
1:00:26flexible and more perfect than we have
1:00:28and I think that this is an opportunity
1:00:37to get that done
1:00:38I think much could be done and in
1:00:43medical care and I think the hospitals
1:00:48of the country are probably about to get
1:00:50a vast improvement in their facilities
1:00:55and I think that's all of the good we
1:00:58have a whole lot of things that are
1:01:01worth doing Obama is not talking about
1:01:05scooping of people and having them stand
1:01:08around holding shovels in the middle of
1:01:11some forest I mean he is talking about
1:01:15fixing infrastructure and so on you know
1:01:20the city of Los Angeles where I live or
1:01:23at least if they were dampened very
1:01:25considerably but people use the idiom
1:01:31nobody wants to take the punchbowl away
1:01:33when everybody's having a good time at
1:01:35the party but that's the accountants job
1:01:38and that's the central bankers job and
1:01:40you're never popular I don't have a
1:01:41business's job and the people who do it
1:01:43tend to be despised and hated and a lot
1:01:47of people are willing to be despised and
1:01:50hated and ruin their fellow-creatures
1:01:52parties etc etc the main thing you have
1:01:58to realize is done Franklin's basic idea
1:02:02that an ounce of prevention is worth a
1:02:05pound of cure that's understated an
1:02:11ounce of revisionist sometimes worth a
1:02:14ton of cure
1:02:15and your only real chance was not to
1:02:19allow it to happen when they put in the
1:02:22options exchanges there was like one
1:02:26letter saying you shouldn't do this and
1:02:29Warren Buffett wrote it
1:02:31mm-hmm and he just said this is not
1:02:33doing any cutting for the wider
1:02:34civilization we don't need this you know
1:02:37she was all alone and and he was totally
1:02:41right when we separated banking from
1:02:45Investment Banking on the theory that
1:02:48Investment Banking had a natural
1:02:50proclivity to get a fair amount of
1:02:53knavery and folly into it and that we
1:02:55wanted to protect our banks from the
1:02:57contagion that was a good idea when we
1:03:00created margin rules that discouraged
1:03:04heavy borrowing against securities just
1:03:08to make more money when the securities
1:03:10went up in value that was a good idea
1:03:13when they wanted to make the market
1:03:23system a better gambling casino as a
1:03:27side function of unnecessary capital
1:03:36market with vast profits for the people
1:03:38who we're helpers in the trade the
1:03:41market makers and the brokers and so on
1:03:47that created a big constituency in favor
1:03:50of a dumb change and there was little
1:03:54Warren Buffett saying this is a dumb
1:03:55idea we're not controlling margins if
1:04:00you're having option exchanges and get
1:04:02unlimited leverage on automatically with
1:04:05an option exchange of course and then
1:04:09there's a derivative trading which made
1:04:10the obstinance exchange look like a
1:04:13benign oh yeah
1:04:15and so just one after another we made
1:04:19these insane departures dependent for
1:04:24the retirement of the prosperity of the
1:04:26firms they left behind and the customs
1:04:29and culture they left behind and the
1:04:33places were much more responsible and
1:04:35honorable the old First Boston company I
1:04:39had this one it's early employees or one
1:04:42of its employees a good friend of mine
1:04:44and when he went there in the early 50s
1:04:46they cared terribly about the
1:04:49consequences to their clients long term
1:04:52from my securities they sold that ethos
1:04:57by the time the year 2006 came along and
1:05:03pretty well disappeared now you and your
1:05:05partner Warren Buffett have four years
1:05:09complained and warned about the dangers
1:05:11that you perceive in the modern
1:05:14derivatives markets the particularly
1:05:16credit derivatives
1:05:17yeah it'll also conserve all so concerns
1:05:19about you know interest rate swaps
1:05:21currency swaps equity swaps but your
1:05:24real concern has been about the credit
1:05:26derivative market well the interest rate
1:05:28swap had enormous dangers in it given
1:05:31the size of the zone at and the
1:05:34accounting that was allowed but the
1:05:39credit default thing just went to new
1:05:43levels of excess from something that was
1:05:45already gross and wrong and what
1:05:51happened there was rather interesting in
1:05:53the 20s we had the bucket shop alright
1:05:56and the bucket shop was a term of
1:05:59derision
1:06:00because these people ran a gambling
1:06:04parlor they didn't buy any securities
1:06:09they just didn't able people to make
1:06:12bets against the house and the house
1:06:15furnished little statements of how the
1:06:17bits went out it was like the off-track
1:06:20betting right until until the house lost
1:06:24its money and all of a sudden
1:06:25disappeared yes or the house made its
1:06:27money and all of a sudden disappeared
1:06:29either way but the bucket shop was
1:06:31regarded in retrospect at the end of the
1:06:35twenties is a criminal enterprise
1:06:38counterproductive to the nation
1:06:41derivatives trading with no central
1:06:44clearing and to rent the total collapse
1:06:46of the system feeding on itself I think
1:06:49is totally correct mm-hmm I think that
1:06:56both Bernanke and summers are likely to
1:07:02understand that way better than most
1:07:04people would I think we're very lucky to
1:07:07have both of them there Geithner I don't
1:07:10know but I have no no feeling that those
1:07:19people look at the situation that's
1:07:21currently evolving many people have
1:07:23because we've never done this before
1:07:28it's we have a bigger credit bubble we
1:07:34have worse follies more interconnected
1:07:38global system if we responded to this
1:07:43one the way people responded to the 30s
1:07:45in my judgment it would be way worse and
1:07:49we would have a catastrophe and that you
1:07:51can argue gave us Hitler in World War
1:07:53two a lot of things that we didn't need
1:07:58it was not
1:08:03getting your financial integrity and the
1:08:09integrity of your accounting right has
1:08:11enormous implications for the future of
1:08:15mankind and and yet very few people
1:08:20realize how much we screwed up very few
1:08:24people realize even in leading law
1:08:26school and tools and business schools
1:08:28how Enron never could have happened if
1:08:32they hadn't changed the accounting
1:08:34accounting rules and and what we have
1:08:38now is just a bigger wide spread and you
1:08:43know I like I like telling my students
1:08:45that no civilization is greater than its
1:08:47plumbing and accounting is really the
1:08:50plumbing of the financial system and to
1:08:52the extent that that the plumbing can't
1:08:55serve the function the whole the whole
1:08:58edifice really in many situations is not
1:09:03going to work the way that it's intended
1:09:06idiot bubbles blessed blessed by
1:09:08accountants are terrible for the whole
1:09:15civilization it would be much better if
1:09:19we didn't have these idiot bubbles or at
1:09:22least if they were dampened very
1:09:24considerably but people use the idiom
1:09:30nobody wants to take the punchbowl away
1:09:32when everybody's having a good time at
1:09:34the party but that's the accountants job
1:09:37and that's the central bankers job and
1:09:39you're never popular I don't have a
1:09:40business's job and the people who do it
1:09:42tend to be despised and hated and not a
1:09:46lot of people are willing to be despised
1:09:48and hated and ruin their
1:09:50fellow-creatures parties etc etc the
1:09:56main thing you have to realize is done
1:10:00Franklin's basic idea that an ounce of
1:10:03prevention is worth a pound of cure
1:10:06that's understated amounts of
1:10:10revisionist sometimes worth a ton of
1:10:13cure
1:10:14and your only real chance was not to
1:10:18allow it to happen when they put in the
1:10:21options exchanges this out in rural
1:10:23Japan that may be but at least they
1:10:26fixed all the streets and the trains and
1:10:29everything else so I welcome a fiscal
1:10:32stimulus that will now improve a lot of
1:10:38things but but as part of the
1:10:40government's response the government the
1:10:42United States and governments worldwide
1:10:43are printing money de-facto at a rate
1:10:46that is absolutely unprecedented and if
1:10:50you know we know traditionally that if
1:10:52you increase the supply of something its
1:10:53price is going to go down short-term
1:10:56everybody's really too worried about
1:10:58deflation we would have been much better
1:11:00if we hadn't worked ourselves into this
1:11:03position where we have to do this and
1:11:06you were right to point out that there
1:11:09are dangers from what we have to do but
1:11:14the dangers from what we have to do are
1:11:16less than the dangers that would plainly
1:11:19come if we responded as we did to the
1:11:2530s in an ideal world of classical
1:11:31economics you can say just let everybody
1:11:35suffer and then let it work back itself
1:11:37from a low level we can't do that with a
1:11:40modern voting democracy we're hooked for
1:11:43exactly what is happening and so are the
1:11:47other advanced nations and sure there
1:11:50are dangers and we may get some
1:11:53inflation but a kind of economic misery
1:12:00that gave us the rise of Adolf Hitler
1:12:04that we don't want and we should skirt
1:12:08that danger cheerfully accepting the the
1:12:14dangers of come from us going so you see
1:12:17the situation as being one were trying
1:12:19to manage the lesser men of two evils or
1:12:22the least of many evils as a practical
1:12:23matter and you know what I'm hearing
1:12:25from you charlie is is that so far so
1:12:28good
1:12:28it appears that the government is on a
1:12:30reasonable track it is very reasonable
1:12:38to react with the extreme bigger that's
1:12:44been shown in fact I would argue and
1:12:47retrospective the bigger wasn't quite
1:12:50enough I would agree with you and I
1:12:53would argue that it was pluperfect
1:12:55obvious they had to save all these banks
1:12:58and the major investment banks so so
1:13:02scale of one to ten how big a mistake
1:13:04was it that they let Lehman go
1:13:17I don't think that was a mistake
1:13:22in

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