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Crisis and Capitalism: Does History Suggest Where We're Headed?

Presider: Benn Steil, Senior Fellow and Director of International Economics, Council on Foreign Relations
Speakers: Michael Bordo, Professor of Economics, Rutgers University, Jerry Muller, Professor of History, Catholic University of America, Robert Shiller, Arthur M. Okun Professor of Economics, Yale University, and Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, New York University
January 12, 2009
Council on Foreign Relations

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BENN STEIL:  Today's council meeting is part of the McKinsey Executive Roundtable Series in International Economics, co-sponsored by the Council's Maurice R. Greenberg Center for Geoeconomic Studies and the Corporate program.

A few housekeeping announcements to start:  As usual, please completely turn off your cell phones and BlackBerrys.  Don't leave them on vibrate, because it interferes with the sound system.  And I'd like to remind everyone that this morning's meeting is on the record.

We've got a very distinguished panel of economists, historians and economic historians here this morning to address the topic of "Crisis and Capitalism:  Does History Suggest Where We're Headed?". From my left, Michael Bordo, professor of economics at Rutgers University; Jerry Muller, Professor of History at Catholic University of America; Robert Shiller, Arthur M. Okun professor of economics at Yale University; and Richard Sylla, Henry Kaufman professor of the history of financial institutions and markets at New York University.

Gentlemen, over the past year and a half we've seen a mortgage crisis morph into a full-blown financial crisis and now, apparently, we're headed into a full-blown economic crisis.  The economy appears to be shrinking rapidly.  Unemployment's rising rapidly.  Against this backdrop, many commentators are looking for useful historical parallels.

And what I'd like to do in the first 40 minutes or so before we open up to audience participation is to get your perspectives in two areas in particular.  First of all, are there useful historical parallels in terms of telling us what we should be doing as a policy matter to get ourselves out of this crisis?

And secondly, many influential commentators are predicting and many, indeed, calling for very robust permanent interventions in the financial markets, a lot more government control to ensure that this type of crisis doesn't develop again.  Again, does history offer us any lessons as to what we're in for in terms of increased government intervention and, indeed, control in the financial markets?  And what are your thoughts about whether these developments will be positive or negative?

Michael, let me start with you.  Many commentators, as you know, like to focus on the 1930s in particular in terms of looking for historical parallels.  But I know that you think there are useful lessons even to be learned from much earlier periods, in the 19th century.  So I'd like to get your thoughts to start.

MICHAEL BORDO:  Yes.  The U.S. has had many financial crises since the beginning, since 1792.  And some of them have been very serious.

And I think the kind of lessons we can learn from the big crises of the past is that, in a sense, they were -- like today, they were events that led to serious economic consequences.  They were often nasty.  They led to significant wealth losses.  They often were associated with recessions, which led to declines in output.  Okay, but there was another side to the story that I like to emphasize, which is they were, in some sense, learning experiences -- learning experiences for institutional reform.

And there were four sort of -- three or four instances, which I'll just mention briefly, leading up to the 1930s, which I think are relevant.  One was the free banking era of the -- in the -- from 1837 to 1863.  Then there was the national banking era from 1860 -- 1863 to 1913.  And then the last is the Great Depression era.

In each of those cases you had a regime in place which was, in a sense, established in response to a crisis.  And the regime, in a sense, had its own defects, which sponsored another crisis.  And then we learned something.  And in each case it was kind of -- we went two steps forward, but we often went one step backwards.

So the free banking era came out of Andrew Jackson's veto of the charter of the Second Bank of the United States, and this led to banking being completely unregulated by the federal government, but regulated by the states.  And the regime that was established, where you had virtually free entry into banking, you know, in -- had the good effects of allowing banks to proliferate across the countries -- country.

But there were some problems with it.  One was that there was a proliferation -- there were no restrictions on bank-note issue.  And there were -- there was a proliferation of state bank notes, which circulated at varying discounts.  And so the means of payment, okay, was very unstable.

And also, there were many bank failures, and about four or five financial crises.  And this led to a major reform.  In a sense, the problems of the national banking era led to -- of the free banking era led to a major reform, which led to the national banking system established during the Civil War.  And the national banking system created a uniform national currency, which was backed by government -- U.S. government bonds.

So it solved the problem of the proliferation of bank notes.  But it didn't solve the problem of financial crises, which was the fact that people would tend to run on their banks and convert their deposits into currency if they were worried about the stability of their banks.  And this would lead to a banking panic, which, in a sense, unless there was a lender of last resort handy -- unless there was a lender of last resort available -- would lead to a serious economic crisis.

And there was no effective lender of last resort in the national banking era.  There were a couple of sort of alternatives; there was  the U.S. -- sorry, the clearinghouse loan certificates and the U.S. Treasury, on occasion, acted as lender of last resort.  But it usually didn't work.

So this led to a major reform, okay?  The reform occurred after there were three big crises in the national banking era, okay:  1873, 1893 and 1907; 1907 was the straw that broke the camel's back, okay?

In part, that was because it was -- the crisis was partly resolved by the -- with the aid of J.P. Morgan, okay, and in reaction to the fact that a private individual, okay, who seemingly had a lot of economic power, had to save the United States.  This led to the -- this led to the reforms that occurred in 1908:  the Aldrich-Vreeland Act, which issued a national reserve currency -- which instituted a national reserve currency and led to the National Monetary Commission.  The National Monetary Commission, which deliberated for four years, okay, came out recommending a central bank for the United States, which would have the features of the Federal Reserve System.  And so, in a sense we had two regimes which had crises.  The crises led to institutional reform.

Okay, now we know, getting to the last one, to the Federal Reserve System, okay, it was successful for 15 years in maintaining stability, but then it failed miserably between 1930 to '33 in stemming four serious banking panics, okay?  And the reaction to that was to blame -- the reaction to the great contraction was for Roosevelt and the New Deal to blame the central bank and the bankers, and to institute major regulation.  Okay, this led to FDIC, which in a sense did solve the problem of banking panics because it removed the incentive for people to run on their banks.  It led to Glass Steagall, which separated investment from commercial banking, okay.  It led to a host of regulations on the banking system.  And it led to the Fed being subsumed under the power of the Treasury, and this obtained until 1951.

So there was a major sort of heavy regulation of the financial system which came out of the Great Depression, okay?  And it did succeed, okay, for approximately -- right up until the 1970s -- it did succeed in providing financial stability, but it did so at the expense of stifling financial innovation, okay?

And there's this apocryphal story that I might have heard from my colleague Dick Sylla or others, about the banker, typical banker in this period, in the 1950s, who would, you know, show up at the bank at 10:00, make a few loans, have a two-martini lunch, okay, and then retire to the golf links at 3:00.  So that's the environment that came out of -- that is said to have come out of the Great Depression era.

But everything was predicated on monetary stability.  And that was delivered by the Federal Reserve in what was called the Bretton Woods era, okay, and it lasted until the 1960s.  But once the pressures for inflation grew in the '60s, okay, and led to what's  called the great inflation, okay, then the controls that were set up on the banking system and the financial system -- ceilings on interest payments, prohibition of interest on demand deposits, et cetera, and firewalls between different financial -- different types of financial functions -- okay, once the great inflation got going, the pressures to evade the distortions that were being caused by the inflation, okay, led to the S&L crisis and the breakdown of the regulation and to the regime that we're now in, okay, the regime which is now in a sense under threat.

Okay, I'm not getting into the reason for the financial crisis. But the last thing I want to say is, I'm worried.  I'm worried that what we're going to get out of this is overkill, regulatory overkill, because the government, the Treasury, the Federal Reserve, okay, have done massive intervention, created many facilities.

There's going to be -- there's going to be a large fiscal stimulus package.  And all these things are going to do what they should do.  They're going to help the capitalist system in a sense rebound.  But what I'm worried about is that now we're going to have this large panoply of controls and an increase in the government -- in government's role in the economy, which might take a long time to roll back.

And I think the cautionary tale from our own history, in the 1950s, '40s, '50s and '60s and more so from that of Europe, okay, which went much farther than we did in nationalizing the banking system, nationalizing a lot of the financial system and creating a much greater array of controls; the European case, okay, is a cautionary tale for us, because it took them until the '90s, until about 1990 to roll it back.  And when they did roll it back, this regulation, this led to a banking crisis which was much worse than the one we've had today.

STEIL:  Michael, you've talked about the creation of the Federal Reserve System and its expansion.  Over the course of this crisis, of course, the Federal Reserve has sort of unilaterally increased its powers very dramatically.

If you go back only a year ago, when the Fed's balance sheet was about a third the size of what it is now, Paul Volcker was questioning whether the Federal Reserve was in fact exceeding its statutory authorities.

Flash forward, say, perhaps 2010, we start emerging from this crisis.  What will the Federal Reserve look like?  What new powers that they have arrogated to themselves, for better or for worse, will remain a permanent part of the environment?

BORDO:  I'm not sure how much they're going to keep.  But I suspect they'll keep some of these new facilities, these new discount window facilities they've established.  They'll keep a lot of them. And I think that the debate which took place about 10 years ago, when Greenspan was in, about the Fed expanding its powers, that that debate in a sense has been won de facto by what the Fed has done.

But I think there will be people that will start thinking about, well, wait a minute, the Fed really wasn't established to do these things; it was really established to protect the monetary system and the payment system, okay?  And I think it's moved beyond its original mandate.

Okay, it's acting because of the crisis.  And it sort of says, we'll do anything to protect the monetary system, which means going beyond the original boundaries, which is money and payments to the non-bank financial institutions.  And I think that debate is going to come up again because, in a sense, they have exceeded their mandate.

And it's not -- I mean, everything they've done can be found in the Federal Reserve Act.  Okay, they can justify it.  So I'm not going to get into this legalistic stuff.  But in a sense, their real purpose was not to control the entire U.S. financial system.  That wasn't what the founders had in mind.  And I think they've gone beyond their mandate.  And there will have to be some discussion about maybe rolling it back.

STEIL:  Dick, do you have any thoughts specifically on the powers of the Federal Reserve and perhaps the Treasury, which of course now has an ownership stake in some major financial institutions?

RICHARD SYLLA:  Well, I think, we're witnessing a whole new chapter in the history of central banking being created.  For many years, the central banks were -- decades really -- were constrained by being part of a gold standard system or some kind of specie-based, commodity, money-based system.  And of course, with the collapse of the Bretton Woods system, in 1971, all money has become fiat money.

You know, John Law from France, in 1720, is -- was just 250 years ahead of his time.  And now, in the 1970s, we've really gotten to John Law.  John Law was a Scotsman who took over the finances of France and tried to convert them to a fiat-money system.  Since 1971, we're on a fiat-money system, and that has really freed up the central bank to do the sort of wild things that we're witnessing, that Mike referred to; you know, wondering whether they could really do it or not.

STEIL:  And of course, that was the result of a crisis in Bretton Woods, and --

SYLLA:  Sure, sure.  I mean, the real problem is the world economy has increased, you know, 150 or 300 times since 500 years ago, and it's very hard to supply a growing economy with enough money if you have to dig it out of the ground and refine it and then bury it back in the ground in Fort Knox.  (Laughter.)  You know, a silly system.

So we finally, you know -- you know, in the 1970s we realized that John Law had a good idea in 1720, and now the Federal Reserve can expand however much it wants, you know?  I mean, it's -- theoretically, there's no limit to it.  But what it's doing, I think, is an illustration of what are sometimes called Bagehot's rules, and that's that in a financial crisis the lender of last resort should lend freely on good collateral, but they ought to do it at a penalty rate.

Now, the variations we're seeing today is that they're lending freely on not-so-good collateral, at a rate that's not exactly a penalty rate.  That's what I mean is the new chapter in the history of central banking that's going on now.

But this all sounds, like, sort of ominous, you know, where we're getting into uncharted territory.  I actually think that this crisis is like many of the crises, you know, going back 300 years, outside the United States.  The South -- Mississippi and South Sea bubbles in 1720 are -- were just like this, and most of them are just like this. And -- but what distinguishes one crisis from another is, does somebody step up to the plate and take bold action.

Michael mentioned that the first U.S. crisis was in 1792.  And I bet you hardly anyone in the room knows there was a great financial crisis in 1792, because somebody stepped up to the plate and handled it very well.  His name was Alexander Hamilton.  It's all his fault.  He created this modern financial system, which is prone to crisis, but he also created the national debt, which some call the national blessing, and which is now being expanded to get us out of the crisis.

I mean, in 1907, Michael mentioned, there was another example of bold leadership, on the part of J.P. Morgan.  If you've studied the 1820s, you realize that Nicholas Biddle, the president of the Second Bank of the United States, took bold actions.

So, you know, one of the ways you get out of a crisis is bold action.  I'm seeing it in this one.  There's a lot of bold action there.  We're kind of expressing our doubts about it, but since I teach a course on the history of financial crises, I can say most crises that are well handled exhibit some sort of bold action.  Ones that aren't so well handled, like in the 1930s -- Michael mentioned that -- basically the Fed sat there while, you know, 8(,000) or 9,000 banks failed.  And only with Roosevelt, when the bottom had fallen out of the economy, did we start to get the bold actions that Michael referred to, our modern regulatory framework.

So I think if you want to feel good about the present crisis, be happy that some of these bold actions are taking place.  Imagine how things would be if the Fed had just sat there and let the crisis get worse and worse, if the Treasury had just sat there.

So I think we're seeing the bold actions.  You know, the same thing was true in the 1930s.  Roosevelt's actions were bold, and all kinds of people had their doubts about it.  You know, "that man in the White House, a traitor to his class."  And probably he was drummed out of the Council on Foreign Relations if he was a member.  (Laughter.) But, you know, that was the sort of bold action that got us through it.

STEIL:  Bob, what are your thoughts about the 1930s? Commentators seem to be rapidly trying to relearn their Keynes and relook at FDR and what he did.  What can we usefully learn from the 1930s, and what, perhaps, are the cautionary lessons?

ROBERT J. SHILLER:  Well, first of all, I think -- you mentioned Keynes.  His 1936 book, "The General Theory," was really the most important economic book of the 20th century.  And it's being resurrected now.  It's been thought to be in disrepute by academic economists as we've seen academic economics move toward what they call dynamic stochastic general equilibrium models.  Some of -- all of you know what I'm talking about, a real business cycle model?  Even Gordon Brown referred to that 10 years ago.  I don't think he makes reference to it anymore.

Edward Prescott won the Nobel Prize, with Kydland, for a theory that said that the only thing that drives the economy is technological progress.  That's called real business; the cycle is really just the rational response of the economic system to shocks, to technology. And that was interesting, but wrong -- (laughter) -- his Nobel prize notwithstanding.  But but's the way research works.  You make some mistakes and you learn something from the experience.

So we're coming back to Keynesian economics.  The thing you have to realize is that in the 1930s there was no established theory about fiscal stimulus, and so when Keynes wrote this book, it was not -- it was very avant-garde.  Now it's almost like an knee-jerk response. Everyone thinks that, well, Obama has to do a stimulus package. There's hardly anyone saying that there's something conceptually wrong with that idea.

So I guess that was something that was a legacy of -- that was a major change in economic thinking that occurred in the 1930s.

One effect that it had, which is often overlooked, is that we developed our national income accounting at that time.  And Keynes emphasized the breakdown of the national product into consumption, investment, government expenditure, exports and imports.

And then those -- he had separate models for each of those components. That created an accounting system, and our -- a system of every country in the world today is based on the Keynesian idea.

So that's where we are.

Now the problem -- I'm writing a book now with George Akerlof called "Animal Spirits," which is -- takes from a term that Keynes used in his general theory.  We think that the Keynesian revolution hasn't been properly interpreted or understood, and that Keynes used the term "animal spirits" to refer to the -- these -- sort of the inconstant part of human activity.  "Animal spirits" means the -- what moves you, what motivates you, what really motivates you.

And Keynes said, in effect, that if people really took into account all of the uncertainties that we are faced with, we might be paralyzed into inaction, because we just don't know the future.  We never know the future.  And anyone choosing an investment project is -- for a company or for anything, is faced with lack -- fundamental lack of knowledge.  Academics build these stories as if we know the probabilities, and we have decision theory that we teach our MBAs, but in fact you can't really do that, because the decisions you're making are very much decisions that build forward for years or decades, and the world is changing, and how do you come up with probabilities?

So somehow Keynes said that, well, people have -- there's this internal drive to do something and to -- it's an intuitive feeling about what's right and what -- so one thing that I -- we took from the general theory that is not often talked about is that it's these animal spirits and it's this sense of -- people call it "confidence" very loosely, but it's some willingness to go forward that can be damaged.

What I think is -- really was damaged in the Great Depression and is damaged now is the sense that this is a good time for anything. Right now it's a bad time for everything.  And so -- I'm exaggerating. There are some -- (chuckles).  Maybe you want to go back and get your MBA now.  But actually it's not a good time for that either, because they're getting overcrowded with the MBA program.

But that's the -- what George Akerlof and I are arguing is that we only partially learned that lesson in the '30s.  And what -- the fundamental problem that we see that -- underlying the difficult situation we're in is that we've lost this confidence.  There's just this pervading -- all-pervasive sense of fear.

It's what -- in his inaugural address in 1933, Roosevelt said, "The only thing we have to fear is fear itself."  And then he said, "We are struck by no plague of locusts."  He was struck that there was no reason for the economy to be in this trouble.

And incidentally, he bailed out the -- you know, the deposit insurance ended the bank runs in 1933, but we didn't have a recovery from the recession until World War II.  That's the only thing that got us out.  So all these reforms didn't do it.

And why didn't they?  So George and I are thinking that it had something to do with this pervasive sense of trouble and uncertainty about what government regulations there'd be and what environment we're in.  And everybody was on hold, until the world war got us out of it.  And this is a very hard thing for economists to model and argue that -- to think in different terms.

STEIL:  Let me push you further on this question of fiscal stimulus, because we're about to get a big one of some form or another.  Keynes was never clear on exactly what the components of fiscal stimulus should be, whether it should be increased government spending, whether it should be tax cuts.  Greg Mankiw had a piece in The New York Times arguing yesterday -- saying that, you know, you look at the empirical evidence and, at best, it's ambiguous.

Obama seems to be splitting the difference between the camp that says we should be focusing on government spending and the other camp -- at least the other camp that supports fiscal stimulus -- that says we should be focusing on tax cuts.

Now, based on the evidence, the historical evidence, what do you think we should be doing?

SHILLER:  Look, the thing about fiscal stimulus is that -- I view it as -- the ultimate thing is to restore confidence.  And the problem is that it doesn't necessarily do that.  And I don't think we have a real sure route to success.  So we could stimulate the economy for a while, and then you withdraw the stimulus and it just goes right back down.  That's what Japan saw for -- ever since its bubble burst in the early 1990s.

So I don't know that we have a secure understanding of -- because it's really about driving confidence.  We don't know.  There's a tendency to view fiscal policy in very mechanical terms, when it really should be viewed as -- in psychological terms.

The other thing that George and I emphasize in our book is that on top of this problem of lack of confidence, or related to it, we have a lending system that seems to be broken.  And even though we've cut interest rates to zero at the short end, lending is not moving. And so this is not just a matter of general mass psychology, it's getting those institutions working right.

So some steps the government has taken have been very important. One of them -- it's often forgotten that when Fannie and Freddie failed, the government put them in conservatorship and told them to keep on securitizing.

That was a very important step, without which the real estate market would have collapsed even more strongly.

So it's not just conventional fiscal and monetary policy that's needed, I think, now.  It's also something to do with credit, making sure that credit is available.

STEIL:  Dick, do you have any thoughts specifically on this question of the role of fiscal policy in getting us out of a crisis? Do the 1930s hold any lessons for us?

SYLLA:  Well, I think, I disagree with Bob slightly.  I mean, there was some recovery in the '30s.  But then there was a major, you know, mistake made in the middle of the 1930s.  The, you know, the Federal Reserve had sort of been fingered as the agency that probably screwed up the most in the Great Depression era.

So Americans, you know, with our light-hearted approach to things, what do we do?  We increased the power of the Fed.  And the Fed got the ability to vary reserve requirements in the Banking Act of 1935.  And then the Fed looked at the banking system, which like today was holding huge amounts of excess reserves.

I agree with Bob, 100 percent, that the problem is really confidence, and bankers are shell-shocked now.  And so they're holding huge amounts of excess reserves.  They don't want to lend.

Well, in the middle of the 1930s, the Fed looked at the bankers holding huge amounts of excess reserves and said, this might threaten inflation.  And so what they did was, they raised reserve requirements.  And then the bankers said, gee, you took away a lot of our reserves now that we were holding, because we were scared out of our minds.

So the only thing to do now, and this was 1936-'37, when the Fed raised, doubled the reserve requirement, the bankers immediately stopped lending, calling in loans and said, you know, they really wanted to hold those excess reserves.  They felt comfortable with it. When the government took them away, they stopped lending again.

So we got the recession of 1937-'38, which was a really bad one. And apart from -- you know, if that mistake hadn't been made, we might have had a little more recovery.  Bob's right in the sense the government didn't really spend enough money in the 1930s.  I think  that, you know, this spending will help a little bit.  It will help whether it's tax cuts, increased spending.  The recovery package will help some.

I think Bob is right though that part of the effect is not just the mechanical -- you know, run it through the model and see how much stimulus you get -- but it's the effect on confidence.  And I think the new president can probably do quite a bit in that area, even apart from his stimulus package.  So we'll have to wait and see whether he acts like Franklin Roosevelt.  I understand he's been studying Franklin Roosevelt.  So we'll see what he says.

STEIL:  Jerry, you've written an enormous amount on the history of capitalism and economic thought.  What historical parallels do you find useful, in terms of developing a long-term perspective as to how the system is going to evolve from here, given the political forces that have been brought into play?

JERRY Z. MULLER:  Well, to go back to something that Michael Bordo said, but to restate it somewhat differently, the history of capitalism is the history of failure.  I mean, the history of socialism is the history of failure too, but it failed sort of definitively because there were basic problems it couldn't overcome.

The history of capitalism is of the development of new institutions, new practices.  And those institutions and practices turned out to have certain advantages.  And they also turn out to have certain unanticipated or unintended disadvantages.  And that then leads to a crisis that then leads to institutional reform, both in the sense of governmental institutional reform, but also on the level of companies themselves and of investor actions and so on.

And I think that when we think in -- the historical analogies can be useful, and they can also be very dangerous, because in a way, historical analogies are like flashlights.  They guide our attention to some aspect of reality, but they leave other aspects of reality in the shadows, so to speak.

And nowadays, the -- you know, the historical analogy that's on everybody's mind is the Depression, from 1929 on.  And indeed, there's lots of things that we've learned from the Depression and the way that it was handled.  In terms of monetary policy, we know the Fed then did the wrong thing.  They contracted when they should have loosened.  In terms of fiscal policy, we know that tax rates were kept high and even increased when they almost certainly should have been decreased, as, for example, Keynes wanted.

In terms of sort of ideological tone, there was a highly anti- capitalist ideological tone in the Roosevelt administration that probably played a big role in decreasing confidence and animal spirits.  And we've learned from that too.  So you don't see major politicians in Western countries speaking in anti-capitalist terms, even though you might think, based on the crisis of the system, that they would be.

But I think there's a danger here, and that is precisely because this analogy of the 1930s is so much in people's minds.  So they think, in terms of monetary policy, what did they do wrong now, what should we do right now -- what did they do wrong then, what should we do right now?  I mean, Ben Bernanke spent a lot of his career thinking about precisely this issue.  Fiscal policy -- we now know that you shouldn't increase taxes at a time like this, that there should be some kind of a fiscal stimulus.

What I'm concerned about, though, is I think that this may very well miss some of the key issues.  And a lot of those issues have to do with what I've come to think of as a kind of crisis of epistemology in our capitalist institutions; that is to say, a crisis of understanding with the -- within the institutions themselves that are related to what you might call opacity; that is to say, an inability to see clearly what's going on and hence to understand clearly what's going on.

I don't just mean on the part of government regulators or public policy officials; I mean what's most striking when you look back on the past few years is that the people who were the key actors in our financial institutions -- I mean the heads of big financial firms and so on -- didn't understand what was going on.

And they didn't understand, largely, I think, for reasons that are sort of dialectically related to the innovations of the most recent era.  So it's an era that put a great deal of emphasis on the virtues of diversification, of diversification of investments, of diversification of firms, especially with the repeal of the Glass- Steagall Act, that allowed, then, for much more multi-faceted firms.

Well, it turns out -- this was supposed to have certain advantages in terms of decreasing risk and so on.  It turned out to have certain unanticipated disadvantages in terms of spreading risk.

And then there was the supposed advantages of -- and then the notion was if you diversified holdings enough into CDOs and so on, if you brought together enough kinds of assets, that that would also decrease risk.  That turned out to be dialectically false; that is to say it meant that you were bundling together more and more assets where you couldn't keep track of what was what.  Even the people who put it together and especially, of course, the people who bought these instruments don't know to this day what's what, that is to say, what things are worth.

The supposed advantages of more sophisticated financial instruments turned out -- they turned out to be so sophisticated that really nobody could understand them, not least the heads of the firms who were making -- who were presiding over firms that were making investments where they didn't understand the nature of the risks involved.  And that goes together also with the kind of festishization of math, that if you -- you know, if you have the math right and you have purportedly hard numbers then you don't really need to know what the underlying assets are.

So I think, in many ways, we have a kind of, as I say, epistemological crisis, a crisis of understanding in our -- in our major financial institutions.  And in order to restore the confidence that people have been talking about, it's not just going to be a matter of monetary policy.  It's not just going to be a matter of fiscal policy.  It's going to be a matter of very substantial reform both of regulation but also very substantial reform by financial institutions themselves.

I think the idea of having these diverse form -- these very diverse firms, financial firms, investment firms and so on that are all part of one big firm, I think that's turned out to be counterproductive, and I think there may very well be a movement away from that.  I saw this weekend that Citicorp is actually in the process of breaking itself up, precisely, I think, as a response to this crisis of understanding.

The whole pay for performance business that -- where you have these numerical indices of how people are doing -- creates tremendous incentives for gaming the metrics, as opposed to actually creating new, useful things.

So I think that actually, when you look at the historical analogies, there is a kind of danger in focusing on what happened in the most -- in the seemingly most analogous situation in the past, because it may blind us or call our attention away from problems that are genuinely novel or at least novel in their extent.

And largely in the past, when you look at the history of economic crises, there's usually some underlying decline in the price of a commodity, like land, or you have some kind of a bubble.  And that then gets reflected in the financial system.

I think what's so striking about this crisis, it's a crisis largely caused by the financial institutions.  And so I think there's going to be -- there needs to be a lot of reform, both on the governmental level and not least though on the level of the financial institutions themselves and of course in terms of the -- in terms of people's investment behavior.

Maybe you shouldn't invest in companies that are either too big or too diversified for the CEO to really understand what the hell is going on.  If he can't understand it, maybe you shouldn't be giving him your money.

STEIL:  On that note, I'd like to -- (laughter) -- open up the discussion to the audience.  If you'd like to ask a question, wait for the microphone to come.  Stand up.  Tell us who you are and what your affiliation is.  And please try to keep your question as short as possible.

In the back there.

QUESTIONER:  (Name inaudible) -- from Landor.  This is for Professor Shiller.

There's a lot of wisdom around unlocking the housing market sort of being the key to restoring animal spirits eventually.  Can you talk a little bit about that and specifically with reference to the initiatives right now, between one of the big banks and legislators, to get a bill passed, to put the power back into the courts to renegotiate terms of foreclosures?

SHILLER:  Well, the housing market, I think, is central to the crisis.  And I don't know that it's been brought up.  But the reason we are -- of course, these financial system problems are  important.  But what was the disturbing factor -- it was -- that got us here?  It was the bubble.  We had actually twin bubbles.  We had a stock market bubble in the 1990s.  It peaked in 2000.  Then it started up again after 2003 and crashed.

So the stock market, in real inflation-corrected terms, has taken a 50 percent drop in value, since 2000, which is not as big as the Depression, which was 80 percent.  But it's very huge.  And that was a bubble.

It was excitement, overconfidence and then a -- and then a retraction from that.

Secondly, we had a housing bubble.  Home prices rose almost doubly between 1997 and 2006, in real terms.  And once again, that was caused by investor euphoria, a sense that we're all going to get rich investing in housing, and a distorted thinking about there's a best investment, that you should buy two or three houses.  And it got people -- it invaded our culture, and it changed our way of thinking. And we pulled back from that, and now home prices are down over 40 percent, in real terms, in a number of cities.

So that's the fundamental problem.  And the risk -- I think it's correct that -- it's good, in a sense, that home prices are back down, because they were elevated.  High home prices are not what we want. But it's created all these problems:  that people are underwater -- it's a fundamental problem; they owe more on their house than the house is worth.  We have financial institutions who have exposure to real estate risk they didn't manage.

You're referring to one particular thing, that the bankruptcy law does not allow bankruptcy courts to adjust the balance on a home mortgage in a bankruptcy file.  They can adjust other debts, but not the home mortgage.

I suppose that's something that we ought to correct, because I think that the problem that homes -- homeowners are in now is affecting our national psychology in a huge way.  We're not doing enough for homeowners who are in trouble.  And it's a classic case where we have a financial crisis that put people in trouble, and if we don't do -- there's the question about what's fair and whether we want to have taxpayers pay for the mistakes of others.  But I think that we have to do something for people who are obviously suffering for mistakes that were not, mostly, their own doing.

And that bankruptcy law change is one of a number of things that ought to be done.

STEIL:  Mahesh.

QUESTIONER:  Thank you.  Thank you very much.

My career has been in structured finance.

STEIL:  Can you tell us who you are and --

QUESTIONER:  Mahesh Kotecha, Structured Credit International.

I therefore ask about innovation and opacity.  We have complexity and all the math, and it's going to be very difficult, it seems to me, to unwind from that.  What do you see as the -- as the unraveling of complexity and the restoration of simplicity, as it were?  And is there really the prospect for that, having come this far?

STEIL:  Jerry, would you like to take that on?

MULLER:  Okay, so -- well, one way of diminishing complexity is by diminishing this -- is by something like -- and I'm not saying this is an exact analogy -- but something like a new Glass-Steagall act that would disaggregate various financial institutions into more and less speculative parts that would -- so that if one -- if one part of the operation became overexposed in terms of risk, it wouldn't bring down the whole thing.

I think in terms of the size of financial institutions -- you know, I'm a bit afraid that because people haven't been thinking enough about these issues of knowledge and complexity and opacity, that some of the things that have gone on really just in recent months may be counterproductive:  the degree to which the Treasury has encouraged some big banks to take over other big banks; the degree to which they've encouraged more speculative sorts of institutions to take over depository banks, to supposedly increase their leverage and so on.  These may be exacerbating the problems of opacity and the problems of complexity.

So I'm not sure what all the solutions are, but I -- but I think that some disaggregation of financial companies, both by law and by the inner motivation of companies and investors themselves, are probably in order.

That having been said, I think I'm better at identifying the problem than identifying the solution -- (laughter) -- but that's at least further than a lot of people have gotten.  (Laughter.)

STEIL:  Dick, do you have any thoughts on the solution, in terms of financial sector reform, specifically?

SYLLA:  You're asking me?

STEIL:  Yeah.

SYLLA:  Yeah, I mean, I -- we're bound to get some reforms.

I mean, throw out a couple of ideas -- you know, before the financial crisis hit, there was this discussion of -- it's called the Warren Buffett issue.  Warren Buffett said:  Isn't it strange that in this country, I, who make, you know, billions a year, pay a lower tax rate than my secretary, who makes, you know, 50,000 (dollars) a year?

And apparently there was this business about the gains of the hedge fund guys and that were taxed as capital gains rather than ordinary income.  And I'm thinking about that -- you haven't heard anything about that for the last couple of years, because there are bigger problems.  But think about, as an incentive problem -- I think this crisis, we ought to talk about the incentives of various people in the system.  And, you know, if you, you know, could really make a huge amount of money and you were taxed at a low rate, well, maybe you would take more risk to do it.  You created an incentive.

So maybe Buffett was right.  I think he was calling for himself paying the same tax rate that his secretary did -- shocking, shocking. And I understand that when this idea floated, our wonderful senator, Mr. Schumer, went to Washington and said, no, no, you don't.  You want to keep the tax rates low on these guys earning billions a year.

It's like Galbraith used to say; you know, you have to keep the tax rates low on the rich people to give them proper incentives, but you need to keep them high on poorer people in order to give them incentives to work.  (Laughter.)

SHILLER:  By the way, Buffett is giving it all away.  So --

SYLLA:  Yeah.  Well, one more idea, though, Benn.  One more thing.

The other idea thrown out is that -- you know, it's not original with me, but some of the -- you know, Wall Street had a big shift from partnerships to corporations.  That has a lot of incentives.  We should think about how the incentives changed when Wall Street firms became big corporations instead of partnerships.  And I noticed that one of the really sage people on Wall Street -- his name is Al Waushinlauer (ph) -- in one of his recent letters said maybe the government -- I thought it was shocking that he said this -- but maybe the government should require the Wall Street firms to become partnerships again so they have skin in the game and it will give them better incentives.  Think about that.

QUESTIONER:  My name is Richard Weinert.  There was a brief allusion to Japan in the various comments made, and I'd like to ask you -- Japan, of course, had a major financial and economic crisis in the '90s and has had major fiscal and monetary stimulus since without success.  So I'd like to ask what lessons might be learned from that experience.

STEIL:  Michael.

BORDO:  Okay.  I think that Japan had a number of problems which are similar today.  They had a banking crisis and they had a period of close to deflation, or mild deflation.  The problems with Japan were that they didn't really address the issues of the banking crisis or of deflation until it really -- it really dragged on.  They didn't really deal with the banking crisis until 1997, something that seven years after it started, when they started to move to what's called a good bank/bad bank strategy, where they, you know, pooled the bad assets and sold them off and then injected capital (into the good ?).  So they started doing that in '97, and it actually did have some effects.

And monetary policy -- they were very slow in following expansionary monetary policy.  Finally, again in the late 1990s, they  followed this quantitative easing and they pushed interest rates to zero.  And that actually did get them out of the deflation.  Okay? They haven't really stimulated the economy very much, but they actually got out of the mess.  Okay?

And so what I learned from -- and the fiscal policy, they engaged in massive fiscal expansion in the early '90s, government spending, which was only successful while it was going on.  Okay?  Then they got worried about possible inflation and they started raising taxes. Also, the government spending, okay, was largely on unproductive public sector projects which didn't really do very much in terms of really -- really affecting the productivity of the economy.

So that's one lesson we should learn from Japan, not to repeat that, the kind of public sector spending they did, the types of spending they did.

But I think the real problem with Japan is they didn't really follow an expansionary monetary policy early enough or long enough; that the policy of quantitative easing that they moved into, and that we are now copying, okay, actually is the way to get out of the kind of doldrums that they were in; and that you really need to reflate the economy.  You have to just, in a sense, throw money at the monetary -- at the economic system.

And a lesson that I get from that is that when you have a banking system that freezes up and bank money freezes up because there are bad assets on the books of the bank, you go around the banking system. You buy assets that do not directly impinge on the banks, okay.  You buy corporate securities directly; you buy long-term government bonds, okay.

And this does work.  And it did start to work in Japan, okay. They didn't go far enough, but it did work.  And that's the policy, I believe, that's really going to get us out of this recession right now, okay.  I'm an old-fashioned monetarist from way back.  Milton Friedman was my thesis adviser in the '60s, okay, and I really think that monetary policy is the key, okay, and that is -- the Fed is what's going to get us out.

And when the dust settles, okay -- and this is like an episode in economic history 10 years from now, and they're going to say, "Well, what got them out of the recession," they're going to say it was expansionary monetary policy.  Okay, they're going to say it's the quantitative easing that they started in -- at the end of 2008 that really was -- set the stage for coming out of the recession.

STEIL:  Michael, can I keep you on this issue of monetary policy for a moment, because the history of monetary policy has been one of your areas of specialty.  And in the 1920s, the Federal Reserve was dealing with their monetary policy responsibilities in a very perverse way.  They were -- in theory, they were following a gold standard, but gold was pouring into the United States, yet the Federal Reserve was pursuing a very tight monetary policy.  And many economists consider that to be one of the causes of the stock market crash and then the Great Depression that followed.

In the 1960s we were on a gold exchange standard, but of course the U.S. was losing gold reserves very rapidly, and just trying to cover it up by encouraging France and others not to cash in their dollars for gold.

And many are pointing to monetary policy again as a root cause of the current crisis, particularly the very low level of interest rates that we had from 2001 to 2004.

What are your thoughts on the role of monetary policy?

BORDO:  Yeah.  I mean, I think the environment that created the crisis -- not the causes of the crisis.  The causes of the crisis are in the financial system, okay, and in the subprime mortgage market, et cetera, and this has been discussed by a lot of people. But the environment that created the bubble, the first bubble, the stock market crash -- that led to a stock market crash that Bob talked about and the second bubble that's part of the first bubble -- is expansionary monetary policy.

The Fed kept interest rates low, okay, starting in the late 1990s. And after the East Asian crisis and after the Russian crisis they really worried about the crisis spilling over to the U.S., okay, and so they loosened.  They tightened a little bit, but not enough.  Okay.

Then after the 9/11 crisis, again, they thought 9/11 was going to lead to a major financial crisis.  Okay.  What they did was they loosened considerably, and they have not -- they did not tighten until two or three years later.  In fact, then the -- the next problem was deflation, and they said, "Gee, we're going to have a deflation like the 1930s or, if not that bad, like Japan.  We have to follow a very expansionary monetary policy."  And they did in 2003 and 2004.

So this was the environment that provided the monetary expansion, that provided the credit, the easy access to credit that fueled the booms.  First it was the stock market boom and then the housing boom.

Okay.  They started tightening, okay, in reaction to a fear of inflation, in 2005, okay.  In a sense, that was -- the tightening itself, even though it was very minor, if you look at the data -- okay, that tightening itself was the trigger that led to the end of the boom, okay, because all you need in the story of booms and busts is some trigger that makes the valuation that leads to the bubble, that makes the valuation suddenly become clear to people that it might not work, and that leads to the sell-off and the crash.

Okay.  It was the tightening that started in 2005, okay, that created -- that in a sense set the stage for the crash.  But the real problem were the low interest rates in the early 2000s.

STEIL:  Bob, do you have any thoughts on Japan or monetary policy?

SHILLER:  Yeah.  I think that I wouldn't describe the fiscal policy in Japan as a failure.  They did not have anything like the Depression of the 1930s.  Japan has continued to grow at a slow rate over this period, and it's kind of remarkable that they've done so well after having seen the bursting of these huge bubbles.

And so I think the -- I guess I have a different view of the world than Michael.  You seem to put it all onto the monetary authority mistakes, and I would grant you that they made mistakes. But the rest of us make mistakes too, and part of what goes on in these bubbles is in our own minds, and also part of what drives the monetary authority are the same mistakes that other people are making.

So there was complacency in the Fed about the housing bubble, probably for the same reasons that the rest of us were complacent about it.

STEIL:  John?

QUESTIONER:  John Mbiti from UBS.  One of the lessons we've learned from the current financial crisis is that intermediation of risk reduces the incentives for adequate risk management.

In other words, so long as risk is intermediated, from a mortgage loan broker to a commercial bank to an investment bank to an investor, there's really no incentive, at each stage of the game, to have adequate risk-managing policies in place.

In terms of overhauling or reforming the financial regulator system, what policies, do you think, could be adopted to ensure that there are sufficient incentives in place to make each participant adopt adequate risk-managing policies?

(Cross talk.)

SHILLER:  I just had a couple of quick things.

One is, the rating agencies were being paid by the people they were rating.  That was something John Moody, in his autobiography in 1934, said very clearly.  You should never, as a rater, accept money. It's like professors accepting money from their students before grading them.  (Laughter.)  You can't do that.  And that's something that we have to fix.

And the other thing is that issuers of securitized mortgages should have more skin in the game.  They're selling it off too completely.  And so they didn't -- we need to force them to take on more of the risk that would incentivize them to manage it better.

STEIL:  Can I push you on that question of credit rating agencies?

I think it's very easy to say that the issuers shouldn't pay them.  I think that you can make a pretty strong argument that that's the case.  But it's unlikely that investors are going to pay for it because of course, as soon as a credit rating is issued, everyone can take advantage of it.

So you've got a big free rider problem.  And so if credit rating agencies can't charge anyone for giving a credit rating, then why should they bother at all?  In which case, should we even have such a government-sanctioned industry, in the first place, or simply declare that these guys are institutions with opinions -- like, you have an opinion; I have an opinion; The Wall Street Journal has an opinion -- and let it go from there?

SHILLER:  It's interesting that John Moody talked about this in his autobiography too.  When he set up Moody's in 1901, people told  him, you'll never make any money doing that, for exactly the reasons. And he did it out of some sort of mission, sense of mission.  And he did all right.

We had Moody's.  They didn't start accepting commissions from the people they rated until, I think, long after John Moody had died.  And so it is a model that worked.

Now, it may be a little different in the Internet age.  And there might have to be some financial innovation.  I don't think it's simple and obvious to know how you deal with these agency problems.  That's one of the things that we keep learning through time.

STEIL:  Dick, do you have any thoughts?

SYLLA:  Well, these credit agencies sold like newspaper subscriptions, you know, like magazines.  (Inaudible.)

The big difference was that, I think, if you go back and look at Moody's or S&P back in the late 1960s, I mean, they were companies. They were famous names.  But they had 10, 20, 30 people working for them.

I mean, you know, and then they decided that and of course, they were -- we got into an era where all kinds of securities were issued by more and more places all over the world.

They changed the model from selling subscriptions like -- you know, like your Economist magazine or something like that, to this model of the guys who wanted the ratings of their securities -- they had to pay for them.  And of course that led to a huge expansion of the business, created all these conflicts.

The government made a mistake in the 1970s by dubbing these old raters Nationally Recognized Statistical Ratings Organizations, sort of putting the government blessing on them.  And then the whole world had to sort of get Moody's and S&P and Fitch to rate their securities. And then they started charging for it.  And it was a very lucrative business.  And I think that we got into this mess.

So -- and I mean, the model can work, but one might say, you know, why have these private -- maybe the government itself should rate the securities.

STEIL:  Yes, right here.

QUESTIONER:  I'm Steve Friedman from Pace University.  To what extent do you think the excesses in the system are powered by the compensation systems in the financial services industry, in which everybody, right down to loan officers, are compensated on the basis of revenues?  And if you think that is a problem, is it a problem that you think a regulatory system can deal with?

STEIL:  Jerry, you want to start on --

MULLER:  Yeah.  I think the answer is hugely.  It creates all sorts of perverse incentives.  It creates agency problems within firms -- that is to say, of people selling -- creating and selling financial instruments that bump up their individual numbers or bump up the numbers of their subunit at the expense of the corporation as a whole.

I think something that somebody already mentioned, that when major investment firms went public, in retrospect we see that created all kinds of negative incentives -- negative -- I mean, counterproductive incentives -- that is to say, incentives to manipulate the numbers by selling more and more stuff, regardless of the quality of it.

That meant then you wanted to find some standardized way of claiming to objectively evaluate the stuff, right?  So you had these various -- these very dubious mortgage lenders and so on, which was  simply discounted, on the notion that if you aggregated enough of these things together, these BBB properties, if you aggregated enough together and tranched them, you could miraculously create triple-As out of them.

So I think that yes, the compensatory system -- and this may be a larger problem in American economic culture right now, the extent to which people in -- the extent to which -- I mean, this is -- this was criticized for a long time under the rubric of short-termism -- the extent to which -- the whole notion of shareholder value, that you're going to increase profits every quarter, and you're going to do it by all sorts of forms of manipulation, including not investing in human capital, including massaging the numbers, all sorts of ways of trying -- if people are just oriented towards short-term investments, as opposed to what used to be called buy-and-hold investors -- are there still such things? -- then you have a system where, in some ways, it's -- it created much greater liquidity in the market.

And that's seen as a good thing but, again, sort of dialectically, this turns out to have a lot of negative consequences.

So yes, I think, in answer to your question, the existing compensation system is a huge problem.  Whether that ought to be corrected by government or whether we will start to see changes within firms themselves -- not, of course, in response to executives in the firm, who are perfectly happy to be compensated that way, but in response to investors, pension fund investors and so on.  Maybe they will be the ones pushing for changes in structures of incentives, because, by and large, it hasn't worked out very well.

STEIL:  Okay.  I see a hand in the back.  Yeah, right -- you. Yeah.

QUESTIONER:  Dale Ponikvar with Milbank Tweed.  Two causes which I don't think we've talked about that I would like to hear your views on:  One is the dollar -- could this have happened anywhere other than the United States?  And secondly, somewhat linked to it, international politics -- could this have happened without our policy towards China?

STEIL:  Michael, you want to start on that one -- on the dollar?

BORDO:  Okay.  I think that one of the -- one of the causes that people have talked about, including the chairman of the Fed, for the expansionary environment that led to the boom, was the savings glut from China, which is part of a -- which comes out of our -- out of our international policy.  And part of what Peter Garber, who's sitting in the front here, talks about is a new Bretton Woods system.

So that created part of the environment, but I kind of think that most of the crisis was home-grown in the financial system, and that the dollar, in a sense, is sort of a by-product of what's going on inside the United States.  And so I think that the concerns that people have about the dollar depreciating as a consequence of this crisis are kind of beside the point, that we -- in a sense, we want the dollar to depreciate to stimulate the economy.  And I think the Fed is deliberately following this kind of a policy.

And I think that the dollar is determined in a free market, and that when the economy recovers, the dollar will recover with it.  And if we -- if we follow the policies we need to follow to stimulate the economy and stabilize it, that the dollar will fall into place, and  that the reason that the Chinese and others have invested so heavily in the U.S. is because of their long-term faith in the U.S. system and the fact that the U.S. is a good place to invest.

And I don't see that changing, that long-term prospect of the productivity of U.S. capital changing much in the future.

STEIL:  Other thoughts?

SHILLER:  Well, I think part of the story is the psychology generated by our perceptions of China.  Yeah, they want to invest in us and they are growing rapidly wealthy.  It created a sense during the boom period of a world that's running out of everything.  And I keep bringing up the psychology as part of this.

QUESTIONER:  Hi.  Thanks.  My name is Ken Miller.  What if the problem is not the rating agencies, the financial incentives, regulation, but this tendency of the capitalist system to over-produce -- over-produce goods and services?  So you can do all these things -- you talked about the New Deal not working and it taking World War II to get us out of it.  And it's hard from an economic point of view to find a good war these days -- (laughter) -- in the days of nuclear weaponry.

So what if that's the problem?  Do you just have to wait, wait it out until the animal spirits naturally rise again?  Or does it take a war, or something really big to organize the society around?

STEIL:  Who'd like to take that one on?  Jerry?

MULLER:  Well, under-consumptionist theories have been around since time immemorial.  You know, already in the mid-19th century people were saying, what else could people possibly want to buy than the things we already have?  So the capitalist system is over- producing.  In fact, in Marx, among -- he didn't really have one theory of capitalist crisis, but one of them was an under- consumptionist theory.

Then at the turn of the century you had John Hobson, who thought that imperialism was due to the search for markets abroad because the working class at home wasn't able to consume enough, and so on.  And of course, during the Depression in the 1930s, it was an omnipresent theory that Schumpeter and others deflated.

No, I think there's always -- there's always a shifting horizon of new things and services and so on that people want to buy.  The history of capitalism is history of the creation of new wants that come to be subjectively perceived as needs, and that's not going to end any time soon.

So I don't -- I don't think the problem is one of over- production, or a surfeit of production and so on.  I think it has to do with all these other issues, but that's one I'm dubious about.

STEIL:  Let me take two more questions to close, back-to- back, the woman in the fourth row and then Peter in the fifth.

QUESTIONER:  Thank you.  Paula DiPerna, Chicago Climate Exchange.  Just to pick up on this last point, of course, one of the big ideas currently discussed is green jobs and retooling the energy system, smart grid and so on.  So, one, do you think that that's a current big idea?  And secondly, are we sufficiently wired, are the policies sufficiently wired to lead to jobs creation?  Or are we sort of going to put a little bit of money here, there, and the other, so that we don't get this sort of big -- big-idea result?

Thank you.

STEIL:  And Peter.

QUESTIONER:  Peter Garber, Deutsche Bank.

I can think of two states of the world: one in which there's not a generalized banking panic, in which market valuations are reasonably proper, and market assets might be marked down, as bad news comes in, another where there's a generalized banking panic, and no valuation formulas work at all, in which case all the theories of finance fall apart, and all of the rating agencies look terrible, and the whole system looks like a disaster.

That seems to be what we're talking about, a generalized banking panic.  Suppose there wasn't a generalized banking panic, as we didn't have until September, when market valuations looked good.  Then we wouldn't be talking about these things.

So the issue here is a generalized panic.  And are you condemning all these aspects of finance, thinking that we have permanent, generalized banking panic that we're not going to get out of?

STEIL:  Dick.

SYLLA:  Quick answers to both questions.

One, I think, Peter is right.  There are these two states of the world.  And you know, a lot of the things that are going on now, in this one, we should be glad, rarer state of the world, are probably not things we'd want to do when the world was in the other states.

So I agree with Peter that there are these two states of the world.  And you know, nothing is good for every state of the world. There are some things that are proper to do, in this particular state of the world, to get back to the other state of the world.

The other question about the green investments and things like that; there are some of us who think that's the next bubble.  You know, Americans demand a bubble.  The Onion says, Treasury must create a new bubble.  Maybe I think the next bubble might be in some of these green investments.

(Laughter.)

STEIL:  On that note, I'd like to invite you to join me in thanking our panel for an extremely stimulating -- (applause).

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