George Soros: 10 Years After the Crash

i'm here today with george soros as the 10th anniversary of the lehman brothers crisis and the climax of the great financial crisis approaches us i thought it would be a good time for us to reflect on what happened and understand what might have happened and look forward to the challenges we now face thanks for joining me george it's my pleasure so lehman brothers fails on september 15th and you and i were in discussion about the ramifications for social policy very quickly the treasury secretary paulson and ben bernanke of the fed went to the congress and said we must do something or the economy as you know it might collapse you and i talked about this and i'm curious to reflect now on what did you see at the time and what did you recommend as the tarp legislation was approaching well actually we were very much doing it together yes because we both believed that tarp was designed by paulson the wrong way because it was designed to take over the uh bad debts of the banks instead of using it to uh uh inject money into the uh the capital equity of the banks when you put money into equity it has at that time the leverage was roughly 20 20 to one so it was 20 times more powerful money injected at the level of the equity than at the level of the balance sheet yes and 800 billion dollars would have been actually sufficient to recapitalize the the banks to provide the relief for the mortgage holders and correct the imbalance in the economy but they didn't do that in the design and with the help of our friends robert duggar congressman jim moran in the house of representatives and chairman barney frank yeah we inspired a conversation yeah and we arranged a question to barney frank whether the uh it is in the spirit of the legislation that money should be injected at the equity level and he gave an answer in the affirmative right which then opened a way for using it that way which paulson ultimately did invoke and utilize though perhaps in a way i know that you didn't entirely agree with because it was not voluntary no it was compulsory for many banks yeah and he called in leaders of the banks and forced them to take a certain amount that he allocated to them and by doing that he actually stigmatized the banks and that by the way is in contrast with how the british authorities under gordon brown and his chancellor the exchequer did their bailouts where they told everyone you have to raise equity and we will help you but if you can do it in the market you don't have to resort to us the royal bank of scotland and lloyds did require assistance where the equity injection essentially gave control to the government for a temporary period but the others were able to raise capital in as you say avoid the stigma of being forced to take capital shortly after that tarp legislation development started to emerge in europe but i think we should uh follow up a little bit because okay it was polson who designed it but then in november obama won the elections yes and was in charge and um then it had to decide what policy to follow because the money hadn't yet been distributed except a small amount and but the obama administration decided to continue uh the way uh polson started and i was and particularly was in involved in a discussion with larry summers to whom i was very close and i was arguing with him to to change and to inject money at the equity level because it would have still would have been sufficient to recapitalize the banks yes and he refused he objected that to national that would mean nationalizing the banks and that was uh socialism and uh the uh the u.s is not a socialist country valerie may have been right in one respect that there would have been resistance to that design that you and i have uh how we say advocated on the other hand they had already socialized the downside the only thing we were talking about was sharing with the taxpayers in the in the recovery through ownership of equity and don't forget that obama was in the at the height of his powers it's been elected he had tremendous popularity and had he been a little bit more uh radical he could have prevailed yes we'll come back and talk a little bit about what the political controversy surrounding the bailout meant for politics in subsequent elections but let's go to europe just momentarily because i know you felt there were some very profound statements made at an imf meeting and following well basically the euro was at a at a critical point because it had some inadequacies that the designers actually were aware of but they thought that having built up the european union from the coal and steel community by taking small steps setting a date and then gathering the political support they they developed it step by step and they felt that when the this step would be needed because basically they uh the massive treaty created a common currency but it didn't create a common treasury yes that was missing a big big big uh deficiency uh or a common banking union for the financial regulation of all the financial institutions within the eu none of those things were in the they were in the initial vision but they were not implemented at the outset but the big thing was it was half half namely a currency but no treasury yes so that's the missing element but they thought that when the time comes they could get the the uh the support the political will to create it and this is where things went wrong because there was a big financial crisis lehman failed and the finance ministers of europe left the imf meeting a day early and reconvened in in europe and they announced that no other systemically important institution will be allowed to fail and that calmed the markets but then chancellor merkel said i think a couple of weeks later that yes but each country has to take care of its own banks and that was the failure of the of europe to take the next step and have a common treasury yes and then later on america said not over my dead body yes and i would imagine she read she read the public opinion of the certainly of of germany yes the rank right way actually by saying that but that meant that basically germany which was the leading country in europe failed to rise to the occasion yes and uh if i had been the finance minister of ireland on the day she gave that speech it would have been terrifying because the fiscal burden of all the european banks that had branches in ireland became enormous when it was not borne by everyone in europe but only by the irish fiscal power yeah that was that was a very very traumatic experience but not only for ireland because there were other countries the uh the uh so-called peripheral countries that were in the same situation yes so europe then is how would i say a work in progress but the progress stalls and it starts to disintegrate well this led to basically to the euro crisis because eur the european banks were deeply involved in the in the uh various derivatives and that that the american banks issued securities and so they were basically failing and again it was the banks that were bailed out and the european banks as they were failing based on the losses yeah from their american holdings started to contract their balance sheet and what the scholar guillermo cavill calls a sudden stop of capital flows from creditor to debtor nations put the debtor nations particularly in southern europe into a very difficult position right and they wrote a number of books yes i called it a tragedy of europe yes yes so george turning back to the united states there was the bailouts and a fiscal bill put forward to stimulate the macroeconomy but at the same time it seemed that there was a residue of tension there seemed to be a widening gap between the haves and the have-nots many people the tea party on the right an occupy movement on a left were forming and they both felt that the government was taking care of the powerful and not the people and the most profound evidence of that was something that you had objected to going all the way back to tarp which is money needed to be used to relieve the burden of the mortgage overhang all of the people who had mortgages that were deeply under water did not receive any relief yeah well there was an additional problem with providing relief for the mortgage holders i think obama could have prevailed if he had been advised well to inject capital in the banks but when it came to bailing out the mortgage holders there would have been an uprising by the majority of house owners who never took out mortgages who would have objected to bailing out the the people who took too big a mortgage yeah yeah so it was unfortunate but we were looking for ways to find to compensate them but we actually never found them founded because we actually had to abandon the effort because the problem didn't arise because obama had decided to follow the route on which paulson that's not impact so yeah and i also know that the geithner treasury was very conflicted because these mortgages were not easily matched with a creditor because they had all been bundled into securities yeah and that process of restructuring i think could have been handled but it required a great boldness from the treasury to do that yeah so we moved now to the uh electoral process obama has done the bill for fiscal stimulus they've done the bailouts in the way they did the tensions are rising with occupy and the tea party and the first stop is after senator edward kennedy died they held an election and that election was in 2010 in january right after the large wall street firms had paid extravagant bonuses which in contrast to having just been bailed out seemed to enrage people and by the fall of that 2010 the midterm election the house turned to republican control yeah and then the next elections i think senate when in 2014 yes and then trump was elected in 2016. so that was the political price i think it's it's really uh uh you shouldn't give the same weight to the occupy movement as you did as we do should give to the tea party the tea party consisted of two components one were the small businessman who had been deprived of their livelihood yes by the uh the failures the lack of relief and that their small banks their community banks were not bailed out and supported like the big banks so that was one component and the other one were actually the evangelical christians it's a strange combination but it was a very powerful one because they got tremendous financial support from the koch brothers who had actually a different reason for supporting them because they were producing uh their energy business dirty energy and so they wanted to protect their business well there so efforts on the right obviously prevailed if you say occupies on the left because the politics of both house senate and white house are now controlled by the republicans yeah so it's really the tea party and the support that they got from the koch brothers that made them so influential we go back to top again for a moment i remember right as the bill was passing you said to me this is a very dangerous moment we may have to do something you talked about the 1931 austrian and german banking crisis you talked about how unsettling that was in the disintegration of societies at that time and were concerned that something similar might be unleashed as a result of the financial crisis yeah and they had a similar conversation with the anastasia in davos yes right in in january of 20 2009 and right after that we got together and you said you would like me to do a fact-finding mission of how the economics and financial economics profession would respond to this and it culminated by october of 2009 in a group of 30 economists including many nobel laureates from all over the world came to bedford in new york to discuss the failures of the experts yeah and that was foundation of aynette yes yes and i remember uh after three days we we had been talking almost daily for months but after three days with these people you and i sat down for lunch okay and i looked at you i didn't say anything and you said this profession is more beat down than i thought we have to do something here and uh and you could see from the leaders of the profession people like jeffrey sachs george akerloff james merlice there were there were clear awareness across the spectrum some of these were conservative economists some were very left-wing but they all knew something was out of sorts yeah and i think annette has achieved a great deal in the in the last 10 years both in changing the profession but also in influencing policy so i i kind of played the same role with inet as the koch brothers did with the tea party but they were doing it to further their business and i did it because i i was concerned with the and i am concerned uh with the the future of of of humanity well let's talk about that future here we stand right at this 10-year anniversary are there things that unfolded in those 10 years that particularly surprised you well uh basically things have been going the wrong way uh a lot of it of course was due to the fact that that the united states was moving in the wrong direction because the u.s had been the supporter of open society idea all over the world not a not an impartial supporter so it was uh but it was at least one of of the objectives of american policy to help democratic development all over the world and the u.s was going in the wrong direction i mean basically i distinguish between two kinds of regimes one where the elected leaders are supposed to protect the individual freedom that's what i call open society and the other where the rulers are using all the rivers of power that they control to maintain themselves in power and to enrich themselves personally and that's we call it closer to society but more appropriately you should call the dictatorship or authoritarian authority issues and i know we've had conversations in uh in just the past year you gave a very passionate speech at davos about the role of technology and technological monopolies and the danger that they will help the authoritarian control be centralized and strengthened yeah well that's that's what is now posing an unprecedented threat to open society globally because the techniques of ai are designed or are more suitable to control to exercise control over the behavior of the individuals then that is a problem for open society that needs to be controlled also the rise of a big tech monopolies so both monopolies and the development of ai are combined they are threats to open society and they are a technological devices to improve the the ability of dictatorships to to control the individuals under their room and in this respect the cd thinks china threatens a tremendous threat to the uh to open society unfortunately there is resistance within the chinese people to the rise of xi ji ping and this is not well known to the general public but he actually was rebuffed at the baidu conference this summer and the the retired leaders like zurongzi and so on uh have still a lot of uh respect and there is also a tradition in the uh the uh uh history of the chinese empires that the the advisors of the emperor should actually actually voice their opposition even if it means that they are going to be killed so there was this resistance and he's been taken down a peg and apparently there is a real strong desire among the chinese people to resist xi jinping so since democracy can't be imposed from the outside we really have to find ways to support the chinese people in asserting their devotion to democracy so we look around the world 10 years after the crisis and we see tumult in europe an unresolved eurozone more authoritarian energy in europe in the united states they've relinquished the role of providing what you might call the public goods the underpinnings for democracy and we see the rise of china this is a very very challenging and ominous time that things have been going the wrong way yes there's no question about it open society is under uh siege and as fighting a rear guard battle trying to protect what has been achieved but i think and basically up till this point uh everything that could go wrong did go wrong but i think uh the tide is about to turn and i think that in november uh the change will come in in in the u.s and i think the democrats will win both houses of of congress and that will have a tremendous effect also on europe because in europe things are still moving in the wrong direction with the rise of urban and in hungary and salvini in italy and and bannon uh trying to organize yes a sort of a league of leagues uh fighting for uh different uh the opposite of the values that have led to the creation of the european union george i too hope that the kind of change you envision for november in the midterm elections the united states comes to be realized and passes on constructive energy to europe and the rest of the world but i want to thank you for the support you give to inet and open society and allow us to continue trying to support a constructive change in this world keep up the good work we'll try

Channel: New Economic Thinking

Views: 51,412

Rating: 3.7003794 out of 5

Keywords: george soros, rob johnson, inet, institute for new economic thinking, financial crisis, lehman brothers

Id: rFgTvfDTdfw

Length: 30min 11sec (1811 seconds)

Published: Sat Sep 15 2018

Reddit Comments

[u/NALLE_TAMEZ]

This is my own opinion and analysis on the meeting that Rob Johnson and George Soros had recently, therefore this is my interpretation and what I can digest from that.

Both have had a previously reunion where they actually support one another on the idea of; "The system is wrong and is its going to fail soon or latter". They state such interview had influence in the government that few days latter Paulson came running with Obama with a plan for "what was coming".

In this Sitting down with Rob Johnson, he reflects on the economic, political, and social ripple effects of the collapse of Lehman Brothers.

Both agree on the "bad design" of Paulson´s plan because it was design mainly to "take down the banks with bad debts" hence "the bad old banks" instead of designing a plan in which the fed could inject more money into the system.

Other thing that really caught my attention was that Soros talks about how technology specially Artificial Tech represents a full threat to his "Open Society" masterplan. For the one who is reading and does not know exactly what is "open society" let me put it in small few words: Open society is the business of influencing projects and people for achieving democracy all over the world. He states AI is being used to manipulate and control the masses and this is the threat Open Society as a project has to deal with.

The question is what do you think?