Thought and the whole system starts unraveling in reverse. The political response to 2008, ben bernanke, henry pulson, president bush, and obama, did they get right . Guest i think once the crisis unfolded. Ben bernanke and the Federal Reserve acted correctly. And that is no small measure due to the part tha bernankes doctoral thesis had to do with the Great Depression and he worked out a new interpretation why the Great Depression was so severe. He talked about the credit influences and that you really have to rescue the Financial System to make sure lending continues. So i give him a lot of credit for saving things. The Bush Administration pushed through a small stimulus package in 2008 and that probably helped a bit. But in terms of fiscal policy, tarp, which was the bank bailout was incredibly important. It reassured people that the Banking System was going to continue. Tarp was a recapitalization of the Banking System. The banks had been holding lots of assets that suddenly were less valuable than they were originally thought. If that happened sufficient the banks are insolvent and shutdown or continue like zombie banks as they did in japan for a while. So you need somebody to come in to provide funds to make those banks solvent. That is what the u. S. Government did. If it hadnt, then i would think that, you know, the Financial System would grounded to a halt eventually. It would not have immediately but it would have stopped lending and you cannot run an economy without a Financial System that is working. Host professor chinn, are recessions and economic downfalls natural occurrences . Guest i think so because they will hit economies that push them down or up and cycles will occur. You dont want a system that is mechanical. You hear about people saying at the moment this recovery is unnaturally long and longer than average so it must, by definition, come to an end. My view would be at some time either the Federal Reserve acts in a way that tips the economy into a recession or some shock strikes that forces the feds hands or a combination from over seas causes the jump. What will the Federal Reserve reserve do is one question . Will it slow the economy down . The other question is if the Federal Reserve is not the thing that participates this recession is it the combination of world events . That would be a new event. Most of the time, i think we think about the United States as moving along its own path and not being driven by external influences. If this is a new case where china and china slow down precipitates a greater slowdown in the east asian industry and that translates to the United States that would be effective. Host has the legislation of 2008 important for stabilization of the economy . Guest so i think there are many aspects of the legislative response. The first one, the first big wan was the araa, the american recovery and reinvestment act implemented in 2009. That was a big counter cycle move. I would say that is one thing that pushed the economy in the right direction. That was early on and most affects of that have petered out. But i think that mitigated a lot of the pain and suffering that could have occurred. The other legislation that was passed, i think, have more longlasting implications and that includes the doddfrank legislation regarding the bank of legislation. So that is important over the longer term in so far as it really it reduces the incentives for banks to over overleverage. That is borrow up lots amounts and only putting in shareholders money and borrowing up with the Short Term Financial market instruments which are the two things that got the system in trouble before. With implementation of doddfrank and International Banking that you actually made the Banking System a lot more stable. There still remains some holes in the regulation of the international Financial System. I would say one of the things is we fix problems in the sectors where we see the problems. It is likely the next problem we see is somewhere we didnt xe expect it or apply regulations. We were thinking about 2008 that it wasnt the main line banks that were the big problem. They were regulated in the 1930s in response to the Great Depression. But we wound up with problems in the shadow Financial System because individuals, firms, banks and other Financial Institutions worked their way around those regulations or to use the term of financial innovation they innovated a way around the regulations. So we put in a set of regulations now that i think made the system safer for a period of time. More robust and more stable. But people are going to look around for a way of evading the regulations so they can get a higher rate of return and impose the risks upon the greater Financial System. That is the hazard that regulators keep on having to try to keep up with those who are trying to evade the regulations. Is that the message you want people who read lost decades to take away . Guest that is exactly one of them. You cannot just say we had this one big crisis and we fixed things and we move on. History repeats with examples where individuals, households, firms, banks all want to leverage up because that is a way of making higher return. They want to leverage up and borrow a lot. There is a tendency because it induces, in the short term at least, a period of growth and returns so there is also incentive to say there is no trouble or problem at this point. If i am a politician it will land in somebody elses lap in the future. If i am a household you might say i will get out before everything crashes. Or there is a tendency to say times are different now. We are just smarter. We are more nimble than we used to and the old rules dont apply. Our main point is the old rules to a large extend do apply. If you try to borrow a lot and leverage a lot some correction will come around and a lot of pain is going to be inflicted upon many times innocent bystanders. Host what are you teaching the university of wisconsin and what do you want students to leave with . Guest i teach economic and an international mack macro course to people getting their doctoral. I want them to keep alert. Analyze why things are the way they are. Why is it that concern people in positions of management in Financial Firms say what they say versus what people in policy positions would say versus what journalist would say. Using their mind what is being stated or argued rather than taking for granted that somebody says something and because they look aathorative. Host why can a small country like greece affect our giant economy here in the United States . Guest that is an interesting question. The Construction Market leading up to 2008. People would say construction of housing accounts for a small portion of the gdp so how can it affect the rest of the economy . Interconnections matter we have learned. In particular, in the case of housing it wasnt just the actual act of building houses but people sold assets involved in building houses and assets were derivatives and derived on the bases of housing prices. On the case of greece, lots of private individuals had assets issued by there greek government or by greece and private individuals. So those holdings lose value as you think they are less able to play. There is a big ramification for peoples portfolio and perception of net wealth. The euro was built upon the concept that no government could default and every government was going to embark upon a path of sustainable finances. So the fact a country would get into trouble and would have to be bailed out, which is against you know that is written out of the charter for the euro zone. That forced the reassessment of what is possible. It is not just greece. But greece signals what could happen to the other countries. Por portugul, italy, ireland and other countries. The signal greece gives about whether those countries could face a significant problem and what it means for the stability of the single european currency. Host you are watching booktv on cspan2. We have been talking to menzie chinn he is the cohauthor of lost decades. Thank you. Wednesday, booktv features books on drone warfare. Scott shanes talks to us at 8 00. Then mark moyer talks on strategic warfare. And William Arkin on his book after that. Drone warfare starting at 8 p. M. Eastern on booktv in primetime on cspan2. Here is a look at the best selling books according to the conservative book club. Looking at the attempted assassination of Ronald Reagan is at the top. And then fox host in the book of Thomas Jefferson and the tripoli pirates. And then a book on the Consulate Team in benghazi. Donald trump has two books on the list. A look at the conservative book club bestseller list continues with a pocket size addition of the u. S. Constitution and rush lim bahs rush revers and had star stangled banner. And finally, violating the Campaign Finance laws and the look at that. And a look at the former life of george h. Bush. Many of these authors have or will be appearing on booktv. You can watch them on our website. On the next washington journal we talk to Supreme CourtCourt Reporter david savage about the death of justice scal over the weekend. And then aaron cline on the Federal Reserve and the possible changes to Interest Rates in the coming weeks. You can join the conversation by phone, on facebook or on twitter. Washington journal live every morning at 7 a. M. On cspan. Former commissioner talks about the refuge crisis in europe at the Migration Policy Institute in washington. That is live at 9 30 a. M. Eastern on cspan2. Next, after words features formal Federal Reserve reserve church ben bernanke on his book the courage to act. He is interviewed by sharon burn of iowa. This is an hour. Host mr. Chairman, nice to be with you. Impressive work. You began, my understanding, from reading the book show showed up for work and kissed your wife good bye and went into the first day at brookings and began to write this 600 page tome. Impressive in detail and impressive in recall. This book was on the stands and being sold by october of 2015. So not much more than an 18 month process. How did you do that . So, you know, i started right away as you point out. I left the fed on saturday and monday i was at brookings working on the book. I had lots of material. The Federal Reserve let me see my emails and because i managed my emails i had dozens every day and it was useful because you could go back and see in realtime what you were thinking and what was happening. I had daily news clippings and other materials. I had a wealth of material. I could sit down and bang thout dra out the draft. I had help from Dana Skidmore a Public Affairs person at the fed who took a year off to edit this and help me with the process and research. I got a really quick start. I was done in about 14 months. Host a decade at the fed more or less in some of the most traum traumatic Economic Times certainly in our lifetime if not the nations history. As you wrote over that 18month period what did you learn about yourself . Guest writing the book, a big purpose was to think through the process at my leisure. I think one of the things i learned, first of all, is that there is a lot of hindsight bias. We all create a story about what happened. Everything seems inevitable. As you go back and realize you are in the fog of war and as thinks are happening you are trying to balance one probability against another and one risk against another. I saw myself as a risk manager. Someone trying to assess evolving chaotic situation. Host i remember seeing an in the Readers Digest saying would the boy i was be proud of the man i became. You dont strike me as a narcissistic man. Or ego centric. As you went back and reconstructed were you pleased with the way this unfolds and the way you accomplished what you did . Guest i think we made mistakes particularly running up to the crisis. We were balancing the risk of crisis against other risks into 2007 and took until august of 2007 to recognize the thing was getting quite severe. After that we were very aggressive. I think broadly speaking we did the right thing in efforts to stop the crisis and help the economy recover. So, yeah, like in any war plane when the First Contact with the enemy your plans are destroyed. Once we determined to hit it aggressively i feel we got the main things right. Host lets talk about your background and how that informs the communities. Small time jewish kid in South Carolina as you said in your book and said to me dodger fan because of sandy cofax before you moved to boston and now washington. A lot of readers might be surprised you worked at a place called south of the border and i know skyline chilly and the diner i go to in cleveland and i dont know south of the border but all of i95 points it. You were a middle class kid. Not poor. Not rich. But what did working at south of the border do for you . Guest well it is and a place where the Economic Situation is tough and people have to work hard. I worked as a construction worker, in my dads construction dads store and worked two years at south of the border. I was both part of the area and not part of the area. We were jewish and most of the town was Southern Baptist but i was part of the town going to the Public Schools and worked with people. In the drugstore we knew everybody in town. My father offered credit to anybody he felt he could trust. So the whole experience was one of getting to know, really, you know, ordinary americans facing economic challenges which dillion faced for a long time. Host you told stories about talking to your grandmother in North Carolina about the depression. You and i were born the same year. You are a little younger. But we had parents or grandparents that talked about the depression. Your grandmother, then living in connecticut, talked about the paradox of the shoes. I am sorry to preface your own story but you talked about the depression, if i am not putting dots together, that led you later to graduate school and so on. Tell me about the shoes. Guest sure. My grandfather used to tell me stories about her youth. And her stories were she was proud because her children were able to go to school and wear new shoes every year. But lots of the kids in town didnt get new shoes or even have shoes. And i see why not . And she said the shoe factories in this connecticut town shutdown and their fathers lost their job and there wasnt enough money to provide shoes for the town. All they had to do was open the factory, produce shoes and the kids would have the shoes and my grandmother said it didnt work that way. The system isnt working. It was a puzzle it me. I dont want to say from the age of six i was inspired to studying the Great Depression. But when i came back it to in graduate school i found it was the most important puzzle piece economist have. Host lets go to 2007. You had been at the chair for a while. I came to the senate in january of 2007 and put on a Commission Reid said was the sleeping banking committee. My wife and i now live in zip code 44105. Wont mean much to you. But in the first half of 2007 there were more foreclosures in the zip code i live in than in any other zip code in the state of america. It seemed in 20072008 until bear sterns in 2008 there wasnt that much attention to the housing issues because the housing crisis cause caused by a lot of lot of reasons. In cleveland, preditory lending and what was happening with manufacturing and that declining base. Why was the government overall not aware of the places ohio had more foreclosures all over the state. Why didnt we see that as a country how serious that was . Guest i dont accept your characterization. I spoke about foreclosures a number of time before the crisis. Some were probably unavoidable. But in some cases it seemed like there wasnt an enough effort to modify the loans and let people stay in their home. I talked both about foreclosures for the subprime mortgages and the like. We thought about it from a macroeconomic perspective with the risks to the economy overall. But we did worry about the effect on communities, the empty houses creating blight and the fed paid attention. Host i heard those statements and i would say the consumer p consum Consumer Protections and i think the fed, you were more intuned and your predecessor or i began to hear from people in cleveland and other cities on the pred pred tory lending the fed or any other regulator was not particularly there for us. Guest your use of the word predat predat predatory is critical. I had to go back to this extending back into the 90s. Some of the issues and debates. One of the big distinctions was in washington and that was between predatory lending that got people in trouble almost immediately and legitimate subprime lending. One of the reasons there wasnt a more aggressive effort to police subprime lending was the fear of cutting that off. And a strong difference between predatory lending which was already illeg