Author of "Lords of Finance: The Bankers Who Broke the World" interviewed on Meet the Press
DAVID GREGORY: Liaquat, I want to start with you. The book"Lords of Finance," how central bankers in the run-up to the Great Depression got it wrong, is widely read around Washington. And in the epilogue you write this:"Anyone who writes or thinks about the Great Depression cannot avoid the question: Could it happen again?" That's the big question now.
MR. LIAQUAT AHAMED: Well, it could. If you take the current situation, we're 18 months--or 16 months into the current recession. If you go back to the Great Depression and you look at where we stood 16 months into that Great Depression, we're about at the same place. The stock market is down 50 to 60 percent, profits are down 50 percent, unemployment is up from 6 to 10. What happened then was the bottom fell out of the world economy because they applied the wrong medicine. They tried to control the budget deficit, they let the banking system go under, they didn't bail out a European bank that caused the financial panic in Europe, and they just basically let the economy crumble and applied the wrong medicine. This time I think we're applying the right medicine. The only question is, the patient is so sick, are we applying the right doses?...
MR. GREGORY: Let me get back to this question, Liaquat, of confidence. You write about not just the Depression, but the run-up to the Depression. One of the things we know about FDR, and I mentioned this with the senators, the first thing he does is speak to the confidence question. He shuts down the banks--we were talking about this--just for six days. But it calmed nerves of investors, it prevented a bank run. He also, acting as a kind of economist, took the dollar off the gold standard, which had the effect of rising prices during a deflationary cycle. And yet here we are with the Treasury still not deciding how they're going to deal with the problem at the core of the banking problem, which is how to relieve the banks of their impaired assets that are dragging not only their market value down, but also their balance sheets.
MR. AHAMED: Well, I think we had a--we were in the eye of the finance storm back in the fall, and since then the, the conditions in credit markets have gone down. We do face a problem in the banking system, but it's not people taking money out of banks, it's putting--in fact, they are putting money into bank deposits. The problem we face is a lack of equity. And that's--that has to be dealt with. Now, it can be dealt with in a variety of ways. It's not really a technical issue. I mean, there's a lot of debate about how to do it. The fundamental problem is a political issue. It's going to take a lot of public money. There is no way to do this without over $1 trillion of public money....
MR. GREGORY: But, Liaquat, here's my question. What role does economic populism play in this crisis, on the left and the right? The anger that the president talks about--because the reality is, and you talked about this in The New York Times today in an op-ed, what's happening in eastern Europe, their economy's collapsing because of credit drying up. And they actually have the prospect of real social unrest. These are new democracies and they're having such a difficult time. People don't understand the interconnectedness of our banking system, which is even more complex than people inside of it realize. Without clarity both to the market and also understanding on the part of the American people, do you do anything about political will?
MR. AHAMED: Well, I think it takes political leadership. I mean, in 1933 they held hearings in Congress, and we discovered that the president of Chase had shorted the stock of his bank and made $4 million in the great crash. Bankers were known as banksters. But Roosevelt was able to rise above this and, if you like, tap into the, to the positive side, positive side of the American public. We need that in the U.S., we need that in Europe. We need the, the leaders of Germany and France to do the same thing with their public....