[MUSIC] Welcome to the course on the global financial crisis. My name is Andrew Matric. I am a professor at Yale University. And I'm here with. >> I'm Tim Geithner. >> And we're going to be talking to you over the next few modules about the global financial crisis. And this is a very important historical event. Only four times in the last 200 years has there been a financial crisis that has been global, that has affected multiple regions around the world. When these events happen, it has an enormous effect on economic growth and on the lives of everybody who is around for the financial crisis. That effect persists for years, for decades, and sometimes the deep psychological effects on a society can persist over many generations. But in order to understand what's going on and what happened in the last financial crisis and why financial crises are important. It's really important to get into the weeds. To see a lot of the details that lead to the build up of crisis. The different trip wires that occur that make the crisis get worse. And then the various reactions that policy makers can have. What makes you very lucky in taking this class is that my colleague, Secretary Geithner, was watching this crisis unfold. And doing his very best to try to alleviate the effects of this crisis for a long time. And I wonder, when was it that you first realized that what you were looking at was, perhaps a global financial crisis? >> Well it felt ominous, certainly by the summer of 07, maybe before that. But as Andrew said, these things are terrible, they're tragic. They have devastating consequences and they happen to individual countries around the world really more than they should. And what makes them so terrible, is probably the choices people make in advance. The failure to limit risk when you should, but it's also the decision people make in the crisis. And I think part of the value of looking back and understanding is to try to improve the odds that people make better choices in the future. That governments and central banks, and parliaments, congresses make better decisions about what to do to help protect people, protect economies from really one of the most devastating things that can happen in economics. >> A lot of the things that governments need to do during a financial crisis seem almost exactly the opposite of what you would want to do outside of a financial crisis. This makes it very confusing for the public, for citizens to understand why these actions are being taken. And in fact, that very misunderstanding end up feeding back through the political system. And constraining our ability to react as well as we can to help alleviate the terrible effects of the crisis. So one important goal of this course is to help people to understand these very complex phenomena that are financial crises. >> But also just the cold, hard, messy reality of what they really look like in real time. So we're gonna try and give you a chance to sit in our shoes, and look at that world through our eyes, in the fog of war and uncertainty. As we try to think through over the best choices we could make in that context. And we'll try to explain what worked, what didn't, what we got wrong, to try to create some lessons for the future. And we try to lay out a playbook, a framework of tools and things you can do to make these things less devastating in the future. >> We're still not far from the time when the financial crisis happened. And if you're not too young, it isn't hard to go around and talk to your friends and talk to your family and hear how it affected them. But it's remarkable how many people it had an effect on and how many lives it changed. In my particular case, it was really something very simple. I had been a financial economist for many years and I was studying the standard types of things like the stock market that financial economists study, and my father was a senior executive at firm called Bearstearns. And in one week in March of 2008, Bearstearns was in the news a lot and I was talking to my father on the phone at the beginning of the week and he said, don't worry we have $20 billion worth of liquidity, we'll be fine. That was on a Monday. On a Thursday I talked to him again and he said, tomorrow morning we're gonna need to file for bankruptcy. For me, this was just simply a remarkable thing. How could an institution this large, seemingly this awash in cash, go poof in a matter of days? We understood bank runs. This was the type of thing that had been around for a while. But Bearstearns wasn't a bank. It was something called an investment bank. It didn't have deposits. How could it just go away in a matter of days? After that happened, for me, it was almost as though I was a medical doctor studying the flu. And all of the sudden this new disease that I had never seen before afflicted somebody in my family. Seemed just completely crazy and I needed to understand it. And I started working on it and over the next few months I was prepared to write and talk about how we just didn't realize how fragile these types of investment banks were. And we needed to think about how to prepare for a case where they really would fail. By September of 2008, that book was no longer necessary, as the world well understood how dangerous it was, and what the repercussions would be if a large investment bank failed. If you talk to lots of people you'll hear many different stories of how the financial crisis affected them and how they learned to think about it. I know that in your case it was no big surprise. You'd seen financial crises before many times earlier in your career. >> Yeah but they were happening to other countries. And it's true that I spent most of my professional life in the treasury and the IMF and the Fed, mostly involved in crises that were happening In Japan, emerging economies in Asia and Latin America. So, I had some scars of experience from that. But, what we faced in '07, '08, '09, was nothing like what really anyone had seen since the Great Depression. And that was part of the challenge. Because there was really no memory of what happens in the midst of panic. There was no memory of what to do to protect people from panic. No memory of how to break them. No memory of how to arrest the runs, to convince people to stay. And no memory of how to prevent panics from turning into catastrophic depressions. Lot to learn from this though and lot of experience we can draw on today and we're gonna try to communicate some of that experience. >> So we'll see you soon. >> [MUSIC]
