How did things spin so far out of control in the financial sector?
I like to say that since the Lydians invented money before Christ, the same thing has happened. When the return on money gets low, people take higher risk. We had a period known as the Great Moderation, where interest rates were low worldwide. And the yield curve, which is the difference between long-term lending rates and short-term lending rates, was almost nil. So what did humans do? They did what they always do. … They went out further and took higher risk. Now they’re paying for that. I don’t see anything abnormal about it. It’s just that it was so widespread. Part of this has been aided by technology, the notion that someone could supposedly mathematize or quantify risk. I’m always skeptical of that because what risk is, is trust. It’s judgment. And you can’t substitute numbers for judgment. Do the Fed and other financial regulators have the tools they need to avert future financial crises? I think it’s pretty clear that the old banker’s rule – which often bankers forget, which