The future of Greece, and other financial crises

A conversation with Neel Kashkari, seen here in 2009, the former head of TARP and now head analyst with PIMCO.

Kai Ryssdal: Not much new in the European debt crisis to report today. So we thought we'd take a minute to get a little context, perspective from a person who knows a little something about financial meltdowns.

Neel Kashkari ran the TARP at the Treasury Department during the Bush administration. He's now head of global equities at PIMCO, the big investment firm here in Southern California. Welcome to the program.

Neel Kashkari: Thanks for having me, it's great to be here.

Ryssdal: As a guy who was at the center of the financial crisis in this country, do you buy the position that Greece is analogous to Lehman Brothers and if Greece goes then the whole shebang just comes crashing down?

Kashkari: I can certainly see those arguments, and I understand them. The truth is, no one knows for sure what's going to happen when Greece ultimately exits. It's a question of --

Ryssdal: Wait, wait: You said 'when' Greece exits. That's what you're thinking?

Kashkari: Yes. We believe that -- and I believe that -- Greece will ultimately choose to exit the eurozone. You know, the Greek people have a choice. One path is continue to austerity. But as I see it, austerity is an unstable path because it requires the democracy to continue to reaffirm that decision. So every month or every six months or every year, the Greek people have to say 'yes, we're going to sign up for more pain for another year.' If they go to the other path, which is exit, it will also be very painful. But once they move to exit, there's no undoing that choice.

Ryssdal: How did this become a banking crisis billed as a bank bailout, but really it's a bailout of Spain? How did this happen?

Kashkari: Well, at some level, the sovereign is funding the banks, but then the banks are turning around and buying the sovereign debt, and the money shuffles between the financial system and the real economic system. And so it's very hard to disentangle these two different systems in a modern, capitalist economy. It's true in America too -- we had to go in and stabilize our banking system in 2008, not for their own sake, but because if we had allowed them to fail, they would have brought down the U.S. economy. And it was trying to save the economy, that's what motivated us.

Ryssdal: Tell me what it's like actually, now that you bring it up. You were at the Treasury Department in 2008 working for Henry Paulson, the Secretary back then. What's it like at the center of a financial storm like this?

Kashkari: You know, I've never served in the military, so forgive me using the analogy, but it felt like we were at war. Which was every moment of every day, we wanted to survive, keep the system together for one more day. And so when I look at what policymakers in Europe are going through, it's easy for us criticize them, but I think that they've done a pretty good job keeping the system together in an extraordinarily difficult environment.

Ryssdal: While I have you, Jamie Dimon is testifying in Washington again today. What do you make of the relationship between Wall Street and Washington and the effectiveness of the new regulatory framework that we have in this country?

Kashkari: It's very hard to design regulations today that are going to be effective in 10 years, 30 years or 50 years from now. So I think they're well-intended. I think we don't know how effective they're going to be.

Ryssdal: Yeah, and as always, it's not a question of 'if' there's another financial crisis, it's 'when,' right?

Kashkari: It is, because if you look at the history of humans, human history is full of financial crises, because we are all prone to mass delusions. Fifty years from now or 80 years from now, unfortunately, we will have another nationwide delusion, and it will be very hard to prevent.

Ryssdal: Neel Kashkari, he was at Goldman Sachs, he was at the Treasury Department during the financial crisis. He is now the head of global equities at PIMCO down in Newport Beach. Neel, thanks a lot.

Kashkari: Thanks for having me.

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