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Fareed Zakaria GPS
Interview With Paul Wolfowitz; Interview With Michael Lewis
Aired February 27, 2011 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.
I'll give you my take on what we're seeing in the Middle East and why it might just be the beginning. But first let me tell you what's on the program.
First up, who benefits from democracy in The Middle East, Iran or the United States? And did the Obama administration drop the ball on Libya?
Our guest is Paul Wolfowitz, who has worked in senior posts for Ronald Reagan, Bush one, and was the controversial Deputy Secretary of Defense for George W. Bush. In all of those positions, an outspoken advocate for democracy around the world and especially in the Middle East.
Then, "What In the World?" How food prices are only likely to get higher and why that could be a big problem for you and me, and many world leaders too.
Next up, Michael Lewis on the economy and the banks. The author of "The Blind Side", "Moneyball" and "The Big Short" revisits the financial crisis two years later.
Finally, a last look at a memo you wouldn't want to get from your boss.
Now, let's talk about the Middle East.
We're all watching these gripping, moving crises unfold day by day, country by country, but there is a broader story to be told, one that explains why the events in Tunisia have triggered a series of repercussions across the entire arc on Middle Eastern countries from Morocco to Iran. I would argue that for the first time in a thousand years Arabs are taking control of their own affairs.
You see, since the 11th Century, Arab lands have been conquered and controlled by foreigners, first by the armies of Mongols, Persians and Turks. In fact, most of the Arab world was ruled by the Ottoman Empire for centuries.
Then, in the 19th Century came the Europeans, who carved up the region after World War I, creating most of the states we know today - Iraq, Jordan, Syria - all creations of the colonial powers.
Then came the Cold War, with the super powers protecting and funding their clients' states. When the Soviet Union collapsed, the U.S. became the only game in town and most regimes made their peace with Washington, though Iran tried to present itself as a rival regional power.
Two American shifts have taken place that have unlocked the region. First, after 9/11, Washington became acutely aware of the fact that supporting Middle Eastern dictatorships had a downside. It was breeding an extreme anti-American opposition movement that have embraced terrorism - al Qaeda. So the United States began pushing its allies towards reform and offered much less unqualified support for the dictatorships and monarchies of the Middle East.
Second, American power itself was waning. Iraq, Afghanistan, the financial crisis, all showed that the U.S. was an exhausted super power. The result, the United States is less willing and less able to play the old imperial role and prop up the old regimes.
Now, throughout this almost 1,000 years of foreign domination, the Arabs always had local rulers, but these sheikhs and kings and generals were appointed or supported by the outside imperial powers. Most of the Middle East monarchies, for example, were created out of whole cloth by the British. Saudi Arabia is the important exception.
Now, these local rulers were more skilled at negotiating up to the imperial authorities than they were negotiating down to their own people. They rule their people not through negotiations but by force and bribery once the oil money began to flow.
That gain is in trouble, and the Middle East is witnessing a revolt against the old order everywhere. Where it will lead, where it will succeed, where it will fail, all this is totally unclear. But this is a big, system-wide and historic shift.
So, buckle your seatbelts. You're watching history in the making.
ZAKARIA: Joining me now, Paul Wolfowitz. He was most famously, perhaps, Deputy Secretary of Defense under President George W. Bush, but he has also been everything from president of the World Bank to the United States' ambassador to Indonesia. He's currently a visiting scholar at the American Enterprise Institute.
PAUL WOLFOWITZ, FORMER DEPUTY SECRETARY OF DEFENSE: Good to be here.
ZAKARIA: Let's talk about the - the Arab world.
Libya - do you think Gadhafi can survive? WOLFOWITZ: I think it's clear he's - he's not going to survive. His - his own - the rats are scurrying off the sinking ship at such speed. They know he's not going to survive. The question is, how much damage, how much destruction can he wreck before he goes?
He's a dead man walking. He gave this rant - first he gave a rant where he threatened to destroy the country, then he gave a rant where he more or less pleaded to be treated like the Queen of England or the King of Thailand, without power but living in his own country. That sounds like a man who - who's almost looking for an escape.
ZAKARIA: Do you think that the Obama administration has - has been - has handled Libya right?
WOLFOWITZ: I'm mystified by the way the administration has handled this one. It's mystifying to me how when you have a killer like Gadhafi, who is responsible for the deaths of hundreds and thousands of Africans - let's not forget that - for 270 people on board Pan-Am 103, for lord knows how many of his own people, and he's now slaughtering his own people, that we can't come to a position that it's long since time for him to go. We've been just way too slow, and that slowness we're going to pay a price for for a long time.
Al Jazeera, which is no friend of the United States, which has become, with some justification, a hero of these revolutionary movements, has taking to showing pictures of the White House or the president, why is the U.S. being so silent? Why is it being as silent as these people? And then it shows pictures of the people who've been killed in the protests.
ZAKARIA: Well, do you think -
WOLFOWITZ: It's a devastating image.
ZAKARIA: But you were - you were in high levels of government, so you understand the - the pressures people are dealing with. Could it be that one of concerns is that if the United States keeps calling for the ouster of - of these - of presidents, of prime ministers, that countries like Saudi Arabia will get rattled and say, wait a minute, we - you know, is the United States going to sit here and try to unseat all the - all the monarchies in the Middle East?
WOLFOWITZ: I don't think that's a legitimate reason to stand by a man who's slaughtering his own people. And I have a lot of criticisms to make of the Saudis, but I don't believe they're capable of this sort of butchery. And if we -
You know, we'd be in a much better position to say, look, with all it's faults, Saudi Arabia doesn't treat its - its subjects as trash. It doesn't kill them, brutalize them and threaten to take them back to the Stone Age. So let's put Saudi Arabia in one category.
We'd be in a much better position to do that if we were clear about Gadhafi.
ZAKARIA: You were in the administration that have - that normalized relations with Libya. It is the Bush administration that brought him in from the cold - from the cold. Were you opposed to that decision?
WOLFOWITZ: Look, I think we needed to give some acknowledgement to the fact that he handed over his nuclear weapons program. But it was an illegal program, and I thought we were giving him a lot by in effect saying you wouldn't suffer the fate of Saddam Hussein. I don't think we had to go nearly as far as we went.
There was a lot of pressure from Pan-Am 103 families because they wanted to collect the money that Gadhafi was offered. I -
ZAKARIA: Do you think that's really -
WOLFOWITZ: At one point, I believed - well, I was being told that the pressure was - I believe it was significant. I can't prove it. The United States went ahead and restored full diplomatic relations and had the Secretary of State visit.
I think we have should have drawn more of a line. Some move was appropriate. I think we went too far, and I think the Obama administration continued that.
Al Jazeera is having great fun showing pictures of Hillary Clinton meeting with Moatessem Gadhafi, who is - I don't know which of the sons is the most hideous, but this is the national security (INAUDIBLE). He's a pretty bad man.
ZAKARIA: Lots of people are arguing, front page story in "The New York Times", that the effect of these revolution is going to be to strengthen Iran, to weaken Saudi Arabia, because at the end of the day all these regimes were pretty anti-Iranian. They were pro-American.
But the street in the - in the Middle East feels differently. It's more anti-American, and the argument is it's more pro-Iranian.
WOLFOWITZ: All these experts here that somehow know what Egyptians think - I don't know what Egyptians think. I do know that I didn't see much evidence of people in the streets in Cairo saying death to America or Allahu Akbar, and I did see young Egyptians with Facebook painted on their foreheads.
There's too much hand wringing here. Yes, things can go bad, but to assume they're going to go bad is a way to - look, I don't think this is a great victory for Iran. I do think they're going to try to exploit it in every way they can. We should be in there in every way we can, and the more we suggest that somehow we'd like to see Hosni Mubarak back, I can't think of a more pointless exercise than wishing the return of some regime that is - is finished and kaput.
ZAKARIA: Now, the people saying things like this are people who one tends to think of as allies of yours, that is to say the conservatives have had a very mixed view on this. I mean, you have - you know, people on the right effectively saying the Obama administration junked Mubarak too soon, that they should have - they should have supported him more, that they're, you know, allowing for the rise of an Islamic caliphate.
And then, of course, the Israelis, who are - who are - who really do seem to have deep Mubarak nostalgia.
WOLFOWITZ: It's crazy. The Israelis should welcome what's happened in Egypt, if only cynically. I mean, they - instead of associating themselves with a dead, doomed regime, they should try to find allies in Egypt, and I would assume there are millions of Egyptians who do not want to restart a war with Israel.
And Mubarak wasn't such a great bargain. He filled the Egyptian state-controlled media with anti-American junk, with anti-Israeli junk, even with violently anti-Semitic junk. So - but the nostalgia isn't - is - I think the nostalgia is misplaced, but it's completely irrelevant now. They - they and we should be thinking about the future.
ZAKARIA: What about the American right? Is it - has it become so fearful of some kind of radical Islam that it is losing sight of the importance of the importance of democracy, in your view?
WOLFOWITZ: Look, I - I think there's too much attempt to put foreign policy views in - in right/left terms. The view that I would like to associate with is the one I think of as Harry Truman and John Kennedy and Ronald Reagan, who believed that support for freedom, support for democracy is not only something that is morally important for the United States but equally is strategically important, and a freer, more democratic world is good for us.
ZAKARIA: But - but the people who are arguing against it on the right are saying we are looking at what's going on inside these societies and they're going to end up being - becoming radical Islamic societies, and that's why we - we oppose them.
WOLFOWITZ: Look, there's a - there's a dangerous argument, I think, that almost says if - if you're a Muslim and you're not an extremist, then you're not a good Muslim, and it's coming from people who aren't Muslims at all.
What I know is that there are 200 million Muslims in the Indonesia country that I know very - I - it's an exaggerated - it's a complicated country, but I know a lot about it. Most of those 200 million Muslims are very tolerant people. They liked nothing better than to live in a country that's like the United States.
We certainly shouldn't say, oh, anyone who is of that faith is a problem. And they are our best allies.
ZAKARIA: We're going to talk about all of this and more when we come back with Paul Wolfowitz. I'm going to ask him where he thinks the crisis will go next, when we come back.
(BEGIN VIDEO CLIP) WOLFOWITZ: One of terrible things that happened in Iran was almost 200 of the Shah's generals were rounded up and executed right afterwards. And when the blood bath starts, it's - it's terrible.
(END VIDEO CLIP)
ZAKARIA: And we are back with Paul Wolfowitz, the former Deputy Secretary of Defense, talking about the Middle East crisis.
So, let's do a tour d'horizon. When look at the Middle East now, you're seeing protest bubbling up everywhere. What do you think is going to happen in - in Jordan, for example, a country that, you know, is also facing many of the same kinds of issues that Tunisia or Egypt did?
WOLFOWITZ: I think there's clearly something that is spreading across the region, but it's manifest itself in very, very different forms in every country, as far as I know. I mean, we should tailor what we do to the circumstances. Where there are friends of our values who can be helped, we should help them. Where we have a significant interest in dealing with al Qaeda cells as there are in Yemen, we should figure out how we do that.
And then you get to the toughest cases, like Jordan and Bahrain, where these are not horrible governments. They need to reform. We should encourage them to reform, but I think we have to give them some latitude, and if they do some of the right things, then we should be willing to support them in not going over the edge yet.
ZAKARIA: You're being softer than I thought. I mean, your reputation as - of a crusading Democrat, Democrat meaning some promoter of democracy. But you think that - effectively, you're saying for a combination of real politic reasons, they're good American allies and they're also not terrible governments, go a little bit easier on them?
WOLFOWITZ: A lot of people have talked about the lessons of Iran in 1979. In think they talk too much about that because they forget the lessons of the Philippines and Korea and Taiwan and all the Eastern European - a long string and I -
ZAKARIA: -- of transitions to democracy -
WOLFOWITZ: -- of successful transitions since then.
And one of terrible things that happened in Iran was I think - I may have my numbers wrong, but I believe almost 200 of the Shah's generals were rounded up and executed right afterwards. And when the blood bath starts, it's - it's terrible. It is a terrible mistake to promote democracy and end up with something like you have in Iran.
So pushing too hard on a regime that's decent but needs reform and opening the way to a regime that is terrible is not promoting democracy. It's not promoting freedom.
ZAKARIA: What would you do with the biggest puzzle of all, Saudi Arabia? Saudi Arabia is a - it's - I've always thought the royal family has a kind of strange stability that is borne from a patronage system. It intermarries a lot. It's a very large royal family, 60,000 people, and lots of money. But yet it's a pretty tough dictatorship.
WOLFOWITZ: Very tough.
I think they have to face the fact that if they don't begin to open up their system, they, I believe, at some point - and I don't think it's soon. I - in the future, are vulnerable to some of this same kind of problem.
And I feel in general that while it shouldn't be U.S. policy to try to undermine the Saudi monarchy, I think we've been much too forgiving about many bad things that come out of that country, an enormous amount of funding, whether it's official or private, that goes to Wahhabi extremist organizations in - in Indonesia and in Turkey, probably in Egypt, almost everywhere.
ZAKARIA: When you look at the U.S. policy in general, though, going forward, is - is America going to be able to negotiate a - a new path with all these Middle Eastern countries that are going to be more democratic, presumably, will reflect populist sentiment? And we don't know exactly what it is, but certainly it's fair to say that they seem to be on issues like Palestine, on basic issues towards America, that there's more tension, more anger.
What does it mean? How - how is the United States going to preserve its interests?
WOLFOWITZ: We're going to - we're going to have to negotiate a new path. I mean, we don't have any choice. And I think we should maximize the leverage available to us, and there is still an awful lot of leverage.
There are huge amounts of aid to a number of the countries, particularly Egypt. We can do a lot to help their economy. I think, you know, it - it's worth remembering what Tip O'Neill said, all politics is local. People care most of all about their own situation.
We need to be seen as helping in their own situation. We need to be seen - in the case of Egyptian women, or women throughout the Middle East, the United States should be seen as a - as a great force on their side.
ZAKARIA: You don't think that taints those - those activists if they are seen as kind of doing America's work?
WOLFOWITZ: Well, let them tell us to go away. If it's too heavy handed, it can do that but, look - look at Libya right during this crisis. You have people inside Libya pleading for American assistance, pleading for the west to come, and people outside saying, well, we don't want to taint them with the label of being western. I - I think you can strike a balance, and one good way to get it right is to ask these people what kind of help is good for you and what kind of help don't you want. And if you'd like us to denounce you, if that will help you, we might try that too.
ZAKARIA: So, you know, people - there are so many people who look at this, and they're looking at high oil prices, they're looking at chaos, they're looking at possible interruptions of trade, the, you know, potential revolutionary situations in this very crucial part of the world, and lots of people are very worried. But you sound to me, at the end of the day, pretty optimistic.
WOLFOWITZ: I want to (ph) exaggerate the optimism. I'm trying to say stop wringing your hands about what's happened which you can't change. Try to see that there's an upside here, try to see that we have an ability to influence that upside, and we're more likely to influence in the upside direction if we approach it with some enthusiasm.
That doesn't mean it can't go badly wrong, but the Iranians are being active. We should be active, and the way you're active isn't by predicting gloom and doom in the future. It's by seeing the positive possibilities and figuring out how you can accomplish them.
ZAKARIA: Paul Wolfowitz, pleasure to have you on.
WOLFOWITZ: Nice to be here. Thank you.
ZAKARIA: And we will be back.
ZAKARIA: Now for our "What In the World?" segment. Let's start with a pop quiz, what do a possible price increase for McDonald's hamburgers, a ban on onion exports from India, and the Egyptian and Tunisian revolutions all have in common? They're all effects of what may well prove to be the biggest influencer of global events in 2011 - the spike in the price of food.
Remember that food prices were one of the sparks that lit the fire of protest in North Africa. But if you think it's only affecting emerging or third world countries, think again. If it hasn't already, it's about to effect you.
If you are a fast food fan, yes, McDonald's has said it's considering raising its prices to keep up with rising food costs. You need coffee to perk you up? The price of those beans has risen by more than 100 percent in a year. You like to have a sandwich at lunch? The wheat for that bread is up 60 percent in the past 12 months.
Corn and its byproducts are in just about everything we eat, it seems, in America these days, and that is up more than 80 percent in a year. Last month, the U.N.'s food price index hit its highest level ever. Globally, it's already a third more expensive to stay well fed than it was last year, and it's only likely to go higher.
The latest factor is of course Libya. It's not that the nation is a bread basket. It's not, but it is an oil producer, and now that's why this week we saw gas prices higher than we've seen any February in more than two decades. And how does gas affect food? Well, food needs to get from the farms to where it's grown to cities where more and more of the world's population lives these days, and it is, of course, gas, petrol that gets it there.
Now, nobody experts governmental instability here in the United States because it costs a few cents more to get a Big Mac. But if you live in a place like Egypt, where four out of 10 citizens are said to live on less than $2 a day, almost half of that income, that - those $2, is spent on food, so a sharp steep rise in what it costs to feed yourself and your family can be devastating.
The World Bank's latest estimate out this month is that 1 billion people in the world are hungry. That's one out of six people on the planet. So in many parts of the world, governments are being forced to act, and act fast, to stave off the kind of riots and unrest we saw in North Africa.
Let's take a look at a microcosm - onions in India. The pungent vegetable is a staple in Indian cooking, and heavy rains at the end of the onion growing season meant a huge price spike into December, up three-fold in just a few weeks, up eight-fold in a matter of months. So, that same month, India banned the export of onions and cut all taxes on the import of onions.
Why did politicians act so quickly? Probably because they remember history. Onions have always played a big role in Indian elections as a kind of bell weather of the price and food inflation. Indira Gandhi came to power in 1980 on a platform based partly on the price of onions, so this week tens of thousands gathered in the streets of Delhi to protest against food prices.
In China, prices for staples like rice, cooking oil and vegetables have reportedly doubled in recent months in some of the big cities. China has instituted food subsidies for the poor to keep people happy, but in a country whose population tops a billion, that's a lot of people to keep happy and it costs a lot of money.
As - as every government in the world watches the effects of rising food prices in the Middle East, they are all beginning to take strong measures, but these measures are mostly anti-growth - food subsidies, fuel subsidies, rises in interest rates, blockages on exports.
All in all, the effect of food prices in 2011 might well prove to be good for freedom, but bad for economic growth. Food for thought. I had to say that.
And we'll be right back. (BEGIN VIDEO CLIP)
MICHAEL LEWIS, AUTHOR, THE BIG SHORT: If you told me in - in early 2009 that all these big Wall Street firms would be back even bigger and paying big bonuses and - and essentially socialized and then - and getting losses socialized but the gains privatized, and if the American people would put up with it? That's the incredible thing, is that there isn't a social revolution.
(END VIDEO CLIP)
ZAKARIA: My next guest, a banker turned author, Michael Lewis, has already deftly explained the 2008 U.S. financial meltdown in his book "The Big Short" and the grave economic crises in Iceland and Greece, and terrific articles for "Vanity Fair." He has another piece in the magazine that tackles the latest country on the verge of collapse - Ireland. Lewis is always fascinating on what's happening in the world of economics and high finance and he joins me now.
So let me start by asking you, suppose "Vanity Fair" would give you an assignment and say, you know, you've gone to Greece, you've gone to Ireland, you've gone to Iceland. Now, parachute into this country called the United States three years after the economic crisis. How would you describe America?
LEWIS: It's funny you say this, because in fact that's the next place I'm coming to. I mean, the next - the next in the series is California.
The - the difference between United States and these peripheral European countries is that it's big enough to absorb shocks and the banking system here as out as control as it was never got nearly as big as it got in these places.
ZAKARIA: As a percentage of GDP.
LEWIS: As a percentage of GDP. So that we can as a society, even though it's distasteful, we can absorb their losses. So in Ireland, for example, the three big banks have estimated losses of 106 billion euros. That's in a nation of four million people. If you scale it and translate into dollars, you know, $10 trillion in losses would be the equivalent here. I mean, that's - so we don't face that. We don't have that problem.
ZAKARIA: Is that why it seems - there seems to be a remarkable return to normalcy -
ZAKARIA: -- in the U.S. I mean, if everybody kept saying this is going to be - this is the greatest economic crisis since the great depression. LEWIS: Bernanke is just - he's a scholar of the depression and he says it's the greatest financial crisis in the history of the world.
ZAKARIA: Doesn't feel like the great depression. I guess my point is, I think government - we're in a different world, we're in a world with so many government stabilizers to the economy, unemployment, insurance (ph) and things like that. And perhaps the private sector also was able to respond that it just never got to where, you know, the bread lines of the 1930s.
LEWIS: Well, that's true. I mean, they - Ben Bernanke knows things about financial crisis that his predecessors did not know. And I think that's right. You put it very well. The government stabilizer is going to prevent the pain from being so - it's too acute.
But as a result, I mean, there's a price to this is that's a good thing that the government stabilizers can do that. The price is, having stabilized the situation, you've reduced the sense of urgency about reforming the system.
So you still have a system that's essentially broken. I mean, a badly incentivized system. A system that - a system that was capable of total of self-destruction in which the incentives have not really changed. So you've got maybe a kind of permanent sort of crisis. I mean, you've got a - you've got a long period of unpleasantness and maybe a longer period of unpleasantness because of it.
ZAKARIA: But this - at the heart of this crisis was the housing bubble. And if you go to California, the thing I'm wondering about is, all of those props are still in place. We still have the lowest interest rates, you know, possible, the lowest mortgage, a 30-year mortgage you can get. You still have Fannie Mae and Freddie Mac pumping cash into the system. You still have the non-recourse loan, you can walk away from it.
Aren't we just perpetuating the problem with housing? There has to be a bubble somewhere.
LEWIS: So there is - very clear that there's reckoning in the future, exactly what form it takes is less clear. I mean, it is incredible where we sit right now. If you told me in - in early 2009 that all of these big Wall Street firms would be back even bigger and paying big bonuses and essentially socialized, and then their loss is socialized but the gains privatized and that the American people would put up with it? That's the incredible thing is that there isn't a social revolution.
ZAKARIA: Why do you think that is? Why do you think? So we went through the worst economic crisis, not, you know - a lot of it had to do with bad, irresponsible banking practices, private sector in some ways, you know, was at the heart of this. And not only do we not have a social revolution, the political effect of it has been a rightward shift. LEWIS: Yes. So - so in the first place, because this - the public policy was to not nationalize these firms and liquidate them but to prop them up and make them even relatively more important in the economy, they were restored to power. They were subsidized to profitability and they were able to use their influence to prevent political change. I mean, that's the first - the first thing that stymied change was - was the political influence of the banks.
And it's amazing that so, for example, Fannie Mae, when it's put in receivership, part of the condition of the receivership is that Fannie Mae can't go lobby to effect what reforms are going to be put in place concerning Fannie Mae. It's amazing that the Treasury didn't exact a similar sort of concession from the Wall Street firms. You've got to - OK, we're going to save you, but you've got to keep yourself out of the discussion about how we're going to fix you because your interests aren't our interests. But they didn't. So that's one reason the change hasn't happened.
But the question is on the ground, what happened. And this is a more complicated story. When I published "The Big Short", March of last year, I went out of my book tour. You know, my book tour is usually placid affairs. I go to a book store and there are two people there and I take them to dinner rather than read to them, because there is no point.
ZAKARIA: Somehow I don't think that's -
LEWIS: All right. Well, there are 50 people there, but it's small. It's small and it's gentile. On this tour, I took the pulse of America. I would show up in a bookstore, there would be 600 people there and they weren't there exactly for the book, they were there because they were angry. I mean, I felt like a revolution was going to happen.
And the anger - the anger about the Wall Street bailouts I think is at the beginning of the Tea Party. I mean, the injustice of people being rewarded for failure and - and supported by the public purse, that was the source of the original outrage.
ZAKARIA: But it went in a libertarian direction rather than a kind of, you know, liberal direction.
LEWIS: It did. It did. But a qualified libertarian direction, because a true libertarian would be outraged that these Wall Street banks are still being subsidized by the government and there - it doesn't seem to be any move on the right to remove those subsidies, not any - any serious one.
So I think what happened is that people got very, very angry and then sort of forgot what they were angry about. And there's this free-floating anger now out there that just gets directed in all kinds of weird ways. And it's in nobody's interest really to call attention to the original problem. I mean, it's in mine. I sell books when people get angry about Wall Street, I guess.
But the - but our leadership doesn't have an interest. And a leadership that is intent on still stabilizing the financial system doesn't have an interest in calling attention to the outrages of the financial system. So I think they - Wall Street got very lucky.
ZAKARIA: We will be right back with more with Michael Lewis.
(BEGIN VIDEO CLIP)
LEWIS: I mean the monks were billionaires by the time I got there if they were allowed to keep their land. That's what is known as the Vatopedi scandal is what in a way triggered the Greek crisis, because when word of the monks doings spread, it caused - it caused the government to fall.
(END VIDEO CLIP)
CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: I'm Candy Crowley and here are today's top stories.
North Korea is threatened to widen its nuclear arsenal and attack South Korea and the United States. This latest threat comes as South Korea and the U.S. prepare to start annual joint military drills, which the North says are a rehearsal for an invasion.
Iraq's prime minister is giving his government's ministers 100 days to deliver results and eliminate corruption or be fired. Today's announcement follows weeks of demonstrations across the country by protesters angry about unemployment and poor basic services. At least 13 people died in protests Friday.
The death toll from an earthquake that demolished parts of Christchurch, New Zealand has risen to 147. The country's Civil Defense Ministry says that number is expected to rise. Seventy people have been rescued alive since the 6.3 magnitude quake struck Tuesday.
Those are your top stories. Up next, much more FAREED ZAKARIA GPS, and then on "RELIABLE SOURCES", Howie Kurtz looks at the media's coverage of the Wisconsin budget showdown.
ZAKARIA: And we are back with more with Michael Lewis, the author of "The Big Short" and many, many other books (INAUDIBLE).
Talk about Greece, which is at the heart of this European crisis and the future of the euro. You went to a monastery in Greece.
LEWIS: Yes, I did. The Greeks were actually kind of - they're in an unusual case. In most of the countries in Europe, the banks are sinking the countries. In Greece, the country sort of sank the banks in the sense that the money came in, the banks weren't corrupted by it. The banks actually remained very kind of sleepy institutions and you didn't make a lot of money as a Greek banker.
The government took the money and the government levered itself up in all kinds of ways. And the Greek state was already a bloated, corrupt affair. But the problem is, the Greek people don't pay their taxes. I mean, they really don't pay their taxes. You're regarded as a fool in Greece if you don't cheat on your taxes. And so they covered the difference with - with borrowed money and then lied about it - lied about it to the European Union.
So I went into Greece to sort of to see what all of this meant. And was surprised to find that there was still a capacity for moral outrage and the fact that people were striking out at scapegoats and the scapegoats - the principle scapegoats were these monks in Northern Greece who had at the Vatopedi Monastery on Mount Athos, which is a lovely place to go, but you can only go if you're male. Women aren't allowed on Mount Athos. Not even women animals are allowed on Mount Athos, unless only female cats. Cats -
ZAKARIA: But what does the - what does the monastery have to do with the financial crisis?
LEWIS: Well, so the monks - the monks - the people were angry at the monks because the monks, during the boom, had persuaded the government to honor a thousand year old deed to a tract of land that it owned. It got dug out of its archives at some Byzantine effort (ph) given this land in the North of Greece, which was a useless lake. I mean, they didn't have any economic value.
The monks got - got the lake valued at some astronomical price. I think it was a billion euros or something, and then persuaded the government to swap the lake for land of equal value owned by the government including things like a former Olympic training center, you know, and they - and they were incredibly savvy, shrewd monks. I mean, the monks were billionaires by the time I got there, if they would have been allowed to keep their land.
That's what is known as the Vatopedi scandal is what in a way triggered the Greek crisis, because when word of the monks' doings spread, it caused - it caused the government to fall. And when the government fell, the new government came in and exposed how rotten the financial books were. And this - and that Greece had been living way far - much further beyond its means than maybe fessed up to, and this in turn triggered the crisis in the financial markets.
ZAKARIA: Now, what about Ireland? You go to Ireland and you say this is a place that only yesterday was the richest country, I mean, was the place that was booming in a way that even places like London seemed tame.
LEWIS: That's right. Investment bankers would go from London. The Irish people who'd immigrated and become - and gone to work for Goldman Sachs, and will go home on the weekend and felt poor kind of thing. And this is a country that was historically destitute, right? In a period of about 15 years, it had gone from the poorest in Europe to among the richest in Europe. And the Irish, the Irish - it was an extreme version of what happened here. The banks behaved completely irresponsibly. So when it comes collapsing down, the banks have incredible losses. And the interesting contrast to me was between Ireland and Greece. The Greeks - the Greeks borrowed the money, as a people, they borrowed the money.
When - when things turned south, the Greek people really don't want to pay off the debts. They're in the streets rioting. They kill people in the streets. I mean, it is a very sort of delicate situation in - in Greece right now.
The Irish on the other hand, they didn't borrow the money as a people. Three big Irish banks borrowed the money, and they had - they had creditors in the financial markets. They had 80 something billion euros worth of bonds outstanding.
Instead of just saying, as they might well have done, you people who lent money to our banks, you foreigners who lent money on our banks, you're toast. We're not paying you back. They're not - we're going to let the banks fail.
The Irish very responsibly nationalized the banks - or the losses and basically said our taxpayers are going to - are going to repay you, imposing incredible pain on the Irish people. I mean, the economy has collapsed. There's effectively a depression there. I mean, they've got 14, 15 percent unemployment. I mean, it's a - it's a desperate situation.
And for two years - I mean, this has been going for two years now, there hasn't been a peep of protest, hardly, and it's just started really in the - in the last several months.
ZAKARIA: And, again, it shows you the size and flexibility and scale of the U.S., where what we did is the government said we're going to - we're going to bail the banks out. They've put up all this money, but because so much of finance is a confidence game, it got most of the money back.
LEWIS: Right. And it could - we could - we could play the confidence game and win. The Irish and the Greeks can't. The Irish and Greeks have lost the market's confidence.
This brings us back to sort of like why this crisis hasn't been felt yet. And it - it is because we had a credible state to stand behind the financial sector and absorb the losses.
ZAKARIA: When we say, when our government says we will absorb the private sector's debts, people say, yes, you can do it and - and there's a path out here.
Would they look at the Greeks and Irish and said there's no way out?
LEWIS: That's right. And the question I have is what happens if the United States Treasury ceases to be a credible backstop? What happens when marketers say we don't really want to lend to the United States anymore? Then you have - then you get the depression. They you get - then you get a much, much bigger problem.
ZAKARIA: And on that cheery note, Michael Lewis, pleasure to have you on. Come back soon.
LEWIS: Thank you.
ZAKARIA: And we will be back.
ZAKARIA: Now, "The GPS Challenge." Libya's official name is a mouthful. It's the Great Socialist People's Libyan Arab Jamahiriya. So what does Jamahiriya mean in Arabis? Is it, A, State of Paradise; B, State of the Brother Leader; C, State of the Masses; D, State of Sharia Law.
Stay tuned and will tell you the correct answer. Make sure to go to CNN.com/GPS for 10 more challenging questions. And while you're there, check out our podcast. It's also one you can subscribe to on iTunes. That way you never have to worry you'll never miss a show, and it doesn't cost you anything.
As events in the Arab world have transpired in recent weeks, I've been rereading some of my favorite books on the region. This week, I want to recommend to you Bernard Lewis' "The Middle East", a brief history of the last 2,000 years. It's actually a very short book and it's a single best general history of the Middle East that I've read. Buy it, read it, keep it on your shelf. You'll really enjoy it.
Now, for "The Last Look," do you think your boss is tough on you? After you hear this, you might think again. Donald Rumsfeld has recently released a bunch of his papers from his time at the Pentagon. He wrote a doozy to his deputy Doug Feith, who's been on this program. The subject is, quote, "Issues with various countries," unquote. And here's how it reads, quote, "We need more coercive diplomacy with respect to Syria and Libya and we need it fast. We also need to solve the Pakistan problem and Korea doesn't seem to be going well. Are you coming up with proposals for me to send around?", and end quote.
That's easy. He's simply asking Feith to solve four of the world's biggest trouble spots in four sentences. Interestingly, we noticed at the bottom of the memo there is a space marked "Please Respond By". Luckily for Feith it was left empty. There's no date.
For this week's "GPS Challenge" question, we asked you what Jamahiriya meant as in Libya's official name, the Libyan Arab Jamahiriya. The correct answer to our "GPS Challenge" question was C, State of the Masses or governed by its people. Unfortunately, just another lie of the Gadhafi regime. Go to our website for more questions and answers.
Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."