Leave your feedback Share Copy URL https://www.pbs.org/newshour/show/nobel-laureates-trace-how-the-economy-began-to-fall-apart Email Facebook Twitter LinkedIn Pinterest Tumblr Share on Facebook Share on Twitter Transcript The subprime mortgage meltdown and subsequent downward spiral caught some officials and the public off guard. Yet there were some clear indicators of the impending crisis. Paul Solman speaks to two Nobel award-winning economists about how the economy began to unfurl. Read the Full Transcript Notice: Transcripts are machine and human generated and lightly edited for accuracy. They may contain errors. MARGARET WARNER: Two perspectives now on how the financial crisis began. They come from Nobel award-winning economists Paul Samuelson and Robert Merton.Economics correspondent Paul Solman talked with them recently. ROBERT MERTON, economist: I'm Rational Man, with a big "R," big "M"…PAUL SOLMAN, NewsHour economics correspondent: Speaking at Boston University recently, a pair of financial pioneers, Harvard Professor Robert Merton, who won the Nobel Prize in Economics for Finance a decade ago and his teacher, who won the Nobel Prize in 1970, MIT's Paul Samuelson, now 93.The so-called financial engineering these men helped create has been fingered as a key culprit in the economic crisis. But in separate interviews, teacher and student strongly disagreed on finance's role in causing today's scary downturn. PAUL SAMUELSON, economist: People compare it with the Great Depression, but the Wall Street shenanigans this time are much worse. PAUL SOLMAN: Well, what did Wall Street do this time that it didn't do last time? PAUL SAMUELSON: Fiendish Frankenstein monsters of financial engineering had been created, a lot of them at MIT, some of them by people like me.Nothing like this was present in 1929 when Herbert Hoover and the secretary of treasury, the billionaire Andrew Mellon, were doing the wrong things. They didn't encounter this problem at all. PAUL SOLMAN: The problem of Samuelson's so-called monsters, credit default swaps, say, or mortgage-backed securities, which, as we've explained in pieces now up on our Web site, could be used to protect an investment or to make huge bets in unregulated markets.And, says Samuelson… PAUL SAMUELSON: You not only can bet with them, but you can leverage to a degree that you don't even know you're leveraging. PAUL SOLMAN: You can, in other words, borrow money with which to bet with them?But to Robert Merton, financial engineering is an instance of successful innovation and, in its defense, he points out… ROBERT MERTON: It is inevitably going to be the case that a successful innovation is going to be running ahead of the infrastructure to support it. By infrastructure, I mean the regulations, the oversight, the experience of markets.And the reason is because it doesn't pay to build a whole infrastructure to support every innovation in advance, because most of them fail. And so the ones that succeed, the ones we see, will be ahead.It's not unlike, in a physical context, if we design a high-speed train, one that can go 200 miles an hour. We'd love to have one between here in Boston and New York. Unless you built the track, the infrastructure to support it, you can't prudently run it at 200 miles an hour. I think everyone would agree with that.