Q. Are you bullish on the U.S. economy?

A. If we don't screw it up. If the government frames policies which permit the entrepreneurs of this country to function instead of laying costs upon them, I'm extremely bullish. Even if they do inhibit entrepreneurs, one thing that Americans handle better than any country in the world is change. We're all immigrants; it's just a question of how long ago we got off the boat. We have a spirit of adapting to change, and if my thesis is correct, we're in for more rapid change. Our ability as a nation to handle that is much greater than some of our competitors who have closed societies, who do not encourage immigration, who do not get their ideas from the rest of the world the way we do.

Q. The information revolution seems to call for new political as well as economic institutions. What are these new institutions likely to be?

A. If we are indeed involved in a global conversation, and I believe we are, international cooperation is going to increase by order of magnitudes. If you believe in global warming, or if you don't, no one nation by itself can address that problem. If you are worried about the ozone layer, rain forests, toxic dumps, or whether the next Chernobyl will blow up, all are beyond the scope of a national government. We have to cooperate with each other on all kinds of things. We won't necessarily have new political institutions, but we're going to have to have greater international cooperation on lots of items which are now coming at us in a rush of technology.

Q. How do people participate in political decision making when sovereign national institutions erode? Is there a danger of global manipulation by an unrepresented group of leaders?

A. I have enormous confidence in the common sense of people. The more information people have, the better decisions they make over time. It's possible, obviously, to have some wild person come along and capture the world the way Hitler captured the imagination of a generation of Germans and plunged the world into world war. But because of the global conversation we're in, the possibilities of that are reduced because competing ideas would flood in and completely overwhelm the possibility of such a person spreading that kind of government.

Q. If there is a banking crisis in the coming months, as some suggest, how would this affect the international financial system? Could this trigger a worldwide crisis like that of the 1930s?

A. It's always amused me that the journalists talk about "our fragile system." It's survived a couple of world wars, Vietnam, Korea, the oil shock, $50 oil and $3 oil, and it's still functioning. Most economists would agree with the Schwartz and Friedman books about what caused the Great Depression, that the Federal Reserve in those days took money out of the system and turned a stock market crash into a disaster. This time the Federal Reserve acted just the opposite. On Black Thursday a few years ago, when the market dropped 400 points, the Fed was in there flooding the market with money. It did a superb job and there was not a problem. If a problem arises it's going to be in the payment systems. The payment systems in this huge marketplace are dangerous, but they're getting better. We had a test of what happens. A German bank failed and the German central bank elected to let her go and said the market would handle it. The Chase Manhattan bank was the agent for that bank. Chase stopped payments and the whole international payment system went down. That was on a Friday afternoon and the chip system, which is the system that clears all Euro-dollars in the world, stopped. Did the world stop? No, it didn't. It was solved by a very simple procedure: all payments could be returned for 24 hours just like a bad check. Once the banks knew that they could return a payment, the system cranked up and worked again.

Q. The information age puts a great deal of power in the hands of the media, particularly the major networks. What effect can this have on a democratic society?

A. The networks are increasingly a victim of the information society. If you sit in a situation room in Washington with some crisis management team, CNN is on. Most governments get their information from CNN, though they don't like to admit that. One of the anomalies of the world is that although Ted Turner invented it, the American embassy in the Soviet Union didn't have CNN, and they were the only people there who didn't know what was going on. But with 150 cable channels and with another new network--Fox--the power of the talking heads and the networks has been sharply reduced, because people have a choice. They can flip channels.

Q. With the benefit of hindsight, how wise was it for banks, such as Citibank, to lend so heavily to developing Third World countries?

A. You have to think about the context we were in. There was panic in the streets when OPEC decided to raise the price of oil. The U.S. was the only country in the free world that didn't adjust to the price of oil. Banks recycled those huge oil payments back to the Third World countries, and two years after the first oil shock the export ratios of all Latin American countries were in very good shape. What we did was watch the wrong country. Sure, there was fraud, but the real problem was that Mr. Volcker went to Basel to the central bankers club, and they told him in no uncertain terms that 12.5 percent inflation in the U.S.--which is where we were with Jimmy Carter--was totally unacceptable. He came home and locked the wheels of the world. Suddenly the money supply stopped and our economy went into the worst recession since 1933. American imports fell from those countries to just about zero. The result was that the export ratio said it looked good, the loans said it looked good, but suddenly we were bad. Now we've lived long enough that they have swapped out the loans for equity. I'm told that the value of the equity for which they swapped now exceeds the original loan value. The only thing I got right in my life was when I said, "No American bank will fail because of foreign loans, but hundreds will fail because of good American real estate." That turned out to be more or less right. Today, with the integration of the world, I worry that there is only one international financial bank left, so how are we going to finance world trade? In my city, for example, Morgan's and Bankers Trust are out of the commercial banking business and they did it brilliantly. But they have publicly announced they don't want their loans more than 10 percent of their assets. Many banks on the West Coast and in New York are closing branches abroad at the very time when international trade is exploding. The Europeans have no international financial institutions of note. We're in the grip of a regulatory recession in which everyone is afraid to make a loan because they'll get criticized and then will lose their job. The result is that government bonds as a percentage of the assets of American banks have gone up about 85 percent. That's a no-brainer--to borrow money at 3, lend it at 6, and be on the golf course at 4. So if I worry about something--and I do--it's whether the American financial institutions and this excess created by the S&L mess will prohibit Americans from participating in financing the global expansion of trade which is surely going to come.