Return to Transcripts main page

Fareed Zakaria GPS

Interview with Steve Rattner; Interview with Niall Ferguson; Interview with Mohamed Nasheed; Interview with V.S. Ramachandran

Aired July 22, 2012 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FAREED ZAKARIA, CNN 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.

We have a great show for you today. We'll start with Mitt Romney and the world of private equity. His run for the presidency has brought the once insider world into the public's eye, but what really goes on there? I'll talk to Steve Rattner, who ran a large, private equity fund and is an Obama backer.

Then, if Greece did exit the euro, how in the world would it happen and just how calamitous would it be? Harvard's economic historian, Niall Ferguson will tell us.

Also, are you worried about global warming with this whacky weather? If your nation was just a few feet above sea level, you would be really worried. We'll talk with a former president of just such a nation.

And why am I wiggling my fingers in a mirror here? To try to understand the wonders of the human brain. Come along for an amazing tour.

But, first, here's my take. The attacks and counterattacks in this presidential campaign are, I supposed, inevitable. But let's be honest, they're largely untrue or irrelevant.

Whatever the paperwork shows, Mitt Romney was not running Bain Capital after February 1999. Even if he had been, outsourcing jobs to lower a company's costs and, thus, ensure its survival is not sleazy; it's how you run a business efficiently. Is President Obama suggesting that we put up tariff barriers to prevent outsourcing in the future?

On the other side, Romney's recent claim accusing the president of shoveling government grants to his political supporters is so twisted that it earned him "The Washington Post Fact Checker's highest score for distortion, "Four Pinocchios." And his recent refrain that Obama's views are "foreign." It is frankly disgraceful

Below all this mudslinging lies a real divide. Obama has been making the case that the U.S. economy needs investment in infrastructure, education, training, basic sciences and technologies of the future. Those investments, in the president's telling, have been the key drivers of American growth and have allowed people to build businesses, create jobs and invent the future.

Romney argues that America needs tax and regulatory relief. The country is overburdened by government mandates, taxes, rules that make it difficult for businesses to function, grow and prosper. He wants to cut taxes for all, reduce regulations, streamline government. All this, in his telling, will unleash America's entrepreneurial energy.

Both views have merit. It would make for a great campaign if the country had a sustained discussion around these ideas. Then, the election would produce a mandate to move in one of these directions.

Now, I think Obama has the stronger case. We do need a tax and regulatory structure that creates strong incentives for businesses to flourish. The thing is we already have one.

The World Economic Forum's 2011-12 Global Competitiveness Report ranks the United States No. 5 in the world and number one among large economies. Whether compared with our own past of, say, 30 years ago or with other countries, the United States has become more business- friendly not less over the last 30 years.

America is worse off than it was 30 years ago in infrastructure, education and research. The country spends much less as a percent of GDP on infrastructure, research, development, education, and training than it did in the 1960s, 70s and 80s. We spend half as much on R&D as we did in 1960.

The result is that we're falling behind fast. In 2001, the World Economic Forum ranked U.S. infrastructure second in the world. In the latest report, we're 24th. In the 1970s, America led the world in the number of college graduates. As of 2009, we were 14th among the countries tracked by the OECD.

In other words, the great shift in the U.S. economy over the past 30 years has not been an increase in taxes and regulation, but rather a decline in investment in human and physical capital. President Obama has real facts on his side, which makes it somewhat depressing that his campaign has focused on half-truths.

Let's get started.

Steve Rattner was one of the founders of the Quadrangle Group, a private equity firm that once managed $6 billion in assets. More recently, Rattner was, of course, the Obama administration's "car czar" tasked with fixing the U.S. auto industry in the wake of the financial crisis.

So, he's somewhat a defender of private equity and somewhat a defender of President Obama, a unique position to be in these days. I wanted to ask him about the realities of private equity. Welcome back, Steve.

STEVE RATTNER, FORMER "CAR CZAR": Thanks for having me, Fareed.

ZAKARIA: So, first, let's just talk about private equity because there are people who say that the attacks on him are legitimate because private equity is quite different from just being engaged in business. Jacob Weisberg has a piece in "Slate" about this where he says, look, this is money made through financial engineering.

These companies, private equity companies, often buy a company then load it up with a lot of debt, use that debt to pay themselves fees, maybe the company then does well, maybe it doesn't, but they enrich themselves regardless of whether the company they bought does well. Is that fair?

RATTNER: So, like so many things in life, the truth lies somewhere in between. There are some very commendable aspects of private equity. I think private equity has made a serious, major contribution to sharpening up management in this country by going in and saying we just care about the bottom line.

We want this company to be run efficiently. We don't care about -- your corporate jets are going to go, all this kind of stuff and I think they've had a real impact. So that's the good side of private equity.

On the other side, yes, there is a fair amount of financial engineering involved. Sometimes, private equity guys do what you alluded to, which is they put so much debt on so they can take money back out and realize return on their investment.

And, then, sometimes later, not every time of course, the company goes bankrupt and they end up -- the private equity guys are making money, the employees lose their jobs, the investors lose their money. But private equity, by-and-large, is a perfectly legitimate business exercise.

What it is not is a practice of creating jobs. Where I part companies with Governor Romney is where he starts to claim credit for creating all these jobs. That's not what private equity does. Private equity makes money. It makes profits in a very -- in a legal and usually responsible way, but it's not a job creation. It doesn't qualify you to be the job-creator-in chief.

ZAKARIA: What about the outsourcing? Because it does seem to me that over the last 20 years one -- I don't want to say trick, but one simple mechanism that companies have used, companies like General Electric, but, also, private equity firms when they go in, is to say what part of this business could be done in China, in India, in the Philippines at a fraction of the cost.

Let's shut down the plant in Kentucky. Let's move it to China. And that critique, which is at the heart of the issue about Bain Capital, from the point of the view of the Obama campaign, seems to one that resonates. It is fair?

RATTNER: Yes, it's fair in the sense that every company in American or, for that matter, every part of the world, they're tasked with looking at their costs and always say to themselves is there a way to lower our costs.

You, better than many -- if not everybody in the world, knows we are living in a global world and companies have to produce efficiently in order to compete. And if you don't have the lowest costs, you will simply fail in the marketplace.

So I'm sure Bain, being very good at what they did, spent a lot of time saying to themselves how can we do this more cheaply and if it means call centers in India or manufacturing in China, so be it. And that, again, was their job.

ZAKARIA: You know the world of private equity inside-out. You also understand the issues relating to SEC documents, probably better than most. What do you think happened?

Why is it that when Mitt Romney left the Bain Capital to manage the Olympics, Bain kept filing SEC documents, you know, for several years -- for three years, with him listed as sole stockholder, chairman, chief executive and president?

RATTNER: Of course, we don't know. And I think one of the problems here is that Governor Romney has created a level of opacity around his affairs that has led everyone to assume the worst and which I think, frankly, is just politically stupid because what else can you think when he doesn't tell you actually what happened.

One hypothesis that I hear in private equity circles that resonates with me as a possibility is, first, when he left to go to the Olympics, he didn't know how long he was going for. He didn't know if it was a week, a month, x years. He didn't know whether it was going to be an 18-hour day or a six-hour day.

He left kind of instantaneously. There was no succession planning that seemed to be in place at Bain and so there was no clear idea who was going to succeed him. And so they couldn't really file something else until they figured out who was going to succeed him and that, apparently -- and it's not unusual that that took some time.

And so it sort of drifted along. They just filing what they were filing before because they didn't have anything else to file and that's where it stood.

ZAKARIA: What about the tax returns? Is there something there that should worry Americans?

RATTNER: Taxes are as much art as science and I think what Americans will find is that he pushed the envelope to the edge. He did stuff that simply ordinary Americans won't be able to relate to; $100 million IRA, $100 million in trusts for his kids on which he will pay not only no estate taxes, but where he's, through a complicated mechanism, actually able to put more and more into those trusts as the years go on.

I think it's going to make Americans recoil and that's why I think he's not releasing those returns.

ZAKARIA: Do you understand why you'd need a Swiss bank account?

RATTNER: I understand the nature of off-shore vehicles and why much of this occurs off-shore. It has to do, like all this with taxes -- not so much taxes for Romney in some cases anyway, but taxes for his investors with a collateral benefit for him.

So, yes, there are -- again, if you say to your tax people, as he seems to have done, I want every trick in the book. I want to push this to the edge. I will tell you that, as a private equity guy, I'm familiar with many of the things that he did and I know many people who've done many of the things that he did.

I do not know anyone who did everything that he did and some of what he did, like the IRA, I've asked fellow private equity guys, none of us had even known this was a possible "trick" if you will. So he's pushed the envelope all the way to the edge to his benefit and I think Americans would find that very distasteful.

ZAKARIA: And that's the IRA that's currently valued at about $100 million?

RATTERN: $100 million, but, also, some of this money that's off- shore he's also deferring taxes on until he brings it home. So, every year, what's happening is the government is giving him an interest- free loan on all these deferred taxes at the expense of the federal budget, in effect.

ZAKARIA: And, to the extent of this, it does rise to a larger issue. Ezra Klein, in the "Washington Post" writes that the reason this, in his opinion, is worth talking about is that it shows that people like Mitt Romney and you have access to advice, mechanisms, strategies to build wealth that really ordinary Americans don't have access to.

And that when you couple that with his agenda, which is to cut taxes further for those people, it gets to the heart of this idea that there are two Americas, one for the very, very, very rich and one for everyone else.

RATTNER: I think that's precisely the point and I must say I'm ashamed of myself, in a sense, for not seeing it as clearly. In the years when was a private equity guy, frankly, having access to some of these tax management, shall we say, mechanisms.

But, when you step back and look at this whole picture, what you see are two Americas; one where Mitt Romney can do all these things not because he has good advice, but because the nature of his business allows him to have a $100 IRA. It's not just because you're rich you don't necessarily have it, but the nature of his business allowed it.

Real estate guys, oil and gas guys, certain industries lend themselves to tax management, as I said before, that's very effective, other's don't, but the result is two Americas.

So you can find plenty of rich guys out there who are paying 35 percent of their income in taxes without -- even though they have great advice and all that because they don't have the right kind of income, they're not in the right kind of business. But the point is there are two Americas and I think that is not where this country should be.

ZAKARIA: Steve Rattner, pleasure to have you on.

RATTNER: Thanks for having me.

ZAKARIA: Up next, what is going to happen next in Europe? Don't forget there's a big crisis there as well. Some historical perspective from the great historian, Niall Ferguson.

(COMMERCIAL BREAK)

ZAKARIA: With all the economic difficulties on the horizon today, most people agree the single biggest threat to the world economy is the deepening of the European crisis and the most likely form it would take is a "Grexit." That's Wall Street's contraction of "Greece" and "exit and it refers to the Greek government departing from the euro.

Some has been written about it, about when it will happen, but every little thought has been given to how it might happen and what would happen next where it happen. For that, I turn to an old friend of GPS, Niall Ferguson, the great Harvard historian.

Welcome back, Niall.

NIALL FERGUSON, HARVARD: It's nice to be back.

ZAKARIA: So, first, let's just talk about the mechanics and, then, we'll talk about the broader problem.

So, let's say, at some point, either the Greeks or the Europeans, or some combination of the two, decided that there simply was no way to make the math work, that Greece was never going to pay its loans and the Greek government decides the best thing for us is to get out of this European currency, adopt -- readopt the drachma and devalue it.

How would do it? What could they do? Do we have any historical example?

FERGUSON: It's hard to do. One reason it hasn't happened yet is this is much harder than leaving an exchange rate mechanism, which is what the Europeans used to have or a gold standard, which is what we had right up until the 1930s.

Because it's not just about the bank notes and the coins, those would have to be changed. Much more importantly, it's about what's in the banks because most money is, in fact, in bank accounts rather than in people's pockets or under their beds.

ZAKARIA: In digital form.

FERGUSON: Exactly. And so what you would be talking about would be an announcement, presumably on a Sunday night, along the lines of news just in, those euros that you have in your bank from tomorrow, will be drachma. There'll be a little bit of a teething problem because the ATMs won't work for a few days while we get the drachmas into place, but don't panic. There's going to be a bank holiday until, let's say, Thursday.

Now, just think what that would do not only in Greece, where there would be pandemonium, there would be pandemonium throughout Europe because if one country leaves -- and this is an argument which I've heard again and again traveling through Europe over the past few months.

If one country leaves, the question is whose next? So for one country to leave wouldn't just be hugely disruptive to its banking system, it would be disruptive to the entire European banking system.

ZAKARIA: So, if it were to happen, presumably the argument would be, again, just mechanically, all those bank accounts where you have euros have now been digitally converted to drachmas, but your bank notes will have to be restamped or something like that.

Where, you know, in the old -- when the Habsburg currency collapsed, they actually had people come in with the old Habsburg money and they would stamp on it this is now Romanian money or whatever it was.

FERGUSON: That's actually what happened at the end of the First World War when the great monetary union that was the Habsburg Empire fell apart. We've come a long way since then. Much less money is in the form of bank notes, much more is in bank accounts.

And it's not just about converting the notes and coins, that's doable though it's clunky and difficult. The big problem is what you do with outstanding debts. I mean if you owe somebody money, does it suddenly go from being a euro debt into being a drachma debt and at what rate because, of course, everything hinges on the drachma being a weak currency.

The whole idea behind doing this would be to help the Greeks out of a hole with a devaluation. So from the point of view of anybody who owes money in euros inside Greece, this would be Christmas coming early because suddenly those debts would be worth a whole lot less.

From the other point of view, from the creditors point of view, this would be a disaster. So it's not just disruptive in terms of payments, it's hugely disruptive in terms of relationships between creditors and debtors.

And we haven't even got on to the cross-border debts, the money that Greeks owe to other Europeans. Would that stay in euros or would that become drachmas? It's really a can of worms crossed with Pandora's Box at this point.

ZAKARIA: I've rarely heard you mix metaphors before so it must be seriously (inaudible)...

FERGUSON: It really does. ZAKARIA: Now, let's talk about the part that seems really scary which is the spillover. So the problem is that this happens in Greece and, all of the sudden, people look around and say wait a minute, maybe not all euros are created equal and I'm just going to be safe.

I'm going to put my money in the one country that isn't going to default and that's Germany. Is that what you -- is that your fear?

FERGUSON: We've already seen tendencies of this kind. I was in Barcelona just a few weeks ago. Everybody, from the taxi driver who picked me up at the airport to my editor, was asking me should I move my money out of a Spanish bank and into a German bank?

And that's an option. It's not an easy to do. It involves a certain amount of hassle, but it's doable. That's the nature of monetary union.

The moment people fear that tomorrow their euros are going to be pesetas in the Spanish case, they start to think to themselves well I would rather have something that will be a Deutsche Mark the day after tomorrow if this whole thing is going down.

So what we started to see last month was people moving their money out of Spanish banks and into German banks. It wasn't a fully fledged bank run. Some people called it a "bank job" because it didn't reach epidemic proportions and there weren't lines in the street.

But the fact that that could happen is, I think, one reason why this hasn't yet taken place. It wasn't so much that the Germans relented and said, you know, OK, we'll cut the Greeks one more break.

It was more that it was explained to the German government, look, if you kick the Greeks out or get them to kick themselves out, there's going to be a contagion effect that will go straight round the Mediterranean, will come to Spain and could ultimately end up affecting France too.

And that, I think, is the reason why this monetary union is still hanging together because the cost of dismantling it is incredibly high.

ZAKARIA: President Obama is watching all this and, clearly, the single most important factor in the last three months, in terms of the weakening U.S. economy, must be the slowdown in Europe, the fears that come out of Europe.

Are they going to abate or in the next four to five months, as we approach the U.S. election, are we going to see more of the same, indeed, perhaps a little bit more crisis?

FERGUSON: Well, luckily, Europeans take very long summer holidays and not much is going to happen that will be newsworthy, I suspect, between now and Labor Day. On the other hand, the uncertainty will linger on during the dog days of summer. And let's not forget the fiscal cliff that the United States is heading towards regardless of the European crisis. No, the macro- economic outlook is not great for President Obama. It's very hard to believe that anything is going to happen in Europe that's going to improve matters before November.

And that's why, of course, he's beating up on Mitt Romney's career in private equity in the desperate hope of distracting American voters from the reality that the U.S. economy is slowing down and, indeed, the world economy is slowing down.

ZAKARIA: Niall Ferguson, as always, pleasure to have you on.

FERGUSON: Thank you.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: I was struck last week to hear that the city of San Bernardino, California is declaring bankruptcy. It follows similar moves in the past month by Mammoth Lakes and Stockton, also in California. Before them it was Central Falls, Rhode Island, Jefferson County, Alabama, Harrisburg, Pennsylvania - the list continues.

What in the world is going on? Companies go bankrupt all the time, but what happens when a city goes under? In reality, the two aren't that different. Companies file for what's known as "Chapter 11," a provision which enables them to renegotiate deals, to downsize, to fire people.

But filing Chapter 11 also gives them the option of liquidating - or breaking up. That would be essentially impossible for a city. It also happens to be unconstitutional. So cities go for "Chapter 9."

Now, naturally, we assume all bankruptcies are a bad thing. They're humiliating, they impact business, they're difficult to recover from, the situation is far from ideal, but it's actually not without its benefits.

Take for example San Bernardino. It was running a $45 million deficit on a $130 million budget. But its creditors, workers and retirees, were unwilling to help out.

The best the unions were able to do was to offer what they thought was a major concession, allowing newly-hired public safety workers to retire with 90 percent of their salary at the age of 55, instead of 50, which had been the earlier deal.

That won't work in a Chapter 9 bankruptcy. An independent judge brings all parties to a table where an agreement has to be reached, no matter how painful. And we need some of those painful decisions. Not just at the federal level, but at local and state levels, as well. At its heart, the bankruptcies you keep hearing about these days are not about taxes being too low or spending on city services being too high. They're about pensions. California's pension-related costs rose 20- fold in the decade since 1999. This frightening trend is true almost everywhere in America.

And it is simply not sustainable. A recent Pew research survey found that the gap between state assets and their obligations for public sector retirement benefits is $1.38 trillion. It rose by nine percent in 2010 alone. And it will likely keep rising until these obligations are renegotiated. The truth is, America is sacrificing its future to pay for its past. To keep up with burgeoning pensions, states and cities are slashing services. It's also feeding into the unemployment problem. State and local governments have 445,000 fewer workers today than in 2007. Even if you exclude teachers from that number, we have 231,000 fewer workers. For decades now, local governments have doled out patronage by increasing pension benefits. These costs impact the budget only years later when the officials who had given them have safely retired themselves. We're now having to reckon with those choices. I'm not saying bankruptcies are a good thing, but they are a mechanism that allows us to admit an emergency and renegotiate the deals that are, well, bankrupting the country. Up next, the man who was ousted this year from the presidency of Asia's smallest country. The Maldives -- it's a fascinating story.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley in Washington. "Fareed Zakaria GPS" will be back in 90 seconds. But first, an update on the investigation into the Colorado shootings. We want to go to CNN's Jim Spellman, he is outside the apartment building of suspect James Holmes. Jim, first, have they cleared all of the explosives from that apartment?

JIM SPELLMAN, CNN CORRESPONDENT: Yeah. After nearly two days, they have, Candy. Take a look at this. You can see a broken window up there on the third floor. This was not the unit where James Holmes lived. He lived back on the third floor farther. But it took -- they did this to several of the windows in this building as they tried to figure out a way to get in there. There was a tripwire right on the door to the apartment described by police to us as designed to kill the first person who went through. And Holmes had set up, the police say, a timer to play loud techno music, perhaps hoping that somebody would make a noise complaint, police would come, open the door, and be hurt. There was not only IEDs inside the apartment, but incendiary devices as well that would have caused fire. Now that they've removed all of that stuff, they can continue processing this for evidence as they build their criminal case against James Holmes. Candy?

CROWLEY: Jim, we know that President Obama is going to visit there this afternoon. What can you tell us about that trip?

SPELLMAN: Yeah, he'll land later this afternoon, Candy. Plans on meeting with families of victims and some of the wounded. He'll also meet with local politicians, leaders here. He's not going to stay, however, for a vigil that's later in the evening. That's going to be a great chance for the community to all come together. The president's not going to attend that.

CROWLEY: Jim Spellman, thank you very much for that. "Reliable Sources" is at the top of the hour. Now back to "Fareed Zakaria GPS." ZAKARIA: Cairo's Tahrir Square was the iconic epicenter of the Arab Spring. Well, for weeks now, demonstrators in Asia have been gathering in what is known as Republican Square in the Maldives. That tiny island nation is also perhaps the most vulnerable country in the world to climate change since it sits just a few feet above sea level. The country has been in turmoil since February when its president resigned, but that man, Mohamed Nasheed, says he did not resign, he was ousted. I spoke with him when he was in New York recently.

(BEGIN VIDEOTAPE)

ZAKARIA: You came to worldwide attention at the Copenhagen conference because you really tried to get them to do something about climate change. And some people argue that your speech in Copenhagen was crucial to actually getting some kind of agreement. Why did you feel so strongly on the issue?

MOHAMED NASHEED, FORMER PRESIDENT, MALDIVES: Climate change is a real issue that is happening in the Maldives. It's not something in the future. We are just 1.5 meters above the sea level. And even a slight change in sea levels have a huge impact on the Maldives. The predicted rises in sea level is going to be disastrous for us, and we just won't be there. The Maldives has been in the middle of the Indian Ocean for the last 5,000 years. We have a written history that goes back 2,000 years, and we've been -- as a country, as a civilization for a very, very long time. And we just can't disappear. We must be around and -- we have to do whatever it takes to see that there are solutions to the issue of climate change.

ZAKARIA: One of the strategies people urge sometimes is to say, look, you're trying to get a -- essentially unworkable strategy. You're asking all the countries in the world, China and India, to agree to reducing their carbon emissions which essentially often means limiting growth. They're not going to do it. There's, you know, there is too much poverty in those countries. They want to grow. So, you know, it's a worthy cause. But it's just not going to happen. What do you say?

NASHEED: But we are also asking for more renewable energy. They're not just simply asking countries to limit and cut down on development. The 350 million Indians who need electricity, we're not asking, for instance, developing country not to provide them with electricity. But we're asking them to invest in renewable sources, and that is available. The Maldives for what it is has come up with an investment plan -- or rather, a carbon-neutral plan. And we think that this is financially viable, and this is technologically feasible. So, we are asking people to go for green investments and more green jobs. We feel that this fossil fuel technology is obsolete, it's been around for too long. And if you want to be the leaders of tomorrow, you have to embrace the future.

ZAKARIA: So tell me about what's going on in your country outside of global warming. You were ousted in what was effectively a coup, correct?

NASHEED: Yes. We had our first multiparty elections in 2008. When I was able to -- we were fortunate to have been elected at that time. We beat the dictatorship that has been running in the country for 30 years, President Gayoom was president for 30 years. But we had our first multiparty elections. And then three and a half years into the democratic rule, President Gayoom with the help of the military and the police and the Islamic radicals have been able to come back -- they staged a coup, they overthrew us and now they have my vice president as a facade. And they are going back to business as usual. Gayoom is back in the Maldives, all his children now back in the cabinet. All his associates, his cronies and friends are -- have been in power. Also, when we fought the elections, we first -- the Islamic radicals, they were -- they contested the elections. And we were able to beat them in the presidential elections. But now after the coup, they have three positions in the cabinet. They are calling the shots in the military, and they are busy giving all the sermons to the military.

ZAKARIA: What are the prospects of something changing and the democracy being restored in the Maldives?

NASHEED: We are working very hard. The people of the Maldives are out on the streets demonstrating every day. And this has been going on for the last four months now. We hope that bigger democracies both in India and the United States would come around to the idea that democracy must be restored in the Maldives. The people of the Maldives must be governed by elected rulers, not a government formed through brute force and the dictatorship.

(END VIDEO CLIP)

ZAKARIA: That was Mohamed Nasheed from the Maldives. Up next, a neat trick we tried on set. It taught me some important secrets about the human brain. Don't miss this.

(COMMERCIAL BREAK)

ZAKARIA: The human brain has deciphered some of the mysteries of the universe. One of the few remaining mysteries of science is the brain itself. How does it work? V.S. Ramachandran is here to shed some light on that. He has been named among "Time" magazine's most influential people in the world. He is a psychology and neurosciences professor at the University of California at San Diego and is the author of most recently of "The Tell-Tale Brain: A Neuroscientist's Quest for What Makes Us Human." Welcome.

V.S. RAMACHANDRAN, NEUROSCIENTIST, UNIVERSITY OF CALIFORNIA AS SAN DIEGO: Thank you very much, Fareed.

ZAKARIA: What is the brain?

RAMACHANDRAN: Well, it's astonishing if you think about it. It's obviously an organ like any other organ. But here's this three- pound mass of flesh consistency of tofu, sitting inside your cranium walls, the (inaudible) walls of your cranium that you can hold in the palm of your hand. It's a lump of jelly. Yet it can contemplate the vastness of space, contemplate the meaning of infinity, think about love, charity, pity, ask disquieting questions about God and the meaning of existence, indeed, pursue the Higgs boson, as people have done recently, I mean, and even ask questions about -- introspect about itself introspecting. Who am I, who's doing the thinking, who's doing the asking of these questions.

ZAKARIA: One of the things you say in your book is that the way we learn about the brain, how it functions, is -- when it doesn't function, by studying damaged brains. I mean, because the brain seems so delicate, you know, is it possible to actually go in and fix it?

RAMACHANDRAN: Not yet, but that's the idea. That first you need to understand the functions and structure of an organ before you can attempt to fix dysfunction. For example, one of the things we've been looking at is phantom limb and phantom pain. So, if an arm is amputated, what you find is the person continues to vividly feel the presence of that missing arm, it is what called the phantom limb. It's been known for hundreds of years. And we've seen that a brain changes in these patients after losing the arm. So, for example, when the arm is lost, when you touch the patient's face, he feels the sensation not only on his face, but also in the missing phantom arm. So, why would a patient with a phantom limb feel the sensation in the phantom when you touch his face? Medical mystery of sorts. The answer lies in brain anatomy.

ZAKARIA: And we did an experiment to show how these things can actually help heal some of the pain.

So professor, tell me what exactly I'm supposed to do here.

RAMACHANDRAN: Well, this is a demonstration of the mirror box technique, mirror visual feedback technique for treating phantom pain, some types of stroke and chronic pain in intact limb. And usually it comes in a big cardboard box, a wooden box. But I'm just going to demonstrate it using the mirror propped up on the table. So, what I'd like you to do, let's pretend for the sake of argument you're the patient. And your left arm is a phantom. I want you to put some ...

ZAKARIA: Amputated left arm, it doesn't exist. But I still feel as though I have a left arm.

RAMACHANDRAN: That's correct. And it's painful and it's cramped and it's in an awkward position. I want you to put your -- if I may, your right hand here.

ZAKARIA: Yeah.

RAMACHANDRAN: And the left side -- left arm, the phantom arm on the left side of the mirror.

ZAKARIA: OK.

RAMACHANDRAN: Hidden from you.

RAMACHANDRAN: Because it's a phantom ...

ZAKARIA: Yeah. RAMACHANDRAN: You wouldn't see it anyway. Now, when you look inside -- you get the -- look inside the mirror, you'll get the impression that the phantom has been resurrected by the mirror.

ZAKARIA: Oh.

RAMACHANDRAN: OK.

RAMACHANDRAN: Then now, if you wiggle your fingers ...

ZAKARIA: Yeah.

RAMACHANDRAN: Do anything different with the two fingers, two hands, you get this odd feeling of ...

ZAKARIA: Yes, if I push my left arm down and my right arm up, it feels very disorienting.

RAMACHANDRAN: That's correct, yeah. This is because of the visual sense dominating or sensation of touch. And if you do this -- if you have a phantom limb on the left side, you have a real limb so it's disorienting. If you have a phantom lymph, the phantom limb is clenched like that, let's say, and then you clench your right hand, it looks like mimicking -- you're mimicking the posture and the felt position and posture of the phantom limb, right?

ZAKARIA: Yeah.

RAMACHANDRAN: Looking as if you visually resurrected it. Now from the clenched position, you're not able to unclench the phantom ordinarily, and it's very painful, the nail's digging in the palm. Now, I want you to open your right hand fingers ...

ZAKARIA: Yeah.

RAMACHANDRAN: Pretend you're opening your phantom fingers. What you're seeing the phantom opening its fingers. And instantly manipulations of the phantom -- the spasm is released ...

ZAKARIA: Yes.

RAMACHANDRAN: ... and the phantom opens itself and the pain goes away. We've done clinical trials on this and found that it works in many patients.

ZAKARIA: So, you're almost psychologically -- through a psychological process make the physical pain disappear.

RAMACHANDRAN: That's correct. But it's not psychological in the sense that you're going to shut your eyes and imagine my phantom opening. You can't do that. It's not psychological in that sense, you need the visual feedback kicking in. It's a real perceptual physiological process, mechanism just happening in the brain. You can't use imagery to do it.

ZAKARIA: It's fascinating. At the very least this is going to be a great party trick.

(LAUGHTER)

RAMACHANDRAN: Yeah. People love it at parties actually.

ZAKARIA: So, this technique is used often in -- in healing patient with amputations and things like that?

RAMACHANDRAN: What happens is you -- you are missing an arm, the missing arm, the phantom, is clenched in an awkward position, often excruciatingly painful. The phantom limb is paralyzed. It sounds like an oxymoron, but it's paralyzed and clenched and painful. And you put a mirror there, you look as you did, and you look at the reflection of your normal hand, you resurrected the phantom visually. You move the normal hand, you liberate and animate the phantom, the phantom looks like it's moving and then it feels like it's moving, too, for the first time in years or decades. And then this relieves the phantom cramp, a phantom pain. The astonishing thing is we've now been using results of real pain in the real arm. Not just phantoms. That's absolutely amazing.

ZAKARIA: But does that mean that pain is essentially psychosomatic? That -- that -- I mean that even what seems like very searing physical pain is something in the mind that you can ...

RAMACHANDRAN: Absolutely.

ZAKARIA: You can trick the mind to stop thinking -- to stop feeling pain?

RAMACHANDRAN: That's correct. There's an astonishing degree of back-and-forth interaction between the receptors and the periphery, the skin and bones and flesh. And your brain centers, as they are processing pain signals. This is not recognized widely before.

ZAKARIA: Professor Ramachandran, pleasure to have you on.

RAMACHANDRAN: Thank you very much.

ZAKARIA: And we will be back.

(COMMERCIAL BREAK)

ZAKARIA: Gold will be in abundance in London in coming weeks, not just at the Tower of London where the queen's jewels are kept, but also at the Olympic venues. That brings me to my question of the week -- how much has the price of gold risen since the 2008 Olympics in Beijing? A, 25 percent? B, 58 percent C, 90 percent? D, 150 percent? Stay tuned, and we'll tell you the correct answer. Go to cnn.com/fareed for more of the "GPS Challenge." Also remember, if you miss a show or one of our specials, go to iTunes.com/fareed, and you can buy it.

This week's book of the week is "The Sense of an Ending" by Julian Barnes. It's a story of an elderly man reflecting on his life. It's a short but very deep novel. Beautifully written, full of insights and wisdom. A short book that makes a big impact. It won the Man Booker prize, one of the most prestigious book awards in the world.

Now for the "Last Look." Take a look at this video. It reportedly shows a veritable stampede for chickens in Iran. You see chicken prices have skyrocketed there in recent months. And because of scenes like this, the Iranian people may have just had their last look at images of chickens. The nation's police chief recently asked broadcasters to stop showing images of chickens because such images might inspire the poor to take knives and fight the rich. Now since we have a free press and no chicken price problems here, with no further adieu, my favorite chicken images. How can we start anywhere but the "Chicken Dance"?

(MUSIC)

ZAKARIA: Then there is, of course, the San Diego chicken.

(MUSIC)

ZAKARIA: Little Jerry, Kramer's chicken on "Seinfeld".

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Is that your chicken making all that noise?

UNIDENTIFIED MALE: Oh, Jerry loves the morning.

(END VIDEO CLIP)

ZAKARIA: One of my kids' favorite movies, "Chicken Run"

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: No chicken escapes from Tweedy's farm!

UNIDENTIFIED FEMALE: We've got to get out of here!

(END VIDEO CLIP)

ZAKARIA: You see, the sky won't fall if we show a little chicken.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The sky is falling! The sky is falling!

(END VIDEO CLIP)

ZAKARIA: The correct answer to our "GPS Challenge" question was C. Since the Beijing Olympics, gold prices are up an astonishing 90 percent. Now, you might think that Michael Phelps with his eight golds in Beijing would be laughing all the way to the bank. But it turns out that Olympic gold medals are made with less than two percent gold.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."