Transcripts For CSPAN2 Key Capitol Hill Hearings 20240622

Its got to be much more subtle than that. It got to be about helping each side see where there might be limited areas where they could work together. Im not the great believer in the grand bargain. Now sit down and have a discussion about every in. It is unlikely to be good but they will be some areas where people have quite significant differences and nonetheless have it limited junior level of communication which delivers from a practical benefit to both sides. We will obviously return in some detail of course and the next session. The secretary has made it very clear [inaudible] there is a general concern that we seem to lack a strategy on the full spectrum response with their business is taking them on when it comes to do social media before we even get into iraq with the iraq ema to make significant programs and indeed perhaps a more direct relationship with the kurds in trying to combat. The putting all that aside can you tell us what you would hope to achieve from participation by u. K. Aircraft and airstrikes in syria given the contribution would be limited to americans already putting in come even if you put inside the legalities, and also take into account that air power without effect is land forces is unlikely to succeed as most military commentators would expect. The key to this is seen in iraq and syria as a single theater at the moment for our military operation in a limited set of permissions that stop the artificial border. As far as the enemy is concerned there is no borderline on the iraq syria border, but we are operating onesided at delivering lethal strike and on the other side of a delivering surveillance and reconnaissance only. I think there are a number of points. On any logical assessment that his military action militarily inefficient. They are operating unarmed. If it acquires target information common to does then got to target another asset belonging to a Coalition Partner to make the effect give him a strike if that is required. There is this some old efficiency logic about being able to conduct operations. More importantly, it is difficult to see how dinesh will be effect to be militarily defeated without being defeated and its home. So the fed eventually has to go over the iraq order into syria. At the moment the u. K. Commissions have limited to iraq. [inaudible] lately artificially and that without ground horses, you dont really expect to defeat daish stir airstrikes alone. There are Ground Forces. They are being painstakingly rebuilt. In defense of the kr gene as the various shia militias which re spoken about her playing a role. The fact that now im not suggesting they have an op tamale configured set of Ground Forces in the region but im equally clear object in western boots on the ground as you said would not be a solution. I would not deliver the solution. So far there shows western boots on the ground. We are complaining serious when it comes to military intervention. Inside man [inaudible] thank you, mr. Chairman. To johns point, what kind of analysis is being done for what you hope to achieve with airstrikes. Its more of a convention of Ground Forces in terms of stabilizing but we are talking about taking military action without planning subsequently been done for what happens after and what was the analysis for the situation after militarys ranks. The overall plan and syria remains to see a political transition in the machine to a government which has legitimacy from the majority of groups in syria can then take the final two daish. That is the outcome we see. It is not easy to deliver. We recognize that. In the meantime, it is easy to challenge the efficacy of airstrikes and i dont think anyone certainly in relation to this campaign has suggested the airstrikes alone can finish off the enemy. They cannot. But they have arrested may of last year i they were stopped and were still up rate more as a terrorist organization with the cellular structure rather than conventional military force because of their vulnerability to airstrike and their lack of any counter air capability. They have degraded not only military capability but prevented them from carrying out atrocities have degraded their ability to exploit economic Infrastructure Oil infrastructure in particular. And aside militating effect on their occupation of the territory. That is not the same as saying that we do more airstrike it will eventually threaten them. Of course they wont. I dont think Justice John Barron has said nobody believes airstrikes alone could destroy on the ground. I dont think any sensible military commander would be prepared to clear the ground without having the benefit of a campaign of areas delivering degradation of military capability before the boots on before the boots on the ground women. Just one quick way. When you talk about boots on the ground and syria, who are you talking about . Well, we have a longterm strategy to train and equip a moderate. Not as efficient and i would be the first to recognize that is proving a painstaking process. That has to be the way we go. There are a few different dynamics. The battle between the islamist fundamentalist and others in the battle between the regime and its defense. We have always been clear that what we must do in syria, what we dont vote for in syria is to repeat the mistakes that were made in iraq of dismantling the entire structure and leaving nothing in its place, leaving a void. What we need to do at the regime collapses, and is not precisely a . Depends what you mean by regime collapse. The institutions of the regime collapsed that night is that the effect would read and that is not the desired outcome. The desired outcome is political change to create a situation where the basic infrastructure can be preserved with their political legitimacy that is shared by all the major groups competing. Is in the British American position running the risk that the forces and institutions of the regime would collapse if the policy was successful leaving a void in making the situation as far as taking on isil significantly worse than the challenge we face today . Our political strategy is to work with other players including the russians and hopefully in the postnuclear deal will increasingly be iranians. To find a solution that allows a transition from the existing leadership to a new leadership and eventually a transition to a Democratic Syria where the regime has legitimacy. It is much to be preferred to the collapse of the regime. I recognize the pressure the regime is under, there is a risk of Something Different happening. That is our intention. That is our desired outcome. Clearly the regime is under pressure and a significant number of areas. So sorry we are short of time. I [inaudible] whether the u. K. Could be doing more and Kurdish Forces in iraq is syria. And just to remind you about the flight, particularly the people and the Kurdish Peshmerga. Who failed to assist . I think we failed to assist them. I think that its a little harsh. Last summer we delivered a considerable operation designed to rest you these cds stranded on mount in jar. We did intervene where we thought specific intervention that could be helpful. Youve asked me a number of times about the fate of the women who have been captured by isil. Im afraid to say that you see the women captured by isil. We have little clarity about what is happening. From what we do know we cannot be optimistic about their faith. We know that many women who have been captured have been effect really enslaved, and abused and maybe killed. Going back to the question of can we do more to use the military capacity of the Kurdish Peshmerga and also the peshmerga in syria. Just to be clear, we dont control peshmerga and the kurds are very clear about what they will do what they want to. They see the peshmerga primarily as a force for defending kurdish territory and further very keen kurdish populations. What they are prepared to do beyond that and supported the wider object to and deliberation in the area is limited. So we have very good relations with them, but they are quite frank about their limits on what activity they will engage in. We want to turn now to judaism. I like we will have time with questions arising. That people insist on the 26th of june didnt lead to an immediate British Government to restrict travelers advice. They change their position on the night of july. Can you tell us the reasons for that . Yes intelligence. As we embedded more and more to keep old with the authorities and as they uncovered more of the picture around this attack, the picture that we developed made us more concerned that a further attack targeting western interests was likely. Who made that decision . Was it the National Security council . I took a decision. The traveling advice is determined in the Foreign Office on any major absent a piece of travel advice. I take the ultimate decision personally. In this case i did discuss it with the dirt because we were very much aware, that this would have a Significant Impact on the economy and we have made clear we want to support every way possible but we have to put security and sanctity as our number one priority. I understand that. Other european countries, have not taken the same position and as far as i understand it tourists from france, germany at this time. Why is that weve got intelligence which gives us the view we need to evacuate british people and maybe they didnt than the irish too. Spanish changed ahead of a number of countries have changed in sweden. It also changed travel at rice. The simple answer which is the other country that has a significant amount of tourists only arrived in geneva yesterday to start doing the work we started to learn in the immediate aftermath of the attack. We have developed a picture very clearly. Our experts through the joint terrorist estimate committee hamlet at the thread and we get regular updates on the threat picture. We have to look at the scale of the threat. We have to look at the mitigation in place and we have to make a judgment on the balance of brad and mitigation whether or not we can continue to advise british terrorists that it is sensible to travel to a particular destination a decision is not at the present time. We very much hope that a combination of action the government is taking to deal with than not work behind the attack and action the government is taking to reinforce Preventative Security will allow us to revisit that decision in due course. The government was obviously publicly and privately very disappointed by the decision and clearly have terrible implications on the economy. Can you data from the discussions weve had . I understand you had a meeting with geneva and officials, is that correct . I had a meeting yesterday in brussels. He was invited to attend the Foreign Affairs council and wrestles. The trinity ends must obviously be disappointed we changed our travel at ways. I have to say the Prime Minister very graciously again said yesterday in the Foreign Affairs council that he recognized why we have to do that and respected the decision we have made an trinitys response is not to sulk about it, but to work with us to try and create conditions in which we would be able to review that as soon as possible. We have been extremely constructive relationship with trinity ends at the political level, working model a Security Intelligence agencies and the police and we have found them very willing to engage with our expert and very keen to build the capacity. Have you given any consideration of giving assistance to the trinity and government to help them through this difficult time . Yes, we are at Different Levels. Technical assistance to Security Services to help them with the investigations into the attacks as you would expect, but also that capacity more generally to ensure that detention and interrogation processes are fully compliant with human rights requirements, which in turn enables us to share intelligence. We have undertaken some of our sophisticated assets to gather intelligence that will be of use in the ongoing investigation. We are also working with our e. U. Partners on a package of economic support recognizing the trinity and the economy has been significantly impacted and i think the e. U. High representative announced yesterday the e. U. Is working towards a package of temporary increases in olive oil quotas to the e. U. Which will provide a very immediate ocher relief to the fiscal and Foreign Exchange challenges they are facing. [inaudible] in talking for a good hour saudi arabia and deals id be interested on the disc passions when you went to tel aviv. And also they generally seems quite detached from being with the community in many ways. The u. S. Particularly president obama as well. Have you field israel could be made to be persuaded as marker to do and how would you feel if the International Community that the activity and settlement in gaza has got International Condemnation . Israel but the lat message gladly and clearly, the government is a friend of israel right to live in peace and security to defend itself. We will be quite prepared to speak up when what israel is doing is not acceptable and has spoken out. The Prime Minister has spoken out against settlement policy and was consistently urged israel to engage with the needs of population in gaza in a much more proactive way. To ask your first question, i went to israel last thursday and got a clear and distinctive message that Prime Minister Benjamin Netanyahu was not pleased with the deal we designed in vienna. I did suggested that Prime Minister and i suggested in parliament on tuesday that there was no realistically deliverable nuclear deal with iran that israel wouldve endorsed. I think the reality is the israelis still think there is a last chance of possibly derailing by lobbying action in the u. S. So long u. S. So long as we are in the 60 day window that congress has to consider the deal usc israel maintaining a hostile position and lobby them very aggressively come to mean in the u. S. But also elsewhere. What the lobbying effort has failed that i expect it will, i would expect the israelis as they usually do to be pragmatic and to engage to try to make the best of what they see. That means making sure the commitments i have read has entered into our delivered and the delivery is properly policed and enforced and i hope in time we can persuade the israelis the possibility of a dividend from greater iranian engagement in the region can be positive. I fully understand why israel is our skip to go about this. They see iran through the prism of the nation which has repeatedly denied israels right to exist and which funds terrorist organizations to repeatedly attack israel israeli citizen and israeli interests. I understand the skepticism. I said to Prime Minister Benjamin Netanyahu the approach to containing iran which we have been practicing the last decade has not delivered a cessation of the uranium behavior and doing more of it expecting to get a different result is frankly not likely to happen. We need to do Something Different. Bring me to be prepared to take a little bit of risking engaging more with iran and see if we can persuade iran that it is in its interest to moderate. To moderate its behavior in the region. At afternoon, foreign secretary. Thank you for your initial remarks in your overview of the situation with regard to our own approach of things that you mentioned the e. U. Extensively and you said that our partners in the e. U. Would feel that the e. U. Would be unrecognizable at written word to leave. Surely that should be our goal that we want the e. U. To be fundamentally challenged as the Prime Minister has given commitment to. Surely that should be an encouragement to us to be bold about the type of changes we want more towards trade and cooperation in less of a Political Union is my first question. The second question is this. You are the foreign secretary. The commonwealth has mentioned once in the opening remarks do we still have a say in ses when you put it at five years ago and the British Overseas Territories issues need to be addressed as well. Anyone in particular . The record will show it did mention the commonwealth in my opening remarks made. A set is one of the overlapping circles they gave us a unique footprint in the world. The point is very certainly in sco sa had to the commonwealth does bb and a new secretary general. This is an important moment to think about renewal of the commonwealth should think about restating the purpose and direction of the commonwealth Going Forward. It is an organization in my view in need of some ascension. It operates in a competitive environment for international organization. It is unique among them that it is at least arguable in some respects it is slightly lost in spite of its proper direction cores. After the meeting in the election of the new secretary general outlines certainly it is to reinvigorate the commonwealth in the commonwealth of the period in which the commonwealth recruits and reasserts itself as being a group of nations that have come together for a specific set to achieve a specific set of objectives distinct from what other International Organizations do. On the e. U. Agenda, what i said was all of our part as in europe have expressed to me and desire to remain part of the European Union and some have gone much further and said the European Union would be unrecognizable for britain not been on it. That i think is a reflection of what in their eyes is written in his role keeping the e. U. Focus on a freetrade openmarket outward looking agenda. An important part of our reform pitch is making sure Going Forward the e. U. Is just that. It doesnt succumb to the temptation to become inward looking, defensive, focused on how to protect our social model when in fact the only real way to protect our standard of living is to be competitive in a globalizing economy. That has to be the number one challenge of the European Union and part of the renegotiation of the object is that the union were seeking. Announced the important part of our agenda small in number and population but a very solemn obligation and commitment has spelled out in the territories of the previous government published. The general concern bringing us back to syria when it comes to our approach should realize an ad hoc shortterm taken into account less than two years ago we were hoping we could contain the friendly level forces and take on elements of the roles. The civil war and affect refuse to take both sides to the interior. Why is it that we cant get this right . This sort of change in approach and lack of analysis doesnt inspire confidence generally. I think that is a great misrepresentation of the situation. What has happened at the situation of the graph has changed. What were first looking at the situation in syria it was a civil war with opposition groups fighting the regime which was responding with ever more ruthless military your what happened in the meantime a isil account is controlling a significant barrier. Are becoming much more important factor conflict on the ground and that could complicate this to be. It was a relatively blackandwhite thing. They were bad regime people and opposition people. [inaudible] i think the whole thing a financial territory and establishing a Something Like civil government in the territory is a new phenomenon that usually complicated situation. For the record, it is still her intention to pass moderate opposition to it at no time was there proposal in general terms. There was a specific position to respond to the use of chemical weapons in order to deter further use of chemical weapons to humanity. Can i thank you very much for the initial session with this. Im very grateful to you and we should look forward to resuming. Order order. The meeting is now adjourned. You are as good are as good as it should doddfrank at the past five years ago in response to the todays new financial crisis. Economists had. Economists have to do to fix the new powers granted to the Federal Reserve at the Consumer Financial protection board and other regulators. This is an hour and 20 minutes. At afternoon, ladies and gentlemen. I am alex pollack. It is my pleasure to welcome you here on july 21st the unhappy fit the day of the doddfrank act and what should be done to reform it. The 100 predictable feature of financial cycles is after a crisis there is a political and regulatory overreaction always. So with the doddfrank act which as you know in gender truly remarkable effervescence is constricting regulatory bureaucracy. And deadweight cost of not with antidemocratic grants of unchecked and unbalanced authority to bureaucrats. All the while utterly failing to address the governments own Housing Finance blunders which was though imports and. Always stuck in a bureaucratic mire of this act for another or can we fix it and if so how. In particular, you are about to hear how from our expert panel. Let me introduce them in the order in which they will speak and as we proceed through the panel, we will be approximately working our way through the various titles of doddfrank. First will be my colleague Peter Wallison who is the arthur f. Burns chair cello at aei. Peter directs the program on financial policy studies, was cochair of the few Financial Reform Task force served and worked it very unlikely and highly controversial dissent. Previously peter was white House Counsel to president reagan at the Treasury Department and Practice Bank in a Corporate Law. Financial crisis the financial crisis spawned doddfrank. But do you understand what spawned the financial crisis . By peter spoke hidden in plain sight in case you havent yet. I second the speaker will be chris iacovello committee and director of Global Affairs development of strategy and Public Policy of limburg where he covers policy issues in europe, asia and the u. S. Equity fixed income and Derivatives Market and the impact or the lack thereof on market structure. The special counsel and policy advisor at the Trading Commission including the time of the implementation of title vii of doddfrank has also worked with our committee on Financial Services and the subcommittee on Capital Markets in governmentsponsored enterprises. Next will be j. W. Verret, senior scholar at the Mercator Center working group on Financial Markets and also directs the corporate federalism initiative. Previously jay w. Is on the staff of the Financial Services committee in washington d. C. Hes written extensively on Corporate Law with his Academic Work appearing in the journal on regulation delora journal of Corporate Law Come University of pennsylvania journal of business law and other journals. Our concluding panelist will be mark calabria, director of Financial Regulation studies at the cato institute. Previously mark spent seven years on the staff of the Senate Banking committee for he dropped his significant portions of the housing economic recovery act of 2008 comedy act that established a new Regulatory Regime for fannie mae and freddie mac to put them into conservatorship. Mark worked at the department of housing. Covers joint center for hosting studies. The National Association of Home Builders the National Association of realtors as well as the census bureau. As he sees her experience in the Government Housing and will prepare to reform a good each panelist will speak for 12 to 15 minutes after which would give them a chance to react to each others comments or clarify points and opened the floor to your questions until about 2 30. At that point, Peter Wallace and will introduce our keynote speaker, chairman judd has a ring of the house Financial Services committee. Onto our panel and peter you have the floor. Thank you very much alex. I will start with just a little bit of background on the act and then cover titles one and two. All in 12 to 15 minutes. Reforming the doddfrank act will be difficult because most of the public has never heard of it and continues to believe the financial crisis was caused by insufficient regulation of wall street. In reality the financial crisis has caused to the governments own housing policies which forced a major reduction in mortgage underwriting standards. By 2008 more than half of all mortgages in the United States were either subprime or otherwise risky and of those 76 from the government these and freddie mac are sponsored enterprises that dominated the Mortgage Market. The chart which some of you can see gives you a visual representation of what it looked like. Everything on the left is standing friday. Above that is the federal housing admin is actually just about to other agencies doing the same thing. The va and some of the Agricultural Credit agencies also make loans. On the right black is the private sector contribution which is about 24 and will get to that in a minute. The remaining 24 of these mortgages are on the books of the private sector in the malibus these mortgages began to default, the once fannie and freddie made or bought in the ones the private sector by began to default to fannie and freddie became insolvent and in financial terms of mortgages also bought into trouble in seven failed. Instead of reforming the Government Housing policies which it does seem to have been the right way to proceed here the Obama Administration sought to punish the private Financial Year with the doddfrank act which is one of the most restrictive laws. The administration and congress were attacking the symptoms rather than the disease. I dont have time to discuss all the details but if you have any interest in really understanding why we had a financial crisis it is in my book which is called hidden in plain sight published in january by encounter books. The result that the unnecessary regulation is a historically slow recovery from the recession that followed the financial crisis and we can see the slow recovery here. If you can see it from where you are sitting you can see the red line which is recovery from the 2000 recession that followed the financial crisis is a real outlier in terms of all the other recoveries from financial crises weve had before now. Why would this be . Supporters argue slow recoveries generally follow a financial crises. Recent Academic Work has just proved this. Two respected academics look at all 27 recessions. The u. S. Has encountered since the 1800s and found those that followed financial crises actually recovered faster than those originated further causes. There are three exceptions to this rule. The Great Depression commented. From 1989 to 1991 when the s l industry collapsed and the most recent. Which of course followed the great financial crisis. These three have much in common and we have to study them carefully. They were all. When the government adopted new regulations and controls over the economy. Those in the new deal are legendary as is the seemingly depression that produced. Those in 1989 to 1991 included two major regulatory laws that the Financial Institutions reform and recovery act done to us aspire to have the fdic action on this tradition. But we have a grand daddy of them all, the doddfrank at you the doddfrank asked is responsible for the slow recovery of the two got session just as. Go to a heat is it is likely they will strangle it on the gross in the years to come. Unfortunately doddfrank has come an icon for progressives led by the business. They will not agree to changes, even small ones. Most lawmakers have heard enough from constituents to know the act has been distraught they been impeded economic growth. Democrats are variable but then to support any changes for fear of rising the progressive base. In todays conference my colleagues and i hear on the platform will discuss the most problematic provisions of the doddfrank act. Not all, but the most problematic was. The title i authority of the Financial Stability Oversight Council which i will call at sonic and the ability to designate important Financial Institutions which most of you. The vocal will entitle six derivatives and title vii in title viii come Enforcement Powers and title nine and qualified Residential Mortgage, rating agencies and Consumer Financial Protection Bureau entitles nine and 10. Alastair were title i entitled to. Title i gives the fsoc authority to designate nonbank firms as sifi. All large Financial Firms are good. Youll hear this all the time. Youll time. Youll read in the tape as they are all interconnect it. If one fails, it will drag down others. That is why sifi have to be regulated by the fed to reduce the risk of killing. Good looking out what happened after Lehman Brothers and this may seem counterintuitive but this idea should is wrong. No other Large Institution to which as a result. As this is true even though its one of the largest nonbank Financial Firms and a major player in the credit default swap market and also at a time when Market Participants were very worried about market instability. This shows large nonbank Financial Firms im not dangerously interconnect it and if one of them were to fail it would not drive down others. There is no need to designate firms and no need to say them when they fail. Since designating firms is unnecessary that extends the too big to fail idea to other areas of the economy beyond banking. The fsoc Designation Authority should be repealed. Title ii of the act is called the Orderly Liquidation Authority and provides extraordinary power for the fdic to resolve large feeling financial terms including banks and nonbank. From what i said earlier about lehman should be clear there is no need for a special system for resolving our rescuing nonbanks. They can fail and they result in bankruptcy without harm to the rest of the economy. Limits banquet he caused chaos to be sure. That was because he represented the governments complete reversal of the policy of rescuing large firms that Market Participants thought the government had established with the rescue of bear stearns about six months earlier. Until the sunday before them and filed for bankruptcy, the treasury and the fed. They had to buy the firm. When that fell through the government had no plan b. Have refused to put up signs so they miss he became inevitable. Although they miss bankruptcy lawyer was contacted in the preceding week he was not authorized to draw any papers until late on sunday before the filing monday morning. Because of the government bundling, and the opportunity to keep them in operating under chapter 11 of the laws was lost. While chaos resulted i want to repeat no other Large Institution failed. There is one group however his failure could cause a systemic event and these are the largest banks, say those in the trillion dollars category had the fact they perform other services in the financial area could be important to keep the largest banks from failing. Fdic has suggested it would do this through a process that calls single point of entry spoe. Under the spoe strategy, it would use its doddfrank powers to take over the Holding Company of an operating bank and use their resources to recapitalize the bank does the bank would keep operating and no longer be a danger of creating some sort of systemic default. The idea has attracted a lot of favorable attention that there is more than big problem. As paul kubiak might aei colleague and i have shown in a recent paper, it doesnt work for the largest 12 banks. The very ones that might actually be too big to fail. The fdic may have assumed have a major bank fails, the Holding Company would also become insolvent. The fdic can take it over or under doddfrank. Unfortunately none of the Holding Company is the largest banks becomes insolvent if its Subsidiary Bank is wiped out completely. If its investment in the capital is completely wiped out. And have other subsidiaries in the cavities. Title ii does not authorize the fdic to take them over. The fdic split strategy will not work. This is important because the fdic will have to take over failing bank in the oldfashioned way and resulted in the only way the agency apparently knows how and that is by selling it to a healthy bank. The trouble with that is in an area when people are concerned about too big to fail that wont work either. Itll just make bank that much. Bass doddfrank does not do the one thing proponents have claimed it was certainly do and that is eliminate too big to fail for the very largest banks. There was a way to solve this problem. The largest banks can be made virtually fail safe by loading them with contributions to Equity Capital from their Holding Company. That is the best solution to the too big to fail problem. But to put it into effect, title ii would have to be essentially replaced. Even Elizabeth Morin and president obama will have to recognize doddfrank it must be amended if to accomplish the most important purpose. Thanks very much. Thanks, peter. Chris. Thank you alex and peter for inviting me here today. Its a pleasure and honor to be here. I am going to briefly discuss the vocal role and their derivatives what i want everybody to have a political context because both are highly politicized getting through congress and once they were put into implementation in the agency process. Step four directed regulators to make substantial changes to restructure the Capital Market without understanding consequences of the actions. Some have been good and some have been bad. Some of the good things you have the Risk Management procedure that is totally change the industry which ill go into later. The bat was. Frank is micromanaging trading behavior in impacting liquidity. As a result we no longer have freely functioning Capital Markets but what we do have and i hope to demonstrate today is the Capital Markets and show them by washington regulators terrified of risk. The volcker world is put into place by thirddegree amendment on the senate floor in the text was negotiated in conference committee. There was no hearing to discuss what this would do to Capital Markets. The policy although designed to achieve good is to prevent banks from using deposits by the fdic and cheap credit to finance speculative risktaking. When you hear the term casino gambling, this is what they talk about. After 950 pages of rulemaking, but we have disabled that prohibits Corporate Bonds assetbacked securities and permits marketmaking by banks for customer accounts through myriad of roles. If the policy was designed why are they still doing that . The vocal role of rows pop trading for agencies in unit at. You have to step back and say is that good for the system . If the idea was to prevent people from taxpayer funds to trade, why is that you can invest in a detroit Municipal Bond and nonibm Corporate Bond. Think about that. Its a good question. The Practical Impact of the rule goes to the heart about marketmaking miss. One washington chooses to micromanage it makes compliance very difficult. Theres no reliable way to distinguish between trading for customer accounts and debates on account of because of this enabled the demonstrating must inevitably limit Market Making a customer liquidity. Ambiguity of the rule is forcing people to err on the side of caution and pullback. This has lead to reduction of Corporate Bond inventory and is impacting liquidity so much so that lack rock has come out and said the Corporate Bond market is broken. The Corporate Bond market has decreased 77 since 2007 and has been aided by the vocal role and other rules put in place by doddfrank. Title vii was the derivatives rule. This again was highly politicized in congress and when the implementation. Occurred. Title vii requires reporting of Digital Transactions clearing at howe says trading on spot execution facilities which are entirely new registered entity. The rules were rushed. They were put to enforce down everybodys throat f5 also great as the only way you can implement an ideology is to overrun people when all the policies that are within 20500 page rule makings. This also rebuild a tension there to this day that the chairman at the time wanted to overlay the spot market and the mindset and mold of equities but the staff only understood features. Equities are a horizontal market with many trading platforms it features is a vertical market. As a disconnect in the rules which made it confusing and caused over 100 no action letters to be issued and basically forced people to pullback from the market when trading first happen in 2012. Trading has gone up a little bit from last year to busier but theres still a substantial amount of liquidity people were hoping for. What youve seen of the bifurcation the euro dollar spot market, interdealer spot market is totally bifurcated. Liquidity in europe you can find here. Some of these rules put in place were done outside of the apa like i said. Staff letters on the eve before a road come into implementation were put into place. That totally changes behavior causes compliance officers to Stock Traders from doing anything in the marketplace. One of these rules or policies was a good idea called straight through processing. As soon as you execute the trade flows right through to a Clearing House with no Operational Risk in the system. Its a good idea but it should not have been put forth telling them they had 60 seconds with which to accept the trade and the day before trading goes and plays staff issues guidance on this same topic, which just caused confusion all over the market. The order book is empty. I commend to you the white paper that goes into a lot of depth on this topic. Were definitely the cdc. There was a provision that allows for crossborder regulation of derivatives trading. The idea was the u. S. Elite and everybody else will follow. Thats not true. The commissioner termed probably somewhere in a trade war were right at your details are being just as a weapon of choice. The u. S. Claimed we have to extend almost into the eu and elsewhere because we know best how to regulate. Other regulators will not act in our best interest to prevent risk from flowing back to the tiny. Ive gone to europe numerous times over the last three years and each time they laugh at me and they say but wasnt you guys who imported your mortgage crisis into europe . We have to think about these things before we make policy like that. That interferes with international relations. A couple more things i want to talk about. Theres been basis risk thats been created in the swaps market. When you have a risk you want to hedge the total risk. In order to do that you need a swap product or you can use a futures product but the future could leave you with almost 85 of your risk edge and in 15 just sits there and you absorb that risk. You passed onto consumers. You pass it on in your pricing. Also it sits on your Balance Sheet. Suite of how much is out there but that is starting to happen. The other thing that derivatives the rule did was they really put the hurt on future commission merchant. Because prices to cope so much for them to do business became unprofitable. The only people offering now our large banks. And nothing but the question and we can look at a later. One good thing that these rules bid is they did bring some price discovery to the marketplace and there is a product one product that is trading 93 of the time electronically. Thats a cd is indexed investment grade. Thats very good but the uptake hasnt been what was sold in congress or during the implementation period. Where does that leave us . Central bankers to this time to watch to see what happened there politicians afraid that the global banks. They just didnt do it. As time has passed british regulars have become emboldened. They are using a complex web of trading capital margin liquidity and leverage roles to discourage risktaking into Capital Markets and to force him into the Global Banking model. The Global Banking model is predicated upon Holding Companies been able to transfer risk among affiliates and servicing large clients all over the world. Prudential regulators dont like there. Review is based on the simple fact that they believe they can contain any risks in the own jurisdiction and they cant regulate them outside of their borders. All these rules are designed to great the shift away from global Branch Banking to fully capitalize individual subsidiaries under a Holding Company. This result in an internal bifurcation of Global Trading and collateral functions put a face forces a pretrade analysis which makes you not just look at a screen and click every day with a trade and go to the back office but to think how am i going to collateralized debt, how do i source that collateral whats the cost . This is the fondly change the way fixed income desks were. They are inextricably intertwined so it is reshaping the entire industry. Its good because you understand the cost of the trade and the transaction all the way through and its more Risk Management discipline. Its good because youre analyzing your customer relationships and enter product offerings. Some offerings are desperately single name cds. This is bad because youre analyzing your customers and some of your customers, not the big ones, are being told you to have access to liquidity anymore. The regulations flowing from doddfrank have also forced Market Participants to use only u. S. Treasury and agency debt to collateralized their traits. They forced banks to of euros of debt as capital and they permit u. S. Debt to be propped traded. Why . Why is it that u. S. Debt gets sacrosanct level . Im not 100 certain but i think we should question the regulars decided it was necessary to create an artificial demand for u. S. Debt. It is designed to appease, isnt designed to these thousand and osha complex by creating i dont know but we should ask. Is a because regulators were directed to create an incentive for Market Participants to buy our debt because of a political need to continue to finance the deficit spending put we should ask. Is a because regulators believe the u. S. And it is a subject to Market Forces . Its a question worth asking. Whatever the reason one thing is clear. The health and stability of our Financial System is not depend on price movements of u. S. Debt. If markets but because you said that the or we have enough flash crash, we could have a very big problem and i would commend to you within 1820 deficit our debt is hardly riskfree. Going forward, Market Participants have been incentive to take risk in an old use treasury and agency debt. This plan to market system is dangerous because it concentrates one form of debt on everyones Balance Sheet across the system. If markets but in an unexpected way everyone will be holding the same wrong way risk at the same time. That should ring a bell because thats exactly what happened in 20072008 with the mortgage products. And i highly doubt that the fed in congress will sit by and do nothing. As for the doddfrank ruled capital margin and vocal rules will be to exacerbate volatility in the fixed income and Derivatives Markets. The basis risk i refer to will only become a concern when prices move against Market Participants and that caused losses and forced selling to margin calls. But one thing is clear to me. Margin calls a large price movements will become the new normal because government rules are directing a decision in the Capital Markets and to decrease liquidity and other Asset Classes to the net effect of all this force change has been a decrease in sustainable sustainable liquidity and the a swap in the Corporate Bond market and not even in the use treasury market. Thanks. Cosmic. Thank you chris. You make a lot of points by want to comment on one of them. That is the testimony of financial history is quite clear that governments always promote government debt. And to employees of government, that is to say regulators, always promote government event or the sponsored agencies get i think thats a big problem. J. W. . Thanks. Im going to talk about title viii and title ix in 15 minutes which is a challenge because i think theyre hundreds of pages together. Start with title viii that chair is sure you a major challenge. Yes. Title viii is a provision that is i think probably inspired by some essential claim provisions in title vii. Title viii provides for the designation of a ninja market utilities that are deemed to be systemically significant by the fsoc. Financial utilities or platforms that provide for the settlement clearing or Payment Systems, a wide variety types of messages everything from which provides a Settlement System for the trading of securities to the clearinghouse Chips Program interbank payment program. Title viii does two things essentially. It said when god closes a door he opens a window. So here the regulators when they closed the door on regulars and opened a window, the discount window at the Federal Reserve. What the designated fmu is deemed once deemed and fmu becomes designated for special, special registration, either Federal Reserve board some cases for others. Fmus have Automatic Access to the Federal Reserve discount window which access has been heretofore limited to commercial banks. There could have been another way to think run this railroad. I think title vii and the rule role making center, title vii had allowed for more freedom in ownership of clinton some systems i think he would have firms more willing to pony up to provide any liquidity needs of these terms. The way title vii with government, there was some i think are dangerous restrictions placed on the ability of these entities, they build a private party to taken ownership in Central Clearing entities. I have concerns general about the notion of the Federal Reserve as a regulator particularly up Payment Systems because think about this, okay, the Federal Reserve is the primary regulator of its primary competitor, the chips system run by the clearinghouse association. The Federal Reserve is also the primary regular regulator of the client service. I think that is golf central plenty. Thats when we talk about Central Point but i dont think the Federal Reserve manages those particularly well, and george has written about the fact we dont need a central bank to really run a wholesale payment system. The private sector into particle and has been up for a long time competing with the fed. I think i transaction basis doesnt much more cheaply than the Federal Reserve. Entity that go take a tour of one of the regional fed banks better. Pretty nice places. Private captors but even better than aei, if thats possible. And let me close title paid by noting Peter Wallison, my colleague, have both written about the dangers provision tucked away in title viii that allows for activity based designation. Under the read what you think is a very recently, that provision in title viii, could allow for unfettered regulation of industries not intended to be regulated directly by doddfrank like credit unions, could be used as a method to regulate asset managers. I would think carefully about those provision in title viii. Let me move on to title ix. Title ix in doddfrank is sort of a grab bag of securities and Corporate Governance provision and a number of other things. If youve ever been to a kids party come at the inch always get a grab bag. Its a bag full of junk. Its a bag full of items that make no sense to each other. Nobody really knows what to do with them. I think thats the best description i could give. A lot of sweetener, yes. And title ix. Such as to run over a couple of them. To our new Enforcement Powers for the sec particularly with respect to civil penalties. I have some concerns about the hours particularly advance of the current enforcement regime at the sec. Look at the recent stories about what would i call a scandal of due process scandal at the sec in terms of moving cases internally to Administrative Law judges making the appeals process much more difficult for litigants. And by the way, to administer law judge not surprisingly a former which the acc interest and much better when rate. I have some concerns about those powers in the current regimes and. Whistleblower award provisions in title ix that for those companies than most and i think it into compliance regimes that want to fix problems as his problems are reported. Incentives are instead go straight to the sec to get a piece of that report. I think theres an unattended problems resulting there. Speaking to the Corporate Governance provisions in title ix, let me point anyone interested in this to a book that came out around 2000 called working capital. Its a play on words. Working capital is an accounting term but this was funded by unions to look and how to leverage their Pension Fund Investments in companies to further welfare agenda so its sort of the working mans capital at work. Editor number of ideas that were included in title ix. This is a tenyear old idea. They sort of saw a window government these particularly pay ratio disclosures. And they took it. I think thats evidence enough that todd owen had very little to do with the financial crisis. Engines a particular Corporate Governance provisions, we have an advisory vote on the executives compensation. We have disclosure of the ratio a of the average worker. What does that have to do with the Financial Health of the from . I dont know. In fact, is potentially damaging to the attention of the above are because its intended i think to discourage firms from executive compensation to financial results. Its intended to implement a social welfare agenda on behalf of unions. There is no other way to describe it. I think its very dangerous. If you want to have that debate have it in another form is my view. Theres also a proxy access provision in title ix of doddfrank. It was the virtual making sec chose to do. And it was quickly defeated in court on the basis of lack of sincere cost input announces which is old and i think a more robust cost analysis commitment at the acc. So in that sense i guess it was good. But jenna i think proxy access is military dangers provision to ive done an empirical study of proxy access rule with my code at george mason where we look at at, we do anything to study a proxy access the application finds a cost to you and in shareholder losses. Whats a better way to run a railroad . Whats the alternative . I would suggest that statebased competition and corporate chart is the alternative is not perfect. A lot of Corporate Law scholars have suggested its their problem in the statebased system, where states compete for corporate chartering. Delaware has been a dominant player. Delaware takes it into a market for corporate control subdiscipline device an agency called the i dont think delaware is perfect. The fact hide meaning to delaware is not perfect. But i think about what to run on the road is to get rid of the federal overhang in Corporate Governance that i think you can make a statebased system more competitive. If you limit things like corporate, provisions in title ix in sarbanesoxley and eliminate the williams act as well which is a constraint on the market for corporate control. I think if you do that or at a minimum change those to optional. Before you tell me that only been possible theres some provisions in title ix to optional with the notion of a mandatory in the picture to get number two, he recognizes the right of firms to provide for mandatory arbitration, shareholder claims which i think the federal arbitration act already provides but the sec hasnt got the memo and they still refused to accelerate your registration if you have such a provision carlyle found out recently. But i think you need federal recognition of that right. Thirdly, federal codification of the internal Affairs Doctrine as a minute msha on the sec from using its discretionary Regulatory Authority to impede innovation state corporation. You do those three things you get a much more robust state of chartering system. And then i think when you combine that with a very exciting world of crowdfunding that is coming pretty soon and its a free Market Securities lawyer, i think is the only exciting thing ive seen in the last 75 years of securities regulation but i think that you need a new way of doing Corporate Governance, new way of doing state chartering competition to innovate at the scale and the speed that crowdfunding is going to require. I think these three provisions will encourage the kind of innovation we need to see in Corporate Governance and think krugman will be the first form when we see it happen if we can do that. I think one experiment i would point to an out of innovation and corporate walking work if you have the freedom to do from the federal overlay, there is one very small exception for Master Limited partnerships that trade, generally Energy Companies get a special tax code exemption, the nyse against these publicly traded firms from a couple of the Listing Requirements including some Board Committee requirements it as a result what weve seen is incredible amount of heterogeneity in the structures from Master Limited partnerships. What are the tradeoffs i think we see this rather than things like that is your duty litigation and bigger structures for committees, we see a regime in which mlp is just as other Access Capital every quarter to their shareholders. Shareholders dont need participation to corporate democracy. They dont need any of that. They get their money every quarter as the m. O. Penes pneumonic to raise it from public market. Thats a much more disciplining mechanism. I think the less the opening we have the more inefficient you see in corporate conference. I think the mlb as an experiment which shows us why. Then i will close with one last thing. If we had incentives to innovate and Corporate Governance which the federal overhang and Corporate Governance inhibits, i think we would see cities getting involved as well as state. Why nazis . Wynette Silicon Valley corporations . I think the Silicon Valley are more motivated than anyone to come up with whatever innovations, i cant even think of them because thats what innovation works. You cant always predict what individual be put the boards by the best equipped to deal with particular needs of those kinds of firms. I think could be very interesting world. It requires a couple of things. Codification of a doctrine that is only in law recognition of an arbitration right thats already a right to the sec just hasnt gotten the memo about the faa. Thirdly, a switch to optional for provisions in title ix and with respect to the williams act. Thats already an approach that some parts of town that had taken. I think its reasonable, exciting. I think in these uber lists, crowdfunding world i think we need a modern Corporate Governance system and getting rid of the federal overhang will be key. Thanks, j. W. Mark . While marketing out there, j. W. Mention the unpredictability of future innovation of course but surely the Financial Stability Oversight Council can predict all this innovation and know what to do. Right scheuer. Sound like a contradiction in terms. Hopefully growing trend. First let me thank peter and alex. I really appreciate the invitation. It was later we be taking different sections im going to take parts of title ix back and wanted to to talk about. Im going to talk about title x more specifically the Credit Rating agencies. Think about moodys, standard poors. Talk about the Consumer Financial Protection Bureau and then end up talking at the end about the qualified mortgage will and the qualified Residential Mortgage will. Before i start i would like to quickly bat aside what i think is a common strawman i hear and im sure many in the room and discounted and across america you will hear that skeptics of doddfrank want to go back to baubles and financial crises. Crises. Thats because the ive never met anybody who likes financial crisis these. Certainly i think people enjoy them quite frankly im not sure i ever saw barney frank happy than when youre doing t. A. R. P. But all that said its a strawman at the concern is whether these things work or not. I think we could hopefully put aside all the strawman spend were going to hear today. For a talk about the issues i do want to associate myself with what has been said by my colleagues stated two weeks ago before chairman hensarlings committee, that i did not we doddfrank has made us safer notably it has ended bailouts. Its not just an issue of reducing burdensome cost and regulation but its also an issue bringing stability to Financial System. I dont think doddfrank about this. So they get to the Rating Agency. This is something where doddfrank tricycle in the right direction. Unlike previous housing booms and busts like the savings and loan crisis, the recent one was particularly tigar Capital Markets and i think it made it much more destructive in the same way not saying the savings and loan crisis was excess and we had a recession and one of the three recession that took longer than usual was supposed savings and loan crisis but do Something Special about this one. To me one of the things that was special was securitization anywhere housing and Mortgage Markets were linked to Capital Markets. Quite frankly wouldve been impossible without fannie or freddie but also impossible without the rating agencies. What we witness wasnt outsourcing of Due Diligence by regulators and investors to the rating agencies. And, of course, let me first say i think the rating agencies provide valid insight. They have an Important Role but i believe modern works best when a corporate the diversity of perspective. We dont usually on one particular viewpoint. Section 9 30 nine gives a nod to this problem. It says you should remove statutory references to the rating agencies and the removal ended there. Doddfrank required of course replaced to do a study. I forget the number of studies and doddfrank. Has been put in its almost 400 require rulemaking is almost about 100 studies that maybe they shouldve subtitled the gao employment act. But that aside what is required from the regulators and the rating agencies is due studies about the reliance on the ratings. Theres no requirement for the regulars to reach a certain conclusion. No requirement for the regulars reduce that. Sadly the regulars have chosen to continue that relies and increase it. That would be not a big deal most of the reliance on power laws came from statutory rather than regulation but thats not the case. The vast majority on Rating Agency comes from the decisions and doddfrank doesnt change that. So to me where we have a fig leaf, where we did a force. We need serious reform of the Rating Agency. The first thing we need to do is prevent regulars from outsourcing their jobs to the Rating Agency. The notion of a regular would go to bank a look under that and said this is aaa credit, my job is done, is just ridiculous. Thats the demand side. The supplyside is just as bad. Sadly doddfrank gets this wrong as well. Whereas we shouldve ended the Current System that creates barriers to entry limits competition, doddfrank increases barriers to entry in the rating agencies such as those found in section 9 30 six. Let me second doddfrank a small amount of credit for recognizing the problem with rating agencies but importantly they completely missed the ball and fell far short within you to go. And area, but doddfrank is completely wrong into a Consumer Protection and the crisis and the subsequent creation of Consumer Financial Protection Bureau. While of course there was fraud out of anybody would deny that. Of course, there was abuse. I think its more likely the case asset bubbles generate fraud and abuse more than the other way around. I think its important think about in this way. Asset bubbles historically come from credit into cheap, not too expensive essentially the fundamental argument behind the cpb is credit was too expensive. Let me navy want you to very quickly what an example would be. If you assume this fixed Monthly Payment when you before a house, if what the problem was his bars were having these in Interest Rate added on that means they could only get less for the same amount of house rather than the other way around. If consumers were being couched that wouldve pushed Housing Prices down not the. I think we did think critically about that. I also mentioned the current housing crisis, it pursued the Inflection Point in default by about you. Again the evidence is precluded Housing Price declines caused the default rather than the other way around. So again i would emphasize we did not see a very a Consumer Protection. We saw as peter mentioned a coordinated effort to lower underwriting standards across the board your let me also quickly set aside i think we can all stipulate most of the nonbank lenders targeted by the cfpb had nothing to do with the crisis. I dont even think joe stiglitz or paul krugman argued that payday lenders and auto dealers and collectors cost the financial crisis. Yet that is what the cfpb is going after. You dont see the nessus to go after the Real Estate Industry they are not going out of thin and pretty but hes even going after all these unrelated industries. Thats not to say those industry may or may not need Different Levels of regulation but again what we saw, most of doddfrank was a bait and switch. Okay, we will anna ballis protect the system but dont look what we put all this and related stuff in your that has nothing to do with it. Sometimes i hear the argument we need to greet the cfpb so banks would have a level Playing Field with nonbanks. Lets first start with the observation that is not a level Playing Field any out. These small consumer guys like payday lenders dont have access to ensure to guarantee deposits. They will not get bailed out. The argument poor little citibank want to compete with cash american we need a cfpb to protect strikes me as ridiculous. Lets emphasize a lot of focus of people with nothing to do with the crisis. I will also say quickly one of the more dangerous precedents is of the funding mechanism of cfpb. For those of you not aware, the consumer agencies off budget funded by the earnings of the Federal Reserve. Wiper think every federal agency should be on budget do i also think this is a direct violation of article one, section of our constitution that requires the provision to be done by law. The notion that we would allow agency to set its own budget and become its own funding to meet Israeli Offensive to our Good Government structures and what congress was elected to do. This may come as a surprise given our current budget situation but members of congress were elected to make hard decisions about spending. Because the cfpb is a dog that doesnt go to health care education, tax cuts, whatever. And, of course what is going to stop us out of the Federal Reserve budget went to work about raising taxes ever again. On you for me to do this we need to take cfpb out of the appropriations process to protect it from bank lobbyist. I think what this means is theyre going to protect it from democratic accountability. Every agency gets lobbied. If you dont think defense contractors are not knocking on the door of the Defense Appropriations Committee every day, and i encourage you to go up there sometime. No way would i provide justification for taking beauty out of the appropriations process. Let me note one more troubling aspects of cfpb deserts engage in a massive Data Collection effort. They would put in as a teaching. The cfpb is working towards coverage of almost 90 of credit card accounts. Let me quote that great defender of free speech Justice William douglas quote a Checking Account may well record is citizens activities as old as the transcript of his phone records. And, ofand, of course, todays Checking Account or a credit card or debit accounts. And, of courseaccounts. And, of course, the notion of cfpb as a good look at the data i was once as a workstation that accepts donations from credit cards, the last thing i would want to do, think about the cfpb looking into who choose to cato institute. As Justice Marshall observed for sure theres been long trend in this country abusing Bank Examination records to abuse political opponents. I would be sad to say this will not be new if it does happen. Hopefully they are not listening to close it because i dont give them any ideas. For those who care about the Fourth Amendment which i do i hope most of us to think about protecting Consumer Privacy i dont think theres any bigger threat than the cfpb given that this financial collection also leaves consumers very vulnerable with the babysitter to breaches do i still am not alone in the room and being a former federal employee who got a nice couple of letters about my dating potentially hacked. So to meet the cfpb is unfortunately doing hackers a Great Service by consolidating all that credit card data in one place. Unfortunate i think it would be a very real risk and of course gao is recognized this in some of its audits of the cfpb that leaves consumers at risk of having their Consumer Financial data hacked. So akin to a doddfrank missed what was an important opportunity to rationalize our flawed Consumer Finance laws. Instead of those laws along with neutral related powers bureaucrats can force their preferences on consumers. I fear the agency will do for Consumer Financial products what has the federal government has done to her Mortgage Market, which is peter i think demonstrated moral is good at speaking of mortgages buddies lesson is taught by the qualified mortgage and a qualified Residential Mortgage rules. This is something i think theres great agreement on even if you look at peters descent of the financial crisis, look at the other dissent and look at the majority opinion. Theres one consistent observation from all of the committee members. And thats problems and underwent in the Mortgage Market. Thats agreed upon. Was not agreed upon is why. Is a doddfrank does recognize the special role the poor quarter mortgages in the crisis. Unfortunate doddfrank and the regulators screwed that up too. The qualified mortgage is an extension of the truth in lending act wheres the qualified Residential Mortgage rules and amendments of 1934 securities act. Both contain substantial liability. The qualified mortgage is essentially targeted at helping to generate consumer class actions next time around wheres the keyword and will generate investor litigation next time around. I would note with a queue them for friends who thought it was hard to foreclose this time around you aint seen nothing yet. It will be very difficult if not impossible to to close in the next downturn. The only avenue is to the safe harbor provisions in the qm and qrm. One of the really twisted ironies of doddfrank is that what his reasons for the public demand for action and passage wasnt the American Public was asked to bail out the Mortgage Market. What Mortgage Market. What we have to do as result of doddfrank over 90 of the Mortgage Market drug on the backs of taxpayers. Attacks there is more exposed the Mortgage Market today than ever in history. So again these things couldve worked out will get i went out barney frank said about a year ago in the last anniversary fatty subacute mqm as the most significant parts of doddfrank. The liability was asked and been issued with this provision could of done something to reduce mortgage default but as the regulators allowed the path they start that will including things like down payment and credit standard but, unfortunately, the regulators caved to pressure and would end up was a guided qm and qm but even barney frank says was mishandled. Is that . On the debates what exactly mortgage products cause of the crisis . Some of my friends with the you it was caused by prepayment penalties and low documentation and exploding arms. I would point you to a number of analyses that gao has done. Sorting and objective part indispensable the number of other interval studies in the results are quite clear. The main drivers the default, i guess i should say you can look at the stats but organizations like center for responsible lending. Their own studies show the main drivers of default are going to value barbara credits corporate Everything Else is literally a rounding error. And so of course the final doddfrank rules essentially abandon the things that drive defaults. And, of course, giving qm obstacles to foreclosure and endless servicing requirements again making it near impossible typing is thank you, general will increase foreclosures next time around rather than decrease them. The harder it is to foreclose, the more people are willing to go into default. And, of course, this is also consistent with the of cfpb. Its mission has nothing to do with Financial Stability. Its mission is to use our system as an avid or redistribute wealth. To force more to subsidize imprudence. We all knew the crisis was quite costly. It provides a cover for expansion of government powers. Wrap it up. One minute. So i would say, and was in every of two of our financial crisis is i think weve got to repeal doddfrank 100 full root. But i think a repeal is not enough. Our precrisis system was broken. It was flawed. One of the real flaws of doddfrank is it extends that precrisis system, whether cfpb whether fsoc. The theme of doddfrank is lets expand bank like replacing to everybody else. Think about it that way. A notion of doddfrank is that if only aig had been as regular as well as citibank was regulated, everything would have been fine. [applause] im going to let each of the panelists in order at something if he likes to take up something some alsadr reiterate the point. May be about to the each person. Peter . Thanks. There were a couple of things that occurred to me that we might add a little bit. First of all id heard a lot about the cost of swaps. You didnt cover that as much as you might have covered. But vatan also the question of hedging under the volcker rule. Thats also a problem when you talk about marketmaking. Marketmaking is a problem. You cant distinguish marketmaking from proper trading. A lot of activity that makes engaging hedging activity, hedging the risk. But also looks a lot like proper trading. Today i think is a day at the doddfrank, that the volcker rule goes into effect. How are things going to deal with this problem . Welcome the going higher a lot of lawyers. I think thats a problem when you layer in so many rules and so many exceptions and ambiguities in sight of these rules, a lot of them are done, and theres a political cover must inside of agencies. This will ever take it has six different agencies working on it. Each one of them had to get their pound of flesh right at the last minute. What we have is you will get hedging if youre a bank out of your bank account. But you could also be doing hedging because there isnt a reasonable demand that your customer they can hold the same product as you may also want to hedge. Then you have to explain that action and the people what its not proper. This is what i think youre going to see pullback and youre going to see flow out of the fixed income corporate markets and into the safe markets come into the markets that easy to value, easy to collateralized easy to mark on a daily basis. When prices went up and and you dont have a problem because you dont have to deal with that rule. Students, and they also need to know that when it issued to get into the Capital Markets that is not fully subscribed, that the banks will take that bet down and stand behind it to make a market whenever markets move up and then moved them. Its not clear to me that it didnt Bankruptcy Court if there is an issue with specific debt and we could have been issued coming very shortly in a High Yield Energy oil and exploration area, within the next six to eight months, with a basic understanding of take on a liability that they used use to for fear of holding inventories too long or been told that they are not hedging. That hedge turned out to be a proper trade because customers recently and took the story demand finished. So i agree with you, peter. This is a very very this is micromanagement of the Capital Markets. Chris, that took up Peter Saundry now you have another two minutes if you want to add something else. Well, i mean, i wanted to agree 30 much with what mark said. I was a securitization attorney during the crisis and what we did, my entire industry was predicated upon taking advantage of rules to it was basically you took advantage of the risk weighted Capital Requirement in the banking book and change that into a aaa rated security that got, the judge will hold a scalpel against and put into trading books. To me that is again thats government interference effect creating an incentive for people to act and create an asset bubble. You accurately stated the Credit Rating Agency Reform didnt really happen. To me i think thats, the basel risk weighting rules argued from the seven address. I think which is the because this Global Growth of stagnation all of a sudden the ideas going to be infrastructure bonds and emerging markets, United States infrastructure bonds, all these things should start Getting Better capital treatment. They should be treated more like government debt. I mean, i wonder what your comments are . Let me say, i fully agree. Basel is other that has not been fixed and so lets keep in mind that basel told us that greek debt was riskfree Venture Capital against it that fannie mae was riskfree. I would be the first visit of also three and my thing is an improvement over basel ii put this on a small improvement the same basic framework. Also take this moment to plug sort of bipartisanship. We were very very fortunate in this country that are banks to adopt basel ii before the crisis because they wouldve been even more highly leveraged and i treated some of that cute senator sarbanes and senator shelby beating the congress upside the head. One of the things of doddfrank is utah, a string of regulatory failures. Scholls paradox which was named after my friend professor Bernie Scholl is no matter how much the fed fouls things up and how gigantic its blunders with each crisis, it always gains more power and more authority. And is historically true and doddfrank is the last example. J. W. Further . I just want to touch on another issue that i see and doddfrank perpetuated perpetuating a problem that long precedes doddfrank, which is the inclusion of images of disclosure and security disclosures. I need this template to both Minerals Disclosure antilles payment disclosure for oil development. Conflict minerals or minerals develop in congo a finance the bad guys, they financed the good guys, a finance people completely uninvolved in the work but it was december should stop purchase of conflict minerals in the west. Is a mandatory requirement for disclosure of conflict minerals for firms, not only firms getting the actual hard commodities minded there but also for firms well down the supply chain who have no idea where the aluminum and electronic parts came from. When you convince, i think its telling when a liberal law ultimately convinces the Washington Post Editorial Board that it was a bad idea which they have come out against conflict minerals, i think its time to revisit the notion altogether of including initial disclosures and security clause, both by legislative yuppified secs own power. Republicandemocratic chairmen have both been guilty of this. That the materiality should be a binding constraint on any mandatory sec disclosure rule making. Business roundtable versus sec stand for the proposition. How is a mandatory image of disclosure on to provide any benefit to investors . None. So by definition it fails costbenefit analysis. We have ways to measure the dominant means of which is stock price, methodology that is gotten great in the last 10 years. So that means we need to look at everything weve done and Going Forward, like a constraint or i think thats important. Good point. Mark, you have another chance. Two minutes if you want them spent i will try not to take a little much more than that. First let me comment on j. W. Mention the pay ratio. And i think partly codified into its an attack on executive compensation. Many of the labor groups prefer that you improve the ratio by increasing the income in the middle. I worry about the other potentialities you can increase that by hiring fewer workers on the left side of the distribution. I do worry this is whenever tremendously adverse impact on entrylevel jobs. Some who start at a minimum wage job and learn vital skills in fact, this will undergo a run of for the job letter to me cannot really substantial negative impacts. And one that i worry about significantly. I want to pick up let me first also note number of institutions in the past longterm capital management, signature trade was the treasury market. I believe alex not remove this better, what was the first penciling any 80s blew itself up trading treasures as well. If you go back and look at the bare assets that were transferred to nuke victim half of those were fannie and freddie securities. Go back and look at those at the new its a institutions to blow themselves up with treasures and Agency Trading spent an also Orange County which puts itself up on Agency Duties spent on want and with a question for peter to parse out to go back to his first chart about the gsc share. Sts1 aware, and every at the height were the single largest purchasers of private mortgage label securities. Ive done some digging around and found german gses of london banks are very large purchasers of your subprime securities, too. So wasnt just our gses. It was german. Question, is that including the numbers are is a in the subprime part . That was included in the number. In order to understand the risks that they were taking enough to include also the purchases of these subprime mortgagebacked securities. The problem is that they could the market because in order to comply with the Affordable Housing goals, they could get credit for the subprime mortgages that were in these private mortgagebacked securities. And so they told wall street, deliver these things to us, we are happy to buy. Thats how we got such educated market in private mortgagebacked securities that were backed by subprime loans spent and that aggregates understood why very, very few people. Unfortnuately. Now everyone in this room understand. So we are making progress. Doubles triples. Thank you for excellent discussion. Its now time for we will take your questions. Let me remind you of our rules. Version of the weight for the microphone because we are being recorded. Tell us your name, your affiliation, and then ask your question shortly and briefly. If you forget to keep it short that chair will remind you. We will start right here and come over and pick up you. [inaudible] the problem is i havent heard this. [inaudible] i think a judge upon a really important observation, too big to fail. The discretionary decision of government. Too big to fail by its very nature is political decisions. And, of course when eric holder growth of the caucus system is too big to jail that reinforces the perception. On the data point, so again i would start with data can be suggested that thats what you think during the crisis we saw suggested data that the funding for the largest institutions have expanded. And yes, that has contracted but, of course, you would expect that to contract post crisis. I think think whats important to do is compare the funding costs today versus precrisis overtime. So for instance, people forget before the crisis in 2006 the largest banks actually made more to borrow than the smaller banks. Today the largest banks still might get about 25, 30 basis point advantage. Of course, it could be a number of reasons for that but to me the data suggests that too big to fail has not ended. Just on a couple of points you made. One of them was with respect to enforcement and prosecution, and the rule that should or could put an aftermath of the crisis. I worry about the muddling of actual fraudulent the. [inaudible] i dont do we need need to be an issue that prosecutes bad Business Decisions but i think a plausible expiration of the christ is people believed ben bernanke when he said theres no Housing Price of the a lot of the disclosures that have been prosecuted as fraudulent in mortgagebacked security to sevenfold disclosures. I have trouble seeing that this was a crisis are portrayed with fraud. Of course, where the instances of fraud or otherwise, certainly we should prosecute it. But i also think with respect to enforcement issue another problem is we dont have enough clear doctrine fall enough enough clear doctrine called it ncci by doj on collective this is a concept thats developed in laws that go to trial, most of these things settling a big Financial Institutions. And he goes to trial we develop some case law. I think we should do more work on, such of the ideas you attribute bad action by individuals to the Corporation Get when the board and the ceo decided do something bad its the corporations faltered when some distant employee and the division oversees the something wrong of this corporate action. And i think the acc should do others not collected policy and collective to resolve a lot of the bad actor tension debates going on right now. Let me pick up on j. W. Sport. When ben bernanke said there was no Housing Prices, Housing Prices already started, it was an incredible mistake but not a crime. I had a question and then a gentleman over here. Wait for the microphone, please. [inaudible] thank you for this fascinating panel discussion. I understand this is quite complex given the number of too big to fail banks and Market Regulation and agencies with oversight power and number of Financial Products to my question to you is, if you look at all advanced countries, which advanced countries you think has come up with reasonable regulation that encourages economic growth, innovative Financial Products but at the same time have reasonable tools and measures in place to prevent a financial crisis effectively manage a financial crisis . Like i think this is good enough, that we are satisfied. Who do we think has done a good job . I will start with maybe the qualification or im not sure anybody quite has the standard but that aside, i think canada and switzerland both it recently well job with banking regulation regulation. Other thoughts . I would tend to agree with mark on switzerland especially because of the Capital Requirements that they impose on their Banking System to an also think since the peso crisis in the 90s in mexico the Mexican Central Bank and security regulars have taken significant steps to assure the integrity of the Financial System and to make sure that the system is not susceptible to massive downward price movements in oil. Id like to make a comment about the Housing Systems that others have used. Because we want to keep the focus on what caused the financial crisis in the United States. And it was not the inadequacy of regulation of the private sector. It was the policies of the u. S. Government. For example many other countries have large bubbles as we did in housing, and windows bubbles collapsed, as we note in the United States, the results were catastrophic because there were so many subprime and other very risky loans in our Housing Finance system, as i pointed out. More than a majority, actually 56 of all the loans in our Housing Market were subprime or risky loans. But into the country that was not true and so within the Residential Mortgage bubbles collapsed, their losses were much smaller studied by professor jaffe from berkeley has shown that the greatest losses occurred in the uk and were about three or 4 were asked in the United States the losses for fannie and freddie were 1317 . And for some of the private institutions were even higher than that. So thats the point went to keep the focus on here is that there wasnt really a need to redo our entire regulatory system. It was a need to redo our Housing Finance system and understand what went wrong with that spent alex, if i could add the example of mexico is a classic and one in that post peso crisis, mexican Banking System would, but maybe 15 provided by foreign banks to almost 80 or so today. You could joke a little bit and said the mexican Banking System is a canadian Banking System with the extension of scotia bank and others. My point being reform was essentially pushed because of the Domestic Bank failed so badly that youre not going to Banking Services militia opened up the borders and we had extensive competition. And i think the benefit is domestic constituencies feel less strongly about bailing out foreign banks. And its i think its fair to say that scotia bank is not going to be dealt out by the Mexican Government at any point. To me i raise this because i what we are seeing really is a kind of political of the drawbridge where we dont want european banks are eager talk from the fed about all the dangers from european banks entering the u. S. And such. I think we should have more foreign competition on u. S. Banks is my bottom point of there. Thanks for the question which team led the battle. Will take a question. This will be our last question for the panel. No . Anybody . Okay, we were going to wrap up the panel and lets show our appreciation for the excellent comments. [applause] its almost as if they were matter and antimatter. Breeds inequality. I will say it a third time no twice was enough. Any anything complicated confusing. Confusing. Robert gordon and Morgan Neville talk about the documentary does depended on the 1968 debate between conservative william f. Buckley and liberal gore vidal over war, politics god and sex. It is not someone in their ear are likely today. Today i believe there is someone saying the numbers are dwindling, talk about hot topics, hot salacious topic number two what has been i dont think that wasnt was the norm in tv at the time. And i dont think these guys need it these guys didnt need that. Howard k. Smith was the moderator and he was a distinguished newspaper think was really kind of embarrassed by this. It was moderating but he disappears for sometimes five or more minutes at a time. Today you would never moderator not jumping in every 30 seconds. So i think really everybody at abc just stood back and let the fire burn. Sunday night at eight eastern and pacific on cspans q a. The u. S. Senate is about to gavel in on this wednesday morning. They will be spending the first part of the day on general speeches. The highway bill is standing by for debate. It is that the porsche for highway bridge, Mass Transportation projects nationwide for the next six years. Current funding for the program runs out at the end of this month. The house passed a bill to continue funding into december senators received their bill mid afternoon yesterday and have been looking over. The president pro tempore the senate will come to order. The chaplain, dr. Barry black, will lead the senate in prayer. The chaplain let us pray. Mighty god, hear our prayers. Search our hearts and know our thoughts. Teach us to not transgress with our lips. Keep the steps of our lawmakers