Transcripts For CSPAN3 Politics Public Policy Today 2024062

use by executive land holding agencies. in your opinion do you believe that gsa has done everything in its power to give life to the directives embodied in section 6409 which you referenced in your testimony of middle class tax relief act? have they done everything they can? >> mr. chairman, i do not believe they have. as a matter of fact, i'm a former administrator myself of the federal agency and if i had implemented something too poorly that congress instructed me to do i'd be embarrassed. there's an executive order by the president of the united states correcting gsa to move faster to get these contracts together and to date nothing has been done. three years after congress enact this legislation, progress has been slow gsa hasn't been proactive. proactive. i think our members are having to negotiate for each and every site individually just as they have in the past. gsa has not implemented the intent of congress and we can't wait three more years for what's needed i think today. there's an urgent lack of coverage on federal lands. the administration has made a party and yet gsa is dragging its heels. i think there might be a need for further legislation. >> or maybe a hearing with one witness. they always like those. i appreciate that. for the rest of the panel if there are issues you're running into with the federal side of this, let us know because this is one we raise because it's important and we concur with what the commissioner has said. i don't think they've got it right yet or done. traditionally network operators were given a monopoly in exchange to serve anyone upon reasonable request. in the models we've been discussing carriers only deploy to areas where there's an economic case for the bill. how do we balance sound network economies with the threat of red lining the practice of refusing service to areas that are deemed a poor financial risk? as i heard about the incredible buildout that google is doing which i applaud, representing a district that's bigger than any state in the mississippi, getting access to our tribal lands, our very remote rural communities, whether it's wired or wireless remains a big problem. i wonder how we can address that better. >> i think the interesting thing when you think about profit, i think that is a problem across the board with building out to these more rural locations. therefore, it requires an influx of capital. there just isn't a way to do this without support. but i think the ways that our cities are looking at what is a prophet are a little bit different than the ways that a company might look at what a prophet is. so it's about education, it's about public safety, it's about economic development and transportation and all of these opportunities that are presented when you have access. so what is that worth? how do we ensure that our tribal lands and our rural communities can benefit in the same ways that our other communities are able to? >> before i go to other comments, this is an issue in getting wireless phone coverage out into areas of montana upstate new york. our new member from up there made this acase to me. getting access, connectivity remains a real issue. the job is not done. from your perspective, as an analyst, what do we do? >> i would certainly agree with the comments that it is simply not realistic to think that those projects are going to be entirely self-funding in the more rural areas. that said, i think the targeting of the funds that are available, the connect america funds can be improved such that those funds are more carefully directed to new greenfield projects that really be bringing broadband to places that haven't been served in the past. there's always some controversy around whether an area is partially served or sufficiently served. and then secondarily i think it's also important that those connect america funds be made available to all manner of companies so that there can be more competition of potential providers of those services. >> does google have plans to try a model out in sort of rural remote areas of the country to see if you can make that work? >> well, as you know, fiber may not be the right solution technologically for rural areas and we want to make sure that there's a sufficient spectrum available for unlicensed wireless technologies as well as we're experimenting with balloon technology through project balloon and as well with fixed wing aircraft out of new mexico. so we think that in rural areas in may be new technologyies that are going to affordably bring internet to those areas. >> i hate to cut you off so i'll turn to my colleague from california. >> thank you, mr. chairman, first of all for having this very important hearing and for the high level of cooperation relative to witnesses and invitations. we appreciate it. jonathan, it's great to see you, former commissioner at the fcc, and to everyone that accepted our invitation to be here today. to mr. slinger and miss socia thank you for your important advocacy for the dig once policy. i wish that the congress had passed it because i think that we would have more of that policy actually -- excuse the expression -- embedded in your federal roadways but how do you think, a, the executive order is working? i want to get my questions out first, okay because time is very brief. if you think there are any additional steps that congress should take to insent that deployment of conduit as part of the federal highway projects and that system which, i don't know right now it doesn't seem like the highway project system is going anywhere. it's looked like it's being driven off the road in congress. anyway here maybe we can concentrate on that. mr. moffet, i listened very carefully to what you said and it's i think highly pessimistic. it was depressing to listen to your description of every last sector of the telecommunications marketplace. my question to you would be, where do you see a bright spot? to governor lewis, thank you for being here. there was a report that just came out in terms of broadband penetration in our country. we're 24th in the world. i think that a good part of that number is a representation of native americans in reservations in our country. it's a shameful record. it's a shameful record and i think if there is going to be something that moves up to the top of the list here in a bipartisan way it's to see that we bring to the parts of the country where there are reservations, that you get first class service for first class citizenship. you really do. for students to have to be driven by their parents 65 and 75 miles away to sit in the car in order to get some kind of connection to do their homework i don't think any member of congress who's a parent here would ever put up with that. we shouldn't have that in our country. and i hope that, mr. slinger and governor lewis will form a partnership and then come back and report to us. i'd really like to have you meet and see what you can come up with. you both need each other and we need both of you. to miss socia, do you support -- does next century city support having local municipal systems? >> we support whatever it is our local communities need to do in order to get where they're going. >> that doesn't answer my question though. it's too broad. excuse the term. >> i understand. many many of our mayors signed onto a letter we sent to the fcc in support of the preemgs. to the two cities that filed petitions, chattanooga and wilson. we believe in the idea that local folks should be able to solve their local problems in a way that makes sense. >> i come from local government so i agree with you and i think that they should have the opportunity to do that as well. jonathan, i regularly hear from constituents who are frustrated with the tower site process. everyone wants great service, the best service in the whole wide world but no one wants a prior wireless tower in their back yard or where they can see it anywhere near where they live. how do you respond to this? the people that say that reforms need to be made to take away local jurisdictions say over the placement of cell towers. it's really like trying to get socks on an octopus. they want it, they don't want it, and yet there are some half dos in this. those are my questions and you have 13 seconds to answer them. oh, no, you don't have any time because i'm over time. you can respond in writing and that way i'll get more meat on the bones so to speak. thank you for being here, and please, mr. slinger and governor lewis, come together and if my office, other offices can help facilitate, let us know. >> the time has expired. turn to mr. l at&t a for five minutes. >> thanks mr. chairman and for the panel today. it's always a great discussion we have in subcommittee. if i could go back to some of the questions that the chairman was posing and also i think he said about the gsa dragging its feet in getting some of these things done, especially when we're talking about streamlining the process for providers to obtain the necessary permitting and other approvals to build on federal lands and protected lands, outs of of curiosity, on average how long does it take for the negotiation with the federal government? >> it takes about four years with the federal government and less than half for the private sector and sometimes it can drag on for many many years. generally the private companies will avoid federal lands because it takes so long. they don't see the return on investment that craig was talking about. so the federal government is deprived of that revenue because it will go next door if there's nonfederal land nearby. >> so you're saying that on average it's four but it can drag out longer? >> that's right. >> any ideas or examples of how long some of them have taken over four years? >> i've heard from people who have taken ten years and longer. sometimes they've tried and it never gets done. there's no decision-making process that's in place. that's why this committee said that the gsa was supposed to take steps to standardize the process and it hasn't been done. >> because of that four or ten or maybe infinity and beyond, what additional costs are incurred when the federal government is unable to streamline the process for the broadband infrastructure buildup? >> there's lost revenue huge costs to try to go through that process for the individuals trying to get the site acquisition done. it's a shame 30% of the land mass in the united states is federal property, especially in rural areas, a lot of very valuable federal buildings which could use a facility as well to deal with the capacity demands. it's a shame that these negotiations take so long, that they don't lead anywhere. not only do you lose revenue that you need for definite itcit reduction, the companies loose and the consumers lose access to services they need. >> i think you were talking about the percentage of the population that doesn't have access to broadband. what percentage would that be? >> we're seeing about 60 million americans. in some of our cities that we're working in right now, 25 to 30% of people have never had an internet connection at home. they have access they may have access through cell phones but they don't have an internet connection at home. >> two quick followups then. again, i represent from urban to very, very rural and when you look at the numbers then or the percentages, what percentage of that would be urban, suburban, very rural and that percentage when you talk about that 60 million? >> yes. >> how would that break down and how many people would that include that would not want to have access to broadband? >> i don't have a breakdown of urban versus rural within the numbers. again, in urban areas i can say in many cities that 25% 30% of these cities residents have no internet connection. >> thank you. >> governor, if i can turn to you and again thanks very much for being here with us today and for your testimony because again, you said that you have a very, very rural population. i think you said you have about 20 persons per square mile. it's a great concern in your area along with all the rural areas in the country about having that essential broadband. you talked about the u.s. stuff and that would help you but are there other areas besides the usf that would be of benefit to you and your community? >> thank you for that question. first of all, i'd like to recognize that i have two of my council members here devin redbird and carolyn williams and from our telecommunication belinda nelson and pamela thomas. >> thank you. >> thank you. >> i would say that one critical issue is rights of way. rights of way is a challenge where it's a complex issue. it has to do with the nature of tribal land. it goes back as i said, to the allotment policy that had a devastating effect on tribal lands. so the short answer is that grti in regards to right aways if they don't get them we have to build around it and of course that costs. it's capital intensive. we either have to move to another route where we can in some cases have to build a wireless link to go over the right of way. obviously this is costly as compared to trenching through an established right of way. sometimes this is our only course of action. that is an issue that we really need to look at. another is the etc and designation process which is overly complicated. so streamlining of that designation process would be welcome to many tribes. >> thank you very much. my time is expired and i yield back. >> we'll now recognize the gentleman from new jersey for five minutes. >> thank you, mr. chairman. i want to get one question in to mr. edle stein about infrastructure during disasters like hurricane sandy and i want too to get a question to governor lewis. three years ago the force of that storm knocked out communication for days. you testified about the wireless infrastructure that's being deployed and upgraded across the country and i support this but my constituents are concerned about whether the equipment works in a disaster. was your industry doing to make sure people can call for help and reach loved ones in an emergency, and what do you think of the fcc's work to improve resiliency? >> it's a real top priority for our city. we want to make sure customers get access when they need the most. during hurricane sandy we saw cooperation between t mobile and at&t that agreed to share each other's network in the region effected by the storm and share their operation centers. in terms of the structures themselves not one of them went down during the storm, not one. the issue were things that were beyond the control, power companies, access to roads trees that fell. sometimes we can't even get generators cited on these things. we find that you can't put a generator there because it violates a noise statue. it's only going to be used in a state of emergency when otherwise their phone won't work. yet, localities won't let us to put them there and then complain when the system doesn't work during a disaster. we need more proactive work. the best thing you can do for reliability is redundancy. the more these facilities are up the more likely you have one that works during a time of emergency. all this work is promoting redundancy to be sure there are facilities in case of emergency and more likely they will survive the disaster and be of use for public safety and citizens in the community. >> do you want to comment on the fcc's work because the chairman said they would act by the end of the year in improving wireless network resilientsy. >> we're thrilled with the work they're doing. we're working closely with them. we're looking at an arrangement where we can provide incentives for industry to deploy this kind industry. we're working together in a cooperative fashion. we believe the goals are shared in making sure these networks are resilient and redundant. >> thank you. let me go to governor lewis. i should say that i love the river reservation. i haven't been there in a long time. it's about time i go back. on the one handy was thinking that i that relative to other tribes you might have more ability than some remote or poorer tribes if you will to achieve some of the goals that you mentioned. i just wanted to ask about funding. you mentioned the universal service fund. i guess the gentleman from google talked about this connect home initiative. i think the president was actually at the chock tour reservation last week or so talking about that. what are these sources of funding? is the universal service fund useful to you now? what would we have to do to improve it? what could the federal government do in terms of funding for tribal infrastructure, particularly for those tribes that might even have more difficulty? i'm thinking about the pueblos in new mexico or the tribes at the grand canyon smaller than the hee la river, less funding available? how are these funds helpful to you, the ones that we do have, or are they? >> thank you and you're always welcome at our community. with the usf funding, stable funding mechanisms are critical to businesses like grti and those in indian country where they have to develop deployment plans and rely on federal funding sources to be there to begin with. our funding is critical as well for providing funding for infrastructure buildout. that's critical to the long-term sustainability of these telecommunications providers in indian country. >> are you using the funds from universal service now? >> yes, we are. >> how is that working? how do you do it? >> that's critical to the overall business plan of the hee la river telecommunications. they rely on that source of income moving forward. it's critical to the long-term business outlook and also in regards to long-term capital buildout as well. >> thank you. thank you, mr. chairman. >> the chair now recognizes the gentleman from illinois for five. >> thank you. it's a great panel. i want to go to this real quick to highlight the challenges, especially the environmental review process, especially on federal land is a burden. have you thought through how local municipalities and they do their zoning outside of federal land and how we could marry that with which goes on there and can you comment on that? >> yes. some low calties are great. we heard today from google and deb that those communities that promote broadband make it easier to get access and that's where the investment goes. those that throw up road blocks aren't seeing the investment they would get if they weren't throwing up road blocks. about people saying not in my back yard, then they're not going to have service in their back yard. we work cooperatively with local communities. every single facility that's been cited has been cited in cooperation with local government. to have it be dragged out -- it took the work of this committee to say you don't have to get something zoned that's already zoned. increasingly communities are recognizing this. ten states have enact laws in the last several years since 2013 to streamline deployment in their states. those states are seeing more investment. we're working with local partners in the national association of counties national league of cities and others to get out word about the way the fcc is implementing the law that you passed. >> let me get to the governor on federal properties. they have to get past the land issue. can't we force a zoning issue get you guys the zoning ability like we do municipalities? >> yes. there's a bill introduced by senator rubio that would create a stand fee schedule that the agency could keep the money they get from that to pay for the cost of processing it. there would be common forms that he tried to get them enact. there's an expectancy of lease renewal so when somebody invests there -- >> okay. let me get governor lewis to respond. >> federal land on indian country has been a long issue in regards to our unique situation of indian tribes in regards to highly fractured land interests that are so critical and sometimes are one of the major obstacles to buildouts in regards to getting right of ways. if we can somehow streamline that process through the bureau of indian affairs, the department of interior, that would greatly help out tribal infrastructure buildout in the future. >> thank you. mr. slinger, my largest community in my congressional district is 33,000 people. when do you think google would hit that community on your timeline? >> did you want to name that community? >> i'm not the chairman of the committee so i don't have as much power. >> well, we've published this fiber checklist so that we can get cities to get ready by themselves for fiber deployment whether it's google or any other provider by making sure that they have smooth permitting processes that allow for a large following of permits to go through, to make it easy for people to get onto telephone poles through streamlined make ready engineering and construction. >> it's the same type of debate as we're talking with the rural or the federal lands deployment the ease of having access and a timely response. let me finish up. it's all about return on investment if you believe in the capitalist model. if the rural area can't make a go based on the formula, you have to dip into rus or other loans to make the business sense, correct? >> correct. >> and also time is money, so any delay as what we've talked about here, affects the ability for someone to go to the capital markets to make a pitch that they're going to get the return on investment that you propose. >> that's correct. >> the chair now goes to the jachlt gentleman from pennsylvania mr. doyle. >> thank you, mr. chairman and for this excellent hearing and panel. jonathan, welcome back. broadband infrastructure has become a critical component to almost every facet of our daily lives from students using black board for school or watching netflix or amazon and by all levels of government to communicate with citizens and increasingly leverage the network to improve the delivery and efficientsy of services. pittsburgh in partnership with carnegie mellon university and google is deploying a connected platform that will integrate road sensors, traffic cameras and information kiosks to create a living laboratory for the next generation. this will be used to improve traffic patterns in real time allowing city departments to efficiently predict road ware and allows people to interact with the city more available. fast broadband provides the basis for these next generation solutions. i for one am i big fan of making every tool in the toolbox available to local governments to make sure that they have access to the best networks and the best platforms in order to improve the lives of the people living there. mr. chairman, i would love to work with you on putting together some legislation to address some of these challenges. let me start with miss socia. how can localities leverage shared infrastructure to expand access and increase the deployment of broadband? cities like pittsburgh build this infrastructure to address our own municipal needs, how can we and others use what we are building to expand access more broadly and what if anything stands in the way of municipalities leveraging the infrastructure? >> interesting work has been done all over the country. many of you are cities are using smart infrastructure to do really interesting work determine particulates in the air and checking asthma rates and using streetlights that have cameras in them for public safety. we're seeing a lot more of that happen. i think there are barriers for cities to doing this work as well and some of them are the state regulations that prohibit their building out their own infrastructure and in some cases it is, as was mentioned earlier, issues of how densely populated the circumstances of their current financial situation all of those things, impact the capacity of a city to actually build out their own. >> mr. slinger, what dividends is google fiber found in communities where you deployed your gig abit broadband? has it impacted jobs, the local economy or education or local government? >> yes, we're seeing a great economic impact and we're hearing -- there have been reports in kansas city missouri is working on an economic impact analysis. let me start by saying there are certain categories of employees where there's no unemployment. there's obviously when you build a big network there's a lot of demand for jobs for certain types of labor. i think last week the fiber home council released research that showed that gdp growth in cities with a gig network rises and the average cost per home or value of the home goes up 3.1% in those cities. that's data from about a week ago. but we also see and we've heard from mayor holland and mayor james in kansas city that they've seen it as a draw to regional economic development. other companies when deciding where to locate in the midwest will look at kansas city and say this place has a gig network let's join. >> i'm curious, too, about the discrepancies that exist between price and speed. in pittsburgh for instance i can get 500 mega bits a second but it will cost me about $400 a month. when we look at cities like kansas city and austin residents can get a gig for less than $100. maybe you could comment on why you think these discrepancies exist. >> thank you for the question. my observation would be you're right, there are a very wide range of economic models and it's a challenge because there is no near term variable cost that dictates a cost plus model. so you see a lot of companies experimenting with different prices in part because they're trying to figure out what the quantity demanded will be at different prices. the challenge -- obviously you tend to have lower prices where you have multiple competing networks and then again it raises the question of whether the providers are earning a sufficient return at the market share and the prices they're charging. in many cases they're not. this is a very difficult area to do economic research however because you will find that there are a lot of the companies who have different motives rather than simply profitability of the network itself. >> i want to give mr. slinger -- i know our time is almost up. >> if you look at the cities in which we're already operating or where we've announced we've seen incumbent prices drop immediately and speeds go up. so i think there's more room there. >> thank you mr. chairman. >> now to the whip of the house, the gentleman from louisiana. >> thank you. i know you talked in your opening statement about a lot of the work that's been done to expand spectrum. a lot of that within this committee where we've come together to make more spectrum available. the chairman has been a great leader in that effort, too. one part of that question is expanding more spectrum and the other part of that is your members where y'all come in to actually build it out and to build that infrastructure to take advantage of the new spectrum. if you could maybe share with us some of the challenges or hurdles that your members face to make the investment that they need to make, to take advantage of that spectrum and hopefully make more spectrum available in the marketplace. >> spectrum has been quite a hurdle. $41 billion was spent for a limited amount of spectrum recently. >> a little bedroom than the cbo estimate, wasn't it? >> which was zero. it was $41.9 billion. go ahead. >> the cbo recognizes the value of the spectrum that clearly everyone else seems to know about. >> cbo was off. >> a little bit. >> but the fact is that was for a 12% increase in the available commercial spectrum. egot a you got a 12% increase and we're down to 688%, a long way to go to build out to meet the needs of people. as i said local communities often are saying no to these facilities. we have the business case has to be made in rural areas as we've discussed today. overall return on investment is very difficult with those prices for spectrum with the price on revenues. we're under pressure right now. we can't afford to have regulatory drag on these investments when there's not enough capital to meet these needs already. as slow as it is it's immediately available when it's built the take that same spectrum and reuse it. all of these burdens on federal lands in urban areas, the fcc has done a great job, the committee has done a great job of trying to address that but we need to work with partners and state and local governments as well. >> on federal lands we've been grappling with that, too, trying to remove those burdens, not just in the spectrum space but in a whole lot of other areas especially as it relates to energy production where federal lands and even in the local areas some of those restrictions make it really hard to experience a lot of the economic opportunity. thanks for that answer. i want to ask you, in summary of your analysis, if you could share with us similar challenges where some actions maybe that congress or the fcc can take to further expand the opportunities for wi-fi, broadband. >> as i said earlier, i think there are opportunities in the connect america funds and making those available to a wider range of companies for bringing broadband to rural areas, but there is an overarching question here and it relates to the question that the ranking member asked earlier about where are the bright spots. if you think about this as a larger value chain of micro economics from everything from the content companies and the internet providers to the infrastructure providers, where the bright spots are is very clearly outside of infrastructure. the apps developers and the content companies are actually earning extraordinary returns and there is a very knee jerk and familiar regulatory impulse to say let's try to protect the companies that are making very high returns from the ones that are making very low returns. as an economist that's a very odd structure. >> final question as i'm running out of time, mr. slinger, when google fiber was being deployed it's been reported y'all were able to work with some local governments that gave some exemptions maybe some expedited approval processes so that not just yours but other new entants were able to move quicker. if you can talk in general about the ability of more local governments to take that deregulatory approach and how deregulation in the sense of helping expedite the expansion of technology has helped you and could help others to develop even more broadband. >> i'm going to go back to the fiber checklist which we published in 2014. some of our major barriers obviously are getting access to poles and making it easy to do the make ready construction and get the poles ready. one thing that's been suggested is if municipalities took a proactive step in doing pole maintenance, if they could do that make ready and get rid of the old wires and make slots that would allow new entrants to get in quickly and attached to the poles that would really help. again, dig once policies and access to right of way, there's more we can do with local communities and with federal highways to make sure if someone is ripping up a road to do construction, we put in conduits that anyone can use. those are smart things. they allow new market entrants and more competition and choice. >> i yield back the balance of my time. >> the gentleman yields back the balance of his time. unfortunately, we're going to have to pull this to a close because we're down to about four minutes left in the vote. this is not the last hearing. we expect to continue this work going forward. your testimony has just gotten us to a really good starting place. we have a lot more work to do some followup to do. i know there are members who didn't get a chance to ask questions. we do have information to submit for the record from tia, come tell, cca tech freedom, mr. olson, i believe you had a document you wanted to submit articles from broadband deployment. with that i'm afraid we are going to -- unless did you want just a minute or two? >> yes, just a minute or two. >> go ahead. >> i was curious i wanted to ask mr. slinger some questions. i find what you're talking about very interesting. i look at this in what you say is all very important about deploying broadband infrastructure and i'm from sacremento so we have wonderful areas that are doing great things. i'm looking at a particular area in our city that is economically deprived. we have a light rail line that's going to be completed there with fiber. and transit stations. yet, we have schools and libraries that are deprived and business people there who just have no access. if we were to do something there, and i don't know whether we can have a special project, but i'm looking at this being very very special for economic development. is that something if we can provide the access as you say that you need, is that something that you or somebody else can take on as a project working with us? i'm trying very much to help this area that feels very deprived looking at the rest of my district that feel like they're on the move and they're not on the move. i want to get them on the move. is there something we could do there? >> yes. there's a lot that we do really early stage with all of the cities that we look at to make sure that they have the right kind of digital inclusion plans in place early that make sure that the cities have a focus on it. again, there's no silver bullet with any one company but we want to make sure that all providers and local community groups take this on. as fiber or any other technology is built out in those areas, really make sure the people understand the relevancy of the web and hopefully get more people online. >> thank you very much and thank you, mr. chairman. >> thank you. we are going to have to call it to a conclusion here again. we have votes on the house floor lg . thank you for your testimony your council. we'll be back in touch as we move forward and to others who have ideas for the congress in how we can expand access to broadband across the country indian reservations, rural communities, urban communities, wherever it is not. we have some, i understand tribal records for the record which we're happy to accept. with that we will adjourn. join us tomorrow when secretary of state john kerry, energy secretary ernest mow knees and treasury secretary jack lew will testify about the iran nuclear agreement. they're scheduled to appear before the senate foreign relations committee. you can watch it live tomorrow 10:00 a.m. eastern 7:00 pacific on c-span 3. the nation's governors are meeting this weekend and friday we'll talk to the vice chair of the nga, utah's gary herbert. watch that live starting at 7:20 a.m. eastern on c-span's washington journal. then on saturday we're live from the nga meeting with three sessions. first up the governors will be talking about combatting opioid abuse. that's at 9:45 a.m. eastern time. at 1:15 a discussion on education and state economies, and later a discussion on healthcare issues. that's all live on saturday beginning at 9:45 a.m. eastern time on our companion network, c-span. filmmakers talk about their documentary the best of enemies on the 1968 degrees between william buckley and gore vadal over war god and sex. >> there's not someone in their ear very unlike today. today i believe there's someone saying, you know the numbers are dwindling, talk about hot topic, hot salacious topic number two. i don't think that was the norm at the time and as morgan said, these guys didn't need it. >> howard k. smith was the moderator which was a distinguished news man who was really i think embarrassed by this. he was moderating but he disappears for sometimes five or more minutes at a time. today you wouldn't have a moderator not jumping in every 30 seconds. i think really everybody at abc just stood back and let the fire burn. >> sunday night at 8:00 eastern and pacific an c-span's q and a. next it's a discussion on financial regulation and the effects of the dodd frank law. the american enterprise institute hosted economic analysts who discussed the different provisions of the law, including the authorities granted to the consumer financial protection board, the financial stability oversight council, and the new authority granted to the federal reserve, along with their recommendation for change. this event runs just over two hours. >> a 100% predictable feature of financial cycles is that after a crises there is a political and regulatory overreaction always. so with the dodd frank act which, as you know engendered a truly remarkable flores ans of growth constricting regulatory bureaucracy and dead weight cost along with anti-democratic grants of unchecked and unbalanced authority to bureaucrats. all the while of course utterly failing to address the government's own housing finance blunders which were so important. are we stuck in the bureaucratic mire of this act forever or can we fix it? and if so how in particular? you're about to hear how from our expert panel. let me introduce them in the order in which they'll speak, and as we proceed through the panel, we'll be approximately working our way through the various titles of dodd frank. first will be my colleague peter wall wallaceson who is the chair fellow at aei and co-directs the program on financial policy studies, was co-chair of the financial reform task force, and served on the financial crises inquiry commission where he wrote a very enlightening and highly controversial dissent. previously peter was white house council to president reagan, general council of the treasury department and practiced banking and corporate law at gibson, dunne and crusher. financial crises spawned dodd frank, but do you understand what spawned the financial crises? buy peter's book "hidden in plain sight" in case you haven't yet. our second speaker will be the senior director of global affairs strategy and public policy at bloomberg where he covers policy issues in europe, asia and the u.s. equity fixed income and derivatives markets and the impact of capital or the lack there thereof on special coin. he was special council at the traders commission of title 7 of dodd frank and worked for the house committee on financial services and subcommittee on capital markets and government-sponsored enterprises. next will be j.w.ve rerksrret. directs the corporate federalism initiative. previously j.w. was on the staff of the financial services committee in washington, d.c. he has written extensively on corporate law with his academic work appearing in the journal on regulation, journal of corporate law, and university of pennsylvania journal of business law and other journals. our concluding panelist will be mark calabria, director of financial regulation studies at the kato institute. previously mark spent seven years on the staff of the senate banking committee where he drafted significant portions of the housing and economic recovery act of 2008. that's the act that established a new regulatory regime for fannie mae and freddie mac, just in time to put them into conservatorship. mark also worked at the department of housing, harvard's joint center for housing studies, the national association of home builders and the national association of realtors, as well as the census bureau. as you can see, he is very experienced in the government housing complex. and therefore well prepared to reform it. each panelist will speak for 12 to 15 minutes, after which we will give them a chance to react to each other's comments or clarify points. after that, we'll open the floor to your questions until about 2:30. at that point, peter wallison will address our key note speaker of the house financial services committee. so on to our panel. and, peter, you have the floor. >> thank you very much, alex. i'm going to 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 dod frank -- dodd frank act will be difficult mostly because the public has never heard of it and continues to believe that the financial crisis was caused by insufficient regulation of wall street. in reality, the financial crisis was caused by the government's own housing policies, which forced a major reduction in mortgage underwriting standards. by 2008, more than half of all mortgages in the united states, that was 31 million loans, were either subprime or otherwise risky. and of those, 76% were on the books of government agencies, primarily fannie mae and freddie mac, the two government sponsored enterprises that dominated the mortgage market. that chart, which some of you were close enough can actually see, gives you a visual representation of what it looked like. everything on the left, blue, is fannie and freddie. above that is fha, federal housing administration. above that, other agencies also doing the same thing, v.a., and some of the agriculture credit agencies also make loans. on the right, the black, is the private sector's contribution, which is about 24%. and we'll get to that in a minute. the remaining 24%, and that's the black on the right, of these mortgages were on the books of the private sector. and when all of these mortgages began to default, that is the ones fannie and freddie made or bought and the ones that the private sector bought, when all of them began to default in unprecedented numbers, fannie and freddie became solvent, as we know. and many of the financial firms that bought these mortgages also got into trouble. and some failed. now, instead of reforming the government's housing policies, which would have seemed to have been the right way to proceed here, the obama administration sought to punish the private financial sector with the dodd frank act, which was one of the most restrictive regulatory laws since the new deal. in effect, the congress and administration were attack the symptoms rather than the disease. i don't have time to discuss all the details. but if you have interest in really understanding why we had a financial crisis, as alex suggested, it is in my book, called hidden in plain sight, published in january. this is an historically slow recovery from the recession that followed the financial crisis. and we can see the slow recovery here. again, if you can see it from where you're sitting. you can see that the red line, which is the recovery from the 2009 recession that followed the financial crisis, is a real outlier in terms of all the other recoveries from financial crises we have had before. now, why would this be? supporters of the administration's policy argue that slow recoveries generally follow a financial crises. but recent academic work has disproved this. two respected academics looked at all 27 recessions. the u.s. encountered since the 1800s and found that those that followed financial crises actually recovered faster than those that were originated for other causes. there were three exceptions to this rule. the great depression, the period from 1989 to 1991 when the s&l industry collapsed, and the most recent period which of course followed the great financial crisis. these three periods had much in common. and we studied them carefully. there were all periods when the government adopted new regulations and controls over the economy, those in the new deal are of course legendary, as is the endless depression they produced. those in 1989 to 1991 included two regulatory laws. the financial institutions reform recovery and enforcement act known to us aficionados as firea, and the fdic improvement act known as fidicia. now we have the granddaddy of them all, the dodd frank act. this strongly suggests that the dodd frank act is responsible for the slow recovery from the 2009 recession. just like its predecessors. moreover, because of the huge costs that it has imposed on the financial system, it is likely the dodd frank act wet blanket will stifle economic growth in this country for many years to come. unfortunately, dodd frank seems to have become something of an icon for progressives led by elizabeth warren. they will not agree to any changes, even small ones. now, most lawmakers have heard enough from their constituents to know that the act has been destructive and impeded economic growth. but democrats are very reluctant to support any changes for fear of rousing the progressive base. in today's conference, my colleagues and i here on the platform will discuss some of the most problematic provisions of the dodd frank act. not all, but the most problematic ones. the title one authority from the financial stability oversight council, which i will call fsoc. that designate systemically important financial institutions which most of you, if you follow this, know as i sifiss. the liquidation authority in title two, the volcker rule in title six, derivatives in title 7, utilities in title 8, enforcement powers for sec in title 9. and the qualified residential mortgage rating agencies and the consumer financial protection bureau in titles 9 and 10. but i will start with titles 1 and 2. title 1 gives the fsoc authority to designate certain large nonbank firms as sifis. the sifi idea is based on the notion that all large financial firms were are interconnected. you'll hear this all the time. you'll read it in the papers. they're all inter connected. and if one fails, this is the theory, it will drag down others. that's why sifis have to be specially regulated by the fed under dodd frank, to reduce their risk of failing. however, we can see from looking at what happened after lehman brothers, and this may seem counterintuitive, after lehman brothers failed, that this idea is wrong. no other large financial institution failed as a result of on lehman's failure. and this is true even though lehman was one of the largest nonbank financial firms and a major player in the credit default swap market. and also its bankruptcy occurred at a time when market participants were very worried about market instability. this shows that large nonbank financial firms are not dangerously interconnected. and if one of them were to fail, it would not drag down others. so there's no need to designate nonbank firms as sifis and no need to save them when they fail. since designating firms of sifis is unnecessary and extends the too big to fail to other areas of the economy beyond banking, the fsoc's designation authority should be repealed. title 2 of the act is called the orderly liquidation authority and provides extraordinary power for the fdic to resolve large failing financial firms, including banks and nonbanks. from what i said earlier about lehman, it should be clear there is no need for a special system for resolving or rescuing nonbanks. they can fail and be resolved in bankruptcy without harm to the rest of the economy. lehman's bankruptcy caused chaos to be sure. but that was because it represented the government's complete reversal of a policy of rescuing large firms that market participants thought the government had established with the rescue of behr stearns about six months earlier. until the sunday before lehman filed for bankruptcy, the treasury and the fed thought they had a buyer for the firm. when that fell through, the government had no plan b. it refused to put up the necessary funds so lehman's bankruptcy became inevitable. although lehman's bankrupt lawyer was contacted earlier in the preceding week, he was not authorized to draw any papers until late on sunday before the filing on monday morning. because of this government bungling, any opportunity to keep lehman operating under chapter 11 of the bankruptcy laws was lost. still, while chaos resulted from lehman's bankruptcy, i want to repeat no other large financial institution failed. now, there is one group, however, whose failure could cause a systemic event. these are the very largest banks. say those in the trillion dollar category. because of their role in the payroll system, and they perform other services in the financial area, it could be important to keep the largest banks from failing. the fdic suggested that it would do this through a process it calls single point of entry. s-p-o-e. and which i will pronounce as spoe. under spoe strategy, the fdic said it would use its dodd frank powers to take over the holding company of an operating bank. and use the resources of the holding company to recapitalize the bank. thus, the bank would keep operating and would no longer be a danger of creating some sort of systemic default. the idea has attracted a lot of favorable attention. but there's one big problem. as paul kubiak, my aei colleague and i showed in a recent paper, it doesn't work for the largest 12 banks. the very were ones that might actually be too big to fail. the fdic may have assumed if a major bank fails the holding company would also become insolvent so the fdic could take it over under dodd frank. unfortunately, none of the holding companies of the largest banks becomes insolvent if its subsidiary bank is wiped out completely. if its investment in the capital of a subsidiary bank is completely wiped out, all of them have other subsidiaries and other activities that keep them solvent. if they're not insolvent, title 2 of dodd frank does not authorize the fdic to take them over. so the fdic's spoe strategy will not work. now, this is important because the fdic will then have to take over a failing bank in the old-fashioned way and resolve it in the only way the agency apparently knows how. and that is by selling it to a healthy bank. the trouble with that is that in an era when people are concerned about too big to fail, that won't work either. it will just make the buyer bank that much bigger. thus, dodd frank does not do the one thing that proponents claim it would certainly do, and that is eliminate too big to fail for the very largest banks. there is a way to solve this problem. the largest banks can be made virtually failsafe by loading contributions of equity capital to their holding company. that's the best solution to the tbtf problem, too big to fail problem. but to put it into effect, title 2 would have to be essentially replaced. even elizabeth warren and president obama will have to recognize that dodd frank must be amended in this way if it is to accomplish its most important purpose. thanks very much. >> thanks, peter. chris. >> thank you, alex and peter, very much for inviting me here today. it's a pleasure and honor to be here. so i'm going to briefly discuss the volcker rule and the new derivatives rules. and i want everybody to have a political context. because both were highly a politicized. getting through congress and once they were put into implementation in the agency process. dodd frank directed regulartory changes to make substantial changes to the structure of the capital markets without understanding the consequences of those actions. some consequences have been good and some consequences have been bad. some of the good is that you have risk management procedures that have totally changed the industry and the way it operates, which i'll go into later. the bad is dodd frank is micromanaging trading behavior. and that is impacting liquidity. as a result, we no longer have freely functioning capital markets, but what we do have is a capital market that has been centrally planned by washington regulators who are terrified of risk. the volcker rule was put into place by a third-degree amendment on the floor. there was no hearing to discuss what this would do to our capital markets. the policy, although it might be designed to achieve good, is to prevent banks from using deposits backed by the fdic and cheap credit from the fed to finance speculative risk taking. also known as prop trading. when you hear the term casino gambling by the president or washington regulators, this is what they're talking about. after 950 pages of rule make, we have corporate bonds, asset backed securities and investments in certain funds. it permits market banking by customer accounts through a myriad of rules. we have to ask if the policy was designed to stop trading, why are banks still doing it? the volcker rule allows prop trading in muni debt and u.s. agencies. you have to step back and say is that good for the system? if the idea was to stop people from using taxpayer funds to trade, why is it you can invest in a detroit municipal bond and not ibm corporate bond? we should think about that. it's a good question. but the practical impact of the rule goes to the heart of what market making is. when washington chooses to micromanage decisions it makes compliance very, very difficult. there's no reliable way to distinguish between trading for customer accounts and trading for a bank's own account. because of this, any rule that limits prop trading must inevitably limit marketing and customer liquidity. the ambiguity is forcing people to err on the side of caution and pull back. this led to reduction in corporate bond inventory and impacting liquidity. so much so blackrock said the corporate bond market is broken. it decreased 77% since 2007. that's been aided by the volcker rule and other rules put in place by dodd frank. title 7 was a derivatives rule. this again was highly politicized in congress and when the implementation period occurred. it requires reporting of derivative transactions, clear them at clearing houses, entirely new registered entity, and margin on unclear trades. these rules were rushed, put through and forced down everybody's throat at five rules a week just because the only way that you can implement ideology is to overrun people with all of the policy that's set in forth in 200 and 500-page rule makings. this also revealed attention that is there to this day. which is the chairman at the time chairman gensler wanted to overlay the swaps market in the mind-set and the mold of equities. but the staff only understood futures. equities are a horizontal market with many trading platforms. futures is a vertical market. so there's a disconnect in the rules which made it very confusing, which caused over 100 n- action letters to be issued. and basically forced people to pull back from the market when trading first happened in 2012. now, trading has gone up a little bit from last year and this year. but there still isn't a substantial amount of liquidity people were hoping for. what you have seen is a bifurcation of liquidity pools. the euro/dollar swap market, inter dealer market is in europe and you can't find it here. some of these rules put in place were done outside on the apa. staff letters on the eve before a rule was going to come into implementation was put into place. that totally changing behavior and causes compliance officers to stop their traders from doing anything in the marketplace. one of these rules -- or one of these policies was actually a good idea. it was called straight through processing. once you execute the trade flows right through to a clearinghouse and there's no operational risk in the system. it's a good idea. but it should not have been put forth in an e-mail to clearinghouses telling them they had 60 seconds with which to accept a trade. the day before trading goes into place, staff issues guidance on this same topic, which causes confusion all over the markets. so there are ways to follow the apa and have public comment and prepare the public. not a lot of that was done in this situation. then there is the seth rule making. any means of interstate commerce. you may have heard this term under court law. it means any meens of interstate commerce, fax, phone e-mail, et cetera. but what the chairman thought it meant was order book trading. but for my boss's amendment at the last hour, we would have had a seth with order books. they have not taken hold in the swap market to this day. even though a false narrative said put products out there, we'll trade them, don't worry about it, that hasn't happened. so when you end up with we have an rfq, our personal request quotes get them back and executes. the order book is empty. i commend the white paper that goes into a lot of depth on this topic. so where did that leave the ctdc? there is a provision that allows for cross-border regulation for derivatives trading. the idea is the u.s. will lead and everybody else will follow. well, that's not true. and commissioner giancarlo said they are being used as a weapon of choice. the u.s. claimed we have to extend our rules into the eu and elsewhere because we know best how to regulate and other regulators will not act in our best interest to prevent risk from flowing back to the united states. i can tell you i've gone to europe numerous times the last three years. each time i go they laugh at me. oh, yeah, wasn't it you 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 know to talk about. there's been basis risks that's been created. basis risks is when you have a risk, you want to hedge the total risk. in order to do that, you need a swap product. or use a futures product. but the future could leave you with almost 85% of your risk hedge and 15% just sits there and you absorb the risk. you pass it on to consumers. you pass it on in your prices. also, it sits there on your balance sheet. so we don't know how much of that is out there, but that is starting to happen. the other thing the derivative rules did is really put the hurt on futures commission margins. they caused prices to go up so much it wasn't profitable. only people offering future commission services now are large banks. another thing we have to question that we can look at later. one good thing that these rules did is they did bring some price discovery through to the marketplace and there is a product, one product that is trading 93% electronically, cds index investment grade. so that's very good. but the uptake hasn't been what was sold in congress or during the implementation period. so where does that leave us? central bankers took this time to watch and see what happened. politicians didn't break up the global banks. they just didn't do it. but as time has passed regulators have become emboldened. they are using a complex web of trading, margin, liquidity and margin rules to discourage risk taking into the markets and force an end to the global banking model. the global banking model was predicated upon holding companies being able to transfer risks among affiliates and services large clients all over the world. they believe they can contain any risks in their own jurisdiction and can't regulate them outside of their borders. so all these rules are designed to create that shift away from global branch bank to go fully capitalized subsidiaries under a holding company. this results in internal bifurcation of global trading and collateral functions. it makes you not just look at it a screen and click and be done with the trade and it goes to the back office, but to think how do i collateralize that. how do i source it? what's the cost of it. this has fundamentally changed the way fixed income desks work. fixed income and derivatives are inextricably intertwined. so it is reshaping the entire industry. it's good because you understand the cost of the trade and the transaction all the way through. it's a little bit more risk management discipline. it is also good because you are analyzing your customer relationships and product offerings. some product offerings are disappearing, like single name cdss. this is bad because you are analyzing your customers. some of your customers, not the big ones, are being told you don't have access to liquidity anymore. the regulations flowing from dodd frank have also force edd market participants to use only u.s. treasury and agency debt to collateralize their trades. they force banks to hold u.s. debt as capital, and they permit u.s. debt to be prop traded. why? why is it that u.s. debt gets sack row -- sacrosinct level? why was it necessary to create an artificial demand for u.s. debt. is it designed to apiece the housing industrial complex by creating a permit spigot to prop up the housing market? i don't know, but we should ask. is it because regularities were directed to create an incentive to buy our debt because of a political need to continue to finance deficit spending? we should ask. is it because regulators believe the u.s. debt is not subject to market forces in it's a question worth asking. whatever the reason, one thing is clear, the health and stability of our financial system is based on price systems of u.s. debt. if we have another flash crash that causes foreign investors reevaluate our treasury markets, we could have a big problem. with an $18 trillion deficit, our debt is hardly risk free. this regulatory planned market system is dangerous because it concentrates one form or debt on everyone's balance sheet across the system. and if markets move in an unexpected way, everyone will be holding the same wrong-way risk at the same time. now, that should ring a bell here. because that's exactly what happened in 2007 and 2008 with the mortgage products. and i doubt -- i highly doubt the fed and congress will sit by and do nothing. as for dodd frank, margin volcker rules will continue to exacerbate. the basis risk that i referred to in the derivative markets will only become a concern when prices move against market participants and force selling through margin calls. but one thing is clear to me. margin calls and large price movements will become the new normal. government rules are trading decisions in the capital markets and decreasing liquidity and other asset classes. the net effect of all this forced change has been a decrease in sustainable, sustainable liquidity in the u.s. swap and the corporate bond markets. and now even in our u.s. treasury markets. thanks. [ applause ] >> thank you, chris. you made a lot of points, but you want i.d. to comment on one. it is quite clear governments always promote government debt. and the employees of governments, that is to say regulators, always promote government debt or the sponsored agencies of the government. and i think that's a big problem. j.w. >> all right, thanks. i'm going to talk about title 8 and 9 in 15 minutes, which is a challenge. because i think there are hundreds of pages together. start with title 8. >> the chair is sure you will meet your challenge. >> yes. title 8 is a provision that is i think probably inspired by some of the central clearing provisions in title 7. title 8 provides for the designation of financial market utilities that are deemed to be systemically significant by the fsoc. these financial market utilities or platforms that provide for settlement clearing or payment systems, so a wide variety of types of fmus covered here, everything from dtcc which provides a settlement system for the trading of securities, to the clearinghouses chips program, interbank payment program. title 8 does two things essentially. it's said that when god closes a door, he opens a window. here when regulators close a door, they open a window. in this case it's the discount window at the federal reserve. so what designated fmu is deemed -- once deemed an fmu becomes designated for a special regulatory regime from either the federal reserve or in some cases for the sec and cdc. and they have automatic access to the federal reserve discount window, here to for limited to commercial banks. there could have been another way to i think run this railroad. if title 7 and rule makings under title 7 allowed for more freedom in ownership of clearing and settlement systems you would have firms more willing to pony up to provide any liquidity needs of these firms. but the way title 7 was implemented there were very dangerous restrictions place on the ability of these entities -- the ability of private parties to take an ownership in central clearing entities. i also have some concerns generally about the notion of the federal reserve as a regulator, particularly of payment systems. because think about this, okay. the federal reserve is the primary regulator of its primary competitor, the chip system run by the clearinghouse association. the federal reserve is also the primary regulator of the clients, federal reserve and chips. so the federal reserve competes with, is a primary regulator of and is competitor and primary regulator of many of its clients. i think that's central planning. i don't think the federal reserve manages those conflicts particularly well. george is here from kato. he has written about the fact that we don't need a central bank to run a wholesale payment system. the private sector can do it pretty well and has done it for a long time competing with the fed. i think on a per transaction basis does it much more cheaply than the federal reserve. and to see that, just go take a tour of one of the regional fed banks there. they're like palaces. they're pretty nice places with private cafeterias even better than aeis, if that's possible. and i will close title 8, my colleagues have both written about a dangerous provision tucked away in title 8 that allows for activity-based designation. and under their read, which i think is a very reasonable read and that provision in title 8, it could allow for potentially unfettered regulation of industries not intended to be regulated by dodd frank like for instance, credit unions. it can be used as a method to regulate asset managers on an activity-based basis. so i would think very carefully about those provisions in title 8. let me move on to title 9. title 9 in dodd frank is sort of a grab bag of securities and corporate governance provisions and other things. if you have never been to a kids party, at the end you always get a grab bag. it is just a bag full of junk. it is is full of items that make no sense to each other. nobody really knows what to do with them. and that's the best description i can give -- that's right. a lot of sweeteners. in title 9. so just to run over a couple of them, there are new enforcement powers for the sec and particularly with respect to civil penalties. i have some concerns about those powers, particularly in the hands of the current enforcement regime at the sec look at the recent stories about what i would call 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. by the way, the administrative law judges, not surprisingly, enjoys much better win rate. so i have some concerns about those powers in the current regime's hands. whistle-blower, award provisions in title 9. for those companies have internal compliance regimes that want to fix problems as soon as they are reported. the incentive is to go to the s.e.c. for that award. i think there are unintended problems resulting there. and speaking to the corporate governance provisions in title 9. let me point anyone interested in this to a book that came out around 2000 called "working capital." it is an accounting term. but it was funded by unions in looking how to further welfare agenda. so the working man's capital at work. it has a number of ideas included in title 9. so this is a 10-year-old idea that they sort of saw a window to implement these particularly pay ratio disclosures. and they took it. and i think that's evidence enough that title 9 had very little to do with the financial crisis. so in terms of particular corporate governance provisions we have an advisory vote on the executive compensation. we have disclosure of the ratio of ceo pay to the pay of the average worker. what does that have to do with the financial health of the firm? i don't know. in fact, it is potentially damaging to the health of the firm because it is intended i think to discourage firms from metering executive compensation to financial, you know, results. it's intended to implement a social welfare agenda on half of the unions. there's no other way to describe that. i think it's very dangerous. if you want to have that debate, have it in another form other than the securities regulatory system is my view. there is a proxy access provision in title 9 of dodd frank. this was the first rule make sec chose to do. and it was quickly defeated in court on the basis of lack of severe cost benefit analysis, which resulted in the commitment at the sec. so in that sense it was good. i have done an empirical study of the proxy access rule with my colleague at george mason strathman, at stanford law review where we do an event study of implementation and find it costs billions of dollars in shareholder losses. what's a better way to run a railroad here? what's the alternative? i would suggest that state-based competition and corporate chartering is the alternative. and it's not perfect. a lot of scholars suggested there are problems in the state-based system where states compete for corporate chartering. delaware has been a dominant player. delaware takes a view of the market for corporate control as a disciplining advice. believe me, the fact that they hired me means delaware is not perfect. i think a better way to run a railroad is to get rid of the federal overhang in corporate governance. i think you have to 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 provisions to optional for firms to opt into. before you tell me that's politically impossible, there are provisions to dodd frank that are optional like the option of an independent chairman. number two, you recognize the right of firms to provide for mandatory arbitration of shareholder claims which i think the federal arbitration act already provides and court interpretations of that act already provide but the s.e.c. hasn't gotten the memo and they still refuse to accelerate your registration, if you have such a provision. carlisle found that out recently. but i think you need some federal recognition of that right. and thirdly a federal codification of the internal affairs authority to impede innovation and state corporation law. if you do those three things, you get a much more robust state chartering system. then i think when you combine that with a very exciting world of crowd funding, that is coming pretty soon and free market security lawyer, this is the only exciting thing i have seen in the last 35 years of securities regulation. i think you need a new way of doing corporate governance, state chartering competition, to innovate at the scale and speed that crowd funding will require. i think these three provisions will sort of encourage the kind of innovation we need to see in corporate governance. and i think crowd funding will be the first form where we see that happen if we can do that. one experiment i would point to in how it can work, if you have the freedom to do it from the federal overlay, there's one very small inspection that trade generally are energy companies. nyse exempts these firms from a couple of the listing requirements, including some board committee requirements. as a result, what we have seen is an incredible amount in government structures for master limited partnerships. one of the trade-offs we see is rather than things like fiduciary duty, litigation, and particularly structures for committees, we see a regime in which mlps distribute all their excess capital every quarter to shareholders. they don't need participation, corporate democracy. they don't need any of that stuff. they just get their money every quarter. if the mlp needs new money, it has to raise it from public markets. that's a much more powerful market-based disciplining mechanism. i think the more -- the less federal overhang we have, the more we will see in governance. it is an experiment that shows us why. i will close with one last thing i think we could see. if we have incentives to innovate in corporate governance which the federal overhang and corporate governance inhibits, i think we could see cities get involved as well as states. why not silicon valley. silicon valley bar is more motivated than anyone to come up with whatever innovations. i can't even think of them. that's how innovation works. i think it is probably best equipped to deal with particular needs of on those kinds of firms. so i think it could be a very interesting world. it requires a couple of things. codifiction already in the law. recognition of arbitration right. it is already a right. thirdly, a switch to optional for provisions and socs, title 9 and with respect to the williams act. that's already an approach that some parts of title 9 has taken. i think it's perfectly reasonable and exciting. i think in these uber, lyft crowd funding world, i think we need a modern corporate governance system. and getting rid of the overhang will be key there. >> thanks. mark. while mark is getting up there, j.w. mentioned the unpredictability of future innovation, of course. surely the financial stability oversight council can predict all of this innovation. and know what to do. >> right, sure. >> mark. >> i have a comment i think i have heard a new phrase. free market securities lawyer. sounds like a contradiction in terms. hopefully a growing trend. first, let me thank peter and alex. i really appreciate the invitation. as laid out, we're going to be taking different sections. i will take parts of title 9 that j.w. did not talk about. and title 10. more specifically, the credit rating agencies. you think about moody's, standard & poor's, fitch. and then i will talk at the end about the qualified mortgage rule and qualified residential mortgage rule. before i start, you know, i would like to just quickly bat aside what i think is a common strawman i hear. i'm sure many of the rooms we hear that, you know, skeptics want to go back to bubbles. that's ridiculous. i don't know anybody who likes financial crises. certainly i have seen people who enjoyed them. i'm not sure i saw barney frank happier than when they were doing the t.a.r.p. the concern is really whether these things work or not. and i think we could hopefully put aside all the straw man spin we're going to hear today. before i talk about those issues, i want to associate myself with what has been said by my colleagues. i stated two weeks ago before the committee that i do not believe dodd frank has made us safer, nor do i believe it has ended bailouts. it's not just an issue of reducing burden some cost regulation. it is bringing stability to our financial system. again, i don't think dodd frank does that. so let me get to the rating agencies. this is actually something where dodd frank tries to go in the right direction. unlike previous housing booms and busts, like the savings and loan crisis, the recent one was particularly tied to our capital markets. and i think it made it much more destructive in the same way, not forgetting the savings and loan crisis was expensive. we had a recession. as peter mention said, one of the three recessions that took longer than usual was the post savings and loan crisis. again, there was something special about this one. to me one of the things that was something was securitization and the way our mortgage and houses markets were linked to capital markets. it would have been impossible without the ratings agencies. what we witness said was outsourcing of due diligence. and of course let me first say i think the rating agencies provide valuable insights. they certainly have an important role. but i also believe it works best when there is a diversity of perspectives. we don't just rely on one particular viewpoint. so section 939 of dodd frank gives a nod to this problem. you should remove statutory references to the rating agencies. unfortunately, that removal ended there. dodd frank required of course regulators to do a study. i forget the number of studies in dodd frank. it is almost 400 required rule makings and other studies. maybe they should have subtitled the gao employment act. but that said, what is required from the regulators and the rating agencies is do studies about their reliance on the ratings. there's no requirement for the regulators reduce that reliance. sadly regulators have sadly chosen to continue that and increase in many instances. that would be not a big deal if most of the reliance on our laws came from statutory rather than regulation, but that's not the case. the vast majority of reliance on rating agencies comes from the decision of regulators. and dodd frank doesn't change that. so to me where we have a fig leaf where we needed a forest. we needed serious reform of the rating agencies. first thing we needed to do is prohibit from outsourcing. the notion a bank regulator would go into a bank and look under the hood and say this is aaa rated, my job ends there that's ri duck louse. of course that's the demand side. the supply side is just as bad. and sadly dodd frank gets this wrong as well. whereas we should have ended the current nrs system that creates barriers to entry and limits competition. dodd frank actually increases barriers to entry in the rating agency such as those found in section 936. so let me say i give dodd frank a small, very small, amount of credit for recognizing the problem with the rating agencies. but unfortunately they completely missed the ball and fell far short of where they needed to go. an area however that dodd frank gets completely wrong in my opinion is the role of consumer protection in the crisis and subsequent creation of consumer financial protection bureau. so while of course there was fraud, i don't think anybody would deny that. of course there was abuse. i think it's more likely the case that acid bubbles generate from abuse more than the other way around. i think it's also important to think about it in this way acid bubbles historically come from credit being too cheap, not too expensive. and essentially the fundamental argument behind the is that credit was too expensive. so let me maybe walk you through what an example would be. if you assume a fixed monthly payment or even expanding monthly payment when you bid for a house, what the problem was borrowers were having fees and interest rates added on, that means they could only bid less for the same amount of house and stay in the same monthly payment rather than the other way around. if consumers were actually being gouged, that would have pushed housing prices down, not up. so, again, i think we need to think critically about that. i also mention the turn in housing crisis the inflection point preceded the inflection point in defalts by about a year. the temporal evidence is pretty clear that housing declines caused defaultds rather than the other way around being the major driver. again, i would emphasize we did not see a failure of consumer protection. we saw, as peter mentioned, a coordinated federal effort to lower underwriting standards across the board. let me also quickly set aside i think we can all stipulate most of the nonbank lenders targeted by the cfbb had nothing to do with the crisis. i don't even think joe or paul argues payday lenders and argue dealers and debt len dorders cause the crisis. you don't see them going after fannie and freddie. they're going after unrelated industries that had zero to do with the crisis. again, what we saw in j.w. touched upon this in much of title 9, most of dodd frank was a bait and switch. it was an, okay we're going to end bailouts, we're going to protect the system but don't look while we put this other stuff in here that has nothing to do with it. let's first start with the observation that there's not a level playing field anyhow. these small consumer guys like payday lenders, they don't have access to insured guaranteed deposits. they're not going to get bailed out. the argument poor little citibank is going to have to compete -- strikes me as re ridiculous. a lot of focus on people who had nothing to do with the crisis. i also say one of the more dangerous precedents is the funding mechanism. for those of you not aware, the consumer agency's off budget funded essentially by the earnings of the federal reserve. quite frankly i think every federal agency should be on budget. i also think this is a direct violation of article 1, section 9 of our constitution that requires appropriations to be done by law. the notion that we would allow an agency to set its own budget and determine itsz own funding to me is really offensive to our good government structures and what congress was elected to do. this might come as a surprise given our current budget situation, but members of congress were elected to make hard decisions about spending. a dollar that goes to the cfbb doesn't go to education or tax cuts, whatever. the notion we would put an agency in autopilot. and of course what is to stop us from funding peanut contracts then don't worry about raising taxes ever again. i've heard we need to take cfpb out of the appropriations process to protect it from bank lobbyists. i actually think what this means is they're trying to protect it from democratic accountability. every agency gets lobbied. if you don't think that defense contractors are knocking on the door of the defense appropriations committee every day, then i encourage you to go up there some time. but no way would that provide justification for taking d.o.d. out of the appropriations. one more troubling aspects is its engage in a massive data collection effort, quite frankly in my opinion that would put nsa to shame. for instance, 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 a citizen's activities opinions and beliefs as fully as the transcripts of his phone records. and of course today's checking accounts are our credit cards and debit accounts. and of course the notion that cfpb is not going to look at that data certainly say is an organization that accepts donations from credit cards the last thing i would want to do is think about cfpb looking who gives to cato institute. i think that's troubling. and of course as justice marshal observed, unfortunately there's been a long trend in this country of using bank examination records to abuse political opponents. i would be sad to say this would not be new if it does happen. hopefully not listening too close i don't want to give them ideas. those who care about the fourth amendment, which i do and i hope most of us do and care about protecting consumer privacy, i don't think there's any bigger threat than the cfpb given that this financial collection also leaves consumers very vulnerable with data security breaches. i assume i'm not alone in the room in being a former federal employee who got a nice couple letters from opm about my data being potentially hacked. you know, so to me the cfpb is unfortunately doing hackers a great service by consolidating all that credit card data in one place. unfortunately i think that it will be a very real risk. and of course gao has recognized this in some of its audits of the cfpb that it leaves consumers at risk of having consumer financial data hacked. again, to me dodd frank ms. i missed what was an important opportunity to rationalize our flawed consumer finance laws instead of those laws along with powers transferred to unaccountable agency whose bureaucrats can force preferences on consumers. i fear that the agency will do for consumer financial products what the federal government has done to our mortgage market which is, peter i think demonstrated, royally screwed it up. speaking of mortgages, let me spend my last few minutes talking about the qualified mortgage and the qualified residential mortgage rules. so this is something that i think there's great agreement on even if you look at peter's dissent, the other dissents and look at the majority of opinion, there's actually one consistent observation through all the committee members. and that's problems in underwriting in the mortgage market. that's agreed upon. what's not agreed upon is why. so dodd frank does recognize the special role of poor quality mortgages and the crisis. unfortunately dodd frank and the regulators in this instance screwed that up too. the qualified mortgages and extension of the truth and lending act whereas the qualified residential mortgage rules an amendment to the 1934 securities act. both contain substantial liability. the qualified mortgage is essentially targeted as helping to generate consumer class actions next time around whereas the qrm will generate significant investor litigation next time around. i will note "qm for my friends in the lending industry who thought it was hard to foreclose this time around, you ain't seen nothing yet. it will be very difficult if not near impossible to close in the next downturn. the only avenue of course for voiding this liability is to meet the safe harbor provisions. one way to meet those safe harbor provisions is to sell your loans to fannie freddie or have insured by fha. one of the twisted ironies of dodd frank is one of the reasons for the public demand for action and passage was that the american public was asked to bail out the mortgage market. what do we have as a result today? over 90% of the mortgage market is directly on the back of the taxpayer. the taxpayer is more exposed than ever in history. i will note barney frank said about a year ago he saw and the most significant parts of dodd frank. the liability was always going to be an issue, but these provisions could have done something to reduce mortgage default. but as the regulators started along that path they certainly actually started out well including things like down payment and credit standards, unfortunately the regulators caved to pressure and what ultimately ended up is a gutted qrm that even barney frank says was mishandled. so why is that necessarily so? one of the debates around the financial crisis is what exactly mortgage products caused the crisis? some of my friends in the consumer advocacy world, proponents of dodd frank will tell 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 certainly an objective party in this instance as well as a number of other impir kal studies. i should say, you can even look at the studies by organizations like center for responsible lending. their own studies show that the main drivers of default are loan-to-value borrower credit score. everything else is literally a rounding error. and so of course the final dodd frank qrm rules essentially abandoned the things that actually drive default. and of course given qrm's obstacles to foreclose endless servicing requirements again making it near impossible to foreclose, my opinion is that the qm rule will increase foreclosures next time around rather than decrease them. we know the harder it is to foreclose the more people willing to go into default. and of course this is all too consistent with the views of the cfpb. its mission has nothing to do with financial stability. its mission is to use our regulatory system as an avenue for redistributing wealth to force prudent borrowers to subsidize inprudent. we all knew the crisis was quite costly, it also provided cover for massive expansion of government powers. wrapping up. >> one minute. >> i'm not even going to need that. i would end with saying if we hope to avoid financial crises, i think we have to repeal dodd frank, 100% full root. but i think it's repeal is certainly not enough. our precrisis system was broken, it was flawed. it in fact to me one of the real flaws of dodd frank is it extends the pre-crisis system, whether it's cfpb fsoc, the theme is expand bank like recognition to everybody else. think about it that way. the notion of dodd frank is that if only aig had been regulated as well as citibank was regulated everything would have been fine. [ applause ] >> thank you, mark. i'm going to let each of the panelists in order add something if you'd like or take up something somebody else said or reiterate a point. maybe about two minutes each or so. peter. >> thanks. there were a couple of things that occurred to me that we might add a little bit. first of all, i've heard a lot about the costs of swaps. you didn't cover that as much as we might have covered it but that and also the question of hedging under the volcker rule. that's also a problem. we talked about market making. market making is a problem. you can't distinguish market making from prop trading very well, but it's also the problem with hedging. a lot of activity that banks engage in is hedging activity hedging their risks. that also looks a lot like prop trading. so how -- today i think is the day i think the dodd frank -- that the volcker rule goes into effect. how are banks going to deal with this problem? >> well, they're going to hire a lot of lawyers in this room. >> that's always good. >> i think that's the problem here. is that when you layer in so many rules and so many exceptions and ambiguities inside of these rules, and a lot of them are done -- and there's a political compromise inside of agencies. and this rule in particular had six different agencies working on it. and each one of them had to get their pound of flesh right at the last minute. and what we have is you will do hedging if you're a bank out a bank, out of your bank account, but you could also be doing hedging because there is a reasonable anticipatory demand that your customer who knows holds the same products as you may want to hedge and you have to explain that transaction and tell people why it is not prop trading and this is why i think you'll see fullback and flow out of the fixed income and into the safe markets, the markets easy to value and collateralize and mark on a daily basis and when prices move up and down you don't have a problem. because you don't have to deal with that rule. and again, this is very bad for the real economy because corporate banks need to hedge. they need the instruments and they also need to know that when they issue their debt into the capital markets if the debt is not fully subscribes that the banks will take that debt down and stand behind it to make a market whenever markets move up and they move down. and it is not clear to me, that if there is a bankruptcy, and there could be in the high yield oil and exploration area in the next six to eight months whether banks are going to step in and take on the liabilities they used to for fear of holding inventory too long or being told they are not hedging or that that hedge turned out to be a prop trade because the customers reasonable anticipatory demand vanished. so i agree with you peter this is a very -- this is micro management of the capital markets. >> chris. that took up peter's time. but now you have another two minutes if you want to add something else. >> well, i mean i wanted to agree very much with what mark said. i was a security attorney during the crisis and what we did, mein tear industry was predicated on taking advantage of rules. it was basically you took advantage of the risk weighted capital requirements in the banking book and changed that into a triple-a rated security that got less -- that you held less capital against and put it in the trading book and to me that is again that is government interference creating an in sentive for people to act and create an asset bubble. and you accurately stated the credit rating agency reform didn't really happen. and i'm not -- to me, i think that the capital, the baz ill capital risk weighting rules are still a huge problem that vent been addressed. and i think what you'll see because there is global growth stagnation, all of a sudden, the idea will be well, infrastructure bonds andel earthing markets, united states bonds, all of these things should get more capital treatment and treated like government debt. i wonder what your comments are. >> let me say that i fully agree with that. so bazil is out there and has not been fixed so let's keep in mind that wasil told us that greek debt was risk free and would have zero capital against it and fannie mae was risk free. and while it is an improvement over bazil two it is only a simple framework. and to plug bipartisanship, we were very fortunate that the banks did not adopt bazil two before the crisis because they would have been even more highly leveraged and i credit senators sarbanes and shelby beating the fed upside the head, don't implement this thing because you will have less capital and that gets me to a different team of -- one of the teams of dodd-frank is handing more power to the federal reserve and you talk about a string of regulatory failures. >> shoals paradox named around bernie shoal 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 it is historically true and dodd-frank is the last example. j.w., further comments? >> sure. i just want to touch on another issue i see in dodd-frank perpetuating a problem that long preceded dodd-frank which is the inclusion of immaterial security disclosure disclosure. i mean to lease payments disclosure for oil development or oil development or in the congo, they finance the good guys, the bad guys and people completely uninvolved in the war and ox fam decided we should stop purchase of complex minerals in the west and there is a mandatory requirement for disclosure for firms not only firms getting the actual hard commoditiys mined there but also for firms well down the supply chain who have no idea where the aluminum in their electronic parts came from. so when you convince -- i think it is telling when a liberal law ultimately convinced "the washington post" editorial board which it was a bad idea which they have come out against conflict materials but including immaterial disclosure in the s.e.c. own power and republican and democrat chairman have both been guilty of this. i think materiality should be a binding constraint on any mandatory s.e.c. disclosure rule making and business round table versus s.e.c. stands for the proposition the s.e.c. is to do cost benefit analysis. how is a mandatory immaterial disclosure going to provide any benefit to investors? none. so it by definite fails cross benefit analysis. we have weighed to measure immaterial, and that is stock price event studies and methodology that has gotten great in the last years and i think materiality should be a binding constraint on s.e.c. just like the litigants trying to sue under the 34 act and we need to look at everything we've done and going forward we need to have constraint. not only do we excise the bad things in dodd-frank, but that is going forward. >> and mark you have a chance. two minutes if you want them. >> i might not try to take too much more than that. first let me comment on j.w. mentioned the pay raich row and partly got it right in that it is not executive compensation. i think many of the labor groups improve the ratio by increasing the income in the middle. i worry about the potentialality of increasing the ratio by hiring fewer workers on the left side of the distribution and i worry this will have an adverse impact on entry level jobs and someone who started as an entry level job and learned valuable skills and this war on the job wrung can have substantial negative impacts and one that i worry about significantly. i want to pick up on first let me note the number of institutions in the past long-term capital management, signature trade was the treasury market and i believe alex might remember, was it first pennsylvania or something in the 80s blew up trading treasuries as well and so if you go back and look at maiden laid one, the assets transferred to the new york fed half of those were fannie and freddie securities. so go back and look at that fed site. so institutions have blown themself up. >> and we could add orange county to that. which blew itself up with agency securities. >> and i want to peter to pars out and go back to his first chart about the goc share, and as peter is aware, fannie and freddie were the single purchasers of private label securities and as an aside i've done some digging around and the german and the london banks were large purchasers of sub prime purchasers so it wasn't just us it was european gsps and is that included in the number or in the sub prime part. >> that was included in the number. and they -- in order to understand the risks that they were taking you have to include also their purchases of the sub prime mortgage backed securities. and the problem is that they created the market. because in order to -- in order to comply with the affordable housing goals they could get credit for the sub prime mortgages in these private mortgage backed securities and so they told wall street deliver these things to us we're happy to buy them and that is how we got such a gigantic market in private mortgage backed securities backed by sub prime loans. >> and that i agree is understood by very, very few people. >> unfortunately, now everyone in this room understands. >> so we're making progress. >> it is doubles or triples. >> thank you for excellent discussion panel. now ladies and gentlemen, it is time that we're going to take your questions. let me remind you of aei rules. first you have to wait for the microphone because we're being recorded, tell us your name your affiliation and then ask your question shortly and briefly if you forget to keep it short, the chair will remind you. we'll start here and come over and pick up from you. >> [ inaudible ] present aks. my name issari young. it seems lopsided. you are comprehending dodd-frank is no good but the problem is i haven't heard what is bad. it doesn't say they don't accomplish something else, but if they don't accomplish somethings it because the too big to fail because the d.o.j. didn't prosecute those and because s.e.c. chairman have some kind of revolving doors and our appointee [ inaudible ] actions. so i just wondered if you have any data that will tell you

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