Transcripts For CSPAN Key Capitol Hill Hearings 20151016

Jim . Honor, the whole group. It is a humbling honor, blessed be part of it. Thank you for the great introduction. I can skip part of my talk. I want to go back one step. My granddad was a corn farmer during the Great Depression in colorado. He had to sell out. My granddad left and went north to find a new business. He started making grain doors for the railroad is this. That is how we got started in 1936. I jumped in my children, well my dad. He was six years old then. Now he is 85. We got into halftime, and his you, that is 12 hours a day. Is still hurting cattle herding cattle. My daughter is working in dallas , the halftime incident. Some of you may know about it. Some of the objectives you have here, my son just got deployed. He is heading overseas soon. [applause] it is a lesson i have been given. We started with 15, now we have 480. 300 independent contractors loyal to us, on top of our employee base. Ive been on quite a ride. On company is 80 dependent it. We look uniquely at the Forest Service as a partner. Their hands are tied. We have strapped them with regulation after regulation. And endangered species that itther issue drives me nuts to see that we will protect millions and millions of acres for one species. At the expense of many other species. And how about us humans . Particularly in our industry, most of our sawmills are in small communities. That is the lifeblood for agriculture and the Timber Industry in those small communities. And they can be destroyed. And when our business is destroyed, it can destroy a community. Just a quick note. Forest, they are clearly overstocked. They are not healthy right now. That is why we have a bug epidemic. With those dead trees, the fires. My next challenge that strikes me currently is the Exchange Rate. The currencyrate, Exchange Rate between us and canada, canada has gained close dollar, and on the guess what . 30 er prices have toppled in the direct relationship, with imports from canada, where they were formally sent to china. I believe in free trade. But i also believe in fair trade, it cannot be a oneway street like this government thinks. The third Biggest Issue i have qualityng a good education for our kids and employees. Trying to find good educators and students to come to work for us has been a real tough challenge. And on top of that, to find students that want to move to a Small Community is really a challenge. We are short forresters, management, really good electricians, and hightech. We have computers that cut around the curve of a tree. Our equipment is very hightech. I was on the board of trustees, and i constantly try to talk and influence the university to say, this generation is the smartest one ever. Oncehis Education System to put them in a certain direction. If we teach these kids and balanced education, theyre smart enough to figure out which side to go. Just give them both sides of the view. They will come along. So i have confidence they will come up with the right decision. Representsthis wyoming, the university of wyoming, this is steamboat. The institute here, which is steamboat, i would love to see it represented down here. I dont know if there are issues with that. But im so proud to be a part of the Steamboat Institute and speaking. God bless. [applause] bob you have all opened the door. I wanted to address the entrepreneurial part of our economy. It is been so important. I want to talk about the tax code and revelation. Im sure he will have other questions from the audience, i have a few of my own. Pete, let me start with you first. You and jim come from more longterm family companies. Heidi and paul are more recent entrepreneurs that have entered into the business. You all have an opinion. Key to thership is American Dream, so many of us cherish and experience it. Many think that it is threatened right now. Tell me, just yes or no, do you think entrepreneurship the opportunity to enter to the Business World and start your own business and live the American Dream is it getting easier or more difficult than it has starkly been america . Whether yes or no, tell me briefly why you came to that answer . Pete . Pete i think it is accommodation of yes and no. It depends a bit. How are my competitors . [laughter] any craft brewers . There are 4000 around the country. This has blossomed just in the tot 1015 years from nothing relative ease of entry in the marketplace. I have a gripe about it, they are not held to the same standards we are. But i think from that perspective, clearly, there is an opportunity for a doors to get in to our kind of business. They will learn soon enough as they get bigger, that they have more challenges in the regulatory reach of not only the feds but the state and local governments. One quick story. Retailer ine are boulder, colorado. He got a letter from the local Health Department that he had to have a food license, handling ice. Se, in order to bacg he called them up and said what does that entail . 22 page application and 400 e, renewable every year. I have to let employees go. Who reads these things . Thisat the local level, bureaucracy is making it more and more difficult for Small Businesses. I guess there is a combination, bob, of opportunity and real challenge to succeed as under doors. A mixed bag. Paul i think the greatest challenge from technology, the government does not understand innovation. They do not understand the jobs. Why . The government does not innovate or create jobs . It have any of its own money, it is ours. I think they spend more time figuring out how to regulate innovators as they grow and succeed. They spends saying, less time figuring out how to open the door and create opportunity for new companies. I think pete would agree that it is ok to create more competitors. But dont also on the other side of your mouth come in and make it harder once you do succeed. That you are becoming the American Dream. What i rather go out and succeed . What i rather punch the clock, not be out of the ordinary, not innovate, not ruffle feathers. Even worse, when i stay at home and punch the remote . Heidi they goes back to how easy it could be to start a business. But then they have to go through the red tape of getting approval, the trademark office, all the crazy stuff that happens around starting a business. It could be so simple and easy to get so many more people owning their own business and version. , veryey can do that very easily with the technology that is out there. But then you hit that wall of government overreach, to the point where i dont know if you know this . Department of agriculture tells us how many people we have to have in the dog play yard. Ratio of 1 15. It is almost as strict as childcare. Othere couple of franchises around the country that can do that, we know it keeps the dogs safe. And it keeps us sustainable. But itrofitability cuts profitability. Theyre not going to enter if they make 10 less profit because of regulation. I sat with had of the department of agriculture, how do you come up with this rule . Anyone more camps that in the country . They said they have a feeling. I will show you all this data to prove you wrong. She said, that is not your job darling. We will tell you how to operate. I will remember that for as long as i live. I expect you will. Bob in your business, heidi, which is more onerous . Heidi i dont know if you saw yesterday the ruling from the labor board. Theyre going to fundamentally change franchising in this country. Theyre going after mcdonalds first. Theyre trying to change the franchisor to the franchisee. And they are saying that we are now responsible for those 3500 employees. Person makes a bad hiring decision, they all have to pay. What theyre trying to do is unionize the restaurant industry, they have not been able to do it because it is so heavy on franchises. If there independently owned and operated, we do not control the employee at the franchise unit. It is a terrible die for franchisors. S. We will see how it will roll. That was made by five unelected bureaucrats that obama appointed. Three of which are his buds. Or bad, or sp pointed out, a little of both . Looking back over the almost 80 years of what it took us to get here, i would first talk to them a little bit about i have pride in the manufacturing side. When you look at the strength of this country, we are founded on the manufacturing side. That is new money, or old money. It is so key. I have a certain pride in thaning new money, more the old money passed on. I try to encourage him. I would not do this, but if he asks for other opportunities, i would say go to canada. They will set out a square, give you all the timber you want for free almost. At very minimal cost. They will subsidize the labor and give you zero interest loans and put you in business. Dont you do that down here . I said no, it is a different concept. But if you can do it in america, we figured out how to do it. I was trying to think of what regulations you are dealing with in the Forest Service. That from deal with immigration, some of the ones i mentioned through the Forest Service. It goes on and on. We deal with it. I have a number of people each and every day dealing with regulations day in and day out. Even on the exports i. Bob paul . Paul yes or no, if there is more opportunity today than there has been in the past. In thinking about it, i would say there is more opportunity america now then any other time in history. Because technology has opened the door. The problem, the reason that it is not the case, is because the government has placed itself between the innovators and the opportunity. My granddad got in the farming business, it was a handshake from the neighbor the money to buy the land. He became a farmer, it can hold a lot more complicated when i joined. Fromi the financing for Small Committee banks, their disappearing. Let me ask the second question. Every politician, whenever they come from on the spectrum, will say i am for Small Business and progrowth economic policy. And yet the burden, as you have outlined, the byron of government gets heavier and heavier and c and to be more c and to be and more difficult to access. Job creation is harder. Percentagemall working or looking for work then we have had in over a generation. Focus first on the tax code and then i want to ask you even more about the regulation problem. Profess, is the tax goes what we want to incentivize . Is the tax code friend or foe . Thinking i might know the answer. Tell me specifically what you would like to see changed in the tax code. They talk about in washington every election cycle. If you could Tell Congress and the president what to do about the tax code, what would it be . Let me start with paul. Paul the real answer is not whether or not Congress Knows what to do. I think it is whether or not congress will actually act on it, because they have all of these different invisible players that incentivize them to not act. On tv everyut them night. They are talking about lowering the tax rate, broadening the base, getting rid of loopholes. You know all the words they use on tv. Ill know it. They all know it. Both parties. Historically, they know that is what works. But that is what they tell us. And then they go back with their buddies in dcn dont do anything. What theyecessarily dont know to do, its what they comfortable with bob . What would you tell them to fix . A handful of things. I would simplify and make things easy. I would lower all the rates across the board and get rid of a handful of them. It baffles me, but maybe because im 29 and i dont understand complex subjects. [laughter] the gas tax blows my mind. Maybe that is because my grandparents are in their 80s and 90s, and i dont think about that as often, but i cant imagine how that works. Goes back to the previous question that everyone mentioned, at the end of the day, its about money and control. Thats what its about. They can say they are for the middle class and entrepreneurship and jobs, but at the end of the day, the government at all levels is about control. How do you get control . You breed dependence on the system. You look like you are ready to go. I want to jump in. Was campaigning i had a debate about inheritance tax. A bunch of contractors in the room. Said, we are talking about maybe 5 million per person as an exemption. He says, dont you think 10,000 is enough . He said certainly everybody in this room would probably go along with it. When i got up i said, how many people in this room have 10 million . A few hands went up. I said how many would like to . [laughter] and i got the whole crowd. I used to say if you get rid of debt tax, one or two things will happen. Kids will have a spree and spend it, where the money gets back into the marketplace. [laughter] or they reinvest and build jobs and build the economy. There is nothing that is bad that can happen if we get rid of that. Bob heidi, friend or foe . I love to talk about capitalism and how it is not a cursed word. If you look at the last 200 years of history, there are fewer people in poverty, fewer people who are hungry all around the world, not just here. There has never been more innovation than the last 200 years. What happened in the last two injured years . America happened, free market and capitalism. Its unlock the potential, not just about making money, its about solving all the worlds worst problems. If we can let loose entrepreneurs and innovation, i think that getting rid of the tax tting to a fair [applause] of camp bowtill ceo wow but i sold it to a veterinary chain. I got to experience paying the tax bill. Bracket,in the 50 tax so 50 goodbye, and then if i die, 50 goes does not go to my kids or husband. What it does is, do i want to start another company right now . No. I have all these opportunities, but i said i would rather work on my nonprofit. Its terrible. it is a major this disadvantage. We havent talked about the highest Corporate Tax rate in the world of any developed nation. It does baffle me, i have sat in the halls of congress and hurt these heard proclamations that we are incentivizing capital formation, business investment, those risk takers out there. Are we incentivizing them, or does the tax hold coders holding us back. Jim its definitely holding us back and we have to simplify it. If we could abolish the irs, that would be good. I spend in my company, a few hundred thousand dollars just to accountants. It would sympathize and reduce my cost just to figure out what simplify and reduce cost just to figure out what taxes are. A simple tax code would be good across the country. Why are we penalizing the rate . Rich . Why is this whole country thinking about the wealthy and help the poor . Lets try to get the rest of us to get there. Start an tax, i helped organization 15 years ago working on the death tax. That is double taxation, triple if you are a corporation. You have already paid at the corporate level, personal level, or then you lose your father mother and pay it again. From my hand, there should be no death tax. It should be abolished altogether. I dont care how wealthy you are, i know i wont get elected either if i take that tone forward, but that is my view. Code is certainly a big piece of how government regulates on every move. Ive had economist suggests to positionf we were in a. , that Business People were making Business Decisions based on what may business sense instead of what the tax code told him to do, we would probably immediately add 2 trillion of Economic Activity to the gdp. Simplifying or flattening our making fair the tax code makes a lot of sense. Let me move on because we are running out of time. Many live unto on to regulation. To put it in context, by the government on count, the cost of regulation on an annual basis, just federal regulation, not state or local, is about 2 trillion a year. That exceeds by a factor of the cost ofto one paying all these taxes we have disady said there is a big incentive. It baffles my mind when we have had all kinds of people, people in the Business World as well as major economists, that take certain pieces of legislation with 800 billion plus stimulus packages, dodd frank, obamacare, and in the middle of a antijobs,we impose anticapital investments regulation that compounds the problem. And not surprisingly, through these last seven years when we are in recovery, job creation and getting the economy moving again has been a little sluggish. Regulation is that excessive, i would like to hear from each specifics. E i will ask a twopart question. What regulation specific in your business are most problematic, and if you are in one of those witness chairs in front of congress, and they said what should we do . To fix the problem, what would have a macro effect to get the economy moving, to get us going at four and a half or 5 where many people think we need to be . What would you Tell Congress . Let me start with heidi this time. I have a lot to say about this. I am a Firm Believer in vote with your dollar. I think society would be a much better place if we just left it individuals to figure out who they wanted to support and which theiries they should give dollars to, and i think the free market would flush out regulatory stuff. As i was sitting in front of congress and ask them to do one thing, i keep thinking about when you were campaigning in talking about your first day in office eating there and going through all the regulations in colorado. Somebody has just got to let the slate clean. I doubt think that will happen, but we got to get somebody into office that is willing to take that attitude with it and trust people. Jim im going to go back to one of my opening comments on environmental. When you do Environmental Impact the forestit Takes Service 57 years to put together a timber sale. And then they are inundated. It takes two to three years to put the statement together, and a single letter letter can stop that sale. This to me ties back to Forest Health along with the regulation. The Forest Services hands are tied. Guess what happened . They file a suit and find one little bitty deal wrong and then the government reimburses the Environmental Community for their fees. In some cases, 700 an hour for the legal fees. That is incriminating. There are bills in right now to help that regulation may be be diminished and untie the hands of the Forest Service, which would help us tremendously. Our costs go up to that. Businessour specifically, litigation has become a weapon of war. Jim yes. Rich, guiltyny liberals are in the room . You get rid of regulations and all those guilty rich liberals are going to be worried somebody is going to get hurt. I think dr. Carson hit it right on the head, by reducing the size of government. We are generating somewhere 30000 and 60,000 pages of new regulations every year. Who writes regulations . Little underlings that get government jobs that pay nicely and they can retire when they are 40. Size ofn reduce the government, we will reduce the size of regulation, eventually leaving we can begin to repeal some of this. As long as we have regulators having the opportunity to keep they willgulations, write it because it is job security. It is true at the federal level, state level and local level. Absolutely. With some hesitancy i will challenge my friend. It is more like 80,000 pages out of the federal government and another 20,000 out of the state. 100,000 pages of rules promulgated every year to control everything we do. And dodd frank is a great example, we put Community Banks out of business. We have not started a new unity bank in bob i think there has been one new charter in colorado. Peter and we lost a lot nationwide. Bob paul, i want to ask you maybe more specifically, since you volunteered that you are still under 30. [laughter] isnt it amazing what he has accomplished . [applause] you are inspiring. Your generation, sometimes i see some polling data, and pete touched on it. One that heidi mentioned in the talkingpaign, i kept about needless regulation and how we had to go after them with a vengeance and i would like to do that. But some statistics i have seen more recently, just in the last month or so, suggest that especially among young adult, they have a very different attitude. They think they really need government to control those nasty big Corporate Executives that are out there preying on them, and government somehow is going to save them from themselves. If that is prevalent in younger adult age group, and i think it probably is, how did that happen and what do we do about it . I think it is the antiamerican economy, antifree market. Paul a ghost to the point that government has done a good job of one thing, making people dependent on it. It was a debate over the past few years if we should increase the age where young people can stay on their parents plans. Well, there are a few exceptions. Who in the world would rather stay on their parents plan, stay in their parents house until they are 26, or go out and have a good paying job they can work and field that about themselves and a port afford to go out . As a nobrainer. I think that the reason that you see the statistics is not because that is the optimal thought of young people. I think that is what government has bread. You look at dodd frank. Its also a lot of information being given. I went to speak to a group of about 100 students at a runningty, while i was for congress. I said, how many of you have heard of obamacare . Raised their hand. How many of you have a bank account, student loan, anything . Everybody raise their hand. How many of you have heard of dodd frank . Two people out of 100. Two people. And we were talking about this over dinner. Pages a misguided, 2300 attempt to fix corruption in the Financial Markets. Do we really think 2300 pages of documents is going to fix corruption . All it did was make the corruption more complicated, made it harder to find, and that is what the intent was. They can say all they want that is about helping the consumer and helping innovation, but at the end of the day it goes back to control. They want to be able to keep their dominion in d. C. And keep us back here where we belong. Numbers, talking about jobs, millennials had the lowest employment in the history of our country. Across age brackets, it hovers around 16 . What is even more discouraging to me is that in the africanamerican community, that number climbs to what he percent 40 . That is unacceptable. It is because night after night we see on the news and coming ourof the white house, government and the people in congress, and not all the people are good people, for anybody watching on cspan, there are good people. Just not all of them. That noin a society longer, as my grandfathers generation, no longer rewards success. Andonger rewards hard work no longer rewards you to be loyal. What happened to the loyalty in our country from relationships to employment . 30 years ago, people would stay with companies for 30 years or that and start a country company. And then they would go back things thathose saved the Company Millions of dollars. Created a small thing that saved his Company Hundreds of millions. He started at the very bottom and work all the way up to the very top after 40 years, and became hailed as forbes best managed company in the 90s. That wasnt because he was handed it or because of the government, it was because he off, and heutt knew his hard work would be rewarded. Today, young people dont see that hard work is rewarded. Is a sad we are touching on a subject, if we have time to ask. I want to talk about the workforce, and workforce readiness. Jim, i will open with you. You have had the experience at the university of wyoming, president of board of trustees. You mentioned the thing in your opening comment, that education is an important business thing to you. During the last campaign, i springs. Olorado i spoke to an official and he pointed out a big paradox. I specifically went there because their Unemployment Rate was among the highest in colorado. Asked him how many jobs, how many were unemployed . Heres what i remember. He said we actually have posting Jobs Available, outnumbered the number of people on unemployment by two to one. More Jobs Available than people who are unemployed. That seems to be a paradox. He says the job skills of those needloyed dont match the for that job. Study,t a steady, are they ready to work . This is an opening quote in the summary. Workforce is woefully illprepared for the demands of todays and tomorrows work face. Ceos like the fourth you had input into that study, and they studies,eed basic academic skills, but what is more necessary in todays workforce is applied skills. ,rofessionalism, work ethic oral and written communications, teamwork and collaboration. Critical thinking and problem solving. Heres the question. After the pontification. Can you find a workforce that youneed, and if not, specifically have pondered this and work at it. What do we need to do to fix it . I have such a strong passion for education, trying to help and have an influence on the Education System from a business perspective. To forcetimes we try our kids on to college because that is the right thing to do, when maybe a trade school would be a better option. I will divert a little bit if you dont mind. I want to share an experience i had at montrose. We took that over almost three years ago. Workforce,rd of the we have done the study and none of them were using unemployment, none of them used the medical services. They were all qualified. Under the Social Security administration, they were all legal citizens under the security administration, we cannot look any deeper than that piece of paper they give us. It is illegal. In wyoming, we use Homeland Security everify. We started snooping and applied it down there instead of the traditional company. Found out 38 employees working legal. Working legal. Some had been there 14 years, some 11. Some of them had children that were graduating from high school and had been in the community. We had to make the tough choice. Hired a really good legal firm out of denver to consult, and their specialists said this administration hates you. They will not hurt the employees. Those immigrants that are not legal, they are after us, the business guide. The fine would have been 16,500 per document. 9000would have been something dollars. I had to let people go. Its one of the toughest people go, toughest things to go through. I spent 6 million plus thatng to eliminate was my alternative because i could not find skilled workers to replace. I have had a test situation there. I have a passion for the hardworking ethics that come from mexico, to part of colorado. I felt like i was going back 50 years. They have some of the passions i see in my dad and granddad, the work ethic and strong faithbased family values that i had to let go of. That really hurt. Ib one of the many places, think they do need to enforce employee or laws but they also need to give you a system that is quick and accurate, that you can actually live within the law and they have not done that. I followed the law, but broken 20 or 30 years of laws letting people coming across the border and not having a proper system. You have an enormous workforce. A skilled workforce, how tough are easy is it . Bag. its a mixed we have employees that have been there 30 or 40 years love the company and love everything about it. The younger employees tent to be a little bit more mobile. You talked about going to colorado springs. He had abanker friend, hard time keeping i had a hard time keeping cashiers. Thats a nice entry level job, probably High School Education required, minimal amount of skills. You have to be able to count, use 10 fingers. Its a good entrylevel job and you can do that for a while and maybe an opportunity arises. Im paying them good rages wages, but they cannot make good money at my wage rate as they can if they go on unemployment. I dont know what the actual number is, but it is well in excess of 50,000 of income. And then you have to pay taxes. He for you compete with being on the government. When dr. Carson was talking safetyhe hammock and the net, we have it too many people in the hammock, not because they necessarily want to, but if they were going to offer you, wouldnt you take it . The work ethic is something that is not being developed in young people. We are seeing this with young people, as we have to replace technical people, make mechanics, technicians. It is very difficult for people who want to take the time and be apprentices and learned the trade and have a lifetime career. Truckers are offering 90,000 for truck drivers. We cant find enough over the road truck hollers to bring in grain and beer into the marketplace. Collect ahome and check, why should i be in a truck and be away from my family . These are the issues that we need to deal with. Shrinkingovernment, dependency on the government will be a long way towards developing talent. It will grow out of me. My great grandfather came here, all of our ancestors came here, there was no safety net. There was no epa. Itre was no disability, note no unemployment. We didnt have any choice. Now there is too much choice. Bob you have outlined it very well and i find nothing to make exception with. I would ask a followup question, can we get from here to there . Can we implement the kind of reforms we are talking about and get that job done in the political environment . Peter people go to work out of necessity, they have to eat. If they are ablebodied and take away their subsistence, they have to go out and take those jobs. They better start learning how to do those jobs. Paul, you are in the tech business. I expect you need privilege pretty skilled people. Can you find them, and what about the workforce in america . Especially the folks entering the workforce at your age. A lot of it goes down to education. And also the point peter was ethicg about, the work that was instilled in previous generations have not been intrinsically instilled in my generation. That is also partially because the government got too big and then it thought it could tell parents how to raise their kids. You are looking over your shoulder, if you collect or reviewed your child, thinking you might get thrown in jail for it. I dont have kids and im not married, but that would be my observation. Terms ofeducation in hightech workforce, it is definitely a challenge to find people. There is a shortage across the country in technology and engineering. Day, it has made this kind of transient shift of employees back and forth. That is why you see lawsuits between facebook and google because they are stealing employees. The only place they can get employees is other companies. I think that sends back to the fact that stems back to the pushing peoplee to go to college, graduate school, in the name of equality, we are saying Everyone Needs to get the same degree and be the thing. Rson, do the same the problem with that is when job,graduate and find a there are only so many of that type of job. But frankly, there are more jobs these days that you can get without having a college degree. Most of my employees with our half, had noaybe background and what we do prior to working for us. We train them. You looking for basic skills and then train them. Paul exactly, we are looking for hardworking ethic. And we have settled with saying we will teach them the rest. My cto has become the educator in chief, helping employees develop and grow skills. You can see that across all industries. I dont think there is a job shortage. I think there is a worker shortage. But i dont think theres a people shortage. Bob we could spend a lot of time. Heidi, if you could address this briefly and then audience questions. Heidi i think the key is education reform, and private Public Partnerships like ibm is doing. Things like that where you got employers telling the Education System what skills they need and Offering Apprenticeships and internships. I think switzerland or sweden, one of them has a graduation of 97. 4 , because at the beginning of the sophomore year, they are started with a company so they graduate with wonderful skills and great jobs and they love what they do and they are passionate about it. Bob excellent point. We have a resurgence of technical education. Teaching job ready skills with fast numbers of young people, after they get that degree in hand. Really great example at a jesuit school. Theou get a chance, Graduation Rate is all believable. Private funded. Bob and one day a week they are actually getting real work. Heidi they get to pick their passion. Like heidi was saying, education really is the key in many ways. If you dont innovate, you get behind. Education has become the same way. We are educating the future for the 1960s. We have to educate the future for the future. [applause] bob we have a microphone over here. Kevin has a question. I want cspan to hear this. Kidding. I have kind of a loaded question. I think education in america sucks. Bracketed by the government to get people to go. They keep raising rates and put scholarship money, then it becomes a farce. Heres my comment. I believe that a lot of the affirmative action and diversity programs that are regulated, forced on businesses, is what is ruining your businesses. You talked about bringing people black peoplestry, dont want to come to little bens and he forced forced. But if you hire too many white folks, the government comes in and says where are the black people . So you are dammed if you do, dammed if you dont. [laughter] here is my question. Retailers that has been forced to hire threefoot tall watermelon guatemalan women, and then bases like google and hightech people, that say we will hire anybody, which is the american way. I donting the best, eightfoot orre purple or from somalia. If they can code, i want them. From an hr perspective, do you feel like i feel, that Government Social engineering of business is really what is the downfall of business . When america says bring us your est and brightest, i dont put you on the spot if you dont want as on public tv. What a great question. I want to cheer you on. I have documents at each of my mills about this they can have to monitor every month. Thank god the head of my construction division, his daughter married somebody from louisiana. You have to monitor what percentage in your area, and that one person got us up to speed to be in compliance otherwise i would have been fined. [laughter] and he is about four and a half foot tall. Peter i agree with you. Our k12 Education System is in trouble. It is shameful. It is really shameful. We are trying to deal with this in colorado and jefferson county. We have recall elections because they are doing things right and the Teachers Union does not like this. Thehers union is all about union and not about the kids. I think there are places and reasons to have unions. Our kids need to get educated and they need to get educated well. Colorado succeeds as a Great Organization that is working on rating schools. Have an executive assistant goal daughter goes to his with a d rating. She found out it was a deep rating, she said why do you want your daughter to go to the school if she can go to a berated School Next Door . Because we love the teacher. The parents have to get on top of this, a huge piece of the problem. Those who have parents that care. Minority hiring has been the cause of any significant issues. I think it has helped us. Is we like diversity. The problem is getting young people who are willing to work, to start. As i give talks to employees, i say you have to start somewhere. Everybody wants to be president. But you have to start. College kids, they have a fancy education. Anay, why dont you go be apprentice or drive a truck for a while and learned the business . Pretty soon you will be a supervisor and then the manager ats how the system works. Young people want instant gratification. They get on their iphones with facebook. Its like a candy store. And they dont understand. You have to start somewhere. That is the key. I dont care what your race, religion or anything else is. You have to get started. Bob one more question . A lot of taxes for the Public Schools. That we pay money for a terrible purpose. Number one, the teachers dont almost every lesson i ever had in Public Schools was a review lesson from kindergarten. Thetwo, the kids teachers never really cared what anyone did. And we are paying money so that they can get paid for doing absolutely nothing helpful in the kids education. What can we do to fix that . How . [applause] what is your name . One of the things we will do to fix that is the next time we put a panel like this together, you will be appear up here. [laughter] thank you for the question. How many people in here were prepared for the job force by the department of education . Seeing there are none, we will move on. The department of education does not educate people. Over the past 20 years, you have seen an increase in the amount of administrators in schools across all levels that has doubled the rate of teachers and researchers, which has increased at a higher rate than students. We are increasing the bureaucrats, which is raising costs. The quality of education is going down while the cost is going up. You are crippling young people with rising amounts of debt for less quality. ,n no other World Without work etc. Education, because the government has so deeply rooted its hands into our education. Thats one of the first things we have to do is get rid of the department of education. We could each take a department and get rid of it. To talk about the money side of education,artment of education america is not underfunded. 600 billion annually. Somewhere around 600 billion a year is spent on education in america. That, we pay all these taxes, and why do we pay these, because the government is doing more than it was intended to do. The biggest thing is to shrink the size of government. Im not advocating for the government to give us 600 billion to control education. But i think we would probably run it better. I think it is all about shrinking the government. Ands about reducing waste eurocrats and getting back to rewarding educators. The costyou increase of administrators and these people, you are having less money to pay actual people educating kids. If you have less money to pay people educating kids, the next generation is saying, i can get it job better doing Something Else or sit at home. They will not be educators. I say that because my mom was a teacher. She taught for many years. The Education System we had prior to the department of education that was not long ago, than when thetter department came in and said you have it wrong. Question, we have discussion and electing people that will reduce the size of government. The marley increase government, the further the quality of education will go down. I want to answer jack on one thing. Obviously you have an unbelievable set of parents to get you where you are at. But that is partly what is missing in america today. I have real issues with the Education System. But we have lost the family values. So many kids are raised by a single parent. That person does not have the time or effort for that kid. The American Household has to get back together and figure out , and raise the standards themselves, and go in and help pop the standards of the teachers backup like what used to have been was a kid. Thank your parents and i want to give them a hand. [applause] bob one more. Time for one more question. It is really a statement. As an entrepreneur, i feel all the pain you feel. I have the exact same experience. But there is hope. From central illinois, we started a little class, 40 Business People went together to pay for it. That was eight years ago. We take high school seniors, and each child has to start a real business. And the things that come out of that class are amazing. An example would be, if i make any money im going to give it all away. Because they think it is evil if you make a lot of money. But that class has grown. Four stn for state. Ates. We are now going to be in 45 communities. Im hopeful after meeting yesterday, we will have one in colorado. It is transformational what the kids are learning. They understand what it takes to start a business. A 17yearold said to me, i dont have to pay taxes, im only 17. So they dont have a clue. But there is hope. I identify with everything you say. Education is everything. Thank you. [applause] bob panelists, thank you very much, this is better than i expected. [applause] Peter Wallace and discusses sight,den in plain Steamboat Institute freedom conference. This is 45 minutes. Have peter wallison, about the 2008 financial crisis and how it could happen again. Does anyone believe another crisis could happen again . In march, did a presentation at the pavilion. Hat was very well received his credentials on financial matters are impeccable. Financialhair and policy studies for the american end of American Enterprise institute. Prior to joining that he practiced financial lot in d. C. He filled a number of government positions. During the Reagan Administration he had a role in deregulation in the Financial Services industry. He was white House Counsel to president reagan later, and also served under governor nelson rockefeller. He is the author of a book about ronald reagan. He has written many books on financial risk. He frequently writes columns published in the wall street journal. As well as the oped pages of the new york times. Warms give a well steamboat welcome to peter oson. C [applause] cracks it is wonderful to be here. I must say, i have to give a lot of credit to jennifer. I have written a book and it is an important book. But let jennifer saw in this book when it first came out, in january of this year, she saw that there was a direct connection between what i was talking about, or would be talking about when i described , theook, and the Desire Organization here to protect capitalism. There is a tremendous relationship between what happened in the financial crisis and the issue of whether capitalism is going to survive effectively in the United States. Let me get started on that little bit. I think these are really important issues. Although the book involves something most of you have experienced, you probably dont understand why you experience that. Do we have the slides that are available for this presentation . That is the book. Know that in the had a lotcrisis, we of very bad mortgages in the Financial System. What we might not understand is why there were so many bad mortgages and how these bad mortgages actually created a financial crisis. Can i change the slides by telling you or do you have a quicker will this do it . Lets try. That works. Most of us dont understand. Most people in the United States dont understand why we had the financial crisis, why these mortgages led to a crisis. Read in the mostly newspapers, what we have been told that the government is that it was the fault of the private sector. There was a lot of risktaking, a lot of read on wall street, and the private sector was insufficiently regulated. Ok, it takes a little time. The fact tell us something completely different. About what caused the financial crisis. What you are looking at here are the entities in the united verys that were holding lowquality mortgages. Subprime and other lowquality mortgages in the United States. In 2008 before the financial crisis. On the left, the blue, and the red above it and green above that is the government. These are government agencies. On the right, that is the private sector. Right away, you should understand, anyone should understand, that the government created the demand for these mortgages. Because these mortgages were on the books of the government. The facts are these. In 2008, before the financial crisis, more than a majority of all mortgages in the United States were subprime or otherwise weak mortgages. I was 31 million subprime mortgages. 76 , where on the books of the government agencies. The blue happens to be fannie mae and freddie mac. They were governmentbacked mortgage companies, they are still in existence. They are insolvent. The government is controlling them and supporting them. Just above that, the red is the federal Housing Administration and above that, other agencies. The point is, it was the government that called for and caused these mortgages to be produced. Im not trying to say the private sector had nothing to do with this. We can see about 25 of these bad mortgages were on the books of the private sector. The principally if you were looking for the cause of the financial crisis, you would have to say that the government was holding 76 of all of these mortgages would suggest something about who is really responsible. Why are we at this stage, six years after the financial crisis, why are we concerned about this issue . A chart see here is that shows the recovery of the u. S. Economy since the financial crisis. And the recession that followed that. The black line in the shaded all of the average of the recovery since the middle 1960s. The red line is this recovery. It is much see that worse than any recovery we have had in the past. That is the fault of something you just heard a lot about. The dodd frank act. Sitting there in the audience and listening to the ceo panel, i was kind of amused because i have given this talk many times. Many of the people in the audience actually are in the financial business and have said, how many people have encountered or know what im talking about . Very few people understand. In the financial business, they know there is much more regulation. They know if they have to comply with daily. But they dont understand it is all the result of a new act, and that new act was adopted because diagnosis that the media, to a large extent and the government itself, has given to the causes of the crisis. We have been told it was a lack of regulation, of the private Financial System that caused the crisis. I have shown you the data that indicates actually it was the government. But most of the things in the newspapers suggest it was the private sector and it was insufficiently regulated. The dodd frank act was adopted in 2010. That is by far the most suppressive law and post the Financial System since the new deal. I want to talk a little bit about the dodd frank act because there is a clear relationship and thee slow recovery slow Development Growth of our economy, even after he came out of the financial after the recession that followed the crisis. There is a direct relationship. That comes through the new regulations that were placed on the Banking System. The new regulations that were placed on the Banking System in 2010 with the dodd frank act. Are 23 country, there million Community Banks. That is a bank with about 10 billion in assets or less. About 99. 5 of all the banks in the United States. Those banks supply small what has happened when all of these new regulations have been placed on the banks is that they have been required to withdraw substantially from providing new financing and credit to all Small Business. Business, about 18,000 500 larger businesses. What is a Small Business . Less than 500 employees. Any business with more than 500 is considered a large business. What is the difference between small and large in terms of act . T of the dodd frank is simple. Large businesses, those with more than 500 employees, are able to register securities with the sec, and are able to get financing from the capital markets. They can issue bonds, notes, commercial paper and other ways to finance businesses. Small businesses, those below employees, do not find it the or sensible in terms of cost to register with the sec, so they get their financing from these Community Banks. What happened with the dodd frank act . One of the things adopted was called the Community Consumer financial protection bureau. Many of you may have heard of that. Many of you have probably seen some of the rules. A couple of years ago, one of the rules from the Community Financial bureau was 1000 pages long. It applied to j. P. Morgan chase, which is a 2 trillion bank in new york and it applied to a 50 million bank in a little town in colorado. Same regulation. But it j. P. Morgan chase in new york has hundreds of lawyers that can read and interpret this for 1000 page regulation the bank. But the smaller bank has to hire a lawyer to read it, then has to hire a special person to do the underwriting that the rules now require. Probably requires other experts to reconfigure entirely the way it relates to its customer base. All of those costs are internalized by the bank, the Small Community bank, and that means they have to hire employees that are no longer in the business of making loans or looking for new opportunities for the bank. In addition, theres a lot more regulation in which Bank Examiners come in and tell them how they should be conducting their business because the Bank Examiners are now told by the by their directors in washington that things have to be much more businesslike then that they have been in the past. Instead of making loans to someone it you have known for years in your community, someone who has never missed a payment, now you have to have audited Financial Statements from that borrower. Wants to seeiner those into the extent they are not available, the bank is charged with inefficiency or lack of quality standards. So that, too, causes tremendous cost for each of these little banks, making it much more difficult for them to finance Small Businesses. , we shouldall true see a difference between the growth rate of the small banks and the Small Businesses and the growth rate of the larger businesses. In fact, the data shows that. Since the financial crisis, since the recession that occurred just after the financial crisis, Large Businesses those with more than 500 employees have been growing at a rate that is consistent with is that the black line. That is as they are growing and as they are recovered at the rate they always have in the past. Small businesses, those with less than 500 employees are not growing at all. In fact, as they have declined. If you want to know why the u. S. Economy is sputtering and and we areing forward, why not seeing growth, it is because Small Businesses which are responsible for about 64 of all new hires in our economy are not being sufficiently financed so that they can get the inventory is grow and make loans that the banks can make loans that Small Businesses will be up to use to grow. So that is why it is extremely important to understand dodd frank, the fact it has on the Banking System, and that in turn on the growth of the entire economy. That is one issue. We understand now is the reason we should be caused thebout what financial crisis is that we adopted a law that does make the financial that has made our Financial System function much less effectively, much less slowly, and will continue to do that as long as it is in effect. I am part of a group in and some other organizations like ours to repeal the dodd frank act over time. That is the only way [applause] peter that is the only way we believe this economy will ever return again to the kinds of growth we had before. Have thisd we problem . A a we end up with system and our mortgage financing business that caused this financial crisis . The collapse of all of those mortgages . What i am showing you hear is something called the Affordable Housing goals. These were doctored in 1992 adopted in 1992 by congress and imposed on fannie mae and freddie mac, i mentioned him backed, the 2 government mortgage companies. They were required to getting an identity to to make loans to low homes borrowers for because fannie mae and freddie mac did not make their own loans but they would buy loans from originators like the banks. 30 ofre told in 1992, all of the loans that you buy each year have to be made to people at or below the Median Income. In the places where they live. If you look at the charts, you 1996, not started in in 1992 because by 1996, it had risen to 40 up at the top. But there were three kinds of categories. Low and moderate income, below Median Income. The nets was underserved areas, largely minority areas. As special affordable, people with incomes 80 or 60 of Median Income. And over the years as you can see, those requirements went up. The black lines are the requirements of fannie mae and freddie mac and red and green lines are fannie and freddie in meeting those goals each year. What happens when you are required to by more than 50 of all of your loans from people who are at or below the Median Income where they live or in some cases 80 or 60 of the Median Income where they live . Fannie and freddie were famous in 1992 before this law went into effect for buying only prime mortgages. What was a prime mortgage . You have to have a good credit score. You had to have a 10 20 down payment. After the loan was closed, you have to have no more than 30 is percent of your income going for things like your mortgage or credit card 38 of your income or for things like your mortgage or credit card. No more was used for those contracted obligations. Those are the three standards. Were not particularly tough standards especially the ficairement for a 660 score. The average is about 17. Those were the requirements before 1982. In the average is about 710. Once you are told there is a government quota that says you have to buy mortgages that are made to people at or below the Median Income, at or below 80 you had toinorities, combine all of those things together each year, what do you do . You start to reduce your underwriting standards. And that is what happened. Fannie mae and freddie mac were the dominant players in the Residential Market Mortgage Market in the United States. As if they cause their own underwriting standards to decline, all underwriting standards declined in the United States. What happened after that . Lets see if we can make this happen. There. What you see here is an enormous housing bubble. Many of you probably experience during the period of 1997 to 2007, a tremendous increase in the value of your home. This was the result of reduced underwriting standards. How do we know that . We know that because you cant think about it this way. Has 10,000 to buy a the requirement, the underwriting requirements is you have to have 10 down payment, you can buy a 100,000 home. Thehe government causes underwriting standards to change that you only need 5 for an underwriting standard for a down payment, you could buy a 200,000 home. And of course, that is what happened. It was much more money, much chasing housing prices starting in about 1997. That pushed up housing values. Another thing happens. The personal was going to buy a 100,000 home with a 10 down has now borrowed instead of 90,000 to buy the home has borrow 190,000. Thats a much weaker borrower, a , many more much more and larger obligations then the personal who wouldve bought to 100,000 home. This build a tremendous bubble. A housing bubble. Had gotten to a point where it was about all homes in the United States where this was effected and entirely throughout the country was all housing prices had doubled in the 10 years. Much biggerit was a bubble than the previous ones we had had. There are always bubbles in any commodity. But they normally decline, they rise and decline like the oil price we see every day. But it is bubble did not because the government kept forcing more and more money into the residential Mortgage Market in order to keep it bubbling. In the clintont administration. This all started in the Clinton Administration continued unfortunately into george w. Bushs administration. Saids memoirs, george bush i was delighted by the fact so many new people were able to buy homes. What i did not understand was all of the risks that we were creating by imposing those rules. Understood now has what mistakes were made but it is too late now to understand the errors. What all of us have to understand is that a decline in underwriting standards of the kind of data had started in 1992 and its standing through 2007 is not good for our economy. Governmentss the interest to reduce underwriting standards not just to make loans to low income people. That is a social policy, government could have other reasons for doing that. But in part, all governments like to do this because if you ,et the Housing Market to grow more people are buying homes, they are buying rugs and Gardening Services and all kinds of furniture and all kinds of things that make the economy grow. The government wants to reduce underwriting standards. And we, the people, have to understand the consequences of that for us. If you are someone who owns a home, you know probably if you try to sell the home that your home is connected with everyone elses home in the neighborhood. If your neighbor defaults on his car loan, it has no effect on you. You may have to drive him to work but no other problem for you. If your neighbor the falls on his mortgage, that affects the value of your home. All americans have to understand this is yet another thing the government can do which can cause huge losses for all americans if we do now watch what they are doing. And we are doing it all again. One of the reasons and this comes to the point that jennifer was making, do you believe we have another financial crisis . Yes, we could have another financial crisis. The financial crisis we had came from Government Policies and we do not understand what those policies were. Thats was it this book is about. It tells you why we had these policies and why we will likely do it again. Only a few months ago, the president said he was going to the fha, federal Housing Administration insurance fee by about half a percentage point. What does that do . It makes it much more likely people making risky mortgages, bought by fha, people making risky mortgages will have more opportunities to do that. We will have more people taking big risks on their homes than we had before. In addition to regulator of fannie mae and freddie mac said also several months ago, you know, you have been buying mortgages now with about 5 down payment, that already is too low. But youre been buying mortgages with 5 and i want you to reduce them to 3 . This is all part of the same process. That process is the government trying to boost the economy, trying to boost to the economy by making the Housing Market bubble in little bit more. It is dangerous for all of the rest of us. We all ought to be aware of it. How did all of this turn into a financial crisis . Is a little here chart of the mortgagebacked securities market. Banksortgages are held by and other Financial Institutions as whole mortgages. But the men of them are packaged together but many are package together into pools and securities are sold against the s and theom those pool interest people are paying on their mortgages. And as you can see, that was a aboutital market up until 2007. In 2007, just as the bubble collapsed, so did the mortgagebacked securities market. That was important because most Financial Institutions held their mortgages through Mortgage Backed securities. The reason for that is a little technical and has to do with accounting and regulations and government regulation but to the government actually gave the bank and other Financial Institutions and advantage in and their Capital Requirements if they held Mortgage Backed securities instead of home mortgages. Most of them went in and bought a lots of Mortgage Backed securities. What happened here in 2007 is the value of those securities declined to almost nothing. This is because as the bubble began to dissolve, the bubble declined, and enormous number of new defaults became evident. The newspapers were beginning to report these defaults. And data about the housing industry was showing a huge number of defaults. Inwhat happened is buyers the mortgagebacked security markets simply walked away. They fled the market and did i want to buy. And because they wouldnt buy, the prices fell to almost zero. Under accounting rules, the institutions are required to carry their securities and market value. , thean see that they had Mortgage Backed securities had or 2008. Value by 2007 and so that is why you were reading the newspapers that xba nk and ybank was in serious trouble. That is because they had to write down their assets and when you write down your assets, your capital declines and also in directses, you suffer losses under the accounting rules. That is why we had something that looks like this and there were many Financial Institutions all over this country that were in trouble. It is the relationship between that problem and did the governments decisions that cause the financial crisis is as we understand it. If we had left things along, alone, over time these values would have come back because what we had is plead double flinging the dust people fleeing the market until they understand more information about what was causing these losses. The government did not leave it like that. There was a Large Investment Bank on wall street named bear stearns, many of you have probably heard it. 2008 wasrns in march in trouble because it was one of the major investors in Mortgage Backed securities and it looks like it was failing. ,nd the government then decided hank paulson secretary of treasury, and ben bernanke come the chairman of the Federal Reserve, they decided to rescue bear stearns. I say this is one of the biggest major errors that its ever been made. Theof the poorers decision government has ever made that made a crisis to rescue an Investment Bank like bear stearns but they did it. I call it the original sin. When they did it, they sent a signal to all of the rest of the market that they are going to , alle all large banks large Financial Institutions. They will not let them fail and that changes the way the managers of these institutions decided to operate. Yourse normally when assets go down, your capital goes down on a you look weak or nearly insolvent, you go to the market and you sell more shares. Because you want to tell your creditors that you have plenty of equity under the obligation that you owe to them. Government is going to rescue everybody, what is the reaction of managers or creditors . Creditors stop being worried about their decision because they figure if the Company Fails , they will be rescued in a way. And at the managers of the Companies Say why should i dilute my shareholders, the stocks were way down, washing a reduce why should i dilute my shareholders by selling at this low price . In septembers that of 2008, fannie mae and freddie largehose 2 very government that institutions, became insolvent. And the government also rescued them. What was the significance of this to most people . The significance was everyone still thought that fannie mae and freddie mac were only buying prime mortgages. No one understood how many subprime and other lowquality mortgages were in the Financial System. That chart i showed with the very beginning is entirely new. 2007, had that data in 2008. When the market, participant in the market, realized fannie mae and freddie mac were insolvent primere only buying mortgages because fannie and freddie had never told anyone that as they had begun to buy these very lowquality subprime mortgages, people said things are much worse than i ever imagined they were. Poolhen as they began to their money out of all other Financial Institutions including one very well known now named Lehman Brothers. Now, if the government had rescued Lehman Brothers after thingsg bear stearns, would have gone according to what everyone expected. , if yournment did not remember, rescue Lehman Brothers. They allowed Lehman Brothers to go bankrupt. That frightened everyone in the market and created a panic. And we saw then something that no one had ever seen, regulators, academics, Business People, others, the biggest banks in the country would not lend to one another. Even overnight. They were hoarding cash and they were doing that because the fear was that to the extent that anyone came to them and asked for cash, if they cannot deliver immediately, a rumor would spread on wall street they were in liquid and they would be ruined. And thisordered cash was we understand to be the financial crisis. Problem. Parts to this the Government Forces down underwriting standards so that it craves this gigantic bubble and a lot of very weak mortgages out in the Financial System. A majority in fact, 31 million such mortgages. Then at the government rescues bear stearns, causing participants in the market to andeve that is their policy they will rescue everybody. And event the government reverses its policy and causes a panic that will understand is the financial crisis. The result of this was the dodd frank act. , which camewhy about because the government blamed the private sector for taking all of those risks with insufficient regulation. As a result of that, we have this very slow recovery that i showed you at the beginning. This is the story and this is why it is extremely important for all people in the United States to understand why we had a crisis. It is not because we do not have sufficient regulation of the private sector. It was because we do not understand what the government was doing when it was forcing what was essentially a social residentiale Financial System by requiring fannie mae and freddie mac to buy mortgages that were not of the prime mortgages that fannie and freddie had initially been famous for. So, that is what it is book is about. It is, i think, the only book of its kind that explains from the beginning to the end what happened in the financial crisis with an awful lot of data. I should mention i was a member of the Financial Crisis Inquiry Commission which was set up after the financial crisis by congress. Let me see if i can get something up here. Nope. Set up by congress to tell the American People to Tell Congress to tell the president what caused the financial crisis and was notfort, i think intended to inform people. It was intended to create a foundation for the dodd frank act. And so i dissented from the report of the Financial Crisis Inquiry Commission. I wrote a 100 page dissent. Is an outgrowth of that. And i found in fact after it was all over and after the commission had departed, having the insufficient regulation for the financial crisis, after is a departed, i got an awful lot of information from the files never shown to me as a member. And most of that information is now in the book. So if you are really interested in why we got to the place where we are, this is the book you should be reading. I think we might have a little time for questions. Is is that true . If i can ask a one real quick. Canada does not have this problem because they have consistently asked for higher down payments. Do you think it is possible politically for us to go to that if we get a new president with so cajones and willing to take the heat . Possible toit is have good policy. The important point because as i explained, the government has a real incentive to reduce underwriting standards. It really helps them a lot and make the economy grow. It is important to the American People to understand the problem. And that is whoever is elected president is going to be told, well, you know mr. President or madam president , if you really wanted economy to grow, all you have to do is start reducing some of these underwriting standards are you and of course the economy will grow more. That would be a gigantic mistake. If the American People are fully informed about why we had the are much crisis, we more likely to have a good policy no matter who is elected president in 2016. I am. As to what you think of the incredible irony that no other than barney frank what it be the author of dodd frank when barney frank in identity to start on the committee that recommended a reduction in lending loans that was the genesis of subprime loans and you should regulate how it should be fixed. Peter [laughter] if you were barney frank, what would you want to do . You would want to blame the financial crisis on Something Else entirely. You would want to focus everyones attention on the risktaking among the private sector rather than on the governments policies. You cannot blame him. It is true for avoiding the blame by offering a law that onuses everyones attention the mistakes of the private sector rather than the policies that he endorsed and enforced. I was in the government at this time. I was at the Treasury Department 1980 the Reagan Administration of 1981 to 1987. I was also the one who communicated a lot with people in the Bush Administration in the 2000. Thereey were aware that was something going on at fannie mae and freddie mac. They do not know exactly what it was because fannie and freddie were not disclosing they were taking credit risks. People in the Bush Administration were aware and started to draft legislation that would impose much stricter regulation on fannie and freddie then existed before. And who opposed it . Dodd and frank. Now, they have the names on the law and they are heroes to the left. To the rest of us in this room and the rest of americans who see this, they should not be. Kind of surprised you did not include discussion of the role of credit default in the recession. That athe amount of risk lot of the Investment Banks were taking on in the portfolios. I do well, for one thing, not have time to talk about things like credit default swaps but they are covered in great detail in the book. In my view, credit default swaps have no role in the financial crisis. What a credit default swap does is it takes i want to explore exactly how it does and doesnt so it gets a little technical. It shifts risk for one area to another. It does not increase risk that takes risk for one company that inholding that risk and effect a size it to another company. It is just like insurance. Assigns it to another company. Lets say you have of course you do have Fire Insurance on your house. Down,f your house burns you are covered. On the other hand, if your Fire Insurance Company Fails and does away the issues presented sometimes on credit default swap , is a business that has written a credit default swap like an insurance company, is it fails if it fails, the thought is everybody suffers loss. That is not true. Fireu have not suffered a and your Fire Insurance Company Fails, you can go out and buy another Fire Insurance policy. Is that is what most people did when they were worried about aig. They went and bought other credit default swaps to protect themselves in case aig failed. The credit default swap market functioned all through the financial crisis without any hal t. The credit default swap market function fully and continue to operate. It is now much more heavily regulated than it was before. But the regulations in my view are simply imposing many more costs and centralizing the risk outead of putting the risks and diversifying the risks throughout the Financial System where there is much more capital to take them. He is now centralizing the risk in various governmentbacked institutions called Financial Markets utilities. As a result of that, they are a likely cause in my view of another financial crisis in the future. The way we protect ourselves is by diversification, not by centralizing risk. Live this saturday morning, the 20th at 11 00, annual texas book festival from alston. Featuring interviews from featured authors. Featured will be carried washington and harriet washington. And sunday, the coverage continues, beginning at noon. Then, a discussion on artificial intelligence. , discussions on president Lyndon Johnson and labo dybird johnson. Its 30nday evening at the confederate flight and its history relating to slavery. Get the complete schedule at www. Cspan. Org. Cspan has your coverage of 2016. O the white house the year, we are taking road to the white house coverage into classrooms with the student cam contest. This gives students the opportunity to discuss what important issues they want to hear about. And theel of economists president of the new York Federal Reserve discussed Monetary Policy and the Federal Reserves decisionmaking process. This is one and a half hours. Director ofessel, Hutchins Center at brookings. I welcome all of you. The purpose of the hutchins help improve the quality of fiscal Monetary Policy and public understanding of it and we come together at an interesting moment for the Federal Reserve. Interest rates have been as zero and now about to rise or maybe not. They need Something Better of looking outside and deciding if today is a should bring an umbrella or not. We thought it would be a good time to talk about where the fed finds itself and what framework is should use as it enters the definition ofany an extraordinary period and Monetary Policy. Bill dudley who joins us today came to the new york fed from Goldman Sachs in 2007, interesting timing, to run the market desk and became president intoe new york fed thousand nine. He served as vice chair of the open market committee. John taylor is the married robert professor of economic at stanford and many other things at stanford. He was a member of the Council Economic advisers in the first Bush Administration and under treasury of secretary undersecretary of treasury. He is known as being the creator of the taylor rule three he deny ashley put the name on it, somebody else did. A simple rule of fun. He did not put at the name on it, somebody else did. How far the economy is for full employment. John undeveloped the taylor rule in 1993 when Alan Greenspan was chairman of the fed. Alan greenspan was either incapable or unwilling to prescribe his approach to the rest of the world. Amazing was heso decided capture the greenspan fed with an equation and ways much more clearer than greenspan was able to explain. If you read the transcript, greenspan talk the same way outside of the fed as inside. The taylor rule have evolved in the use of the yardstick to decide if Interest Rates are too high or too low. Theres legislation pending that to tell when fed they deviate from the taylor rule. Bill dudley takes a different approach. He said is not a good substitute for indepth analysis and judgment and is called the taylor rule incomplete because it does not incorporate Financial Conditions. He said the fed influences the economy and way back when he was economist he talked a lot about a Financial Condition index as a guide. Now, i am not a pgd economist, im a student of economics and most i know i learned as reporter for the wall street journal for wise and patient teachers. Todaysorward to the lesson. Bill will start in speak for about 12 minutes and john taylor will respond and as will join me for conversation and we will turn to question from those of you in the room or people watching all, you can send us questions by twitter. Please join me in welcoming our first presentation, bill dudley. [applause] bill thank you, david. A great pleasure to be here to participate with the john taylor. Todays topic which is where to go next, torturous the issue of how should Monetary Policy be conducted. An issue getting considerable attention in washington, d. C. To put is that since, the question i want to tackle is it better for policy macros to start that policymakers to have a more flex policymakers devil more flexible approach . As always, what doctors say reflection what i have to say reflects my own views. Write to the punch line, i favor a more flexible approach that incorporates a broader set of factors into the Monetary Policy decisionmaking process. The world is complex and everchanging and many factors that can impact the outlook and the attainment of the objectives and the appropriate Monetary Policy. After the same time, i do not favor total discretion in which policy is in an ad hoc fashion as we go along as david said looking outside and deciding we be seen on umbrella today. For to be most effective, participants and businesses need to anticipate how the Federal Reserve it slightly to respond to evolving conditions. The transmission a policy to the real economy not on a what policymakers decide to do today but what the public anticipates the fmo see will do as of the outlook changes and evolves. Our experience in recent years underscore time porting expectations are in influence the effectiveness of Monetary Policy. Policy makers need to act in a systematic and consistent manner so they are formed accurately and behavior can respond consistent with those expectations bring in my view, it was a total discretionary policy. Prescriptive rules, i like to make it clear i stormed the taylor role come the formulation based on johns papers have another a positive attributes for useful reference. First, it has 2 parameters. Of a mende. Ectly second the role has a desirable feature that when economic shocks push away from the central bank, the teller will prescribes the policy and can push the economy from coming back. A number studies have shown the taylor r