So he saw very much as a social world that is an Incredible Connection with the past. He had a desk in 1939 of course, George Orwell through the story that i tell so i think that is that part of the book. Thankyou so much. Ladies and gentlemen, with that connectedness and contagion. Here it is. If you did not notice we have copies for sale you are welcome to buy a copy into autograph them during the reception that will follow immediately after the panel. And here we are to discuss a very old problem. Lately how best to survive financial old panics across the centuries and servile the contagion of fear and distrust as they try to withdraw from risk to protect themselves irrational strategy but much more pressing with scholarly detail what were they able to do with the next panic . That most assuredly will arrive sooner or later. Two centuries ago they accurately observed, on extraordinary occasions a general panic may seize the country when they possess themselves of preciousmetals and today that is for the equivalent. That have no security on any system and to comment on this statement to draw the conclusion that we all know was true then and is still true now if theyll demand their money at once they cannot have it. Moreover with no private banker in is safe so every banker knows exactly is credited is on. Seven bettys credit is is nobody can prove if they are not even sure of their own solvency. And the Central Bank Provides equity to spend your own Balance Sheets so that everybody else is risk can go down into a wild downside overshoot. And this would be much harder by dow legislation and interestingly it is notable leave different and says it is rather unique end the resolve for the use of the bailout in the future and predicts there will be bailouts in the future but it will be a lot more cumbersome and slower and harder to do and predicts that the time we will agree leave reject regret the changes if not corrected before the next crisis. But now he will talk about his book for about 25 minutes and then we will sit down as a panel. The author has been a professor and director of the program of the Harvard Law School where he has taught since 1975 and director of the Capital Markets regulation with a past president of the International Academy of consumer and with the finance transactions so that means the last crisis how to be better prepared for the next crisis will come to the podium. [applause] thanks borer a clear presentation of my book better than i could make in many more pages and takes to ati for hosting this event. So the basis is the heart of the crisis and most others was system it rescued the form of contagion. But it was successfully stubbed the lender of last resort, capital injections and guarantees. All these were limited or a limited primarily by dog frank as undesirable bailouts. But solving the problem with two wings and a prayer with the liquidity requirements and a prayer is a new resolution in than vowed to abolish the Fire Department. That is basically beatitude post crisis. That we need to restore and strengthen the three powers that were weekend or taken away. But to do so with the anti bailout consensus that exist is very low so with that element of Systemic Risk of those free varieties , correlation or connectedness to refer to the situation to create losses for a large number of Financial Institutions and that isnt the focus of my book and the losses of one Financial Institution that sets off a chain reaction. With the failure of one institution and to create a problem. The third seed is contagion and to withhold funding of the Financial Institutions with a walk looking at the problem of 2008 was contagion and in my view that was the primary driver basically assets who is not the primary driver of the 2008 financial crisis. With it was a soviet or Washington Mutual and that they put the contagion into overdrive headed for the exits as the same fate as leven. With the u. S. Money market funds one september 16, a 2008 with the ad master redemptions but one and spread quickly including of those exposures to lehman to risk free government securities. And then libor rose sharply and then on the market and then they froze up. That is what happened but now people believe the connected this was a major problem for the crisis while investors hold of primary fund lets remember it was less than a penny on the dollar nl Financial Institution is a result of the failure of the men. But none exposed to aig had failed. With the maximum 18 percent loss of capital was then the conventional 25 low moss secured lending limits and that does not even take account that further projects from loss. So coming now of a connected this problem so dog frank starts to focus on this. Doc frank starts to focus on this of the designation of connectedness as a Central Clearing to neutralize the losses to average reaction failure so now what will argue the reforms are desirable to be apart from that experience but connectedness was not so we did Something Else which was to legislate with respect to contagion they were trying to stop the contagious run on the bank as a lender of last resort of capital injection sinbad bank but the fed was created 1913 to stop financial panics the latest of which 1907. Interestingly that panic started the nonbanking sector of the Trust Company and then would have a lower penalty rate, discount window, access for primary dealers to a the window with the auction facility. For nonbanks i cannot go into all of them but they included to purchase unsecured and paper from corporate issuers and the the the market investor facility to purchase assets to provide with liquidity. But with that financial feelings but n2007 to be invested in u. S. Treasuries by 2009 it was only 25 percent with the expansion. Also supply and liquidity to the nonbank system was important to provide nonbanks its almost 1 trillion of loans and liquidity. But that very availability of the facilities, the fed with the taxpayer benefited. That is for profit with the crisis of currency as it supports general revenue in 2008 analysis to the nine banks. With the 60 of Money Market Funds. And the ability to lend to the nonbanks it is essential and i would expect this percentage to increase as lending and Capital Market activities are increasingly driven out of the zero were regulated Banking System. With those unusual circumstances where they were secure to the satisfaction with this authority is separate from the discount window authority under sections 10 and 13 of the Federal Reserve act to the depository institutions. In all this was crucial to stop the contagious run and it continues to be why we attack all street and as the taxpayers benefited. But that legitimate moral hazard concerns but they were largely victims without panic they would have then solvent but in general and would have made them insolvent. And this triggered radical calls and obviously the us did not translate over to the discount window and what are they . First the fed cant only now went to nonbanks that approved the secretary of treasury if they fit the treasury interestingly this requirement was put forward by the treasury itself in perhaps this is another chapter in the turf for in then those greater restrictions to be put towards the Congress Want to argue the importance of this restructuring although it is independent authority away from the fed. Although paulson was burnett teacher and leader during the crisis. But with the secretary of treasury with the antibailout environment but these treasury approval which now carries significant Political Risk and the markets will though the support itself could accelerate. What about to the nonbanks of a factor of the Financial System that the fed can no longer make the one off loan to aig. It must me under the program that the five institutions must be eligible. If this means eligible let the time it made may get harder to run and now you have to wait for five destitution yvonne day whether he had there ever eligible then there isnt much of a restriction of the cries of inappropriate behavior. Third dog frank require that all loans must be collateralized before was just the satisfaction of the fed and it wasnt defined to all collateral to buy and secure commercial paper and more generally of those discussions of the semi collateral reform. And with the solvent institutions a requirement not tied to banks. With the solvency requirements is the cardinal principle of the appropriate role of the of lender of last resort that this is honored on the beach here and abroad one reason for not requiring the central bank is solvent is the solvency is extremely difficult precocious the asset to be valued with fire sale prices exhort valued . The of underlying argument for the solvency requirement is they should be a fiscal issue that congress will play a major role wampum through appropriation and i agree with this point. But if you have that point of view the lender of last resort should be coupled with the standing tarpon t. A. R. P. Authority that all loans to nonbank must be reported within seven days to the two chairmen of the house and Senate Financial committee and all discount loans must of been publicly reported so much more stringent than any other central bank and and with the stigma or support an and indeed of the crisis of the discount window that it could be leaked or covered by analyst to gradient auction facility if all banks were in trouble or not. Number six haddad frank provides that they can no longer pass on the discount window such as brokerdealers without being subject to the normal section 23a which would preclude still the substantial borrowing would have to occur under the new descriptions by the window then passed on. Indeed the multiplicity that do not apply to the discount window borrowing prompted in the york fed president to suggest that congress amend the discount window with 40 but however this is dead on arrival with the restrictions. They have said they can live with these restrictions but they have taken indisposition to stave off further restrictions and on november 15 of last year the house passed the act along largely partyline but the bill has not been enacted to lob the the Federal Reserve could only loaned to the nonbanks that all federal regulators would often include the sec to certify that they were not insolvent and the chair yellen said this will essentially a limit lending to the nonbanks and now that has been incorporated the house financial reform bill. As a lender of last resort my book recounts the position for a federal bank lending to commercial or Bank Borrowers over the first and Second National banks Andrew Jackson vetoed the renewal in 1832 this debate over federal Bank Institutions as the debate goes on. So the fight with contagion is october 2008 the fdic uses authority for transaction accounts to increase the insurance limits at 250,000. Well thought frank increase the limits set 250 it removed the authority to raise any limits in the future. With a temporary lid queen Liquidity Program gave depository institutions this power was also taken away from dodd frank. There was a taxpayer losses. And in addition with a run on the of Money Market Funds to have a major impact in this also was taken away by the earlier t. A. R. P. Legislation and treasury made 1. 2 billion dollars on this program and what has not then cared even if their posting through the values they expect the values to go lower. With that authority to limit or charge as the commissioner observed. But the final tool is t. A. R. P. To 2016 there is 200 4. 89 billion. And treasury made 16. 28 billion. Expires on its own terms if you need such injections than the future and may have to be obtained in the crisis much as it was 2008 with the defenders point to the two orings and the prayer. With those resolutions procedures. Suggestion of 20 to 30 ratio would not predict bank failure on the face of contagion and underlined this, Capital Requirements fully apply to banks, not to be ever creasing the important index. The second playing with liquidity. After the 2008 crisis we adopted basel and certain liquidity requirements most notably with liquidity coverage ratio which has a 30day horizon and requires banks to hold highquality liquid assets to cover prospective runoffs. These discourage shortterm lending. Again they do not apply to nonbanks. As for Capital Requirements there are significant methodological issues around runoff assumptions and highquality liquid assets. In my view the new adoption of private liquidity requirements represents a retreat by the fed from providing public liquidity as a lender of last resort. If i can now say it will only be a backup source of liquidity. If frontline is the banks liquidity at golf but ironically the private liquidity requirements may actually reduce because it requires each bank to hold their own liquidity thread and making it available to others in a crisis. So whether it really comes to prevent them lending is open to question. Two minutes. So if prayer is resolution procedures. Doddfrank gives the fdic new powers to resolve nonbank Financial Firms including Bank Holding Companies whose failure upon a twothirds vote of the fed governors and at the ic directors and the treasury are determined to pose serious adverse effects in the Financial Stability of the united states. Such a determination is not made the nonbank Financial Institutions including Bank Holding Companies will continue to be resolved in bankruptcy. Such procedures in my view are unlikely to deter contagion. At the outset without the requisite approvals this new procedure would never be used. If it is used the fdic is designed to single point of entry procedure require restructuring at the Holding Company level and major consequence of which is shortterm funding at the operating subsidiary level for almost all shortterm funding exists mainly through banks and their subsidiaries will be unaffected. Thus some hope this contagion since the app tic resolution will not endanger existing shortterm funding. But whether such restructuring will actually work particularly for major Multinational Bank is problematic, highly problematic. The procedure has never been tested. Thats this is a prayer. The reality is the creditors of the financial situations will run its large Financial Institution is put into any kind of resolution. Better safe than sorry and we need to be prepared for that so resolution is good but dont think you can get rid of contagion just because you have them. Actually it works the other way. Its easy to resolve an institution if you know you can prevent the contagion. I wont comment as they are me off this platform as to other solutions to the problem like limiting shortterm funding if we have time to discuss it in the q a i will talk about that. Contagion and the nonbank as well as the bank sector not connectedness is a major systemic concerned that doddfrank was the connectedness. We know how to stop contagion through the use of lender of last resort guarantees and capital injections. But these powers can greatly weaken legislation and due to the fear of bailouts wont easily be restored. Third, o. Quiddity resolution will not state truth from contagion. Even if they are fireproof you still need a Fire Department proposals which i dont have time to go into and also internet the answers. Lets just hope we dont have another crisis before we can move beyond the fears of bailing out wall street and are able to rectify the situation. Thank you very much. [applause] thanks hal. We have coming up three outstanding discussants. They will each speak for eight months eight minutes and i will introduce them on order more stable. After they do we will give hal a chance to respond to them and then the panel can Exchange Ideas after which we should have some time for your questions but we are going to adjourn promptly at 6 15 to a reception. The first discussion, discussants will be al broadus who is president of the Federal Reserve bank of richmond from 1993 to 2004. Having joined the Banks Research staff as an economist in 1970 and became rector of research in 1985. As the Federal Reserve president of course he served as a member of the open market committee. Al is a member of the board of virginia counsel on economic education, the pfizer counsel for the school of business at the university of richmond, the executive richmond renaissance and numerous others. Next will be p. Kyle who is the charles e. Smith professor of finance at the university of Maryland Smith School of business. Petes Research Includes market to microstructure, hype or currency trading, informed speculative Trading Market manipulation, price volatility, market liquidity and contagion. He has been a staff member of the president ial task