say i'm an addict, becoming an absolute advective booktv. and it kind of goes to my original point for calling and asking larry, you have got good stuff out there come a good shtick. i have been watching you on "the daily show" and you think there is a saturation point. yocan spread forever, right? when it comes to the oer media outlet say msnbc or fox on the dark side or wtever, it is so darned predictable what you are going to get. i find myself after the campaign going to the two years in the build up to it and finally the victory. yoknow what? i just get tired, i get tired of the extreme right or the extreme left. i am tired of fighting. now just kind of want to let it ride, you know? have a margarita and syd by the

beach here, you know? >> guest: it sounds good to me. i don't have an issue with that. bu i think if there's going to be a viable third-party, i think it will be right down the middle. i don't think it will be fringe party. it will be a party right down the middle that's going to have a lot of people who have issues on bot sides, but are passionate about being ithe middle. >> host: what are your politics? >> guest: i'm very polidics about being on the fence. that's where the truth is to me in the middle. look, when you play dar who do you aim for in the right or the left, i don't think so. you aimor the ddle. >> host: washington, d.c., please go ahead. >> caller: hisokdmnyy -- hi, you? x fan of your program, "the daily show." i wondered the original name of egypt was kemmit andhey never enslaved anybody. they were the most advanced

people on the planet. eck your history, bro. thank you. >> guest: okay. great. thank yo i love history. that's fantastic. >> host: angry black church guy. >> guest: yes, the angry black church guy was written because i felt obama -- you know the whole reverend wright thing i think people were upset because obama didn't sm as angry of his church. it didn't match of the to the anger of the children and it's like newton law, huey p. not isaac. so i give kind of a guide to angry black churches so you can choose the right church that has the correct level of anger to miss you. >> host: do you miss bernieac? >> guest: very much so. ding the bernie mac show. i never imagined he would be the

amazing actor it was. doing stand-up it gav me the idea to do the show and spending time with him and getting to know him and the kind of character he was very devilish sense of humor, you know, but very human, you know, and that's the stuff we really wanted to dramatize were human stories. you know when i pitched a show to bernie, bernie this is children and terrorists. i don't negotiate with terrorists. and he got it immediately. and hesaid, absolutely. >> host: and that was based a lot on his own life? >> guest: yeah, it was based on the jokerom his act where he talked about takin care of the kids. and i believe you should be able to hit them in the stomach or the throat. hitting a kid in the that. and it was one of the funniest things i saw. and i thought, boy, that would make the good basis for a television show to dramatize, you know, these feelings and that's basically what i pitched to bernie. >> host: thas probably a good segue into political correctness. >> guest: yes. >> host: whatre your thoughts

on that? >> guest: hopefully, it's on its way out. i don't understand it to be honest with you. i think it's a movement tt started on the left, actually, where i think -- i think a lot of political correctness was just the way society was unt the '60s and then a lot of barriers went down. and then it felt like it came back because people needed some barriers or something, you know, you had to be afraid of offending people. i want to bring offending peoe back. that's all i'm saying. >> host: here's the book, i'd rathere' got casinos. do you got another one ready? >> gue: no, but i may do a black thoughts calendar. something like that have a random thought for a y. that might

the let and antidote ims patrick robinson for galay actually did the writing of the book. i am a ghostwriter sometimes. i usuallyrite novels, but i have posted about four books and they have all been pretty successful. this is the fifth and, it happened in a way that was ally extraordinary. valeri lived in new york and i was in england, and my son and larry were friends. but james was back in our house and larry wasar away across the ocean. ends james said one day, would you write larry mcdonald's book and i said i don't know what wants to write a book about. he said you know he worked for lehman and i actually didn't. i knew larry worked on ll street but i didn't know where

he worked. and i said, this do you want, he was a book about lehman brothers? and james said yeah, he wants to blow the lid off of lehman brothers and clary have read "lone survivor" which is another thriller and i said he really wants to blow the lid off lehn brothers and he really wants, no punches pulled, i don't want to deal with someone who is pussyfooting around and making excusds for people. i id if he really wants to let reprentative i am probably his manser to lmi what if that is what he wants to do so we got him on the telephone and larry said he did indeed want to tell the whole, unvarnished tail of how lehman brothers collapse, the biggest bankruptcy in the history of the universe. i said, then i would like that but you had better get over here. he said, when? i sai now, so he left the following morning and was in england for dinner, which is a pretty good faith of the

activity. and we started there. it was difficult, because what i don't knowbout finance and wall street would probably fil fenway par i just had no idea abt the subject and now that i'd never done book about finance, but one thg that i have discovered is that ghostwriters need to know as little as possible. experts write for other experts. historia write for other historians and the first time this happened to me was a few years back, when jon bertrand had asked me to write his bk about winning the america's cup in 1983 for australia. i remember i said to him, you have written a couple obooks and i said to him, john i don't know enough about raising a big boat to be able to do a story like that. and he is a big kind of the

iconic aussie and he said come on mike, you have got the wrong idea. i don't need an expert. i am an expert. i need a bond with a pen. and that was actually, i'd never heard anyone say anything like that. i thought it was really cool, so anyway, we walked fareway through that and did the book and it was the biggest selling card back in the history of australia. when i came to do my next book, that i was going to ghost for woodward who won the battle of the falkland islands in 1982, i told him that exact story. he said i can actuall understand that. and, he said it is better that you d't know. >> subi don't want historian. first of all he is going to argue it's me and tell me what i did wrong. esad i loss 159 people employed for warships onhe floor of the

atlantic. [laughter] and he said, so any way we did this but i actually had to ask him everything because i just don't know that much about firing guided missiles and knocking planes out of this guy. shut down 79 fighter-bombers. woodward and i manage to do this sent when he rode his lite author's note in the front of it, the forward he said, i have tried to tell my story is that i was rounting it to an old iend and for this task, i ose patrick robinson who was obliged to said very quietly, very patiently into a great deal of listening, none of which are his long suits. [laughter] it was the first sentence in the book. i said, but any way weid this

and i really did not know about, who does unless they have sailed in the worship. you don't really know anything about it. it was the first war fought on computers, firing missiles and all of that. it was very high-tech stuff. since then he has been my adviser, writing these ny thrillers and submarine bks. finally, when i got to talking to lry about doing this and realizing i knew even less about finance, i did not know what the bond was. i thought it had something to do with roger moore. hand, called the admiral, and i said sandy, i am about to embark on a book on t subject about which i know absolutely nothing. he said, so far as i can tell it has never stop you before. [laughter] sill larry and i set sail on

this adventure and he came over, and it was, it was the hardest project i have ever done because not only did i not know anything about it, i didn't know what his story was. i didn't know how we were going to get from a to z. i didn't know the story. i knew this bank had gone bust but i really didn't know anything else about it and it was very difficult had to come over to england for times, for about nineays. and, left me when he wenback to new york, left me to write four chapters, and that was really very difficult. behead-me maysan stepped in as a researchr and they had a computer almost every day and he sent over masses of magazines,

jonals, books. the office looked like a mine field. and, i was constantly left with 45,000 words to write and him in new york. i ve a question on every line about it. most people would have had a question every five pages but i didn't know anything about it, and he was amazingly patient and he knew what he wanted to do. he did have a story that took an incredible courage to write because obviously line by line he was making monstrous and the mes not of people who just worked thereby people who ran the place. men who had 100 million in the bank and who were out there just taking money from the organization, all the time making fast decisions that was bringing the company very slowly to its knees. and of course larry as much

about writing a book of this kind as i knew about submarine warfare. we had to kind of the tackett from, i was always trying to write it for him. but it was difficult. for instance, it quickly became apparent that we had three major themes and they were that lehman brothers weren't all stupid. the two men that ran the place where spectacularly stupid. that comes out is the book comes along. three times the cleverist people in the company, all of them really worked with larry. he was one of them. there were about ten. they were actually in the board room, not the boardroom, the executive committee sing, you up to stop this. this cannot be allowed to go on. his ) saying out tre is an iceberg and we are going straight at it.

even the titanics worked. and again and again they were boowing money, losinmoney and i knew they had ác things together and make them kind of come alive. now, the book made th"new york times" list after five days.

i hope it will continue. it is a good boo larry was unbelievably brave. i mean, he really spilled the beans. i was always saying to him, are you sure you want to say that? he would say thats what happened and that is what we are going to say. at the end of it and i suppose it is a testimony to the book and in a sense it is a testimony to the book, he picked five of th mt important people and lehman brot@ers, the biggest brains ithe corporation who had helped him and you he had verified things with and each one of them read the book from cover to cover and not one of them made one serious change. not one. and he had told a story that was not only spectacularly truthful, but it was, it took a lot of courage to do it, and he did it

and god knows i was really proud of him. he never once fnged. eyes did this guy should be put in a straight jacket. [laughter] he is talking about people who ruined thousands o people. they all had to leave their bonuses behind in a lot of that kind of thing, which was terrible. people who had worked a lifetime at lehman's walked out in their $1 million shares or half a million shares at at 75 bucks were suddenly worth nothing. i mean it was the most terrible thing you could igine. now that really is about as much as i can tell you because all i did was sit and write the story but i will read you a couple of bits if you would like. which will show you what it was like to write this stuff for larry. not knowing that much about it in trying to make it all spring to life.

it was still very difficult. let me take a look at this. hang on. this is a bit about wendell tough went bust. they h an analyst in that firm called jane castle, who had been saying that delta could not survivand that is a pretty big thing to say about an airline that has got 145 boeing's hanging around the parking lot. she said it could not happen. i will tell you a bit about this. jane had been telling us for several months the delta was a candidate for bankruptcy and 11 minutes after 5:00 in the afternoon of september the 14th 2005 she was proved right. it flashed on to my screen, delta airlines filed for bankruptcy protection. and i swear to god the collective heart of lehman brothers skipped about 6 feet. larry mccarthy was nkt being and

is the principal velta convertible bond trader i had markets to make. i was on my feet in an instant. big e was nexto me harnden ready to trade. felt's nonconvertible bonds. alex was walking directly towards as. opened up a line to larry and i could see jane making a beeline for my desk just when i needed her. fearing any time of crisis she was always there. for the next hour there was going to be pandemonium as millions of tilts the bonds crashing through the floor were going to be launched on to the market by pele trying to get the hell out of them. many of those bondholders were best clients. we were duty bound to purchase them and the hits would be flying like cannonballs, millions and millions of dollars worth of delta airlines bonds that no one wanted any longer. my blood was pumping. just for a few moments the floor was very quiet and alex kirk

standing at my shoulders tt quietly, steady larry, we are ready for this. i lkoked ed jane, stay focus she reminded me. there were 52 cents each no matter how many came up for le. wet larry had once said about her, flashed through my mind, jane can tell you what delta airlines is serving for lunch in first class on the morning flight from jfk to berlin and what it costs them. there is nothing she doesn't know about the company. i enders the the position of most of the bondholders. theyould do darnton near anything to get out but i have e make the mket in what would be an avalanche of selling millions of dollars depended on my decision which i guess was like eve eye in the entire library was, on the entire floor was trained on us. everyone waiting for my first call on the price i would buy at and the price that would sell. to whom god only knew. vividly bemember the phones

ringing and around-- northwest airlines also declared bankruptcy there was one of those aible gasps, the noisy here in a big ballpark with a fastball over its past the better in the night. i thought the roof was going to fall in because we could also get hit by northwest by all of this bailing out. but it was too late for strategy. the sales might hold its right arm into the air and slapped larry, i have aig on the wire and what you know, the aires zeller. give me a bit on 5 million. i need a bit right now. for a split-second i hesitated and mike yelled, they got 5 million to o. that is when i called, 16, 18 and the moment these words route of my mouth, lehman brothers was committed to an 800,000-dollar purchase, a 5 million bonds at 16 cents on the dollar.

you are done i said, snappin up the traders no going back phrase in confirming our fipst trading in delta was cast in marble. i heard mike fire out his own confirmation to the customer. okay you are done, 20 seconds later we got hit again. terrence tucker on the line, where ar you one dealt that? 5 million knapik o these people were desperate trying to get rid of their holdings in the bank. i called the same price, 16 but the words are hardly out of my mouth when we gotit again for another 5 million again instantly had drpped the price, 15, 17 andur client did it. maybe they would settle at 15 i thought that they ner did. our best dressed bond sales in diva called out, i've got silverpoint, where are you on delta right now? ve up. three more orders came flashing in beside me. joe was talking in all

directions. hitch, bi, live, 10 million up. he was a trading machine and on that day he was at his best. everyone was shouting now, the salesman, the traders, millions of dollars cnging hands. all of them in the same direction, our. i dropped to 13 and still the stellar came in. i guess the ratio of sellers to buyers with ten to one. i got hit immediately for 7 million for hillary on the phone got $5 million worth. then terrence the best salesman i had beller debt me i've got it by ear at 15. it was the only buy so far. sitting next m jane sack wiley and larry was stealing them for the stay focused, they are sti worth 52 cents. trust me. any way that is the kind of thing this book is full of. and, that was being run really by larry's vause a i was gng

to read you a bit about him that i think he is a-- fellow and i think i have talked for a long enough. but that is what it was like trying to create that from someone who wasn'teally in the room, who was acrosthe atlantic ocean and am going to tu it over to him now and he can tell you all about this book. [applause] >> he is a tough act to follow. i just wanted thank everydy for coming in spending a beautiful sunday with us. when i saw the whether focus i thought it was-- i was a little leery but it is nice to have everyone here. we came up on friday evening. we made the trip up from manhattan and it is always worth the trip. we love coming back to the cape and loved being with our family. i grew up here, and the story of

lehman brothers around that weekend of stember 15th really was a day that capitalism changed forever. our world really changed forever. it was a tough weekend, not only for the lehman employees that for so many people around the country that didn't really realizthat tir lives would change. businesses, credit les had been cut on credit cards. 401(k)'s at become 201(k)'s in most of the problems emana from one of the mo mysterious places on wall street, that 31st floor of lehman brothers. it was a tragedy that never should have happened. i was sitting there on that weekend, september 15th, and i wasn't really sitting there. ha i was dn on the map. ifill like mohammed ali was standing up on top of me, and the referee is giving me the account and there we so many of us that werdown but i was

really down, but i just wanted to dig deep down inside into the reserve at we all have. and to try to make lemonade out of lemons so to speak, and i reached out to james and patrick and they were nice enough to hear me out, give me the time and patrick's the agent was also extremely helpful in articulating the project in helping me understand what we were about to endeavor un. and i will never fget the slam sitting there, the next day on the tarmac at jfk and i think it was a delta flight actuay, and you know you re sitting there among the tarmac and you hear of the throttle up,ou hear the engines and we are racing down, racing down the way, and i just

realized as the plan is taking off that my life is going to change forever. i really wanted to do this, like we said earlier, to expose the few that heard so many. there were so many wonderful people at lehman broths, so many people in the middle of the ship that not only recalling out warnings. not everybody that works on wall street is an investment banker that is calling in-- pulling in $10 miion t year dotus truett he made to the executive committee it was the collective heading the new york state lottery. we used to say that there was a group of their of yes men and yesomen that were extremely loyal to richard fuld and extremely silent to richard fuld. but, the beginning of the story is really what i'm most proud about of the story, if you walk into any bookstore in our

country today you see piles and piles of financial books, a lot of them read about the crisis but a lot of them are from academics and patrick and i really wanted to make this a human story, to help people understand finance, to bring main street deep iide of wall street had really help people understand what actually happens in an investment bank, how would actually wks. amina if you remember lehman others is a 158-year-old investment bank, 158 years. lehman brothers survived the civi war, survive the great depression, survived world r i, world war ii, the korean war, the nixon impeachment. lehman brothers survive so much and survive 9/11 but what she could not survive with the change, the ry genetic change in its business philosophy and an investment bank, the reason lehman brothers survived 158 years was it was in the moving

business. cabell's soup corp., 80 years ago when it to build the first plant. they wante to make that first investment and create some jobs. they came po lehman brothers a they needed $10 million lehman brothers did trational vestment banking. lehman broers was a black-tie investment bank ad they raised that $10 million, they gave it to campbell's so and they sold bonds and stocks ove here to do it. they made a fee, and that fee is the traditional gehsmann thanking fee, a traditional business creates jobs. that is the moving business and what we started to see on the trading floor in 2004, 2005 and 2006, you could clearly see was bloodcurdlg scare through the yes going forwa, lehman was getting deeper and deeper into what is called the storage business. they were taking bigger bets. they were getting long assets,

commercial real estate, residential real estate that they could not sell and they were trying to chase the big boys. they were trying to chase@@@cúúe glass-steagall act, allow these big commercial banks toompete against lehman sipa lehman brothers and a very, very dangerous position because now lehman brothers is a small to mid-sized investment bank and no we have, bank of america, all these large peanuts of

commercial ban with massive deposits. you have remember an investment bank like lehman brothers does not taking deposits. eight invest money around the world and sell stocks and bonds but it doesn't have people's money in a bank the way does, the way bankamerica does. and bankamerica have over a trillion dollars in real money in that bank, and those banks and those are savings accounts, checking accounts, those are paychecs from hard-working people and what we started to see in 04 and 2005 and 2006 on the trading floor of lehman brothers was a very clear increase in leverage. lehman brothers withncreasing that debt, increasing our debt to try to comte with the big boys and we get deeper and deeper and deeper involved and into businesses and to investments, that were very, very difficult to move as the years went on. lehman got deeper and deeper and deeper into the storage

business. in writing this book, i reached out to so many people. 150 people up and down theirm and i will never fget in those days in september, october and november, and especially in december when peopleound out i was writing this book with the hall of fame goes to names patrick robinson my phone rang off the hook. exhibitive committee members were calling me, people that i knew someone distantly that all of a sudden became my very good allies. people on the risk committee reached out to me. people were so upset that this wonderful, wonderful instition had been destrod and as they peel back the onion, the one horrifying, just a horrifying thing that i learned was those men up on the 31st floor had a deep, dark secret. they didn't want to be exposed

for all they didn't understand. the 21stentury brought a lot of-- but one of the most dangerous changes tt it brought us old was the 21st century financial products, securitizations and the risk that were taking place in e marketplace were so much greater. the dominoes were getting bigger and bigger and closer and closer and closer together. lehman brothers in essence was oneig domino nsa peel back the onion and i spoke to many people throughout the firm i realized that it wasn't just me that never saw richard fuld. we articulate this very well in the book. we never saw the man on the trading floor, we never saw any members of the board or the executive committee on the floor but it wasn't just us. it was high level, risktakers in the bank, people that knew

thorghly understood the risks in the system, people that thoroughly understood credit derivatives, people that thoroughly understood what warren buffett calls financial weapons of mass destruction. we have experts in these areas and they were not being consulte had a brilliant, brilliant financial talent th was not being consulted because those men upstairs, like i said did not want to be eosed for all they didn't understand. en 30,006 through 2007 we started to see people stand up, brave people, courageous people startingo stand up. i will never forget june 6, 2005, michael gil band, we are in a meeting with all the traders and the risk-takers, a lot of the research analyst and michael started to do something which is very unusual. most people in these big meetings are very politically correct b they are also very

financially correct in terms of not wanting to upset the people up on the 31st floor and michael gil band, alongith others but michael i will never forget how he started to question these evil financial products that were in the system, these mortgages that started off the 2% and then two or three, maybe a year-and-a-half later, two years later were up at eight, nine, ten and 11% resetting and commissions that the mortgage peopleround our country, the incentives to sell the most evil products and michael and others were concerned that the gdp in the united states in 2007 and 2008 would be plunged right in the gut as these mortgage resets, as these resets started to hurt families and as he said really at some point you have to pay the piper. there were so many of these products, i will never forget that day the warning and a

waing about sub-prime, the warnings that i had never heard of really. i didn't know much about sub-prime in 2005 and this was the first time i've exposed to these words, sub-prime, the mortgage resets, words that are all over the american vernacular today. i was hearing one of the best, bravest and smartest people starting to call those warnings. the real tragedy of lehman others is that one by one by one warnings were ignored in these wonderful people really silence. ..

accountable. if you think about it, lehman brothers at top of the market was a 750 billion-dollar investment bank, $750 billion of risk and we only had 18 billion net tangible equity so we have $750 billion worth of stocks and nds, commercial real-estate, all of the world but we only had 18 billion of real money that is 44-1 leverage and the brd of directors whoever o

complained or said a thing or question to this dangerous leverage. our report was filled with inexperienced people, not financial expertand i think going forward we have to have boards of directors. if you have systematically risky banks of innocence is a giant domino you have to have financial experts on the board, people that understand credit derivatives and commercial real estate, securitizations. you have to have experts on the boards and another thing i was encouraged on friday i noticed that aig made a move to permanently d touch their chairman and ceo of roles in other words wall street, 2007 you had a proliferation of ceos also chairman of the board and i was writing the book he really said he didn't understand much about finance. he said larry, that is the fox looking after the chicken coop,

wouldn't you say? and i couldn't agree more. you're talking about a situation where lehman brothers had actually become a malarkey. you d one man in incredible position of power to the point the appointed a cfo in late 2007 and had no experience ever as a cfo on wall street, and just because our president and chief exceeded officer wanted this new cfo they have been free range to put lehman brothers in very dangerous positions. going forward the last thing i wod say we can do to help make this country a better place is the regulators that accessed exist that are supposed to be protecting us all, predicting a loss from some of these systemic dangers in the system. we had in 2007 the sec, the

fdic, we had the office of thrift supervision, the fisa in europe and the fisa in asia and the comptroller. all of these hundreds of thousands of people working but working in silos and now working as a court me a group, complete lack of coordination and that is complete lack of risk management when you have all of these pegulators supposed to be overseeing these -- supposed to be overseeing these terrible and global risks growing through 2007. and the reason -- this isn't all richard fold's problem it was also the problem of the regulators and the fact they were so horribly on coordinated that i think going forward if we are going to have people in these rules and regulation, we should have peopl that have a global system eckert manager, one or two or three, maybe a committee of people that look at

the picture, to leverage all around wall street and the different banks and havther be accountability because capitalism cannot work without transparency and we have to have transparency of the risk. we can't have investment banks that are black boxes anymore. from the bottom of my heart i wrote this book beuse we never, ever want this to happen again. and all i still live six blocks from, and occasionally once or twice a week i will apply and promised myself i'm not going to look up and see where we had such a wonderful time. such a great people silenced but such a great group of peoe at worked so hareach and every day i promised myself i won't look up.

but in the and i always look up and i am so proud i workeat such a gre place. thank you very much. [applause] >> questioned? >> sure. [laughter] who is it that represents the state treasury department? they are supsed to oversee. there was a woman appointed years ago and she started pointing at all of these loopholes where this money was disappearing within the government and she was silenced. she was removed because she was finding out where it was going and our government doesn't want -- didn't want her to find,

didn't want us to know and still doesn't want us to know. and that was a woman put in a position of great power and was silenced. >> well, you know, there is actually sta attorney general's and every one of the states has an attorney general and those attorney general's are the chief financial regulator almost like the secretary of the treasury. they are the most important person in that state's that's in charge of regulation. so there have been a lot of state attorney general's that have tried to get involved. we have had very active state attorney general's that try to point out the horrible business practices of country wide. one of the crazy things we are sitting in late 2006 hearing about the genesis of the problem, the state attorney general's even back in 2006 starting to question these business practices. i will never forget being

they're talking to pete hammocks, one of the best and brightest and he would say the state of south carolina is doing this. the state attorney general of massachusetts is doing that and a lot of those people were ignored, and i think one of the other tragedies of the failure of lehman brothers is to invite -- tim geithner was the head in september when all of these bailouts were happing in all of these things were taking place but in that last weekend wen we had the best and brightest finally on the 31st oor, sunday, september 14th, we had our executive committee taking the government for help because they had helped andy fannie mae and freddie mac. tim geithner was the head of the new york fed and mysteriously, fox news recently reported on

this mysteriously his cellphone was turned off that evening around 7:00 when it lehman brotherk#$ between richard fuld and hank paulson, the secretary of the treasury at that time. weld lifelong but many yes ceo head of goldman sachs and these were arch competitors and in essence goldman sachs has become an oligopoly because merrill lynch is gone, lehman brothers

is gone and bear stearns is gone and some of these other surviving banks are making more money than ever. >> do you mean bank of america, citigroup, the wells? >> they have been -- >> [inaudible] >> bank america, citigroup, goldman and jpmorgan. those are the four -- >> who just took him morgan anley. >> morgan stanley would be like the fifth. >> how has writine this book changed your financial courier? >> a lot in t sense i am not we to be on the south side any time soon and that means i will not be working on a trading desk with richard fuld or any of these guys. [laughter] but i find it interesting a week ago friday i got a call from a shall act in the booone of the best -- he is of the call in the los alamos type nuclear

physicist that deeply are understood credit derivatives and he was so happy about the book and aboutis role he wanted to thank patrick for the portrayal of credit analysts and he felt proud to be. he said once you come up on the trading floor. so i went there, about 5:30 on a friday. now this is a friday afternoon. it is 5:30. barkley's bought the remnants of lehman brothers. so this is lehman brothers 745, seven aven. back at the scene of the crime but back at the scene, the same floor i used to rk and i noticed in the corner office i said who is that man in the corner office and he said to me that is bob dimond and i said bob dimond, the ceo of berkeley's capital? he said yes. and how things have changed.

things have changed in the sense that you have lessons being learned. you now have the ceof barclays' capital right there on the trading floor with the best and brightest paying close attention to what is going on. not up in the 31st floor completely away from the batdlefield. >> i have one question. >> sure. >> you made a comment at the beginning that this was the end of capitalism in america. how did you make that? >> not the end, butapitalism has been changed forever because first and foremost you have the fed windo federal government has now been assisting banks through the primary field of the crit facility in other words you have investment banks having access, getting help from the government and that started with the essentiallyhere stearns and then you have the t.a.r.p.

and the talf passed in september, these initiatives to help suritization and lending start up again and because you see all these programs and so much of the help and the talf and t.a.r.p. andlso goldman sachs and morgan stanley are now bankholding companies. lehman brothers requested to become a bank holding company in the days before the bankruptcy. tim geithner said no and morgan stanley have become big holding mpanies so i think going forward especially in the short term you will have a pendulum swing where you will have a period of over regulation in terms of a minute regulation of capitalism. less leverage and less real freedom because the problem is things got so opaque and dark capitalism doesn't work without transparency so so many of the risks we so difficult to see

that i think the regulators are going to force more visibility and that will change capitalism for ever. >> i mean, why -- y beginning in 2005? what happened before 2005 that brought ts change? >> in terms of the problems? >> was set deregulation? >> it was deregulation is fine and if you have good meters tchingisk and i think what happened is you had the deregulation and that started -- that started everything moving but y have to remember before the market cracked in 2007, the summer of 2007 we had a 48 month period were the s&p 500 didn't decline more than 8% so this incredible period of tranquility and what that brought was this proliferation of what i call

peacetime generals that started to head up major investment banks and commercial banks. chaka prints was hitting citigroup and he really isn't a risk taker. he is kind of a lawyer so you have kind of a lawyer running their andur number two guy at lehman brothers, mr. grery. these guys were consumed on the 31st floor with wonderful things like philanthropy, diversity efforts and richard fuld's 200 million-dollar art collection. so lehman brothers you have the top -- $750 billion of risk and all across the street you had people consumed with bizarre things that had nothing to do with all of the risks growing day by day. >> did they lose their wealth? >> the did of lehman brothers

t -- >> [inaudible] >> lehman brothers the work in isolated. they lost a lot of their wealth. but everybody else didn't. >> i follow you on twitter. [laughter] >> what is your handle? >> [inaudible] [laughter] i noticed recently comment he made in an editorial you are woied about current finanal conditions. would you care to comment on that? >> i just think that the patient was on the operating table, getting white support a couple of months ago. we gave the patient experimental drugs. this quantitative easing we have never done quantitative easing in the united states before. we've always cut interest rate to try to revive the economy and that is what we've done in this country. we've never done quantitative easing. it is an experimental drug and the economy right now is on a

sugar high because of all of the liquidity pumpedn but we can't expect a patient on life support on experimental drugs to be able to get up and run it that is wh some people are saying so i am advising caution we have had aonderful rally as you have in most markets this incredible officious short-covering rally which turn into people chasing the next bull market. i don't think we're going back to the old lows but we could have a natural progressionf this. >> if lehman brothers just to go backe been bailed out do you have any sense how it would look today and what the impact would have been on the economy has bottomed out and seemed to be a response to the lehman brothers failure? >> i'm glad you asked that.

as i said earlier i despise these bailouts. but one thing -- i have done my best to mathemacally figure out with the help of great people when they let lehman brothers fail remember aig failed three days later, merrill lynch -- that made the other bailout's incredibly, incredibly more expensive because they let lehman brothers go on that sunday night and then aig had all of these complicated cds contracts and risk that became incredibly more expensive after lehman brothers failed. aig's, the initial estimates on the bailout were 30 t 40 billion within a month and a half the government is telling it going to be $200 billion to bail out aig and some of that moneis going over to goldman sachs because they were all the other side of the trade so a lot of bizarre stuff was going on.

i think that the failure of lehman brothers costhe u.s. taxpayers about 120 to $140 billion. now if they had saved lehman brothers what he would have seen is a natural on lined risk in other words what should have happened is you could have brought in a u.s. bank corporation for example. kenneth lewis of bank of america when bank of america saved merrill lynch tim geithner but can lewis and a head lock and dered him to be allowed merrill lynch. if you're going to put people in headlocks you could put the ceo of u.s. bancorp in a head lock and say bailout lehma brothers and the reason is aer lehman brothers failed to close to $700 billion worth of commercial real-estate, residential real-estate, stocks bonds, oil,

gold, everything. lehman had tons and tons of assets and when you have a company in bankruptcy you have a bankruptcy reorganizing come in and day just are interested in seing assets and on winding risk and this was the most horrifying unwinding in the histy of bankruptcy. there was no preparation. the documents for the lead in bankruptcy, the initial document i talked to e of the lawyers there is on the 15 pages long. this is almost a 700 billion-dollar bankruptcy, and the initial document they presented to judge peck of the accord was only 15 pages long. this document should have been 300 pages long to articulate how they were going to unwin this risk so what happened was after lehman failed you had some winding that was so nasty that's why when you were sitting in home in october, november and the stock market was going down every day at 2:00 another 300,

400 points that is because lehman was in there on winding and other hedge funds -- lehman brotrs was bringing down dominoes. literally you are watching dominoes fall and that hurt so many people. so if lehman had been saved, you could have had a suationhe these assets were sold in a much more orderly and controlled way instead of as crazy and haphazard and irresponsibly sold the way they were. >> how long do you think it will be before the market recovers? >> honest to god, warren buffett doesn't even know the answer to that question. but all i know is -- >> you think like n years? >> it isn't going to be a v shape recovery. a lot of people have beetrying to say it will. it's going to be more like a w. and i could take five years. >> or ten? >> it could. i mean, the s&p 500 in 1972 was eight( ten -- 1982 it was eight,

ten. so you have periods where, you know, you have peris of slow to negative growth,. >> if you think, you know, having these board of directors, this is so important yet our 01 u.s. treasurer can't follow the money our government is spending i mean how does it all -- >> you've got to start somewhere. these board of directors -- i meanlehman had -- when i explained this to patrick, he stared at me quarter till si in the morning. he is scratching his head, his hair is all er the place. he cannot believe -- [laughter] he says you are telling me tha dena merril -- >> [inaudible] [laughter] >> on the board of directors --

>> [inaudible] [laughte >> we can start there. it's obvious what they had a steamroller, a good thing going and wanted as many silent -- the average age of the lehman board was 74. so these are people from different era. we had an admirable in the navy. >> that your dog ran a phone company. >> the bigge and south america. i think that going forward if saying jon retires from morgan stanley, ceo of morgan stanley. he should be since he has all of this maestro over the years he should have the requirement after he retires he has to be on y a lehman brothers board for three years so you could have financial experts on these boards and i would stack these boards with financial experts because in essence lehman was a

750 billion-dollar domino with probably the most irresponsible board in the world. >> the next@@@@ )ácáá dangerous things come and now kenneth lewis is still the ceo of bank america even though he lost all that money. so that is the moral hazard and that is why i hate bailouts. but i also feel if you let people go like lehman brothers

it can hurt a lot of people the way it has. i am writing this book not just for fsa employees, but we -- we wrote this book with intention of bringing main street and helping -- i am getting a wonderful e-mails and twitter from people that -- that are in construction saying for the first time i understand finance. and that makes me feel really good. >> when is it going to be a movie? [laughter] >> patrick is working on that one. [laughter] >> are you going to do a cd? >> we have the audio books, yes. >> you do? cd's? >> we d >> where are they? >> it is a little bit more of a traditional -- [laughter] you get one -- i would say that. [laughter] >>hat is the nature of the head like the government officials put lewis and? how do they compel such a private figure to take on such

-- >> isn't it amazing? you could see -- i don't know if you solve this, but darrell issa, chairman of the house oversight committee, he had these hearingsver the last month and a haland prop up kenneth lewis and ben bernanke and hank paulson, and you could see the aention because now he is out of the head lock and has already made these purchases of country wide. kenneth lewis, ceo of bank america he bought countrywide first, and i think under orders and i think he bought merrill lynch second under orders and the nature is de needed what we joke around bank of america became the fourth branch of the u.s. government, and i think he felt it was a patriotic thing. he felt long term he was making good investment but he was making horrific investments. they paid $50 billion for merrill lynch.

if they wait a week and have the could have gotten it for 12. so i can't explain it. >> that would defeat the purpose because that would convince the markets they are not worth that much. >> it was a poker game. the whole goal of it was to put everybody at ease and they were going to let lehman brothers go but nobody else and we areoing to -- we are going to solve this crisis. another theory and this is a deep, dark pherae a lot of people feel they let lehman go because they were sure that the t.a.r.p. would be passed and the t.a.r.p. changed capitalism. and i don't think that the t.a.r.p. would have passed if lehman hadn't failed. remember lehman phill an t.a.r.p. didn't pass the first vote and in two days later it paed. >> will the little banks survive or will we be gobbled up and have three banks we are going to be controlled by? >> i hope they do. that's one of the probls --

>> [inaudible] >> that is one of my great allies in the book. there is a scene where alex kirker says at a meeting when some of the great people pushed and of lehman brothers, some of the people that were silenced after the coup in june of 2008 they were asked to come back and there was a meeting in alex kirker's apartment with the new leadership of lehman. and there is a scene in the book where they are talking about that very problem that, you have all these big banks and there are not enough creivity. the banks have gotten bigger and bigger and the dominoes have gotten bigger and bigger and alex leans back and says you know, these banks are not too big to fail, they are too big to succeed. and i hope -- in other words citigroup, allhese banks, if become so big it can't have a

ceonalyze all the rest and that is one of the dangers why i hope they force a lot of the bank's to break into smaller banks and you can compartmentalize risk. >> whoever that woman was she said because we are supportg, and i am guilty, chase, citigroup and jpmorgan because we have their credit cards, because we support them, we are part of the problem we should be having credit unions and supporting the small banks. >> that's one of the great things patrick does in this book. he articulates so beautifully and simply this 21st century securitization process and lending. in other words when my dad bought our first home he sat face-to-face with a banker and that a banker was a member of the community, that banker was involved in sports and charity and this like that, and the

21st century brought was securitizaon so you had a lender lending money through lehman brothers to a mortgage broker and lending money to some bus driver at newport beach living in a $300,000 home that had no income verified on his mortgage application. so we do need to go back to smaller banks and hopefully they will have the sense to break these big banks up. >> that is one of the classics is the ninja mortgage went to people with no job and no assets. [laughter] it's the 400,000-dollar a year bus driver because he didn't have to put his and come down. so occupation, bus driver, income, 400,000. to hundred 50,000 check out all with massive mortgages of 350,000 they couldn't poibly pay back. and it was glorious the people

that landed to them, the brokerage house didn't care because they sold it to lehman. and lehman didn't care either because they sold it to iceland. it is some kind of a walrus or something to read doesn't know who he is. [laughter] >> i was listening to patrick on xtk, and he was very informative, education presentation. there was a part you talked about stock in california and in the country wead these, we had a lot of crazy lending all over but you had pockets where it was extremely concentrated and e of those crazy pockets was stocon and you were telling donnie about a scene when things started to break into thousand eight you had people leaving homes and stocks and taking the copper wires, taking everything

possible, refrigerators putting them in the back of the truck anyou had literally traffic lights, traffic jams at two in the morning and these people try to get out of stockton. [laughter] ..

do we were hearing these stories on the trading floor. we are hearing these stories and teufel suncom lolita falzone-- like the first quarter of 2007 vallese 30 kierley 2006 eastood tahir what is called the early payment defaults had we were watching these because after aminophylline, i promised myself, had promised have della i'm going to watch for these warning signs and there was an early piece of the fault and that is if, east and measurement of him all the people that are even making that first mortgage one-half one-halwas spiking up in late 2006 and that is pretty crazy. that is trouble. >> yeah, that is big trouble.

[laughter] very strange how there were people who very clever people in lehman who blew their whistle very quickly. it was only a little bit and somebody was saying what as going on here? and then another week or so they are saying it is gone up a bit more, what is happening here? he wouldn't say it but he s right in the thick of the warning group of the people who were actually blowing the whistle in saying this is lunacy and he was, he had a front row seat at this and he was one of the mather dogs trying to stop this raging bull and failed. >> thank you so much. we will have an opportunity now for you to sign books. >> i just want to thank c-span for taking the time to come down

here all the way to the cape. i hope you enjoyed it lobster we still have to

travel. as the 9/11 commission found in its report on the events of 9/11, one of the significant deficiencies at ground zero particularly in new york was the lack of comnications and interperability among communications for the first responders. in particular, police, firefighrs and other emergency personnel couldn't talk to one another.

and this has been an issue which has been at the top of the list of things to be done to deal wefective response in the eight years that have passed since september 11th. i can tell you there has been a significant amount of progress that has occurred. first of all, in the last couple of years we've distributed over a billion dollars, $1 billion, to states and localities for purposes of promoting interoperable communications. technological advances have been made that now allow different types of radios and different kinds of communication devices to talk to one another through what they call gateways which essentially allow -- they're like switches, portable switches that allow you to cross the various kind of frequencies that would other side not be able to talk to one another. and there have been steps taken to build a governance process that would set the procedure and

framework for interoperable communications both within a single jurisdiction among different kinds of responders and among jurisdictions that may be in a particular geographic region. i should say one of the regions where interon th about is most advanced is the washington metropolitan area. the surrounding counties in washington do have the ability to communicate with each other. when we went ahead with the planning for the inauguration in 2009 which was a very, very big event for the region, one of the things we could count on washe ability to have communition among the various counties that were going to be affected. now, part of this is the fact that there's either an identity frequency or a capability to cross frequency in the area. but part of it is not technological, and it has to do

with governance which is one of the critical elementsn achieving interon the about. -- interoperability. what that means is all of the groups that have to talk to one another need to have an agreement on things like what is e language you use? of course, we all use english, but some people use, for example, ten code, law enforcement tends to use that, some use what people call plain english. even within the various kinds of codes there may be variations so that one law enforcement entity may have a 10-4 which another calls a 10-20. if you don't have an agreement on the language, it is impossible to have interoperable communications. second thing you need to know is who gets to talk to whom, and that process, who sets the standard, who gets to be in communication with their counterpart, that is also a critical element in getting interoperability. if you don't have that, the technology's not going to cure it.

a third element is training. it's great to have the equipment, but if you haven't trained the responders in how to use it, how to deploy it, then they're notoing to find it of much use in the event itself. just to give you a sense of some of what has occurred even in the last year or two, in 2007 dhs established an offe of emergency communications which was desned at the federal level to be a focal point for emergency communications programs at all levels of government. dhs published the national communications plan in 2008 which was designed to create a national strategy to improve emergency communications. this built on a baseline analysis that dhs had undertaken over the preceding years to see where jurisdictions around the country in all of the states in the major cities were with respect to interoperability because what you need to

understa, where t gaps were in developing a strategy to fill those gaps. during the fall of 2009, the direct rate of science and technology at dhs will conduct the fina phase of multiband radio testing. if it passes the test, that will be a device that enables emergency responders to communicate with partner agencies regardless of radio band. and the coast guard is deploying a cross-bd banding switch in ports that will allow partners in the ports that use differdnt frequencies to talk among each other. so all of these kinds of capabilities technologically and in terms o planning are getting out there, and that's all good news. the bad news is we've still got a ways to go. there still are variations in jurisdictions on issues like do you have gateways, do you have governance plans that allow you to talk within the region? what do you do when people come

from far away and they have vastly different types of capabilities, and they come in for an emergency? how do we assure they're able to talk across channels? part of that is the ability to move mobile communications equipment, but part of it is increasingly pushing to standardize language and governance across the entire country, and frankly, with our foreign partners with whom we share borders. training rains a ctical element. there are still too many responders who ian if they could -- even if they could get the equipment wouldn't understand how to use it. matters are more complicated by the fact that we're in a technological revolution, that increasingly we have different modes of communication, voiceover internet, traditional wireless, traditional radio, and how do you determine which is the right approach to take both on your day-to-day use and your emergency use? and think those have not been

resolved for all jurisdictions. and then there is, of course, in some ways the holy grail of interoperable communications which is the idea of a dedicated portion of the spectrum. and, obviously, the plan was originally to do that in the 700 megahertz field, at least in some portion of that spectrum. thiss important not so much for the baseline voice communication which i think we can do now with gateways and other kinds of technology, but if you really want to have a capability to transmit a broader type of data. in the end where we should be is to have the ability for responders to have a blackberry or an iphone or some comparable device not only the ability to have communication across jurisdictional lines and agencies, but to stream data, even video, so that people can have a common situation of awareness. and then at the end this all has to be integrted in some kind of

a headquarters capability that allows you bothto have full access to what's coming across the spectrum and also to integrate it and analyze it in a way that is useful for decision makers. i'm not one who looks at the last eight years and says we haven't made progress. i thi those who say that are probably unaware of some of the progress we have made. but i will say that it is disappointing that we haven't, for example, reached the decision point on the dedicated spectrum. and that we haven't moved forward on an interoperability and even basic op rabbit in some of the parts of the country. so this is something that will continue to require investment, effort. with every advance in technology, there'll be a corresponding burden putn government to kind of keep up with what's going on. and we all understand with budget tear constraints -- budgetary constraints there will

always be a challenge in the approach that says let's scrap everything we currently have and move to something new. that's not going to -- in the real world, that's not going to work for a lot of jurisdictions that don't have a limitless budget. we need to particularly focus on solutions that allow us to migrate our current equipment into, and to adapt it into cutting-edge uses whether that's through the use of some kind of enabler that allows you to connect across frequencies or something that can be used to enhance your current equipment, ore even if -- or even if we have a new business model in which companies acquire something to one where you pay for service and basically as the equipment changes over time, you swap out that equipment because you're paying for essentially the use of the product rather than the product itself. so those are all things i think thatre worthy of debate a

discussion. full disclosure, in my current life i am out advising people on these issues, so i don't want to have anybody claim to be shocked and surprised. bu i think what i'm sayin here is really what i'm -- i've said previously over the last four years, and i don't think it should surprise anybody who has kept up with the debate and discussion on the issue of interoperable discussions. >> thank you, sir. dr. vaughan will follow, he's going to discuss the technical aspects of what the future holds, and after that we're going to open it for questions both in the audience and via the web. i ask that you wait for the microphone to arrive and then identify yourself and ask the question. dr. vaughan. >> governance and technology supported by training are the key elements, and progress s been made, i agree 100 percent, in the last years on both fronts.

as the -- but there's always the need to recognize that technology has a purpose, and the technology's purpose in this case is to serve the first responders who serve us, who help us. if they can communicate better, they can be more effective in dealing with whatever the situation is, and great progress, i think, has been made in both governance and on the technology side. but we have sort of the natural sort of conflicts that come between sort of old systems and new budgets these days. and, you know, between digital advances and analog compatibility. and in that case technology does have a role it can play and it has played. the gateways that the secretary mentioned are an important part of i we also need to think from today's technology and the past technology which was fundamentally so-called narrow band technology for voice, and it's still an important thing to

have, all the way to broadband technologies. and the, and when the and we want to make sure that when we do that, we don't make those two things have a problem with interop rabbit. so -- interopper about. so one of the advances that has gone alongside is the introduction of ip technology, internet protocol technolog the secretary mentioned voiceover ip which is a perfect example. and i say that for a couple of reasons. one is at the sort of traditional narrow band voice level it's possible not just to make a gateway, but to make an ip gateway. to make a gateway that does what it needs to do in terms of connecting to other networks, but does so in a way that makes it scaleable across an ip network. today in the u.s., you know, we

have across theountry defined mutual aid channels. these are channels that are given out along with the public safety frequencies when the public safety agency is awarded a license by the fcc. one notion that we could look at is to take the mutual aid channels and put them all on a network. but further, if we go about that the right way and construct it in a network fashion, then we can go beyond that and connect even the broadband networks which fundamentally are ip to our traditional voice-only kinds of communications. it's a important advances that have happened. they've happened really at two different levels in the last few years. one is at the radio level where we a now and, as the secretary mentioned, that dhs is testing multiband radios. and the reason that's important is because not everyone across the country uses the same band. and, in fact, federal users are

purposely aligned differently than the local public safety users so that they don't step on each other's frequencies. so there's the need for multiband radios, and that is an important solution. the other is the ability to connect networks together. the model is actually, has been out there, and you know about it. we all know about it, we just don't think about it very often, and that's cell phones. if you're old enough, you may remember when there was no roaming. you could only operate in your local area, and that's the way in many times it is today in land mobile radio. what happened? well, you know, it was two thin. it was governance and technology. the cell phone companies signed roaming agreements. they came to an agreement about what language they were going to use and how they were going to work together. and the technology supported that. and so we need to do the same kind of thing. we need a network-level solution that allows us to do that kind

of, let's call it roaming, and we need a radio solution to account for the fact that we have to have different frequency bands as are built into your cell phones today in many, many cases. and so we have the multiband approach combined with the networking approach, and those two things are coming together now really in some ways fo the first time. and that's, in many ways, for the voice communications the complete solution that we've waited for quite a long time for. and we're almost there. it needs to be fully tested, it needs to be fully vetted, it needs to be well you would, and if implemented, it needs to be trained in. and then we need to look beyond that, and the secretary mentioned broadband technologies. and i think here again we have the opportunity because we're starting anew there in the broadband to look at that holy grail, as he said, as being in one frequency band of one

technology and perhaps separate in our minds the solutions like broadband that can be used anywhere from solutions for voice interoperability that are needed everywhere. and those two things are two different problems to solve. it may be that we can't have broadband everywhere simply because it's too expensive. but it can be used anywhere, and that's important, and we should be able to have a foundation of networking technology that the broadband sits on and the narrow band sits on, and both of them serve the first responders. the point is at the end of the day that over the last few years solutions have been created. no, they're not rolled out everywhere as the secretary said, but we have the opportunity to solve t problems in a number of different ways. solutions from a number of different companies who come at it from different approaches, but if we drive towards the

solution that solves the problem both at the radio level and the different frequency bands and at the network level by tieing systems together, we have a solution. a number of, aumber of people are looking -- and you'll hear the phrase sometimes a system of systems. and that's an important, an important notion. that isf tieing perhaps even existing radio resources together, system of systems. but, of course, it leaves open the question, what is the system that the systems are of? what is the thing on top of that that holdses it all together? i think that we're beginning to see, get a better, and better picture of what that is, and more and more often the answer is the same answer we have in communications in general, and that is ip technology. and so we look forward to continuing to serve first responders and tough them the people they serve, us, with the new solutions that are coming together now. and, again, we have financial challenges, obviously, in the current environment, but as

systems churn over time we can provide that interoperability to a greater and greater degree over time. >> okay. i think we' ready for some questions. i can, i'm going to start off with a question that came into the webcast from joe around you are the row with government executive. this question's for secretary chertoff. she asks, dhs announced yesterday that senior officials from the u.s. and mexico signed a bilateral telecom agreement to support a new cross-border computer communications network for public safety and law enforcement focusing on strengthening border security. that will allow intimate response through cross-border data and video channels. secretary chertoff, what kind of impact might this have on border security and perhaps more importantly, what more challenges might this pile on? what does dhs need to do to

insure it's not destructi? >> this is a good thing. it builds on a set of agreements we had entered into with mention copreviously coordinating with respect to cross-border violence so when there was an incident directed from one country to another we could communicate and had a plan in place in order to allow the country where the shooter or the violent perpetrator was located to respond quickly and tamp down the incident. it's obvious in order to make the promise of that agreement come to fruition you need to have realtime capability of communicating. so i would say that the agreement that was announced yesterday is the culmination of this process of setting up these cross-border protocols. what are the challenges? well, you've got to make sure everybody is trained, and they need to know how to work the machines. the machines themselves have to work, so the implementation of this so that it's something that

is capable of being used up an down across the border, is trained on both sides of the border. language issue obviously, have to be addressed in terms of spanish and english. you have to have pple who can speak the language on both sides of the border as well as the governance issues we've talked abou who gets to talk to whom, what codes are going to be used and things of that sort. and what dhs needs to do in the implementation proce is to make sure that these technological governance and training elements are implemented, and then i think what you're going to see is the ability to really reduce some of the risks that we have seen elevated at the border with the spike in violence over the last couple of years. >> wait for the microphone, please. >> national emergency equipment dealers association. you mentioned at the beginning a billion dollars had been given

to state and local communities. what is it goingo cost to do what you're talking about, and how do you deal with this situatn that counties, towns and cities in america are out of money and are not spending money on just like fire departments that are not buying fire trucks and fire gear to fight fires much less to do all the i.t. things that you're talking about. >> i think you put your finger on a big challenge, and i think there are two answers to the challenge. one is there is a continuing stream of money for grants, homeland security grants including communications grants which are made available to state and local. so there is money out there. but the key is to spend the money wisely, and that's why some people take the view let's scrap all the communications equipment you have and buy fresh. i think that would be an exorbitant way to deal with the problem. there are a couple of solutions, though, that i think are much

more realistic. one is to use existing technology or capabilities to fill in the gaps or to allow bridging using existing technology. @ implications about that, you know, if you are on an annual budget, but if you look at it

from the standpoint of an ordinary consumer, if you have a technology that is changing rapidly over time and you know you're going to nd to replace things relatively quickly, aren't you better off paying for the service and letting the service provider do the replacement as opposed to buying the system yrself and then having to replace it over time? it's something similar to the model that, frankly, the telephone companies use with, you know, where qou pay relatively little for your handset, and what they're really doing is the revenue stream in their business model is based on the continuing cervice. this is not going to work for everybody, but it is something that i think is a model that ought to be thought about a least as one option, particularly if you're dealing with a difficult budget environment over the last year or two. >> dr. vauan, do you have anything to add? >> no, i think it's absolutely true that new molds are

unnecessary. we can think broadly about the issue both in how it's financed and what the solutions are. and it'll have, strangely, a different effect. and that is that such a model will actually advance the technology more quickly. today what happens for natural reasons, people keep their systems for a very,ery long time, and that means their technology doesn't change very much, and so that technology stays the same. so it's, i'm not sure which comes first, the money or the chicken, but clearly, if we begin churning the technology, it's an opportunity to provide more advanced technology to first responders. >> tnk you. sir? >> stuart powell with the houston chronicle. we're coming up on eight year cans after the 9/11 attack and sort of public willingness to make the sacrifices that you're talking about has kind o diminished. i just wanted to see how do you maintain the sense of urgency that you're talking about here,

the expenditure of money, the deployment of multiband radio that you're talking about? >> i guess i say, first of all, it's not even a matter of going back eight years to 9/11 to understand the sentence of this -- significance of this. right year there's fire fighting in california. in 2007 when we were out for the really devasting wildfires in southern california, it was a sid demonstraon of the need to bring in to play a lot of first responders drawn from around the country. and the ability to communicate among those responders was critical in an event just a ttle over two years ago. likewise, the floods, the hurricanes, everything we expericed in 2007, 2008 which were very tough years on natural disasters underscored that these investments save lives even without the issue of terrorism. so i don't think you're going to have trouble persuading people that the urgency of fixing this

problem remains very much real. >> is there any timeline or cost estimate or implementing the kind of multiband radio system shah you're talking about? >> well, you know, multiband radios are of a similar cost to ordinary radios. they're perhaps a little bit more just because they are multiband, but they're actually available now. and sohere's an opportuni to be begin what the secretary referred to was this kind of miation. you don have to do everything all at once. you don't have to spend everything all at once. you can keep assets. certainly the towers and so forth can be kept, and you can do that over taoism if you have a way to -- time if you have a way to bring from the old to the new. and i think the ip technology today provide that opportunity to make that bridge. >> wyatt cash with government computer news.

the evolution of wireless has been dramatic, and radio used to fill an iortant gap. but today we see so much i over wireless that it sort of changes a little bit of the landscape of what is the best platforms for interoperability. i'd be curious on your vws of the discussion of governor man, how do micipalities work with the the wireless carriers to make sure they're continuing to support the nee for first responders? >> you know, you're absolutely right that wireless technology has aanced a great deal, and you used a great word, you said platform. the public safety users have to take advantage of the commercial platforms even if they may have to reformat them for their own use. there are two challenges when you think about using public communications. one is the challenge that we're all familiar with when there is a problem, a lot of people want to use their cell phones. and so that gets in the way.

and so we need a way to fix that, to change that. and the second challenge is that the typical public safety systems are designed to work when nothing especially does, when there is no electricity and there hasn't been for a long time, and etc., etc. that serves a different need. and so one approach to that is in this 700 megahertz where you have your own system --ut even there you want to make sure that you leverage technology platforms through the commercial platforms. and so borrow that technology and take the best of that for public safety, but make sure that the systems meet the public safety grade need which is a little bit higher than our own needs for our cell phones. >> i would agree with that. i think that, you know, in a nutshell what you want to do is you don't want to rediscover the wheel or reinvent a system or create a parallel system. you want to leverage off the

investments being made to the extent you can. in the private sectorn this damage. but you do have to assure two things for theesponders to be able t rely on that. one has to be priority of use, a way to make sure that in an emergency you're not taking a backseat to somebody who, you know, using it for non-emergency purpose. and the second is resiliency. you have to deal with wn the system goes down in whole or in part. if you can build those two capabilities, it's much for cost-effective in the long run, and you at get the benefit of the movements tha are driven across the entire private sector as opposed to having to have dedicated improvements oy fosed on first responders. >> correct. >> jeff lewis, if both panelists could just comment on how they feel the dedicated spectrum issue will be resolved, and do you both think it will be soon?

>> i guess the short answer to my, i don't know and probably not. but i think that it, i think it will do -- we're very, very hopeful. we're beginning to see a consensus starting to for it's not all there yet. the big question is, of course, the funding, and that's the greatest challenge. what we have seen is a number of public safety entities have backed a certain kind of technology, and that's a positive thing. a plan to support either a regionalystemr a nationwide system, and so we can, we have a place to start if we want to start. so i think that we do, have left the issue of funding it, and it may be that it's, again, a chnology that works anywhere but not necessarily everywhere. and where it can be funded we're hopeful that it will be funded,

and we begin to see the benefits of broadband technology and public safety, and then once we have that, we can move across the country to the next spot and the next spot. >> not mh to add. it is a issue of funding and will, and it's taken longer than i think people anticipated, and i hope it does not take an action-forcing event to drive a conclusion of this. >> sir? >> paul constable of the united states mint. if we're abl to tie theadio communications and the computer database systems together, in your opinion do you think that legislation's needed in order to insure that agencies do this and are funded for it? >> well, i think typically what happens is you probably do need at a minimum authorization for the agencies to do it if not a mandate. but i also have to say in general it's the funding process that tends to drive this in my

experience as well as having the will at the top. i mean, there are, you kno at least at the federal level only a few agencieshat deal with first responding issue although more than some people would think, so that creates an opportunity for the interagency process to drive it from cabinet secretaries down to the organizations provided the money is there. >> i think i'd just add that ere's a strong rationale for that kind of connecting together. we all think as we talk about interoperability, radio interoperability of the problem, we perceive as ablem that there are all differe frequency bands and different radios and protocols. and the rson that's a problem is because they're not connected together. if we did connect them together, then the very diversity of that commications would be turned into a positive because we'd have layers of communication. if one failed, we'd have another one.

and so, you know, the idea that you mention of bringing together systems is an integrating systems into a unified if not uniform twk is a very, very positive one. >> rob, congressional quartly. i had a question about the technical revolution that both panelists have addressed and the difficulty fortate and local agencies at sort of choosing a model to goith, and i'm wondering if there's room for the federal government to play a more active role in sort of picking solutions or designing models that state and local agencies will know are viable alternatives? >> yeah. there has been an effort through respect to interoperable communications. it's been a very, very slow process because i think it's to some degree a consensus-driven

process. what the federal governmt can do is a couple things. they can set standards, and they can actually mandate that grant money be used only to purchase communications equipment that meets the standards. that dris it. the government's purchasing capabilities create also a market, and then that tends to drive this kind of behavior. so the federal government can play an active role. bear in mind, though, that typically local jurisdictions which face various, you know, demographic and geographic and physical differences sometimes have very different ideas about how they want to implement. and, you know, what you need in the city of ne york with tall buildings is diffent man what you need in an area like los angeles with a lot of very spread-out residents. so you've got to be respectful of the differences that require

application of strategies i different modalities. but i think with that there's a standard setting and a convergence that the federal government could drive that would be helpful. >> standards are certainly very, very important, but it probably doesn't mean, as the secretary said, that eryone needs to do the same thing. one role that dhs does play even today, it s mentioned earlier, is the testing of different technologies. in this case, multiband radios which they've been doing this ongoing, and that's important. i think what's important is not so much to test itself, but it brings to light the best practices. and so it isn't that necessarily that should want the government to choose one practice, but at least it would be a positive thing for them to help local agencies underand what the best practices are. and then to pick the right one fo their local needs. >> hi. sarah, center for public integrity. i'm listening to what you guys

are saying in terms of the timeline over the past eight years. we're talking about money going to the state and local level the last two years, some things happening at dhs with oec and so forth and some solutions that are still happening in the future. i'm curious if you could talk about how the money that's already been spent has gotten us towards these solutions that aren't quite there yet partially in the absence of somethingike the national emergency communications plan, and then how much more money do you think we're going to need from the ant programs or other sources to get to a place where we can say, you know, we're there? >> well, i can tell you one thing is, i mean, because arrive seen this with -- i've seen this with my own eyes. the money has been used in many instances to purchase gateways, mobile communications systems, all of which have been deployed in emergencies and have allowed peopleo talk to one another in a way that would not have been poible.

so that's a great example of yielding positive results. and in a more ip direct way, the -- indirect way, the money has also driven some jurisdictions to resolve is@@ rb require additional money. that's why i can't give you a figure for what aotal sum is, but that's why this solution that does not require scrapping what you have strike me as a better solution. now, there does come a point sometimes, you know, there's a true revolution that transrms

evything and says, you know, let's get rid of our old desk phones and go to cell phones. but more often thanot you don't really need to do that, and the disciplined way to spend the money is to look for the less dramatic, you know, let's change everything out approach and two for the incremental. let's continue to improve approach. >> at one point i heard an estimate and from what seemed to be a reliable source that to change out everything was 40 or $50 billion, so that's probably not going to happen. the other thing that's important to think about how big the problem is in dollars is just to remember that the systems typically last 10, 15 years. and so, you know, at any one time, you know, 10 percent or less than 10 percent of the systems are being changed over. and so if we can maintain the funding levels at or perhaps abovif we want sometng new

to happen, then over time we can operate from inoperable solutions in the past to operable solutions. it is now in people's minds they are trying to solve the problem, and when they do get funding, they tend to spend it in a way that makes it interoperable. >> all right. we're going to take a question from the webcast e-mail account. this is from rutrell from government computer news, and he asks, there seems to be a push for more interoperability of radio and network communication between states bordering each other. any significant prototypes or testing of interoperability of radios or networks that can serve as a model nationally for state and local government and federal agencies' intercommunications that you can talk about? in other words, is there an example of a good working model? >> well, many states that come to mind, states like the

commonwealth of pennsylvania have been actively working with their neighbors in ts regard. a formal case, though, that i can think of even though the system isn't built yet is oregon and washington, the oregon and washington interoperabily network. and what they're doing in the northwest isctually starting from the beginning thinking about the problem at the regional level, and that's a very, very positive development. typicall on a state by state basis, but here's a example where the regional thinking is happeng. if, you know, if but believe as certainly i do that the networking is important, then if a little bit of network is build into every system that we build, then we can connect from one stat to another or an entire region because we understand that that is a scaleable technology the challenges ard diffe when you get to those scales, those larger systems. and states, you know, a number of states are working on it.

but the notion of a full regional system is really probably fst in the northwest. >> secretary, anything to add? okay. back to the floor. >> rich cooper with security debrief and catalyst partners. gentlemen, i was curious, secretary chertoff, you made a comment earlier about bringing sop of those diverse parties together and, dr. vaughan, you mentioned about the crossoard or cooperation between oregon and washington there. is there a role, though, for dhs or somebody else t play when you have parties that can't come to an agreement between just dictions or -- jurisdictions or between states? is there a role for dhs to play a medtor or person who makes the final call so that we can insure communications during disasters and emergencies? >> you know, rich, mediator, yes. final call, probably not although youan condition

grants on a certain level of agreement. you know, it' like many years ago when i was trying a case a judge once said to me, i can't make you do it, but i can make you wish you had. and i guess dhs can do that with grant money. i will say when we did the benchmarking over the last few years and we confronted a few jurisdictions with governance issues that they had not resolved, i can think of at least one pair of jurisdictions which i won't name that actually fixed the problem. they were kind of shamed into doing it, and they got it done. so i think there is a role to play, but it's a little bit delicate. >> chris, chris str with congress daily. i'm sorry, i'm going t go off subject just a little bit. the terror alert system has been in the news lately, and i guess,

secretary chertoff, i'm wondering what you think about should be done with the system, should should it be abolished or what's e base way for the federal government to communicate with state and local partners in the private sector. and secondly, in your experience, did polics ever come into play in raising the aletter level? >> the answer to the second question is, no, never during my tenure in any way, shape, or form. we did it twice. we did it once in the wake of the london bombing, and at the time i explained that was because we weren't sure about the mentions of the plot -- dimensions of the plot, so we raised it for mass transit briefly, and then we did it in 2006 in connection with the plot to bomb airliners coming from the u.k. to nort america. i don't think there was ever an

issue with i as has been publicly disclosed, secretary ridge and i did meet with the committee that secretary napolano has put together on this issue. i would say generally youave to understand how the system evolved. every operational organization has a way of communicating rapidly wit itsonstituents about the need to change your alert posture r yr readiness. the nil tear has it -- military has it, the coast guard has it. not surprisingly, it was seens important to do that in homeland security, and there is now a whole series of operational plans that are keyed to what level you're at. and by going from yellow to orange like we did, for example, in aviation, it allowed us to immediately make sure that every airport did something different once we issued the alert than they had done previously, so there's a real operation

significance. ..

. communicions, in the entire federal government. because i understand it's been continuing consistently, jurisdictional challenges. and two, if i got -- if you all could touch about the impact on cell phone use and e-911 call centers, that is, the inability of responding to emergencies, when folks are calling from the cell phones, and who, touching back to the question to chertoff, who is responsible for giving clarity to that, not just to the public safety community, but to the public at large? thank you. >> can you identify yourself >> biviose fenton. >> i think the first question directed to m is a version of the who's in charge question, which

always gets a longer answer than you would like to have. i think in terms of the planning of emergency communication structures the federal level, it is dhs that has the lead role, but i think for example the fcc has a statutory role and certain authorities -- in certain authorities as it relates to the regulations or the air waves and dhs has to work within that framework. the department of commerce and nis has certain statutory rponsibilities with respect to standards and regulation. so there's probably no one single person who has all of the authority. i would venture to say, though, in terms of structuring the emergency architect euroo and of course dod has the military side, which is distinct -- i would say in terms of structuring the emergency architecture of the civilian domain, i'd have to say dhs takes the lead, in military domain, it's obviously the department of defense that takes the lead. >> with regard to technology

-- the technology question, you mentioned that cell phones need 911. i'll make it broader than that. it's really, more and more often the would of just what i advocated earlier, ip technology, is what causes the problem, that is voice er ip technology, whether it's wireless o wired presents a tremendous problem to the e91 dispatchers. the solution which is you can see the solution, but it isn't here yet, is tied up in a word that you've heard the secretary -- a phrase you've heard the secretary use a couple of times, situationalwareness. we actually have other technologyno carrierring

. that's a -- notwithstanding economic circumstances, that's always an issue.

and i think what it suggests is that grant money ought to be used as seed money and as moneyno carrierring no carrier strategic

and international studies, it's about 90 minutes. i have to say at the outset that this was, by far, the most challenging observation mission that we have ever carried out, and i thi i can say on behalf of the other observer delegat n

delegations that were there, it was the most challenging for them as well. we should also not overlook the fact that there was a strong afghan domestic election observation known by its acron pifa that trained and deployed 7,000 afghan observers that did an extraordinary job. we were very pud to have supported pifa not only during this election, but during its inception prior to the 2004 and 2005 elections. we relied very much on the relationship that we have developed over the years with pifa. in addition to the people on this panel who were in the country, we also benefited measurably by a leadership group that included gary hart, john manly, the former deputy prime minister and foreign minister of canada, who headed the manly commission that was sponsored by

the government of canada two years ago or a year ago that looked into canada's engagement in afghanistan. and also norah owen, the former justice minister of ireland. that leadership team also was informed by, as karen said, 27 long-term observers who were in afghanistan since july, that were stationed in every region of the country. also, by individuals who were looking at functional areas. christine who was examining the afghan security forces, kristen who was examining women's participation, and a third person who is still in afghanistan now who was looking at the election administration and the complaints process. trying to deal with the security issue in afghanistan was the most difficult challenge for our

delegation and the other observer groups that were there. we try to deal with this issue with some creativity. first, we tried to deploy as many provinces as we could. we ended up being in 19 of the 34 provinces, which i think was more provinces than any of the other observer groups. we were able to do so because of a separate program ndi was engaged in, and that was training some 31,000 candidate agents at polling sites in the months leading up to the elections. that was a program that was supported byhe undp. and the trainers for that program were a very talented group of afghans who have been with the institute for the past several years. they cld go where internationals could not. they knew the election procedures and the laws better than anybody. and we benefited greatly from their reports, which were --

were among the best that were coming in from -- from very difficult areas. we made a strategic decision at the outset not to send internationals into provincial reconstruction teams. others decided to do that. we would rather benefit from afghan observers who wer well-trained and knowledgeable because we feared that we would be fighting to get into the prts and then we would be fighting to try to get out of the prts on election day. and i think many of the other observers found out that once they were in the prts on election day, they were either deni an opportunity to lever or they could only see polling sites in the immediate viciny of the prts. so i think it was a good decision. i think we were able to garner a lot of iormation on election day, but in the name of full disclosure, i would have to admit that we, like the afghan voters, were hampered by the

insecure environment in a number of parts of the country. anwe have to admit it. we have to deal with that issue that we couldot go to certain provinces where we wanted to go and we could not go to certain places within certain provinces that we would have wanted to go. nevertheless, we received literally hundreds of reports and some of those are reflected in the statement that you have that was released in kabul and they will be part of a larger final report. i think we -- our statement reflected a measured assessment, our preliminary statement, of the election. we talked about some of the pects of the election that were consistent with democratic principles, but at the same time we talked about serious fws in the process. needless to say, the insecure environment in a number of parts of the country. as we look at this election now, i -- and with all the problems

that have emerged, some of which -- some of them we witnessed directly. there are two perhaps silver linings. the first is a highly sophisticated software system that the independent election commission possesses. and that software allows for certain votes coming from certain stations to be quarantined if thereeems to be anomalies or evidence of fraud. and from observers who are watching the count now, it seems as though that softwe system is working. and there are a number of stations that -- results from stations that have been quarantined. what happens to thosevotes, we do not know as of yet. the second silver ling is the

electoral complaints commission itself. from all of the elections that webserved around the world, this is a very unique institution. perhaps it reflects the weakness of the judicial system in afghanistan, but there are very few countries around the world that immediately after the election that you have a body that can investigate complaints quickly, can adjudicate those complaints, and has the authority to anull results. and they can do all of this before the final results are certified. a lot of responsibility falls on the ecc, but can tell you in most countries the complaints go to the judiciarya or to a specil tri tribunal. sometimes it takes months if not years before complaints are resolved. in the case of nigeria, before the last elections, they were anulling results in elections when people had been seated in of f