the restrictions of high cost traditional mris getting back to the footprint issues at the screening sites. as mr. lujan said, we demonstrated this technology in albuquerque a year ago last december, i guess. in december of '08 was that demonstration. it was very successful in identifying dangerous liquids in a small bottle among nonhazardous liquids in the standard tsa-size screening bowl that you would put your coins or wallet into. so now the next step in this risk management development is can we do that with an entire tray size application. how can we be successful in doing that with the regular baggage, you know -- full baggage carry-on baggage size. so we're looking at this in a phased increment. and we're confident enough now that the technology has great potential for success that we're looking for commercial partners.

'cause at the end of the day, the commercial partners are who -- you know, who we need to get these things -- get these things deployed en masse. it's an excellent success story. let me talk about the national partnerships with the labs. i'll go in a little bit more detail than just in my oral comments on this dhs-doe aviation partnership. we recently established this. it's often running. it's going to provide a senior-level undersecretary level governance mechanism to focus the utilization of the national labs on this very important problem. right now we're looking at three -- you can do all the governance you want. but if you don't get down to the working groups and the people who actually know how to bring solutions to the table, you're never going to get anywhere. we're looking at three areas to focus on. one as dr. albright mentioned is the systems analysis of aviation security. both from a aviation security as

a system of systems and then from an engineering standpoint when you get to the passenger screening checkpoint, for example, what's the optimal configuration. what are the tradeoffs among the technologies? the national labs with their modeling capabilities are uniquely positioned, i think, to help us there. that effort will be led -- coled by the national laboratory. >> mr. buswell, if i may and mr. chairman, to make sure we get a chance to explore these a little bit going forward with some other questions. but one thing that i just want to point out is -- one thing that we learned from the failed attempt on christmas day of this last year is that metal detectors didn't do the job. and there's been an investment and a commitment going forward with metal detectors. we need to make sure that we're looking at these technologies to be able to identify these materials to understand how we take into consideration the complexities associated with chemistry and the value of getting the molecular footprint

so that way we can prevent them from getting forward -- from moving forward and from identifying people that have them on their body, on their persons, or on materials in a way that's safe to the public. and mr. chairman, i'll pursue that line of questioning as we go forward as well. but i certainly hope that we can get to that point. thank you, mr. chairman. >> thank you very much, mr. lujan. and we will return for further rounds of questions. mr. garamendi, please proceed, five minutes. >> thank you very much. was it 25,000 microrims a year? >> yes. >> and it's 1,000 to fly across the country. >> that's right? >> we better stop going home, mr. wu. >> it's actually 1,000 per hour at altitude says. -- altitudes. >> i'm not going home. what is the status of explosive detection. dr. albright you discussed this in generality. how long do we have to wait? what is the status?

or will it ever be possible? >> so that's -- that's a great question. i think as was pointed out by mr. lujan, to date most of our technology of passenger checkpoints has revolved around metal detection. the thing that you walk through is looking for metals. and that may have made a lot of sense in the day when we were worried about people bringing guns on board, aircraft, but it doesn't check for explosives. it's just a fact of life. even with the carry-on -- the carry-on baggage systems that we have deployed, without going into classified details, they have utility in detecting explosives but they are certainly not at the performance point that i think anybody either -- any of you or anybody here sitting at the table would like. so we have tried to move on to other ideas.

whole body imaging is certainly one that has been put in play approximate -- by the way, it was at the pacific laboratory and was transitioned into the private sector. the difficulty with explosives at the end of the day is that they are -- there's two problems. one is that they are not volatile. that means they don't put out a lot of vapor which is the kind of thing you would detect from in a remote environment. you'd sniff for the explosive. and they are not very volatile and frankly for obvious reasons. you would not want to have an explosive that rapidly turns into a vapor and mixes with the atmosphere. that would not be a very stable environment to operate in. so they tend to have very hard to detect -- you have to actually detect the solid somehow which is by the way the basis of those scanning systems that they use in secondary inspection. the second difficulty is of confusers.

you have a lot of -- many of you probably have gone through a -- gone through secondary -- have been scanned, had your luggaged hand-swiped and it's come back positive. my guess the first question was, did you play golf today? because if you did, you picked up possibly fertilizer and that will sometimes confuse these systems. and there's lots of confusers for the checked baggage systems, for example, it's a well-known fact that peanut butter is something that looks very much like an explosive to those systems. so those kinds of issues -- the confusing -- the confusers is a real problem. and finally what has changed a lot particularly over the last few years is the plethora of explosives that we have to deal with. you know, we originally had a fairly short list of explosives we were concerned about in aviation security and at the checkpoints. now there are dozens that show up on the internet that have to be -- are in books that people sell.

you can get them off amazon. that tell people how to -- how to make homemade explosives. and the list is fairly long and getting longer. and these have to be evaluated. and i think as was pointed out the signatures then -- what they look like to our chemical systems, to the whole body imagers, to this collection of sensor systems that we're trying to deploy, that all has to be worked through. this is again an enduring, long twilight struggle that we're going to be faced with. and so anyway the point is that the current status is not where we would like it to be. and -- but it is a very, very, very hard problem. but nevertheless, there's a lot of ideas for how to improve, you know, a variety of technologies. >> if i might, i won't have time to go into all these other questions but it seems to me that this -- has this whole explosive thing really gone to the dogs? and that's where we are?

>> well -- >> we rely on dogs? >> here's the thing. dogs -- actually that came up after december -- december 25th incident. there's two issues. the first is there aren't enough dogs. these dogs have to be trained -- >> presumably we could deal with that issue. >> it takes a long time to train these dogs. there's three sites in the country, maybe four, i've forgotten the number that actually train these dogs. they get tired easily. they're not necessarily as reliable as people think they are. so when you work all that through -- >> the osha standards apply to dogs? >> we'll have to get nist to go evaluate dogs for us. but people have been working very hard and artificial dog noses, for example, and none of these have worked out particularly well. >> i'm just going to open two other subjects and my five minutes is up. one is on a social science side of it. we were talking earlier about social science but it seems to

me that the visual screening that is to look at somebody and say, well, maybe we'll take another look at this individual has a role and there are those in other countries that actually do that to a great extent and i'd be interested in the social science piece of that. does that really work and the final question that i would like to get to is that the christmas issue really was more about databases, was it not? and the compatibility and the interaction of databases. and the question arises as to computer science and the ability for computer science to deal with the multiple databases and integrating. them mr. chairman, thank you. >> thank you very much, mr. garamendi. before i get on to my next set of questions i want to finish up with some further information on the last question. after my discussion with committee staff two days ago,

the cracker jack staff went into the archives and found two surveys both done after this christmas incident. and both released january 11, just a few days ago. and one survey by cnn finds that -- let's see. full body scanners should be used. 79% should not be used. 20% no opinion. 2%. but there are no backup numbers on that. so we don't know what the opinion of the traveling public is as opposed to a nontraveling sample. and the gallup "usa today" organization found -- let's see. well, there's a variety of findings here.

the majority 67% say they would not be personally -- personally be uncomfortable with undergoing such a scan. that's the full body scan that we're talking about. close to half, 48% saying they would not be uncomfortable at all. 10% say they would be very uncomfortable if subjected to such a search. and i have to add that the prior preferences were comparing full body scan versus a complete patdown. and it's -- and there is a difference between men and women. and what they found is also that in their sample -- let me take a moment here to find the sample information because i think it's

very important to our consideration. okay. results based on the total sample of national adults. 95% confidence. results based on a sample of 542 adults who have taken two or more air trips in the past year. maximum margin of error is plus or minus 5%. but there are no data about how the frequency of flying correlates with the opinions about intrusiveness. and in the cnn survey, the frequency of flying was really quite disparate. about 50% flew either frequently or occasionally. and the other 50% flew never or rarely. and so you could fit all the frequent passengers into the

don't screen me category or you can fit the 50% that flies into the i don't care category. and i think it's pretty important to determine what it is. whether we're addressing a real problem or not. so mr. buswell, i guess before you come back you're going to have that information broken out for us, aren't you? >> yes, sir. i will take that. thank you very much. >> now, let us assume that this is a problem. that public acceptance is a problem. the 1996 national academy study on airline passenger screening discussed the importance of understanding the health, privacy, convenience and comfort impacts of screening technologies. and the report 11 years later, the 2007 report, said very little work had been done in these areas. and i want to ask first, our three witnesses from nist and dhs and the labs why have these recommendations been in one

sense or another ignored by our respective agencies? and in doing your work? >> thank you, mr. chairman. i guess i would respectfully disagree that the recommendations have been ignored. and i think there are a number of recommendations that, in fact, have been adopted. for example, the recommendation that we consider privacy filters to mask portions of the images -- whether those be private -- you know, private areas of the body or faces so that -- so that those wouldn't be displayed together. the fact that images are not stored, images of the traveling public is not stored is a recommendation that came from that report that was adopted. putting the screener out of site of the individual was one of the recommendations. and that was adopted by tsa. the fact that automatic target

recognition which is, in fact, our highest resource priority for tsa would allow images not to be viewed at all unless in response to an alarm. is one of those things that we're pursuing. and i think the most important recommendation that we adopted is the recommendation to assess early in the development process as possible the potential for community -- you know, community resistance to the implementation of some of these technologies. we've got in place a formal process to understand and incorporate community perceptions in the development and the deployment of critical technologies. we call it the technology acceptance and integration program. and they look at things like privacy, civil rights perceptions, whether that would be intrusiveness or invasiveness. they look at convenience, comfort, complexity, usability in the perception of threat risk or safety -- >> mr. buswell, before my time expires, i'm going to give dr. hyland an opportunity to

comment because, you know, i'm a generalist. i work here in a legislative body. it's one thing to disagree with me but dr. hyland's written testimony states in 1996 the committee has found there was very little work to study the public acceptance of screening technologies and when this topic was revisited relative to the committee's work of the whole body imagers of 2007 that had not changed. dr. hyland, would you care to comment about how much work has been done on the public acceptance front? >> certainly. i'd like to say that when we said that in 2007 we found no updates, so as mr. buswell says perhaps there's information being done internally at dhs and tsa in the published realm so we may not have seen it. but it was of concern to us that there was nothing in the publications that we would see

that had addressed this. >> dr. coursey? >> yes, you wouldn't expect nist to have a large role in this. we have usability in our information technology -- >> i'm never surprised at what nist is involved in. i can't think of a single area that nist is involved in. >> this is a very excited project partially supported by dhs and look at the fingerprint readers as passengers are approaching a checkpoint. this is work funded by s & t that now being used by u.s. visit. but it basically comes to the idea of affordance. when you come up to a piece of equipment, do you instinctly understand what you're being asked to do? or do you have to have some long instruction in doing that? so i think the public acceptance

to some extent will hinge on these usability studies. this one particular one was very helpful for u.s. visit. >> did you ever compare a mac with an ibm? just kidding. just kidding. mr. lujan? >> mr. chairman, thank you very much. and just to pick up a little bit where we left off. dr. albright, modeling simulation, computing capabilities, computers especially with our national laboratories, can you just speak specifically to how valuable those are as we move forward with talking about how this can be incorporated into looking at deploying these technologies and creating a safer flight environment for passenger isn't it so >> sure. let me focus on one specific example. one basic concern you have when you are thinking about deploying a next generation of any kind of system is what is the minimum amount of explosive you really need to detect?

and clearly we're not very much interested in, you know, very, very small amounts. and the question is, what do these systems really have to be able to do? and the only way to really know that is to ask yourself what is the vulnerability of the aircraft to various explosive formulations placed on various parts of the aircraft? there's two ways you can do this. one way is you could go out and buy a whole bunch of air frames and just start blowing them up. and we actually do a little bit of that. but that is obviously not a very efficient or cost-effective approach. the other approach is to use some of the exquisite modeling and super computing capability like places like los alamos sandia and do instrumental modeling of the air frames and then ask questions like if i put, you know, so much explosive

at this point in the passenger compartment, you know, am i going to get a rupture, a whole rupture and what will the consequences for an airplane under flight conditions? that is actually pretty hard to do. and it does require validation on -- through some subscale experiments which again all the laboratories have the ability to do. and to do in support of this program. and yes, it does every once in a while -- if for no other reason to make people confident that we actually know what we're doing we occasionally go out and blow up an airplane. and show that it -- we got the right answer. but nevertheless, that's a fairly broad campaign. every airframe is different. there are differences between even different embodiments of the -- you have 757 stretches. you have 757s. they all have different structural responses. and so you have to have an understanding of that so that you can ultimately set requirements for what that explosive detector has to be able to find when you get to

the -- when you get to the passenger checkpoint. >> thank you, dr. albright. mr. chairman, i think we've seen the importance of making sure that we're looking at simulation modeling super computing capabilities to assist us moving into that endeavor when we identify the molecular footprint in some of these chemicals, these very destructive weapon materials to do harm and i appreciate mr. buswell that the department of homeland security has move forward to engage in a more senior level working relationship with the laboratories. i think it's important that we identify technologies like magviz in identifying where we were weak and this in this horrible failed attempt that we saw come forward but as we understand the importance of modeling into occurring that we understand the whole system. and specifically, mr. buswell if we can get a commitment from dhs

that this is one area that we can work with our national laboratories as well as building into this relationship to truly understand the importance of evaluating the whole system, a system's level approach to identify weakness so we can have systemic approaches before we identify a weakness that comes forward in a failed attempt like this. >> i couldn't have said it better myself. that's exactly of the focus of the systems analysis portion that i started to describe in your last round. and just so you know, sandia national lab will be leading that effort. the aircraft vulnerability assessment portion of it will be led by lawrence livermore. and then the third area is this idea of emerging technologies. what do we not know is out there as you said, you know, every time i visit a national lab, i'm amazed at the treasure chest of technologies and science that's going on there. so how do we bring that to bear to this problem and other homeland security problems and

national security problems. and that work will be coled by pnl pacific-northwest national laboratories -- >> and another testimony of tech transfer looking to our brightest and best across the country to identify solutions to problems where given the ability and the necessary environment to support that r & d to solve complex issues when it comes to homeland security, energy even economic questions so that we can understand the complexity of some of the algorithms that were used by financial markets with the devastation that those have caused us as well. again, thank you for bringing this to a hearing, mr. chairman. >> thank you very much, mr. lujan. and thank you to your contributions to this committee. i think sandia has had good fortune in many respects and you're one of them. >> and mr. chairman, we hope los alamos will as well. [laughter] >> yes.

mr. buswell, i have asked you before and i've also asked your counterpart at the domestic nuclear detection office about the role of comprehensive risk assessment. at one point or another there was some concern that technologies were being developed and risks were being addressed based on how the vice president was feeling that day. and i think the prior vice president, the current vice president might assess those things very, very differently. and one hopes that in our research endeavor for dhs that we have a steady hand and guided by real risk assessments. so i'd like you to district attorneys that -- the role of comprehensive risk assessment in creating a multitiered detection prevention approach. and how this dovetails into

using different approaches such as using k9s as mr. garamendi suggested using personal interviews and behavioral detection as well as this tech logic approach. >> the last time i was here we discussed the importance of an overall risk assessment. and i'm pleased to see in the quadrennial homeland security review report that was released earlier this week that the need for a national risk assessment framework was identified as one of those highly important things that we need to go forward with. i know the secretary understands that. and she's engaged in that -- in that broader, you know, national risk assessment that we discussed earlier. >> mr. buswell, can you send back a report to this committee on the progress of implementing

these systemic risk assessment methods? >> i'd be pleased to. i'd be pleased to. the risk -- the systemic risk assessment is led by the office of risk management so i'll be happy to work with them and get you that information. >> thank you. >> when it comes to the aviation security risk assessment, tsa has done a lot of work in this regard, you know, we're not shooting blind here. in the screening technologies and the screening approaches that we're taking. likewise, i'd be pleased to coordinate with tsa to bring to the committee that risk assessment that they do regularly and they revisit regularly depending based on the threats that are emerging as dr. albright said, at one time there were very few things that we were worried about. people bringing guns and, you know, commercial grade or military grade explosives onto airplanes. that list is quite long. and prioritizing the list of things that we have to look for

and prioritizing the amounts of -- or establishing the amounts of these various substances that we need to look for is high on the list of things that we need to do. and is fundamental to that risk assessment. so i would be pleased to coordinate that -- that engagement with the committee. tsa has done some work in this area that i think you'd be pleased with. >> thank you very much, mr. buswell. i want to return to mr. garamendi's point because we have a society that really focuses on technology. and it has served us well in so many different ways. but dr. albright mentioned in several different ways why detection technology is very challenged by the nature of the current threat. mr. garamendi asked about dogs. somewhat seriously and somewhat humorously.

i remember being at an airport in canada and having this friendly little dog come along and -- i was kind of disappointed that it just went right by me but i think in retrospect that was a good thing. it sat down and looked expectantly at this nice young man. and the nice young man was promptly taken away by the mounties to do what, i don't know. i doubt that it was skwloefss. -- explosives. i suspect it was something more fragrant and the dog was up to the task. but it's not just, you know, our brethren north of the border that do this. right here if you drive your car over to the capitol they will stop you and first they run a mirror to look on the underside of your car. and then a dog comes and my kids refer to that as getting your car dogged. i'm not sure how effective that

dog is. what i do that dog works in daytime and nighttime low temperature, high temperature when it's dirty, when it's snowing, et cetera. now, the puffer machines that were deployed on an experimental basis -- i believe 100 of them were deployed around the country on a trial basis. and the fact -- the figures that we have say that those are $150,000 or more each. and i'm told -- i mean, i haven't seen the puffers in a while. i'm told the reason why the puffers were pulled was because humidity and dust caused puffer breakdown or puffer confusion. i'm not sure that a dog would have the same problem. and my impression is that $500 buys you a pretty good dog. now, granted you have to feed the dog. you have to train the dog, et cetera. but the puffer machine was

difficult to maintain. why are we creating an artificial dog nose when we have pretty good dog noses? dr. coursey? >> we actually have chemists at nist working on both of those problems closely with the science and technology directorate. and specifically with dogs, the interesting thing i found talking with the dhs office of bombing prevention the range of different threats that the dogs are being trained to, the -- it can be different in a mass transit environment than it is in the aviation. and as you mentioned some dogs are trained for narcotics. others are trained for money. and others are trained for cadavers. so there's actually a group called swig dog that develops -- it has a series of committees that look at the standards for training methods for these dogs. i think there's a lot of basic

science still to be done here because we don't know if a dog is reacting -- whether he's reacting to the particles or to some of the vapors that are associated with the solvents that were used. ... >> let me just reiterate the

fact, first we don't really understand very well why the dogs are as good as they are. >> but my question is, are they good? >> that is a good point. and in fact, it sometimes depends a lot on the testing. i won't go into it here, but i could tell you off-line about my expected when i was in the white house, reviewing the anthrax smelling dogs. that was -- it turned out a test procedure was totally biased. they couldn't do the job. >> if i were a dog i would want to be sniffing anthrax either. maybe these dogs are just brighter than you. give them credit. >> i was not a proponent for this. that's a whole other story. but nevertheless, they do tire very easily. dogs really good for think about three or four hours before they start -- before they started -- >> that's what i said about 300 dogs for one proper. >> and a training regiment they have to go through, months.

>> i realize that. >> and then finally there is a range of explosives -- is not known how broad a range, including these homemade explosives, so you're right, there are some signs questions that have to be dealt with. but the investment that would have to be made in order to be populate, our explosive detection infrastructure with dogs to the number of that we would need to do it -- >> we haven't done a very good job of populate airports with usable detection technologies, you know, that cost 100 or $200,000 each. now, i realize that there are challenges in acquisition, and maintenance, and you know, on and on. but sometimes in our society, and you know, i serve on the science technology committee. but we have an absolute love affair with whizbang gadgets,

and sometimes it turns out that something simple and inexpensive and deployable is being overlooked because we have made assumptions. it was in then i can this complex building that a nobel physicist duncan o-ring into a glass of cold water and said, well you know, this is what it space shuttle may have blown up. so you know, sometimes we need to review our assumptions and inclination towards complexity. if i should be worried that the dogs guarding the u.s. capitol our sniffing cars out there, that they are not doing a good job, and they are not reliable, and that they're going to get tired, you ought to tell me that that's the case. but you know it seems to me that those dogs are after seven by

24. and i know that the capital is not, you know, several thousand airplanes flying around the u.s.a. but you're not going to tell me that a country that can deploy millions of troops overseas during world war ii cannot deploy a few hundred dogs in civilian airports in the continental u.s., if this is truly the long twilight struggle that some folks would want us to believe that it is. >> the only point i would make is, that i think a lot about analysis that that you are referring to has been done and it was done in the early days when we were concerned about lockerbie and that area when people were looking for solutions. i have to confess that i haven't looked at it in a while, as to whether what are the traits between the thousands of dogs you would have to deploy in an airport environment and the technologies that we are deploying. i would point out, i think he

made the point yourself that the operating environment out here in driving to the capital is very different environment than one at a passenger checkpoint. but nevertheless, the point is a good one and it's probably a good idea to go back and dust off some of those studies and ask the question whether or not, whether or not we are missing something. >> yeah, you know, i think it's really important to try to review some of these assumptions. and test them again, and you know, the operational test, does it work? you know, it's really nice to understand the how and why, but you know, if you've got to understand the how and why before you deploy something that works. you may not win some struggles that you might otherwise be able to win. now, i've never been a

conspiracy type person. i do think that as a society we naturally favor technology, and sometimes it's more expensive than similar things. i do want to come on this record, make the observation that these technologic means are also, well, they keep national laboratories occupied. they keep the producers of the technology occupied. and you know, some of these manufacturers have representatives in washington, d.c., and i don't think the chemical does very well represented here. and i don't know if that has anything to do with it. but i sure would like to have some of these easy assumptions revisited, or else i'd like to have puffer machines at the u.s. capitol rather than what they're currently doing.

let's shift now you know, one of the challenges here is that, for y'all, is that we fly a lot. you know, congressman fly a lot. and so we think we know everything there is to know about flying and being a passenger, at least. and we've all had experiences where something that is detected at one airport, or on one given day, is not detected on another day. you try to take everything out of the bags, but you have a 4-ounce bottle of fluid and the limit is 3.5 percent on some days, it is bought and you have to remove it. and on other days it's not. i don't always tell with a laptop, but sometimes i do. and every once in a great while, i forget to take it out of the

pocket of my carry-on bag. and as often as not, i don't know if they just wave it through. it seems to me that when they catch it, they make you pull it out, but sometimes it seems like they don't catch it that if i am in a hurry, i am grateful. it is unintentional but that happen, but most of the time i also feel concerned that what they say is important isn't caught. and the panel try to account for this disturbing variability in the screening process at our airports? >> i'm the science guy, so i don't have the operational insight to know, you know, the facts about these things. i know anecdotally i've heard the same sorts of thing. and what i would tell you is what we are looking at from a research --

>> mr. buswell, let me jump in here because this is a really important point that you said i'm a science guy and i don't know some of the operational things. that is a very important problem that we are trying to address, because you're not producing stuff into a vacuum. it's not about a gizmo. it's about the effect of service that that gizmo provides. so you really do have to account for all the operational factors that i mean, if you produce a great weapon, but the operators don't have to operate it, or like the russian tank, that is manually loaded but you can only manually loaded with a midget -- i'm sorry, with a short russian who is left-handed, you know, that causes a real problem. you know, what we are trying to hook up here is, is a technology that is actually implementable in the real world.

>> sure. and my point with that was the operational requirements that tsa establishes or what we do our research development to meet, you know, to feel the technologies and other operating procedures to meet, and you bet, there's a variability across a range of things. and one of the things that we're working with tsa to do, as i mentioned, this idea of automatic target recognition. so you are not relying so heavily on the screen who may have been there for some period of time, and you know, is fatigue and may miss something. and what we're trying to do is trying to develop these kinds of technologies that will help us, help the screeners be more effective. we are trying to look at, from a behavior detection standpoint, can we identify people who intended to harm before they ever get in to the screening process.

we're looking at things like -- you may give her a good point with the dogs. tsa, it is a system of systems. there is no silver bullet here which is why tsa employs 700 dog teams that they believe that that capability is real, too. and the training, you know, training occurs at both ends of the leash, and the problem is one of the problems as dr. albright cited, is there is no way to calibrate the device prior to use. you know, if a dog is having a good day or a bad day, or -- there's limitations and we have to understand those limitations and build them into the system. >> you said there's no way to calibrate. is that true? i mean, -- >> it is absolutely to. >> can't you walk the dog by experiment and placebo? >> absolutely, training of the dog is important to. >> i am saying you can calibrate the dog on site and determine whether the dog is tied or not. he ought to be pulled off the line. >> if you have a training device

on site with which to do that, and so one of the things tsa has asked us to do is develop some low-cost devices that we can use in the field where we don't have to take the dogs back to the training center so we can more frequently trained the dog to do the sorts of things. there is research and develop an going on in all of these areas that try to mitigate or try to minimize the probability that things, you do, that things will slip through. and this is a system of systems. this is a layered approach to security to include dogs and technology and people, and all of those things that make it maximally effective. >> i think the core concern is that based on individual experience, and then what is recorded in the news media, the american people have a legitimate concern about whether all this inconvenience is producing a result that we all want. and you know, that really is the core inquiry. let me go onto one last question

that i know that mr. smith, told the long ago, that he had to attend to certain things at a certain time. the transportation security screening ipt's, apparently considered the needs of dhs offices such as gsa, but i'm told but not the concerns of other customers such as the traveling public, airlines and airports. is this true, and if it is, would considering these other concerns, such as customers, the traveling public, air carriers, the ports that operate airports, would this have surfaced some of the problems are resulted in different technologies being deployed, different research efforts? >> i'd like to say, yes, i think

that taking into account the public's perception, but the operators of the machine are also involved in the whole aviation security technology. so designed that machine so that they get as mr. buswell says, specific information about what they're looking for, as are posted here is a bad, do you see anything, anything different in there. that has been the tsa activities. it is only one part, and the traveling public has come to kind of expect that variability, which i think is an unfortunate acceptance of nonstandard performance. >> i would just further elaborate on the community acceptance of technology panel that i mentioned earlier. we run these panels based on technologies that will have to

be accepted by the public. so we've done a series of these with some pretty good results, and we intend to do more. so let me give you a couple of examples. we held a panel on microwave vehicle stopping. in other words, law enforcement or others who need to stop vehicles whether those are cars or boats, can you use a mic or wave device in order to do that. what would be the concerns that people would have with that. the panels include sociologists, behavior scientists, consumers, and public interest representatives, civil liberties, source of groups and privacy groups, ephesus, and then also for each of these technologies will include specific subject matter expert. for example, on the vehicle stopping technology, we had a member of the american automobile association as part of the panel.

and of course, the coast guard and others, law enforcement entities that would be interested in using the technology. so a series of these we've done several on screening technology. we have done several on the mobile biometrics, and they allow us to understand and modify the technology development and a way that makes it more likely that it will be able to be deployed by operators at the end of the development process. so i think we've got, we got a real success story there with these public acceptance efforts. and this gets to the point that was in the national academies engaged early in accessing the public acceptance of technology. >> mr. buswell, i hope that you are able to come back in a month or two, and first of all, tell us that you have the data in hand about what problems actually do exist here and what

people will accept and what they view as overly intrusive. to the extent you actually involved passengers in your groups and that's commendable. to the extent that you are counting on the opinions of folks who aren't opining about people, you know, that's a risky thing to do. and apparently, you know, there are at least two surveys here where they actually ask people, and got answers. and i don't have the granularity of this data to unpack the significance of these preliminary results about the traveling public and the really frequent flyers versus the never flyers versus the sometime flyers. and there really is no substitute for asking. there really is no substitute for accurate data. and i think that is two and a whole bunch of fields of science, and it is true in your

field and it is true in mind also. i really want to express my deep appreciation to each and every one of the witnesses here today. we are engaged in a very, very important collective endeavor. it is about convenience and public acceptance and economics for airlines, that if you sum up all of their financial activity over the history of airlines, it's not clear that there is 1 dollar of profit in there. so you know, they are living on the edge. and if we want to have a privately owned airtran did system, then we are to help them do their job rather than put unreasonable constraints in their way. but the endeavor that we are engaged in, is more poor because it is about public safety. and we face all sorts of different risks. but currently, unit, folks are

very much focused, and properly so, on this terrorism threat and the threat of human made incidents on airplanes. and we need to address that as aggressively as the american people want us to. but i think most fundamentally, this is about whether this government can do a job. can do any job. can do a job well, because what is most corrosive is that experience at the airport that there is incredible variation in the service at that security checkpoint. if any other business entity had that much variability, i mean, you know, mcdonald's has a hamburger so that you don't get

a different burger at every mcdonald's as you go to and you don't get a different burger whether you win in the morning or the afternoon. we need to come at a more elevated level of conversation, we need to do this task well, because it is important for its own sake, but ultimately we need to do it well because it's the only reason, ultimately, why there is a bond between ourselves and the government. some believe that it does will. i think john kennedy said if i wanted to make a difference in the way people perceive the federal government, i would start by changing the postal service. and that's what all risk, that's to my friends on the postal service. i have a riff on that which if i were governor of oregon, the first thing that i would do to change the public perception is

work with the dmv to brighten up the service there. the american people come into contact with the federal government as much to the tsa and at airports as any other place. let's do our best to get it right. thank you very much, and written questions will be submitted by the staff and by members. again, thank you for being here. we really want to work with you to make sure that you have the legislative support and the fiscal support to get these are very, very important tasks right. so we will come back to this in due course. thank you all very much. this hearing is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] at the white house today president obama has meetings with advisers but no public events planned. press secretary robert gibbs will hold a briefing for reporters at about 12:30 p.m. we will have live coverage here on c-span2. the vice president and his wife lee for vancouver today to participate in the opening weekend of the winter olympic games. according to the white house they will attend the opening ceremony, meet with u.s. athletes and meet with world leaders. the "washington post" writes this morning that coast guard, dad that allen will say today that coast guard will risk a drop in readiness and become a more fragile forced to accommodate cuts in president

obama's 2011 budget. the common and is expected to speak at the national press club on the state of the coast guard. we will have his speech live at 1:30 p.m. on c-span. also on c-span at 2:30 p.m. a senate banking subcommittee holds large financial companies whose failure could pose a risk to the whole economy. that hearing is live at 2:30 p.m. on c-span. grave sites?

guest: it is a wonderful way to humanize and personalize the past. to take even this and movements that otherwise might seem impossibly remote. there is something universal about the fact that we're all going to one day be on our deathbed. we are all going to face growing old. we all have to wrestle with questions of immortality and mortality. i mean, those are some of the themes that run through all of this. but it is also, frankly, and

entertaining book. there are a lot of stories and anecdotes and >> at this housing on executive compensation and the financial industry, chairman barney frank said the committee would look into a polishing government-backed lenders, fannie mae and freddie mac, quote, and their present form.

this is two hours and 15 minutes. >> the hearing will come to order, and we have 10 minutes on each side, it being a day with not many members here. we can get right to the questions and have significant that everyone will be able to ask questions at least. and i will say that on did we fifth we're going to have a joint hearing with the committee on small business on the question of why more money isn't being lent and we're picking fit with it because we have a joint hearing which means that 100 members of the house will be the operative body. so this will be one day when, if members come to us and say i can't make it, we will not be

totally unhappy, but we did feel that this is something where the small business committee has a very real interest in this as well. we have chairman and ranking member of small business committee on this committee, so we will do that one together. and this hearing will now begin. we have 10 minutes on each side for opening statements, and i began by recognizing for, two minutes, mr. carson. >> thank you, mr. chairman. as we all know, the american taxpayers are angry that their tax dollars lifted many financial firms and a time of crisis while some of these same firms now have reported record profits and are handing out lavish bonuses. some of these firms have not turned around yet but continue to follow reckless compensation practices. this is because we currently have an irresponsible corporate culture where american ceos are awarded large bonuses and generous stock options, even when their companies perform poorly. there has been an increase in

the typical ceo pay in the u.s. during the past 25 years. the total real compensation of ceos in large publicly traded companies grew sixfold during this period. the case against the pay of american ceos looks even more powerful by recognizing that the typical american company had received total compensation than company hit in great britain, canada, japan, spain, and in much of all developed countries. clearly, american ceos are being rewarded over ceos elsewhere. even when per capita incomes of the countries do not differ by very much. while recent headlines on executive compensation have focused on financial firms, we cannot ignore other sectors. in fact, the corporate library recently ranked five ceos all outside of finance as the highest-paid, worst performers. these ceos are taking home more pay, despite the fact that their businesses have done so

badly that their stocks have tanked and they have laid off many employees. american compensation are out of control. and the existing compensation structure cuts to the ability of our corporate government system to function. as we work to issue new guidelines on executive pay, we need to ensure forms begin to better align pay with stockholder value. i suggest moving beyond a nonbinding shareholder vote on executive compensation. there is continued frustration with company boards that either failed to act and respond to a successful nonbinding shareholder resolution, or water down an imitation of proposals. boards can too easily amend or resend board adopted policies under the umbrella of judiciary duty obligations. while i encourage open dialogue between shareholders, directors and management, i do feel shareholders have the incentive to act responsibly in determining fair and equitable pay for executives of the firms. thank you and i yield back my

time. >> the gentleman from alabama. i believe that showmen just two and a half minute. the gentleman from alabama is recognized for two and a half minutes. >> thank you, mr. chairman. mr. chairman, executive and chairman, i think you've been very fair to committee republicans. you have invited witnesses that we have requested, and often invited more than just one of our choices at certain hearings. and of course, it is traditional that the republicans get to call one witness at a hearing. i have always appreciated your consideration, and i know my colleagues have, too. because you've always been a common ending of our requests, the decision to deny republicans are witnessed choices for this hearing is somewhat, both disappointing and puzzling. i'm not sure what makes this hearing from any other one. so you know, why we were denied

our choice of what is. that witness was a debacle. he is the acting director of the financial agency which oversees fannie and freddie. and is the person who, along with the treasury department, approved a 42 million-dollar payday for 12 executive, executives of the failed gse's, including $6 million to chief executives. during this hearing, no compensation of the financial industry we assumed we would be permitted to examine a real-life case of excessive unreasonable executive pay at the two companies that have received more extraordinary taxpayers assistance, over 110 billion counting, than any others. but we were wrong. mr. chairman, $6 million is 15 times more than what the president earns and 30 times larger than the cabin secretary.

the christmas eve announcement of these bonuses was greeted by one commentator by saying, the taxpayer got screwed. because the regulators failed to use their authority to block these colossal paydays, of government employees, and you've referred to them as public utilities, congress should step in. i and several of my republican colleagues on the committee have introduced legislation. to protect taxpayers having to foot the bill for any more multibillion-dollar tax packages. mr. chairman, i think the taxpayers are right. whether it is any financial government, if the government is heavily subsidizing that company, they have a right to ask -- >> if you wish to continue his. >> another 32nd. they have a right to ask, are my tax dollars subsidizing this large salary. and they certainly have the right to hear mr. demarco and find out why on christmas eve they learned that they would be

paying some tremendous bonuses. the legislation also expresses a sense at congress that each executive should return the check you pay they received in 2009. so we can reduce the federal budget. mr. chairman, i do appreciate your pledge to invite mr. demarco to testify at a hearing in late february, but i'm disappointed that the american taxpayers will have to wait another five weeks for an explanation from the obama administration. about this christmas eve raid on the treasury to pay these executives. i yield back the balance of my time. >> three minutes, there will be seven minutes on the site and i recognize the gentleman from california, is the ready to go? for two and half minutes to. >> i believe in capital as in, that means shareholders will and shareholder risk. that's why we ought to have say on pay and it ought to be binding. after 13 years of congress, i'm not a real fan of nonbinding

resolutions. there's a special circumstance where companies too big to fail, because at that point they have a quasi federal government guarantee. the best solution is to break them up so that we don't have anyone who is too big to fail. i commend the german from pennsylvania who would allow the administration to do just that. until then, those are too big to fail should face these to redo for the taxpayer the benefits of those organizations get, from their implicit federal guarantee. the bill we passed in this committee and this house does that. and with peter's amendment, allows those firms to pay for the past cost of the too big to fail, as well as provide it a before the fact fund to pay for the too big to fail problems of the future.

it also makes sense, as long as there was are too big to fill and enjoy the implicit federal guarantee, if they are quasi- government entities or quasi federally guaranteed, they should pay -- play by government salary rules which are a lot different from those that wall street is familiar with. the best solution is for these firms to voluntarily divide themselves so that they are not too big to fail. and we can go back to real capitalism, shareholder control, shareholder risk, and they congress and the federal government that doesn't have to concern itself with salaries and other aspects of internal corporate decision-making. i yield back. >> that joan has consumed i believe a minute and 20 seconds. those that will leave us on the inside with six and a half minutes. the gentleman from texas recognize or two and one quarter minutes. >> thank you, mr. chairman.

let me sit up i can get this straight that we're going to regulate the compensation for companies that pay the tartly back, but we approved a multimillion dollar pay package for freddie and fannie, who will never pay any of that money back. now that's what i call picking winners and losers, and in this case, unfortunately, the losers win. since the american people now own almost 80 percent of fannie mae, we need good management to stop the bleeding and see if we can recoup at least some of the taxpayers money back. or poorly, we need consistent policy in this country. i think it's important kind of reflect on what's going on today. we're going to regulate compensation and tell companies what they can he cannot do, break them up if some bureaucrat thinks they are today, and by the way i'm not talking about venezuela. i'm talking about what's going on in the united states of america. the american people are getting tired of the government telling them what to do. so today we're going to talk about more big government, we're going to try to look tough on the financial institution so we

can't appease the anger of the american people for committing trillions of their hard earned money to bail these entities out in the first place. is my colleagues were so concerned about the taxpayers and not wall street, why did they've been that wall street at the expense of the american taxpayers? what the american people really want us to focus on is how can we raise their wages and create jobs for those who have lost theirs, instead of focusing on issues that don't create jobs here in fact, are going to cause the american people to lose their jobs. mr. president, we need you to focus on jobs, not spending money we have on flawed stimulus packages. where are the jobs you promised the american people? instead of more government, the american people want more jobs. they send you a wakeup call on tuesday in massachusetts, mr. president. i hope you were listing. i yield back the specter gentlemen from kansas is recognize. >> thank you, mr. chairman,

pictures like reasonable executive compensation rules to increase financial snow should not be partisan. reforming fannie and freddie should not be either. i'm disappointed some of my friends and the other side forget that when they controlled congress for 12 years they did not enact many reform of fannie of a intricate glass uniform chairman of this committee, mike oxley said, go, we missed a golden opportunity would have of would have avoid a lot of the problems we are phasing out that if we hadn't had such a firm ideological position at the white house and the treasury and the fed, into court. i hope we can come together this time, republicans and democrats to export good policy options to deal with fannie and freddie cited as you. turning back to executive compensation, i felt that financial firms receiving taxpayer assistance should receive the most scrutiny. one example involves reports of large salaries for fannie and freddie executives. i wrote them about this last march when we first learned about it, and after receiving an unsatisfactory response from ff hai join chairman franken is to vote for h.r. 1664, to stop this

unfair pay practices of participants. protecting taxpayers should not be a partisan issue. so i was disappointed in some of my friends on the other side didn't join us to support that commonsense measure. for firms who have repaid t.a.r.p., i don't think the government should go in and set specific a level but to better protect taxes in the future. the government does have a role looking at how pay is structured more broadly. to ensure risk-taking is properly aligned with rewards and doesn't propose a systemic risk. i yield back the balance of my time, mr. chairman, spent the gentleman from texas, mr. hensley, 42 and a half minutes. >> thank you, mr. chairman. after upset defeats in the state of new jersey, virginia, and a stunning upset defeats in the commonwealth of massachusetts, i would have hoped that this administration and this congress would have gotten down to job number one, and that is create jobs, help create jobs for the

american people. instead, it really appears that the administration is set upon an adventure in the scapegoat -ism. let's see if we can find an entity that perhaps is more unpopular than our administration in the united states congress. we have this launching of the assault upon the investment community. now, are there outrageous compensation systems out there, yes. i am outraged by late-night commuters who make tens of millions of dollars to mean to each other. i am outraged by professional athletes who make tens of millions of dollars and abuse their spouses and girlfriends. and yes, i'm outraged by compensation packages on wall street as well, but none, none are more outrageous than those that use taxpayer funds to reward the execs at fannie and freddie. and so on christmas eve, this

administration decided to take out all the goodies from the stockings of the american taxpayer and hand it over to the executives of fannie and freddie, which are functionally owned by the united states government, and hand them out to the two ceos, 6 million-dollar pay packages. 42 million for the rest of their execs. and so we are paying these people bonuses to lose tens of billions of dollars of the united states taxpayer. now what people do with their money is their business. what they do they taxpayer money is our business. and so i act of the comments of our ranking member. i have said privately and publicly that this is a committee that has a reputation for fairness, under chairman frank. now i am unaware, under his leadership or his republican predecesspredecessor, and the seven years i have been here, that the minority has ever been

denied their request to have a witness. so we requested a witness, ed demarco, the acting head of fhfa, to ask the simple question -- >> pajamas time has expired. >> i will yield back the bows of my time. >> you have consent to have 15 seconds to finish that thought. >> i was hoping that mr. demarco could be your to answer the question why he has spent millions of dollars for bonuses to pay people to lose billions of dollars for the taxpayer, and unfortunately again, for whatever reason that request was denied. thank you, mr. chairman. >> i yield myself my remain time, which i think is three and a half minutes. is that correct? to begin i want to thank both the german from texas and the gentleman from alabama for their comments about the fairness of the committee. i'm very proud as can be i think

holds the record for number of amendments that we are debating on the floor, and markup time. we do have one difference here. the members of the republican side have made a distinction between private sector and public sector entities when it comes to compensation. that's what i wanted to do for mr. demarco to hear it will have with mr. demarco. and i hope the bush appointee who had that position before him and was a holdover, and mr. feinberg, and probably sheila bair, that is i think it makes sense to separate out the issues of what we do about private sector compensation, where our members are much more limited one as we all agree and public sector compensation to the question for mr. demarco is what we do about public sector competition. i'm not usually the one who welcomes conference trip that should not in my side of history but i do want to welcome my republican colleagues to converge into the notion we should regulate the pay of fannie mae and freddie mark a

clash of this committee twice reported bill to the floor which explicitly proposed restrictions on the pay of fannie mae and freddie mac. and the republicans oppose it in committee and posted on the floor. indeed, in the case of one of the bills, the one on private sector, because it wasn't clear what the status was at the time, the gentleman from texas, mr. hensarling made in a minute to make sure they were covered. we adopted the amended. but that not persuade the gentleman from texas. we had to bills which explicitly authorized regulation of the pay of fannie mae and freddie mac, and all the republicans on this dais voted against it both times, by one republican, mr. jones voted for it at one time. so i'm a little skeptical as to why we have all this coming up now. by the way, when we pass a bill that specifically would have done it for republican funded companies, we got a letter on march 20 which i will put in the

record from james harcourt, the bush appoint the who is running the findings indicate, stern is objecting to it. so is the bush administration who first raised objections, or the holdover. now i think the say, the pagan is given to fannie mae and freddie mac was too high. and i think this, we will have a hearing with mr. demarco, and others who administer pay schemes for public employees in a month. now, my colleague from texas says he wants to know the answer that i know he's a man of great patience. and he has a very strong attention span but i do think a month and now he will have forgotten the questions he wanted to ask her he could write them down and we would preserve the. but we will have his. i also believe, we talk about -- we have on part of my republican colleagues, they don't want to do it in a of the executive pay in the private sector. so they are changing the subject. we do not propose any specific limits on the pay in the private sector. we do say that the shareholders

should vote radical motion, but we also say that there is a public spillover effect. namely, that the structure of those compensation packages often incentivize excessively risky behavior. and we have mandated that the regulators into this, heads they win, tails they break even at worst. private sector and public sector, we are dealing with the private sector today to the discomfort of my republican colleagues that we will get to the public sector in a month. the gentleman -- the gentleman site has to and a half minutes left. you wish to use it? we have 10 minutes for debate. >> i would like to claim 15 seconds. >> the gentleman is recognized for 15 seconds. >> the executive compensation bill the chairman refers to top it all companies, both private and public. it covered community banks, and it covered all employees, not just top executive. it was a political response to

aig but it was poorly written. and the senate has never taken up that bill and the last time i looked the democrats controlled the senate. they realize it was a bad bill. thank you, mr. chairman,. >> does the gentleman yield? >> no, my time is expired. >> the gentleman from new jersey is not recognized for two minutes and 15 seconds. >> and i thank that chairman and ranking member. i concur with his position with regard to the appropriate request for someone else at this hearing, the head of the fhfa and i appreciate the chairman's explanation why he's not we should segregate the panels in this manner. but that really doesn't go to the comment that i think the gentleman from texas made, that none of. and remember the last time that a member of the minority requested someone to come to the panel to be a witness and the majority party refused that appropriate request. and as at this point the chairman has yet to fully explain why they refused that

request. and the gentleman from texas also point out any and freddie are different from these. they are under government control. the chairman has stated that they are basically quote public-policy estimates of the government. and if they are. to why i may think the initiative is an area legislation, are examples of government overreach, into the private sector, if there's one example, one case, one line executive compensation that should be looked at, it is where taxpayers dollars are being used, and that is an area of thing and freddie. beyond this point, there is a bigger issue that really we should be looking at, and that is the christmas eve announcement when the administration took action without any congressional input whatsoever of the unilateral left of the 400 billion-dollar cap on fannie and freddie's bailout and authorize unlimited taxpayer funds to use both firms over the next three years. again, we have requested a hearing on this, or the chairman

to allow a witness on this and again, he has refused. meanwhile, however, the republican party has come back with our proposals, but they have been adored. the republicans on this committee have put proposals to form these institutions because it is indisputable that fannie and freddie were the central role in the mortgage meltdown that we have experience. they helped ignite the economic crisis that has led millions of americans unemployed. to passing stronger jesse that legislation should be at the very top of this and a gender. >> the gentlest time has expired we went out to say to hear from the witnesses. repeat what he says in every case. who are always welcome before this committee because there are people who make very significant contributions, not just in this testimony but even more important obviously in the debate over important public issues in the country and indeed the world that will begin with

professor lucian bebchuk. and director of the program at harvard law school. >> chairman frank, distinguished mayors of the committee thank you very much for inviting me to testify here today. i would like to devote my introductory comments to making four-point. first, there is a growing acceptance including among business leaders that compensation structures have provided perverse incentives that encourage executive executives to seek to ensure short-term results, even at the expense of an elevated rates of implosion. let me illustrate this problem with the example of bear stearns and lehman brothers, the investment banks that melted down in 2008. many commentators have assumed that the executives of these firms sold their own wealth, wiped out with the firms.

and they inferred from this assumed fact that the firms risk-taking could not have been motivated by perverse incentives by pay arrangements. in recent paper, my colleagues and i did a case study of compensation of those two firms between 2000, and 2008. and we find that this assumed a fact is incorrect. we estimate that the top five executive teams of bear stearns and lehman brothers arrived cash flows of about one point for billion, and 1 billion, respectively, from cash bonuses and equity sales during 2002008. and this cash flow substantially exceeded the value of the executives at national holdings in the beginning of the period. as a result, unlike what happened with the long-term

shareholders, the executives net payoff for 2000-2008 were decidedly positive. the second point i would like to make is that we cannot rely solely on existing governors arrangement. to produce the necessary reforms. to be sure, some firms have announced reform of the compensation structures. for example, they have indicated that bonuses will be subject. but firms have generally not provide information that would enable outsiders to determine whether it would be meaningful and effective behavioral or would be merely cosmetic. this is an area where the devil is in the details. because the changes that firms adopt i appear to be at least partly motivated by desire to appear with positive to outside criticism, there is a basis for

concern that arrangement whose details are not disclose might not be sufficiently effective. what else should be done? the third point i would like to stress is to improve arrangements, pay arrangements in particular in government more generally. we have to strengthen shareholder rights. in addition to introducing say on pay votes, which h.r. 3269 would do, there are other things that need to be done to bring shareholder rights to the same level that shareholders in the u.k. and other english-speaking countries enjoy. in particular, the following aspects of the 16 state of first deserves the commission's attention. many publicly traded firms still do not have majority voting. shareholders to elect the power to place them on the.

many firms still have staggered boards, and many such firms have super majority requirement that make it difficult for shareholders to change governors arrangement. finally, in addition to strengthening shareholder rights, it remains important to have regulatory supervision of pay structures and financial firms as the provisions of h.r. 3269 would require. up owners have read the toward intervention argue that such megastores of provision would drive talent away. however, the duration focuses on structure, not on pay levers. and first would still be able to offer packages that are sufficiently attractive in terms of pay levers. one of the established insides

and economics is that it is never easy should to compensate agents using perverse incentive. and the financial sector, and especially important contacts, to apply this established inside. thank you. >> next we have professor joseph stiglitz of the universe professor at the columbia business school. >> it is both a pleasure and saddest to testify before you today. i welcome this opportunity to testify in this important subject. i'm sorry that things have turned out so badly so far. in this brief testimony, i can only touch on a few key points, and many of these points i elaborate in my book, freefall, which was published just a few days ago. our financial system failed to perform of the key roles that exposed to perform in our society. managing risk and capital. a good financial system performs these functions at low

transaction costs, our financial system created risk and is managed capital. all the while generating huge transaction costs as a sector garnered some 40 percent in the years before the crisis. so deceptive with as storms of creating county that the bank that employed at the crisis evolved they didn't even know their own balance sheet so they knew they couldn't know that with any other bank. we may congratulate ourselves that we've managed to pull back from the brink but we should not forget that it was the financial sector that brought us to the brink of disaster. while the feathers of the financial system that led to the economy to the brink of ruin are by no obvious, the financial system are more pervasive, small and medium-size enterprises found it difficult to get credit even as the financial system was pushing credit on poor people beyond their ability to repay. modern technology allows for the creation of an efficient low-cost mechanism. businesses pay one to 2% or more

on fees for transaction. that should cost pennies or less. our financial system not only miss manage risk and create a product, but they also failed to create financial products that could help ordinary americans face the important risk they confronted. such as the risk of home ownership or the risk of inflation. indeed i am in total agreement with paul volcker. it is hard to find evidence of any real growth associate with many of the so-called innovations in our financial system. it is easy to see the link between those innovations and the disaster that confronted our economy. underlying all the sailors is a simple point, which seems to have been forgotten. i natural markets are a means to an end, not an end in themselves. we should remember that this is not the first time that our banks have been bailed out, say from bearing the full consequences of their badly needed market economies work to produce growth and efficiency but only when private rewards and social returns are allowed but unfortunately, in the financial sector, both individual and institutional

commitments were misaligned which is why this discussion of incentives is so important. the consequences of the feathers of financial system were not born just by those in sector. but by homeowners retirees, workers and taxpayers and not just in this country but also around the world. they are massive and it is a reason why it is appropriate, perfectly appropriate that congress should be concerned. the presence of externalities is one of the reasons why the sector needs to be regulated. and previous tax money i have excimer kind of requirements are required to reduce the risk of externalities that i've explained the danger of excessive risk-taking, how that can be curtailed that i've explained the dangers posed by under regulatory derivatives markets. i agree great to say that so far more than a year after the crisis the, two of those have been on either count. but too big to fail banks which also have allowed to do what has happened that i want to focus my

remaining time in the issue of incentives and executive compensation. as i said there are also key issues of organizational incentives, especially those that arise in institutions that are too big to fail, too big to be resolved or two intertwined. the one thing is that and send us letters and even a casual look at the convention incentive structures with payment focus on short-term performance and managers not very the full downside consequences of their mistakes suggest that they would lead to the shortsighted behavior and excessive risk-taking and so they did. let me try to summarize some of the general remarks that i make in my written testimony that i hope will be entered in the record. . .

>> according to the efficiencies in the system. i want to agree second very much of the review of the need for reforms in corporate governance. there are alternative compensation schemes that would provide better incentives, few firms chose to implement those schemes. there are a few cases where they failed to address adequately, providing for innovations that would allow for a better

functioning of our economic system. >> was he founder in head of the corporate library? >> thank very much mr. chairman and members of the committee. it's a real honor to be back here again and like professor stolgitj -- the i regret to stay the problem continues. yesterday, the supreme court toll us the corporate is person with first amendment rights. but as lord ferrell told us with a corporate has no soul to be damned, no body to kick. that is corporations get away with murder in matters of compensation. the boards of wall street financial institutions implemented pay plans that were

a major and direct cause. these reported of capitalism protected themselves of risk by limited their downside exposure and taking the pay off the top. they took bailout money and kept paying themselves as though they earned it. what did they before the bailout was counterproducted. what they've done since was an outrage. the only portion of pay t.a.r.p. did not restrict was base pay, everybody got a raise. wells fargo by a 573% salary increase from the ceo. the extra was paid in stock. we've seen this throughout the financial services center. they took the opportunity when the stock market office the the rock bottom to load everybody up with buckets of new stock and options. the next time you have me back here to speech, we'll where

talking about that they have insane pay packages. now is when they are happening. we'll see the payouts later on. the enormous prices are resulting in new orleans payouts based on the infusions from the bailouts and the money. this is taxpayer money. they are getting paid as though they earned it, they are taking a piece off of the top of the taxpayers money. that's absolutely right. that's an outrage. so the clawbacks that were required as a result will also be subverted. there's a lot of's the language being instituted into the clawback saying bad faith or some kind of, you know, enation or feeling or intention has to be required. clawback should apply no matter what the reason. otherwise, they create a

perverse incentive. i asked the committee to lead the way to put an end to too big to fail, the term and concept. if the company is too wig to fail, it is too big to success or too big to save. if answer prize is too big to fail, it's an utility, it should be regulated like one. they should be paid like public servants. they have created perverse incentives for themselves. the ims has an important new study limited high-risk spending. it's another example of the risk on everybody else and keeping the play plans. they are not doing the best of fighting any meaningful reform. this is just another perform of diversion of assets the externalization of risk on to

the shareholders and taxpayers. i hope that congress will revert the oversight of the market, restore the creditability of the financial sector by removing obstacles to the effective shareholders oversight of pay. >> thank you. let me begin the questioning. i want to give my republican colleagues credit. they fundamentally want to take attention away from the subject of obsessive company significance. which is legitimate public sector issue. probably because as you just noted, they are paying money which they are able to have in part because of the significant public intervention, also because with there are effects as to the way in which the economy as a whole is structure. . also because we are setting the rules of corporate is nonsense. corporates are a creation of the law. even though the supreme court thinks that god made them. and they can be relegated by us

and are relegated in many ways. they don't want to do anything that would interfere with that. they have raised -- i want to respond that one point that the gentleman from alabama raised. when i pointed out that they choice quoted against legislation to give regulators the power over fannie mae and freddie mac salaries, he said that was the bill that covered all the private sector. there were two bills, he forget to mention one. the first bill was hr1654 they covered those only that were receiving financial assistance, t.a.r.p. money and fannie and freddie. no institution that have received under the t.a.r.p. program or with respect to the mortgage association, federal

home loan mortgage or bank, et cetera. so we had a bill that dealt only with t.a.r.p. recipients, fannie and freddie, and it put tough restrictions on them to be administered. they voted against it. so it is not my fault there wasn't the power to do that more. i think they got too much money over the christmas eve period. i believe the remedy is to in fact, as the believe the committee will be recommending, abolishing fannie and freddie and come up with a new system. the fact is there were two wills. the republicans voted against both of them. one covered private and public. one bill they voted against was specifically fannie mae and freddie mac. the senate didn't take them up. if they want to blame the senate, that's okay for them to say it. i don't know why the senate might not take it up is for the

house to vote no. we put forward a bill that would have toughens restrictions on compensation at the t.a.r.p. recipients and fannie mae and freddie mac in april. they voted against it. now to divert attention that makes them uncomfortable because they don't want to do anything about it. let me ask you one question, one the arguments that we've gotten against the president's proposal to tax to recoop the money that was paid out through the t.a.r.p. and elsewhere that was great assistance, this will diminish the amount of money they have available for loans. and it will force them over there great reluctance, no doubt, to raise credit cards and other fees. does the size of the bonus pool and amount of compensation have any relevance to that argument, professor? >> well, with obviously funds are fungible.

the money that goes out reduces the capital base of the banks to the extent that the money that's been paid out in bonuses, whatever the form, reducing their ability to lend. that's obviously much more significant amount. let me emphasis one point since we're talking about incentives. the intent of the president's plan is to change the incentives. change the incentives to have excessive risk taking that led to the economy being brought to the brink. [inaudible comment] >> that's right opinion the tax structure was faced on the amount of liabilities that we had. it was designed -- protected -- [inaudible comment] >> exactly. [inaudible comment]

>> what's the relationship between the board of the director and the ceo? >> i know it's difficult for people who know what real elections are to understand it. even though essentially the ceo controlled who is on the board. these arrangements are cozy. it was not that long ago that the ceo served as chairs of each other's compensation committee and the other company, the ceo is the president ises chairman of the board of directors committee, et cetera. so therefore it's a close circle. until shareholders can replace board of director that is get it wrong, with won't see it change. >> thank you, gentleman from alabama. >> thank you, of thank you, ms.

menow, you heard -- you published an article in the corporate library that entitled right question, wrong answer that was critical of the compensation legislation, that was the legislation that chairman frank incorporated into the bill that he talks about criticizing us for not voting for. in the article, you said i have the utmost respect for politicians and bureaucrats. but i also recognize their limits. the government should not micromanage pay. i happen to agree. could you elaborate with the responsibility for designing incentive based compensation structure? >> certainly, as i've said

repeatly before this committee, i do not believe the government should set pay. i do believe in removing obstacles to allowing shareholders to the allow that feedback. as i said to the chairman, by removing directors that do a bad job through say on pay, i think the bill was perhaps necessary, but not sufficient. i do share the concern of the members of the committee that some of the termology in the bill was not -- did not give enough guidance. >> thank you, i appreciate that. obviously the bill it gave the treasury secretary really authority to define unreasonable and excessive compensation. it was for all employees. i want vote against that bill if

it will were before. professor bebcuk, in the past you've criticized, under the terms of the gse executive compensation package that was announced christmas eve, 2/3 or $4 million of the $6 million for each of the two ceos is completely unlimited to any performance manager. would you agree that the executive compensation awards still paid in performance? >> the study you mention is one that was probably several years ago when this was a careful analysis of the arrangement. at the time, it was back to the chairman at the time, rains.

those were the conclusions then. i have not studied the most recent positions, therefore i am not in a position -- >> right. if as i say, $4 million of that was not linked to performance and was not linked to pay performance, you would still think -- i would still have your same objections to those compensation packages? >> i don't think i can really offer you about the package that i haven't really studied. >> all right. ms. minow in your written testimony, you compensation agreements that widen the -- in your view do the pay packages of fannie mae and freddie mac, most the $6 million adequately link pay and performance for the ceo? >> i've been a consistent critic

of the package for fannie and freddie. they have a corporate governance nightmare. you can't be public and private enterprise at the same time. >> right. do they meet your definition of outrageous? >> they are not as outrageous as the previous pay plans as fannie and freddie. but i think they are wrong. >> okay. they are wrong. but how about outrageous? do they meet your definition of outrageous? >> no, no, you're -- you're -- if i am calibrating the word outrageous with they are nowhere near the category of outrageous -- >> maybe like class 4, instead of class 5? >> they are troubling. they are troubling but not outrageous. >> thank you. i appreciate that very much. go back. >> i just want to take 15 seconds.

my friend from alabama continues to the ignore the fact that there were two bills. one on executive compensation, another that only dealt with t.a.r.p. and fannie mae and freddie mac. what he talked about before, what he quoted ms. minow about was the one about general compensation. there was a separate bill that came after this question, and that's the one he voted against. if there was one bill, it's not my time. gentleman yield from the floor. gentleman from pennsylvania. >> thank you, mr. chairman. i'll just open up first with some remarks of the panel that i appreciate your opinions when i get to conclude. very often i've had the occasion of the last six to nine months to make a speech in my district. because i'm trying to reach constituents to understand the overall complex problems of salaries and wages. now as a given factor in my

congressional district, the average wage is about $13 an hour. if you multiply 2,000 working hours an year, that's an annual income of about on average $26,000. in the last nine months or a year, i've had several witnesses that appear before my subcommittee and we've gotten down to this question of salary and compensation and what we do about it. and i for one am not certain that we've put enough direct attention to the matter. and we could get into difficulty if we start deciding that we are the final arbitor of the final salary. i don't know. if i'm hiring a brain surgeon and brain surgery, with there's not amount that's too obsessive until after the success of the operation. then i'll be annoyed of whatever

the bill are. there are people in the hedge fund industry. they report, i remember one witness with that was a little annoyed with my involving the cross examine what do you make? he earned about $2.5 billion a year. and i pressed him because i was offended that he only paid 15% putting them in capital gains as opposed to regular tax. after about 15 or 20 minutes with great annoyance, he finally put his hand in his pocket, lean the back, and said congressman, why are you picking on me? what did i do from you? i want you to know i'm only the 51st highest income. i thought we had located the highest income person. but i found out since that he actually wasn't, and isn't, and there are some that make a great

deal more. i guess the first question that i would put, what is too much? what is too high? is $5 billion? is $50 billion? and now i pose that question. because we always use numbers. i go back to my congressional district of $13 an hour wage. the gentleman that was testifying before me, his annual or hourly wage is $1,300,000, that's what he makes every hour of the year. now when you do the mathematics of that, he makes 100,000 times the average wage of a average worker in my district. how do we get a sense? what compensation we pass here or do on fannie mae, they are

chickens. what $6 million a year? that's peanuts. i'm wondering if we are not approaching this from the incorrect direction. should we be looking at first of all, what do we need to get to a balanced budget? because these people aren't just earning and taking corporate money or profits, these people are not picking up their burden in society and proportion to their income, and as a result, now this year we're ending up with a $1,400,000 that we could make up if we didn't have the extraordinary ways of avoiding income. should we change the tax structure and perhaps get to a level field that way as opposed to identifying particular people where we maybe able to exercise power and those that we can't. i'm just curious. let me throw that out there very

quickly. >> 30 seconds for an answer. >> yeah,. i agree with you. the basic framework for thinking about equity should be through our tax system. incentives should be related. would they work less hard if they paid higher taxes. i think the answer is clearly no. it would not have a significantly adverse effect. the issues that i talked about and some of the others were that the structure of the pay of the executives in these banks had strong effects. and the reason that we are interested in them is because those effects affected the taxpayer because it led to the economy falling apart. that what they do imposes cost on the rest of us. and therefore, it is a legitimate source of concern as opposed to lots of other areas

where people get high pay. but it is not as much a legitimate source of concern and the way we do deal with it is through the tax system. >> gentleman from texas. >> thank you, mr. chairman. i think we've heard from the panel on, you know, where they think that there have been abuses in the pay structure, corporate pay structure. you know, i think one the things that i would like to hear from the panel is, you know, who's doing it right? where is the model that other companies should follow? mr. bebcuk, i'm sorry. >> yeah, i think that there is evidence that a firm's were sure to rise stronger. where you have less arrangement of making difficult to obey directors. those firms are more sensitive to performance, and also ceo

turnover is more sensitive to performance. so we have evidence that relates -- empirical evidence that relates to the level, both with firms in general, but also with the quality of pay structures. >> if you would like to have a specific example, i can tell you that home depot went from the very bottom of the list to the near the top of the list by doing from a ceo where 90% of his pay was not related to performance to a ceo where 90% of his pay is related to performance. >> i want to make one remark as we keep talking about pay related to performance. very difficult to identify what you mean by performance. when a company does well as measured by the stock going up and the reason the stock is going up because the stock market is going up, it wasn't what he did that led to the stock market going up. one the points i make in my

written testimony was that in fact if you look at the design of many of the so-called pay for performance, they are not pay for performance. they only had that in their name. >> i covered that in my written testimony as well. >> i think one the things that concern me is when you start down the road of government, you know, designing these compensation plans. and now really what we are doing is we're saying there's a few companies out there. i think everybody is trying to point to the financial institutions. but the question is what about all of the other companies that are actually doing it right. i mean, how do we justify what we're going to pick the ones we don't think are doing it right. we're going to -- >> nobody is talking about the government really prescribing what the pay arrangements would be. but rather giving the ride in improving corporate governance arrangements. and if that happens, then the firms are doing it right will

continue to do it right. but those firms that didn't do it right because boards were not sufficiently focused on short-term interest would hopefully improve their arrangements. >> but the shareholders has the ultimate right whether to own a share or stock or not. if i think the company ceo is making too much money and the boys are dividing the pie and the shareholders aren't getting much return, i sell my share of stock and i move on. >> that's your ability to share is provide you with no protection and provides insiders with no incentive to behave well. why? because let's suppose the price right now is $100. you believe if managed well, the company would be worth $120. if you sell, you'll be passing the perfectly managed share to somebody else that would pay $100. but your concern is that you should be getting to $120, and their ability to sell the share

on the market for $100 in no way provides access or makes it likely that you would be able to capture the $120. >> that's also kind of an outdated approach. since up to 70% of the stock in most major companies are held by investors that don't have the luxury of selling out every time because of transaction cost and other issues they are stuck. the question is it more beneficial for them to pursue better pay than to abandon it and leave and invest in some other company that overpays the executive. >> i don't think people are stuck in any position. if you own a share of publicly traded company, you can send a message, you know, to the management. >> there's really -- >> in fact, some of those larger investors can send a very strong message. if a large investor in a company moves a very large share of

stock, why did he or she do that? so i think to say people are stuck in a position is a little -- >> the data actually goes the other way on that. as far as large investors making a difference. you're right, they can ask for better. all we're asking is to make that more possible. >> can i make a general point? corporations are a creation of the state. we write the laws that define the corporations. what i think mr. bebchuk and ms. minow has been emphasizing, we want to write the laws to make sure they work more efficiency. that has to do with the systems of corporate governance. what are those systems? i think that's what at debate here. there's going to be one system or another. the question is we can, i think,

believe, create a system that is better than the current system. >> gentleman from california. >> thank you. responding to the gentleman who's just speaking, i would say selling the stock is an inperfect way for shareholders to control thing. first they pay big capital gains when they sell, then transaction cost, as a witness pointed out they get a low price because whoever buys is buying into a company with miscompensated executives. finally we have the ability to invest in another company with over paid executives. i'd like to start with an observation. it's obviously that the establishment is under attack by populism in a way that has not occurred in most of our life times. the results in massachusetts were not the victory, i think, mostly for one part. it's not a coincidence the

supreme court decided yesterday to overrule 100 year of precedent, something they would ordinarily find painful in order to arm the death star so the empire can strike back. whatever we saw here say could easily be drowned out corporate publicity and propaganda. i want to pick up on the comments from gentleman from pennsylvania. i think this has done a good job compared to the ways and means committee. which is continue to allow to pay taxes at only 15%. : 28% rate paid by the

gentleman's constituents in pennsylvania and you see that we don't exactly have a fair tax system. i don't think that the gentleman who makes a million an hour is going to work less hard if his after-tax compensation is reduced to a paltry 600,000 an hour. when we talk about compensation we ought to be talking about the entire compensation package not just bonuses. and we are -- in this committee we have made life a little difficult for top executives particularly those who got t.a.r.p. money. there is some social utility that beyond its obvious psychological benefits to those of us in the room.

and that is we have inspired these companies to pay back the t.a.r.p. money far more quickly than they would have. and now we are focused on those who are too big to fail. we are inconveniencing them to the greatest extent we can right now. and hopefully that will inspire them to break up. so that we will have financial institutions, the demise of any one of which will not imperil the system. and so here we are talking about their compensation. last month we imposed fees on those of over $50 billion in size. and i hope that they'll get the message and become medium-sized institutions. the problem i have is in this effort to try to design compensation systems that do not incentivize excessive risk and that properly reward performance. i'm not sure we can do it.

i hope that there would be none of these companies getting federal subsidies or implicit federal guarantees in which case i don't think we have to do it. but my problem relates to a circumstance where let's say you're trading a portfolio. and you have your -- your aim, of course, might be to have one great year. and get an enormous bonus. because in this country we tend to tally things up at the end of a calendar year. and give you something valuable. now, it's said well, we'll give you restricted stock. but that still provides a pretty good incentive to take the big risks and to get the big bonus unless you believe the risks you're taking, a, will turn out poorly. and, b, will turn out so poorly that they dramatically affect the value of the entire company. or that they inspire your other executives to take equally enormous risks. so assume that somebody is managing 1% of the company's

money. they do not believe that their behavior will affect or infect their colleagues. and they choose to take enormous risks. they pan out as of the end of the year. they get a kajillon years of restricted stock. how are they disincentized by getting restricted stock. y; >> the congressman is exactly -- for executives who manage a limited part of the company like 1%, paying them with restricted stock does not give them incentives to avoid taking risk that might implode later on. the only way to do it would be to subject them to a -- to put their bonus in a bank that would be adjusted downward not if the company does not do well on the whole but when their own unit doesn't do well in a subsequent year.

>> the gentleman from texas, mr. hensarling. >> thank you, mr. chairman. before i make my comments i would ask unanimous consent to enter two studies into the record. one entitled compensation in the financial industry. by the center on executive compensation. the other bank coñzga incentived the credit crisis from the fisher college of business from ohio state university. >> without objection, they will both be entered into the record. and the gentleman is recognized. >> thank you, mr. chairman. again, the american people were presented with a great outrage on christmas eve when this administration decided after tens of billions of dollars of losses, $110 billion now to announce unlimited, unlimited taxpayer exposure to the government-sponsored enterprises those that are the epicenter of the financial crisis and to simultaneously for all these losses that are costing the taxpayers all this money to

million to each of the ceos, $42 million in total for the executives. so again as i said in my opening statement, i had hoped that we would have an opportunity to ask questions of the acting head of fhfa, mr. ed de-marco about this. -- de marco. and i said i'm a patient man. well, perhaps i'm patient but i'm not sure after the election results in the commonwealth of massachusetts that the american people are patient. they don't want answers a month from now. they want answers yesterday. and so i'm disappointed again that for whatever reason the american people are going to wait a month to find out about the bonuses at the government-sponsored enterprises fannie and freddie.

the questions again i had were for mr. de marco i was going to ask in light of the facts the companies have averaged $11 billion in taxpayer subsidized losses over the last five quarters, how are the executives chosen to receive the bonuses since mr. de marco isn't here. i doubt this panel can answer this question. but if somebody knows mr. de marco, has spoken to him, has insight maybe not. the second question i had was why were the bonuses to be paid in cash? this is an administration that says payments have to be in stocks and have longer term investing states apparently enterprises. so why cash for them and stock for irving? -- everybody else. i was going to ask mr. demarco that question. i assume you haven't spoken to him.

is anybody qualified to answer that question on behalf of mr. demarco's behalf? i assume not. i don't have to be convinced p can be poorly designed that can cause companies to fail. i know that. i used to serve on a compensation committee of a publicly traded company, traded on the new york stock exchange. i least have some experience with these matters. i studied some of these issues. so i know that poorly designed compensation packages can cause companies to fail. you don't have to convince me of that. but you have to convince me that any one company in america is too big to fail. and guess what? if you don't bail them out with billions of dollars of taxpayer money, then you don't have to use the heavy hand of government to impose pay structures. now, i know the chairman has

brought up on a couple of occasion now h.r. 1664. i have a couple of observations. number one, if this democratic administration, this democratic senate, this democratic house were serious about doing something about fannie and freddie pay, i assume they could have done it by now. second of all, as i think the chairman knows, this just didn't deal with the executives. this was a bill that would have regulated the pay of the janitor at goldman sachs. and provided a role for the congressional environment panel in policy matters and as a former member of that panel i assure they were unqualified for the task. so again, i don't see why -- the basic proposition is this again, in america the principle ought to be what you do with your money is your business. what you do with taxpayer money is our business. and if your compensation structure causes you to fail, don't take money away from the

farmers, the school teachers, and the firemen to bail them out. the purpose of government is not to bail out. the purpose of government is not to place artificial limits on the american dream. it is to preserve freedom. i yield back. >> the gentleman from kansas. >> thank you, mr. chairman. i believe financial firms receiving taxpayer assistance should receive the most scrutiny with respect to their executive compensation practices. the most obvious and troubling case was aig that provided $165 million in bonuses last year after taxpayers invested billions of dollars to keep the company solvent. i asked the ceo of aig at the time if he would encourage his employees to voluntarily return their bonuses. he said he would and executives later agreed to pay back 45 of $165 million of those bonuses. but in december of last year, we learned that only $19 million has been repaid.

i've joined representative mike capuna of other round of bonuses in aig this year. if as much in taxpayer dollars were immediately recovered today and aig were allowed to go through bankruptcy i doubt those bonuses would be paid so i hope we can get some answers soon. taking a look at these aig bonuses professor bebchuk it's frustrating to taxpayers because not for them aig wouldn't be around to pay out those bonuses in 2009 and 2010. are there specific things we should learn from the government's intervention with aig as it relates to executive compensation? sir? >> i think i share your genuine thinking and the taxpayers have charged financial firms sufficiently to make up for the substantial level of support that has been extended over the last year. and more generally i think we

can think about the pie that is being produced by the financial sector as being a result of contributions by taxpayers, by shareholders who provide capital and by financial executives. and until now the taxpayers have not been charging enough. and the ultimate result of that is that the financial executives and aig would be just one example. but more generally in the sector the financial executives might be getting an excessive fraction at this time. >> i think in the future under the -- i hope we never have to do another bailout. but if we do, i hope we impose some conditions before we turn over the money and condition number one should be that you take a discount on any incentive compensation for the amount that was subsidized. >> thank you. mr. schultz?

>> well -- >> stiglitz, excuse me. >> i would like to emphasize the fact when we turned over money to these banks, we didn't do two things. we didn't relate giving them money to their behavior not just with respect to the issue of compensation schemes but also with respect to lending. that was the reason we were giving them money. and that relates to the issue of jobs that's come up here a number of times. >> uh-huh. >> and the fact that compensation that went out meant there was less money inside the banks. and, therefore, less ability and willingness to lend. the second point is that the the u.s. taxpayer was not -- when it gave them money, compensated for the risk that they bore. in some cases we got repaid. but to talk about what an arm's length transaction we ought to look at the transaction that buffett had with goldman sachs. and that was an arm's length transaction.

if we wanted -- what would have been a fair compensation to the taxpayer it would have reflected those terms and we would have gotten back a lot more. >> thank you, sir. another issue i'm interested in better understanding is how the culture of excessive lending, abuse of leverage and excessive compensation contributed to the financial crisis. this applies across-the-board for consumers who are in over their head with maxed out credit cards and homes they couldn't afford to major financial firms leveraged 35 to 1. is there anything that the government can and should do in the future to prevent a similar carefree and irresponsible mindset from taking hold and exposing our financial system to another major crisis? professor bebchuk? >> two things. one is in retrospect leverage issues were allowed to be too high. and we need to regulate those to be at the lower level. and stopping short of that, the approach the administration is

proposing of imposing levees is a useful approach and going forward regardless of the issue of making up for past contribution of the taxpayers just in terms of charging financial firms for the risk that large liabilities imposing to the system and to taxpayers. >> thank you. ms. minow, do you have any comments? >> i agree with professor bebchuk. >> all right. mr. stiglitz? >> three things very briefly. it's very important to affect the incentives which is the subject of this hearing. if you have incentives for excessive risk-taking you'll do it. and those incentives are both at the individual level and the organizational level which is why the too big to fail issue too intertwined is such -- is so critical. but even when we affect incentives we'll never do it perfectly which is why we need constraints on leverage, on behaviors. products. derivatives. and finally, in order for our economic system to work, there has to be transparency.

that's where the discipline of the market -- the way the system is set up right now, it's impossible for capital markets to exercise the discipline that is needed to make our system function. >> thank you, sir. thank you, mr. chairman. >> the gentleman from california. >> thank you, mr. chairman. i'm going to throw out a few thoughts here from which i would -- on which i would like the panel's observations or your thoughts. i'm going to suggest to you that the executive compensation issues on which we all agree, the excessive risk, the excessive period, the short-term focus et cetera are more the symptom than the disease. and that if we treat this symptom, we will be at best ineffective and at worse counterproductive and that callous bills like the one the chairman talked about when it was passed, whenever it was, last year or the year before. the root of the problem -- to get at the root of the problem two things.

one of which minow already alluded to. and one is the -- is a greater ability for shareholders to express their displeasure with executives, the performance of the company or executive compensation through the board by having an alternative board of directors given appropriate thresholds so that that ability is not abused. so that would be one suggestion i would have is to get to the root of the problem rather than trying to micromanage the pay, give the shareholders a greater ability to express their displeasure. and the way i think that is appropriate through the board rather than through direct control of the pay. and second, and i know the chairman is going to have a hearing on this subject, is the short-term focus on pay i would like to suggest is perhaps simply a reflection on the short-term focus of the markets. and that we -- that maybe the problem is not so much the pay

but the fact that buy and hold is dead and all kinds of other things like that such that we focus on quarterly earnings, quarterly earnings and i too operated inside a public company at one time. and -- i mean, you know, it was about this quarter. the whole world, you know, revolved around this quarter. next quarter, next year be damned. that short-term -- that the short-term pay and excessive risk taking in pay is simply a reflection of the short-term focus on the markets. that perhaps we should be looking at is there other things we can do to change that short-term focus on the markets. one of which i suggested is going to semi annual financial statements rather than quarterly. now, that's not a panacea but that there may be other things. so throw those out and i'd love to hear the panel's thoughts on those thoughts. >> the first issue i completely agree with you is actually the main thesis of the book "pay

without performance" that was published five years ago. is that executive compensation is a symptom. it's a manifestation of underlying corporate governance problems. and all the panelists have been discussing about changing governance arrangements in the ways you mentioned so as to produce better compensation out comes rather than micromanaging and dictating them. >> let me add two points. one of them is that -- i agree with your second point also that the deeper problem of trying to make our markets longer term -- that itself has been a long-term problem but it's gotten much worse. one of the things to do that is a tax policy. i think if we had a capital gains tax structure that encouraged longer term holding and discouraged shorter term holding would actually move a lot -- one of the few things we can move and do to move in that direction. >> what would you -- what would you define as long term, i'm curious. it used to be one year.

>> i would define longer than one year. it would be two to five years as longer term. the second point is i would recognize that while the reforms and corporate governance are part of the root that we have to deal with, we're always going to be imperfect on that. and the result of that is that when it comes to institutions like the financial institutions, which can put at risk taxpayer money and our whole economic system. we have to not only get at the root causes, reform corporate governance but we actually have to control -- try to affect the actual behaviors. >> only basically for those systematically significant -- >> actually. for those who represent a risk to our systemic system. but that may be more broader than just the big banks. >> okay. >> i'm just going to -- allow

ms. minow to go -- please don't be constrained by the red light. i think your input on the quarterly, semi annual, so please. >> thank you, mr. chairman. i think that is a crucial question and i think one drives the other. i think the short-term focus on pay drives the short-term focus on numbers. it's really important to remember that the financial institutions themselves are very, very large shareholders. and so they look at their own quarterly performance in terms of the money that they invest and that -- you know, so it creates a vicious circle. this is one way of addressing that as an issue because if you know that no matter -- 10 years into the future if your numbers are revised you're going to have to give the money back. that keeps people focused on the long term. but with regard to the issue of -- of a holding period in terms of looking at that of taxes the largest collection of investment capital of all, $6.3

trillion is under erisa which is indifferent to tax consequences and so they are not going to be affected. >> would you address the -- 'cause you represent investors. and i'm attracted by the notion of not requiring quarterly reports going semi annual. the counter-argument investors would feel deprived of information. i would be interested -- we're going to probably be back at you. but as long as it came up i would like to know your view on that. >> sure, that's fine. >> there's something sort of charming and poignant about making that suggestion in a world of twitter and instant messages, you know, everything else is becoming faster and trying to slow that down. i think the fact is that one way or the other investors are going to get day-to-day information. we're very close to a point now where company financials which are internally available on an almost real time basis may some day become available to everybody. so i'm not sure that really solves the problem. but i agree with you that is the

right question to ask. >> i was just -- on clawback -- >> you can take 10 seconds. >> okay. >> we'll discuss that another day. >> i'll follow up on the staff with this question. >> i just wanted to do one thing on the clawback i wanted to ask real quick. you said that if someone -- if it's restated, i don't know how that changes the short-term focus if i'm -- if i'm paid entirely on what happens in the next 30 days -- >> yes. >> that would change the focus on accounting for it perhaps. but if the consequence of that decision are very bad for a long term you're not going to claw me back so that's not going to change my behavior, does it? >> it cannot be based only on accounting restatements. even if the accounting was correct -- >> okay. >> but it turns out that the performance was elusory, the money should be adjusted. >> with the acquiescence of the

charming and poignant gentleman from california, we'll move on. that's a question that we'll be dealing with. and i thank him for raising it. the gentleman from north carolina. >> thank you, mr. chairman. not only do i find myself agreeing with much of what mr. campbell had to say, but also with what david stockman, the director of omb under the reagan administration had to say the other day. i'm pretty sure the local revelation when i agree with both mr. campbell and mr. stockman it is one of the signs of the apocalypse. stockman wrote the day before yesterday in the "new york times" the economy needs unproductive and increasingly parasitic banking system. make no mistake the banking system has been an agent of destruction for the gross domestic product and impositivishment for the middle class. -- impositivishment. how do we -- how do we stop the excess, the vulgar excess that is not rewarding productive

conduct but is rewarding what economists call rent-seeking, what david stockman called parasitic that is taking money from the middle class and taking money from the real economy. it is certainly undermining all the that we need to be doing to build a sustainable economy that works for the middle class and works for ordinary americans. i have a couple of questions. is this part -- the focus on executive compensation, is this part of a bigger problem? i don't really want to regulate compensation. i would much rather the market regulate compensation. but the way the market is supposed to work where there are competitive forces in place is that competition squeezes profits and squeezes costs including compensation. and it said in the financial industry, we have seen despite the fact there are 8,000 banks or more than 8,000 banks and golly knows how many other kinds of entities we're doing bank-like things and four, five,

six big banks, profits in that sector ballooned to a couple of years ago other metastasized a couple years ago more than 40% of all corporate profits and compensation was almost twice what ordinary americans were making when historically it had been about what ordinary americans made. are competitive forces working? and why not? and second, where would the boards of directors of all the failing institutions that failed in the financial crisis -- the board of directors has to be near the top. and gretchen morganstern wrote a column three or four weeks ago that looked at what had happened to the board members from all the companies that had failed and found out they went on to serve on other boards without no apparent diminution in their reputation. they were not tarnished in any way. there was an article in the new republic that i read just actually last night. it was very critical of general tommy franks for not having

captured or killed osama bin laden in tora bora in december of 2003 and without -- without necessarily agreeing with everything that he had to say, there was a snide reference that he had retired and joined the board of directors of bank of america and chuck e. cheese that boards of directors are part of celebrity culture than they were corporate governance. that a board of directors meeting was a celebrity appearance. what can we do to make boards of directors a full-time job? a real job. and we don't have people on there that treat it as a celebrity appearance? >> i think actually making directors full-time employees is not a good idea because that would make them like insiders. it would make them more dependent on the firm. what we need to do is, obviously, have them spend enough time but the most important thing is to make them

dependent on the shareholders in a way that would give them the right incentives. and the kind of governance arrangements we were discussing. arrangements that enabled shareholders to replace directors more easily. would produce such an outcome. and this would be not replacing market outcomes. it was just to enable the market to work better. >> i want to make two comments on what you said. the first was we were talking about the number 40% of all corporate profits were in the financial sector. we have to remember that a lot of that was phantom profits. that is to say they weren't real profits. and that shows the difficulty of measuring performance in the financial sector. they have an enormous discretion to move -- to create money as it were. to create profits. and then later on to have losses. making all the more important the issue that we've been talking about a long-term perspective. the second point -- i couldn't agree more. there's something about the

sector about the fact that there's imperfect competition that leads to sustainable above normal profits. and that's particularly true in the big banks. the point is there's been a large increase in concentration in the financial industry. and when it comes to particular issues like credit cards, it's very clear that they're engaged in noncompetitive practices, anticompetitive practices that allow them to garner those profits. and then, obviously, to use that -- those rents and distribute those rents to the officials. >> may i address the issue of boards of directors? i feel very strongly about it. my company rates boards of directors like bonds a through f and we encouraged our clients do include director and officer liability insurers to raise the rates. sometimes to raise them to make it prohibitive to have repeat offenders to continue to serve and i'll continue to try to do that.

when i came in this business o.j. simson was on five boards. he was on an audit committee. we made a little bit of progress. i think tommy franks is a better director than o.j. >> the gentleman from new jersey. >> thank you, mr. chairman. good morning to you all. regarding your point, professor stiglitz, that warren buffett had an arm's length transaction with goldman sachs. why don't you think the american people had that same arm's length transaction? was it just missteps by those in the executive branch? >> you might say missteps. they were very much taken in to the view that they wanted at that point to give money to the banks. because they thought it was imperative that the banks be given money so that they could return to the usual role that they had had. but they were captured in an intellectual sense by the banking system. it was a very big mistake.

>> do you see improvement with federal officials at the moment in this area? >> if i look at the legislation proposals that are being discussed very recently, i see a very marked change. but if you looked at the bailouts that occurred in january and february and, you know, beginning of this year, they were as bad as those that occurred earlier. ...

>> i have seen a learning curve. i think the initial transaction, the initial bailout transaction was made at a moment of sheer panic, and it reflects that. but i think that the subsequent negotiations, particular the administration proposal this week, to show some lessons have been learned. >> regarding fannie mae and freddie mac, how could these bonus -- buses possibly been given, in your opinion, as a matter of the court of public opinion? and what should we do? >> these people could be embarrassed, you know. we wouldn't be here today talking about them. they seem to be unembarrassed will. so the court of public opinion

doesn't seem to matter to them. >> so what should we do to make sure this doesn't happen again? >> with regard to fannie and freddie? or the larger picture. i support the chairman's notion of essentially rebooting the entire concept. >> professor stickles, you're do? >> i agree. i think that we really have to re-examine the whole structure of fannie, freddie, the gse's. the concept of something that was in the private sector, which is what they were, and yet seem to have some -- at least by some people's account, this kind of public role as a very peculiar mixture. we been talking about corporate government comments it was a system of governance that almost was bound to fail. >> thank you. has my time expired? and then following up on

congressman campbell, the short-term focus versus the long-term focus. isn't this true throughout the whole society, people don't let me finish a sentence. >> would the gentleman hurry up, please? [laughter] >> i can never be as witty as the chairman. isn't this the nature of society? how are we going to overcome this? ms. minow, your point if you. >> it's the nature of humanity. i'm afraid, but i do think that we have, we have some structural perversities in the system that can be regularized to calm things down. >> thank you. >> we were never perfectly over, but i think some of the things we've been talking about are ways to mitigate some of the consequences. we have to recognize that in some ways things have gotten worse. and that shows that whatever it was, you know, is not

inevitable. there have changes in the rules, the tax structures and so forth, do affect the extent to which there is that shortsightedness of. >> thank you. i you back about so much time, mr. chairman,. >> the german from texas. >> thank you, mr. chairman. mr. chairman, we are dealing today with the irony of ironies. because most who oppose raising the minimum wage to 700 ed demarco -- $7.25 an hour, that creates systemic risk. now the public may not understand systemic risk and reverses his and proprietary trading, but the public does understand this. that it took us 10 years to raise the minimum wage to $7.25 an hour, and if a person, and there is such a person, gets a bonus of $69.7 million, it will

take a minimum wage worker 4622 years to make $69.7 million. some things bear repeating. 4622 years. the public understands that when you explain the ceo or the ceos of the biggest companies make more in one day than a minimum-wage worker makes in a year, and this ceo has reason to india hedge funds manager who makes more in 10 minutes than the average worker makes in a year, and only pays 28% -- pardon me, 15% capital gains, not ordinary income. i am one who supports allowing people to make bonuses as large as they can make as long as they don't do it based upon perverse incentives, that -- that creates

systemic risk. and that's what this is all about. perverse incentives that creates systemic risk. let people make as much as they can, but let's not allow them to create perverse incentives that will bring down this economy. enough already with this notion that we should just let the economy collapse. if we had not bailed out aig, and i did not want to do it, had to hold my nose and close my eyes to cast a vote, but if we had not built at aig, bear stearns, the auto industry, would the world be a better place today, ms. minow? >> i don't think -- i think we could have done a better job of bailing them out, but i think we should have bailed them out. >> would the world have been a better place to? no. >> sir, mr. stiglitz? >> i agree that the way we bail

them out was -- >> but would the world have been a better place? >> i think that at the time the perspective was that at that point we thought we did. >> if i may industry, my time is limited. would the world be a better place today? give me your speculation. >> my speculation is the world would be a better place if we had let aig fail. >> the auto industry, bear stearns and aig. >> i think we need to have -- we were forced to have some kind of the bailout or some of these. >> to mr. -- >> i think it would have been better had we done a partial bailout, for example, having some of aig's counterparty -- >> if we had taken a laissez-faire hands-off attitude and let things go, would the world a better place to gay?

>> it would not have been a better place. if we just took our attention completely away from those firms, that would have been worst. >> just let the world go wherever it's going. >> it would have been a worse outcome of. >> do you understand that we have members of coders who are advocating that we should just let the world go? just leave it alone? can you imagine what we would be if we had done nothing? is it irresponsible to just do nothing and a time of crisis like this, man's? >> yes. >> i agree. >> i think the government -- >> is it irresponsible to do nothing? >> it's not the right thing. it's not the right thing to do. >> it's not the right thing to do. all right. i will help you. it is irresponsible. friends, we at some point have to become adults about what we are dealing with. we are talking about perverse

incentives that creates systemic failure. give me an example, please, ma'am, of a prefers if you will. >> survey. in the subprime industry, the individuals were paid on the number of transactions rather than the quality of transactions. so they had a perverse incentive to create as many transactions as possible. >> mr. chairman, with unanimous consent may i ask that each never give one example of perverse example? >> the fact that the people in the financial sector were based on as measured by performance, whether it was through excessive risk-taking, increasing data, whether as a result of greater efficiency increasing out for a janitor in -- out the. >> they were able to get into thousand six very large orders, based on earnings, which than

they were able to keep and they were not, even though earnings and more were evaporated. >> thank you, mr. chairman. >> the gentleman from missouri? >> thank you, mr. chairman. i have a number of questions that i will try to ask them quickly, but before i ask the questions, i was appointed to the committee in 2005. i just had to recheck. in my recollection is that at the time, mike oxley was the chair of this committee. and our current chairman was a ranking member. and one of the first things we dealt with when i came on this committee was some propose reform, i'm assuming by mr. ochs, maybe both mr. oxley

and mr. frank, dealing with fanny and freddie. and i was talking to a reporter today's ago who said one of the problems in washington is that the truth doesn't matter. it is whether or not you can say a lie over and over again so that everybody buys it. so you know, my concern is history has been a little distorted, because mr. oxley proposed trying to do with the issue of training and freddie compensation. and as i recall, they didn't get any support. from the white house, if i've missed spoken i would like to be corrected spent will the gentleman yield? mr. oxley scored in the financial times is what what he received from the white house was the one finger salute.

>> i take that to mean i am correct. >> would the gentleman yield? >> certainly. >> chairman frank propose that legislation. >> yes, the job, the general from new jersey and texas are divided and were weak. i voted for the bill in the health committee when he got to the senate, the house floor, and the republican leadership put it an amendment restricting affordable housing unrelated to the structure of organization of fannie and freddie. i then voted against it. but i voted for the bill and i thank the gentleman and will give him an additional one minute for yielding to it. >> the point i was trying to make, somebody who had transferred the conversation to fannie and freddie and that we have not tried to do with compensation with fannie and freddie. i just want to try to clear it up. as this reporter told him it doesn't matter. that just like we will hear over

and over again, and i guess president obama's started the bailout. but where i want to go now is, the too big to fail is a problem because i think they understand clearly that they have what it takes to take what we have. and if that is the attitude they have, which i think it is, we are going to lose. my questions are though, and i don't know the answer to this, we probably should know the answer before you ask the question, but did the firms look better compensation, perform better? those with a better compensation structure, did they end up reforming that are? did they get into trouble? do either -- any of you know that answer? >> this is a subject that still

needs to be investigated. what makes it not a straightforward question to answer is the question is what does it make to be compensated better. so if you believe that better compensation is one that provides less incentive to focus on short-term, then you have to measure those mentioned then define how they have correlate to performance. and that's not something that has yet been afforded. >> you think that would be a worthy project? >> definitely. >> part of the problem is almost all of the big banks, those that are too big to fail, had similar compensation schemes. so that you probably won't be able to get clear results. the differences were not big enough to overwhelm the perverse incentives that really dominated the whole industry. >> yeah, i was wondering if you

could do an overlay with what happened with the mortgages. the banks of the mortgage copies that did not go into the subprime scam, even though they didn't make as much money, now if you look at their books, they did better. and so, the question that i raised was based on what i've seen with the subprime industry. and do you think that, particularly the wall street, so-called investment bank, banks, will change their compensation structure without congressional legislative encouragement? ms. minow? >> as i discussed in my testimony, the fact that following the bailout just over the last year, they had essentially poured gasoline on

the fire of excessive compensation, suggested me that they need a much stronger message from congress. >> i agree. there will be some cosmetic changes, but the question is, will the depth of those changes be anywhere near sufficient to address the kinds of concerns that have been discussed this morning. >> my final question. and talking with an investment banker in my district in kansas city, missouri, i found out that what investment bankers like to do is, you know, not the people out trying to make the deals, but the execs, is give bonuses that stretch over a number of years. and my assumption is they give a bonus over the next four or five years, and then they invest what they gave, they keep the investment they gave. and so i'm wondering whether or

not that kind of system should be outlawed? the executives don't want to give compensation, all compensation in cash up front that they want to stretch it out over years. you understand what i'm saying? >> let me raise one question, which is they are very creative in trying to subvert the attention of that we have all been concerned with at getting better incentives here in the systems. that one of the concerns is that if you look at more detailed across corporations, much of what is called incentive pay is not incentive pay. it is a charade. so if you look at overall performance and overall compensation, they are much less closely linked than the name suggest. and that was evident in the aig case where when they went into

problems, they just changed the name from performance paid to protection paid. they are very clever in the form, undermining what we're really concerned about. >> i know you were trying to suggest this, but it almost sounded like you were trying to trick congress and the public. [laughter] >> thank you, mr. chairman. >> the gentleman from ohio. >> thank you, mr. chairman, and thank all of the witnesses for your thoughtful testimony. and i thank my colleagues for their questions, and discussion that we've had since then. it's been very useful and thought-provoking. and still the whole issue is still difficult to get your arms around here. you know, despite the financial crisis the fall of 2008 and the resulting bailouts, and further infusions of cash along the way, here we are again with the

public outraged, and wall street handing out this year a record, $140 billion in bonuses. and, you know, when we take a look at that kind of money and try to put it in some kind of perspective, and contacts, according to the washington examiner, this is 10 percent of the entire u.s. deficit, or three times the amount budgeted for education, or four times the amount for homeland security. it is vastly more money than we have a place for the reconstruction of haiti, and an amount that could prevent millions, hundreds of millions of home foreclosures. so it's no wonder that hard-working americans that thought, as was brought out in questioning, that okay, we need to bailout wall street, we don't want to go over the cliff. and understood that it was their

hard earned dollars that was going towards that. nevertheless, wanted to see something other than banks buying up banks and handing themselves out bonuses, as a result of trading activity. rather than making those loans or renegotiating those mortgages. so families understand that they have lost jobs and they have lost homes, and the bank are still are getting billions of dollars and we still haven't gotten a hold over all of the issues about the risky behavior that has brought us here to this date. you know, i served -- i listened to the bankers, and sometimes they tell me they are offended were even talking about regulating their bonuses and their compensation, that we don't understand that they are the breast and -- best and the brightest. otherwise go do i don't know what did i get offended when they tell me they are the best and brightest because i happen to think that there's a lot of people are very bright, very

good, and in fact, the bass, involved in teach for america work in our public schools or hospitals or as social workers. and they seem to work very hard with substantially less pay. so when i serve on the homeland security committee and we had the salamis and lastly, and they were all print interest and up and made up and these gatecrashers struck me as an incredibly self-centered, and without regret, and sometimes like some of the people that i hear saying that we can't touch their pay. they don't get how angry hard-working americans are, and how people in central ohio think they should somehow relate to your productivity. and don't get it that when you really an economy, you get these kinds of bonuses. so you know, i know we have been

around this a few times already, but what advice do you have for us so that we can fairly compensate people and try to define performance? and if the issue is, ms. minow, he's just the central issue is board governance. is boards have this attitude that we all deserve that, in the financial sector, that kind of compensation, how do we really get into, you know, changing the practices, both in or to protect us from further damage down the road and to have a better handle on corporations and their governance and? >> the focus on the post-enron reform legislation and regulations has all been on what i call the supply side of corporate governance, what managers have to do and i counts have to do. we have not really focused on

the demand-side come on what shareholders have to do. and the fact is that you should have in here the heads of all the mutual funds, the assistant secretary at responsible for a wrestler, these are people who routinely vote in favor of these boards of directors, in favor of these papers because no one is looking at them, no one is paying any attention to the. i think we need to read mind of a fiduciary obligation is all about and it is in their economic interest to look at pay as a risk factor. i think that would make a big difference. >> i think reforms that we've been talking about both in the demand and supply side are essential. but in the end i think it won't go far enough and what we talked about far here, to sites. one, that those aspects of the structure of the incentive schemes, compensation schemes, that put at risk the national

economy and taxpayers money have to be regulated in a whole bridie of ways. and the second point is that the tax structure as a whole has to be designed better to address the sense of equity in our system. and that the arguments that remain before that more progressive taxation, or that taxing capital gains would have adverse incentive effects are just wrong. that we can get a fairer tax system that actually would encourage greater efficiency. >> i would put the 140 billion figure that you mentioned in context, not just by comparing it to the homeland security, but i would compare it it would be the most relevant to what shareholders have received during this period. and what taxpayers have reserve

during this period. so was this proportion is the 140 billion relative to the contribution of the financial sector to the performance of the economy within the last decade. if you look at the numbers you see shareholders in the financial sector over the last 10 years still see some negative returns over this period. and we know about taxpayers. so what we need is to reallocate the pie, so to speak in a more efficient way between shareholders, taxpayers and executives. and the way to do it would be shareholders who have stronger rights so that they can claim their share of the pie. ever taxpayers to begin going forward, charging banks adequately for the support the taxpayers have provided. >> i just want to make an announcement about this.

the germans from california, mr. kamel, we try to minimize the involvement with the financial regulatory reform, if you want to do with it that we're going get into the corporate governments issue and that includes by the way, jurisdiction being what it is i don't think i can summon this before this committee with the erisa guy. or the woman. but we are going to contend with one of the things the sec did which is to require that all these institutions publish how they vote. as you know, they are resistant to that. so it was a post on the mutual funds. and we think it should be imposed on any fiduciary. if you are the owner of the shares in your own right, you have a privacy right but if you own shares as a fiduciary, we i hope will pass legislation that will require that you have to make public how you vote on all the proxies. we can't force them to do more but i think that would be useful

to. >> no question about it. i would be to let and i hope you'll allow me to testify in support of the. >> we will be inviting people to attend. one other question. i've talked to the gentleman from alabama, just like two minutes and i have to say, one of the things, we been given to arguments. one we all go to some of the country. the rest of the world is getting tired and as. so now the art what is we will go do something else. we will go into some other profession and won't you be sorry, all of us billion people will no longer be trading cds is with each other. my responses in part, i'm not sure where you're going to go for that kind of money. but, too, what if they did if in fact, fewer of the very brilliant people from the gentleman from ohio was referring to decide there was no longer enough money to be made in bond trading and went into other lines of work. would that be a social costs? not that we would drive them away, but is that a byproduct

that we have to try to voice because i was a part of the march made on the subject order this week, mr. chairman, when you talk about scheduling this hearing. and in my written testimony i said i would love to see the demand curve on that if all of the wall street guys rush out into the market. i think the pay package -- >> was the demand curve and even if there is a demand, was the social loss? >> i addressed that in my written test with, and i said that not only is there a misallocation of financial capital, there is a misallocation of human capital that is causing our society even more than that. and i think it would be a good thing for our society to reallocate this human capital. >> professor? >> there is a very interesting study from harvard and they track what happened to harvard graduates over a long period of time. and they reported that huge increase in the fraction of the class, the b