51 votes to go nuclear? i am skeptical and the thing was derailed when a group of democrats and republicans got together and said waite, we all benefit from the filibuster and we don't want to be so rash. >> what is wrong with legislation passing, everything passing the senate with 51 votes? >> the defense of the filibuster is the senate was intended to be different and even if it wasn't really intended to be different we know that it was supposed to be a smaller body that was supposed to have scattered terms and supposed to be insulated a bit from public opinion so the argument against the 51 votes is to say we need time to slow down majority and sometimes majorities can be wrong. that is really the best i think of the arguments against it into say the longer debate goes on sometime changes in public opinion.

>> "politics or principle," filibustering indeed united states senate. who is. [cheers and applause] up there? >> steve smith. >> and what you do here? >> professor george washington. >> alsobrook brookings? >> senior fellow at brookings where i broke the filibuster book and still toil away talking about commercial products. ..

>> by pinpointing what was wrong with their skirts. and then with another set of markers should now blocked out of the 20th century, suits, a close you can wear and walk-in changing politics and economics not just the rag trade just the precision of the hour district.

>> and nicole is the channell of financial governess. [laughter] in her book "after the fall" the book we will talk about she marked the spot in our past history that took us to the current financial crisis that makes it inevitable we would come this way with equal mastery she penciled the pattern you did not know what was right until you thought it. 312 will come nicole from the manhattan institute a contributing editor to the city journal. also a chartered financial analyst, a master of her craft 32 were three things you mentioned to talk to you when is that book "after the fall" is a history book. we have our assumptions

deposit insurance is good but maybe we need more of it, that the world will implode if we do not saved institutions that are too big to fail unless you go back in history would know these are new and controversial views. the sense of irony will not work for you. there is irony. of the view about deposit insurance until a few decades ago is that it should be limited as recently as 1989, the head of citicorp was warning we had to cut back deposit insurance and have less to have a financial crisis. if you cut back deposit insurance people would know what they were risking when they put the money into the institution and evaluate it. there was the time we did not believe been too big to

fail but letting the import and bank failed just like penn square from oklahoma. the second solution and "after the fall" is answer's not calling for more bailouts, ishiguro's for the logical middle ground, the classical solution that suits many like making the rules of the market clear. apply the same rules to everyone, no special friends. no more too big to fail to special new york category. is it is wrong to have czars sitting in throws making making them more nervous. we'll go maestro. [applause]

>> thank you for that generous introduction and limiting deposit insurance too actually ensured deposits is a radical concept. bit going with the channell metaphor coco chanel said in the 1920's that simplicity is the key note of elegance and he was not talking about financial markets but she may have as well have been hopefully if i do my job right you will see at the end of my little talk. of failure of free markets is what the last two years look like too many people. the financial system destroyed itself so thoroughly the government had to come along and provide it with

nationalization of all of the risk. so the money and credit would not disintegrate. now we have unemployment and underemployment at 17 point* 5% by the bank goldman sachs says it has to pay at the 16 point* $5 billion worth of bonuses so its own employees do not leave firm. goldman seems to feel bad and it wants to donate 5 million to small businesses what kind of free markets do you have when they have to depend on rich companies treating it as a hobby in order to get capital financing? the past 25 years is a story when government does not understand the proper role in the free markets. that is to provide a

reliable and consistent prudent regulation to discipline themselves without causing unacceptable harm and destruction to the economy. we did this for 50 years more or less from the 1930's through the 1980's. we learn the lessons of the 19 twenties. as a amity note to dinner of work, it relates to financial markets it creates optimism and optimism creates excess optimism and when you have financial markets that don't have any meaningful regulation other than monetary policy, borrowing against every last dollar project did decades into the future.

you have layer upon layer of debt going into the future and that means some other expectations pulling out one level of the session and a low-power of assumptions with so much of unpaid dead the banking system is even should -- actually bankrupt that we saw in the thirties not just our link the stock market but against all kinds of asset markets. what did we learn? i have to discipline themselves the first elegant solution without economic destruction was the fdic. is where fdr and policy makers decided we could

eliminate panic or reduce panic by a projecting small depositors but not protect bad day inks. they can fail just a small depositors will be protected so we do not see the credit again. most important thing fdr realized you don't want to raise the risk you just want to protect against the inevitable excess of optimism and pessimism. how you do that? bill limit borrowing first of all, predictably and consistently. fdr did not set up a systematic stock regulator to figure out which ones you can borrow against and which ones you can not. instead, they said the fed and the fcc-- ftc could only buy half of price but when

you were wrong you will lose the economy should not be bankrupt then they said market activities see you have a fighting chance of understanding what risk is out there if they choose to do so. the system worked well through the 1980's and the financial system started to escape prudent regulation and market discipline and we go through the results of that right now. how did this happen? going back to 1984, at bank called continental illinois it was the largest bank at the time it was a pioneer of sorts in the banking industry. continental was a pioneer in

fact, -- and that it did not follow a business model as low they keep being a long-term loans on the books the company's repaid the loans and having a slow business model insulated for the most part from acute panic but instead continental purchases that were securitized that meant they were vulnerable to fluctuations day to day with a fluctuation in prices. that is how they made them sells them multiplied over many financial institutions in the future made credit more probable to financial excesses. the other way was to depend on uninsured short-term lenders provided a good deal

of the money sell in a second way the sec short-term lenders could pull their money out overnight in a crisis. the government in 1984, the market started to panic and the spring once they got wind the securities continental had are going bad. they realize the bank could not fail the price would be too high for the global and financial economic system. the reagan administration did something unprecedented at the time. the fdic said nine of continental illinois bondholders, uninsured bond holders would not take any losses in the failure. this turned out to be within the reagan administration, the treasury secretary at the time

said, he wrote in a memo "we believe it is bad public policy and would seem to be unfair and represent a unauthorized and of legislated expansion of federal guarantees of executive-branch policy. he was again says. president reagan never said much publicly but one unnamed official said the president's thinking is he agreed with regulators compelling argument the only other choice was to risk worldwide financial havoc and it is a sign of things to come. at the time paul volcker said this bailout would not set a precedent but the market's new that it would. if not in the public lexicon and they understood to big to fail and they understood the implications at the time

it was warned of the big banks have the ultimate anti-competitive subsidy. they are too big to fail the matter how mismanage they may become the book will stop with the taxpayer. when the government once more of something, it will subsidize it. if you want a financial crisis built up over decades based on other companies borrowing for the purpose of reckless speculation, then beckham late for the purpose of reckless speculation and that is exactly what the government did with this policy and other financial institutions to borrow rates make could not have otherwise because this was in effect lending to the government said a higher interest rate.

this was the first limited to commercial banks. but investment banks had to compete so they created there on two big to fail. this was two complicated to fail. [laughter] hearing about the exotic financial instruments, many had good innovations with market signals and other things but one is to escape the limits on borrowing. this is a way to speculate without twitching cash down. the same with the securitization creating complex financial structure so banks and other investors have the aaa ratings without

putting a consistent amount of money down to protect them in the economy from any mistakes in there subjects with chipotle securities and mortgage loans or mortgage bonds for example, the banks could purchase these with foreign eighth of the cash normally set aside for any mistakes in their assumptions parker by doing this we made the entire financial system much more vulnerable to the stakes just as we had done 19 twenties. sometimes and federal officials recognize we are not applying the old rules to new markets and they did just that. one example of this was in 19 80's when paul volcker the fed chairman at the time , recognized the junk-bond market's third getting ahead of themselves

speculatively and simply got the fed to put the old rules regulating how much borrowing people could do for stock speculation on to the new market which was effectively the same thing that only takeover companies could borrow half of the price. this provoked-- provoke tremendous outcry it did mean the junk-bond market went through the turbulence in the downturn late 80's and early 90's the economy did not suffer a catastrophe we did today. unfortunately most of the government's and financial institutions did the opposite. they confuse clear consistent minutes and what kind of risk taking need discretionary surveillance and thought the financial industry identified and quarantined with no risk so

you did not need the limits and that is exactly what alan greenspan did in 2000 when he said you don't need old fashioned regulation for the newfangled derivatives markets including what would become the credit default swaps. this is how half a decade later ag could make 500 billion worth of promises putting it negligible cash down leaving itself no room for error if it made a mistake in these assumptions. before i get into enron, two examples of how their recent regulations eroded so thoroughly the financial system was left without any market discipline to govern private time we got into the 2000's, 1990 drexel went bankrupt through the normal

process and greenspan was called under congress to testify and he said it would be inconceivable we will never applied to big to fail to an investment bank of five years later, an investment bank and britain went to think of their bad derivatives bets could go through the normal process with lenders through the process because it made the bets on regulated markets where it put cash down and the markets understood where the rest clyde but three years later long-term capital management a hedge fund could not go bankrupt in the normal process because it made the same derivative bets on unregulated markets with no cash down. if bankruptcy could have blown up the economy so they engineered a bank bailouts over the hedge fund to protect the lender's. last milepost on the way was

enron. it was a very neat distillation and in that the business model was borrowed tremendous amounts of money, use that money to purchase its own assets from itself at higher prices that allowed it to make tremendous progress that allowed it to borrow more money because it said it had insured it sonat -- its own debts and native risk-free. it is strange but by definition it said if we go bankrupt, i don't worry, we will pay for it too. [laughter] but the strangest and most fascinating thing is the banks that and ron did business with, bear stearns garcetti group did not think of business model was strange at all.

could we have averted the crisis by doing something different with bear stearns by bailing l. lehman brothers the last time to do anything was enron but after that the regulations had eroded and they were not subject too any reasonable discipline because they knew the market to supplement economic catastrophe and that is how we get 22008 when the markets finally did correct their excesses but they could not do so without creating another great depression and that is how we got then nationalization of all risk in the financial industry, the opposite of market discipline and finance is not a freer market as we have seen seen, nationalization of one of the most important elements of the economy, who decides which businesses get

investment capital and on what terms. it is fashionable to say the crisis has been a black swan, something we could not have anticipated but the real blacks one is with we had gotten rid of every prudent regulation and all discipline of finance and did not have a historic financial crisis. what does that mean we know what we have to do exactly. we have to go back and apply the old principles to new markets and don't need huge bureaucracies micromanage by the government or consumer financial agencies or need any of that. if we had a systemic risk regulator five years ago they would have said the triple a mortgages are fine and perfectly safe with no

crisis and and nothing to see. and they cannot do any better with free-market to predict financial crisis. in fact,, it hurts the market's ability to do that because they do not operate under the threat of failure. we just need to go back to the lesson we learned consistent predictable borrowing limits better similar to one another regardless of the financial industry thinks of the risk. the government should not assess risk from the top down, the financial industries said it assess risk from the bottom of setting consistent limits on borrowing so when they are wrong the firms can go bankrupt and the economy does not explode. if these limits were in place five years

ago, looking as supply and demand from supply of providing financing ag could not have ensured 500 billion worth of securities putting very little cash down if they had to put 10 or 20%, they would have thought choice. if they didn't they could have gone under and the economy would have some protection and just as barings run 15 years ago. but on demand if you have the nets to bar wing housing market became speculative if you had to put a 20 percent down payment the market would not have gotten away from itself the way it ended up doing because as prices rose people would not have the cash to keep up with their rising cost to dampen demand. with the simple rules in

place, we can go back to a consistent predictable system where financial firms and investors know everybody plays on the same level playing field. with the most important regulation of all common market discipline you cannot just say you are too big to fail the markets know you have not done it as long as it is unacceptable economic catastrophe. what says failure protect that it is important and economically? two things. bad businesses and bad ideas should not survive into the future with government money you have a company like ag with good divisions, a corporate structure, sales to make these tremendous bets that ended up going bad

to sell the divisions off to someone who can manage them better and don't have a government-backed insurance company competing against the rest of the business and fairness the republicans can see it is the unfair system. against every step of the way even meant to help out their own neighbors. this is not a mindless populism and not because they don't want people to do well but how goldman operates within the implicit government guarantee that does not make that but in some ways worse because with our people know there's government money now we have and then seeing government presence distorting the economy.

we do need political leadership for washington to realize with the end being fair and consistent financial discipline and this is not a barrier to free market capitalism but a necessary prerequisite. so with that i am very happy to take questions. thank you very much. [applause] >> i am from the manhattan institute and my job today is to point* out questionnaires if i might. to start, talk about extending simple rules to the new markets to have a feeling a lot of legislation is now considered in

washington on both sides is any of it consistent with the prescription you have offered this morning? >> no. [laughter] the one thing that is consistent is one of the first bills that came out which was putting unregulated derivatives on the unregulated markets but that seems to have disappeared somewhere now we have chris dodd and representative barney frank going with this idea from president obama to create a systemic risk regulator. dithered day they said rainy day system that critics and prevents future crisis. that is an impossible goal. they can only protect against the effects of a future crisis. >> keep it short. in the form of a question.

tell us who you are and wait for the microphone. >> my name is roger. i would like to ask about three specific remedies to see if you are for any of them. bring back glass-steagall and break up the big banks and imposing leverage requirements. >> i will do the first to first because they go together. imposing leverage requirements and breaking up the big banks, another part coming out f congress is an amendment to allow regulators to identify too big to fail financial institutions and force them to break up but we cannot tell which institutions but the people said bear stearns was too big to fail seven years ago which is how far in advance you need to do

these things. if we credibly end too big to fail by protecting the economy, and if we put consistent borrowing limits across financial laments over institutions no matter what they call themselves, through market forces because lenders will million no longer have the implicit guarantee. the same thing with too big to fail financial institutions lenders will do their own surveillance knowing they can without taking the economy hostage. we used to living in a market to markair world not going back to holding loans

investors want to know what is going on a better solution than going back to glass-steagall is to better protect the economy from fluctuating prices in the securitization markets because that is what kills credits. one way of doing fact his ferrying capital requirements with low negative eight -- liabilities. with financial firms relying on short-term lending makes them hold more capital proportionate to the amount of short-term lending as they better protect the economy. this idea comes from alan greenspan. in 1984 he was on an economist panel after the rescue and said banks should hold against losses depending on the type of liabilities that they have.

>> do any other regulators currently have the power to implement the kinds of solutions you are advocating? >> in the '80s, paul volcker had the power to convince the fed to put the borrowing limits on the job market in the '90s at alan greenspan has so much clout that they took his word whether unregulated so that has been a brave few decades sometimes they use it properly and sometimes they didn't they have plenty of the toss to go to congress and ask for it. not enough power by failing

to recognize the need that consistent rules. >> i am with research magazine what do you think about ron paul ever to audit the fed or more importantly abolish the fed? [laughter] >> he has sold more books than me. this is an example of why a reasonable politicians don't come up with a reasonable solutions people will gravitate toward the and reasonable solutions. we cannot depend on monetary policy which effectively is a love we have done for 20 years. it is wrong for monetary policy but we need the midst

sell mistakes don't create any assets bubble in line asset class so it cannot fix itself without destroying the rest of the economy and of course, we need to do better by focusing on the fed and what it has done right or wrong is a distraction in my view. thank you. >> hello. what about getting rid of some other regulations i would view but really they guarantees of mortgage loans, securitization was invented by the federal government and new-line not get rid of that? >> i agree wholeheartedly the government should create

the consistent environment not certain class's of lending at the free and fair prudent markets what they would do with mercy fact than at other times the india of mortgages no downpayments borrowing 120% of the value of the home home, that fannie and freddie made them do this but they did not help and allow them to look respectable the government said it must be okay but fannie and freddie were too big to fail it is a whole other area that goes along with inappropriate distortion.

>> how do see city banks future? [laughter] >> i used to work at citibank. the future? they cannot succeed without market discipline and rec the right now they operate without market discipline. just as importantly they are distorting what other firms do because they have to compete against a government subsidized bank. again, this is a place like aig with great business lines buy you have to of lock these people and put them into the hands of managers said know how to manage the company and do that at the expense of bondholders who freely lent money to the company and

should take a loss of the prospects turned out not to be what the lender's thought. there is no justification for not having bondholders take losses no regulation in the world can overcome this subsidy. >> how do think it too big to fail issue can be solved with concentration of assets? seventy% of total assets have a very big competitive advantage over the other 10,000. >> the first is not to make the problem worse is what we have been doing over the past two years large banks being bought by the two big

to fail financial institutions and a place where it was a very slow evolution. we did not build up too big to fail overnight. we will end it overnight but once the government puts in place an incredible system for failure, lenders will provide market discipline and push the firms to brace themselves otherwise they have to pay much more for their financing commensurate with prospects for the year as well as mismanagement does well. if they know they are being subsidized by the government they lend to the government directly and put up with plenty of mismanagement there. [laughter] >> >> when one considers not only the debt holders but

the equity holders that were essentially made whole, one can surmise not just the thread and a systemic failure to support those institutions come i do think eliminating the risk of a systemic failure to limit some leverage will eliminate the temptation to branch out those institutions for after parochial reasons? >> they would not have the excuse. not that it is an excuse. there was a real risk and systemic failure but they could not go to the public nor congress and credibly say we have got to pay everybody 100% on the dollar with credit default swaps or the whole system will collapse. when you have a predictable

consistent system of bankruptcy are some of their resolution and as the fdic does, you eliminate the cover doing anything for any other reason or the perception of other reasons which is just as important. you could learn a lesson from dubai why should we bailout dubai world which is a bailout of sophisticated banks? we did the same thing with aig partly because we were under systemic pressure. >> what about just with the insured depositors or the whole economy or is so what is the philosophical

justification for the rights of contracts for a willing lender to loan as much as the ones to? >> the justification is that your right to lend or borrow the ability to hold the entire economy hostage begins. it is multiplied across the economy are away without any room for error results then nationalization and we saw this in the thirties and over the past two years. one of the lessons of the other modern way of securities, you cannot protect credit from the excesses of speculation just to the uninsured deposits.

you still have pessimism and you should but we have no is have limits on borrowing even outside insured deposits. firm unregulated derivatives howled but there buy firms with insured deposits or not. >> forgive me if you answer this previously gifting rid of the fed what about the idea of what bidding? starting out as a fringe thing from ron paul and now it with enough signatures in

the house? >> one of the problems of all of the bailouts we have done is we have a secrecy where the fed and the treasury pressuring bank of america possibly not to talk about the loss is it could incur with the purchase of merrill lynch the idea that big government and big banks will hide information from investors lead to the proposals with all kinds of other things. if we get out of the bailout business people will feel more comfortable there is transparency and the government is not using its powers to favor certain institutions and some of the power will go away just as honoring the fed. it is not helpful because

the fed is always criticized, congress obviously focus is on the fed chairman but we do not need more day to day appearance it confuses the market's if it is making decisions based on the merits or the congressional audit? thank you. >> what you say seems sensible to people in this room is there anybody in washington who believes the way you do? [laughter] is there anyone devising president obama who thinks that way? >> the problem with the president's advisers is they

have lived with too big to fail for so long as some of them cannot conceive of another system. they think this is how it should be when you read their offense that answer is to figure how to make it better rather than end it. they live in the system where you don't have been the consistent and women to protect you from your inevitable mistakes they think they will not make mistakes but when they do they are so smart they managed to extricate themselves no reason end to protect themselves from future mistakes. what is the lesson we've learned? also the same that we learn from long term capital management. we are so smart and refigure our how to get out of this now they say we can prevent a depression so they are not humbled by this.

>> this sounds very plausible you are saying that i wonder where you actually set the reasonable limits? i heard you say a 50% margin for stocks that would have been fined for aig was saying 80% is reasonable bet it is somebody setting the sensibly without too much protection? >> it should be consistent against anyone asset class or investment class. the 2% margin requirement on stocks, could they have done

it 50 years ago at 40%? the consistency matters so you don't gain this is done and lowering requirements on the futures markets have been in place a long time seemed to have worked for decades. so the derivatives that act like these with the lower margin requirements should also have those as long as they are consistent for the asset class. anything that is above 20% year are just making the problems worse. they cannot afford a house there is pressure for other ways to make them able to afford it. we had a 20 percent down payment requirement and worked reasonably well and we can go back to that. across the housing market no one can say we can eliminate

it. >> this add-ons like what you are suggesting is too big to fail of antitrust analysis of the financial institutions. if that is the case, do you have a regulator who you trust to apply that analysis in a relative the efficient way so we can achieve the goal of not too big to fail? >> i think if we have market discipline of these firms firms, it actually lessens the need for antitrust. morceau and pretend right

now and here where the public is very concerned the baying has too much consumer power. looking at it from antitrust looks like a government solution to a government problem but if you allow for market discipline allow the market's course these firms to break up and if it does not work, we certainly have antitrust but let's try the obvious before we go to the secondary command and control government solutions >> you recently had written about to buy a and new york state. could you expand? >> this is quite on topic

because we have of the dhabi and dubai say we will not bail out the investment arm. this is not a sovereign guarantees the government is saying we want you to read the fine print after everybody invested. why are people surprised? only in a world in which the financial industry considers spell-out an entitlement is it surprising. what dubai is saying you then does money based on bally rations that do not hold and we borrowed on these valuations. we have to adjust the price of the assets, this should happen all the time in the financial industry dealing with the consequences of your actions is doing business. relating to new york, we

have off balance sheet state entities not officially gained and people are depending on the too big to fail karen t. nobody would invest in a lot of the boondoggle projects if they did not think there was a bailout there from the state and for that matter people would not invest in new york or california if they did not think it was too big to fail. we have government distortions preventing states and cities from getting their spending. the same that comes from washington, distorts the market signals so they are unrecognizable. >> if your recommendations

would in effect of monetary policy works because the fed has to effectively it is the ability across the. version that impose work create a barrier to the change in the liquidity in the markets? >> it means that the economy is better protected from mistakes of monetary policy but it should not change the way the fed sets monetary policy. in fact,, it lessens the pressure on the fed to try to recognize asset bubbles. if you have limits on our way people will not be able to keep up with the rising prices with the cash they have to put down and you

will see the march gage markets filled with pride they would not have risked their own lives to the extent put a 20 percent down payments down. >> her book again is at "after the fall" saving capitalism from wall street - and washington." [applause] >> thank you

>> every year of the national press club hosts day of their night we have the author of pooch's labyrinth. can you talk about the culture? >> sure. the best line the best way to understand what is going on what is going on for the last seven years is to look for the lens of murder and what i argued is under vladimir putin, there is a culture or eight structure in which murder and death occurs with impunity and it goes on with the indifference of the russian

people. i call that the culture of death. >> why does that o her? why don't the russian people know? >> they do. but it has been going on for centuries sidetrack get back to ivan the terrible and people are so accustomed to hardship in their lives to death and van den and all kinds of terrible hardships that we've never encountered so if there is something that happens to someone very close to them or to your relative or a mother or daughter, you care. if it is a murder of someone next door, the village next door, and maybe you could care, but you don't and go on with your life. >> your profile six differ russians in the book. talk about one and.

>> . what about paul? that is a good one. he is the aberration. he was the editor in chief of "forbes" the rush shut edition and grew up in new york his background is russia and aristocrat and totally romantic about russia. he went back there thinking he would live the life that his grandfather describe as he was growing up. and what he found was the chaos of russia under yeltsin. so that win blue tint became president he cheered. he was a huge fan and he describes in that way and articles in "forbes" but then when he was murdered, that was very dramatic how could this guy who was such a fan of

vladimir putin be murdered? and putin himself in the other murders i described comment he is totally in different about the deaths even in the interview about the death of another subject of whose murder i described, he was a derisive about her. but with paul, he actually went to new york after his death and visited with the widow and expressed his sympathy. what this tells me is that the culture of death is bigger than an even vladimir putin

>> the word to big to fail and the fact i have ben writing about things that are too big to fail for a long time. that means when a single company goes down, the entire system can go down. i were writing about things that were too big to fail 80 years ago. and i just wrote to a whole book, that purpose by continued the analysis. i was kind of proud of that work and it was cutting edge. thank you for the meltdown or the near collapse of the auto industry, people is starting to pay a little attention and and sometimes attraction mainly within the tory party. [laughter] but two nights i will not talk as much about two big to