quorum call:

a senator: i ask the quorum call be suspended. the presiding officer: without objection. the senator from arizona. mr. mccain: mr. president, i ask unanimous consent to speak as if in morning business. the presiding officer: without objection. mr. mccain: i thank you. mr. president, these are days when we senators take to the floor to express our anger and criticism of events we disagree with. but then there are days we rise happily to pay tribute to great and noble achievements, and today is such a day. the people of iraq went to the polls yesterday and struck a blow for freedom and democracy that is renowned across the world. as opposed to iraq's last national election in 2005 which saw the country divided along

sectarian lines with knowest pho*eft sunnies refusing to participate altogether, the election yesterday was broadly inclusive with a host of cross sectarian lists competing for the vote. early reports indicate that turnout was high among iraq's nearly 19 million registered voters. over 50,000 polling stations were up and running across the country, with more than 200,000 iraqis observing the election. loud speakers in mosques that once implored iraqis to take up arms and kill americans appealed to them yesterday with a different purpose: to express their desire for a better iraq not with bullets but with ballots. tragically as most feared, yesterday's events did not proceed without incident. al qaeda and other terrorists lashed out with acts of violence

against innocent iraqis, women and men, fellow muslims and fellow arabs, even young children. those these criminals did take the lives of at least 38 people, iraqis were not deterred. they voted by the millions anyway and in so doing they defied the enemies of their great nation. iraqi people deserve the lion's share of the credit for making yesterday's election such a resounding triumph for democracy. iraq's government, its high electoral commission and its security forces all conducted themselves with distinction. i congratulate them all. it's been iraqi courage, iraqi sacrifice and iraqi endurance over many years of hardship that are bringing about the country's emergence as an increasingly free society. yet, iraqis have been fortunate to have committed allies in their struggle for justice.

i thank american civilians and diplomats as well as those of our coalition partners in the united nations for supporting our iraqi friends in this election and throughout the countless challenges that proceeded it. most of all, i want to express my deepest gratitude to america's men and women in uniform who have given more to our mission in iraq than could ever be asked of them. as our troops return home in the months ahead -- as they must -- it will be with the knowledge that their mission has been worth the fighting for, with the thanks of a grateful nation, and with an honor won for themselves that time will not diminish. our fellow citizens who have served in iraq these past several years have done what many once believed to be impossible. it was once assumed that iraq was unfit for democracy, that iraq's people could not practice it, and iraq's culture would not

allow it. it was once assumed that america was trying to impose democracy on iraq or perhaps export it to iraq. and it was once assumed that no manner of additional u.s. troops could succeed in helping iraqis to secure their country. these were all popular assumptions, especially in this town, popular but wrong. and thankfully, the united states followed a different course. because we did, iraqis are showing the freedom and democracy are iraqi dreams and increasingly iraqi realities. iraqis are choosing to resolve their differences through cooperation and dialogue, not violence and repression. they are demonstrating that iraqis share the same basic aspirations as you and me: safe

neighborhoods, opportunity for themselves and their children, equal access to justice, a chance to elect those who would govern them and to live under laws of their own making. yesterday the citizens of iraq once again reaffirmed that a nation's past need not determine its future. when citizens of courage are devoted to a just cause that is greater than themselves. now i'll be the first to admit that iraq still faces many difficulties: a limited but lethal terrorist threat, the unhelpful meddling of some of its neighbors, weak political institutions, a still developing economy, and a culture of distrust that will take a long time to heal. there's much hard work still to be done in iraq, and the united states must remain fully seized with it. in the weeks ahead, we must

support our iraqi friends and the arduous task of forming their new government. in the months ahead, as u.s. troops return home, we must deepen and expand america's diplomatic and economic engagement with iraq. and in the years ahead, the united states, especially our congress, a*s has a responsibility -- has a responsibility to continue providing the critical support, including the necessary resources to strengthen iraq's young democracy. we have given much to this effort already, but now is not the time to scale back. though our military, our mission is ending, our commitment to iraq will endure and must endure for a long time to come. the fruits of this commitment are already becoming evident for the united states. we have not seen eye to eye with the current iraqi government at all times, and i'm fairly

certain that we will have our share of disagreements with future iraqi governments. but this does not change the fact that iraq has transformed in just eight years from a principal enemy of the united states to a rising partner in the fight against violence extremism, from a generator of insecurity to an emerging source of stability in the midst of a volatile region, and from one of history's most reprehensible tyrannies to a growing inspiration for people across the middle east who still yearn for freedom and justice in their own countries. when iranians look at a democratic iraq today amid crack as if downs in their own country -- amid crackdowns in their own country, they must be thinking why not us? when syrians look at a democratic iraq today among the staoeufrlg climate of oppression

in their own country, they must be thinking, why not us? and when our friends in egypt, saudi arabia, and other nations in the region, where liberty is not assured, watch a peaceful transition of power in iraq from one freely elected government to another, they must also be thinking, why not us? the citizens of iraq are now writing a new and hopeful chapter for their country, but also for the region as a whole whose people are increasingly looking to emulate iraq, its freedoms, its rule of law, its security of human dignity, its equal rights and equal justice. this is the start of something new and wondrous in the middle east, a renaissance of sorts and iraq is at the very forefront. mr. president, the war in iraq

is ending, and america's partnership with a new iraq is only just beginning. no matter where any of us stood in the old debates of the past, americans should all be able to agree now that the emergence of a free and democratic iraq is one of the greatest strategic opportunities in all of u.s. foreign policy. america and our allies have created this opportunity. iraqis have expanded it and seized it. and now let us all come together to usher in a new era of liberty not just for iraq, but for the entire middle east. mr. president, i yield the floor. i suggest the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

quorum call:

quorum call:

a senator: mr. president? the presiding officer: the senator from oregon. mr. merkley: mr. president, i ask that the quorum call be vitiated. the presiding officer: without objection. mr. merkley: thank you, mr. president. i rise this evening to speak about a simple amendment that would go a long way to save a

lot of jobs in our timber industry and our forested communities. give you a little background. the collapse of the housing market has devastated the timber industry and the many rural communities that depend on it, resulting in major job losses. because of a fate tied to the housing industry, the timber industry is one of the hardest hit by the current recession, with timber prices at a record low. now, that precipitous drop in timber prices has created a unique and very threatening problem for companies that harvest timber on federally owned lands. specifically, a lot of companies bid for contracts to harvest timber and they did so right before the housing market and then the timber market collaps collapsed. so those companies bid, someone

contracts and those that won those contracts won them at a very high price for the timber. they could make a profit selling that timber when they harvested it. but by the time process was completed, the timber prices had fallen through the floor. at the current record low timber prices, harvesting on a contract would cost more than the timber is worth, so the companies would lose money by going forward, resulting in major losses and leading to layoffs and lost jobs. now, this takes us to an interesting point, where there are two possibilities. one is a contract with the forest service and one is a contract with the b.l.m., or bureau of land management. if a company is fortunate enough to have a contract with the forest service, they can apply for and receive an extension, giving them more time to act on the contract and harvest the

timber. given the unique circumstances we find ourselves in, that's of great value, it makes sense and it's a simple way to save jobs. but, unfortunately, if your contract is with the bureau of land management and that bureau manages 6 million acres of forest -- 69 million acres of forested land across our western united states, much of it prime timberland, the same rules are not set up for companies who happen to do business with the b.l.m. rather than the forest service, their only alternative to harvesting timber at a loss is to lose the contract and lose the business altogether. now, this makes no sense as a policy. and in western states like oregon, where forest service and b.l.m. lands are side by side, you can find yourself on the forest service land one moment and b.l.m. land the next. it's practically arbitrary whether a company is working

with an agency that can give them a commonsense extension as the forest service can, or an agency that cannot give them that commonsense extension, which is the b.l.m. so my amendment is simple. it allows companies to apply for a contract extension and authorizes the b.l.m. to review and grant those applications so we can save those jobs. it applies to the b.l.m. the same rules the forest service already has in place. and, indeed, the language of the amendment is identical to a companion bill that has already passed the house. furthermore, the congressional budget office has determined that there is no significant financial impact for this bill. now, i've talked to many of my colleagues on both sides of the aisle and i haven't found anyone who has an objection to this

amendment. this is a -- one of those commonsense opportunities to cut a little bit of red tape, a commonsense opportunity to assist companies that were caught in an unexpected trap, a commonsense opportunity to strengthen our rural resourc resource-based companies and the jobs that go with them. so i put forward this amendment, and as i noted, everyone i've talked to on both sides of the aisle says it makes a lot of sense but some objection has been placed anonymously. and so i simply want to ask that any colleague who has an objection to this effort to help the timber companies, to help our rural resource-based communities to please come and talk with me, because i'm sure that whatever concern you have, i should be able to get a good

answer for your concern. we have in this chamber the opportunity to help some of the hardest-hit chiewnts with a simple amendment like -- communities with a simple amendment like this. i hope we can seize that opportunity. that's the type of bipartisan problem solving that americans are hoping to see from the u.s. senate. so, thank you, thank you to my colleagues who have been so helpful in reviewing this amendment on both sides of the aisle, and thank you to my colleagues who will be helpful as we try to put this commonsense a.m. in place. thank you, mr. president -- as we try to put this commonsense amendment in place. thank you, mr. president. i note the absence of a quorum. the presiding officer: the clerk will call the roll. quorum call:

quorum call:

mr. kaufman: mr. president? the presiding officer: the senator from delaware is recognized. mr. kaufman: i would like to dispense with the quorum call. the presiding officer: without objection, so ordered. mr. kaufman: i ask unanimous consent that on tuesday, march 9, after any leader time, the time until 11:00 a.m. be for a period of morning business, senators permitted to speak therein for up to 10 minutes each. with the time equally divided and controlled between the two leaders with the republicans controlling the first portion. at 11:00 5erb8gs the senate resume the consideration of h.r. 4213. the presiding officer: is there objection? without objection, so ordered. mr. kaufman: mr. president, i ask unanimous consent that when the senate completes its business today, it adjourn until

10:00 a.m. on tuesday, march 9. 2308ing the prayer and pledge, the journal of proceedings be approved to date, the morning hour be deemed expired, the time for the two leader leaders be rd for their use later in the day and the senate then proceed as under the under the previous order. the senate then stand in recess until 2:15 p.m. in order to accommodate the respective party conferences. the presiding officer: is there objection? without objection, so ordered. mr. kaufman: i further request the time between 2:15 and 2:30 be divided between the leaders on each side. the presiding officer: without objection. mr. kaufman: tomorrow the senate will resume consideration of the tax extend eshes legislation and conduct up to four roll call votes beginning at 11:00 a.m. the filing deadline for second-degree amendments is 12:00 noon tomorrow. further, under the previous order, the cloture vote on the

substitute amendment will occur 259:30 tomorrow. if there's no further business to come before the senate, i ask that it adjourn under the previous order. the presiding officer: the senate stands ajumped until 10:00 a.m. tomorrow.

>> now fdic chairman sheila bair on financial regulation. she spoke today at an economic policy conference here in washington hosted by the national association for business economics. it's about half an hour. [inaudible conversations] [inaudible conversations] >> good morning. for those a few who do not know, i'm the president of the national association for

business economics. and i'd like to welcome all of our members here today. for those of you who are not members, nabe's largest business for international economics. we are extremely pillage this morning to have for our first speaker, sheila bair, chairman of the federal deposit insurance corporation. ms. bair has held that position for the past four years, a period which i believe about tested the mail of any mere mortal. ms. bair holds her law degree from the university of kansas and has broad ideas and financial issues. she has worked in academia at the new york stock change, on the hill with the senate, to treasury, and victimized future trading exchange. choose received numerous awards, including awards for her various

publications. some of you know she also has written a number of children's books. in fact, her first book was published in 2006 and it was called, rock on the rock in the saving shock. and i was thinking last night is more of us had read this book, we might have avoided all the financial drama. chairman bair has agreed to answer a few questions after furball remark. although for those of you in the media because the media because the session is very short, we would ask you to contact editor gray who was with her this morning for additional questions after the session. so with that, please join me in welcoming chairman sheila bair of the federal deposit insurance corporation. sheila? [applause]

>> thank you, lynn. i was a very nice introduction. good morning to everyone. very please to be with you this morning at the opening of nabe's washington conference. the last week i spoke before nabe was for the 50th meeting in 2008. it was at the height of the financial crisis when a range of extraordinary policy actions were being undertaken at the federal government to restore order to our financial markets appeared in appeared in the federal had heard introduced a number of special liquidity programs and was subsequently creating many more. president bush had just signed into law the emergency economic civilization act establishing the t.a.r.p. about that time, he was envisaged primarily as a way for treasury to buy mortgage related assets, not government banks of the subsequently day. one week later, the fdic would announce the temporary the

quiddity guarantee program whereby participating institutions can purchase a guarantee on 13 amounts of senior unsecured debt and on transaction accounts about the deposit insurance ceiling, truly an extraordinary measure. as we meet today, the initial crisis has receded, thank goodness. money market spreads have returned to normal levels and banks are holding record amounts of liquid assets. most of these emergency programs are now gradually being unwound, though we continue to deal with the aftermath of the crisis, which includes persistent high unemployment, impaired household balance sheet and high levels of problem loans and troubled financial and the two shins. we still face many immediate challenge is in the fdic is working on a number of fronts to address those challenges. but what i would like to discuss this morning is our longer-term future and how it is now being

shaped on capitol hill. as needed, financial regulatory forms are being considered. we need to maintain our focus on the lessons of this past crisis. the last major financial crisis, the thrift and banking crisis of the 1980's, remember that one? resulted in enactment of far reaching life improved to help the financial system. these bonds strengthen bank regulation provided banks with incentives to operate at higher capital levels with less risk. the reforms of the early 1990's were designed in large part to limit for how third or the incentive for banks to take risks at the expense of the deposit insurance fund. they set the stage for a period of remarkable stability within the insured ranking industry, that these reforms also created incentives for financial services to go outside of the regulated sac or in the so-called shadow banking system.

credit intermediation continued to move outside traditional banking of businesses found more and more of their funding from commercial paper and other market make it a thumbs. homeowners to fund more a fair mortgages with nonbank mortgage firms. this regulatory arbitrage undermined our financial stability by allowing risk to migrate towards gaps in our regulatory structure where oversight was minimal. mortgage lending provides some prime examples of regulatory arbitrage. in 2002 and early 2003 encouraged by record low interest rates, there was record volume of mortgage origination. origination platforms grew to accommodate the surge in mortgage demand. by 2004, house prices were rising at double-digit rates, setting the stage for dramatic changes in the structure and funding of mortgage loans. because many prime borrowers have locked in their bones by

2003, the mortgage industry shifted its attention in its ample lending capacity towards us credit worthy borrowers and home buyers struggling to cope with the high cost of housing. one result was a rapid increase in subprime loan origination, which peaked in 2005 at just over 20% of all origination. declining affordability and high-priced housing market also contributed towards a shift of nontraditional mortgages such as interest-only and pay only arms and we struggle with these. the lack of strong consumer protection for mortgage borrowers, especially in a nonbank sector encouraged the spread of these increasingly complex loan types, combined with opaque marketing and disclosure practices these products proved toxic to consumers. we continue to see the consequences of these practices. about 5 million homes have entered foreclosure in the past two years alone.

the causes of foreclosures are many and they have evolved over time, but we must remember that the problem began with the risky financial pack says that resurfaced on the fringes of our regulated financial system. for example, subprime and nontraditional mortgages were originated and securitized primarily by broker's. mortgage companies and nonbank affiliates of fdic insured up to two shins. securitization provided much of the funding for the phone. the share of u.s. mortgage debt held by private issuers have asset-backed securities more than doubled between 2003 and 2000 6'2" over 20% of the market. growth in the title mortgage-backed securities was facilitated by the use of complex and opaque cbo's and cbs instrument. virtually all of these mortgage instruments performed well as long as home prices continue to rise. the rating agencies ratified this performance by granting

these instruments their highest ratings, thereby encouraging a misplaced confidence in the quality. but the performance of these instruments is highly dependent on indefinite continuation of the housing boom which was never possible outcome. when the boom ended and the credit glossies interest became apparent they had become embedded throughout the financial system and in the way that undermined confidence in general. the story of regulatory arbitrage in mortgage related instruments leads us to the large complex banks and nonbank companies that packaged and sold so many of these securities. the capital market activities behind the growth of securitization and derivatives could only be undertaken by the largest financial firms and the compensation schemes employed by many of these firms are based primarily on deal volume, not the quality of risk management. as a result of their too big to fail status, several large firms enjoyed funding at the low market rates that do not reflect the risk that they were taking.

indeed, the credit rating agencies themselves recognized its implicit guarantee program into ratings for major financial institutions, one wet and one without government support. in short, one was in effect a has a disincentive to risk-taking and the crisis. a group of economists as i am today, it is worth asking why market forces failed to bring in the race that much of this crisis. over the past two decades, the prevailing worldview has been targeted generally self-regulating and self-correcting. have we overstated the ability of markets and private firms to provide optimal decisions? does this mean that the only way our financial system can effectively operate is under heavy-handed regulation? i would offer a somewhat different perspective. markets remained the best mechanism for making decisions that involve risk, but only if they operate under an institutional structure that requires all firms to bear the

downside consequences of the risk that they take. we have long recognized that insurance given to these which is why we charge premiums and cat deposit insurance to protect primarily small retail depositors. and this is why fdic insured institutions are subject to both provincial supervision and rules that require their charter and authority to close them when they become critically undercapitalized. most importantly, and resolve resolve in this institution, the fdic is required to choose the least costly method, which typically involves imposing substantial losses on debt holders and shareholders. our receivership powers provide a clear priority of claims and all ready access to funding allows us to pay those crams promptly. however, as it stands now, when large nonbank financial firms and banks holding companies get into trouble they are subject to commercial bankruptcy profits. in contrast to receivership come

bankruptcy is not well attended speed of financial operations of the largest financial firms. it is designed to protect creditors, not the public. they force large nonbank financial institution through bankruptcy can create significant risk for the real economy as we saw in the case of lehman brothers in the fall of 2008. the potential for these disruptions and the lack of a credible process to unwind large nonbank institutions and bank holding companies helps explain why there is such overwhelming pleasure to bail them out when they are threatened with failure. the irony is this, the very measures put in place after the last crisis to limit moral hazard and banking helped to push with taking out the traditional banking into the shadows that her. they are, the peripheral of the banking system where they were gaps between regulatory jurisdictions and inadequate protections for consumers come at the risk grew unchecked. the lack of a credible process to close large complex nonbank

institutions led to an inability to close these financial beanies without creating great destruction. the resulting bailouts reinforced the notion of too big to fail and dramatically increase moral hazard. based on the combination of events that led to this crisis, it is clear that we must take a more holistic approach to regulation to be sure we can improve oversight of insured depository to two shins. but if reforms only by your more upon traditional banks they will just create more incentives for financial activity to move to a less regulated markets. such an outcome would only exacerbate the regulatory arbitrage the fed this crisis. it is stated as fundamental reform and three carriers ending in today to the fail, plugging gaps and oregano to restructure and finally protecting the consumer. first we need to get serious about leveling the playing field in protecting the taxpayer by ending too big to fail. this is not an impossible goal.

one way to ensure that financial companies for the full consequences of the systemic risks they create is to make the largest firms bear the burdens of the risk they pose to the financial system. this can be done with higher capital requirements, for them, for various regulatory limits. what we need most is a pre-funded regulation mechanism similar to the fdic is receivership authority for failed banks and a clear mandate to close large systemically important firms when they get into trouble and to quickly sort out the claims against them so that key financial relationships can be preserved and the taxpayer can be protect it. let me be clear, this would not be another bailout mechanism. shareholders and creditors would build a losses, not the public. but the process would be portably and help prevent a catastrophic collapse of other firms. it would be a conscious departure way from the reflexive ballots that have tended to occur during crises in the absence of such a resolution authority. the lack of a resolution mechanism for these companies is

not a minor loophole that needs to be closed. on the contrary, it was the mental cost to the financial crisis in the norment enjoyed enormous cost to hide it. we cannot the status quo continue unless too big to fail as address now we will surely repeat this episode down the road again. we also need to address the gaps between existing regulatory jurisdictions where risk-taking arose under inadequate oversight as for how to do this i think the consensus points to a systemic risk council. under this approach, the agencies who currently have authority and expertise in specific areas of financial regulation would come together to share data and take collective action. this would help to ensure that risk does not go undetected because it's regulatory gap between these jurisdictions. we need to do a better job of assessing macro liberal changes in our financial markets. i can ultimately disrupt institutions and as we've seen the economy as a whole.

it is also essential that we do this without taking a one-size-fits-all approach toward diverse and innovative financial site her. finally, we must reestablish the financial role of consumer protection and financial services. an unfortunate byproduct of the prevailing worldview about the self regulated and self-correcting nature of markets is a misconception about the value and purpose of consumer financial regulation. tucson, the regulation of consumer finance represents heavy-handed interference and otherwise well functioning markets in order to achieve some social or political objectives. this bears some rethinking. there is ample evidence that consumers did not understand the consequences of the subprime and nontraditional mortgages that were sold to them. economists understand a great deal about the effects of asymmetric information and how it can prevent markets from existing in the first place or from operating efficiently. in this light, i think there's a strong case to be made that basic consumer protection help market function better at

reducing information gaps between lenders and borrowers. when they put in a different way. if lightly regulated companies at the periphery of our regulated financial system are pushing complex and risky mortgage products that consumers really do not understand him and they are exploiting this information gap at the expense of companies who wish to do legitimate business and more suitable financial products.

or national policies have skewed economic activity, away from savings and toward consumption, we are investment in our industrial base of public infrastructure and toward housing where from the real sectors of our economy and for the financial sector. examples of these policies include federal tax and credit subsidies for housing, tax code that favors up short profit to an implied a backstop for financial firms that have now in many cases been made explicit. no single policy is responsible for this distortions and no one can reform or restore balance to our economy. we need to examine national

policies from a long-term view and ask whether the trade dance and especially to a sustainable higher standard of living. our financial sector has grown disproportionately in relation to the rest of our economy. whereas the financial sector claims less than 15% of total u.s. corporate profits in the 1950's and 1960's, it's your brother 21% in the 1997 to 34 percent by 2008. we know that a vital and innovative financial sector has long been one of the key competitive advantages of the u.s. economy but we must also recognize that the excess is of the past decade were costly diversion of resources from other sectors of the economy. we must avoid policies that encourage such distortions. of fixing regulation can only accomplish so much. rules and regulations can help constrain our animal spirits but unless economic incentives are also appropriately aligned regulation alone will fail.

longer-term we must develop a margin to stick approach that utilizes all available policy tools fiscal, monetary, and regulatory two latest for the longer term more stable of more widely shared prosperity. thank you very much. [applause] >> thank you very much, chairman bair, i thank you all agree she's given us some very important issues to think about in this conference. now we have time for a few questions so please come to the microphone since these are being broadcast on the air. >> thank you for telling the truth, we appreciate you doing that over the last couple years and this seems like the new banking model is they -- [inaudible] i'm curious how long

this will have to be in place? how long will drama have to suffer the decline in her living standards from her 4% cd to a half to bail out the banks and how long will it take him to earn their way out rather than recognizing the losses wrecks are replicating that or not? >> you can add several questions and they're all good ones. i think it policy of low interest rate is appropriate given the struggling economy and improving the still struggling economy but the whole idea is to get credit flowing to prevent lending to creditworthy borrowers but we do want to creflo to occur as frustrating. clearly there was too much credit leading to this crisis and had to be a pullback but i'm concerned we are going to try the other way. i think if you look at loan balances they seem to be doing a better job than larger

institutions and making loans or maintaining loan balances and some of the variations are doing better than others in terms of providing credit. so i think a wide -- a line needs to be signed an explanation seems to be made. for credit is not provided. the regulators on an interagency basis issued by focusing on small business lending and made it clear we do want pretty small business was made and to discourage any kind of abuse of models categorize as certain far worse our industries or geographic locations and model driven decisions that and give credit. we want these to be made individually back to basics on the part of the creditworthiness of the individual parts work and so we will continue our advocacy on this. i do think if you've crossed the line and get into a situation where the order banks to lend history on that is a good but i do think shining a public spotlight on an amazing the

public pressure is something we can do. >> absolutely outstanding speech with solutions and i applaud every word. i have wondered if you could explore this resolutions of the repression of a little further and i guess i would put it simply, let's go back and look at drexel and 1989 and in effect a solution that avoided moral hazard and and was pretty clean. so i guess my question is, some folks say that we only have a problem now because of recent laws in bankruptcy with that didn't allow other capital markets to be frozen, everybody comes in and makes their claims -- i mean, is that itself is significant fix? and do we have such a bigger problems now such huge greater complexity in the capital

markets book that's -- are you sure you still couldn't do it or pass it that way like was done 20 years ago they also a problem only being right now that things are so awful that every single contract is very to usually different prices between creditor and debtor? thanks. >> i think fifth let me be clear, we still think bankruptcy should be the first choice, there should be a presumption in favor and if the regulators are going to put it into this news special resolution mechanism there needs to be a strong demonstration that is to be high bar that's necessary to protect against systemic risk and you're right and, part of the problem was exacerbated by rules allowing counterparties one when the catcher party house for bankruptcy. that's not the way the fdic rules work.

we can accept or reject catcher prepositions and required him to a performance and if that is in the best interest of the government. another thing that we can do that is more difficult in bankruptcy is -- there are several things -- if you have an fdic type process you can prepare. at a lot of these institutions it was known for some time there were troubles and i think now that everyone is under the number of potential supervision by the fed that will be even more so the case so you can prepare for a process several months of advance in this is what we do for smaller institutions now appear if you can also set up a bridge to provide temporary funding to unwind the transaction as a write-in and propose something that is much more durable in bankruptcy. i think it was ironic some of the bankruptcy professionals were suggesting their big government funding of bankruptcy bioprocesses which i shudder to think about but i think if you are going to provide a

short-term government funding to a bridge you need to have controls on that. i think the regulatory process is what the fdic does, it's helpful. so i can procession is in favor it but we do thank you should have a small back but also are plans priority in the is the same as bankruptcy and shareholders take losses and with this resolution mechanism you wouldn't be guaranteeing liabilities as you would with the insurance for banks i think the chance of the government taking a loss on that are pretty remote and again they would have first claim on pryor is, the assets sold and pretending mechanism the taxpayer would never be on the hook and the rebel reserve to draw upon the weather is with deposit insurance. i think the difference between now and 20 years ago you are right. i think derivatives have grown considerably. the structure products that we have today we didn't really have so much 20 years ago and so i think this did will supply the

rest. mortgages went bad and they're exponential consequences from the sea opposed based on the performance of the mortgages so i think that is also a standard loan problem and i didn't mention it in my remarks by greater oversight of the otc derivatives market is absolutely essential brain more transparency and better discipline to the market in and that will help a lot of. >> thank you. thank you for being here. i have a follow-up question with regard to this resolution authority pre funded by large financial institutions. it is provided we're going to know who is paying down with the assessment into is not in effect to is covered which large institutions are covered by a this new scheme and which ones are not. and also it seems to me to be a sense with creditors that they, in fact, are protected much the way insure depositors are protected today. dozens of such a program in a

shy to reinforce to be felt by saying to the capital markets and credit markets and the foreign depositors in u.s. banks that you're large company is paying premiums into this new special assessment find and therefore you has a non-u.s. deposit term are just as equally protected against the failure of the institution as if you were in insured depositor in the u.s. branch of the company. >> no, i think the assessment base -- well, everybody agrees whether pre or post when it assessments that the industry should pay for costs associated with this mechanism, with a what the taxpayers on the hook up front or the industry to run up front. the process should be clear that the perception is in favor of bankruptcy and there will be a determination about whether when enzi should be put in the resolution mechanism but even if

it is the resolution mechanism will be more generous than the bankruptcy process in terms of shareholders and creditors. it will provide some government funding to wind down in to see over time but there's no commitment by the opposite that there would be a guarantee of liability is. the plan would be the same as for bankruptcy and again the clear perception would be in favor of bankruptcy and no one would know for sure who anyone would ever be put into it. i think that's absolutely key though i do think and you can say they had 100 billion over 50 billion and those of that size and above all that recognizes institutions that large could benefit from the stability, the extra stability of this type of mechanism but that doesn't mean they themselves would go into it and even if they did i don't think is more generous than the bankruptcy process. >> with i think we're at a time

for this session and with that again and thank you very much, chairman bair. [applause] hamas security secretary jann in the paula todd no and gao's president obama's nominee to head the transportation security administration. robert harding is a retired army major general who formerly served as operations director as

defense intelligence agency. this is about five minutes. >> nominate major general bob harding to be the next administrator of the transportation security administration. this is a critical leadership position for the security of our nation. by nominating general harding for this very important job, but the administration is calling on individual with more than 35 years of experience as an army commander, senior military intelligence officer, high level manager of intelligence operations, and successful businessman and ceo in security field. the general believe all of these talents as he takes the house of this vital agency. tsa mandate is a broad one, they're responsible not only for u.s. aviation security but also for sale turning are real, bus, mass transit and tracking systems as well. general will be a tremendous asset in our current efforts to bolster security in screening measures at our domestic

airports. by deploying additional airport law enforcement officials, behavior detection officers, air marshals and explosives of teams in. and fixing the gaps in our international civil aviation system as well. on friday we announced that the first airports will receive advanced imaging technology in its purchase with american recovery reinvestment act dollars. the state of your machines are enhancing our capability to detect and disrupt terrorism across our nation. we expect to deploy a total of 450 units by the end of 2010 and rfy2011 budget calls for 500 more. we have accelerated the deployment of this enhanced technology and strengthen our other layers of aviation security partially in response to the attempt of terrorist attack on september -- which served as a stark reminder half

of the involving tactics that violent extremists will pursue with to threaten our international aviation system. to thwart security measures put in place since 9/11 and to kill innocent men, women and children. the international dimensions of this an international threat posed by radical extremists are required international response as well. right now the dhs is working on an international effort to build consensus on strengthening international aviation security. since january when i met with our european counterparts and i north, south and central american and caribbean colleagues in mexico last week. to discuss ways to bolster international security measures the standards. would be so far have produced very encouraging results. including joint declarations to strengthen the international civil aviation system between the u.s. and the european union and between the u.s. and argentina, brazil, canada,

chile, the dominican republic, mexico and panama. on friday by japanese counterpart of transport minister when an eye and asked which would join with our counterparts with the asia-pacific region in tokyo this weekend two continue building this international consensus. make no mistake, we are engaged in aggressive effort to strengthen the international aviation system against terrorists who are constantly seeking ways to exploit caps and port security measures. and general harding is precisely the kind of leader we need as we move forward in these efforts. his national security expertise is working in the community and years of combat to the the private efforts to bolster security and insure the safety of the nation's transportation systems. and i'm with adding as a retired u.s. army major-general hwang, also adds another distinguished

veteran to the senior ranks of the department of, as security. let me close by saying this, with that tsa administrator is some of the most important until the hosts in the obama administration and the president and i both believe that general harding has the experience and perspective and to make a real difference in carrying out the mission of this agency. if there ever a nominee who wanted expedited and detailed consideration to the senate this is it. we hope that the commerce and homeless security committees will be able to work expeditiously to complete their hearing process and so that's his nomination may move to the floor where confirmation. i applaud the president's for the superb choice and i look forward to a swift senate confirmation and i look for to having our board at the tsa. very soon. thank you, general.

>> thank you all. >> [inaudible] >> mr. president, for more than a year now democrats in washington have been focused someone say fixated on making dramatic changes to the american health care system as we know it now it is an open debate as to whether spending so much time and energy on this issue was in the best interests of the public at a time of record unemployment and a need to address jobs in the economy. but what's not open to debate is

that the plan that came up with was fundamentally flawed. that it focused too much on expanding the size and cost of government and not enough on the core problem with our health care system which is cost. this is why americans have been telling democrats in washington to scrap their plan and start over. and this is why so many americans are so frustrated with government right now. one the administration says we need to pass its health spending bill to show americans that government is still works. americans are saying just the opposite -- they're saying that the first thing washington can do to show is working is to listen to what the public is saying to scrap this bill and to start over. third and unfortunately, a democrat leader in congress aren't interested. they are still clinging to the same old bill and the same old

process americans rejected the last year. they're more determined than ever to jam their bill through congress by any means necessary. so over the next few weeks we're going to see a replay of the same kind of arm twisting, and dealmaking, we saw in the run-up to christmas. i say we're going to see it but in reality we won't see any of it. you will have to read and evaluate the deals in the arm twisting only after the final bill hits the floor. because of the arm-twisting and dealmaking is going on behind closed doors and it at the ready -- is already started. somehow the administration seems to think we all of this arm-twisting and dealmaking will prove to the american people that government works. i should think that americans will draw the opposite conclusion. americans don't like this bill any more today than they did three months ago want they don't

like the frantic backroom deal making anymore and now than they did then. thought in the midst of all this is understandable that a lot of democrats on the fence about whether to vote for this bill. about whether to go to for this process. as well. but the reasons they're giving for being on the events really don't square with reality and they aren't going to fly with the public. some say they like the crime bill because they say it reduces cost, it doesn't. the administration's own experts say the bill increases health spending by 222 billion more than if we took no action at all. in other words, this bill would ban the cost per copy, not down. others say they like the current bill because they say it reduces the deficit. but even if you grant that highly speculative premise, the one bill that the senate will be voting on tomorrow when wipe away every time of those projected savings with one

stroke of the president's plan. increases sent by $100 billion. why so far from moving in a more fiscally responsible direction the house spending bill that the white house now wants congress to pass before easter would move us in and less fiscally responsible direction. and this undercuts the entire point of reform. with the administration recognizes the weakness of its arguments. that's why and try to criticize of inevitability about this bill. once again, is imposing an artificial deadline to put pressure on members, it's talking about how we're in the middle of a final chapter of this debate, the administration wants it to members to believe

when their characters in a screenplay and that the ending of the play is already written. this is an illusion. on house members aren't buying these arguments anymore. in fact, many of them are already walking off the set and i guess is that a lot more are about to appear in the know that we may be nearing the final act for this bill and the legislative process but that it's just beginning for those who supported. americans do not want this bill. they're telling us to start over. and the only people who don't seem to be getting the message are democratic leaders in washington. but they can be sure of this: absolutely sure of this: if they cut their deal, if they somehow convince enough members to come on board, then they will get the message. the public will let them know how they feel about this bill.

mr. president, i suggest the absence of a quorum. >> while health care negotiations continue on the floor, senators continue to debate on extending expiring tax provisions.

the discussion how health care issues affect the economy. from a conference at the national association for business economics, this is a little more than an hour. >> [inaudible conversations] >> i'm paul hughes, the chairman of the death nabe round table. wellcome, especially to new members and those who don't normally attend our policy conference. i'm sure you would agree is

already a trip event. sincere thanks to the institute and health policy forum, my suburban employers sponsoring. they strive to achieve the mission of systems research for better health by analyzing three strategic areas of culture of health, health equity and innovative models of care delivered. the health policy forum is an excellent source of objective policy information, you can go there online. what's the nabe version of be careful what you wish for predict? as the session was being planned last october conference of health reform passed which seemed certain to though, of course, details cornhusker kickbacks, louisiana purchases, winter those in the dead of night and reconciliation quantum mechanics, ali ahead. it seemed reasonable back then to turn the speakers with discussing health reform the unintended in the unfinished

agenda, many now are lamenting the very untended in totally unfinished. illustrating the and a little flexibility on display at nabe we have pivoted to the secular productivity theme in the changes that are ongoing with hospitals regardless of major reform. these topics are critically important. given the budgetary pressures almost exclusively due to growing health expenditures. a.k.a. the last presentation. in our to superb speakers here to discuss these issues. david cutler is the professor of applied economics department of economics in kennedy school of government at harvard university. i know the name resonates for many in this room. professor cutler observed on the council of economic advisers and national economic council during the clinton administration, advised the presidential campaign of bill bradley and senior health care adviser to presidential campaign of barack obama.

in he has held positions with the national the suits of how the national academy of sciences, currently is a research associate at the national bureau of economic research. and a member of the institute of medicine. prolific writer is today's over used academic accolade in, but in professor cutler said case, the environment has declared a ban on printing his cd rich by likely out of date count shows aid and in books, 147 articles and book chapters and is acclaimed book, your money or your life: strong money for america's health care system. finally i should note with the is a trailblazer on the construction of a health care satellite account to enhance gdp measurements. please welcome. [applause] >> thank you for the to kind

introduction an invitation to be here. i suppose being here reminds me of what my former in dean one said in about economists to the economics department. the world and lined them up end to end, that would be a good thing. so i think it's a very good thing that i'm here. of course, everyone's wondering what is the latest from across the river? so i have here the latest for you. this was elastic week's summit. i'm sure you've got quite a headache over health care. here, take two aspirin nap will be $1,200. as a result of variety cutting, we figured out how to reduce that. it will be $1100 for the two. in addition that, you want to

know what are the that it will pass so just in case you are a bidding fan, these are the officials online aunts the health reform will pass. [laughter] so it goes, it starts from shortly after when scott brown was elected senator from some state or another i can't remember and i've never been to. [laughter] whose company i've never been to be and now the odds are about 50% and you can see there's been a little bit of movement of over time so it was trailing around 30 to 35%, pity the poor soul who bought at 40%. of course you need to know how to gauge these sali will show you how to gauge the odds so other odds you can bet on line, the u.s. and or israel strike iran is about 10%. cap and trade, any chance? 21% and the ever popular palin to be the republican

presidential nominee is 23% so health care reform is twice as likely to happen as sarah palin has to be the republican presidential nominee. [laughter] and i suppose you might say why is all of this so hard? shouldn't it be fairly easy? actually what is reform about? the reason it's hard is we are trying to do a few different things. the first one is we are trying to get everybody covered or at least most everybody covered so that's about 30 to 45 million people or so we would like to get covered. and it is one that both i and the next speaker will speak the most about is improving the value of care and feared as you just heard from dr. elmendorf, he is addressing the u.s. fiscal situation. of these, the single most important is improving the value of care and the reason for that is if we can't figure out how to do that, then we can't afford to cover everybody and we can't do anything about the federal deficit so one way or the other

health reform will blow up if we can't figure out how to do number two. that is put another way if you can't make the medical care system work better and save money than all the stuff about getting people covered is taking money from one person and getting it to another person and that is inherently a loser thing and always falls apart. and you wouldn't have addressed the u.s. fiscal such rigid at all. so the central challenge in reform is to figure out how to improve the value of care. so i want to talk about that and i want to start off with an observation and the observation as productivity has increased everywhere in the u.s. except health care. these are the official statistics you can see an enormous productivity improvement over time. a very rapid productivity early in the post for mike period and slow productivity growth as a pretty nose in the 70's through the mid-1990s and then a very rapid increase in productivity thereafter. productivity varies by industry,

technology agriculture is very productive. even retail trade which we think of or reduced to think of s similar to health care that is one of purchases from small local providers with on a certain quality has had enormous productivity improvement. it's not the case productivity improvement has been in goods producing industries and not service producing although there is a bit of a tendency for that but even service producing industries have had a rapid productivity growth. health care combined with education and social assistance actually shows in the official data negative productivity. that isn't right because it doesn't accurately measure quality which is a difficult thing to do but still, nobody thinks health care belongs in the top of the slide, it belongs below that. and i want to think about two dimensions of productivity although they turn out to be quite related. the first in service productivity. that is the experience of receiving care. and the second is clinical quality, that is to people did better and do they do so at

minimum cost? the first approximation, what people want when they go to the doctor is they want to get better and they want to enjoy the service or at least not pay to the experience of having gotten better. someone once noted that only an economist thinks that a colonoscopy is a benefit. [laughter] so people want to -- people want to get better and they want to enjoy it and what do we know about each one? the service quality is very, very poor. they are lengthy wait times. most people say they would like to interact with doctors. how many of you can e-mail your doctor? how many cannot e-mail your doctor? name to other people in your life you cannot e-mail. [laughter] and one is your pet probably. more people e-mail their priest and e-mail their doctor. in fact, as best i can tell more people e-mail their florida than they do their doctor. [laughter] one-third of people will tell you they've lost test results,

had to repeat the test because it was unfair to the appropriate time, that different advice from different doctors were things shouldn't very a lot. the common denominator behind all of this is the medical system is not coordinated in any way. that is most people are easily their own primary-care doctor back when they think about using the medical care system. and most people are pretty bad at it. that is, even with a lot of training with a college degree and some kind of ph.d. as i suspect a lot of people in this room have or an mba still don't know how to manage the system and get that is the task believe most people and it's all surprising people are not upset by field comes and clinical outcomes are substantially worse than what we would think. that's not to say there aren't people who couldn't provide this sort of coordination. you can think of any number of factors in the health care sphere to walk to be able to provide coordination. you're primary-care doctor back in principle is the one who should be guiding you through

the medical care system although in practice they don't even know when you've been in the hospital. pharmaceutical -- seriously, they don't and most of apples don't tell them. pharmaceutical companies could be doing for the nation. they rarely do. insurers in principle have the incentive to do so but they don't. google and microsoft would like to be doing that. i am sure there will be an iphone application sometime soon to help coordinate care. all of this is designed around the issue of clinical quality and service quality which is extremely poor and it's an area which if we actually made progress we would see huge increase in value as i want you to hold that in your mind for a second. related to that is the issue of clinical quality and cost and i want to give you a promise so here's my premise. medical care is an efficiently provided and this lot worse quality and drives up cost. how many of you agree with this? how many disagree with this? this premise underlies everything going on in health

reform now. the idea we can do both. it's interesting when the president gives a town hall on health care the first question he asked if your daughter is sick wouldn't you want her to have the best care, if your wife were sick would you to want her to have the best care and white you think about rationing and so on and when you all just agreed to is that well before we decide whether 80-year-olds should get chemotherapy with advanced cancer well before that we should think about all of the ways in which we are both wasting money and not improving health. let's put aside the issue whether your mother or my mother or anyone else's mother deserves intensive treatment when they get sick and let's think about where is the money going that doesn't need to both higher cost than it has to be in the lower quality than it needs to be. the implication is we should be able to improve quality and save money at the same time. how are we going to do that? let me give you a few examples first thing we could figure out

is reduce administrative personnel. this chart on the right shows the employment in the health care industry of course leading implant in the health care industry is not physicians nor is it nurses. it is office support. remember those middle managers fired from american business ten, 20 years ago. i figured out what happened to all of them. [laughter] every single one of them is now working in health care. so i know personally i know about duke university hospital where senator kennedy went to go treated when he had cancer. 900 hospital beds at duke university hospital. 1,300,000,000,000 clerks. so get admitted to hospital, get 1.5 billion clerks in bed with you. [laughter] what are they doing? i don't know, imagine last time you enter a store if there were nine customers and 13 sales people. might be nice but a little bit expensive. in addition to that of course all the other people are doing clerical things as well.

the most common activity anderson hospital does come i care to guess the most common activity for the nurse in the hospital? documenting things. one-third of her time is spent documenting. another 10% of time is spent running a around the hospital finding supplies not where they're supposed to be. or getting laboratory three stultz or picking up medications or something like that. way too much administrative personnel because we haven't figured out how to match the people to what's needed and to the kind of supply chain management. too much spending on acute-care. when medicare beneficiaries could the hospital 20% come back and within 30 days. in a fair number of those cases, the person never saw a doctor, never saw an nurse between discharges. and we know from the best to systems you can get the 20% down to 6% how do you do it, high-tech, called have the nurse talk to the doctor and what the nurse does explain what the

doctor said you should take the medication every day with the doctor and was and you should take this medication every day. and that will help keep you out of the hospital and that in the recommendation was to actually go to the doctor and talk with a doctor about your condition what that meant was go to the doctor and talk about your condition. now it's interesting that we believe that currently entirely in the hands of the patient to do. that is there is no system activity associated with doing that and that sort of reinforces the issue of the system that i want to keep coming back to. the third is a medical errors. it's estimated medical errors are the fifth or sixth leading cause of death in the united states and we spend about $30 billion a year fixing them. we are just getting around in the medicare program to not paying for medical errors. we pay for them the last 45 years or so but finally we decided maybe we ought not pay for medical errors just because most of the rest of the world gave that up about three centuries ago.

so how are you going to take all of this and do better? here's what we know from most of american industry to read been a productive enterprises, all productive enterprises have three features to them. number one, they have a lot of information. the u.s. information technology a lot and the use it well. and health care of course there is a full-time person in every doctor's office whose job is to pull paper from some flailing place somewhere, bring it to the doctor and put it back to the end of the day. i can't think of any industry that is the full-time occupation that we spend millions of dollars, billions of dollars doing that in health care. in addion to not knowing who you're supposed to see when you've got a particular condition and how good they are, what are the various treatment options rather than the last four patients i salles did better on this. the first is information to read the second is appropriate compensation arrangements. no industry does well by paying people to staff independent of the call with the independent with it is needed or not.

that is what health care does. health care system doctors and hospitals the way you make money is by doing more stuff, don't think about doing it better ways that will reduce demand. the easiest way to go bankrupt if you're a medical doctor is to make sure your patients are healthy. that seems like a kind of bizarre way to do things and then the third is of course and our workers and consumers to help you out within hospitals since we've been picking on hospitals i will pick on them a little bit more. sorry about that. within hospitals the nurses who were spending 10% of their time running around the hospital looking for things not where they're supposed to be, if you ask him to figure to organize the system better said you wouldn't have to spend in% of time doing that they say absolutely and when you say how come you haven't done that they say no one has ever asked me to read as we throw away billions of dollars that way. a year ago in the federal stimulus bill there was $30 billion to wire the medical system and is believed by 2014 every medical practice will be watered. that won't solve the inflation issue. we know 10% of the information is having computers and 90% is what you do it information once

you've got it but that will at least laid the foundation for doing something about the information issues, so it is part one of the strategy was to do that. part two of the strategy is to address compensation arrangements in the 2700 pages of health care bills the republicans want to tell everybody about you know the most common activity happening in the 2700 pages is? it is changing compensation arrangements. it is almost exactly what that is about. and then there is a little bit of pages and a theory fair amount of money associated with covering people and with dealing with other consumer issues but basically it is part of a well thought out two-step process to get the information technology and compensation arrangements and work to improve the system and increase the value. we are clearly going to need an enormous amount, one of the huge industries that will have to be created by health care reform or with health care system in the absence of reform will be the industry for collecting, analyzing, retrieving, making and real-time and write data available.

health care is and ought to be a wash and affirmation. the issue is not willing to be to produce the information. you'll drown people and information. is to use it right so there will be a huge industry, productivity and hence an industry as acetic just as there is a productivity enhancing industry associated with everything which is about using information well. if you ask what the most productive firms do many of them are just using information well so that's the first part is ipt. the second part i think it's great to be even more fundamental is changing the compensation arrangements. currently we pay for medical care in silos based on where the care takes place. this a take place in the hospital, does it take place in the physician's office? does it take place in the pharmacy? does it take place in some lab? does it take place in a nursing home or the patient's home through a home health aide? there is nobody that i know of who cares where they get their care. they care only did they get better. the fundamental concept of health care if it will get

better when it gets better is because it will realize what you need to do is oriented the information and compensation of around the patient, not a around the patient provider interaction i have from a box of all of these. if you think about most of what happened and retail america the reason retail america got to be so productive visit drew a box around the inputs and said we are going to bring you the inputs in the way that is best and most efficient for you. nobody in health care has done that yet. whoever does that will figure out how to buy inputs and combine them in exactly the way the most productive and profitable industries in every sector have done and as a result they will get all of the benefits, all of the bonuses that come along with it. how are we going to do that? we will start by -- i don't mean in the sense of reform i just mean what's going to happen in the medical system. there will start to be payments made on the basis of performance

that is think about whether the doctor or hospital is doing a better job, not just doing the job, pay for care coordination. all these transitions and coordination aspects that were underdone, paying bumbled payments that is don't give a separate pan into the hospital for each admission even when their readmission wasn't necessary with good outpatient care but give one single panel for the inpatient stay and in the fall/winter that comes along with that saddam incentive to figure out what are the best ways to do it and improve the experience of the patient and improve the value of care and lower the cost of care. so fundamentally what is going to have to happen and what i believe will have an easier with reform but then without and will happen in either case is with how the product of the revolution associated with figuring out what to people need and how to get it to them when they needed and not what did they not me. and to me that this could be absolutely essential thing. i will note on the organization

aspect of this that in every industry where this transformation has taken place and every single one of the use of i.t. and productivity improvements have associated with firms getting bigger. and i will not at all be surprised to see hlth care firms get bigger as opposed to smaller. you are already seeing this. you see this in the hospital industry in the typical american city a quarter of the hospital emissions are accounted for by the biggest health care system and that is one third of all the profits. bigger is more profitable. bigger is greater ability to economize to take advantage of economies of scale. bigger is more bargaining leverage. bigger is going to be a lot of things and it will surely be -- it will surely be the optimum health care. quite a number of my friends involved in policy would be very, very happy to see the single were the small group doctor disappear over the next decade, completely disappeared.

about three-quarters of all patient interactions are not small provider groups now and people would love to see that disappear. i want to give another analogy with what success mean and it's a little quiz. let me do a little first year. how much could you save? most guesses are you could save at least 25% in the hospital industry. not by cutting product lines, just by giving stuff more efficiently which would turn out to be 10% of total health care spending. that's more than the president promised people. united health group thing 683 injured billion dollars a ticket just through administrative interchange between providers and insurers. so the potential is absolutely enormous. it's estimated we waste about one-third of the $2.5 trillion spent on medical care every year or about $700 billion every year. but the president promised people is a one-third cut he promised 8%.

i think that he was way understating what is technologically possible and what we know we have to achieve. and now i want to give the it sable for other industries. first i have a question for you. what do these people have in common? >> who's going to venture a guess? >> what do these people have in common? >> are they related? >> a few of them are related. three strikers and your out. [laughter] a few of them are related. >> started health care companies. >> [inaudible] >> these are all of the health care people in the forbes 400. here's how they earn their money. what you notice about how they are in their money?

>> [inaudible] >> with one exception. with only one exception. every one of these people earn their money by making something you stick in the body. the one exception is tommy frist jr. who made money by organizing hospitals. i want to show a different list. every single one of them are stuff you use. these are the retailers on the forbes 400 list. six wal-mart, fiat common privet including to home depot and get this by, supermarkets, some you have to be from the midwest to have used like coffee lobby and stuff what do you notice about these folks? fi sorry? >> [inaudible] >> not a single one of them made a thing that you stick in you or you actually physically consume. they made the money by changing

the organization how to buy things. the fundamental difference between health care and the rest of the economy is in health care there has been absolutely no organizational innovation associated with figuring out how to bring you a better product cheaper despite the fact that every other industry has created billionaires' that way. who ever figures out how to do that in health care will be the next billionaire. how to coordinate care and streamline medical practice and overhauled the administrative procedures and insure pper information structure they will do that because they will drive cost out of the value out of the supply chain and figure out how to improve the value. that will be the single biggest thing to happen to health care ever because that is what allowed us us to cover her body and will put a meaningful dent in the federal deficit. that's what will bring health care from something people dread into something people feel much

better about. so that is my own personal forecast about what we can do and that is my sense about what is at stake associated with both passing reform but also making it ever passes or doesn't pass actually work to the benefit of people. thank you very much. [applause] >> lynn-dyson senior vice president public policy analysis development of the american hospital association. she plays a central role in developing the association's advocacy agenda and educating policy makers and implication of legislation and regulations have on hostels and the patients they serve. before joining she served as the director of the office of legislation at the centers for medicare and medicaid service where she represented the agency's policy positions to congress and also served in the stuff leadership positions for

the senate finance and house ways and means committee and is a senior adviser to the cms administrator. she was a key contributor, pretty cool, she was a key contributor to pieces of medicare legislation the modernization act of 2003 where she was the chief health aide to charles grassley, the balanced budget refinement act of 1999 and medicare and medicaid schip protection act of 2000 when she served as professional staff to then chairman bill thomas and i also want to point out from 1987 to 1999 held positions with the association of american medical colleges, a group that we are quite fond of. linda, please welcome her. [applause] >> thank you.

thank you. thanks very much for inviting me today. i have to agree with a lot of what david said and a lot of random thoughts came into my head as you were speaking. so maybe if i run through my slides pretty quickly we can have a discussion about that because i'm sure you have a lot of questions to ask of us. i would say that yes, there could be a productivity revolution in health care if in fact we did change the delivery system like david has suggested and then we created an environment in which those changes can take place. my association which represents pretty much of the hospitals in the united states, we represent over 5,000 of the hospitals in this country ranging from public us plus, teaching hospitals, va hospitals, they belong to the

h.j. and we've been working for several years about framework that we could present that would not be necessarily a hospital framework for change but the framework for everyone for the health care system to change, and we call that health for life and this is a schematic what i call, what we call the five pillars or the five central elements of health reform. in the affordable care highest quality care arena we already had a number of task forces as david suggested administrative simplification is an area in which there could be a significant amount of savings. we think possibly even more than $300 billion that united healthcare has suggested. we've had a task force on administrative simplification with a set of ideas about how things could be changed to deliver more efficient care. we had a task force on care

coordination. we recognize that care is not well coordinated among settings and for example since we represent post acute-care hospitals as well as general acute-care hospitals those transitions are handoffs are not necessarily well thought out between and among the various types of facilities sui of recommendations. interestingly we also had -- we are having now a task force on variation health care spending which did not come up but if we get down into a kind of political discussion after my presentation we can certainly talk about that and finally we had a task force on payment reform. they've made a series of recommendations i'm going to present today that kind of gets to where david is going and could presumably result in productivity increase in health care. first of all though one of the

things we have to do is deadline incentives and structures across providers so e care can be coordinated and we have to eliminate the barriers to delivery system reform. we call this clinical integration and frankly we have been up on capitol hill talking about the need to make changes that would help providers come together and clinically integrate to deliver more efficient higher-quality care and to work costs. we've had a little bit of difficulty on capitol hill because frankly some of the members of congress as well as the staff don't quite understand the kinds of things we need to change in the legal system to facilitate care coordination and here i show you what we call the big fight changes that we need in antitrust law, the stark law that deals with patient referral, physician referring to a particular hospital perhaps he

owns or has a relationship with, antikickback law become a settlement rate policies that could be applied if you try to deliver less care than a patient feels he or she needs, those kind of issues. the irs taxexempt law that have to deal with private and we never to make clinical integration trend watch which i brought today and i have a few copies on the table and i will show you a web address you can get them but we have in this trend watch on eckert if he will examples of places that have gone ahead with health reform and have started to clinically integrate on their own to provide better care and as david said earlier many of these tend to be in systems, and that system seems to be able to do a better job of getting at these things than a stand-alone

independent hospital which i think among our membership there is some significant worry among those stand-alone independent hospitals about whether or not or how they are going to survive in a health reform environment demands more accountable care, more integrated care and more financial risks. that was the topic of the board retreat at the end of january and we have to agree this is how hospitals are going to be asked to behave. we also need regulatory reforms and biscuits into a sticky thicket about all the rules and regulations that govern long-term care hospitals inpatient rehabilitation hospitals, skilled nursing facilities and hospitals and how we all relate to each other and one of the questions we have is if we move to a bundled payment system as medicare or cms going

to get our of the way unless actually manage the care with respect to not abiding by these kind of rules and regulations that exist. interestingly in the legislation before the congress would get higher odds than 50/50 that its we did pass frankly but there are demonstration projects of bundled payments and other things i will show you. the secretary has the ability in these particular demonstrations to leave regulations of necessary to be about to conduct the demonstrations and we presume what they are talking about are these particular impediments to critical integration but we are not really sure how that will be perceived by the secretary should this legislation pass. with respect to payment reform, these were some of the findings that came out of the task force

on payment reform. virtually all of the participants on the task force, and there were about 25 ceos representing a broad spectrum of hospitals as you know as i said hospitals are very diverse. the communities they serve our diverse as well ranging from inner-city, very low-income neighborhoods to rural populations first scattered in frontier areas those kind of things but everyone agrees fee-for-service is on its last legs and also incentives slow from payment methods and they have to change in ways that we can align the incentives and provide a sycophant time for transition so that payments reform can lead to the means to the end of delivery system reform. the mattress system screed incentives. that was pretty obvious in 1983 when diagnosis related groups

were implemented. hospitals were told it was questionable how they were going to respond. they did respond to the incentive of receiving what really was a bundle for a group of services. they reduce the length of stay and turned out to make a large profit on the drg in the early years but they do respond to incentives. it's important to get those right. at the retreat as i tend to be conducted out accountable care we also talked every admission of trouble talking about. david mentioned this can about the retreat hospital leaders tried to improve care profit-margin go down because the whole system is built on getting more and more at mission and doing more and more things to patients. we have to flip that on its head and change that kind of incentive so that people can try to deliver the right kinds of care.

another set of findings for the task force is we were going to focus efforts on medicare first even the medicare is far behind the private sector in payment innovation it is our largest pay your and it's easy for the national association to focus on medicare first. increasing the size of the unit of service as i said the drg is a kind of small inpatient hospital bundle. we would like to see the bundling of payments that might go across decision hospital payments or physician hospital post a cute setting payments come on line those units of service and incentives across providers which is easier said than done given the payment systems we now have, and i'm not sure if you ask me how to do that i might not be able to tell you we could do that quickly but we do need to do it. clinical integration i talked a little bit about. they provided him to make

up-front investments. several of them have said a lot of these kinds of things like sitting accountable care organizations for example which is one of the highly sophisticated delivery reforms will take a lot of money and if you're going to cut our payments in the early years we want people to generate the capitol that we need to make those kind of changes and of course i need to accommodate the different types of hospitals on different paths and i will talk to you a little bit about that in a minute and holding us accountable for quality and efficiency of course. these are some of the proposed reform policies that are in the legislation that is before the congress. and as i said i think there's a very good chance that will become law. david talked about value based purchasing which is paying providers, i'm talking about hospitals in this context, based on quality. we currently report quality

information in order to get what we call a full market backstedt inflation update. this is a more elaborate mechanism if you will. currently in the bill it's considered to be budget neutral. that is it moves money are now among hospitals. it doesn't save money to further the medicare program. bundled payments or demonstrations and pilots in the legislation. we have a number of people, a number of members who are interested going forward on that. many of them are already the bigger systems are already doing this in the private pay areas with places like wal-mart i believe and in minneapolis fairview is doing that. several people were doing that and accountable care organizations. there's a number of pilot programs currently in play where we have several members interested in becoming accountable care organizations

right away once the legislation is passed. on infections there is a policy not to pay hospitals for hospital or acquired infections and obviously we support that. i think that's pretty hard to argue against. the way the policy works in the legislation is not something we agree with how it's done but we agree with the principle and then readmissions, dated talked a little bit about readmission and that saves about $9 billion over the ten year period the way that it's currently written in the legislation, and we have done a great deal of work on this issue. i would submit to you not all readmissions are the same and we are trying to tease out in this policy is to separate those readmissions that are on the planned but related to the initial admission. those are the ones we should be held responsible for.

however, there are readmissions for which the hospital is not responsible. for example, my mom gets a hip replacement. she is discharged from hospital. on the way home to her house she is in a car accident and has to be readmitted the hospital. that is a real good mission for which the hospital does not feel it should be responsible and we have to tease out those kind of exceptions to the policy we also feel that all other providers at the same time should be held responsible. physicians, nursing homes and so on and held that it's applied as important. interestingly, i was at a meeting of the large systems not long ago and they were all talking about how they had reduced their rate considerably simply by insisting the

primary-care physician called the patient within 24 hours of discharge from the hospital and the and seen a dramatic drop in the number of readmissions they had in the hospital and david is shaking his head in that example. these are things that can be done. i think that the issue is trying to get the system set up and communicated and shared among all of our hospital members that these kind of things can make a dramatic impact on the kind of care that is delivered. this is a little bit hard to see because it's out of the clinical integration trend watch that shows you some of the examples of the systems that are doing things ranging from bumbled payments for a single episode of care, arranging to the more integrated members of the right-hand side of the slide where the medical staff includes only mostly fully employed physicians. as david said many of his friends feel these one and two

practices of doctors should go away. there are several people in my organization that feel the same way that eventually perhaps all physicians should be employed and that is not an association policy. but there is definitely that feeling that it would be better off for the care delivery of physicians were employed or in large multi specialty physician groups. this is a schematic for the payment reform task force and by not going to go over it in great detail but it shows the payment reform as we see it as an evolutionary path and you will notice in stage 1 it is about aligning hospital and physician payments that start small, it's tested, we gather data and eliminate those barriers to clinical integration that i talked about. it proceeds to stage 2, bundled

payment on to stage 3, accountable care organizations and that's not for everyone to read some of our members would like to go right to stage 3 and they are ready to do it, those in large systems. we created also alternate site paths and the one i shall is a very interesting one. it is low volume hospitals, those with less than 2,000 discharges per year. an interesting statistic is that the medicare program for those of you -- for those of you who follow this there are many classifications of the rural hospitals, eckert alexis of skulls, sold community hospitals, medicare dependent hospitals, all of these hospitals have small and sometimes relatively low volume. they represent about 40% of all the hospitals in the united states and from a medicare expenditure perspective it's about 9% of medicare spending

it's a lot of money and the amount of regulation and a letter of the effort that is maintained to keep these little hospitals when we think is not particularly effective and so what we are proposing is to get rid of all those different classifications and for example the collapse as hospitals with four hospitals of less than 50 bids and there is mileage considerations and so on between hospitals they now pay 101% of their medicare allowable costs by the medicare program. what we proposed spending 100% of their costs, extending that to other types of hospitals and so we decrease from 101 to 100% and in proposing the 2% bonus if they meet certain types of quality measures and so on. and getting rid of all those separate distinctions to make the system more efficient and

that has actually been met with some favorable feelings or thought for some of our members but we are trying to get ideas on the table the beget austria more rational kind of organization. i want to finish up. i have given you our website where you can pull off our clinical integration trend watch. i think it's really something worth reading as well as my contact information if you have any questions. with that i will stop and maybe we have time for some questions. thank you. [applause] superb panel with time for questions. yes, this where i get to be mildly insulting and say be sure to be clear. try to be briefed and in the words of john gable remember a question ends with a question

speed. [laughter] >> thank you. i am constance. it occurs to me that the resources to sort of bringing together the different disparate groups here with different incentives say and hmo provider and publicly traded hospital would be to involved activists investors the would go in the and own both companies and say to the management this is how we want you to work together. have you thought of this and if you are interested in doing so please contact me i can help you. [laughter] >> one issue to overcome is a lot of the hospitals are not for profit of course, so they don't have that. but there is a related version which is if you ask insurers why they don't push for these things they say i'm small in the market between medicare and medicaid and others on small so i can't do it and if you ask the hospitals they say we need up front money from the insurers to undertake investments so there's

this amazing what happens when you sit them down around the same table and say look if you folks agree to some investment in these folks will hear and you can get savings on the road and everyone kind of agrees that can work so i think there may be that kind of a strategy less on the kind of investment and more on the sort of close collaboration and. some eckert think that's also one of the concept account of your organization is how do you handle risks and right now the way it is a hospital wants to assume that kind of risk it has to start its own hmo and some of the hospitals actually have that. the account will care organization model allows potentially for partial risk or shared risks in a way that might make it more attractive for hospitals or large specialty physician groups to start those kinds of models and i think that is what the intentions of those

who want to drive us in that direction. >> thank you. brough unef edify users. your presentations particularly the analogy with the retail sector i believe is very apt. there have been organizational innovations like physician practice management chains of dialysis centers etc. often defeated by the lack of price competition due to the inherent price fixing in the payment system particularly emanating from medicare. my question is the president's proposal proposes cash subsidies for younger people while retaining this incredibly complex payment system that you've just outlined for older people. why not just convert the whole system to cash subsidies and let the price mechanism worked as it did in the retail sector? thank you. >> i am pleased to hear on the

analogy. i think what the president's proposed is actually what will be over the next decade complete transformation of the program. but because the program is very popular, he wants to go in steps rather than do it all at once which seems perfectly acceptable to me. but i keep a list in my mind of kind of the most important elements of reform that nobody has ever heard of. let me just give you one example as to show you where the legislation is. the legislation proposes to billion dollars, bs in billion, for medicare to experiment with ways to have coordinated care that would improve the value, reduce the cost, in pravachol de and anything successful nationally. so it is a way of streamlining the whole thing and saying look, whoever, find some way to make this work and we will be happy

to go along with it and get nobody -- you kind of don't see those so people are missing what is basically the biggest transformation of the program ever. >> i would like to build on that. we are excited about the center for m medicare innovation and we are very supportive of that. however, we are also very concerned about how the medicare demonstration office runs its experiments, which frankly i was a staff person at cms and i think those people are great and they do a wonderful job and work hard. but they will often saddled these experiments with a poison pill or some kind of mechanism that makes it not work or it takes years to evaluate the outcome and to design the project and i think this is a way for them to get things out

there quickly but we are still a little bit nervous about how that might be done. >> thanki am a banking consulta. a question i have with regard to integration coordination services, to what extent the state professional licensing law get in the way of that integration. if i can give you an example i had knee surgery last thursday on outpatient basis of the local hospital everything went fine. the doctor, the orthopedic surgeon gave me a couple prescription forms for some medications to get filled on the way home and i said why can't you give me the meds? >> my understanding this is the product of the state pharmacy groups who have basically restricted the ability of doctors and hospitals to give medications to patients on their way out which means they then have to go and get it on a

separate trip which increases the likelihood they won't get those messages. how do you propose dealing with that professional licensing protection that seems to be pervasive in health care? >> i think it's kind to be very difficult. but you have hit on a beautiful book sample of the kind of things that need to be done and that are impediments to the care coordination. and everyone to some extent including my association of hospitals has scan in the game and they don't want to give it up and somehow we need to get over that to get to the place where the care can be delivered in a better way. i don't know. >> in the short run i think the accountable care organizations will be helpful. why also think that we are going to need if you will a third part of health reform we're part one was on the tee and part to was

payment systems and parts three has to deal with a variety of the legal issues. we have slapped on all these regulations to try to cover up what were the incentives of the system that we are driving up the wrong way wants to get the incentives right you can tear down to the regulation just like the old wallpaper wants to fix the crack in the wall so the stark for rules and prohibitions on the nurse practitioners and pharmacy things -- >> corporate practice of medicine is one we hear about a lot. >> all of those things. >> all of the medical education and regulations there are unbelievable. >> when i -- lisa at fidelity investments -- when i go and purchase a car like the one the internet and i look at consumer reports and find out how good the various cars are. i go on kelley blue book and find out how much the cars have been selling for and how much i can trade in my old car etc..

win on or anybody else in this country has to make a massive life decision like a hip replacement they have no information. if medicare is the biggest consumer of medical services in the united states, why can't medicare commoditized information from the health care system. >> it's interesting of course because from the entire bush administration they kept saying well, let's look the providers deal with all the information stuff and we will pay them what we pay and they should have incentives to do that and with of the new administration, the obama administration said enough of that already. we are going to pay for it. we are going to get the information there and make sure it is transferred and collected the right way is we have now embarked on a few years crash course to do that but it would have been better had we in 2000 or in the 1990's were the 1980's like everywhere else saying in

the economy decided to do that. >> there's no excuse for have a thing it been done. sprick i was going to ask have you been on hospital compare because there's a fair amount of information already on the internet and this for several different procedures i don't know if the place that is up there but you can go to hospital compared and look at the relative quality and information of the hospitals in your area by zip code. it's questionable how many seniors actually do that because, you know, in thinking about how you make these decisions you tend to ask your relative or another family member or a trend where did you get your hip replacement, and i don't know that consumers do that as much as people think you get for example, in california, they published charges. i think there is a law that hospitals have to publish every

charge that they have in their institution. but there is a question as to how meaningful this is to consumers and i think the area of research needs to be what kind of things can be put on the internet that help make people make these decisions pierre de >> i'm not sure we have a right yet. >> pennsylvania, too. rick? >> rick olden gereed change management solutions at the round table. my question is about the environment in which patients function and there's been no mention of that when you talk about holding physicians and providers accountable. when you look at for example childhood asthma it is ten times more prevalent in low-income areas mostly because the dust triet by nocturnal durham and but we have yet to see the

policy that -- when you talk about holding them accountable and looking at the environment, are there sidewalks, are there places that support a healthy environment that is outside the health care facilities control and specifically, talk about improvement of productivity, i was very excited a decade ago with assisted living facilities because it shifted the dynamic instead of having the providers all in one spot in the hospital you now have the most -- the biggest consumers on one spot in the assisted living facilities but get the hospitals haven't shifted tear out to to get vantage of this and how do you make those things happen? >> have you done the work in the social determinants? >> i have actually -- i think you raise a very good point, and

i think about it this way colin quote in a lot of cities in the u.s. there is an organization that is more money than the public health department, and that is the big hospital system. and they are also caring for a lot of the poor folks. and so i wouldn't be surprised or at least i would be helpful if we've often the next few years to something where the states through medicaid or through wherever the cities go to the providers and say we will free you up from a lot but to effectively are going to be the public health department in those areas. a figure out how to work with people, figure out how to improve their health and we will guarantee that it's worth your while and we can do that because the amount of money you are going to save on the acute care in the will be so big that it's going to make the whole thing go. >> again i hate to sound like q1 note nancy but accountable care organizations are a situation in

which the entity takes responsibility for the health of the population. you could envision for example one hospital in new york i know what has gone into homes and removed lead based paint wear pediatric patients live. those are the kind of things that you're talking about and they do take on -- estimate incentives for that. >> they don't, they just do it. it's part of the public service. to get tax exempt status you have to provide community benefits and that can count as a community benefit against the tax-exempt use the mccreary little bit over. maybe one. >> professor cutler, suppose sam walton were to show up reading a large firm like wal-mart, a network of clinics and hospitals, pharmacies that provided the kind of revolution that you were talking about it made $50 billion off of it, the

process like the original date. i worry that in congress, not just this congress, in the congress, instead of being hailed as an innovator he be condemned as a profiteer exploiting people come and they're seems to be existence and the idea of using a profit motive to drive innovation and revolution in medical care unlike some other industries. what can we as economists do to address that kind of demonization and prejudice in the public's sphere that says a legitimate sector? >> there are certainly some people who feel that way. i guess i'm kind of struck by the number of democrats i know of. you seem to be pointing this to democrats than republicans. i'm struck by the number of republicans i know who say that look, we've got to innovate our

way out of this. let's figure out how we are going to invade our way out of this crisis. and when i look at the bills that have been put forward, far more than regulation, yes there's a little bit of regulation here good and who withheld cares, but basically what it's about is using incentives to drive change command people and understand that's going to create a lot of winners and people are completely comfortable with that and that's just, you know, that's not to say nobody will come clean, it's just people understand what they're getting themselves into. >> real quick. last word. >> kathleen. both of you focused quite a bit on the quality-of-care, and i am somewhat confused how did you find that and how do you measure that particularly with regard to the geogrca