's been now comments on the financial industry and the u.s. economy from citigroup ceo vikram pandit. he spoke at colombia university and was introduced by the school's president, lee bollinger. this is one hour. [applause] ..

in which economics have not had more of an impact. 50 years ago modern statistical

finance was created through the work of academic economists like miller, sharp and others. it's hard to imagine until the academic work of control 40 years ago no one on wall street have the ability to properly price stock-option and many of the other derivatives that have been the center of the financial crisis. moreover as fed and treasury officials intervened in the markets following the crisis meeting the terms of the t.a.r.p. for bayh pricing model stopped in the finance classis. hand-in-hand with the rise of financial economics has been the rise of finance itself. in 1947 to finance industry accounted for only 2.7% of u.s. gdp. today it has more than triple the size to 7.7%.

in 1990, the was 610 hedge funds with $30 billion under management. by 2007, there were more than 7,000 on this with approximately $1.9 trillion under management. while world gdp in 2006 stood at approximately $47 trillion, the capitalization of the world stock markets were 10% larger or $51 trillion. the value of all derivative contracts outstanding was ten times larger than world gdp in 2007 so it is therefore not surprising that financial crises of global implications. perhaps what is more surprising is our own surprise at the onset of the crisis in 2007. far from being where he then, there's been 18 major banking crises in the developed world

alone in the developed world since the end of the second world war, or roughly one every three years with major crises hitting countries like spain, norway, finland, sweden, japan etc. supply is perhaps reflexed a parochial nature of americans who ignored crises in other countries with the sense we were too smart to let something happen here. understanding what happened and why we should do to prevent further crises is therefore critical in order to maintain a stable growth. in the spirit we are delighted that the volunteer and the staff have made it is important lector part of this year's world leaders from. president bollinger is here, obviously, and we will introduce our distinguished speaker. thank you. [applause] >> thank you for joining this evening. i would like to extend a special

thanks to david and his colleagues at the program for economic research, tonight's co-sponsored, as you just heard will play a critical role in putting this together. one of the things we hope for students when they come to columbia is that the check the preconceptions at the 116th street gate and opened their mind to the perspectives, new experiences and new people they might never have encountered or considered. it is one of the best and most attractive arguments for coming to the greatest most global of american cities for college or graduate school. it is our central role and responsibility to provide a venue for open conversation on almost any topic and a society that has chosen to make free speech and debate a higher value than anyplace else in the world and perhaps eckert. our world leaders for the largest one way that we do that

at columbia which in the span of a single mom can mean an open exchange with one of america's allies in the french president, nicolas sarkozy, than with the nation's highest ranking military officer chairman of joint chiefs of staff, admiral michael mullen, or tonight, with one of the global economy's most important business leaders, citigroup ce away and foretime columbia alarmist, vikram pandit to read tonight is a topic that is slightly at the top of concern and a conversation not only across our own country but across the globe in the wake of the worst financial crisis the and the great depression of the 1930's. just two weeks ago on this stage columbia economist and nobel laureate joseph stieglitz led a conversation with commodity futures trading commission share the regan's lawyer and former sec chairman, arthur levitt.

and earlier this year we listened to bill buckley, president of the federal reserve bank of new york. and of course there's been many conferences and seminars, classes and conversations across the campus over the past year at our law and business schools and school of journalism and public affairs and college and engineering schools all seeking to understand what happened to our global financial system and why and what should be done about it now. our distinctive role is to bring scholarly perspective to this historical moment. we are obviously not alone in asking these important questions. indeed since the moment of the meltdown in september, 2008 and perhaps even more today with a benefit of hindsight those responsible for the most powerful financial institutions have come under a new wave of much-needed public scrutiny and discussion. as this week's hearings and

debate in the nation's capital amply illustrate we are at a real inflection point in history on financial regulation. and a new perspective and a change of heart after a long period that became widely accepted that it's recognized free markets should be left free to collect themselves and that they would in fact do so. there were voices of dissent to be contrary ends to the housing bubble regulators and legislators who doubted the wisdom of repealing the glass-steagall act more than a decade ago and the increase in leverage of academics who saw the bubble and predicted its bursting and early warning shots of enron and world. and yet, rissole over the past decade what we saw was fundamentally a brought failure of knowledge and information. a failure to understand the

realities of economic activity at a very basic level, failure to see linkages and connections and failure to understand the element of the mass psychology. these are the kind of questions that universities are supposed to be concerned with, and so from a positive perspective there is still a lot to do and thank god for columbia. into this he did not [inaudible] comes the voice of vikram pandit had the impeccable timing of being named ceo of citigroup in december of 2007. when the troubles in the global financial system may have already become manifest, but not to their disastrous existential scope. the challenges vikram inherited came to the head on his watch and citigroup appeared at one

point to be on the brink of collapse. stock prices plummeted from $50 a share in 2007 to briefly trading at under 1 dollar a share. if the bank was the recipient of $45 billion of federal funds through t.a.r.p., for which we the taxpayers to gone more than 27% ownership. while the strategies and positions president hitting citigroup troubles proceeded vikram's leadership, he came under fire for not moving fast enough. some openly questioned whether he was the right person to tackle the enormous challenges of such a large company, which frankly came as a surprise to those of us familiar with vikram pandit's powerful intellect and enormous capacity for strategic thinking. as "the new york times" business section recently said, there was even talk of nationalization,

the move that would have wiped out shareholders and cost mr. pandit his job and his legacy. fittingly, the story goes on, new york magazine called mr. pandit of the most powerless and powerful man on wall street to meet today he is still at the helm and through a series of small but important moves, the article goes on, he is quietly asserting his influence. piece by piece of he is shutting complex business is like the insurance and retail brokerages, shrinking the bank's balance sheet and stabilizing its finances. and just last week citigroup reported a $4.4 billion profit for the first quarter and according to the news reports, had its calmest and quietest shareholder meeting in some time. now citigroup has repaid 20 billion to the taxpayers with interest and federal government has begun steps to sell the

stock and many expect it will earn a profit on the taxpayer investment. we all see this. we all have an interest in seeing this institution continue to return to vitality. here it is important to point out that he has taken a notable stance among his peers in the industry by publicly supporting the white house robust financial reform proposals as was reported yesterday he sent a letter to president obama, also columbia graduate stating as he did before congress last month, quote, this is vikram speaking, i believe banks shouldn't speculate with their capital. i believe in a transparency of markets. i believe derivatives should be cleared and settled centrally. i believe there should be a strong federal consumer authority to protect consumer interest. we must have a strong systemic regulator with respect to compensation we need a marriage

based system within the could driven by long-term performance and it is essential to have a level playing field across the global financial industry. all of this i am sure and more we will hear this evening. before joining citigroup, vikram pandit was a founding chairman and member of the old lane eight hedge fund and private equity fund manager that was later acquired by citigroup and also served as president ceo of morgan stanley's institutional securities and investment-banking businesses. but most importantly before going into the business world, vikram was an accomplished scholar and taught at indiana university is a loss columbia business school. as i said the beginning, he had as many times at columbia. he received undergraduate and master's degrees in electrical engineering here as well as both an m.b.a. and a ph.d. in business. among the wide array of leadership roles he has taken this institution, he served with

great distinction has and actively engaged university trustee since 2003. i apologize for these long introductions to get him up to the podium, but we are grateful for all of the ways that he engages with columbia. proud to have him back on campus in this more visible role. please welcome me or join me in welcoming our friend and alumnus and one of the most important people in the world today, citigroup ceo, vikram pandit. [appla >> thank you for the introduction and for making me real live the last two years. [laughter] i really think the introduction was rather complete. should we go to q&a? what do you think? [laughter]

any way it is wonderful to be here at columbia. obviously this community holds a very special place in my heart, and it always will. when i came to the campus in 1973i was 16-years-old and so i literally grew up in morningside heights. i've got to admit it took me time i spent nearly ten years here and i do want to thank the university for its patients. what struck me about columbia was that you were never really far from the real world and lee is correct singing that colombia is an incredible and diverse plays with a large international body and global university and by the way, there was never any pressure to conform here. and sometimes there were endless debates and each of us had to find our own way and in many ways, i left the university

extremely well trained for the world that i am in. i was also one of those people fortunate enough to find my calling early in life. i didn't really have a game plan, but i guess good things happen if you are well trained by universities and doing the kind of work that you like. and so today i am here as a grateful alumnus of the university, and of course also as the chief executive officer of citigroup which is one of the bulls great financial the institutions. a company to enter the 65,000 people in 160 plus jurisdictions. we have more than 200 million customer accounts. we serve clients began a small including 99% of the fortune 500 we call ourselves "americas global bank." and by the way, most days it is a great job. but every day it is an exciting and challenging job with a sense

of purpose because citi has the ability to open up opportunities for millions of people around the world and to be a force for positive change. as lee said, i've had this job since december, 2007 and during a trying and difficult period for millions of people i came aboard during a financial crisis. citi lost billions of dollars and we needed help from the u.s. government, our shareholders suffered and said the hour employees and sadly we had to let thousands of good people go. a lot of americans are hurting these days as well and for many of them the pain is worse than anything that we have had to deal with at citi. they are hurt, angry and much of that anger is directed at the financial-services industry and i don't blame them. it's easy to see why the

industry contributed to the nation's economic slump which is brought about 18% unemployment rate and foreclosures that force people out of their homes. ordinary americans think bankers don't understand them. even worse, worse yet, they believe we don't care about them and that is and a good place to be for anybody for our country, for us, any of us in this room. over the last two years we have been working very hard to remake citi from top to bottom and we are making much progress. we have got much to do but we have also done quite a bit. and to fully succeed, we must take responsibility for showing the american people that we do care. citi is committed to serving the client's interest in helping individuals and families in financial distress, providing economic recovery and supporting

the reform of the financial system. today we find ourselves in a new position of financial strength of which to pursue these goals. so this evening i would like to share with you how we got to this point. one banks germany to the financial crisis. i want to share with you what we have learned, how we are different today, our view on how regulation needs to change and our commitment to what we call responsible finance. and i fully realize that we have to live what we say and make our words become actions but that's my job. let me start by addressing what i think went wrong in the market's leading up to the financial crisis. citi, like other financial institutions was a creature of its environment. that pre-crisis in iran it was characterized by a vibrant

financial market and it seemed to offer a bottomless pool of financing and capital. thanks in large part to securitizations, the allies of the shadow banking system and the acronyms they spun off like cbo, siv and others. in that environment aggressive chris eqecat eddy defined the mentality. very smart people define and measure risks in ways that made a traditional concept appear primitive. the market's convince themselves that the risks were actually declining. shareholders can expect the companies to generate the high returns they sold other companies turning out. consolidation became synonymous with strategic success and size mattered more than ever. market players even assured themselves that there were suddenly new financial engineering that can't transform a liquid assets into liquid

form. and all the while we were assured that this time it's different. and david weinstein talked about this phrase that the world has heard and heeded all too easily. not only things the second world war, but also things through the 1800's and 1900's and each time on the eve of a major upheaval in the markets. the rapid balance sheet assets to a historic high and both sides and leverage. and the asset gave way to concentration in ever larger amounts of real estate and consumer lending. as a result at the peak of the housing market city like many others was doubly exposed to u.s. housing and u.s. consumer.

city and many other financial institutions to come for the fact many of the securities that they held were highly rated and they were insured and in retrospect we know that this was false comfort. so what did we do at citi pull ourselves out and build and learn the lessons of the turmoil that we lived over the past two years. after redican besio my management team and i focused on three immediate priorities. financial strength, strategic clarity and cultural change. we moved extremely fast to shore up the financial city and we succeeded. we raised tens of billions of capital since the peak in 2007 we've reduced our assets by over half a trillion dollars.

we completed 43 divestitures of annualized costs are down $13 billion unfortunately we have lowered the had client -- headcount by 10,000 people. by the end of last year city because citi was on the strongest banks in the world by most of the critical measures on capital and liquidity. along the way we received additional health from the u.s. tax payers and therefore of the investment in citi. by the end of last year we had paid that investment was a substantial return for taxpayers. however, i said this again and again i will continue to say this publicly we still owe the tax payer in large debt of gratitude which we are committed to repaid by remaining an active and contributor to the american economy and the canada that we served. to be getting the means to take deposits and make loans, provide

payment systems and custodial services, facilitate capital flows through trading and underwriting all with confidence and trust by focusing on more banking basics citi will be ultimately 40% smaller in size from its peak. in 2007. we also result and concentrate on why we are distinctive and why the clients need us. our most distinctive and competitive advantage is citi's unique ability to connect the world 2 a.m. on periled international presence. in addition, we changed our business model from one of capital deployment to client center city. we vow to focus squarely on the signed interests and that's why we much more than a platitude because banks and financial companies including citi often stray from this principle.

transactions trump relationships and often with an emphasis on trading for the bank's own accounts. a best bank serves the interest of shareholders and employees by concentrating on what is best for its customers and of building relationships with them and that the clear lessons of this financial crisis. we also recognize that our strategy could only be as good as our people. financial services is a people business. we have to make some critical changes in personnel and senior management and the leadership of the businesses. we have to have a world-class team sharply focused on the basics of banking in addition, citi may change its board of directors including the recruitment of individuals with deep experience in banking and other fields. and finally we resolved never to compromise the financial strength again it has to be that

the core of the strategy. we made extensive changes in citi's risk management systems with discipline and return to traditional conservative assessments of risk. let me talk about a third priority. cultural change. clearly something that is much more intangible but to me is absolutely essential and it is at the center of what i'm going to talk about next. it is some cultural internalizes strategy and drives constructive behavior every day. a culture of responsibility is a very powerful force be of rules and regulations to help guard against bad judgments, temptations to push the envelope and the impulse to act in self interest first. so, we yet citi, are creating a unified culture that is built on the values of response of finance.

no one including me wants to see the repeat of 2008, 2009. but here's the problem, and five, ten, 20 or 30 years, people in the midst of the volatile economic bubble are unlikely to see beyond the illusions that create their memories of what happened in 2008, 2009 will be damaged and may be even nonexistent and they could repeat history. they could succumb to all familiar pressures that we just saw all over the last many years. to them, risks and market will appear to be coming down, creating pressure to increase risk leverage and take more risks. shareholders will demand more and more profits as they view mounting returns for other shareholders. clients will say to financial let pfizer's what is wrong with you guys? advisers are getting 30% a year

and media independent on wall street will say to the ceos your just to risk averse. you were living in the dark ages, get with it. management board of directors and government officials will all feel these conflicting pressures and when they react they will turn up the heat within the whole system and that climate experts and even people who are generally smart and why is would reassure everyone this time it's different. just as the head repeatedly done in the past and we know it won't be different. so what do we do? the history has to continue to clone itself. how can we make sure the lessons that we have learned are imbedded in our collective memory so that we can at least mitigate future crisis. and we have spent a lot of time thinking about this for citi how do like riggins institution for

the future. we thought about it for the system, how we make sure the system internalizes the learning and i know of to the answers. one is regulation. to try to hard wire the learning from this year and into the financial system and the other is culture. each financial institution can create a culture of responsibility. but let's be honest. neither answer is likely to be complete. history has clearly shown that there is not a correlation between the enactment of morrill law and the end of the great financial crisis. and people wealth that would either substitute or supplement existing frameworks. with the goal to stay ahead of crises. realistically, the goal was not

stop crises but to mitigate them and have the tools necessary to effectively manage them. so one of the reasons i am here tonight is a line at the right university with the right group of people, the right negative, some of the best minds anywhere for addressing the question, and the world and the country needs your best thinking on this. how do we create a global banking and bigotry structure that constantly enables us to learn and stay ahead of the crises. how do we ensure that there is clarity of principles by which to run the system with continuous updating of the law and regulation and other tools to take into account new products, new ways of doing business and new technology. can we change the approach to evaluate whether this time it is really different or can be even hope to? let me go back to citi's

responsibility. i believe a strong culture of responsibility is a significant part of the answer. its purpose is to ensure that we serve the client interest and are a force for positive change in the world. i should point out that in my experience the type of business you are in a significantly affects culture. there is truth in the notion for example that banking has one kind of culture and retail brokerage is another kind of culture. that's very different. within a diversified financial-services company you can find a variety of different cultures. and i think, therefore, buy returning to the basics of banking we are helping set the fundamental tone for the culture that we want at citi. i believe that the sestak -- the systematic pursuit of the responsible finance is ultimately the way to ended in a city and institutional memory that deeply impacts the behavior of both current and future employees and all of our

business is and tall levels of our company. it is intended to guide citi's behavior when private economic interests conflict with public interest. and it's precisely involved with changing times and changing definitions of what's in the public interest and perhaps offer some basis for cultural change in a larger scale in the system as a whole. today, we have three core principles responsible of finance. first, citi's activities must contribute to the economy and the global economy and today citi must country to america's recovery. bye practicing the basics of banking, we assist people in distress, help businesses grow, support the financing of public projects around the world for example since the beginning of the u.s. housing crisis in 2007, we have held 900,000 homeowners and their efforts to avoid

foreclosure. we planned accurately to businesses of all sites with a special focus of small and mid-sized companies that have trouble obtaining financing fi need. where leaders and financing export american goods and services and we are one of the biggest sources of financing for schools, hospitals and other vital infrastructure projects. the second principle is that of businesses must be all about our clients. our products and services must promote customer choice and control over their financial lives. that's why, for instance, we have had some of the industry's most broken consumer policies on fees and overdraft. that's why we invest tens of millions of dollars in educational programs that provide scholarships for college education as well as counseling and instruction on financial matters for low-income individuals and families and it's also the reason why our

strategy and business model are designed to use our capital for clients versus proprietary trading. the third principle is that we will be a strong advocate for systemic safety and forward-looking global financial reform. that by the research with making sure that our houses are in order always and we run our business is fervently. that goes beyond that and i have publicly and often advocated reform that will protect consumer interests and strengthen confidence in the financial markets and institutions. the entire city organization around the world has joined me in this endeavor and the fundamental principles of reform that we advocate today are exactly the ones the president talked about last week and i think that lee mentioned some of these earlier but banks should be banks focusing on serving clients. banks shouldn't speculate

research capital. markets need to be transparent. to reverse should be clear centrally and settled centrally. we need a strong federal party to consume to be to protect consumer interest. we should end once and for all the phenomena of the two big to fail. we should have a strong stomach regulator. it is essential, absolutely essential to have a level playing field across the global financial industry and we need a merit based compensation system driven by long-term performance. we believe these principles of the form can create a stronger financial system and bring a wall street and main street closer together. still, the broad challenges that create a global banking and regulatory system that constantly learns from experiences and stays ahead of the crisis and let me remind you again this is where i hope the

world gets help from the superb and well-trained lines here at this university. and obviously we are thinking long term. now and then i contemplate what citi would look like in five years, ten years, 25 years, 35 years from now and i don't know what the markets are going to look like or what our competitors are going to be or how the economy will fare in 2020 or 2035. but i do believe that right culture will serve us well. someone said that a corporate culture is nothing more than how we do things around here and our culture will be shipped by responsible finance. myett responsibility at citi is to build that culture and that will be my most valuable legacy at the institution. both citi and colombia are great institutions and they've been around for a while in our history is are quite intertwined

this university was founded at king's college in 1754 in lower manhattan. its students include alexander hamilton, the nation's first treasury secretary who went on to found the bank of the united states. when that bank lost its charter in 1812, a group of merchants formed the citibank of new york. today's citigroup and to go for the national bank's old headquarters on wall street and 1812. colombia and citibank survived the war of 1812 with citibank having opened its doors only two days before the war. survived the civil war of the financial panics of the late 19th century and the great depression because they were blessed with leaders who acted as stewards of great institutions. during hard times people who feared bank failures brought their money to citibank because

we were known as prudent bankers. our reputation was quite literally our most valuable asset. so today whether we study or teach at columbia or work at city we do so because of the integrity and dedication of those who came before us and we owe them a great deal. we can repay the debt by enhancing the quality and reputation of the great institutions and by using their power to make the world a better place and at citi that is my purpose has we move forward. so, mr. president, thank you for inviting me to speak here today at this wonderful group. thank you very much all of you and we are ready to take questions. [applause]

saxby for free lunch. i think i will just ask one or two questions and then open it up for people to go to the microphone. it is a complicated question to ask at the beginning not surprisingly i suppose. i am very struck by the way in which you characterize how the world got to the point that it did and 2007. and how about world is likely to come again. so what you described is a world in which actors, whatever they thought initially convinced themselves of things that turned out to be not true or they felt trapped in a system where they had to act contrary to what the

bottom hoped they could get out early enough. so that is the bubble. it's a mass hysteria, a psychological problem and to the people like me to think about constitutional law we this is not a phenomenon. we have a bill of rights because democracy loses its bearings. people become frightened. rather than create market bubbles, they become fearful and the oppressed minorities and treat people badly and as we of dealing with that we put the bill of rights through a constitution. we took the power to enforce that ordeal with a problem out of the political system almost entirely, lifetime appointments for judges, culture of

supporting the constitutional rights and so on. my question to you is if you were in an ideal world, forget about the politics of the moment, and you were trying to have a constitutional bill of rights for the financial levels, what kind of social structure do we need to help us stop that from happening? now the fed isn't there. it is still -- what kind of structure do we need and what tools are there? >> i would start by recommending against lifetime employment for ceos. i don't think that is a good idea. [laughter] but i think that is the question and there are a couple of different aspects of bubbles we need to think about. there is the psychology part but there is also an informational counterpart. somewhere along the way the market's just did not have the

information necessary to absorb what was going on and therefore give the markets the chance to succeed and we found that out here. we knew nothing about the extent of the portfolio credit default swap portfolio of institutions. that particular market went from a few billion dollars to early fall semester over trillions of dollars in a short period of time. by the way lots of issued against transparency in the securitization market. so, there are issues about social structure that we can talk about. there is one fundamental principle that is absolutely critical which is that around the world we have to endeavor to always change rules come always change the law to ensure that we have continuous transparency. now that is easier said than done because there's lots of

vested interest behind not wanting transparency and by the way some of the dealers who deal in the markets are the first ones to say how does it help. but if there is one principle that we have to abide by it days give capital markets the chance to work and they have no chance of working on less to have information that the need to clear. that's the first thing. now it gets a very complicated. the reason it gets complicated is we do live in a political economy and you will know also not only the constitution but a student of history that is one of the biggest changes in the constitution that happens around economic disasters as well. one of the biggest changes in law and regulations have been around when the economy turns, so the question of how you institutionalize some sort of

learning etc to make it happen is incredibly difficult because we live in a global market and each country is going to have its own ideas about the kind of political economy that it wants to run and witness what is going on in europe today. and in that scenario it's very difficult to come up with something that works. the closest thing we have is a federal reserve bank. the closest thing anybody has is a bank around the world close, too, are living in every country that could free hypothecate a global central bank but how would it work? so these are practical issues. these are not questions of pherae. these are questions of practice and keep coming back to saying that if we follow one principle which is a principal transparency and take the theme of that goes with it we could be a lot better off than where we are. it's not going to solve all the

issues and there will earmarks ifill years when we go along with on the road. >> you are a person, i've always seen, vikram, who understands the essence of what is happening and sort of is able to think about how they will play out or should flee out and when you say i was also struck by you said we need a level playing field in the global economy and when you just said about the need for coordination across the country's. obviously sovereignty and the notion of sovereignty are a major part of what must give way. it is not possible to build the kind of global economy that we are in the process of doing with the same degree of sovereignty that the states assume.

do you think that's right and how do you see that unfolding? >> obviously sovereignty is a political question and it doesn't matter what i think. it's a matter with people and the country think and what they want and that is always going to be the case. that is not going to change. but think about sovereignty or rather governments and a very different way. what are we learning from the capitol markets? now here there is a wonderful real-life exceed we are going through in europe where a group of countries got together and said no individual currency. we have given up national sovereignty off the printing local money but we are adapting one currency and then we have six sepals of certain countries who actually have lost control of their credit ratings and financing because they can't print money. they are off the euro.

now the ultimate government mechanism in some ways here is the bondholders who own sovereign debt, certain european countries telling them what they need to do. and so ironically, yes there's political sovereignty but the capitol markets tend to take over economic government's very well and that is the phenomena that we are going to have to live with and therefore the need of global coordination and the need for really thinking about the financial side of the equation for countries around the world is ultimately the capitol markets will speak and as they speak they will control your economy and control when you need to do. but learning through that and getting through that is a difficult process. and i must say that having gone from g7 to g20 is absolutely terrific. and that is a great vehicle to start with. it may not be complete or perfect but it's very positive.

>> but your fault here is that sovereignty is going to give way or there will be huge pressures on sovereignty but it's not going to come from a global financial system to respond globally. it's going to come from markets demanding the countries behave in certain ways that they may not want to and they are going to feed some of their sovereignty. that is what you -- sprick the history of this clear when we look at the countries of latin america and of europe and bondholders telling the countries here is how you currently manage your economy. and so, all of a sudden more than the population is about what is that the couple markets think because you need financing to keep the economy going. >> let me ask just one final question from me and its allied question. >> just like the others. >> do you enjoy your day? do you like going to work and is

this a -- [laughter] okay, let's go to -- [laughter] >> yes, thank you. i was very gratified, sir, to hear your opinion how banks should be run. at the same time, listening to yesterday's hearings in congress, it seems to me that goldman sachs is the opposite view that you have and i wonder if you could explain that and if you could have some benevolent influence on five thinking of the executives of goldman sachs which i frankly think are rather criminal. is the mikey won't be surprised if i don't comment on that. we have to do that to the regulatory principles that i spoke off of that i talked about and lee talked about. that is the closest thing to a bill of rights that you will get. and transparency matters.

responsibility matters. and by the way the fcc and regulators are thinking through the concept of information. when we think about it it's not even regulating products and structures and institutions. ultimately union regulation of information and so i the best process when we go through and get to the other side we will have a better market. >> thank you. >> yes, on this site. >> thank you for coming today. banks should not speculate and there's one lesson i learned as i come here that there is no difference between speculation and investment and we seem to have a clear definition so i wonder what is your definition and do you consider ceo as a

speculation? thank you. >> thank you. again, this is a -- that is a very interesting important question and by the way exactly the kind of very of fat academics can contribute to. i will tell you there is a difference between speculation and serving clients, clearly true. if you commit capital to help clients that is clearly in the context of the business that you were in and if you make a loan that is good and if you provide the liquidity of the one to sell something. if you commit capital to the markets because they are dysfunctional and you actually have a market making the business, that is consistent with the business model that you have. i see what isn't consistent mrs. early with the business model was to have a group of people sitting back somewhere in a room who are actually not dealing with your client but they are using the bank's capital dealing with everybody

else on the street and run and foreclosure investments because they believe that by doing this you can earn a rate of return. now, you know, i don't want to get into the philosophy but i look at that and i say that that is not a the purpose of the bank. there are lots of other institutions. david weinstein talked about hedge funds and there's lots of places that can happen. it doesn't necessarily have a role in the bank. it is a limited role in the context of using your capital to really understand how markets work to create strategies and for their clients. it's the ultimate client oriented role. but that is a very clear distinction in my mind there is not the confusion on that. >> dr. pandit, thank you again for joining us. i have two questions relate to financial industry reforms. one is in trouble with regard to corporate governance and one to the specific proposal.

so with regard to the corporate governance, i wonder if you can comment on what kind of measures banks can take to resolve the tension between the incentives of risk managers and those of profit seekers within the bank itself. and then the second question about this proposal, both of the house bill and the christoff bill contain proposals for resolutions that played in the credit risk management. if you could comment on those and what your thoughts are. >> i think compensation is a significant question. again it's not just a few readers to practice. the fee is simple. the compensation system as economists did a voice of moral hazard. we get it. we understand that. by the way the last time it worked for certain financial firms like investment banks was private companies. when there were private companies and moral hazard and conversation worked beautifully well and so the intention of where one has to go with this

given that compensation levels can be large is to see what can you do make some of the compensation so you get those handcuffs and it is a long term proponent but ultimately it comes down to the subjective evaluations and it is exactly the kind of a process which we are spending a lot of time on. the regulators are spending a lot of time and that is important. what they are going to do is look at the structure and say i like it or i don't like it. if i don't like it you can do it but your capital was dramatically because you are a risky firm so there's lots of different ways of getting at it. but again to say it's not that vv is the practice. it's difficult but we are going to evolve to the right answers on that. you're second question was about the fund. that's probably one of the areas that evokes a lot of different reactions from people in the g20

and for a variety of different reasons because there is lots of questions about about even in academics should you have a fund and how do you define insurance? what are you going to get as a bank and exchange for getting that insurance? how do you make sure there is no more of it? it is complicated to think about that in the right way and therefore it is one that is probably going to take the most amount of work to think through. it to the extent that we have been through the crisis to the extent everybody has learned and the memories are fresh i don't think -- i don't think it is an issue of urgent decision making and importance. it is an important one, but i hope that we will take the time to think through rather than [inaudible] >> with regard to the

supervisory program does the $5.5 billion debt for a city bank and its recovery and do you think that bank's trust should be imposed every two years or just one of the major players feels like lehman brothers and the recent financial crisis? >> i think that -- let me see if i can answer all together. one of the -- one of the good things to come out of this crisis is the need for a system x regulator and again you have sovereignty issues one for every country those are important issues but let's say that systemic regulators that can actually gather the information. again it is about transparency. and not everything it needs to be transparent may be transparent in the market but it

could be transparent to somebody. even that's not perfect but it is the closest thing we can get to an information based sort of decision making process. that information is best understood when you run scenarios. so stress tests but they are nothing more than what if scenarios. and i think that good banks and financial institutions running scenarios constantly. speed the thing is this was conducted with several of the agencies so do you think you need an outside player to actually look at the what it scenarios that might not be as comprehensively matched by the bank's internal risk department? >> yes, i mean i think that is an answer. that is a solution on the other hand i don't think that the problem was because the banks members were different than some

of the of the numbers and in some cases the numbers went there and some cases they were wrong and nobody expected housing prices to go down 40%. by the way they did you wouldn't have had a double, so it is less about that but i think that the process is important. running about it scenario and there will always be a scenario you missed. we know that which is one of the points that makes this such a difficult exercise but i think it is a good move and it's the right thing. but the what it scenario is not only about risk but one of the issues is you have jurisdictional issues around the world where the laws are different. if something goes wrong it's not clear the same bankruptcy laws apply around the world and the what if scenarios are also against where is your kepplinger? where is the money track, how are the contract's going to be made and a lot of issues surrounding that. but it is the right approach. >> to more questions.

>> the first is for the bank -- [inaudible] [laughter] for a bank like citibank which was sort of rescued by the government and which i speak to what do you think is the best method for companies have to have their shares either did so much in terms of things like reverse splits or buybacks, what is the death -- best method and the second question of financial regulation get past in some form what do you think the rules of the big banks in the future will be and will there have to be some sort of equilibrium between the number of small banks in the world? >> i think the financial industry is one place there's constant consultation and fragmentation, constantly. yes, the new equilibrium and by the way we need strong financial reform. we need that and we need it fast. we talked about how we are going to get the stock of and the

answer is we are going to durham -- >> how do you deal with them in general? >> it is an economic constant. it's happened. it's done and therefore the only way to deal with it is to restore value and the only way to restore value is by creating economic value by giving the right things. that is the answer. you could do stock and there are all kind of prose but fact is if you own two shares versus one share it doesn't change the value of what you own so the stock buybacks and other things you can look at the fundamental course of action is run your business correctly and start creating economic value. it is the best anecdote evolution. ..

>> what is citigroup's position on the proposed student loan reform that is proposed by president obama? >> okay. >> okay, i forgot. just kidding. rating agencies, well you know they have got to draw too. we understand that and they understand that. what they are good at is reining in companies with access and liabilities and earnings than where they have got--

integrating products but they learn from it, so i think you are going to have, you are going to have more robust rating agency companies on the other side. what were the other two? >> glass-steagall and student loans. >> let's talk about student loans. we have a very large business, a lone business and the basic change on student loans is that government guaranteed loans by the government going forward versus going through companies like ourselves are now met or people of that sort who used to make it. it is one or the other. to me, it is fine. the biggest goal to me is to make sure we have good loans and we have students who have money. i think the legislation ensures that so i'm happy with that. >> up that she was asking about international student loans. is that correct?

no, thank you. >> the last one is glass-steagall and regulation. you know, everything that happens would have happened, could have happened even without glass-steagall being repealed. that is the irony of this thing so people think about it that way and i can understand why people think about it but to me it is less about glass-steagall but a need for strong regulatory reform in the way we just talked about. if we do that i think we would get to the right place on banks not using deposits and speculate having the clarity of what yanks are in business. i think that goes the wrong way. that is about glass-steagall, more about what let's get this reform bill passed. really important. >> vikram you have made major contributions to this institution over a long period of time and this is wonderful to

have you here into have the special contribution today. thanks for coming. [applause]

's been asked a senate hearing on children's privacy on the internet. we will hear about efforts to update the children's on line privacy protection act which was passed in 1998 or go this is little less than two hours. >> i will go ahead and call our hearing to order this morning. i want to welcome our witnesses and thank all of you all for being here. this morning will examine children's privacy and how well the children's on line privacy protection act or coppa is working. consumer protection subcommittee has jurisdiction over the federal trade commission which enforces the statute.

the ftc is currently engaged in re-examining the implementation and effectiveness of coppa. protecting our children's on line privacy and safety is a critical issue whose importance cannot be overstated. on line abuses such as harassment, threats, cyberbullying should never be tolerated. today's discussion could not come at a more pivotal time in technology development and innovations. while greatly beneficial in many respects, they contribute to the complexity of today's on line space. i'm concerned about our kids on line safety for a number of reasons. first, we know that while some companies are making great strides to protect young people from predators and on line dangers, the disclosure of personal information by young people's is prevalent. researchers are still unpacking the implications of this disclosure. second, recent reports have suggested location-based advertising is tied to social

networking. it also appears that certain technologies such as gps tracking technologies protect children without their knowledge. as more kids have access to phones and tracking devices with global technologies increase in sophistication greater understanding of how children could be impacted is essential. third, we know that our young children are using the internet now more than ever before, and we know that they represent a large portion of total on line activity and according to one report, in the last five years we have seen the time spent on line by kids ages two to 11, ages two to 11, increased by 63% children that age make up almost 10% of on line users. i am interested in all the witnesses thought, and regarding the appropriateness of the statutes age limits, what

constitutes children's personal information, how parental consent is best achieved and how operators maintain the confidentiality and security of the information that they do collect when authorized about children. the ftc is considering both how to better prevent the authorized collection are the use of children's information and how to educate parents and teachers about the importance of encouraging children to protect themselves on line and i look forward to hearing from all of our witnesses, especially ftc, on what they are doing and i also want to thank our witnesses for being here today. not all members of the business community were willing to present their views. specifically we asked apple and google to come but they declined i think that is unfortunate because they are major players in this area and we are going to have a long and in-depth conversation that starts today, but this could-- is going to go

on in the future and i think it is unfortunate that apple and google choose not to purchase made in the discussion. was that i would like to turn it over to the ranking member. >> thank you mr. chairman for holding this important hearing to examine the children's on line privacy protection act, coppa and its application in today's ever-changing technological world. we as a subcommittee are responsible for consumer protection. we are mindful that protecting our children is essential and i applaud you mr. chairman for your commitment toward this goal. the internet provides the opportunity to share information for both adults and children. this has led to her current who revolution and the availability of information to almost anyone who has access to a computer. a flood of information however brings new challenges. one such challenge has been how

to ensure the privacy of information by children when they use the internet. of coppa was created to address the privacy concerns that arise with internet users under the age of 13. this law has worked to maintain the security of children's personal information when it is collected on line. it also ensures that parents know what tools and resources are available to help them be more aware of and have some control over what their children are doing on line. i commend the ftc for its continued efforts to enhance parents involvement in children's on line activities or go i particularly want to highlight the consumer education efforts of the ftc, making consumers and businesses aware of their rights and responsibilities as one of the most effective ways to ensure that the law achieves its goals. one of the best examples of this is the ftc's and etc. guide, which teaches adults how to explain to children they risk

that can be associated with on line conduct. however even with these efforts, there are still many challenges parents face in protecting their children's information on line and it is important that the love be equipped to meet those challenges as they develop. keeping pace with technological changes as a difficulty that many and serious face. it seems almost every day these -- a new product or application is unveiled that it's a little more complicated than we were using yesterday. this presents new and unique challenges and efforts to make sure that technologies are safe for consumers. i have been a parent for many years and it is important to me to keep my children safe. i am also a new grandparents, and i am amazed to think about the opportunities that my five -week-old granddaughter will have.

her generation will be able to access information and learned so much more than those of us in this room ever imagined. a significant portion of those opportunities will be available through on line technology and innovations occurring today, tomorrow and years into the future. these rapid and continued technological changes however can make it difficult to consider regulations for the internet. our first priority is to ensure safety but we must also take care not to stifle innovation and business development that drives our economy and makes possible so many of the opportunities available to our children. there've been many suggestions about ways to improve coppa and help it meet congress as girls in today's world however there were many concerns expressed about the effect that these changes could have not only on innovation but also on the very goals that coppa strives to achieve. i think it's important for us to take time to consider these conflicting concerns and to

better understand their ramifications in both children's privacy and children's on line experience. thank you mr. chairman. >> thank you. senator rockefeller. >> thank you mr. chairman and you have already pointed out the 60 million children who are availing themselves of these technologies these days. and, i listened to the good senator from mississippi and i understand the need to encourage innovation but every time it is a choice between protecting children or protecting privacy and protecting innovation we always seem to go with innovation. we just don't go with privacy so that is what coppa is all about. i am shocked. i am absolutely shocked that children to the age of 13 which

is irrelevant. it ought to be children up until 25 or something like that. [laughter] it is ridiculous. so they get youtube, google, facebook and to somewhat less decent terms that no parent would want their child was searching for on the web and of course that is the point. accessing these web sites whether they are well-known are popular or illegal have enormous privacy considerations. this is not an innovation meeting. this is a privacy meeting. we do that in this committee. we protect people and particularly we protect children because they are the most vulnerable of all. a lot of these companies are collecting personal information. that is a benign term until it comes very unbenign and people are giving up all kinds of information that they have no idea. we print out-- we passed coppa

as we indicated in the idea was to keep personal information private but then the whole world has changed. ever since that happened, technologically, the entire world has changed. the ftc began an effort to review its rules and actually should have done so starting somewhat earlier. i want to talk about that but at least they are doing it. i really think congress has to take a hard look at whether so they should be updated if the ftc isn't going to do it to cover new information, new businesses and i look forward to working with senator pryor and i want to echo what he said. i appreciate the fact that microsoft and facebook are here. i also did not appreciate the fact that apple and google are not here and i'm curious as to why they are not. was a too expensive to send an associate legal counsel? is a financial? they couldn't get the people here because they couldn't afford the plane tickets? were they trying to avoid

something? were they trying to hide something? when people don't show up when we asked, i have the power of subpoena which i would absolutely love to use. i've not at at this point that what it has done is increase our interest in what they are doing and why they didn't show up. they made a stupid mistake by not showing up today and i say shame on them. this is an introductory hearing. we are starting important public discussion. discussion. all of us here are tremendously interested in this, and you know, children's safety comes first always. so, we begin and as the chairman has said we are going to-- is going to be the first of a number of hearings. children not to be taken seriously. they are not. they are part of an age that we are not part of in technology and it is dangerous for them. they are all kinds of horrible things that they can see. parents don't know about it. they don't know what the rules are so we have responsibilities

and i think of the chair. >> thank you mr. chairman and i would note for the record that chairman rockefeller has a long, distinguished and successful career in protecting children. senator klobuchar. >> thank you for all the work you have done in this area. it is remarkable as my colleagues about how quickly technology has changed over the last few years. i still remember people would say if you want to program your vcr, ask your kid that now vcrs are a thing of the past. new technologies, devices, programs and applications that completely change the way we work and the way we communicate. from gps geolocation on smart phones to the ubiquity of text messaging and twitter to posting our photos on social networking sites, the world has quickly changed. no group adapts to new technology quicker than young people and as was noted by my colleagues, nearly 16 million kids ages two through 11 are

active on line and they make up i think 9.5% of on line users. these numbers are growing more and more young people logging on. the average young child spends more than 11 hours a month on the internet, 63% increase over five years ago and this is one of the more sad sacks. one survey found the top five internet searches for children under 13 are youtube, google, facebook, sex, and. clearly the on line world has changed dramatically. if you look back in the coppa rules, that would not have been the case. you could hardly have checked what kids were checking and they probably weren't checking into these things. it is examined we examine this rule to make sure it keeps up with the technology. i have heard a lot of stories in our state working with senator thune on peer-to-peer legislation that we have of changing technology for

innovation has also severely hurt people's privacy rights and when it comes to kids we reach a whole new level so i'm looking forward to working with my colleagues work on this rule and make changes that are in the best interest of everyone. thank you very much. >> thank you senator klobuchar. i would like to say that all of our witnesses, we have a very distinguished panel today and we could spend a lot of time introducing them and going through all of their experiences and their degrees annul their backgrounds and it is a very impressive group but that is all part of the record so i i'm just going through go down the line introduce each one and ask each one to make a five-minute opening statement. what i would like for you all to do is pay attention to the light there in front of u.n. when five minutes is over we would love for you to wrap it up. first, i would like to introduce

jessica rich. she is a deputy director at the bureau of consumer protection, federal trade commission. second is timothy sparapani, sparapani, i'm sorry, director of public policy at facebook. is mike hintze. he is the associate general counsel at microsoft. nexus katherine montgomery, ph.d.. she is professor of school of communications at american university. next is marc rotenberg, executive director of of the electronic privacy information center and last and certainly not least is at the children's table here. [laughter] and i am sorry our table was only so long this morning but anyway we have berin szoka, a senior fellow, director of the center for internet freedom, the progress freedom foundation. thank you all for being here and

you can lead us off. >> mr. chairman and members of the committee i am jessica rich deputy director of the bureau of consumer protections that the federal trade commission. i appreciate this opportunity to up date you regarding the ftc protection of children's privacy and on line privacy protection act or coppa. we have submitted a written statement today which represents the views of the ftc. the v-6 but-- expressed orally in response to questions of my own it and do not necessarily reflect the views of the commission. the federal trade commission is deeply committed to helping to create a safer more secure on line experience for children. the commission's rule implementing coppa became effective 10 years ago. statute and rule apply to operators, web sites and on line services directed to children under age 13 and other web site operators that have actual knowledge that they are

collecting information from children. covered web site operators would provide notice of their collection practices in this limited exception, obtain verifiable parental consent prior to the collection, use or disclosure of personal information from children. operators must give parents the opportunity to review personal information that children have provided. the commission has taken a multipronged approach to rule compliance that includes enforcement, education and implementation of statutorily mandated capo safe harbor programs. on the abortion aside the commission is brought 14 law enforcement actions alleging coppa violations. the ftc's early conversations personal information without providing notice to parents in obtaining their status. more recent enforcement actions have focused on operators of both general audience and child directed social networking sites

and plays with interactive features that permit children to develop-- devotes the personal information on line. a crucial role complement is educating about the responsibility under the law. the ftc has published comprehensive compliance materials which are available on our web site. we also devote significant resources to answer individual requests from companies about compliance and outreach to industry groups. are colin these efforts is to prevent capo violations before they occur. the commissions consumer education materials aimed to inform parents and children about the protections afforded by the world so they know what to expect and look for as they navigate on line. these materials are available to the commissions on line safety portal, on guard on line.gov. on guard on line provides plain language information about coppa and other privacy and safety topics in a variety of formats including articles, games, quizzes and videos.

our most recent addition is the guide with senator wicker was kind enough to mention at the beginning. in light of significant changes to the on line environment including the explosive growth of social networking, and mobile web technologies and interactive gaming the commission recently initiated a review of the rules. on march 24 of this year the commission launched a public comment period aimed at gathering and put on a wide range of issues including whether the rules definition of internet adequately cover certain types of global vacation and interactive media. whether personal information is kept pace with technological elements. that is certain information that isn't named are listed in the rules such as static ip address could allow web sites to contact the child. the effectiveness of another topic is the effective mechanism used to authenticate access to their children's information. the comment period for these

questions closes on june 30. on june 2 the commission will host a public roundtable here in washington to hear from stakeholders including children's privacy advocates, web site operators, businesses, academics, educators, parents, anyone who would like to come. the commission take seriously the challenge to ensure coppa continues to meet its originally stated goal. to children's interactive media is moved from stand-alone pcs to other devices. thank you and i look forward to your questions. >> thank you. mr. sparapani. >> chairman pryor and rockefeller, ranking member wicker and other subcommittee members thank you for your leadership and inviting me to share face the's perspective and how facebook enter mention-- from our inception facebook has provided a safer environment for all its users and was generally available on the web. facebook is not directed at

children less than 13 years of age residing in the u.s. and does not knowingly collect information in a children under 13 in the u.s.. nevertheless we take seriously our responsibilities to protect children under 13 and enhance enhanced team users on line safety. accordingly facebook has coppa's requirements in mind. it starts by requiring those trying to establish an account to enter their age on the very first screen. this birthday field or have a children under 13 from establishing an account. this age technology places a persistent cookie on the device used to attempt to establish an underage account, or venting the user from attempting to modify their birthday. and facebook becomes aware that established by at children under 13 we terminate those accounts all information. we emphasize two points. first-base books real culture and innovative technologies

enhance on line safety and privacy and two, congress should not overhaul coppa but rather support and encourage, not discourage or prohibit companies innovation to advance teen on line safety security and privacy. facebook's approach to providing privacy leadership begins with-- verify age of users on line. as a result facebook developed a multilayer system to act as proxy for age verification. these layers are enhanced by facebook's real culture which helps us identify fake accounts. before before facebook, internet users were warned to avoid sharing their real names and information on line. facebook is the first major internet site that required people to build their profiles using real names. this makes it look less attractive to bad actors who prefer not to use their real names and identities. people are also less likely to engage in negative, dangerous or

criminal behavior when their friends can see their name, their speech and information bayer sharing. this creates accountability and deters that behavior. since facebook users understand their actions are recorded digitally. when users violate our site rules would allow we can pinpoint action to the specific account about. it also empowers users to become community police and report violations. facebook users click the report button when they see inappropriate behavior. this substantially multiplies the number of people reviewing content and behavior which we think greatly enhances teen safety. further, facebook's innovative privacy tools allow users to exercise direct control and share what they want with whom they want and when they want. disempowers users of all ages to protect themselves on line. if the user feels uncomfortable connecting with a particular person she may decline that

friend request. the user feels a friend is annoying, harassing or dangerous he made bloc would de-friend and prevents further contact. 's proprietary technologies allows us to continuously improve on line safety and combat emerging on line threats. although we do not generally discussed these matters publicly for fear that they may be circumvented or compromised, these technologies allow facebook to perform ongoing authentication checks. we look for behavior that does not fit the patterns created by the aggregate data from our 400 million users. let me tell you suspicious behavior does stand out which initiates a facebook inquiry and immediate remedial action. facebook limits the contact insuring between minors and adults reducing the opportunities for adults to pose as minors. display while there is over 18 information, facebook automatically limits minor sharing to a much smaller subset

of users such as the minors friends, friends of friends and those in the verified network typically in their schools. this substantially reduces the visibility of minors to non-minors and they do not know. facebook recognizes the importance of collaborating with others to innovate in this area. we are proud of our relationships with the security experts in law enforcement. we are particularly proud of our relationship with the attorneys general. in conclusion although facebook is not a service directed at children under 13, we built our service, policy and tools with coppa in mind. our experience tells us congress need not amend coppa at the time. infect any amendments might undo many of our innovative privacy and safety tools. congress can however assist companies like us in advancing on line child and teen safety by eliminating this incentive. congress should ensure regulators are not discouraging techno and-- technological

advances when reviewing technology at companies like ours that are trying to do the right thing. thank you. >> thank you. >> chairman rockefeller, chairman pryor and ranking member wicker thank you for the opportunity to share the privacy on line protection act. microsoft has a deep and long-standing commitment to protecting consumers including children who use our software and services. i want to begin by discussing microsoft's comprehensive approach to protecting children's privacy on line. i will identify those areas where coppa has made progress over the last decade and highlight key challenges that remain. the sharing is timely. 10 years ago this month the federal trade commission's coppa rules went into effect or coke go coppa stated goals is to preserve the interactivity of children's experience on the internet while protecting their privacy. that girl is essential today. research has found that children

be an important educational social benefits such as increased opportunities for learning and creativity by engaging in their interactive activities on line and children are realizing these benefits as they used new technology to access the internet including mobile phones, video game consoles and portable media players. as we all wreck nice the contract with technologies often enable consumers to disclose personal information on line and children may not fully understand the terms of the trade-offs involved. coppa was designed to address this issue. microsoft fully supports coppa's objective and protecting children's privacy. while children's use of the internet has evolved over the last decade these objectives remain just as if not more important today. privacy failures can have a real impact on children's safety. there for microsoft takes a number of steps to help protect children's privacy and safety for our own products and services, educational initiatives and partnerships.

first, microsoft requires parental consent and offers parental controls for a number of our products and services including xbox, hotmail and art instant message or was. for example our windows live family safety tool enables parents to limit their children's searches or allow web sites based on the type of content, restrict with whom the child can communicate and access detailed activity reports that show the web sites children visited and the games and applications they have used. second microsoft engages in an educational effort around the world to help parents and caregivers make informed decisions about children's internet use. third microsoft partners with government officials, industry members, law enforcement agencies and child advocates to address children's privacy issues. the attachment to my written testimony provides more details on these initiatives. i would like to spend a few minutes talking about coppa. in the past decade, coppa has

made important progress in raising awareness of children's privacy issues. for example many web site operators now limit the amounts and types of information they collect from children and provide parents and children with educational resources to foster conversation about on line privacy and safety. also mine purging web site operators to meet more transparent about the privacy practices and encouraging them to implement mechanisms. coppa has decided-- take advantage of the internet's benefits. we believe coppa provides the notice and consent framework that can accommodate children's evolving use of new technology. therefore we do not believe in legislative amendment is necessary at this time. rather the statute enables a pc to update its rules and we appreciate the ftc's evers to review its implementation of coppa and new technologies. i would like to highlight two aspects of the ftc's ruled we

urge the commission to consider at part of its new. the commission should provide clear guidance on how companies can better meet not only the letter that spirit of a lot. microsoft goes beyond the letter of the law by requesting the age of information, seeking parental consent for children to use many of the services even when the services are not specifically targeted to children. we take this approach to encourage parental involvement in children's on line activities that enable children to benefit from interactive activities on line. other companies take different approaches. link urge the commission to use its copper rule, review process as an opportunity to help on line services understand how they can honor the spirit of coppa especially in light of new technology. second we urge the commission to work with technology companies and consumer advocates to develop more consumer friendly scalable method for obtaining parental consent. the ftc is explicitly approved

methods for the disclosure of children's information on line however these methods can be cumbersome for parents who rely on-- the choices become more pronounced as children access their mobile devices or providing notice and obtaining parental consent raises additional challenges. microsoft recognizes that task of approving the test process is not easy. the ftc's ongoing coppa will review provides a good opportunity for productive dialogue, and we are committed to working both in the short or long term of congress, the commission and other stakeholders to address privacy challenges raised by new technologies. thank you for the opportunity to testify today. >> thank you. dr. montgomery. >> chairman rockefeller, chairman pryor, and the subcommittee thanks so much for inviting me to testify about coppa. it is a law i care very deeply

about. during the 1990s will president of the nonprofit center for media education i played a leadership role in passage of coppa. working with members of congress on both sides of the aisle as well as a coalition on prominent education health and consumer groups. i think we need to remember in the early days of the world wide web which was really kind of wild west period, the business model of one-to-one marketing combined with the increasing value of children as a target market for advertisers created really a perfect storm for marketers who want to use the internet to take advantage of young people. we and others documented many of those practices and we need to remind ourselves of where we were. we can remember sites like asking from personal information from children are one of my favorites which was the batman site which as children to be

good members of gotham and fill out the census. that is what we were looking at the time. that is where the internet was headed. my colleagues and i consulted with a broad spectrum of stakeholders including industry groups to set a regulation that would balance our growth of e-commerce while protecting the privacy of our children and i think coppa has them is all very well. it has created a level playing field by creating a law that applies to every player from the largest children's media companies to the smallest startups and it sends a signal to the industry, if you are going to do business with our nations children you'll have to follow rules. because it was passed during the early stages of e-commerce that has created rules of the ruled that help guide development of the individual marketplace and really curtail many of the egregious practices that were coming into play. i also think the safe harbor mechanism is very important because it permits

self-regulation but within the content of clear government rules and enforcement authority by the ftc. as others have pointed out recent developments in on line marketing really want renewed attention by the congress. today's children are growing up and and immersive and ubiquitous digital media environment is 24/7. many of the practices we identified in the 90s have been eclipsed by an entirely new generation of tracking and targeting techniques. briefly i will highlight two. one is behavioral targeting which is an invisible and covert process attracts individual users through cookies and other data files to collect information about them and to design, personalized advertising to target them based on their psychological profile in their behavioral profile. this also raises the question of what constitutes personally identifiable information.

the marketers are able to know who you are and get-- in the second is mobile marketing which people have mentioned. one of the important things is that it combines behavioral targeting with location targeting. the research i've done on children's food marketing and the obesity crisis has found fast food companies creating discount coupons that will be sent to people and children cell phones when they get near a fast food restaurant. we need to ensure the ftc in working with the agency to update the law, update the rules as it was designed to do. finally i do want to say well coppa has established important safeguards for the youngest consumers in the digital marketplace, adolescents have no such reductions. we know they are users of social networks like facebook and myspace and others and in many ways are living their lives on line and are increasingly relying on the social network

and on search for personal information and for handling sensitive personal issues that they are coping with in their lives. i would argue, i'm not arguing for a parental verification system like coppa but i do think we need a set of marketing practices tailored to the unique needs and vulnerabilities of adolescence so i hope the committee will send a message to the ftc that coppa remains important that needs to be updated and also the ftc should develop specific recommendations for protecting the privacy of adolescence as part of its new issue on privacy. thank you. >> mr. rosenberg. >> thank you very much mr. chairman, members of the committee. i appreciate the opportunity to be here today. we are a nonprofit research organization. i teach privacy law at

georgetown. want to begin by thanking dr. montgomery and ensuring passage of the ad. we rode to the ftc back in 1995 1995 -- the commission to look at the business practices involving the collection and use of personal information on children. following that whether, the subs can work of the consumer coalition congress did in fact have important legislation. we think that legislation sets up the principles in this new on line environment to protect young people from exploitation and manipulation of their personal information. i think it is obvious there had been dramatic changes since the time coppa has been enacted and the most obvious change is the emergence of the social network services. our kids live on line, exchanging intimate their perversion with their friends on that information is then collected and used for marketing purposes.

while their disclosures appear to them to be very transparent and give them a great deal of control over what they choose to post or not post what is going on behind the scenes in terms of the transfer of their data by companies such as facebook to their advertising partners, to their application development workers and to the third-party web sites that they propose to transfer information is much more opaque. facebook said earlier and i think this is true that for the most part they have tried to discourage the use of the service by children under the age of 13 so they remain compliant. what they have an address and i think the critical question before the committee is how do we deal with the collection and use of this personal information on teenagers, children between the ages of 13 whose data is being collected in this on line environment and then disclosed to marketers and others for purposes completely unrelated to the reasons they made it

available. the problem is more serious still because in this setting the user has to rely on the privacy policy on the privacy setting that they are presented with. that is essentially the only way in a self regulatory environment you are going to get privacy protection. what we are seeing increasingly is that companies have collected the data on teenagers will change the privacy policy. they will change the policy settings for the purpose of making this data more easily accessible to business partners for marketing purposes. this is a problem that coppa never anticipated and i think it is the single biggest problem facing children in the on line world today. a self-regulatory approach that relies on privacy settings and privacy policies is not working and it is also now working in part i would like to say because i don't think the federal trade commission has been as aggressive as it needs to be to

go after what are essentially unfair and deceptive trade track this is. they do a very good job on the education side, no doubt about it and they have provided good material to families, teachers and educators and others about what people need to do to protect the safety of children on line but they have not done enough to report these unfair and deceptive trade practices and i think we need to do more. want to tell you briefly a story. we fought for the federal trade commission last year that was offering a product is sensibly for parental control. was supposed to protect kids on line from risks and dangers that parents might be worried about. the same company was gathering the data through this product that they made available for marketing purposes. this is how they describe their own product. every single minute the social media outlets such as chat and chat rooms, blogs and messaging and web sites extract meaningful

user-generated content from your target audience, the teams. they are talking to a marketing firm about how they are able to surreptitiously gather information on kids on line. we went to the ftc and we said to the ftc, you need to shut down this company. the ftc acknowledged the receipt of our complaint but never acted on it four the story does not end there. when the department of defense learned about how this product operated and they were at the time planning to make it available on line to military families to their on line store, they said this poses a privacy and security risk to military families and we will not make it available. in other words the department of defense acting on information that anyone who had taken a close look at the product would have quickly recognized was a serious problem aid an appropriate decision. the ftc, which has authority and expertise to police coppa never acted. i think in both of these areas,

we need to update the loss of their protections for teenagers, those between 13 and 18, from the misuse of the commercial information and also for the ftc to get much more of aggressive on enforcement. it has to go after these companies that are not acting appropriately and collecting these personal data. thank you very much. >> thank you. mr. szoka. >> mr. chairman, ranking member and committee members thank you for inviting me here today. despite sitting at the kids table i'm a senior fellow at the progress-- but i commend the committee for studying cop and the federal trade commission for its review of the copper rule which i think is an important distinction to keep in mind. as ms. rich has explained, sites that are directing children under 13 kotler requires all users to limit the functionality of being personal information

publicly available. including the sharing of user-generated content. coppa imposes same requirement on audience sides where they have actual knowledge they are collecting information from a user over 13 or again enabling them to share information. because of the separation and cost of age verification coppa may well if unintentionally limited the choice and competition in the marketplace for children's content by driving consolidation in that marketplace. on the other hand coppa has been recently successful and fulfilling congress's original goal to protect children's on line privacy and safety. whatever the trade-off you find it today i caution against expanding coppa up beyond its original purpose. my concern here is not just about renovation but also free speech. coppa is flexible because it applies to the entire internet regardless of the access device used including services scarcely

imaginable in 1998. coppa is settled because it requires parental sent-- consent. also if they enable children to make that information publicly available on line. even more subtle however is coppa's creative solution to the problem of age revocation and in a nutshell i would say 13 is just right. unlike the similarly named child on line reduction act, coppa requires age verification on sites directed children only and again were to have actual knowledge workers coppa requires age verification of all users for any sites offering minors. back in 1998 congress considered but wisely chose not to apply coppa to adolescence. unfortunately recent efforts to expand copper have put on line privacy free speech and anonymity on a collision course. several states have proposed what we assessed, extending

coppa to adolescence under 17 or 18 but once it rises above 13 becomes difficult to distinguish sites directed at children below the threshold from general audience sites. with a small change the coppa would converge with cocoa. coppa would require each verification for sites used by adults and other states have proposed sending coppa to all social networking sites. requiring people to an prove their age would raise the same concerns that cause strike down of coppa. ironically age verification mandates would reduce all my privacy by requiring more permission to be collected from adolescents and adults which would include credit card information. while coppa has been available role, government should not put them in awkward position of becoming repositories for huge throws of personal information.

nor would coppa expansion made adolescent safer on line. some of our age verification mandates could protect children by allowing sites to-- the reality is technology from a verification does not exist. in the ftc has made it clear does not consider the consent message as equivalent for age verification. coppa expansion could underline the-- undermine the viability of on line services. some consider the real marketers to be the real predators. no advertising is what we have called the great hidden benefactor that funds the overwhelming majority of on line content services. coppa applies to the collection of personal information that could allow the content of children under 13 in the network advertising initiative already requires verifiable consent for behavioral advertising to children under 13 but if coppa were expanded to require general audience sites funded by advertisers, it would devolve

the constitutional approach found in coppa. coppa expansion would raise costs for smaller or new sites and services towards minors and and a to turn this could discourage innovation limit choice and raise prices for consumers and is initiative to protect free speech. the idea that advertising is manipulative and grows only more so with increased reverence. as he is noted by-- equally important after suspicion of what advertisers say. government has a role to play in addressing concerns, and lies in educating advertising to become smarter consumers. with it ed tutorial web site, the ftc should be in courage in these efforts at a less

restrictive alternative communication. briefly onto caution h.r. 4173 passed by the house and the fall would give the ftc the capability to unilaterally change coppa including its age range and i would suggest the changes should be made by congress and not the ftc. if congress wants to help the ftc implement coppa it should consider additional running for education and his use for apportionment. thank you for inviting me to testify. >> thank you. i take all the witnesses for your testimony and we will start off with senator rockefeller. >> thank you mr. chair. i have this odd feeling about this panel except you, you and you. it is like we are discussing some kind of a breakfast cereal, good for you were not. children are somehow our ready disappearing from this process and it comes down i think, the

both of you, microsoft and facebook, had good things to say but you always end up the idea with we will do this by ourselves and we really don't need the government telling us what to do. i have to leave very shortly because i have to give a speech on cybersecurity to a business group. cybersecurity is the nation's number one national security threat ahead of 9/11's, dirty bombs and weapons of mass destruction according to all analysis. the private companies and this is very parallel, they always said at the beginning we have been working on this for two years. we could do this ourselves. we don't want government to be involved in this. weekend-- that couldn't happen because we knew they didn't have any idea what they were doing about how to take on cybersecurity. some of the largest it to a

certain extent that most of them didn't. that is like parents. we want parents to make these judgments, and and which is a little bit like saying that some people here don't know how average american families have to live where people are trying to keep down two jobs and they themselves may not the skilled on the internet and in any event they are tired and they have things to do. so we have got to do this for the parents. let's not let ftc do this but let the congress do that. maybe that was your ideal because you thought congress wouldn't be able to pass it. i thought your testimony was particularly unhelpful but both of your testimonies were terrific because you were focused on the problem and mr. rosenberg and dr. montgomery, either one, we have not heard discussed with the problem is. the problem is kids are watching filth. they are watching filth and

lascivious, horrible things and we are trying to argue about 13 or as you said should it be 18 or 22 or whatever. and the companies here are in favor of cleaning this up but not at the expense of being regulated. they want to do it themselves. they would appreciate working with the ftc a little bit, but the clear messages they want to do it themselves. my clear messages i don't really think they do. i think money trumps on this. money always trumps when it comes to information. money always trumps. this committee has come up with so many scam hearings in the last year or so. money drives bad behavior and then kids are people were internet users and pop up, all of these things are left to decide. i would like you to describe

what damage you think is being done to children by the inaction -- and i agree that some of you disagree with the ftc. they are not heavily staffed and well-funded. we need to change that. we are trying to eject him from being wiped out altogether under this financial services band and i think we have done that. but what is the damage that you see being done to a generation of kids coming up with parents who are reportedly hovering over, watching every move they make when you know perfect the while they are not. >> senator, i think the primarily problem is young people are being coaxed to reveal a great deal of intimate information and the data is gathered and collected and disclosed to strangers for any purpose that generates commercial value. as a parent of two teenagers i have a problem with that.

i think technology is great and i want my kids to grow up and to be technologically literate and to make smart decisions on line because i can always be there. they need to have the tools and the experience to make those decisions for themselves. but i know that there is a point where i can't help them and they can't figure it out. the business practices are designed to be concealed from them which is really going on and that is why i think congress needs to act. i think congress needs to give kids the ability to control how the information about them is being used by others. my time is up. one brief, and. >> i agree with marc. industry has created a system of ongoing monitoring and surveillance, encouraging them and it taps into their natural developmental needs to reach out to their peers and to become independent, encouraging them to

give out a lot of information and tracking everything they do without their knowledge. it is also socializing into a system where privacy is not valued and i think that is a deep loss to our society. finally, i do want to respond to what mr. berin szoka said about advertising. we are not talking about traditional advertising. we are talking about viral advertising and interactive games and abbott tron send a whole lot of things that are not what you traditionally think about advertising. recent research has found that teenagers can be quite susceptible to this advertising and not necessarily a where a ball of this and we know they don't know what is being done behind the scenes. >> i thank you look very much in thank you mr. chair. senator rockefeller could i make one brief comment, please? i apologize if i gave the impression that microsoft does not want government involvement and we want to do that on their

own. that is certainly not the case. we have been supportive of a multifactor approach to protecting on line including our support for comprehensive privacy legislation which we think is essential. regulation certainly plays a role but education, law and regulation play a role as well and we are very supportive. >> i hear you. thank you mr. chairman. senator wicker. >> thank you very much and this is a very serious topic with implications for the next generation. i appreciate the chair's willingness to get into the weeds on this. i do think that the testimony of all of our panelists has been helpful. i think it is important that we

hear a variety of viewpoints and all sides to this. and i do think that there is a way, there must be a way to have it both ways, to encourage innovation and to protect the privacy of children's information at the same time. .. panel what do they think about what i just said? has the law reduced innovation and cost consolidation on childrens website? have we created a barrier to entry into the children's websites market? has filled all result donner

limitations on content specifically for children? so if we could just start with ms. ridge and good on the panel that will be my question. islamic obviously tama keeps helping me with the button. that is one of the key issue is that we are going to look at in the review is specially since i was one of the goals of coppa is to even if kids were protected. we did a review of that issue the last time we reviewed coppa in 2005 and we sent a report and set out that time all the call mentors and people respected and researcher conducted indicated it had not read children were being protected and they still had access and innovation was not being stifled by we were very interested in the interest to the questions today. >> the senator, speaking only for facebook i can see i've seen a strange disincentive because of the law. my whole testimony was focused on trying to identify the

innovative things facebook has done for the teenage users of the site but what you didn't hear me say is we are not spending a lot of energy on the under 13 said because there typically not on the site but there is a wine that is drawn between the 13 and over and 13 and under and that line has created a disincentive for companies to work towards an agreed on a 13 and under side and i think that we need to look at that and it's the point i was trying to make in my testimony, senator. >> i look for to see what comes out of the current rule review. i can see for our home company the yes some of the parental consent mechanisms under coppa can be challenging and sometimes frustrating to implement better thing for the most part it has not discouraged us from continuing to provide services to general audiences including the young children and some specifically tailored to children as well.

it did create an additional cost barrier because any time you were designing a fight night process where there is a speed bump or even a crisis significant barrier involving the parent yes some consumers will go away and go elsewhere. but we think it's a for the most part the right thing to do involving the parent is the right thing to do the reading the speed bumps and you can inform julca about the appropriate use of the services and help educate the parents is the right thing to do. so i would say on the whole, coppa has been successful encouraging websites to do the right thing even though there is a cost involved. >> one of the goals of the law was to minimize this massive data collection that was really becoming state of the art in the early days of the .com bohm and e commerce, and i telling you that is where their business was headed.

so what we were able to do -- and again i repeat we worked with industry to come up with a set of principles that would honor the privacy rights of young people but at the same time not interfere with the healthy development of e commerce. but if you are going to market the kids, what we are able to establish is that there needs to be some operating principles here. and it thinks the industry has done a good job of working that out. it was not easy to sit around the room and try to figure out okay, how do we do this? the final verification mechanism was a tricky one, not easy to do but the idea was first enable the parents to know what their children are doing, and secondly, make the industry aware that they have a responsibility when they are collecting personal the information from children. we've seen a growth, healthy growth of web sites for kids, lots of terrific content areas and i think that has been a very

good development and i happy about it. as i said i think that the 13 -- kids don't become automatically mature at 13 as any parent can tell you, but at that time we decided let's create the squier market here for where we will have these guys on. and now i think we see a whole new development with the weather that raises the issue about okay which we do about teams? again, not the same model but what can we do to ensure they are treated fairly in the digital marketplace. >> thank you. >> senator, i just want to say i very much appreciate your question about the relationship between innovation and privacy, and i suspect we are going to hear a lot more about this. but if i could say directly, sir, the relationship does not generally well understood. i don't see this as a trade-off. my wife is a public-school teacher. when we talk about innovation in the technology field and privacy, we think in terms of the privacy safeguards that enable children to take a

vintage of new technology. in other words, in the absence of privacy protection might you actually diminish the opportunity for technical literacy and training and education that parents and educators would like to see happen. the innovation people are talking about which is what they are not saying explicitly is on the marketing side they don't like the privacy rules because they don't want to do the types of behavioral targeting brandt based targeting, you know, get your child to friend and advertising figure targeting. that's the innovation they have in mind a that's why they objected the privacy rules. but if we take a step back and talk about technical literacy, bringing more children to the on-line environment, creating great products and services so that they get excited about new technology privacy actually plays a very big part in helping to make that happen. >> before we move, but the follow-up, mr. rotenberg, you

mentioned that you have children. i take it the our teenage? >> yes, sir. >> do you mind telling how old they are? >> 15 and 16. >> okay. and i dare say that in terms of knowledge about the protections of children, probably in percentile 99.9 nationwide; but do you -- that being the case, what do you need the government to do for your above age 13 children that it's not doing now? >> i need government -- estimate because you're a good parent. >> i appreciate that, sir, but i need government to step in and control the things we can't control. in other words, if we sit down with our children and go through the privacy settings and say

this makes sense or this doesn't make sense or that's really your call, and that's how we understand privacy protection and then the next week the companies as we have got a whole new approach now. we are going to do something different. and we are left with this sense that the tools the company provided us to try to safeguard our privacy and the privacy of our children basically become meaningless. so i'm not saying that parents don't play an important role. i think parents do. but i'm saying it can't be made so difficult and the businesses can't hide the way they collect and use the data as they do because there is nothing the user or the parent can do to change that. that is completely on the business side and it's done because there is no regulation. there's nothing that prevents them from sinking to the teenagers who fifth data on right now we have a great idea and want to go ahead and do this or not tell them and go ahead and do it.

parents can't control it. >> thank you. mr. szoka, you can respond to that but also to the question about innovation versus privacy. >> thank you, senator. let me be clear about three points. first, there are always trade-offs involved in regulation. and here the trade-off is not a question of economics versus privacy but indeed it involves free speech. and again, i stress that is because collection, as the term is used in coppa, does not just apply to collection as we need it in the colloquial sense such as used for advertising or marketing purposes. but in the sense in the sharing of information. it is the enabling of sharing and generating content. when i talk here about the trade-offs, i want to be clear i am talking about the ability of users to join tools and the innovation in the tools that allow them to share and communicate and elaborate. and this is in the flourishing of the web to waco and that is what is at stake here if coppa were to be expanded. so my second point is i wanted to emphasize that i think one of the duties of coppa is to give

the ftc great flexibility shading the rule within the confines given to us by congress. so the ftc has the flexibility to update the definitions of personal information and internet and i encourage it to do so. my caution however was we need to be very careful about having congress reopen the door to the one thing that the ftc cannot on its own change which is the a scope. and i mention the financial reform legislation only because that could indeed get a future ftc the ability to change things like the age scope which again, present and a portrait of in terms of free speech. my final point is there is a rich mosaic of parental control tools and software methods available today. my colleague, adam combat progress and freedom foundation's published a comprehensive compendium of those tools, and again and again in the context of as senator rockefeller referred to wanting to prevent or sensor kids from accessing the courts have repeatedly said that those tools need not be perfect, but the

government regulation must yield to the tools where they exist. and so our point has been to highlight that these tools exist and we should be encouraging innovation not just in the sharing of information but also innovation of the controls that are available to parents as well as all users to take really control over their own information and how it's shared. and so our answer in a nutshell is that the solution to all these concerns should first and foremost the enforcement of the existing law which applies to again children under 13, and then also education and in power met. the government has a role to play, very important and the ftc does this well in highlighting those tools, methods and education and i would encourage it to do so but again, caution against changing the statute itself. >> thank you. >> thank you, center for being here. and i know that you have to step out to another meeting. but thank you for your leadership. and we will leave the record open for a few days for the

sectors to submit their questions if they want to. let me again thank all of our witnesses but i want to thank facebook and microsoft for being here because i know not everyone in the industry chose to come today, but let me start if i can with a question for facebook. in your written testimony, you talk about facebook's culture of authentic identity. could you elaborate on that a little bit? >> yes, senator khayat bayh glad you asked. one of the interesting things that happened when facebook was first launched is we defied conventional wisdom at the time about privacy and security. we decided that it the beginning we were going to ask people to put their real names and build their entire profile around that, and i have to tell you it has been the wellspring of a number of advantages security and privacy benefits for the users of all ages of the site. again, on conventional at the

time but what it meant is that we are able to detour bad behavior, able to identify fake accounts quickly and able to target corrective action at an explicit account and more importantly, there is a community affect that takes place where individuals feel some court of deprivation when they take an action which is tied to them. it tends to discourage the speech, bullying, bad behavior, etc. so we have been the beneficiary of this decision of what we refer to as a real name culture. >> you also mentioned in your testimony that you didn't want to see any changes to coppa? >> we are not really needing changes at this point because we feel we've done a really very good job of implementing the statute. >> let me interrupt right there. you're saying that is true for your company? >> it is. >> you're saying that that is true industry-wide? is everyone a good actor? >> of course not.

they're certainly are companies which are out fliers. they're always will be and that is frankly we'd stepped up ftc enforcement find the bad actors and take action. >> your view is leave the statute as is but beef up the enforcement? >> rediker that's the right approach, center. i think the ftc folks generally do a good job and they would do better if they had more resources. it's easy to focus on microsoft and facebook, google and apple because we are here and we can show up and testify. it's the company's that do not have people in washington, don't have lawyers on the staff that probably deserves the lion's share of attention and they don't get it because the press can't focus and they can't be found. >> tell me why you like age 13 and why that can't change just the general inclination of children's issues should make it 18 or under or something like that and to leave it up a few years but tell me why you like that. >> first my expertise is privacy and it's not in child psychology or social development. so i can only speak from this

perspective. we have found that the teenage users have had a very successful experience on facebook. their socialist will, they learn good rules of behavior, they are able to actually advance themselves and learn about the world about them. so what i would not want to see us deny the teenagers the opportunities of living in a digital society. i think it would hamper kids around our country and set them back, children are the same age and other countries if we were to prevent them from having access to the sites or services. >> i think, dr. montgomery committed to have a comment on that? >> yes and i would agree social networks and the internet in general are terrific tools. i also the mother of a teenager and i can see what a great world but technologies are playing in

her life and they do ted into the key developmental tasks of adolescence when adolescence are exploring their identities and trying to reach out to their peers and submit their parents as something they need to be doing it are more autonomous and i can see that and a member of my colleagues have some terrific research the documents of that and i hope that is great. but i think the problem is that teams are out there in very public and transparent many ways sometimes alarms parents on the social networks but the business practices of data collection and surveillance that's taking place on facebook and other social networks is not transparent. it is a black box in many ways and i would not be talking about restricting the teams from having access to these platforms. i think we need to give them that access. they are very important. but what i would be calling for and what i do call for is for

the government to play a role in ensuring good that all of the social networks and all of the platforms, mobile and otherwise, that young people are engaged in are in the set of rules. they can be crafted in a way that will balance free-speech, that will balance business and innovation. when we started talking about coppa a lot of people said we will never be able to do this read this is impossible. we were able to work it out. and again, not the model that we have for coppa or for the parental verification restricting access, but a separate set of principles that i think we could work out together that would apply to the teenagers. >> let me ask you, dr. montgomery, are there a set of principles that exist right now? is there a model rule that we could apply or do we have to start from scratch? >> i think that it is some of the international principles,

the oecd principles that we talked to about transparency and other things that we would expect. you know, i don't see the law allowed there has yet. i think we are inventing some of these things as we did with coppa that this is the right moment to do so. >> and while i am on you, dr. montgomery, should we leave age 13 as is or should we change? >> negative coppa operates well as it is. i'm not necessarily talking about revisiting the actual legislation but i do think we ought to think about what protections we could provide for teams and again i think we need to be careful about the model the we create but i don't want to see the teams totally ignored. >> minister sparapani, let me ask you you all apparently have a report button.

how soon is that use? what are the numbers on that? >> senators said of the numbers immediately in front of me but i have to tell you it is enough to keep a huge team of employees busy all day and night for more of the world which you have 400 million users which we do and they are trained because they've become comfortable with himself reporting what they consider to be inappropriate behavior by others on the site. it does produce a large quantity of reports and of course we tree osh those and take the ones that might have lived all enforcement component and put them at the top of the list in terms of responding. we put the ones that concern potential threats and it only happens rarely but we put those in and prioritize those and so the other reports about other malicious behavior or inappropriate speech drop down a certain knowledge. >> does your company have policies that go beyond coppa? it sounds like you have policies that go beyond. >> the one place i would suggest

is with respect to the marketing practices. i want to distinguish facebook from virtually all other companies i know and from some of the generalized discussions that have been happening about marketing to teenagers with respect to the marketing to teenagers, facebook never shares information with the advertiser about individual users call it doesn't matter the age. what we do is when we get a request to advertise on the site by a company we offer the ad but we never shirk personally identifiable information. i think it's important -- >> do you ever get information about users but not specific information? >> that's right is an important protection and i think it helped our company succeed and i hope other companies will follow the lead on that. >> i know that microsoft through the various software products offers a lot of parental

controls. do you know what percentage of the users actually utilize the parental control? do you have a sense of even a rough percentage of what that might be? >> i don't have the actual numbers with me and it probably depends on the service itself and things like a xbox live for example, the parental controls are built in as a part of the account creation process so when a parent buys an ex box and signs up for a xbox live subscription part of the transaction of creating secondary accounts for their children put those parental control choices in front of the user so it is a high percentage of users who are children where their parents are utilizing those controls to some level and there's all kind of different styles and how deep the parents goes depends on the pavement but a large percentage of the user's. >> other services we've got this windows life family safety which

is a free download for people to use to help control how kids are surfing the net and using the search services. there's a challenge of educating parents and making them aware of the tools and it's something we tried to do but it's always hard to reach the parents. one of the reasons that we've implemented the parental consent process even in cases where we think coppa doesn't explicitly require because the general audience site for example we think it's an opportunity to provide that kind of education to get some of the tools and information in front of them. so it really depends across the surface i think. islamic let me ask of you call it windows live family safety. let me ask about that product. that's free? >> is it is. >> how do the parents find out about that? >> we provide messaging in a variety of ways. we have worked with a number of organizations, children's organizations to provide

information through the boys and girls clubs and other organizations like that. we've provided information through sites and we indicated web pages around privacy and children's safety on the web site to provide information to parents so there's a variety of means we try to get the word on these different roles available to parents and get the magic about the risks of children on line and the risks the children face and the tools available to them. spread the would be helpful for parents and you may already be doing this and i'm not aware of it with this project but i think it would be helpful for parents of you guys could take the census and aggressively periodically from time to time whatever is appropriate offer like appearance tool kit on how to stay safe on line and there is a lot of aspects of that. there is identity theft, there is a lot of prada issues and privacy issues with kids, just

kind of runs the gamut and does microsoft offer that kind of in one place these kind of supply regular reminders that the tools are available and you need to update your settings etc., etc.? do you all to that? >> we do have proper etiquette in the company. we have the equivalent of a tool to the table. we have a web site that has a list of resources available to the parents and information available to them to help educate themselves and their children about the risks of online crittenden the challenges of making them aware of that and there are certainly things we've done in the past quells i marketing campaigns to get the information and there is obviously more that we can do in the future. >> personally i am not a huge internet users. i am a -- or use it probably every day but not extensively every day and usually not extensively at all but i wasn't aware of that so if i'm kind of

like average here i didn't know about was out there so i would hope would think about ways to be more aggressive and letting people know. let me go ahead and ask mr. szoka about the age 13. >> senator, yes, you must the most important question of the day. the point i tried to raise is this is the least well understood aspect of coppa and the point here is not necessarily just to deal with child psychology although 13 happens to be the age at which jewish kids are bar misfud and confirmation is given in the catholic church. romeo and juliet were 13. there's reason why 13 hysterically is in the age of transition and was chosen by congress but the point we tried to stretch in the work has been that the far more important reason for keeping it at 13 is that when you raise the age

above 13 coppa framework breaks down because again, as i said, coppa basically applies in two ways. it applies to the sites required to preserve all of the users might be a child and then again where the sites of factual knowledge and so if you to said that at 18 for example you would end up in a situation where the sites that might be considered directed at adolescence or might be afraid the ftc would find them to be so our sites that differ profoundly from sites that are today like the club pingree where we directed kids under 13 and the difference is adults use the site's the teams use as well and so as a practical matter if you extend the coppa framework to a high your age you would for the first time see debate to have the government requiring age verification of large numbers of adult users and we've already been down that road before. the courts have held in litigation about the charnel online protection act or copa but to do so would be unconstitutional because it would infringe on the free-speech rights of users to access content without having to identify themselves through the

use of a credit card but also the free-speech rights of the sites themselves to reach the audience which is diminished by the road block of h your vacation. soil to be clear from my perspective this is the most important issue we talked about here today why the age for coppa must be kept at 13 for the framework of what i think is a great step to the other wise functioning effectively. >> thank you. >> mr. rotenberg, do you agree that coppa breaks down if you change the 13-year-old -- >> i've been sitting here listening to mr. szoka's, binder confused. i actually helped the gate against the copa which was the act that raised the first amendment concerns on that side he and i are on the same page but it almost completely unrelated to the discussion we are having about age verification and coppa. as mr. sparapani has played any

person of any age who wants a facebook account tester in the first instance provide information about their actual date of birth. that is how they make the determination whether someone is above 13 or below 13 and presumably they could do the exact same line drawing exercise at age 18. is this argument doesn't make any sense to me. but what mr. sparapani said which i think is something that needs to be considered more carefully, and i understand where he's coming from. he said basically facebook me dissention for children under 13 we just want to have them as users in other words it is too complicated and because of the coppa obligations we are just going to say, you know, wait a few years basically. and he suggested in his answer that if congress were to extend a line to 18 perhaps they would make the same decision now for kids between the ages of 13 to 18 which is obviously not what we are suggesting.

we are not seeing teenagers shouldn't be on social network services. we are saying that companies that provide social network services to the teenagers should have some legal restrictions on the collection and use about the children and that can be done without too much difficulty that could be based on coppa we want to make some changes but that is the main legislative recommendation is create legal protections for teenagers, don't discourage them. i agree with others it is a good service but as it is right now it is not providing adequate protection. >> let me ask about age verification. i know some companies may differ with me on this but my impression is that there is really not a way that exists yet to truly get rock-solid age

verification and on the birthday obviously kids can put in a different date and they may be off to the races. so am i wrong on that? is there not a really good solid way to do age verification yet or tell me what this is right now. >> it's always been a challenging the things that you are exactly right to say that there is no rock solid way to do it. there are a number of different techniques facebook itself i think has developed some pretty good systems to do age verification. i think they probably get it right at e3 high level which is to say i would be very surprised if there were a large number of accounts for kids under 13 and maybe some out there i suspect that's true but i don't think it is a very large number and i think a similar effort to move the age line to 18 would probably be some people who would get under but i don't think that is reason to do it

and i think it would be a mistake to say because we can't get a 100% we should just give up. >> if i may respond you are exactly right that there is no perfect method of age verification there is another important distinction we have to understand and it is as simple as that when you sign up for a site like facebook as mark mentioned you are required to provide your age but can indeed mention simply law and the difference here is as the sites function today sites like facebook and other sites because it's not just about facebook but indeed every site that potentially allows sharing is with the blogger i ron for example when you sign up for the sites you are not required to use a credit card. this is a key issue. my point here is if we were to move to a world where coppa applied to children under 18 you have large numbers of sites that enable the sharing of users of information about themselves, so

called generated contant to have to actively age verify and that is a fundamental difference from the current regime in which they simply ask for a jet fuel that mature under a certain age the block u.s. they are required to do it is at that point you start to run into precisely the same constitutional issues has were raised in copa because copa and mashaal required certain sites to assume again that all of the users might be children and therefore require them to verify themselves with a credit card or similar tool. >> dr. montgomery, let me ask you about the state as academia on this and that is are there studies out there where people have analyzed the child psychology or how the industry really operates? if there are a body of academic works on this that the subcommittee can look at to get inside and how things really work? >> there is a growing body of

research about how young people are interacting with online social networks and others digital media. the macarthur foundation has funded a good deal of work in that area. none of it, i have to say, has taken into account or looked at the commercial dimensions of the digital media. sprick and privacy? >> or the private. there are some studies on the merging the are not looking at a picture of the digital marketing. i will also tell you the experts in the food marketing area and mine working for a closely with a number of them because of the concerns about childhood obesity and the role of the food marketing in that crisis had begun to pay more attention to the digital marketplace, and i have been doing a lot of research in that area and working with experts who were looking at adolescent development and the role of adolescents in the digital marketplace because they are very much at risk for childhood

obesity and they are not necessarily in the position to be asking their parents about their decisions about food and we know that many of the food marketers using behavioral targeting and profiling to target's interactive games and other kind of online settings precisely those kids who may be most vulnerable to that kind of marketing so we are working with a number of people to conduct more research in that area and i would be happy to supply the community with some of that research. >> i would like to see that. when you're talking about fast food marketing, tell me, give me a scenario that works. it sounds like to me some kid may be walking down the street and there is a fast-food restaurant and he may get a message on his or her phone they should go in there and they get it to pub or something. tommy -- >> that is where location marketing is going and that is first of all you know who the individual consumer is and as we

are finding it isn't always necessarily to love their name. you need to know who the person ase with using that particular mobile phone and will be a jays and the of the demographic characteristics as well as the behavioral characteristics, what kind of sites they go to and the masses of amounts of data that are being pulled together by the various technologies. and yes, the idea -- we have seen some trials with this with some of the fast food companies would be that when you are near the restaurant you would get a coupon that could say you could get a discount for this particular kind of product. we are also looking at interactive games and the kind of behavioral profile in and targeting that's going on there so let's say that you are a pizza lovers you are also addicted to interactive games and they can then target you when you are most of roused by

the game and offer you peats and even provide you with direct access to an online site to order that peats and we know also we are looking at apps on the phones that enable you to order things right away so it is a kind of in polls. all of that is tied into the behavioral targeting. and so -- >> you mentioned the iphone, so you have the manufacturers of the phone but also what about the bye your list companies, the cell phone companies themselves with at&t and verizon. are they providing this type of information to the marketers? are they getting age and things like that? do we know that? >> mark may be able to answer that differently but we follow a set of policies that are applied to those companies that are separate from what some of the other companies do.

>> we are not aware of how the telephone companies collected data on customers but there was a very interesting proposal to do a deepak inspection by internet service providers which would mechem dee dee to reach a plea to the personal the activities of people literally looking at all of the e-mail traffic they were sending taking pointers to commercial the activity out of that. i do want to make on this .1 further comment. i think mr. sparapani was correct when he said earlier facebook doesn't disclose user data to advertisers that's right but facebook does disclose user data to applications developers so that when a facebook user installs a facebook application dever cities or snowball fight or whatever it is facebook at the point is making a decision to send a lot of the user's

social graft over to the company and with the announced just recently is to do something very similar with third-party web sites like cnn and pandora so it's not the whole story i think at least in this situation to say in terms of facebook the data doesn't go to advertisers. there are the way the data is released. >> thank you. this is rich, i have not forgotten about let me ask you first did you have any follow-ups on anything you heard the you wanted to clarify? >> i have one follow-up from something mark said in his first statement which is a i agree wholeheartedly enforcement by the ftc generally and privacy is very important and we are very proud of our enforcement record. just in the last year even six months we brought the data security cases which put this at close to the 30 data cases that we brought.

we issued in all behavioral testing report and did at least one case involving this deceptive tracking and we've done eight cases designed to promote the integrity of self regulation and i could go on and provide you, mr. chairman, with more but i did want to comment on that. >> in your statement but me see if i have this right whether the rules on the internet adequately encompass technologies like mobile communications. i don't know if you remember that and is the ftc looking at what we mean by internet today and the definition of internet and global technology or you're evaluating all of that in light of the technological innovations? >> yes there was a standard definition that was sci-fi that they were using the statutes when coppa was passed into the

world wide, you know, infrastructure and it is a strange definition and it's not clear whether that encompasses traditional online activities or whether it would extend to interactive activities that don't actually go through the internet. so we are looking at that very seriously. >> no we would you know now in terms of the state of technology but also what the, would you recommend this senate revision in the underlying law right now? >> we are taking a look at that and in a few months have the benefit of hopefully many comments and at that point we will figure out what the next move is and whether it is something that we can address or not address in the room and we have the authority of the statute or something we have to come back to the congress on. >> one of my staff guys here

gave me advice that says nintendo ds which is interesting -- i don't know if it is his or his child, but it has a poky on attached to it any way it has a phone and i don't know if please music or what, but obviously it is a little game cartridge but it also very easily and very quickly allows the child to connect to the internet and it has the camera and you can do shopping and that kind of thing. this is a device that obviously didn't exist a few years ago. i guess i would encourage the ftc as you are looking at this to think through all the applications and maybe not, you know, the -- i think it is hard to make a list of all of the devices but just the functionality to disconnecting to the internet and if it is mobile and things like that

because hopefully the electronics industry will continue to innovate and to do great things and bring things on the market and hopefully when the ftc goes through your process you will define things in such a way and work with us to define things in a way that when the new products like this, market the statute catch is that and we don't get out of date. >> can i say we have to of those in our house, one for my 12-years-old and one for my nine year old. by and it does access the internet i think we would be safe to say that's covered because it acts in the internet question is if they were just speaking to each other and not through the internet, there are functionality that just can go from machine to machine and is that covered. >> gist as an example of things that federal trade commission has to think through, i could

actually spend a lot more time asking questions because this is very interesting and i know that we have had our members here have had to move on to either speaking on the floor or other committee meetings they had to get through. so let me just do this at this point. let me just ask the panel if there is anything anyone would like to say before we close down the hearing because we have had a lot of back-and-forth and i want to give everybody the chance to respond or make one last final point so is their anybody that wants to add anything? >> very briefly mr. chairman i want to think you for holding this hearing and i think there are a lot of people who appreciate coppa and believe it plays an important role safeguard in online privacy but also feel given the new technologies and business practices something more probably needs to be done so this is a good place to start the discussion. >> thank you. >> if i may say briefly i want to stress in my testimony

coppa's is neutral and that's one of the great things about the statute. the example that you gave a think that ms. rich is right. we may not need changes to the statute. the ftc will look at that but they have the flexibility to apply the internet for a broadly to the services that touch upon and integrate into the internet so again i want to stress my concerns are not with the ftc updating the rules consistent with the statute that is about making broad changes to the statute of greater consequences for speech >> i think the committee for rolling this hearing. it's heartening for me to hear the struggles with many others in the 90's to get this law passed but it is the success and i very pleased about that and i very pleased to be working with the ftc to ensure that coppa and is able to address the continuing rapid changes in the digital marketplace.

but again i would like to make a plea we are as a society and the government and the industry do not ignore the needs of the nation's teenagers. sprick i would like to thank you for holding this hearing today and the members of the committee for participating. a lot of discussion today around kids and a lot of discussion today around teenagers and the age is not currently covered by coppa. i think our position and a number of panelists is that coppa may not be the right vehicle to address the team issues, the issue is the teenagers face online are somewhat different than those the children face on the types of cites these are different in many cases. but others have expressed the need for some legal protection and we agree and will get the privacy issue more generally not in the framework of coppa but looking and privacy legislation the federal level that would

address not only for the teenagers the adults as well. >> what is now from our perspective from the dawn of coppa is we're entering a moment in the information age for the first time we have the opportunity for technology to reach an still through the new tools and sort of user models that facebook and a number of us are trying to push forward is a new thing and it holds promise for users privacy. what's more difficult as getting the users to understand the new tools and use the name liesman ar and frankly to find them and exercise them and it's especially hard with teenagers. that is a place we will spend some energy but again, thank you for holding this. >> i will echo the things to you, mr. chairman and the of the panelists for engaging on these important issues and also say that we should have a lot more to report after the comment

period closes and we have the workshop in june so we look forward to talking some more. sprick with the ask the ftse one more question. part of your evaluation are you also looking at your manpower slash resources at the commission is to have more resources you could do more in force that and be more effective in enforcing coppa. or you evaluating that as well? >> yes we are. >> will you come up with a recommendation on that? >> sure. >> in closing i would like to say we will leave the record open for two weeks so don't be surprised if some of the senators and staff here want to ask more questions because there are some i didn't go into because i was taking too much of europe time already but we will submit some of these the next couple of weeks and as you to get them back as quickly as you can and work with our staff and

in closing i would like to say maybe one of those areas senator record kind diluted two there's an old abraham lincoln quote says governor should do for people what people can do for themselves and this is an area we want people participating in the marketplace and using this technology and enhancing their lives and doing these great things and we have to make sure that marketplace is a secure and the right privacy parameters are there and the right legal structure is there and we have the right law enforcement. we have to make sure that marketplace is working because of people can do this for themselves i think there's a level of government and certainly private-sector private industry has a lot of great good actors but there are some bad actors are as well so we are trying to find the balance. anyway, thank you for your participation today. i know chairman rockefeller appreciated and i do to and the subcommittee. thank you very much. with that, we will adjourn the

meeting. thank you. [inaudible conversations]

the u.s. chamber of commerce was to the governors summit on the u.s. economy and job creation on monday. the chamber also released a study for the creation of 20 million jobs created in ten years through entrepreneurs and the states. this is two and a half hours. [inaudible conversations] >> good morning. thank you, everyone. welcome to washington for those of you who do not live here. i would like to welcome everyone this morning to the 2010 governor's summit sponsored by the american free enterprise treen bacon campaign, a project of the national chamber foundation and the u.s. chamber of commerce. we are honored, very honored, to

have today with us six governors who represent a cross section of the company and industries and of the challenges and success stories that we will hear more about later in the program. i want to especially thank the co-chairs of this event, governor pawlenty of minnesota and the governor of tennessee who as i'm sure do all completely understand had to leave washington yesterday to get back to his state on account of the floating issues and a warm welcome to all of the governors here, governor manchin, governor markell and richard said will be joined by governor. later on this morning. and in addition to the governors, that many of whom spent much of their career in the private sector as well, which i think is useful the information for the topic today, we are also joined by a chamber and business leaders from each of the states. welcome to all of you. these leaders represent a broad range of sectors including

manufacturing information technology, healthcare and oil refinery and on and on. why don't we take a moment and let each of our chamber and business leaders told their names, with the business is and what stage they are from so that governors can have some feel for who we are visiting with and we will start at the end with you, bill, from delaware. >> [inaudible] >> thank you. sprick >> [inaudible] >> thank you. >> [inaudible] >> thank you. >> [inaudible]

>> we in kravitz i represent fidelity investments. >> good morning. to recall with greater albuquerque chamber of commerce, where i've been 30 some odd years. margaret it's great to see you and everyone else here and to be with our governor. >> hung hou of the mexico base designing and in effect righi efficiency solar cells for space power [inaudible] >> i am joel and i come from los angeles. >> mr. zimmerman. we work on a report [inaudible] >> chief operating officer of u.s. chamber. >> stan andersen, campaigned for free enterprise. >> the nichols company in chicago.

>> founder of the mexican restaurant in small texas, the company my wife and i started when i was 22 and she was 20. glad to be here. thank you. >> american public university charlestown west virginia. we serve approximately 63,000 students around the world a vast majority of the more active duty military. >> thank you. >> steve roberts west virginia chamber of commerce. >> president and ceo of hms technologies. we are served as small businesses and information technology provider. >> all right. we are going to hear from all of the governors today obviously as well as from you all as we react to some of our topics we are also going to hear from joel and delore zimmerman about dustin a commission to call enterprising states but he should have before you that provides an analysis of state job creation strategy and

identifies high performers and a number of areas. the goal of the study is to provide a snapshot of a effective policy and program from around the country and highlight the good work, the great work the states are doing now to grow jobs. the study really demonstrates what leverage a place of reform the state's bar and it shows how much capital and potential the states and provides examples of creative policy making all over the country and it makes clear the spirit of entrepreneurship and innovation that is weathering the economic storm. while my recent policy experience has been at the federal level, i have had previously in my career the opportunity to work for two governors, and i know that governors are the leading policy innovators when it comes to reform and particularly with respect to job growth especially times of economic difficulty like we have today. it's vitally important we know what is happening out in the

states, the kind of challenges that are being faced and night by the governors and the private-sector and we hope today's discussion will better and for all the fuss. those of us here at the u.s. chamber, governors, business leaders about the good work that is going on. so, before i turn the program over to our leader, tom donahue, i would like for you all to look at a brief video about the campaign for free enterprise, the dream they can paint. it's about a two-minute video. >> it's in the air we breathe. the dirt under our fingernails. we hear it pounding in the night. we feel it in our bones. americans have alw dreams. the dreams so big we've needed skyscrapers to reach them and families to pass them on. stone and steel to build them and generations to keep them safe.

the american dreams, so powerful they become and the economy and build the greatest nation on earth. american free enterprise, it sets our nation apart and makes america an exceptional. it is the unstoppable power of the 300 million americans dreaming bignd rlingp our sleeves. our challenge, create 20 million new jobs over the next decade. washington can help in times of trouble, but free enterprise i at america is counting on to create jobs and growth for the long haul and that's what free enterprise does best. your dreams make the difference. it's the idea that a team like lightning became the business that created the paycheck that sent the family who supports the community but because the american economy. free enterprise is the unlimited potential of the american people. it is the innovator who likes

questions better than answers. it's working late into the night, so hard sweat tastes sweet. free enterprise is the entrepreneurial spirit that keeps us striving for success. american free enterprise is all of us. it's you. so let's get america ready. learn more about the 20 million job challenges. stand up and speak out for free enterprise. your dreams provide the energy, imagination and opportunity to build a better future for ourselves and for our children. join the campaign for free enterprise. sign the pledge, and always dreamed of -- dream big.