>> thank you and i'm delighted to be here. so, working ashley pretty directly off of that line, when i think about the question of whether or not what we saw the masses by the executive branch broad delegations, the degree to which congress seemed either to be on the sidelines or delegating very broad power and in addition of course the multiple regulators and executive branch officials operating seemingly fairly independent of political residential controlled, some -- my first thought was when i was faced with the question, did they exceed their constitutional authority? my first response is to state that this is a degree, different

in degree and not in kind from much of administrative government which i think is characterized by very broad discretion, multiple executive branch officials acting and that immediately not just because i am someone who studies administrative lot that makes me concerned about the idea of thinking that there are constitutional limits on the ability to set up those structures and to think at any rate, if there were -- i am less sympathetic to the arguments of the original understanding would force more restrictive approach to delegation doctrine for example but at any rate even if that were tried this point i think the idea of instituting those changes would be too disruptive to ever be justified. i also think that we should be concerned if you think part of the reason why the executive branch is playing the dominant role that it is in a crisis of

the kind of financial crisis is that it is, is that it is somewhat inevitable and part of the structure of the executive branch given its rebuild -- ability to respond mark weekly, the president's political accountability and regulatory structures in place, all the reasons why the executive branch seems likely to be the one that will be at the forefront that a, that makes me think the idea the executive branch claims that role is probably not do so at odds with their constitutional structure as a more traditional model might think but in addition i would think we should be cautious about trying to put that out side of our constitutional model nonsense because that may limit their ability to address catastrophes in the future but in addition because i think we set up a situation which had worst-case to government officials to act in any way they fill necessary

and are left in violation of legal constraints and constitutional restrictions which seems to me more threatening. and thinking about it though, and going on to the question of whether or not the executive branch should have more power, whether or not it is the appropriate situation, i am inclined to say yes but with two caveats that i think are very important. one is the one that david baron mentioned in setting up the difference between national security and the financial crisis and i think there there's a great deal of difference between situations in which the executive branch acts under a claim of exclusive authority or when the executive branch engages in a very aggressive interpretation of delegated authority and of course the troubling case is what about emphasis in which the executive branch engages in statutory authority in ways that one could think congress prohibited the

argument of how you interpret the auto bailout but i think those are very different kinds of situations that claim out in out exclusive tory which i find more constitutionally troublesome. this section -- mexican.i was going to declare it as i do think in many ways the key issue and i would think from a constitutional perspective as well as a policy one does turn on issues of institutional design and the question should really be not just the kinds of powers that are delegated that really the more the structures under which the executive ranch what must wield its authority and where i do think prices governance and i think probably both national security and they they -- national context does differ from governance is in their relative absence of external check in at that point i think the internal structures become much more effort to constrain our efforts to question a policy. is going to become more from within perhaps than from

without. one of those internal constraints that is so prominent in a financial context is the presence of the individual regular -- relay for. one of the interesting things to think about particularly when you think about the degree to which in a case where the wh ahority we might want thecing president to play more of a direct overseeing role, or in which we might be quite concerned about the way in which the division of regulators have led to situations of agency capture is that if you focus on it though from the context of crisis zones in the idea that there may not be external checks, those internal divisions perhaps not ideal from a political accountability in effect a policy point of view actually made the quite important constitutional in terms of serving as constitutional checks or surrogate constitutional checks against aggrandize power and particularly against arbitrary government actions. whether or not an all context

you see division among the regulators that really serves or leads the sense of the functioning and the system of checking each other i think is a very separate question but i think the potential is there and can't just be discarded and perhaps make us wary about some efforts to streamline the structure. i think god frank is extremely interesting from this perspective. whether in practice it ends up working out as it looks on paper remains to be seen but i think the efforts to both formalized political presidential oversight and the same time build in more direct accountability and some protection for independent regulators is a very interesting structure as are other features such as the role incorporating states is playing a role in the regulatory scheme in some way. another internal constraint in i think this one is government governments attention and again probably because of my

administrative law that seems to be quite important and i think that is more attention vis-a-vis played to the constitutional role played by internal prostration what you mean by and terse note in summation is not the this edition of power but really more of a method that the regulators use in wielding that power so the rules and guidance and regulations they impose in their own discretion. the protocol procedures they put in place and so forth. now, i think for the most part when you look at current constitutional doctrine and particularly the non-delegation doctrine contests but in many ways more sure about dr. and it ignores us internal administration. i think it leaves us concerns to the ambit of the ordinary pin straight up laundry is for example questions of delegation as really turning on what congress says i'm not what agencies do. this is very much the case in the wittman case. i think perhaps this is one of the areas that they might want

to rethink and push a little as this division between constitutional and non-constitutional law. this kind of internal administration is very important i think in the best of times in terms of ensuring regulator he and consistency, guarding against agency overreaching by particularly in instances of prices for those external checks may not be so robust or active. i think this kind of internal constraint laid in place at a time is going to prove very important. and the laying ahead, and place ahead of time is another point i want to emphasize because in terms of forcing agencies to adopt to think about these procedures and to issue regulations ahead of time, those are all things that i think congress and the courts can do. the courts in particular i think are unlikely to be in any way significant player. we are not been a financial crisis and that security might be somewhat different but certainly unlikely to stepping into question actions that might

lead to financial meltdown but they can play a role haddad time and forcing this kind of self-regulation by agencies and afterwards perhaps penalizing agencies for not doing so. the final question it had was whether or not this is successful and i think that entirely depends on what your criteria of success are. obviously if you go to preventing financial implosion i think a strong case can be made for the measures in macro, whether or not each particular one was required. i do think the efforts were less successful in taking seriously this idea of internally constrained action and they think it also wasn't as successful in leaving an impression of constrain government action and i think these two are links. i think the seeming at times ad hoc nature of the governments response in fact eviscerated the sense of overall legal constraints guiding the administration. >> thank you judge bea. can you hear me?

i thank mike mcconnell and the others associated with the law center for inviting me today. i'm particularly thankful for the chance to come back and i'm also thankful to the chance -- for the chance to learn from the great panel the center is a symbol. i'm going to speak primarily about the founding. the founders created an energetic unitary executive. hamilton famously said the energy and executive is a leading character in the definition of good governance. indeed the executive power is typically associated with the active -- of the government. others talk come of debated opined and the judge actually do. this prevailing notion of what executive power was at the founding might suggest executives must have lots of power during an emergency because after all you are supposed to during something during an emergency. that is the intuition that people want during an emergency but i think in fact as the

founding executives to not have emergency powers. either in wartime or financial crises and i will explain why in a minute. i reach that conclusion by looking at the antecedents of the presidency and the states in the continental congress level and looking at the types of powers they had so if you take a look at the state executives, did state executives have the power to take property? did they have the power to alienate state or party? did they have the power to arrest tory sympathizers? survey of the power to execute tory sympathizers? the answer to all of these questions was no they did not have much power under the constitution other than the state constitution. whenever they did those things they did so pursuant to statute. statutory authority gave them all of the authorities to let me give you an example. general washington in the continental army commander-in-chief wanted some property. he went to the pennsylvania executive council and said can you give me this property? this was their reply.

quote, it may seem strange that we have no legal power to impress a single horse or awaken. lift the emergency be what it will. nor have we any legal power whatever over property. in the state of imbecility, we regret our inability to answer the public expectation with the keenest sensibilities. so there is a general sense that the grant of executive power is typically found in the state constitution did not cover invading private rights, taking private property. does this mean that state executives never did such things? of course they did. they did so pursuant to statute. they ran two types of statute. some statutes actually granted specific authority like you can take private property. you can arrest tory's appetizers and there were other statues that were much broader in the scope that gave many different authorities to the governor and the statutes were described, or the statutes were talked up as

giving dictatorial powers to the governor, because under the statues the governor could take robert he, could alienate state property given to the continental army, could arrest people without trial and could punish them as well. naturally people took this to mean that the legislature had granted powers to the executive. and they didn't have these authorities they could nacht, so here is a quote from one state executive. after the lapse of an emergency love the government lamented that he was quote left to the constitution which may do in peace but my no means adapting to war, i'm quote. i think this is a lament shared by lots of governors because the state legislations were often time bound. they would last for several weeks or until the end of the next session of legislature or they were often geographic constraint. you can take property but only within 50 miles of the headquarters. we don't think you need to take

are pretty far afield from where the army is located. that is is the state example. what about the commander-in-chief of the continental army? at the same answer. washington was cheap and 1775 and congress passed a statute. he is given authority to raise army units on his own authority, to call forth the militia, to displace and appoint officers under the rank of brigadier general, to take any private property with reasonable compensation and finally to arrest and can find those opposed to the revolution as well as those who refuse to take continental currency. the implication -- and there is a second resolution. after this one expired they only had power around army headquarters sews the implications of these resolutions are that the commander-in-chief authority did not include authority over

private civilians. yet military authority but no authority over other people who weren't part of the military. when we return to the federal constitution one can imagine i suppose, you can tell a story that the federal constitution is to create a stronger executive. benders to the state executives work in a state of imbecility like madison called them mere ciphers. you can tell a story that says they decided to give more present -- my power to the present. i think the principle reason is if you look of the constitution contains exact same grant, many big vaccine grants granted to the state executive. you put grant of executive power. theme need to give them more emergency power you don't use the exact same language. language that before was not red to grant an emergency power. you would say something else. the president has no emergency part of? noknow, he can convene congress on extraordinary occasions. a provision that seems to bring

to mind an emergency. if there is a problem where he needs more authority or needs more funds he is supposed to call congress and they are supposed to make the decision, not him. he can also issue these broad general pardons to try to defuse a rebellion. the federalist papers and other folks talk about this authority is very useful to diffuse something like chase rebellion certainly was useful and the whiskey rebellion that washington face. that if you look at the constitution more generally of the emergency powers i would argue other than a the ones i just mentioned are granted to congress. congress has the power of the purse. there is no exception for emergencies. congress decides the mayor me a navy. there is no deceptions. congress decides when the state militias will be called forth and the presidents only commander-in-chief when they are called forth. there is no suggestion the president has any authority to decide when they we called for themselves. until lincoln, no one read it as

ever authorizing, authorizing a president to suspend habeas corpus. in fact there was a treatise the year before lincoln suspended habeas corpus stating very clearly that only the congress could do so and that was consistent with the 75 years before then. then when you had discussions of emergencies that the founding at the federal state it and else that's where you see people referring to congressional powers, taxation, raising the army and the ability to appropriate. so what does that leave us in terms of the constitution? is a wholly inadequate? i think the founders envisioned three ways of dealing with emergencies. the first was you do something illegal. if you don't have authority do what you need to do and then get absolution from congress. and then perhaps indemnification. if you actually violated someone's individual rights. this was common during the

revolutionary war. sometimes governors thought they had the state property and the of legislature would pass and indemnification statute after the back. we tend not to think the government should do something illegal but sometimes if you really think it is an emergency and you don't have statutory or constitutional authority should do something illegal. certainly jefferson talked about that in the context of the louisiana purchase. he thought that it was legal but he thought it was the right thing to do. what is the second thing? you can get ex ante authority. people of the talking about delegations. congress can delegate authority and advance to any particular crisis. the militia attacks do that and provide when the president can call forth the militia so the congress didn't wait until a crisis was at his doorstep and then pass a statute. they passed a generic statute that dealt with the situation going forward. you can also pass legislation in

the teeth of an emergency. that is what the power of convening congress is all about. is a ringing back congress while it is not in session and possibly giving the present these tools. i want to end with a couple more points, but there is an episode, there is a yellow plague in philadelphia and some 4000 people eventually die. and congress is set to reconvene in philadelphia. this is a problem, right because congress might contradict -- at my contract the yellow plague and they might die which is not a good thing, usually. so washington wants to know, can i convene congress somewhere else? and he gets advice from his cabinet secretary and also gets advice from james madison and gets advice from the speaker of the house. i think he gives advice on some from pennsylvania as well. all of the attention is paid to the president's power to convene congress and most people say he

can't convene congress somewhere else. hamilton says he can if he has ehlers is the reason for reconvene in the murley but he says if you don't have a reason, you just don't want them to go to philadelphia and that is not a good and everything. for our purposes the interesting point is no one says hey is an emergency. and you can pretty to -- pretty much doing anything to do to stave off this crisis. i just don't believe he has that legal authority. he comes up with a cube of solution which i'm happy to talk about later but it is not a claim of constitutional authority. i guess i could say you sent the letter to congress and said i'm going to be at this tavern. why do you guys just so out there? he is not formally convening the telling them which are probably all meet somewhere else. so that is all i wanted to say i think. i am looking forward to your questions. >> well to get you started and trying to pay attention and take

notes, as best i could overhear, perhaps a question for each one of you that you can start using as an idea that is being voiced to discuss among yourselves. the first question i would like to ask is to professor barron. you mentioned that the security apparatus and legislation was different from the financial apparatus because the security apparatus rarely gives up any powers aggregated to itself. once the financial credit is now working out into a serious of independent commissions which will decentralize within the federal government i imagine, the exercise of powers. there has been some recent questions about whether that is really taking place or not and

it centers on the lack of nominations and filling up the positions created in a dodd-frank bill for the various agencies. for instance elizabeth warren who has been tapped, not as the director of the consumer protection bureau but to serve in the treasury department as an adviser to the director for the bureau. she will not only -- somebody else to be the director for the bureau or act like mr. cheney did and nominate himself. do you see that the structure of disburse regulation of the executive is not really happening and perhaps the white house is using czars instead of nominations? >> now i think is the short

answer. the terms are a misnomer. they are advisers in the white house by and large. they don't even have power. if they are in the white house they can't because they are not officers. if they were in the department, they could, and there is nothing particularly unusual about a subordinate to a cabinet secretary having some decisional authority, lots of subordinates within departments do, and as long as they are subject to the control of someone above them and the range of their authority is not too broad, they have an inferior officer model and there is nothing the least bit unusual about it. i do think there is an interesting phenomenon of a number of new entities being established and when that happens there it a chance -- during that transition period.

there's a question about how it will be organized and how it will look down the line and could be quite different than it is now. but the larger.they think you raise about the disbursement within this, there is a lot of different and some of them are actual independent agencies. >> you think the new federal oversight board will achieve the status of the fcc as far as independents goes? >> the council. >> the federal oversight stability council. >> yes, so it is just such a different density and how it is set up to operate. is kind of a competing entity and i think the larger question on that is, with respect to some of the questions gillian and tina were raising, have we created something that is so

complicated that it won't be efficacious in time of crisis seems to me as much of a question as to whether will be sufficiently independent to respond to the risk of overweening arbitrary authority. that is a challenge. is very novel form of organization and they think the most novel thing to me about it is it is a relatively complex structure that is relatively diffuse and decentralizing that respect and is consciously established for purposes of responding to an emergency situation. we don't have a whole lot of examples. that make city pretty striking striking. >> does anyone want to chime in on that? if not i will go to the next question which is to professor cuellar. we are talking about the new delegation doctrine. former deputy, former white house counsel gordon gray has written an article in the press questioning whether the

dodd-frank bill violates the non-delegation doctrine in two respects. one, that they -- created by the statute are in themselves very overbroad and vague. i think that they allow action when quote the nature, scope, size, scale, concentration interconnectedness or mix of activities. it could pose a threat to the financial stability of the united states, sort of like if you don't like it in fact. is that too broad a franchise to be given? and the second question is, is the traditional review, i won't ask you for work. if the judicial review of actions taken under the job -- dodd-frank bill are somewhat

different from that which we are used to in the regular review of agency actions when the review was limited to arbitrary and capricious action as opposed to the more standard abuse of discretion standard? >> let me take this. is a great question. let me take this one first. i don't think limiting review is a drastic reduction in the capacity of the court to take a hard look and in fact those words hard look our terms of art in administrative law. i think if you look at the development of administrative law from the 60s to the '90s, one of the biggest most important things that happened was court courts finding the notion of arbitrary capricious review could actually involve an executive review of how an agency was going to try to implement legislative authority. i view the non-delegation doctrine as if it is to live it

mean something and while i jokingly referred to the napkin napkin -- i think there is intellectual complex in saying there has to be an intelligible principle. if you have to that some of the closet has been put on the non-delegation doctrine in cases like wittman versus american trucking and opinions written by people like justice scalia what you could say is there is some importance in seeing the language in its broader context. justice scalia was very clear in wittman versus american trucking that what an agency cannot do is to say we have a bunch of different permissible readings of you know could he a threat to financial stability and we are choosing a narrower one so we are simply choosing a constitutional avoidance and therefore avoiding the whole le monde delegation problem. the answer to that from the supreme court is no. that is the epitome of the violation of the non-delegation doctrine and you have so much power to begin with. what justice scalia does say is permissible and in fact is necessary. as i read it is to read the statute as a whole rather than

just a language that sounds really ambiguous. >> all 1300 pages? >> all 1300 pages. that is real work but somebody has to do it. and then to see if the statute written as a whole provides barbour framework that limits the power of use. >> okay, well gillian you said something that really made my ears pop up, which was he mentioned that in this mix of institutional reformation and creation, there was her role for the states in regulating and one of the hot issues that we are dealing with every day, whether it has to do with commerce or with a state of arizona is the question of preemption.

>> as a result of what you might find in national security crisis? that's the first question. the second one is, are there not examples of, you might say, intelligence or sources of knowledge about financial crisis is that are widely dispersed outside of the government, versus the amount of knowledge that is contained within the government, or outside the government, about national security crises? >> i'll take a shot at that. >> just make a brief comment about this because i think you'll bring up an interesting issue that is worth clarifying a bit. when i was thinking about david's remarks, it struck me that there's a social logical point, a practicing relating point about how these things play out differently. also appoint a legal statute, but i think it sort of left the question of whether the

empirical so to speak, or political or economic nature of a financial crisis can have an impact that can fairly be described as effective, a country's national security. it seems to me one can believe that impact can rise to the level, that at some level it in perils to american security. while still recognizing the way we've designed our statutes, organizer government, the practical reality of what the national security staff deals with, it does not include what we're talking about today. >> i from george mason. i just want to offer a thought about a new bill that has been introduced by senator demint called the reins act. acronym about reining in a regular agency, essentially would require major regulations to go back to congress for an up or down vote. i think it is a modified procedure. i hope they would include a

filibuster opportunity but it is essentially a sort of dashing i think would create an agency of confessional -- congressional agency, for all major regulations. i think you are still evolving that definition but more than 100 went out and back would require to congress. if we have over delegated to we can call of that delegation. later on i wonder if, i know there's lots of debate about that built itself, but maybe if there's particular application to this issue, the first stage of maybe appropriating outside the purpose of appropriation as a triage stage and the second stage of fixing the long-term problems of the regulation that i'll want to what you think of that, like it, hated, particularly for this purpose? >> the first thing that strikes me about the, if you're talking about going back to congress and you're avoiding that kind of

line-item veto, we're probably outside the question of whether not it is constitutional. we're really in the question of policy. at that point it what is so of the striking to me is i think your policy response to that will depend on whether or not you believe in government regulation. i think it is a force for good or you think that, in fact, it's more likely a force for good that if you believe the latter i think it sounds much more appealing than if you believe the former. i think that is somewhat an effort through that kind of device to achieve a regulatory result that otherwise might not be as easy to achieve. >> i would agree. but perhaps if you like exempted relief it would also make exempted relief hard as well. >> let me ask the question, doesn't congress also have the right now to call hearings and codirector later and put the

regulation on the table and revoke its? >> sure. this would require before goes to affect, it is looking back and getting an affirmative vote through both chambers. it's the converse of that existing now. >> thank you. next question. >> david skeel, university of pennsylvania. i have a follow-up to david barron's answer to eric's question. this is come up subsequently. the whole question of judicial review, and in particular of the context of other t.a.r.p. money was a program to use for the car companies. the chrysler objectors did try to raise that issue, and they were found notwithstanding. so i guess my question is really for the panel, directing it at david, is it important that eventually we have judicial review of these issues? find that nobody is challenging them? >> this is going back to

distinguish between national security crisis and financial crisis. and the national security realm, lots of stuff is decided on a legal basis because it's secret nobody knows about. and, therefore, is never challenged. that's not to say fine, it is. a fact. and so one way we think about that and reconcile ourselves how is that going to come into the legal system is a pretty intensive set of procedures internal to the government to have legal vetting with the executive branch. than also notification processes to congress, for forward operations and the like, that's all designed to create a structure with a basic assumption or at least presumption that it might not ever be subject to review. i guess what i was describing was a situation where in crisis here, even if one had the assumption that it wasn't going

to be reviewed, to me it doesn't strike me as necessarily problematic so long as we've got a structure that mimics that. i guess the one concern i would say that i can see is that there can be a tendency in the government to think that in circumstances in which there will be review, one's attitude towards the legal question perhaps within an agency is maybe a little more forgiving of action. on the thought that corporate will see this one day. but if that wasn't true, right, that for the nature of these types of interventions that do not generate a case are one reason or another, a lot of these are expenditures, it does seem to be going to a point that gillian was making, it would be for the executive branch to understand it's tough living in a situation where very well may

be the final word on the legal question here and that's a useful thing for to internalize. >> one quick thing. i do think that for purposes of the nondelegation analysis it out to be relevant whether the statute has gone to great lengths to essentially squelch any possibility of review. i would treat that as a different issue from one way or the statute, bright, doesn't draw those distinctions but standing issues or case of controversy. >> i'm with "the wall street journal," new york. there seems to be one very interesting, puzzling episode in the financial crisis. and largely focused on ben bernanke and hank paulson at the time communicating with ken lewis, the ceo of bank of america about buying merrill lynch. and whose account you believe is still a bit very vague. ken lewis, his account has

somewhat been tarnished over time. but nontheless, there seems a real interesting question. i would like to know if you guys have addressed it at all. it seemed to be communicated to him at least according to ken lewis' account, that he should be buying merrill lynch to help quote save the system. i don't know how far people in the executive branch, particularly people in the fed, to make those sorts of suggestions and where the duty of loyalty lies to the officer of the bank, obviously. but i'm curious if you guys have thought about that at all and where that fits in the course of the financial crisis. >> i haven't thought deeply about the example, but one of the things that is striking about the degree to which informal pressure in the kinds of ways the government can achieve its goals outside of even the most overt repertory schemes as a factor here, but

also it strikes the that also it is extremely difficult ever to stop the government. and so for example, in this kind of case is not the issue but there's a degree to which even if they hadn't promised all sorts of assistance and so forth, at some point in the day you have your own direct legal obligations and i going to be able to, for those kind remarks, hold the government necessarily accountable. we can debate whether or not that's the right approach to take to those in which a regular has a huge amount of power. but nontheless, it's not the first time people have either lied or felt that they were affected by what regulators said to them. >> i have to question. the first one is, i'm troubled it and would like to hear more about the juxtaposition of the president's war policy, national

security policy. there's not much question in the constitution about the president has the war powers. there's not much in the constitution about the present having those kind of dollars over the financial industry or other industries. and they often have had to reach, for example, when president roosevelt wanted to value the dollar he reached back to the 1970 trading with the enemy act and the use of that law on other occasions, because they don't have anything else to go one. so seems to me that the analogy that you're hitting pretty hard is really not quite as strong as you would make it. that's my first question. the second question has to do with budgetary authority. is -- isn't there a constitutional prohibition against giving budgetary authority to allocate money without going through congress? for example, fannie mae and freddie mac. used to give profits to make

campaign contributions to members of congress? is that within the constitution? as we understand, the elizabeth warren commission is taking money from the federal reserve and allowed her to choose how much she's going to spend without congress voting a budget. for that? that money goes to the taxpayers and is always up to the taxpayers under the rule it's been in force for many years, that the fed pays 90% of its profits to the treasury. that is, it is taxpayers money. now, we are getting some regulator the authority to use taxpayers money without going through the budget process? can that be something that the constitution is going to let stand? >> on the first point, the analogy is not one i am making that the two are the same. it's to say that two things are happening several tennessee, one

national security, one economic. and an issue is should they be thought of as similar or different. various people have taken various approaches to that question. one approach that is getting some of that traction is that in. lee and observationally they are the same. and the legal distinct the two drunk that i'm quite sympathetic to is being accurate, that there is a major legal distinction. a powerful explanatory factor in how the government respond to those of the overwhelming factor is crisis and in crisis governments act in certain ways. it doesn't matter what kind of crisis. if it was a plague, it was a pandemic, it was a natural disaster the government will do what it's going to do. and argue many people are pushing, believe in right now and are arguing for. i'm more sympathetic, as you are, to the idea that the legal structure of the constitutional structures organized the way we respond to these things in different ways. i think it's quite interesting

and potentially important question as a matter of policy going forward, if only because the other types of crises that are emerging that have the potential to have quite destructive effect on the government, there's a growing body of assure that those will not be crisis in classic way. they will be things like pandemics and national -- natural disasters and the like. so how we think about the war powers analogy i think will be quite important issue going forward in the way the government ask. >> your historical example of the trading with the internet, i would have acted the way we've been using the international economic power section, plus what david is saying about how the nature of how we proceed things changing, i think one way to take all them together is to say there's good reason to raise at least a question of whether the sanctions made in a case like a kurdish vice versa on the one hand, foreign policy defense on the other hand, and everything else.

will be very, very stable. one quick thing on budget site. justice can has an interesting concurrence in the clinton versus new york case which addresses i think the very issue and says rather than just asking to search a question about what congress did constitutional i'm interested in looking at whether something that i consider a core power of congress, something involving appropriations has been given away. >> if you look at the constitution, the constitution require there be no appropriation to take money out. they are because talks about congress not been able to fund the army for two years, so a lot of the government is invited to the annual appropriations. they don't revisit programs every year. i think that's what they're doing with respect to elizabeth warren's new position. they don't want it because they're afraid it might be cut.

[inaudible] >> your point is applicable to any appropriations. [inaudible] >> so one of the big issues, for executive power going back a very long time has been this question of independent agencies and they keep coming up. i hear as well there been any number of supreme court cases of one sort or another. and so i two related questions about this for the panel is, most of them i think probably have been thinking about this trick one is, what is really mean to think, to be an independent agency? if they're a little bit more independent to the present i wonder first of all how independent are they in reality? is it something we argue about because it's interesting from a

history point of view or is a much reality to it, but does independence of the president mean control by congress? does it mean control more agency capture, that is controlled by the berries industries they are supposedly regulating? or does it actually mean, disinterested technological expertise and driven objective governance? so that's part of the question. but related to this, it seems to me there's a new phenomenon that we have seen in the crisis where congress wants to create superduper independent agencies. it isn't good enough to make the heads not fireable by the present for five years but they have to, take elizabeth warren's agency. it is housed in the fed, but not under feds control. it is not subject to an appropriations powers.

it's being made independent in a way that is much more so than any prior financial regulatory agencies. similarly with, i always get the title wrong, but the public accounting, public company accounting -- oversight board, peekaboo we call it. you know, gets the sort of double whammy independence that the supreme court said was unconstitutional. my question is, why is it, is there something in the water that is making, conspiring congress to increase the degree of independence of these agencies? and how does that relate to the first question? does that mean that old fashion independence really isn't independent anymore? so those two related questions. >> so, just quickly on, first on

the water question, i think that those are, the answer to your two examples is probably very, very different that i think the case about the consumer bureau wasn't much more orchestrated precisely to insulate in various ways concerns about the ability of the financial regulations that they might trump down on consumer protection or not. your argument about the budget i think is right. when you look at the public company accounting oversight board, i think the double for cause protection their was actually not intentional. they were using the private self regular model, and the idea that this was an effort to super protected compared to other regulators i think is probably less an explanation in that your talking it's a very passive into the course in a way that regulation developed over time from another private regulation that to try to push more towards

government regulation but still keep it close to the private sector. and using the cell security wrapped regular as an example. had to realize the trouble they would've gotten into they would've been more more than willing, or some other solutions that lead to central for cause there. on the question of how independent agencies are, that is the key issue in thinking about this. there's an interesting work that has been done in terms of showing how that may change over time with polarization of the parties. i think the idea that independent agencies are truly independent of the president is false because a lot of influences, a lot of ability of certain point to control. in part though you also have oversight relationships with other agencies, with other branches like congress, in particular that gets strengthen perhaps by the independence. one of the things again about dodd-frank an identically interesting are some of the

efforts to put in place mechanisms by which independent agencies have to sort of account for their own views in addition to going along so that maybe some of the prior negotiations that happen more clandestinely are put more public. whether or not that's going to change the ultimate result i think is much more dubious because the time of crisis, there's not much dissension between the fed and treasury. certainly not that has really come under public. but again you can sort of agree to which are flushing out and making more public to the extent those agencies do have a different view. and that might add in interesting feature to the regulatory scheme of things as they progressed. >> this is a huge the interesting question. i just add my 2 cents to what killian was saying. it's interesting because if you look at the way independent agencies were treated in the

legal and clinical science literature of the '40s and '50s, they were reviewed as creatures of congress i would argue, a way in which congress a sordid its control over what was considered part of the executive branch. but i would suggest that there are a bunch of different players who might end up wanting independence, and given the confluence of interests among all these players different reasons for independence arise and more agencies become independent overtime. the president might be facing a situation where the where the only way to get a political bargain to create what he or she wants to create is by of the agency to be insulated. in a world where it's not as possible for congress to create insulate agencies, the president might lose out that i would argue this is not a bad description of what happened to roosevelt in the context of social security. he accepted structure that he didn't want because you were social security so badly. congress of course does sometimes have an interest in protecting the agency from presidents, from more direct presidential control. one counterpoint to the

empirical literature that gillian mentions which suggest the president can control it, is some nice work showing that congress come in particular the appropriate committees governing budget, can have a ton of control over these independent agencies, more so than executive departments. then you have bureaucratic policy storm which is important want to consider in understanding how the consumer financial protection agency ended up where it is, which is at the fed. the fed was never sold on the idea that they should be an agency in the treasury department, or an entirely independent agency. so as the politically passing political bargain played out, the odd compromise that was reached is it's in the fed so it's not entirely independent the way for restraining fcc would be, but it is for independent from the agency that it is in. >> michael, i don't have what the removal provisions are for the new agency.

[inaudible] >> is that right? okay, but i guess the point that i just want to echo, if you think back to roosevelt and the creation of the new deal and all the independent agencies and the economics, something, there's a story i think that has a fair amount of power to it, a concern about governmental intervention in the market. and a particular idea of the president suddenly having control over market regulation. makes it politically very difficult to get regulation in the sphere that's not going to have some inflation. particularly if you think about the dynamic that would create the mood for the regulation in the first place, the president will have to be supportive of it. as legislations get through. so then resident wanting it can

also look sort of dangerous. it might create a particular dynamic in which there might be a desire to have some independence from it. if that is a force to it, you can see that repeating itself across time to your question of course was about whether there was a heightened degree of independence being added on. i'm skeptical there's really evidence for that, as much as there's an increase in new regulatory entities. and like the old ones they often come in a form that is certain degree of independence attached to them. >> it seems to me that what's extraordinary about this new agency is not only does it have the classic independent characteristics, but not having to go for the annual appropriation. putting aside whether that violates the appropriations clause, that liberates this agency from the kind of congressional control that tenet was talking about. i don't think those

appropriators and congress are not going to be running this agency either. i don't know who that means this agency is really going to be responsive to, but i'm even more curious about what are the political winds that cause that kind of a setup to be attractive in which both the president and the congress are in effect deprived of their usual ability to control. >> i think at this point i was told that we have to keep the hour is very crisp, so i'm going to call an end to this panel. thank the professors for a very interesting conversation. and thank you all for attending. [applause] [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> this portion is an hour and a half. >> okay, good afternoon. this is a ban on bankruptcy and the rule of law. i'm judge william fletcher, and they have chosen me to moderate his because i am as expert as anyone on the federal article iii bench and bankruptcy as anyone, which is to say i know almost nothing. [laughter] and i would encourage the panel is to talk to you as if they

were talking to me, which is to say, for example, i got an e-mail them secured creditors like to play hardball, 363 people. okay, you can translate that to the audience as well as to me. let me begin by introducing the panelists, now introduce them in the order in which they will speak to you. first steven levitt who is the j. law professor of law and his recent scholarship concentrates on the credit derivatives of chapter 11 and the rules of professional and a large corporations that he's a recognized expert on corporate bankruptcy and death, in the frequently analyzes these issues for national and international media including but not limited to "new york times" and "the wall street journal." and he testified on the automaker bankruptcy case before the t.a.r.p. congressional oversight panel. second david skeel, he is the as samuel professor of corporate law at the university of pennsylvania. he writes in the area of

bankruptcy in corporate law as well as sovereign debt and the connection between law and religion. is a commentator in print and broadcast media on corporate governance bankruptcy law. is written extensively about the financial crisis and the government response including three publications this year. cry for bankruptcy, co-authored piece bankruptcy or bailout, and a book due out this month. third, todd zywicki, the foundation professor of law at george mason university and a senior scholar at the marquis de sade. he writes on bankruptcy law, consumer credit, consumer protection law. among his publications is a forthcoming book with yale university press called bankruptcy and personal responsibility, bankruptcy law and policy in the 21st century. i have to say he is no friend of the environment. as you saw in the longer bio he has published more than 70 articles which is an awful lot

of trees. and, finally, the home team bats last for cleanup. marcus cole who is the william benjamin scholar of law here at stanford and his scholarship focuses on bankruptcy law, corporate organization, venture capital regulations. that means silicon valley of course that not only are in the united states but also in the development world. is a fellow to hoover institution, serves on a regional board of directors, and on the editorial board of the cato supreme court review. what i felt we would do is we would start out with each of the panelists speaking in sequence for 10 to 15 minutes. i might occasionally interject with a question, or and they scratch my head until the very end. you may have some questions between the among the panelists, but we would like to save some time for questions at the end. and i encourage you to be brave, that is to say, if there's

something you didn't understand, you are in very good company here that is to say, probably almost everyone sitting in the audience, and do not be afraid to ask a question. so, professor levin, if you begin. >> thank you for it much, judge. i think i will begin by just throwing out my position on the automotive case. >> we need to speak directly into the microphones. >> okay. i will stop moving my head at all. so, here's my take on the automotive cases. for at least 10 years, probably even longer, secured lenders in chapter 11 have been gaining the upper hand, and they have played hardball for that period of time. and as part of that playing hardball, they dictated the terms of lots of quick sales of debtors. so if you come with that background knowledge, then what

the government did in the chrysler, mgm cases, becomes a lot less alarming i think, in the sense that the government was acting just like secured lenders have been acting for more than a decade. where you might have concerns would be if the government was acting in any sense beyond what secured lenders could do in all these other bankruptcy cases. putting to one side the policy question and whether or not bankruptcy in chapter 11 should be going down this road, which is something i think congress could well address, but i think it's not specific to these automotive cases. all right, with that background -- >> i'm sorry, could i interrupt for just one minute? >> sure specter for one, what is chapter 11? and number two, what did the government do? >> chapter 11 is the reorganization chapter of the bankruptcy code. it is the chapter that applies most often, even though it is just called the reorganization

chapter. it is the chapter that applies to most often to large corporations, whether or not they are reorganizing or liquidating, it is all done under chapter 11. for reasons i'm happy to answer in the q&a, or maybe david can pick up some of the reasons, but basically chapter 11 is the home for large corporations in the bankruptcy code. with the government in both chrysler and gm was use its position as secured lender, a position it had acquired relatively, you know, recently starting with the late bush administration, early obama administration and became a secured lender to both of these automotive companies because nobody else would lend it to them. and also a became a post-bankruptcy lender. so it was a secured land on both sides of the bankruptcy line. so basically entering chapter 11 it said you have a very short

leash to solve your problems in a short period of time. the way to solve the problems in a short period of time is basically to sell yourself. that's what secured lenders have been doing for at least the last 10 years. they don't want to live through an old fashioned reorganization with a plan. they saw what happened in eastern airlines in the 1980s which it lay for a long time and never came out. so it said the lenders want to get out as quickly as possibly the government basically wanted to do the same thing, whether it was because it wanted to act like a lender or whether there was too many political risks with keeping the cases are going to long. whatever the reason, they play the same game. they got the automotive cases out relatively quickly. so that's, cuba, to go back to my overall theme in the way i look at these cases, i worry about situations where the government exceeded the powers that any secured lender would have. i don't find many examples of this.

"the wall street journal" last week, mighty one example of the government doing something that a regular lender could do. although if you think that one of the way through it didn't help the government any. it probably come and might've helped the canadian government but not the u.s. government. all right, so that's my basic take on the automotive cases. with that framework in mind, my justification or the reasons why i think the automotive cases were justified but would not be justified in most instances is because the debt markets were closed. that means that gm and chrysler couldn't borrow from anybody else. and the government was the only lender of able at that moment in time, and if the government hadn't lent to them at that point in time you have destroyed a whole lot of value. gm would have liquidated. that would've destroyed a guide that would have been in the interest of creditors, shareholders, employees, anybody. so that's my basic take on the

automotive industry. also think more broadly in this context i am accountable with the automotive cases and is perhaps kind of slide into david's area, or the point where david and i agree a lot. i am accountable with the automotive cases that i am with aig because it leaves the automotive cases however quickly they happen, however fast to happen, happen at least in accord with a transcript and some transparency. and we understand exactly who was get what it seems the example that has been adopted by the dodd-frank bill because i really see the resolution authority as being more like aig and less like the bankruptcy cases. so generally speaking, going forward if we are worried about solvency, bailouts, what role bankruptcy place you should be very concerned about the resolution authority and dodd-frank because it is far less transparent than a bankruptcy process would be.

it's also perhaps going to be even more value destroying any bankruptcy process would be. so i have a lot of concerns in that regard. maybe i will stop there in -- >> i have a question. just a straightforward on the ground question. could you explain how he referred to but could you explain to them and i include myself in that number, dodd-frank. you just criticized, what is it? what does it do? how does it do? >> i'm not going to explain all of dodd-frank, but are they happy to explain the resolution authority. the resolution authority is this new bankruptcy process, but not under the bankruptcy code, for financial institutions. and basically it everybody gets together and agrees that it should be instituted, and by everybody i could essentially the federal reserve board, trying to remember, several

parties have to go by two-thirds majority, fdic, if they all agree and the treasury secretary put a financial institution into this would've the authority, if they don't agree on treasury secretary doesn't act then it assumes -- applies together is the resolution authority, proceeding, what happens is the treasury, well, there's one or two ways to get the treasury can't get a sense of the country, they will file the petition in the d.c. -- not the d.c. circuit but rather the district, for the district of columbia. and the district judge has 24 hours i believe to act on the petition. otherwise it is deemed granted. i would note as an aside that d.c. district court is not particularly known for handling lots of large insolvency cases. but they didn't listen to me on that point. and so basically been if the

court approves it, you had the fdic appointed as receiver to quote unquote resolve the financial institution, just like they would with a failed bank essentially as a model. the trick here is that hundred and fdic process, the fdic is acting process and crusty trusty and this bankrupt the court simultaneously. but with no transcript. so for example, the fdic says basically inside which claims will be allowed and which will not be allowed. they don't have to explain their reasoning for that. so that's what i say it a lot less transparent where you due process and stuff like that. mr. skeel? >> i am thankful to michael for inviting and for this conference. and i'm almost as thankful for stephen doing all the hard work of explain what chapter 11 is, what dodd-frank resolution is,

because i'm going to be talk about the same things and now just free ride on his discretion. when we are coordinating this panel to the extent we coordinated it. todd sent an e-mail saying in effect to me david, i assume you're going to give your usual talk about that bankruptcy is, is good and ad hoc bailouts are a bad idea. i was going to get my usual talk about a bankruptcy is good and have ad hoc bailouts are a good -- that i didn't have the lot of it, that it gives me pause. [laughter] >> a good note though. >> i do think that bankruptcy is almost always preferable to a single firm bailout to an ad hoc bailouts for the reasons probably most people in the room are familiar with, it addresses the moral hazard problem to make sure that people are punished if they invest in companies that

perform poorly. it assures that if you have a company that needs to be restructured, it will, in fact, be restructured rather than just being kept afloat in a kind of zombie form. it has, generally speaking, the kinds of the rule of law, virtues and transparency that stephen was just talking about. so i do feel that bankruptcy is almost always the right answer to some of the questions we're talking about today. and tomorrow. out of the it's always awful. i don't think bankruptcy is the solution to the afghanistan war. into a few other things but i also don't think it is passionate or that it is a good idea when it is use the way it was used in the chrysler and gm cases. so this is one thing on which as stephen knows, we don't agree. what i'll do in my 10 minutes or so is just very quickly talk about three things.

one is the car cases. the second is dodd-frank resolution, so i will just be falling on some of the things that stephen talked about. and then just open up the issue of whether bankruptcy would be a good solution to a state financial crisis. just hypothetically speaking, if they were a big important state with a serious fiscal problems. [laughter] >> i know steven has some thoughts on this as well. first with the car bankruptcy as stephen said they were not done in the traditional chapter 11 negotiate, to a reorganization fashion. they were done as a stale ostensibly as a sale of the assets under section 363 which is why they're referred to as 363 sales. as stephen mentioned, this is not unusual in contemporary bankruptcy. lots of companies are dealt with through 363 sales. one of the fun things, if there's anything fun about the

carmaker bankruptcies, is that they sort of flipped the academic dialogue on its head. so that people like douglas baird was a big champions of these sales and bankruptcy. douglas said markets were. we now know that chapter 11, you can use markets to solve these problems. then all of a sudden when chrysler and gm came along, douglas r. said, you know, i'm not so sure that was a great idea. these 363 sales kind of undercut bankruptcy. just to be mean to a fellow panelist, stephen, six years ago, wrote an article about this issue, 363 versus chapter 11, and said quote we should be suspicious of a model, this is 363 sales, that is used negotiation or excuse me, yet, negotiation and traditional organization in favor of sales. these sales are a lousy idea. now after the fact, stephen

says, sales, everybody is doing them, so why shouldn't the government do them? >> it still be a lousy idea even if everyone is doing them. [laughter] >> this is true that the only person in the bankruptcy world who has been completely consistent about this is land who said 363 sales were corrupt before 2008. and he says that 363 sales in chrysler and gm are also corrupt. so these sales, the treatment in the car bankruptcies has really complicated the discourse within bankruptcy scholarship. inside that world and outside of it, the general objection to the sales has been that they seem to violate absolute priority, particularly chrysler it seemed that the senior creditors got steps. they're supposed to be paid for us but paid first affiliate 29 cents on the dollar. employees got a lot more than that. trade creditors got paid in full despite the fact that there

bashing they would lower priority creditors. that i say may be right but it's not what the real problem in my view in the case is what is that the real problem in the case is we don't know if absent priority was on it or not the reason we don't know is because these sales were structured as auctions, they were first of all she and sales, and they're also sham auctions. the auctions were structured in a way that it was essentially impossible if you had wanted to go head-to-head with the u.s. government and put up a competing bid. it was impossible to do that. the rule in the two cases was if you want to make a competing bid, that's fine but anybody can make a competing bid as long as you do precisely the same thing the government did, as long as you promised to pay off the employers, trade of the trade debt. you could not, for instance, coming to the crusher case and say, we see the governments to billion dollar bid. we would like to be

$2.5 billion. you could not make a bid like that. so they were ostensibly auctions, but not real auctions. and we simply don't know what everybody to have gotten in those cases. lots of problems, the cases have created. they distort the credit markets, particularly with respect to important industries where you might think the government will come in and do something like this again. as i said, potentially distort chapter 11 because they are aspects of what the government did, that private parties could do as well. >> is a skill, can i embarrass myself again? you run no risk whatsoever.

i would consider the risk. here's what little i understand about chapter 11, secured creditors and so on. chapter 11 reorganization is designed to preserve the type of a growing concerns they don't make it liquidated. and in order to have that happen you restructure the financial arrangements of the corporation. there are two different kinds of creditors in the world, there are the security creditors and the unsecured creditors. the secured creditor is protected up to the value of his property that secures the debt. about that he is not secured creditor. all that i think is pretty straightforward. how does 363 fit into this? when you're talking about an auction what is being auctioned off what is at the secured properly only? only? is over here we auction off the entire company. can you help me out a little bit? >> a good question. so what in turn was being auctioned off was essentially the entire company. not everything but all of the good assets.

the argument that was completely kosher what was done, the argument would be all those assets collectively were worth $2 billion, which is what the government paid. they were all sold to new chrysler, to this new entity. for $2 billion was distributed to the old creditors. the senior creditors were of $6.9 million of the guts of $2 billion, all that is completely kosher. if, in fact, that's what happened, the $2 billion was the right price. the thing that troubles people is when you look at new chrysler, the copy the bodies assets, what you see is the same employees as old chrysler can't the same employees getting a substantial portion of their $10 billion bond paid off. all of the trade creditors of the old company are there with

new chrysler. and again they are getting paid in full. so what it looks like from the perspective is that new chrysler is being used as a way to pay off old creditors. and to just repeat of the bottom line is, if $2 billion was the real value of those assets, the fact that new chrysler wants to pay the trade creditors, wants to pay the union, that's their business. they can do whatever they want. new chrysler can pay them if they want to. if new chrysler by those assets on the cheap, they're basically taking money away from the old senior creditors and giving it to the employees. and trade creditors. it's pretty compensated. >> that begins to help me. and ordinary bankruptcy, rather than one of the huge bankruptcies, and let's say the whole company is sold off, i guess in your jargon would be a 363 sale. >> right. >> how is it that auctioned

structured so that we can compare it to the structure that you just described on the auction of chrysler? >> this is a great question. typically it is structured as a sale, either for -- to keep it civil, assume it is for cash. it is not unusual for the buyer to keep some of the old creditors. that there are suppliers they feel are important to the business, they may continue to keep those creditors. this is consistent with stevens if you of the case. one of the questions about christ is whether it is pushing that model too far. chrysler kept 80% of the old creditors, and they got rid of the 20% it didn't want to they got rid of the senior creditors and the tort claimants, oddly. oddly enough. so what chrysler did on that score was different not in kind, but in degree. it was the amount of the old

creditors that were simply carried over to the new company. it wasn't the fact that some old creditors were carried over. >> and in an ordinary 363 where the entire company is being reorganized and sold off to a single buyer, not chrysler, but ordinary 363, who approves the sale and on what criteria is the sale approved? >> more good questions. the judge approves it. one of the things that concerns people, and this i think concerned stephen, at least in general as well as myself, is chapter 11 has an elaborate system of procedural safeguards so that the judge doesn't have to be making these decisions. there's a vote of creditors. there are rules as to how you divide up the creditors into different classes. there's a disclosure statement that has to be produced. you don't have any of that with 363. all you have with 363 as you propose a sale, 363 doesn't give

any criteria for approving the sale. it just as the has to be notice and hearing, then the court can approve the sale. the case law has developed some criteria for approving sales. and the two traditional requirements are that there has to be business justification for the sale. there has to be a reason why you are doing the sale now, rather than negotiating a reorganization plan in the traditional way. and you also cannot do what's known as a sub rosa plan of reorganization, the sale can't simply be a disguise of reorganization. in my view, in both chrysler and gm, if you interpret the sub rosa plan of reorganization, requirement possibly they both would have been seen as a sub rosa plans of reorganization. those are the two criteria. >> that helps me. >> that was the first of my topics and in about an hour i we

done with my other two. i would beat very quickly with my other. the second thing i wanted to talk about is the resolution of rope with dodd-frank. here i agree with stephen. what they do and stevens had the resolution regime enables bank regulators wind three keys turn, the treasury proposes two-thirds of the fed and fdic agree to take over a firm that is systemically important. it is a process in dodd-frank for designating systemically important financial institutions and regulating them differently. resolution rules do not require that the institution be pre-designate that the treasury can decide with some it gets into trouble we think they are important. we think if they fail it will mess up the economy and invoke the resolution rules. the resolution rules are structured with the intent of

requiring a liquidation, not a restructuring of these big financial institutions. there are all sorts of provisions built into the resolution rules that are designed to end taxpayer bailout. so in president obama said this legislation ends taxpayer bailouts, as we know them, he was thinking of the resolution rules. in particular, will the end bailouts now? they won't and bailouts. the resolution rules will not stop a bailout before resolution. the fed can still bail out companies that are in financial trouble before we reached the resolution point, although there's some interesting restrictions on what the fed can do. when we reach the resolution, the fdic can pick and choose who it wants to pay. and in effect it can bailout creditors that it wants to bail out there who's it going to bailout? it will bail out the shadow banking system related debt, derivatives will get dealt out if one of these companies fail.

a resolution rules are based on an assumption that what the fdic does well with ordinary banks, which is take them over, closing very quickly, so other assets in a completely nontransparent environment with essentially no judicial rule, review. the presumption is that the good model for the large systemically important financial institutions as well. in my view that's something wrong. the fdic, even with the bank now controls, does an okay job with small and medium-sized banks. it doesn't do a good job with big banks. for a couple of reasons. one of them is the fdic is modus operandi is to find a buyer and sell the bank to that buyer. when you're talking about citigroup, the world of potential buyers if citigroup's is in trouble is not very big. and your kind of damned if you

do, damned if you do. if you find a buyer, which are just done is great and even bigger financial institution. if you don't find a buyer you're in trouble. the resolution process i think is a bad idea on lots of different dimensions to that also i think has some pretty significant constitutional issues that some of you out there are in a better position to talk about that i am. as stephen mentioned there's a 2424 hour review in secret before the court decides whether the resolution will be allowed or not. there are almost no bases for rejecting the application for a resolution that the bases are the government was confused when he thought this was a financial company. if it is, in fact, a financial company. wanted her to two bases for resisting is gone. the other is that the company is in default or in danger of default. almost by definition treasury

wants to step in. you might not have been in danger of default before but you're in did danger of default now. so i think there's some real problems with the resolution rules. i also think there's a solution. and the solution is to change the special treatment, the derivatives get in bankruptcy. they are exempt from the automatic stay. if you put a stay on derivatives in bankruptcy, i think a lot of these companies would have an incentive to file for chapter 11 before regulars ever stepped in it if there had been a stay on derivatives when aig was in trouble, i believe they would have filed for bankruptcy. bankruptcy didn't offer them anything because they couldn't stop those derivatives creditors from running. finally, i would just wait of the last issue which is states, could we have a bankruptcy regime for states as most of you probably know, we have a bankruptcy regime for municipalities.

in fact, a municipality only an hour or so away under, while a whole, is in this chapter right now, chapter nine. could we do that for a state? i don't know much about constitutional law, but i think absolutely. i think the same analysis that allows us to do it from municipalities, as long as we made it voluntary that the state had to file itself rather than being towed into bankruptcy. i don't think it would be a problem with it, at least as a legal matter. whether it would solve these problems is a harder question. by since his vallejo is having problems because the question of the political will to go after the contract they would need to go after to reduce their debt any significant way. but as a possible solution, i think a of bankruptcy regime for states is at least something to think about. i'm not quite as optimistic about how effective i think it would be, but i think it's worth thinking about. >> thank you very much,

professor skeel. and i would say what judges or no do when a lawyer goes over. i apologize. i took you over. professor zywicki, you're up. >> this panel is bankruptcy and the rule of law. so building on what stephen and david have talked about, and corporate my reference a number of things they said, ongoing -- i'm going to talk about the whole thing from the context of the rule of law. and so talk about bankruptcy dodd-frank cash in dodd-frank thing, i guess i would like to talk about the road law. so what is the rule of law? we got a general sense about what the rule of law is. rules announced beforehand, equal treatment of everybody on the law, arbitrary discretion being constrained. we kind of know what the rule of law looks like. and why does the rule of law matter? well, we've got a lot of

research on why the rule of law matters. and because it really is the cornerstone of economic freedom and prosperity. enforcement of contracts, regularized bankruptcy processes, a big when it turns out if you look at the economic literature is non-entanglement of banks and the government, a very quaint notion nowadays. enforcement of property rights, all these sorts of things. so if you want to know the difference between the united states and a lot of places that are not rich, it's because we have the rule of law here and they don't have a rule of law there. so there's a lot riding on this. and what crusaders for the rule of law around the world have been talking about for decades are things, for instance, like putting in regularized bankruptcy proceedings in countries that traditionally solves problems by big firms, by bailouts and cronyism. so what have we seen during the financial crisis? well, it's not a pretty sight if

we think about from the context of the rule of law. ad hoc, arbitrary, politically motivated interventions. with all due respect to the earlier panel i don't think there's any serious argument that the auto bailout was legal. i don't think there's anyway you can get general motors and chrysler out of the definition of t.a.r.p. and i think that both the chrysler and gm cases as well as the dodd-frank show us in a bright relief what's been going on and how dangerous it is from the context of the rule of law, and in particular the ad hoc arbitrate publicly motivated interventions that motivated the response to the crisis in many ways now are being institutionalized in dodd-frank rather than being retreated from. ..

got $0.65 on the dollar and on top of everything else. i am not familiar with any other case. no one has told me of another case where secured creditors that $0.29 on the dollar unsecured creditors that $0.65 on the dollar. maybe those are cases maybe this exist but what strikes me is it is extraordinary that that is the case. there was a real violation of bankruptcy procedures and the way in which jobs were conducted. no deficiency claims typically if you were a secured creditor

and knocked down the partially unsecured status. you're given an unsecured claim in the case which would have meant the secured creditor should have gotten $0.65 on the dollar on the unsecured portion of their claim once there were stripped out on a secured version. perhaps the most disturbing part in one sense a good thing and one cents a bad thing is when it came to the general motors case general motors did not get pummeled. secured creditors in general motors were treated and -- paid in full. in one sense that is a good thing because maybe some people had second thoughts after they decided it was a bad idea but in many ways that is an even worse thing which is it appears they looked at the horizon and decided -- the government decided to accomplish what they

wanted to accomplish in chrysler, it was necessary to tackle secure creditors, account was what they wanted to accomplish and general motors. it was not necessary to secure creditors there. it is almost worse in some sense that one of the secured creditors and not in the other at least there would have been some particulate principal in both of them. i was really glad when these guys filed bankruptcy because i thought finally they would get out of bankruptcy mode and instead we ended up with this frankenstein monster hybrid of the worst of bankruptcy and bailout. it was a politicized major corporations in america that referred to the fact they now have 535 members of the boards of directors or 35 congress men and a hundred senators. the obama administration has

made clear intervening and helping the company was going to be contingent upon them making more green cars and basically controlling the production and marketing strategies of these companies from washington. one of the reasons these companies need to file bankruptcy is because they have never extended its this system of dealerships about three times larger than honda and toyota. one of the reasons they have to file bankruptcy and it would be good for them to file bankruptcy was so that they could close the unnecessary dealerships. but what happened is it has become completely politicized because if you go out to every congressional district around the country one of the largest local businesspeople is usually their local chrysler or general motors person. and these guys are on the phone to their congressman.

the congressman has intervened in the key dealerships and kept dealerships from being closed at the head of politically -- constituents. general motors going to replant in montana where they were going to place a mining operation and get their palladium from elsewhere but the owners of the line lobbied congress and got congress to order general motors not to close the plant--not to close the mine. barney frank intervened because there was a manufacturing plant in his district in massachusetts that they were going to close and barney frank suggested that would be an unwise decision especially considering the gm ac -- as far as i know that manufacturing plant is still open. we talk about the state of the american auto industry but it is not quite that simple.

honda dealerships, toyota dealerships around the country are owned by americans as well and one report from a honda dealer who was upset about the money given to gm was used to subsidize the purchase of gm cars and basically he was finding the american government was subsidizing his competitor and thereby harming his own dealership which was his edition and his employees. it was really just because the uaw wanted them to do it. one of the things assert about this is among the secured creditors who've got least in chrysler work taken to the supreme court. the indiana firemen and teachers union and so the problem they had was they were not as

politically powerful as the uaw who got $0.55 on the dollar and teachers got $0.09 on the dollar. the wall street journal where i said this was the kind of thing that hugo chavez would do and i got an outraged e-mail from a lawyer in new york who said it is an insult. when hugo chavez takes people's property he compensates them. so public apology to hugo chavez. let's not forget the process which is what happened to chrysler was what was pretty clear was a lot of the secured credit was held by a bank's. most of those banks were t.a.r.p. recipients. and they didn't make a peep about this. it is hard to draw the obvious inference -- inference that there were compromised by the

fact that they were working on welfare. what the president said was on national television he set out those like the indiana pensioners standing on their contract and property rights and used the t.a.r.p. banks as a club that bought their concessions, used them at a club for the contract and property. john allison described the process more generally, way in which he was bullied and threatened to take bailout money so that the public would not be able to draw an inference which banks -- which ones were the good ones. it is not a pretty story. we heard about a story earlier today from the washington

journal reporters talking about global leading of getting bank of america to buy merrill lynch. none of that sound like the rule of law to me. it sounds like the antithesis of the rule of law to me. why don't think we should forget that. dodd frank seems in many ways to institutionalize the pathology of the past few years which is the role of the government is to pick and choose winners in the economic markets. one provision which places price controls on debits cards. it only applies to banks with $1 in assets so they will find prices in interchange fees classified by 80% relative to those with less. politicians like small banks and not big banks.

no other explanation has ever been given. that provision was passed, no consideration--and the national bank case in the last panel was challenging on the basis that it is the regulatory taking that violates economic protection and due process. we will see how it goes. the consumer financial protection bureau, dangerous principle, what it creates is an independent agency within another independent agency. the way their budget is allocated is every year the director of the bureau sends that demand to the federal reserve of how much money they

want as long as less than 12% said the federal reserve must grant a budget appropriation. is a will pull over by one person, not a bipartisan commission. it has defined powers and all kind of problems. one is the problem you can anticipate, the way in which the deputy director is appointed will likely give rise to a peekaboo challenge down the road because where the director can't do something, the deputy director steps in and is appointed by the director. if the deputy director has taken any action which is more exacting in the director's status it is profitable and violates the peekaboo status that never happens. it is likely to self-destruct and hopefully even julie will be

more tractable. so where does this leave us? we have unleashed an era of incredible politicization of the economy and crony capitalism. rent seeking in washington is beyond all limits before billion of dollars being spent by the financial industry and everybody else. what we are likely to see is big banks seem to have easy acclimated themselves in recognition they will be able to bring the administrative burdens to cost and everything else is going to be waited on banks. they also know they will use it against smaller banks or mortgage brokers who contributed to the crisis but also provide a check on banks and competition,

probably banks will run mortgage brokers. joe workburton has an interesting paper where he shows responding to chrysler and gm, there was a clear signal people understood that these were likely to be bailed out in the future going forward. not union firms but markets anticipated for benefits. finally let's talk about california. what we are seeing here is political leaders learned a lesson, which is moral hazard pay if you were california, he would act responsibly. it was too big to fail. with you are in sacramento when is the basis for believing washington won't bail you out

especially when so many fbi you members -- california and new york, too big to fail. why get your fiscal house in order if you are one of these big states whose know in the past few years the federal government is incapable of saying no in a situation like that. what we will see is reaping in dodd frank as well as bailouts and municipalities. thank you very much. >> the home team as last. >> thank you, your honor, thanks for inviting me to participate with my good friend. it is nice to be able to follow these guys in particular todd. we have known each other 20

years and i always wondered why anyone would invite both of us at the same time because we sound alike. the only difference between us is he did not have the good sense to grow dreadlocks. what i have finally encountered in an area of disagreement between todd zywicki and myself, is really about the rule of law. back to the whole purpose of this conference, arbuckle one, section viii of the constitution confers on congress power to establish uniform laws on bankruptcy. there are a couple things that are important about this constitutional provision for purposes of this discussion. the first is this provision of the constitution, despite its

wording, doesn't create the rule of law of of thin air. that is through the application of bankruptcy law and the way we approach bankruptcy. the second thing to recognize about this particular provision in the constitution is basically it went without being invoked for 100 years. without a lasting bankruptcy provision. we don't need bankruptcy. we don't have to have it and yet we are behaving as though it is essential to our economy and the way we do things. the interesting thing about the debate between stephen and david is the whole time they were talking about the problem particularly with respect to the auto bankruptcy is there was an 800 pound gorilla in the room of the discussion and that is they

weren't talking about policy but the fact of the matter is those bankruptcies would not have come out the way they did if it were not for relationship of trade unions and political power that the uaw has. that is the bottom line. i have an area of disagreement with todd zywicki with respect to todd frank. i agree bankruptcy creates a regime where we can have some transparency and see the application of the rule of law with respect to resolving a common problem. the problem is if you engage in an ad hoc behavior in that regime and upset those rules, satisfy the absolute priority rule whenever you feel like a door is politically expedient, what is the purpose of that transparency?

how much good does transparency do to senior creditors in chrysler in that bankruptcy proceeding? doesn't matter if it is transparent. if the government is going to come in and manipulate the rules because it is politically expedient to their favored constituencies. to do that. the wording of article 1 section viii creates a perception that the rule of law is going to be obeyed in bankruptcy. if you were not going to obey the rule of law and application of bankruptcy and if you think bankruptcy is a 40 your economy it behooves you to depart from bankruptcy to step outside that environment and engage in the kind of manipulation or bailout or whatever you want to call them through some other mechanism. what you are doing when you use bankruptcy to achieve your

political end which is what happened in chrysler, what you are doing is undermining the trustworthiness of that process. you are undermining the expectations of creditors all across an economy and who can no longer rely on their pricing of credit with respect to particular debtor who might have relationship with a politically favored constituency. if you are going to do that, manipulate the rules--the absolute priority rule why not do that outside the bankruptcy regime and do it openly? simply decide you're going to rearrange things, rearrange the right of creditors in the way that hugo chavez would do as todd suggested. one of the things i like about

dodd frank, todd says the problem is essentially institutionalizes this abuse of power. the thing i like about that institutional as asian is at least it creates some reason to anticipate this behavior. you can institutionalize -- you can't price if if the rules are abandoned every time the government encounters favored political constituency inside an environment like bankruptcy. i disagree with todd. i don't think bankruptcy is the appropriate vehicle for everything. we don't use it for everything. it is not necessary to resolve every crisis and i disagree with todd with respect to dodd frank

which is a useful device despite its shortcomings. if the government is going to behave in an ad hoc or arbitrary fashion at least dodd frank institutionalizes that behavior in a particular framework and we can talk about whether the government is departing from the strictures of dodd frank in a particular case. finally i want to talk about the bankruptcy of the state. i don't think we can easily imagine chapter ix of the bankruptcy code to cover california. wind we suggest this we are going to the framework of the debate between david and stephen. david and steven are focused on results and not recognizing the importance of process. one of the problems with the

amending article ix to include to allow states to file for bankruptcy is to recognize the difficulties the eleventh amendment to the constitution imposes for such an amendment as chapter ix. the eleventh amendment protects states's communities -- protect states from being sued. states can exercise sovereign immunity and to suggest for purposes of bankruptcy is oversimplification of the structures and the ability of bankruptcy to resolve this problem that we call insolvency. what is the alternative? i am not sure there's a good alternative. todd put his finger on the moral

hazard problem. the moral hazard problem in california, is much larger than what todd has identified. california has seen the government bail others out. california electric has essentially been irresponsible and so have the representatives. 15% of the budget or less is discretionary. so much of what we have done with constitutional amendments through the initiative process have built in spending strictures that can't be circumvented. the moral hazard problem is much larger than what todd has suggested. would is the solution? the big problem with respect to

the unions, public and fleeing in in california and essentially we are going to have to revisit our agreement, with respect to pensions, the various labor contracts. i am not sure we can do that through simple amendment through chapter ix through the process. >> thank all of you. before i open to general questions i have two topics tied into objective is going on here. i would like quick responses. i want to talk about cart bankruptcies and the possibility of bankruptcy declared by a state. maybe it wasn't so bad, on her professor skeel say it really was. i heard professor cole said we

should solve the outside bankruptcy. yar in charge of the government. what the you do? you didn't like what they did. >> it might ideal world gm and chrysler would have filed two years before they did so that the debt markets would have been open in the first place. it is not good to make a habit out of government in better position of financing but given the state of markets when those happen they had to do it. in my ideal world there would have filed two years earlier. >> what would you do in chrysler in particular. you get $0.29 on the dollar and

workers getting paid after it is sorted out and of course they're not considered. >> they were paid $0.09 on the dollar by the new owner of chrysler. it goes back to the question david asked. what do you think the value of chrysler's assets were. they could have been worth more -- is arguable that was less than what the government paid for those assets. chrysler has essentially been on the market for two or three years. the private equity firm that owned them at the time equity was paid to take it off their hands. i am not sure chrysler had the value there. in which case secured creditors that perhaps subsidy. >> professor skeel? what is your solution? >> stephen introduced another problem. chrysler -- i was not going to

talk about this. chrysler was on the market for over a year for deal that would pay all that to equity. it was a complete different deal that was marketed. the option of bankruptcy was really started from scratch in terms of the kind of deal we ended up with. i would have done one of two things. either let the companies go their course and file for bankruptcy like they should have. there was a risk we would lose chrysler. there was a very real chance chrysler wouldn't have survived chapter 11. gm would have survived and been as good shape or better. [talking over each other] >> i get to say my $0.02. my first is let them go through normal chapter 11 process without the government helping hands or the second is for the government to provide the funding for a dip loans but not

to exert the control in the way they have purported to do with other bailout. >> do you have a response? >> i was going to skg and one. i don't think gm would be the largest in history at a point in time when a small company couldn't get possession. i am not sure how it would have survived normally. >> with government arm-twisting, that alone would have been forthcoming. >> todd zywicki, you said some harsh words about what did happen. now you can make whatever you think should happen happen. >> similar to what david just said which is -- a different way. if t.a.r.p. made sense at all, the beauty was henry paulson gave us 42 definitions of what t.a.r.p. was supposed to do within a week after it was

introduced but if it never made any sense the eddy is of we have a liquidity problem in the credit market as opposed to a solvency problem the t.a.r.p. was supposed to prevent the bank run caused by liquidity problems but not to prop up institutions that were insolvent. steve makes the point which is about whether or not financing would have been available. if credit markets were functioning properly there would be no problem getting debt-financed in for gm. that is a high likelihood. if it were not available for gee and it would be because there were liquidity problems in the credit market getting money into gm which i think actually said this to congress, a reasonable case could be made that if general motors needed t.a.r.p. money in order to get over the hump of debt financing wind credit markets for stabilized it would be a larger role used of

t.a.r.p. money or something like t.a.r.p. money. something fed if it was a bank -- to what david said it is limited providing dip financing it doesn't decide which to the ships that closed-door stay open to create cars and the whole other action. >> i agree almost completely with todd's assessment but i would take david's point about letting it go through the bankruptcy process even farther. the very first st. i wanted to respond to when steven was speaking was when he suggested we would have a loss of value with chrysler if chrysler had been allowed to go forward through traditional bankruptcy. how do you know this? how could we ever know whether it would be a genuine loss in

value. we have a manipulated bankruptcy process. if the assets of chrysler are not most efficiently deployed in that ended the the best thing for our economy including the workers associated with that company for those assets to be redeployed in our economy is not a profitable company or a traditional example. let the company go through the bankruptcy process. led the bankruptcy process operate. led the priority be maintained and respected. if we have that process then we will know through the operation of the process whether we are destroying value or preserving it. the people involved antennae on looking assemblage of creditors or potential buyers might want to keep these assets together would decide to do that based on whether the most efficient

combination of those assets but we have to let the process work. >> the question has been surfaced but not investigated indefinitely. we don't have much time remaining. what is so insolvent that bankruptcy would be the ordinary solution? should we be allowed to declare bankruptcy? under the current bankruptcy code, counties declared bankruptcy some years ago orange county did so and the purpose of bankruptcy in that situation is to allow the municipalities or the county to escape obligations that have become too burdensome. look at us in california. we have many obligations and issues. we refuse to tax ourselves on the lovell necessary. the idea of having a state

declare bankruptcy is an attractive one with municipalities but the problem of sovereign immunity is quite a difficult one as alluded by professor cole and someone else catches the history of it. a state called georgia was sued after the civil war on a contract. the supreme court said it may go forward and the eleventh amendment to the constitution adopted almost immediately thereafter. the terms of the eleventh amendment are solid. by 1890 the court clearly held and in state citizen could not sue and -- bauhaus' state citizen could not sue the state. in cases after the civil war where very uniform because what happened was southern states after the war issue large amounts and systematically refuted them when they came due. out of state citizens and in state citizens sued and the

supreme court said sovereign immunity taxed them for having to pay off their obligations. those cases are rule of law the most recent of which was 1932 in monaco someone found bombs in the state of mississippi in his attic and realize by then the law was a private citizen could not -- 1/4 citizen could not bring suit but there is nothing in the supreme court case law that said a foreign country could not bring a suit so the municipality was monitored. monaco against the state of mississippi, the notable and well remembered phrase behind the words limit and control. the words of the amendment began post of war bond case when i see it i know it the state cannot be compelled to pay off on contractual obligations unless they consent to do so. a state can waive its sovereign -- a state going into bankruptcy

will allow states to go to bankruptcies a chapter ix permits it. the state of california could say we declare bankruptcy. but why would a state do it when all it needs to is stiff its creditors or do it selectively. >> my take on this is the sovereign immunity law we were talking about before has become increasingly complex in the bankruptcy area post a decision called cap. it is unclear to what extent states have sovereign immunity in a bankruptcy case. given that reality there might be a desire to file for bankruptcy and also the added benefit the personal david alluded to this rejecting contracts. the state case is the most important and the union

contract, more power in chapter ix or chapter xi. congress made a change to the law but only chapter xi, not chapter ix. you might want to file that. chapter ix would primarily be useful for the point of rejecting contracts, perhaps providing cover and structure for the rejected contracts and the other way is providing a holdout for creditors so if california would refinance all that with these new bonds and a vast majority of creditors agreed to that if you hold out the and bankruptcy structure buying the holdouts to the plan it doesn't provide a solution to the problem of potential political issue of matching up

taxes with expenditures. >> what you accomplished as a state the creditors merely by saying assuming and you are going to lose because the eleventh amendment protects me from contractual obligation. >> what is interesting about this bankruptcy perspective is california is general motors. you have a massive retiree base and dwindling revenue base if you keep moving out of the state trying to prop up these people who retire with 100,000 pensions if they are 50 years old. >> those people are largely fictional. there are a few but they're not state employees. their locals. a local employee with baker to -- >> the exploding -- it will continue to grow so you can't control the pension and retiree benefits over time.

the way it will work now is basically it could be argentina. they basically say we are not paying our debt but we are paying some but not our other debts and some not at all and some partially. there are limitations on that which is number one. my understanding in a lot of bond issuances this state has waived sovereign immunity. it varies by state or bond issuance but beginning in the 1840s there were some state repudiations when they built canals. after that the states could no longer get credit markets so they about the practice of waiving sovereign immunity when they issue bondss. the other half is usually you can see the assets of a debtor. you can see the state house or

university of california because they are limited. the other aspect is there are various obligations in the state constitution. one of the big thing this is public employee rights. in particular have been hard wired into the constitution and pension obligations are treated property rights rather than contracts which mean you can't adjust invested pension obligations without running afoul of the system so change contractual rights going forward but can't do anything about pensions which are protected as property rights. that seems to be something states would be hemmed in. a larger point is there has been some extent by the federal constitution or their own state constitution as i understand it what they can do to certain obligations. >> a particular problem in

california is different from argentina in that california can't print its own money and doesn't have its own federal reserve printing money through lowering of interest rates for long-term treasurys. in addition to the other structural impediments it is limited in its options. when i look at the problem i wonder what the advantages of bankruptcy might be. steven mentioned -- rejection of labor contract inside bankruptcy is just another term we use for contracts outside bankruptcy. there is not a big difference. except bankruptcy and insolvent and pay the program of damages but if you are an insolvent state and you have reached the same labor agreements you are

presumably going to pay anyway. why do you need chapter 9 or bankruptcy? you might need it because of the procedures that might promote negotiations. chapter 9 in particular is focused on reaching a political nature of government bankruptcy but if you recognize that already i am not sure why you need bankruptcy to accomplish this. you might be able to do it through the combination of state constitutional convention and negotiations with the labor unions that are a big source of long-term credit obligations. >> you have been waiting very patiently. question? >> thank you. one quick question. does the contract law limit the federal government to allow states to get out of bankruptcy

process, a state's ability to take property and the second question people just sort of confused. everyone would assume congress could have lost time want to pay off creditors and ten days later after another appropriation decided to give money to the uaw. there is no violation as much as i can make what that is. what do they do which was different from that? >> one that aids as an one that binds gm to the creditors we will give you a bunch of money to the trade unions. >> a call at a bankruptcy.

[talking over each other] >> railroad versus bradford, we sail around with mortgages, whether it is a property right or not. [talking over each other] >> just to modify the bankruptcy court. no one else showed up. they accomplish that part. we're not having the conversation -- >> it began in the 1800s which we called a freeze out back then. then you can do whatever you want. they used this process, fundamental rule of the process. >> this is the point mark was

making earlier, it was the mixing of bankruptcy bailouts. @step outside bankruptcy, the point marcus was making. why didn't the government pay $0.50 to the union? they didn't because they couldn't do it. the hostility to bailing out detroit was so high the obama administration could not bail them out directly. we have an incredible irony which was bankruptcy which was the most transparent process we have was used for a disguised bailout. it was a bailout the obama administration had political cover because they were not really bailing them out. that is why it was done that way.

>> there is an empirical question. new money came into the case. there are two scenarios. scenario number one is money was taken from the secure creditors and given to unsecured creditors. correct me if -- scenario number 2 is the scenario in which secure creditors got everything they wanted that they earned. new money came into the process for the money that was given to the workers was new money, not money stolen from creditors. fundamentally that was an empirical question whether money was transferred or secure creditors got new money in. if it was the former, it looks to me like it gave me exercise. if it was the ladder you need

exercise just then. >> i thought you danced around the major question here which was whether bankruptcy was a really appropriate in the financial crisis. a lot of what the government came to try to do during the crisis is create more like an fdic style system for all financial institutions which have not fallen under the jurisdiction of the fdic. faster means less process and less transparency. one question is what is going on is first of all the ad hoc expansion of fdic and more legal extension to all financial institutions, the record of the fdic, would you call that fdic

resolution of the past is objectionable in some way and another way is what about women? my understanding is that was the use of the bankruptcy process for an enormous financial institution in which all these creditors had that as well as people who had money in custody. both in terms of what the government did at the time and going forward in the dodd frank bill, isn't there an argument to rationalize the system by extending the traditional approach to distressed financial institutions rather than banks as narrowly defined. >> good answer. next question will be really quick. >> my take on lehman is you think it is a disaster and it

was a disaster because bankruptcy attorneys were called in eight hours before they had to file bankruptcy. if they had time to plan the way you normally would it would have been a lot smoother. >> hopefully this is a quick question about the way sales have been used recently. my understanding was historically they have been used for sales. rather than a recent phenomenon they have been used to sell core assets and the ones i have spoken to in california have talk about going that direction because how long it takes for traditional chapter 11 and the proverbial -- the value as a company as well as the difficulty to get financing to do the traditional chapter 11 when they are more reticent to loan money and help companies

get through the transition process. i am wondering how you overcome those hurdles when you are arguing the way we do a traditional chapter 11 and should the 363 bills not be used before us? >> a very quick answer. one is why we have so many 363 sales. one reason is concerns about the length of chapter 11 but a really big reason was liquidity in the market. it was possible to sell things in the 1990s that you were not able to sell in the 1980s. there are a variety of reasons for 363 sales. i would not say we shouldn't allow sales of major assets. what i would say is you are restructuring the company which i would define as more than half

of your old shareholders and creditors. we ought to go through the chapter 11 process. there is a case for streamlining. chapter 11 is too cumbersome as now constituted. >> a quick word is i don't necessarily see 363 being a problem. it was a bogus sales because of the option david described and secondly in the sense faber deciding what triggers to begin the process of sale. it was a peculiar 363 sale that i don't know was a generalized problem. >> last question. >> i have been thinking about the government's interest as a tax claim and. two examples. one is the case of last week, how treasury permitted new gm to

take old gm and carry forward where the rule would be extinguished of bankruptcy and the estimate in journalism that $60 billion benefit is very credible seems to go along with the fierceness that the government puts its interest in helping interest groups ahead of tax claimant in situations like that but the counterexample of the personal warren buffett tried to buy mechanism, tax credits from fannie mae and block the purchase and explanation that was given was on that cost treasury a couple of billion dollars. treasury blocked it right after isa investigated. it is counter effect will that the government warned that attacks claimant and interest in interest groups. the wonder if you have any thoughts on what the tax claim

and means for the topic or otherwise government has to bailout indiana possibly as a tax credit? >> i mentioned the g and tax issue before. the real beneficiaries in the tax losses will be in government and bondholders have 10% of the stock. it is just moving from one pocket to another. i don't know if it matters at all. a lot of the indications might take on the degree of subsidy. and some of the other arguments here -- >> they are subsidizing -- $50 billion, it is a $50 billion deduction. it is $17 billion or

$18 billion. >> cavs ask the panel one question? about contract clause as it reached the state's. i am interested in the panel's response. my understanding is if the state breach or repudiates the contractor does not violate the contract. and state related -- it starts out that the contract was designed to prevent the states from repudiating the contracts for citizens freeing up their citizens for south carolina who came off of evil bankers in new york. the court ruled also fostered contract between states -- >> that is good except for the eighteenth amendment -- >> it stayed so that it violated

about all those subdivisions in the states and counties and municipalities may reach a contract they repudiated. to municipalities in california are in such deep trouble. >> this has been a fascinating panel. i have learned an enormous amount. some of you are more sophisticated. i thank all of you. [applause] [inaudible] [inaudible conversations]

[inaudible conversations] >> important dates for the deficit commission coming up and the panel is scheduled to report to the president on wednesday. john max is joining us from politico. what is happening behind the scenes to get a report ready? >> desperately trying to find a consensus among the 18 members of the commission. they have not been able to do that yet and time is running out. they have ten or 12 members of the 18 that are willing to support us with comprehensive deficit-reduction plans. but the original idea that the commission was created, 14 members would support the final product and they can't seem to get the 14.

>> how would you characterize the negotiations? >> i talk to a lot of people resigned to the fact that we will not reach a really comprehensive deal. there was a lot of disappointment and frustration that politics have stood in the way of coming up with a really bold plan to do something about the deficit but already you have seen people looking forward to the 2012 elections. republicans were about to take power in the house saying we have our own agenda and are not ready to deal with the president. >> what are the chances the commission will ask for an extension? >> an excellent question. we were asking about that today and there are no plans to ask for an extension but often these things are putting into overtime as it work, it is hard to say.

the commission chairman have an adequate saying we are not going to be working on this beyond december 1st. from what i can tell it is not as if at some point a week or two from now the clouds will suddenly part and bipartisanship will break out. they found there are a lot of partisan differences. >> there are a lot of things on the table. a lot of proposals. can you give us a couple of them? >> from the point of view of republicans they don't want taxes to go to reduce the deficit. six members of the commission that our elected members of congress and senators in the republican party are quite adamant they don't want tax rates to increase. that is one suggestion of the co-chairman and al simpson. we will see higher tax rates. on the other side there is a variety of spending cuts. hundred of billions of dollars a

year and some of the democratic members of the commission are endorsing those spending cuts. in particular they oppose any limitation on future benefits for social security. that is a no go for the democrats. >> you mentioned alan simpson. everything depends on the president. what is he depending on the president to do? >> he is depending on the president to make it clear that the president will be able to make decisions that are unpopular for his party and unpopular for him personally as he runs for reelection because difficult choices are going to be necessary to tackle the deficit problem. >> is in the budget? >> the president will be coming out with the budget in february.

it is a collaborative process because the president gets the first day and signal and it will be clear in the budget whether or not he is willing to make some of these choices. and constituencies that don't want to see big budget cuts. >> when will we find out more from alan simpson and erskine bowles? >> at a press conference tomorrow whether they are hopeful for getting 14 votes or you will start to hear them say it looks like we may not get that consensus but we have a good report. >> john maggs, appreciate your time. later today the co-chairman of the national commission on fiscal responsibility held a news conference to talk about the co