>> dear kati, dear friends, i begin today by extending my very deepest sympathies to you, kati, to the people of the united states on the loss of a great american. richard is remembered for his historic contributions to america's national security of nearly 50 years. but richard was in the truest how most general sense of the term a citizen of the world. and so a deep loss has been felt far from this city and this

country. it is perhaps difficult for many of his fellow americans to appreciate just how much richard met two people beyond the shores, to foreign diplomats, aid workers, presidents, prime ministers and u.n. officers. even more to the terms of distant war-torn countries. for him, as we've had the suffering of innocents be in bosnia, the democratic public o condo, and the suffering of the fellow citizens where a appear of equal moral urgency. i never knew another diplomat or a statesman that i could say this about.

richard, was the american who came in peace. to heal and restore. to reunite and rebuild it. and still the sounds of war. he served his country with skill and passion and by serving his country he saved the world. of the united nations, where i had the privilege of working closely with richard, this translated into a fierce commitment to my continent of africa and to the struggle against one of his greatest enemies, hiv/aids. almost exactly 10 years ago today, on the 19th of january, 2001, richard attended his last meeting of the united nations

security council as ambassador for his country. it was a transformative meeting convened to discuss the threat of hiv/aids to international piece insecurity. and the role of the security council. something richard quite literally invented from scratch. i have told him it's not going to work. they will question. he said we will to have discuss it. it's killing people, decimating security forces. it took an issue of international peace and security and he did it. for richard, the personal and the professional were never easily divided. he simply cared too much about people to think of foreign policy as mere abstractions about great powerships or grand strategies. and so during richard's tenure

as ambassador of the u.n., the security council became merely another forum and the person he set about doing was improving a guest list. for richard's first security council meeting on the millennium on hiv/aids, vice president gore was cajoled to coming to new york to preside over the council. for a meeting on peacemaking in central africa, under the president of nelson mandela in a seat of honor would do and richard convinced him to make the trip to south africa and preside over the meeting. and then he invited jesse helms

to the security council. he was determined to get the u.s. to pay arrears to the u.n. over a billion dollars. what i did not realize was that part of the deal was that i should go to speak at jesse helms' alma mater, wilshire college. [laughter] >> he invited me after the event and how this invitation. looking at that time. it's extremely important. we went to the college and to my amazement at one point i saw the senator who was on the front row and i shook my head and i said, well, i don't think nan and i did this. it was part of the job richard did on him. [laughter] >> but the beauty and the power

of richard's unique brand of diplomacy was that if the cause was important to him, it had to be the most important cause for anyone anywhere and then, of course, how could one say no? over the years of our professional relationship, richard and i developed a keen friendship that i had both cathy and nan this. a strong and special bond was made even more so by cathy's book. by the way, nina, nan's mother sends you her deepest sympathies. what over the years i came to admire about richard perhaps more than anything else was the

sheer courage and drive. physical, intellectual, political. even though i often found myself advising him, richard, pace yourself. my friend, wherever you may be and whatever you're doing, i offer that advice once again. pace yourself. knowing full well that if there is a war in need of ending, or suffering in need of healing, you will rest only when the work is done. [applause] >> i know this program is been

somewhat lengthy but honestly it takes this many talkers to do holbrooke justice. to keep up with holbrooke, he hasn't said a word here and i think we're still behind. [laughter] >> i will say that hillary and i were asked to end the program and we are appearing according to holbrooke protocol. the one with the real power speaks last. [laughter] >> mr. president, to all of you, my real relationship with richard began almost 20 years ago when sandy berger got nick and i together one night for a drink so that he could interview me to determine whether i could suitably run for the democratic nomination for president. and somehow or another i passed

the test. by the end of the night he was so aggressive i thought he was going to finish me with his hands on my throat. [laughter] >> but i like that. a lot of people haven't talked about this but if you were in a professional relationship with holbrooke, as i was, as well as being friendly, there were basically three kinds of meetings you could have with other people looking. there were the meetings where you were arguing about policy. those are the ones who made all the enemies that those who didn't get to talk this afternoon where he would scream and claw and scratch and make you feel like you had a double-digit i.q. if you didn't agree with him. [laughter] >> but he did that because he knew the purpose of diplomacy was to end wars, to avoid them or minimize conflict or save lives. it's worth ruffling a few

feathers for diplomacy. then there were the meetings where the policy had been adopted and he didn't exactly agree with all of it, but there it was. and he either had to leave or wave the flag. oh, he was good at that. you would have thought it was his idea. [laughter] >> then there were the policies that he was charged with implementing that he deeply agreed with. he was a hurricane, of eloquence and energy and force. he was a great diplomat because he was smart and he could learn he could sink and he could write and speak and most importantly

he never was in a meeting when he wasn't thinking about, oh, okay, what are we going to do. and he loved the doers. one of the saddest days of my presidency was august 19th, 1995 when we had begun the negotiations to end the bosnian war or at least to end the seize. and the shelling none of sarajevo. and dick called me with wes clark to tell me they had a terrible accident on the road. we'd lost a vehicle and bob frasier and joe and nelson drew had all been killed. three of the best public servants he'd ever worked with, part of our team.

because milosevic would not let them fly knowing the roads were unsafe. so we had a memorial service. and i still have three christmas tree that hillary and i put on our tree every year that we put on for those three men. but holbrooke was determined to honor them by ending the violence. by the end of august, the siege siege had been lifted. the talks began in dayton in november. three weeks later, we had an agreement. dick holbrooke did many great things in his life and he would be the first to say he did not do that alone. but ending the worst killing in

europe since world war giving it whole and free was a very big deal he could do. and he could do in matters big and small now. some people will say that president obama and hillary gave him a much harder job working in afghanistan and pakistan. i agree with that. but i gave him a harder one still. i made him united states ambassador to the united nations when kofi was secretary-general and he had to talk jesse helms into paying our u.n. dues. and he did that, too. how in the living dates he got jesse helms to do that i'll never know. [laughter] >> but he did. there's lots to laugh about, a lot to be grateful for. after i left the white house, i

learned that holbrooke's unairing sense of protocol had shifted again and he no longer realized he worked for me and on occasion i would work for him. [laughter] >> and the one thing he was no good at -- there was only one thing he was no good at. he would overdo all this flattery when you knew he basically didn't mean a word of it. [laughter] >> i remember two things in particular. he called me one time -- he wanted me to give a speech to the asia society. and he kept saying, what a great thing it would be for them and what he was really also saying was, you know, you want to do that. you need to keep your hand in the game otherwise people won't think you know anything. and so when i did it he proceeded to tell me exactly what to talk about and how i should say it. [laughter] >> and then he headed this business group, you know, to fight aids around the world which was a really noble thing

and when we started there was o no -- nowhere near as much money going to into it. and there were some with hiv/aids who didn't know their status. within a month holbrooke new as much about this stuff as i did. and he relentless, relentlessly drove this agenda. and he got me to appear at all these thing, always saying this group or that business person or the other would help me but it was always basically i work for you. i did all this stuff. now you work for me, go do this. so i did it. [laughter] >> i loved the guy. because he could do, doing and diplomacy saves lives. everything everybody said about him here is true. but in the end what matters is

there are a lot of people walking around on the face of the earth today or their children or their grandchildren because of the way he lived his life. and i never did understand how people would let a little rough edges, which to me was so obvious what he was doing, it was so obvious why he felt the way he did, i could never understand people who didn't appreciate him. most of the people who didn't were not nearly as good at doing. sometime in my second term, concord -- conte and dick hosted a second in hillary's honor and they asked me to come which made me know i was kind of a lame duck. [laughter] >> and once holbrooke and i were talking about all the stuff we'd

done together and all the stuff that happened since that first night when we were having a drink and he was interviewing me for my suitability to become president, and it was after hillary was at least running for the senate. i don't know whether she had been elected or not and he looked at me and he said, you know, she's better than you are. [laughter] >> and i said, yeah, i knew that before you did. [laughter] >> and i said i know one other thing, you're still my ambassador and you have to keep that a secret for one more year. [laughter] >> if you knew him, you had to love him. and you understand that the business of diplomacy is saving lives, you have to appreciate every single strategy he deployed to try to do it, including when he said or did

things that exhausted the rest of us. the great thing about him was even when he lost his last battle, he was fighting. and the fight kept him forever young. and for that, i will be forever grateful. [applause] >> well, i am last because my office is on the seventh floor, which is as close to heaven as you can get. so i end the program by bringing with me to be as close to

richard as we can be. i'm very, very moved by the outpouring of love and admiration and respect that has been sent to me on behalf of our country from so many places across the world. and in this audience, this afternoon are so many who have worked with richard in the past and are working with him today. if we had time each and every one of you would have your own story. i want to start with richard on an airplane. those of us who flew with richard never forgot the experience. imagine being confined in a small space for many hours with richard determined to make his

point and convince you to agree with it. it was a combination of a big personality and a small space that led everyone who traveled with him to be able to say at the end of our flight, i too now have a story about richard holbrooke. richard would begin by assessing every seat to find the one he deemed most comfortable. and then he would use every one of his diplomatic skills to persuade the person who had the seat to give it up to him. [laughter] >> he would roam the cabin insert himself into conversations, tell stories and provoke arguments. sometimes those arguments

snowballed. on one flight years ago, when richard was a younger diplomat, he and a staffer from the white house ended up in a mutual headlock over who got to see transcripts of a conversation one of dung sha ping. that presaged the kind of headlock experiences richard would have with white houses through the years. and so even more people had their story. but what was most memorable is that on many flights he would disappear into the restroom and then emerge having changed out of his sober business suit into what he called his sleeping suit. [laughter] >> it was bright yellow.

[laughter] >> he would brief the press in it. and the rest of us would shrug and say, that's richard being richard. there simply was no one like him anywhere else in the world. for 20 years i had a front row seat to richard being richard. he was my trusted colleague, occasionally he was my biggest headache. often he was an inspiration and always he was my friend. and richard was a genius at friendship. as bill has said, we were so delighted to attend annual holiday parties that richard and cathy would throw. and apparently one year, some months before, i had said

something complimentary about the work done by the salvation army. it was a completely off-hand comment. anyone else would have forgotten it. not richard. so in the middle of dinner, he gave a signal. the doors swung open and in marched the salvation army band. [applause] >> trumpets blaring, carols being sung and richard beaming from ear to ear once again richard being richard. richard was brilliant, blunt, and he did fight until the final bell for what he believed in. now, richard, upon hearing winston churchill's famous motto, never, never, never, never give up, said that

churchill was half-hearted. [laughter] >> there are many of us in this audience who have had the experience of richard calling 10 times a day if he had to say something urgent and, of course, he believed everything he had to say was urgent. and if he couldn't reach you, he would call your staff. he'd wait outside your office. he'd walk into meetings to which he was not invited. act like he was meant to be there and just start talking. [laughter] >> i personally received the richard holbrooke treatment many times. he would give me homework. he would declare that i had to take one more meeting, make one more stop. there was no escaping him. he would follow me onto a stage as i was about to give a speech.

or into my hotel room or on at least one occasion, into a ladies room. [laughter] >> in pakistan. [laughter] >> when he had an idea, he would pitch it to me. if i said no, richard, no. he would wait a few days and then he would try again. finally, i would say, richard, i've said no, why do you keep asking me. and he would look at me so innocently, and he would reply, i just assumed at some point you would recognize that you were wrong and i was right. [laughter] >> and you know, sometimes that

did happen. richard and i were a team. starting in bosnia, when i was first lady through his years at the u.n., his work on aids and global health and our work together on afghanistan and pakistan. it was not always being easy on richard's team. we went through a lot of tough times in those years. but we went through them together. he stood by me through my battles and i stood by him through his. so i feel his absence keenly. and i know so many people do as well. this is a loss personally and this is a loss for our country. we face huge tasks ahead of us. and it would be better if

richard were here driving us all crazy about what we needed to be doing. he had as we've heard from others secured his place in history. i'm confident that the work he had done and was doing in afghanistan and pakistan will also stand the test of time. and i greatly appreciate president zadari coming all the way to be with us today. [applause] >> he was -- he was as mike mullen said, passionate about restoring the balance between our military and civilian operations. he was determined to bring that balance back through sheer force of will if necessary. shortly after richard was named

to be the special envoy for afghanistan and pakistan, i decided that i needed to bring richard and general petraeus together. so i invited them both over to our home here in washington. and i set up two chairs with the third, and i just watched them interact. those are two men with a lot of energy. i was exhausted by the time they had finished going through everything that they were thinking and what needed to be done in the years ahead. and as they were leaving, they both said let's do this again tomorrow night. [laughter] >> but richard got results. the high peace council that he helped launch in afghanistan is working and just sent a

delegation to pakistan. his work on water, energy, agriculture, and trade is paying off in significant improvements to people's lives. he had a vision where we needed to be going and despite all the challenges, which he knew very well, he remained optimistic and positive about what we could do together. richard did this work with the help of a phenomenal team that he assembled with great gusto and pride over the past two years. they represent some of the best minds and biggest talents from inside and outside government. and many of them are here today. so let me say to richard's team, you meant the world to richard and all of us at the state department are proud of your

work. he also created an international contact group with now more than 40 countries represented. and increasing numbers of muslim majority countries as part of that international contact group. i met with some of them who traveled so far to come here for this celebration of richard's life. and you too meant a great deal to richard because he saw that we must have a political solution. and we must build regional and international support. many of richard's staffers are young. but then he was young when he started. and he wanted to give young people a chance to learn and serve and work on behalf of the country that he felt such a

commitment to. there are few people in any time but certainly in our time who can say, i stopped a war. i made peace. i saved lives. i helped countries heal. richard holbrooke did these things. he believed that great men and women could change history. and he did. he wanted to be a great man so he could change history. he was and he did. his time ended with us far too soon but he lived enough in 10 years. we have joy, joy for the life that richard lived, joy that we were able to be part of it.

that we went along for the right. and his partners in that endeavor were his family, his sons, david and anthony and their families, lizzy and chris. his grandchildren and most of all his wife, a friend to us all. and someone who understood and loved richard so well. the family they built together cast light on so many people. there is a book of early jewish wisdom. the book of ben sirat which includes this passage. with three things i am delighted for they are pleasing to the

lord and to men. harmony among brethren, friendship among neighbors. and the mutual love of husband and wife. with his life and legacy, richard holbrooke was 3 for 3. god bless you, my friend. [applause]

♪ america ♪ god shed his grace on thee ♪ o beautiful for spacious skies ♪ ♪ for amber waves of grain ♪ for purple mountains majesty ♪ ♪ america ♪ america

♪ america ♪ god shed his grace on thee ♪ and ♪ ♪ from sea to shining sea ♪ ♪

♪ america ♪ america ♪ ♪ ♪ america ♪ america ♪ god shed his grace on thee ♪ proud -- from sea to shining

sea ♪ ♪ [applause] >> to relish a five-course five-star meal and he had one today. and i know there are so many friends and colleagues sitting out there who have their great holbrooke stories that this could go on for another couple hours, but people from south pacific want to put on their show tonight. so i ask you just for a moment to remain seated while the

family leaves the auditorium and our our distinguished speakers make their exit. and as you exit, we'll remember richard again with the photographs of his life. thank you so much. [applause] [inaudible conversations] ♪

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[inaudible conversations] >> starting tuesday the house takes up a bill to repeal the health care law.

>> tonight, the head of the consumer electronics association, gary shapiro on improving the business climate for innovation and meeting rising demands for broadcast spectrum for services like mobile web surfing. the communicators on c-span2. >> it's time to upload your video for c-span studentcam video documentary competition. the deadline is this thursday. so get your 5 to 8-minute video to c-span for your chance to win the grand prize of $5,000. this year's topic washington,

d.c. through my lens. c-span studentcam competition is open to students grades sixth through twelfth. for more details, go to studentcam.org. >> today, not only is martin luther king, jr., day it also marks the 50th anniversary of president dwight eisenhower's address where he spoke to the military industrial complex. next, a forum on president eisenhower's warnings whether they've been heeded and changes in the military industrial complex today. hosted by the cato institute, this is over an hour and a half. >> good morning and welcome to the second session of our conference on the 50th anniversary of president eisenhower's farewell address. my name is ted galen carpenter. i'm vice president for defense and foreign policy studies here at cato. a friendly reminder since we have just come off of break,

please check and be certain that you have turned off your cell phones. when president eisenhower gave his farewell address, he was worried about the early indications of the development of a military industrial complex and what he regarded, i think, quite legitimately as disturbing if unintentional for the most part consequences of always having this country prepared to confront the soviet union and wage the cold war. but there is a very important aspect of his view. and that was as many policymakers at that time, that the cold war would be an aberration in american foreign policy. that once this rather brittle and confrontational bipolar structure in the international

system would change for the better and would change to something more resembling normality, then there was a chance to at least undo any aspects of this emerging military industrial complex. what we have discovered, of course, in the intervening half century is that the dynamics that gave a rise to the military industrial complex turned out to be not just a temporary emergency response to an unusual international development. but it became institutionalized. and it has persisted indeed intensified in the post-cold war period. one wonders what president eisenhower would say about our current situation where the united states spends almost as much on the military as the rest of the world combined. and when one sees the many tentacles of influence within the political and economic

system, indeed, within the social system of the united states, exercised by what he identified quite correctly as a military industrial complex. we have an extremely able panel this morning to address these and other issues. i'm going to introduce them as a group and since you do have their bios in your packet of material, i'm not going to spend the time reading that. i'm just going to highlight a couple of major features for each of our speakers. our first speaker is going to be eugene golds who's an assistant professor of the lbj school of public affairs at my alma mater at the university of texas at austin. and he's considered quite legitimately a rising star within the u.s. foreign policy community. at the present time, he is on leave working in the u.s.

department of defense's office of industrial policy. and i want to stress, therefore, that the views he expresses this morning are completely his own. they do not represent the views of the office of the secretary of defense. he is already involved in producing a lot of very interesting writings. i want to mention two books that he has written. one buying military transformation, technological innovation and the defense industry. and another u.s. defense politics, the origins of security policy, both of these books have considerable relevance to the topic that we're discussing at this conference. our second speaker is john holesman who is the president of

a consulting firm that does a lot of geopolitical risk analysis for a variety of corporate customers. john has had a very impressive career. i first met him about 15 years ago when he was a young -- a very young scholar at the heritage foundation. and we found that even though he was a self-described conservative, and i was an avowed libertarian, we agreed on probably 70, 75% of defense and foreign policy issues. a percentage that i suspect has actually grown quite a bit over the last 15 years. since then, he is at a very impressive career both in the think tank community and with a very successful consulting firm. and i want to highlight two books that he wrote, that really deserve a lot of attention. one is ethical realism, which i

originally thought was a rather redundant title since realism properly understood is ethical. but i understood the need for that given the tendency of some purported realists including a secretary of state in the 1970s to rather ignore ethical considerations in american foreign policy. and i think that book is a very useful corrective. he also wrote of an extremely worthwhile biography of lawrence of arabia but that book is much more than a biography. it is a book that provides a lot of lessons for the follies of nation-building, both in lawrence's time and today. our third speaker is professor richard bets, he is the arnold

a.salzman professional of studies. he's one of our distinguished scholars in the american academic and foreign policy communities. author of several books including two very, very important volumes. one, soldier, statesman and the cold war and cold war crises, i'm sorry. and the second, enemies of intelligence. he is, as i said, has a tremendous reputation and we're extremely pleased to have him here today. the final speaker on the panel this morning is of my colleague, christopher preble, who is the director of foreign policy studies here at the cato institute. the book that he published last year, i think, deserves a tremendous amount of attention. the book is "the power problem: how american dominance makes us less safe, less prosperous and

less free" and he documents in great detail how the united states, in assuming that by amassing great power in utilizing it around the world has produced a lot of counterproductive results, very much like a golfer who assumes that if he just swings harder at the ball he's going to end up having a good golf game. those of us who play that sport, know it's exactly the opposite. before that he wrote a very interesting book "john f. kennedy and the missile gap" which, of course, deals with a number of issues at the -- at the end of the eisenhower administration. and most recently, he coedit with his colleagues here at cato, jim harper and benjamin friedman, a book "terrorizing ourselves, why u.s. counter-policy is failing and how to fix it." chris is another one of the

another of the rising stars in the foreign policy community. so i think we're going to have a very interesting discussion here this morning. and i'm going to ask eugene to kick it off. >> hi. thank you. i want to thank you for the very kind introduction. i want to thank cato for organization this event. i think it's a great opportunity to reflect on extremely important issues for national security policy and the future of the united states. and this wonderful speech from 50 years ago, which i think really can guide us in a lot of ways. so i should follow up on what ted said in the introduction, that i'm speaking here as a scholar and of myself. none of this is official. and i'm not only obligated to say that but it's clearly true.

i guess the only other thing i'll say about my job is it sounds like the title i'm in the bows of the military industrial complex. the fact that there is an office with this name, the office of industrial policy in the pentagon probably suggests there's something to the concept. it's not -- what we try to do is balance the positive aspects and avoid the negative aspects of the military industrial complex and, i don't know, it's interesting you'll hear through my remarks, you should interpret for yourself what it might mean that someone who thinks the way i do can actually show up in that office. and i can't, you know, go further than that. but there you go. so i'm actually going to wear a quite relatively scholarly hat for this talk in the sense that i'm going to deal with history and then i'm going to try to

bring its implications of that history into the present and draw some contrasts. and i'm going to talk about the economic issues in the military industrial complex and i'm going to talk about actual companies a fair amount. industry itself. and i know that some other people on the panel may talk about kind of the lobbying and interest group politics and i'm very eager to hear their remarks 'cause i think that's a very -- it should offer an integrated panel to get the full picture of kind of how the military industrial complex works and what is functional about it. so i'm going to try to focus on the issues at least in my short remarks. and what i want to pick up on is from the farewell address speech itself, president eisenhower expressed a number of concerns about the military industrial complex, but one of to me the core concerns with the fear of -- or a warning against

crowding out of civilian commercial dynamic economic activity by a focus on military spending, the military dominating industry, the military interest industry dominating in some ways taking the best and the brightest of technology and focusing it on military concerns as opposed to on commercial concerns or on the dynamism of the economy and really recognize that actually the bedrock of the american way of life and the american prosperity depends on not crowding out too much of the commercial economy through unnecessary military efforts. it's not that the military was bad. if we had to defend ourselves against the soviets, but we had to be cautious not to let it get out of control. ..efforts. it's not that the military was bad, we had to defend ourselves against the soviet, but we had to be cautious not to let it get out of control. and so there's a key line and

i'll paraphrase because i didn't write it down, but where he talks about the fear that people will decide what to do based on the hope of getting a government contract as opposed to deciding where to invest and where to spend their time and their energy and their efforts trying to make products that keep a want and would buy willingly in the marketplace and would make people's lives better. so that's the fear that i think on the industry side we need to understand, does that come on pass or how do we guard against that. and i guess i would say that after -- there's a counterveiling view that's important to weigh against that which really came to prominence mostly in years after president eisenhower's speech, maybe in 19s >> i think which is the story about spinoff technologies and how military effort can actually help the commercial economy and

increase our dynamism by inventing great product. there are all sorts of examples that people point to. maybe the funniest one that resonated with the '70s comment is tang. i don't know how many people still drink tang. but the idea that, you know, we'd be much worse off if we haven't had the spending on the military and nasa and government technological development. because in the commercial market we couldn't have tang. there are many other examples, zippers and microwaves and people talk about lots of different things. there's the counterview that might actually say there's not so much of a problem of crowding out. there's a compliment between commercial spending and military dynamism. i'm going to offer a view vignettes and logical explanation on why i think eisenhower was right and the

spinoff is exaggerated significantly, and we could be cautious. but president eisenhower had the answer. we've actually done a good job. the reason why defense -- excuse me, defense spending in absolute terms is much higher today than it has been in the past, but in relative terms of the chance of it crowding out and taking over the whole american economy is faded. because it's a smaller percentage of the economy as a whole is that we've had statesmanship and leadership of certainly people like president eisenhower and a few others, maybe not enough. but just enough that we kept it in check. that there has been some amount of balance. and so, i guess, the punch line of the history is that i'm going to tell you in a minute is that there is actually a defense industry. there is a real military military-industrial complex where their focus is exactly on

what president eisenhower warned about. on getting another contract. they are completely responsive. this is how you get to be a good defense company, a good defense contractor is through demonstrating your responsiveness to any little wink, nod, nudge, chance that there might be a contract from the government. they are watching. and they know and they changed their investment behavior, and they lobby and do whatever it takes to get that contract. they act very differently from commercial companies. and that's a good thing. because it means there are a lot of commercial companies out there that are not paying attention and watching the government like a hawk and looking for that contract. they are watching consumers. and other companies that might buy their products and they are still a very dynamic economy in parallel to this conclave of the defense economy. so i'll give a couple of

examples to demonstrate this. i thought it would be useful to look at the time frame that president easten lawyer -- eisenhower was looking at in the '50s when he first observed the risk. what was the high-tech industry at the time? what were they excited about? jet aircrafts. new, exciting. seemed to be related to the military. the military is buying a lot of jet, and we were entering commercial jet travel. in fact, these stories, or at least one of them, the boeing 707 is a spinoff. it points to that. thank god for military investment. look at boeing 707. i'm going to talk about that story and the contracting story of the convair 880.

it was not such a success. i'm going to do that in the next five minutes. so the reason, one reason why it's relatively easy to do this in the next five minutes. i don't know some of you may have seen. i got an article in the new issue the journal "enterprise in society." it's a leading history journal, i'm not actually a historian. there it is. they did a special anniversary on the 50th anniversary of the speech. if you have details, there are copies upstairs. anyway, the key thing that i'm going to stress, there are many bits of the story that you can pull out when you weigh the evidence about spinoff. i'm going to focus on the power of customers and the need to focus on customer relationships to make your sales. so on the 707, i don't think there's any doubt that some of the basic technology that seen the 707 and many other

airplanes, like swept wings came from military research. that's what we would all expect. basic research that the government does. private companies do applied research. they don't do a lot of basic research. you want to look to the government to do the basic things like swept wings. then when you actually made a product that people want to buy, swept wings isn't enough. you got to decide how far does the plane go, how fast, how many passengers, will it be quiet or noisy and how much fuel? the question for boeing, was boeing better off competing in the commercial aircraft market, selling their 707 because they also had military aircraft contracts like the b52, and the kc135 at the same time. where the actual products helping them in parallel? and the answer is not really.

and it's because the military was such a powerful customer when boeing was offering them products like the kc135, they had to really tailor it to military requirements, and they had to pay attention to the military first. so from the military's perspective as a customer, if a company wants to go sell products to commercial airplanes, that's a distraction. like the military is not going to reward you if as a company you go to military and say, yes, i'd like to make your product. that's great. i'll make you a fighter plane, bomber, whatever, first i'm going to take care of the thing for american airlines. i'll get around to dealing with the military. that's not how it works. the military says you pay attention to us first. if on the side, you have time for commercial people. that's fine. but we don't believe you have free time. every second of every day, in

fact, when you are sleeping, you should be working for the military contract. pay attention to us. boeing when they were trying to sell commercial airplanes, had actually a problem that the airlines didn't trust them. they thought, well, our order is going to get delayed because the military is going to ask them for a hurry up production on the tankers. or something else is going to divert them so they can't pay attention to our needs as an airline. and boeing did manage to sell because commercial planes, the 707 was a success, because they did manage to separate the production activities. separate the development activities, and make products that were customized for the airlines and for the military. and they -- it was a near run thing because a number of airlines said actually we don't trust you. we went to douglas and bought douglas jets instead of boeing jets. people don't remember the dc8

sold as many. the 707 is the hero story that you remember. there were other planes at the time. then my quick second story is about convair. which is a contract. it used to be independent aircraft, but by that time, it was part of general dynamics. they were branded in congressional hearings as trying to become the general motors of defense. because they were a conglomerate serving lots of different defense. the way they embodied because they were a big and powerful company that was involved in a lot of lobbying. they tried to make the commercial aircraft, the 880. and it failed substantially. when it -- when it got canceled in the early 1960s, convair took the biggest corporate lost of any company that didn't declare bankruptcy. they lost more money than the

ford lost. the problem was they were a military company. and they didn't understand how different commercial markets were. they tried to treat it like a commercial market. so how do you succeed in the military? well, you promise to be very responsive. whatever you say, even if the task is impossible, you want to plane that can fly 10,000 miles carrying 10,000 pounds of bombs, do a round trip in 10 minutes, we're on it; right? you did very well. convair took that american airlines, and howard hughes, who was an eccentric ceo. they tried to follow their every twist and turn. if the military when you follow the twist and turn, it drives up the cost. the military pays because they need the product. in commercial markets the cost goes up because you are doing crazy stuff, we got to

renegotiate, you should pay me twice as much. it's a contract. twa and american airline said what are you talking about? convair lost all of their money. it's going to be really fast, they said. yeah, but it burns fuel like, i don't know, whatever burns a lot of fuel. it could have been great for the military. but the fact that convair was seeking military markets, it crowded them out of success in the commercial market. the good news boeing after that era stopped making military airlines. the b52 was the last military airplane that boeing delivered until now when are back in the -- well, now -- well, when they took over mcdonald-douglas, they got mcdonald aircraft that are once again part of the

boeing company. for many, many years boeing made commercial airplanes. they knew they market. they understand it. so the companies that tried to make military aircraft, general dynamics, lockheed, and mcdonald-douglas bumped along. they struggled. it was the dedicated companies that did it. that's the distinction. it is in fact a conclave economy. as long as you have political leaders that understand the conclave can't grow too big because it would crowd out, and you hold a check on that, then you actually can have the benefit of a highly responsive defense industry to protect america without crushing the commercial dynamism of the united states. and that's the important legacy or one of many important legacies. it's what you wanted to focus on on the economic side. this is a very pressing speech.

eisenhower demonstrated the ability when he was president to do what he said we needed in handling the american military-industrial complex. thank you. >> well, it's good to be home. for those of you who know me, i left washington in 2006. and i'd like to thank ted, chris, and cato. a little bit older. i'm going to talk about mindsets. which is something that i know about. i was a member of the life, member a council on the foreign relations, senior research fellow at the heritage foundation. i was a rather young guy. i fell out with the policy establishment over nation

building in the iraq war. that's where i'm coming from. returning from my glorious exile to talk to you about this lovely topic. when i was working on ethical realism, thanks ted for the shameless plug, we talked about eisenhower obsessively. we thought he was a great president. underrated president. he said you know the thing that's different and gone now has to do with mindset. we can talk all of the things the other panels will talk about, lobbying, philosophical. but as ted mentioned, washington is not like a fantasy that people sit in a dark room and say you know too much about vietnam, and then something happened. it doesn't explain anything that i got from living here. frankly, well meaning people make mistakes. they are based on things that

they belief that might make sense in the council, but don't make sense in helmand providence. well intentioned people make mistakes and are often wrong. what we talked about, it was a very different mindset than you see in either party. it's totally nonpartisan. that's my lament that both parties agree on only a couple of things. one is a way overtly expansive foreign policy that has nothing to do with the world we live in. they wonder why charlie brown when lucy moves the football away, what went wrong. as you live in europe, it's odd to watch. i'd like to start about talking about another eisenhower moment that says his mindset.

i see the farewell address that's fantastic. it's the way the man ran the presidency. the way he lived his life and things he believed in. it sounds rather odd, and i think he was right. in the 1954, and there was tremendous pressure on eisenhower to intervene including some of the joint chiefs. eisenhower reals that -- realizes that the general was against it. what would it cost to go in and intervene in a real way and into china? sir ridgeway dutifully doesn't make up numbers at the former deputy secretary of defense says iraq would cost nothing. because he's so good at math, we made him head of the world bank. i find that incredible. i was in the room when the man said it'll be a neutral cost.

i hadn't mistake. that's not a small mistake. the one line that i say to every american now, do you want your $1 trillion back? there's no doubt. we don't know what will happen and we might need the trillion down the road. that's a totally different way to look at the world than one does in washington. anyway, the number comes back from ridgeway, the hero of korea tells the hero of normandy. $3.5 billion back then. i don't know what that is now. does he call in a neoconservative decision maker, democratic hawk? no, he calls in the secretary of the treasury. he says to george humphrey what would this mean. i made three campaign promises, get out of korea, balance the budget, and cut the taxes. what would that mean? >> he said it'll be a deficit, mr. president.

eisenhower says, that's the end of it. boy, do i miss this! [laughter] >> when i'm reading this, i'm getting teary. i remember the time. what happened? and indeed what did happen? because the thing that eisenhower got right in terms of mindset beyond keeping his promises which is great is the notion that economic strength really is the ultimate load star of national power. that's what's missing. and he did this institutionally. the deputy secondary and budget director at every meeting. that costs too much, that costs too little. it was done in the democracy. he did not divorce the two things. as the '50s went on, he was asked why he was not raising defense spenting. and he said without fiscal soundness, there's no defense. again, words that i don't hear

at any council meeting very often. this link is almost entirely lost now. i'm going to give you three numbers that i repeat all the time to my clients in europe to give you an idea when they say how bad are things in america economically? these numbers are kept simple by my staff for me. they are 3, 4, 5. i can remember that. 1/3 of americans today have no retirement. private retirement of any kind. zero. 1/4 of americans live in houses where their mortgages are under water. and 1/5 of all wealth has been wiped off with the great crash because of the value of houses going down. 1/3 of americans have no retirement of any kind; 1, 4 of the houses are under water. we are not going through a little local difficulty here as both main parties continually say as they whistle by the grave yard. and part of the problem is there's been decline of surroundings for a long time.

one misses the key to the boy who cried wolf. the end of the story, the wolf shows up and eats the boy, but nobody believes him. i feel for that boy, as you can tell. because that's it. you can always say, well, we thought -- i heard john and saying the japanese were going to take us over. that didn't happen. 1/3, 1/4, 1/5. this is almost unmanageable suffering. and yet the spending continues. let me give you one more number. according to president obama's own ridiculous optimistic numbers assuming growth at 4% a year until 2020, which is true if you are brazil, but probably less true if you are an established power like the united states, assuming these numbers are correct, 80% of the budget will be five things in 2020. medicare, medicaid, social security, interest on the debt, and defense spending. in the words of the great cole porter, something has to give. you can't cut the interest on

the debt. the greeks found out, you have to pay the bankers. we've seen the efforts of medicare and medicaid, i'll move on. social security we'll have to deal with, nobody wants to with any enthusiasm. the reality is whatever you do, you are going to have to cut defense spending. hence secretary gates trying to get ahead of the curve and do it on his own, but frankly, we're fiddling while rome burns. i'm talking about cuts to maintain our way of life. that's not a discussion that i hear from either party. i hear from democrats who i talk to regularly. it's all george w. bush's fault. now i'm not a big fan of george w. bush, as you can guess from my iraq experience, however, to blame the expresident for this is a bit much. our secretary of state said once we get over the difficulties, we'll go back to the way things

were in the 1990s. that's a curious reactionary comment. we supposed to get in the time machine and go by? why did she say such a silly thing? think about what that means. it's before 9/11, it's iraq, it's been afghanistan, it's before the great crash and the multipolar word. of course, she wants to go back. you can do anything. you had give, you get somalia a run, doesn't matter. you lose vietnam. doesn't matter. the give, the amount of room for making mistakes is huge. the margin of error in a multipolar world is very, very small. you can't do everything that you want to do. of course, she wants to go back. understandable and poisonous to think that you can't. that these things will go away. the rise of the rest. it's not just china.

this is shorthand for india, south africa, malaysia, singapore, brazil, this is a change, 500 year change in power in the world. and it's staring us in the face. nobody is doing anything here. republicans, the neocons particularly, it's taking the american view of the power of positive thinking to a ridiculous extreme. john, if you talk about decline, we're in decline. that seems to be kagan's argument. it's the talking about decline that's the problem. well, if we don't decline, won't our decline speed along? isn't that what happens to people in decline, sir? no, no, no, it's positive thinking that we need. no, what we need is grown up thinking. what we need is grown up thinking. and we need to say -- so did mr. kagan. bitter tears. the british were in decline from 1815, and london was the best place in the world. they were the greatest power in the world. you cannot manage it if you

don't go back to president eisenhower. there were limits and these were things that were vital and do with other people and in a perfect world it would be nice if they were solved. we're not going to do anything. we have to think that way. the foreign policy establishment is in capable. if it gives decline on the argument, you cannot run a neoconservative party. i thione yo -- i think neoconservative will fail. i think the reality is we will run out of money. you cannot run policy when college and atly are in charge. if we don't talk about it, the tread line will be steep. if you cut the military, which you are going to have to do with the numbers that i've mentioned, we have to set up a foreign poll say that is tailored to that limited military spending.

those two go together or we will continue to wonder why president karzai is off his meds. things aren't working. i accept he's doing a very good impersonation. he's arrogant, corruption, no legitimacy. that's not the problem. the problem is the american mindset and the spending. we simply don't have the give that we used to have. to conclude, what should we do? take our ball and go home. how would the new world work? first we have to live within our means. here's what i would do. the indian ocean rim in china. it's in all of the future growth. crises are for bad analyst. look at 2006 back and look at the year of your growth rate. it's compelling. almost every problem in the world emanates from this region. let's learn about it again, be foreign policy analyst, and analyze. if we don't, we're going to be in trouble.

what shouldn't be do? nation building. i will say this, it's eloquently silent about darfur now from the left, because there's simply no money. who's going to go? to do what? what terms? how much? they will tackle the wind, not because they like it, because they have no options. samantha powers is back at harvard. i think the war on terror has gone from a second order problem that was incredibly under studied to a second order problem that was incredibly over studied. okay. this will not destroy our way of life. i lived here on september 11th. i am acutely aware of my friends who are not with me. i'm not taking it to the slightest for america. i hear please bring along someone to check any passport and bring him to the command

center. i'm walking in. i listen to this. this is not a place that i want to do much business with. the other people in line tended to agree with me. okay. let's be careful here. let's not give the terrorists what they want, which is our over reaction. let's remember our strengths. nobody wants to live in a cave. the reason that people still admire us around the world has to do with freedom. and what they with trying to defend. i think that's what knowing distraction is. i think the thing is to get the economics in order. look at the cbo, we are looking at 90% debt to gdp. that's enron, that doesn't include state and local government. as all of you know who read the newspaper or live on the planet, they are not doing real well. if you look at the real number, it's 120% gdp if nothing is done. we're a greece in 2020.

trust me, market in europes are noticing this and asking about the american decline, even if we don't talk about it here. i would end by saying let's look at what we're trying to protect, let's adapt and use the genius, look it square in the face, and realize the sacred and wonderful things. for goodness sake, let's realize that we live in a different time. linking it to the national good is absolutely vital. thank you. [applause] >> i appreciate -- excuse me. i appreciate the invitation from cato to speech today. politics make strange bedfellows. i'm not a libertarian. although eisenhower looks better to me than many who followed him, i remember of being one of only three kids in my fourth grade class who voted for

stephenson in the 1956 straw poll. and in the cold war, i was usually considered a moderate hawk. to people of cato, i'm sure back then i seemed part of the problem, not the solution. yet when the cold war ended, i naively thought that total victory over the only great power that could compete on the world scale meant that the united states could stand down. so today on matters of national security policy, i don't have any trouble identifying as much with cato types as with the mainstreams of either major party. dwight eisenhower too is something of a strange bedfellow in today's event. he came to power afterall as the internationalist alternative to senator robert taft, and while he may have been a sober statesman for sure, he wasn't really a dove. he simply believed that the cold war would be long, and best won by endurance running rather than exhausting sprint.

and his farewell address remembered by so many in the sense of even general eisenhower warned us about the military-industrial complex was an argument about how best to maintain military power effectively over the long haul. and this was in the context of his assumption forgetten in later years that as nato allies regained their footing, u.s. forces could be withdrawn from europe. now eisenhower's cautionary farewell address seems to beacon to the forces of frugality and strength today. because despite total victory in the long contest against a hefty threat, the united states remains engaged in military around the world, fighting twice as many wars, the smaller ones, and the two decades since the berlin wall fell than in more than four decades against the cold war. the wave of ambition to reshape

has crested since setbacks in iraq and afghanistan. the sources have been resilient, and i think in constant need about the reminder about cost that was so well emphasized in eisenhower's farewell address and in the anecdote just mentioned about the food crisis. u.s. policy has gone beyond what eisenhower expected. but i think not so much because of the warning about the military industrial complex that's most remembered. true corporate interests and to a smaller agree the direct influence of the professional military have something to do with it. i think the more important reasons have been a preverse convergence of paleolitt calls and the evaporation of both constituencies in political parties for frugality, victory disease after the stunningly

successful liberation of kuwait in 1991. the disengagement of most of the public from the consequences of military activism and after the vietnam war. and institutionalization of empire and government organization and habits of operation which have become second nature over the course of the half century since eisenhower reflected on what was then the new permanence of peace time mobilization. first point, the paradoxical consensus. the main reason for ambitious american behavior lies less in the military-industrial complex an the developments behind it. at the time that eisenhower said good-bye, samuel huntington pointed out that contracts competed and would lobby which programs would be funded. they couldn't compel an increase in the aggregate level of spending. what changed after eisenhower

was the president's stopped imposing formal and frankly arbitrary limits on the defense budget. truman and eisenhower had forced the services to bargain and log roll rather than ratchet up programs. what changes as well was the further evolution of what eisenhower had wanted to call the complex and the original draft of his speech that was changed before delivery. that was the military-industrial congressional complex. eisenhower could get away with setting an arbitrary cap on military spending because his credentials as a warrior were bullet proof. and subsequent presidents had to claim that they'd spent whatever security required. and the formula for trying to measure that because a hopeless political football. and the decade of retrenchment after the ted offensive ambitious and activism in foreign policy took a temporary dive.

but after ronald reagan secured the republican parties ownership of the national security issue, the constituencies for military restraint in both parties evaporated. in 1950s, fiscally conservative republicans had constrained democrats who aimed to spend more on defense. in the 1970s, it was the other way around. but in the 1990s, however, no check remained on either side of the aisle on capitol hill or in the constitution avenue. this happened for two reasons. republicans abandoned fiscal conservatism and practice while pretending to honor it in principal, and democrats abandoned skepticism about the use of force in reaction to repeated punishment for apparent wimpiness on national security. reagan said he wanted balance budgets and blamed congress for not providing them. he never once submitted a budget

that asked congress lower for a deficit that was resulted. the bush's were no less hypocritical. since the financial crisis of 2008, they are once again talking the talking, proclaiming the wisdom of milton friedman. for decades after eisenhower, they validated richard nixon's famous line, we are all cainians now. they scared in cuts, but refused to belly up to the cuts. there's scant ever they are any more willing to start walking the walking. today we loud republican plans to slash the deficit, but exempt not only domestic entitlement programs where most of the money, and defense spending, as if that too has become an entitlement. democrats presided over the only significant budget surpluses since eisenhower left offices in

the last years. but they didn't match that success with restraint abroad. as a morally important -- excuse me, as a morally impaired draft say tour, clinton claire not challenge military needs. he wound up with defense higher than his republican predecessor has projected. desperate for popularity, the democrats nominated a war hero, and john kerry's view of the bush's policy in iraq ended. anti-interventionist critics remained. really only on the fringes of recent politics, rather than in the mainstreams of either party. pat buchanan, ron paul on the right, dennis kucinich, but it's taken a decade of bleeding in iraq and afghanistan, and

beginning to be politically potent again. while the american politics became more polarized on domestic issues, elite attitudes on foreign policy really did not. for all of the sound and furry during the years after the cold war, i think there was much less difference between mainstream republican and democratic foreign policy positions than met the eye. neocons have really been liberals in wolves clothing. liberals wanted as of as bush did to set the world right. clinton's aim was multilateral if we can, unilateral if we must. the junior bush was the reverse. they both wanted to come out in the same place. using american power and leadership to force the world into proper shape.

second point, nothing fails like success. the first war against iraq was a masterpiece. kuwait was liberated, and saddam hussein was cut down to size quickly and decisively. as wars go cleanly, in victory, the coalition did not over reach. operation desert storm was truly a model for strategic effectiveness in war making. we'll leave aside the failure but not trying to deter saddam hussein or the problems later. as a war, it was just right. the problem was that it was too easy. and subsequent leaders applied the model where it didn't belong. the american military seemed invincible. americans tend to like using force when it works effectively, quickly, and cheaply. all too many forgot what the old soldier eisenhower knew well. force is rarely more than a

blunt instrument, and seldom usable with precise effects. it ended in the apparent victory at low cost. not a single casualty on the american side. the first venture into afghanistan after september 11th also appeared to end in decisive victory with modest american effort. from the cold war to the second bush's administration, the united states was militarily on a roll. unlike eisenhower who had end the korean war as bush the elder did without demanding unconditional surrender and destruction of the enemy regime, and who held back for intervention in china. a recent presidents gambled obvious the ability of u.s. forces to repeat the successes at low cost and wound up with bloody noses. third point, public detachment. the second war in iraq became

very unpopular, and the war in afghanistan is becoming so. have you noticed there's no real anti-war movement. at least for anyone that remembers the turmoil and sometimes violent public disorder of the domestic political scene in the vietnam era, the public silence today is deafness. in part because the wars are smaller. part of what worried eisenhower in the farewell address has gone away. that's the extent the peace time mobilization of society. for libertarians, this maybe a good thing. but results are mixed. as eisenhower said good-bye, the united states had been operating with a decade and a half of conscription unprecedented. and the draft continued and was no small part of the reason for the rise of the anti-war movement at the end of the

1960s when graduate school deferments were ended and korea and vietnam, americans had to pay the piper not just with treasure, but with their own blood. america's hot war since the cold war in contrast has cost most citizens nothing extra in either blood or treasure. combat is taken care of by volunteers and funding is demanded of taxpayers. passing the tin cup to allies paid for all of the war over kuwait. no tax increase was asked for the fight over kosovo, and taxes were even cut. probably a first in war time history as american forces have fought harder and harder in iraq. >> as fewer civilians share the sacrifices of war making, they naturally become more grateful and differential to the soldiers that do the dirty work. at the same time, they lose the healthy skepticism about war

that often comes from military service. as researched by peter fever and christopher jelpe revealed, veterans used to be over represented in congress compared to the percentage of population at large, since the cold war, they are unrepresented. and data indicate that legislators without military experience tend to be more favorable towards the use of force than our veterans. fourth point, finally the habit of empire. the national mobilization of eisenhower's era has gone away, but the governmental frame work developed for it has not. the massive military project of the cold war has been downsized, but it's pursued now by professionals more than ordinary citizens and through the formats born in eisenhower's time genery rather than global reformism. the extent to which national

security became identified with empire is reflected in how government came to organization the defense capabilities and plans almost completely in terms of operation far from home rather than at our own borders. the national security council, and the department of defense which were created in the 1947 national security act have come to concern themselves exclusively with defense lines far forward. on other continents and the protection of allies, not direct defense, the u.s. territory. military forces were organized for combat. in worldwide set of commands. each one with the world headquarters overseeing the foreign region. yukon for europe, centcom for middle east, africom now for

africa. each with overshadowing in the area. when terrorists brought the attacks to the american soil for the first time since the war of 1812, the organizations were created to handle the threat. homeland security council, as if the security of the united states itself wasn't already the portfolio. a new military northcom for north america as if the u.s. armed forces had not previously been concerned on defense on home ground, and new department of homeland security as if protection of the homeland wasn't the responsibility of the department of defense. no other country in the world that i know of, not even the former european powers have military structured organized so thoroughly in terms of functions so far from home. in sponsoring the system of worldwide military command organizations that was legislated in 1958, eisenhower

is in large part responsible for spawning the institutionalization of american empire in that sense. maybe some uneasily about everything associated with that had something to do with the farewell address. but there's no indication that he saw this as anything but a temporary necessity. however long it might be, for waging the cold war. the changes in society caused by cold war mobilization worried eisenhower. but their permanence beyond the requirements of that epical struggle was not inevitable. it's a shame that damaging setbacks in recent wars have been required to disabuse americans of heavy optimism about our american mission politically viable options again. but at least we shouldn't let costly reverses go to waste. let's hope they remind policymakers of the risk and costs that eisenhower saw so

long again. [applause] [applause] >> at the risk of going forth on the panel of three other eloquent speakers, they will have stolen my hundred thunder. which they did. >> the idea is worth repeating. >> during the first 150 so years of our existence, we have a small mobile army, few wars by congress, and spent most of the men home when the war was won. in the latter half, u.s. policy underwent a significant shift. massive military pursuing and interventionist foreign policy. critics charged they had created a permanent lan between the

difference balances of government, and some believe it threatened individual leader. no leader, i would argue, worried more about the shift in character than dwight david eisenhower. as was repeated, he warned his country to be on guard with military-industrial complex with unwarranted influence in the halls of power. thus one of the most important lines become the most famous. it is typical for people to refer to the farewell address as the industrial and complex speech. over the next few minutes, i want to try to place the mic, military-industrial complex within a broader and historical context. i also explore why it has persisted. this is to dick's point. why this industry has persisted long after the soviet union, the adversary that it was created to contain and defeat had seize to exist. and i'll close with a few

hopeful suggestions for what we can do about it. so scholars have studied this connection, the workers of the lose alliance between industry and military, and they often trace it back to world war one when the council of national defense and it's successor, the war industry board manufactured millions of dollars for the war effort. the image of the wib as a band of well meaning industrialist that sacrificed for the good of the country was shattered during the inquiry chaired by north dakota senator. hearings focused on the motives of the wib, and culminated with a frontal assault on the decision to enter world war i. wilson claimed the u.s. intervention and the great war advanced the security as well as a wider set of goals to all

human manty. critics such as nye, this was the quote, subverted american interests and wastes thousands of american lives on a pointless and unnecessary war. dwight eisenhower tapped into this intellectual, but his critic of the far more sophisticated than nye's. and especially important, he approached from a very different philosophical foundation. in a just publicked book by james ledbetter, ledbetter shows that eisenhower was deeply concerned about protecting private property rights. ledbetter traces this notion when ironies of ironies he worked for a commission created by congress to explore the relationship between profit and war. nye, senator nye proposed to solve the problem of the

military-industrial complex by removing the profit motive from military industry. ike recognized this would be a horrible idea. first from the perspective a efficiency, but also inconsistent with american traditions and values. the nationalization of private industry, or the force exappropriations of material assets was a nat ma, and would only be in cases of dire energy, that is a declaration of war, it was unconscionable to him that would be considered during peace time. in short, eisenhower's critique, not just in the final speech, but throughout his lifetime was fundamentally conservative. not libertarian, conservative. he appreciated the need for a strong military, but hoped the society would balance the requirements against other considerations, especially against the tradeoffs inherent in shifting resources from the private economy to the federal

government. he also worried, correctly in my view, that educational institutions, and even individual researchers were becoming too dependent upon the largest federal government. this will scrutinize growing state power. to put it most crudely, you don't bite the hand that feeds you. the end result in part is where we are today. lots of push on the part of people who benefit from massive federal spending, and relatively little push back from all of the rest of us who pay. political scientists and public choice economist call this the problem of concentrated benefits and diffused cost. this is yet another theme that typically resonated with right of center audiences. but the problem, and one the great tragedies that i would

argue of the speech, of the farewell address is that the fundamental conservative of eisenhower's critique was lost, almost immediately after the speech was delivered because of the concept of military industrial complex was picked up by progressives and the anti-vietnam war left and in turned into a broad-based assault on private enterprise. that was never ike's intention. the actual political and social effects of the military industrial complex are far more subtle and perhaps more insidious than this leftish critique would have you believe. it's an uncomfortable truth that some of the most outspoken critics of eisenhower's approach to national security in the 1950s were liberal economist. men such as paul tobin, paul samuelson, and john kenneth.

the concept not always uttered in a way of military cainianism. the pentagon burnt has become another pot of money, a large one at that, from which politicians can draw. the money flows unevenly to select regions with the result that defense workers fight to protect their jobs by supporting politicians that steer money to the employers and punish those who do not. these political realities would persist even if the government somehow managed to remove the profit motive from the process. the process. you can call it business if you like. eugene makes a pretty good case for why it's not business. it's a process. whereby material and equipment and food and everything else that the military needs is provided to the military. you can call that business if

you like. but i think it's a fundamental disconception. so combating this alliance, this very lose alliance between the military and business community either directly or indirectly by the military is as we have seen resistant to reform. it is likely to be as resistant to reform in the next two or three or four decades as it has been in the past five. defense spending serves as a thinly vailed jobs program. it's the acceptable form of industrial policy here in this country, it's created the powerful entrenched constituencies who oppose reductions even in peace time. then we have peers of great stress and anxiety. my first book that i talk about the missile gap. i talk about sputnik, and larry eluded to this in his remarks. after the launch of the satellite, or after the events

of the september 11, this isn't peace time any more. it's easier now to capitalize, and a new round of spending. here's where the professor real stole my thunder. think about it. it's worth repeating. think about this for a minute everyone. after 9/11, washington didn't merely spent more money to fight terrorism, it created an entirely new department to the defense of the homeland, ignoring the truth that the department of defense is supposed to do the same thing. well, we have a situation today. many americans confuse military power with national strength. and this mindset is particularly prominent, i would argue, among washington's foreign policy lead who view increases in the military budget as sin no, -- synonymous with strength.

i could quote eisenhower, but my personal favorite is from the state of the union address, our problem, he explained, is to achieve adequate military strength without the strain on our economy. to a mass military power without regard to the economic capacity would be to defend ourselves against one kind of disaster by inviting another. such sentiments may strike many of you here today. we have a self-selection effect going on here. as timeless principals that need not be dusted off during momentous anniversaries. but i would argue that the words seem particularly significant in the state of affairs that john so depressingly documented a few minutes ago. and yet we must not forget that 50 years ago, liberal democrats, men like henry jackson, missouri

stuart sining, and john f. kennedy knocked eisenhower for constraining the military budget and allowing fiscal considerations to shape the strategic object. the eisenhower was forces america to fight the cold war with one arm tied behind it's back. that's a direct quote. and limiting the flexibility of landlords in asia. how appropriately they reference the jenmenfu. he was confident that it provided a creditable deterrent. the liberal hawks of the late 1950s are equally dismissive of deterrence, but also

geography. they say that we americans can only be safe if the whole world is safe. democracy in america depends upon the america in south central asia. drain the swap where terrorists can poke out their heads, and whenever the megaphone seemed posed, they would stop that. there is a continuum here. an intellectual continuum. and while it might be easy for us to think that we're at the crest of some wave, trust me, there's another group of people that are fighting just as hard as they were 50 years ago. so let me conclude, i'm not naive, either was eisenhower. he correctly anticipated the military industrial complex influences over politics could be difficult to break. he opened that the engaged and knowledgeable citizenry would serve as the necessary correctly. most americans are simply too

busy with their daily lives to pay much attention. a few do benefit handsomely. :changing. the depths of our physical crisis have created warner such -- in inflation dollars since 1998 is one of the few administrations in the future, but as more americans come to understand the high cost and dubious benefits, a bad clash is all but inevitable. at this point in time, we wish we had another eisenhower or someone like him. articulate, knowledgeable, whose credentials on national security would be unasailable, for mass security that does not depend on a. struggles to bring the costs of

our enormous military under control, washington, the city of washington, should embrace strategic restraint and characterized by the minimum use of force skpen gaugement around the world. that is a foreign policy befitting of a. it is consistent with the model set 50 years ago by dwight eisenhower. thank you very much. [ applause ] >> thank you very much. we now have time for about 20 minutes of questions from the audience. let me outline a few ground rules. first of all, would you raise your hand if you have a question. wait for me to call on you. also wait for the microphone so that we can hear your question,

and then there is the jeopardy rule. please make sure that it is in the form of a question, not a speech. and we try to gep this as brief as possible. and also please indicate if your question is directed to just one panel member, or if it is a general question for the entire panel. so with those ruined lu-- fine words, we're ready to begin. >> there we go. this is only a sentence, so i hope i don't get sent out to the hall for one sentence. what a fabulous set of presentations today, period. now, here's my question. chris, you raised a very interesting notion that the concept of military industrial complex, and actually maybe even

the speech itself, became hijacked, if that's a fair word, by forces other than -- by unexpected forces, the liberal forces in america. to what extent do you think the change in the republican party might have had something to do with this, too? in other words, the republican party of 1964 no longer had many eisenhower republicans at the forefront. >> well, that's a good question. i mean -- i'm going to answer a different question, but hoselly we'll get to your choice. in fact, i think we're -- we would much rather quote thomas

jefferson and they don't want conservatives to even know anything about this man. they failed, not just because of this meeting, but a lot of people are talking about the speech now. i understand there is something like 14 books about eisenhower due out in 2011? something like that. so, anyway, they failed. but the budget keeps going up and the debate between -- you know, the natural string does have a troubling pournt part from them rkt the other things that john noted in others, the entitlement over hahang and is true breaking point. i don't think that makes or breaks the defense, but they do have a point, and it makes it hard to argue what eisenhower

did, and yes, it's a major achievement and we wish we could come back to something even close to that. we're a long ways from that. yes, in the back on the left side. ashley. >> for the panel, if you have your way and there was this significant change, how, then, would you set up or address the question that confronted us at the start of world war ii when we were completely unprepared? >> who wants to start? richard? >> i think the solution is not to go back to 1939 when we spent, i believe, 1.4% of gnp on defense. we learned our lesson. that was too low. i think the solution is to have a robust mobilization strategy

whereby defense policy aims to maintain the critical ingredients from which a much stronger, all-out effort can be generated quickly if the need arises. and this would mean at the margins more emphasis on cadre's training, professional development, more organization on faces and being. it would be essentially a strategy that rested on willingness to get ready. i, frankly, have said this over recent years and have detected no interest or like-minded thinking among anybody who count. i don't see this as yet a politically salable alternative. but that's the weigh station between the unpreparedness before world war ii and the excessive preparedness after the

cold war. >> can i just briefly add to that the level of imbalance or outside spending now is so great, you could cut the american defense budget and effort in half and still be far more prepared than 1939. so, you know, realistic scale of cuts, i think dick is right, this is not how people talk if you talk to people in the building in which i work, and i'm not representing, it's all about delivering things to the warfighter today. the way they talk is all about, we're right on the brink, we need to focus on the current fight. there is no discussion of, gee, shouldn't we think about balancing that with a mobilization strategy? this would be a very productive

discussion to have. >> yeah, just briefly, i think in terms of the shift, we're so far from there that i don't worry about it. i think mobilization strategy would be great but i do think there is room for opty mission to hear me say that word. we're in the era which most of us were in before the cold war came upon us. this has this very odd point of view of a pick-up and that's how you have to pay different for defense and have it mobilized and lift and have a navy and have it go together, but you certainly don't have to spend what you do. then there's the disconnect between policy people and the

real. one of those things i learned in washingt washington, it's almost impossible to lose your job in a think tank. i worked hard at it on a policy difference. but it's really hard to lose your job. in the real world, it's really easy to lose your job. if you look at the few pun opposites in year and what avrnl people do. it the second more popular ways to cut the budget. 73% says cut defense spending. the 36 ers, and i think that's really, really healthy. >> one thing i would point out, in 1939, the united states had an army that was smaller than that. today we spend five times as much as the country with the

next large military investments on that, so that does, as jane suggests, leave a lot of room for potential cuts. >> in the left on the front section. >> hi, pat span representing myself. i wonder if the panel could maybe explain what happened after the '50s and '60s that both parties became interventionalists? what happened? >> the explanation that i think works best is the structural explanation. it's not so much the '60s and '70s, it's the '90s. so someone here, even in the previous panel, pointed out there were more interventions in the 15 years after the end of the cold war than in the 45

years of the cold war. why? because even a small-scale -- a brush fire war could result in a, you know, confrontation between the two superpowers, so they danced around, trying to, you know, not be directly confronting one another. and there is a structural explanation, or to put it even more crudely, we, the united states, did more stuff, invaded more countries because we could. and, again, the selective reading of the histories of the war, the first gulf war, the war in kuwait, allowed for, i think, a fairly pro mimiscuous use of force that is only recently beginning to be corrected by our wars in afghanistan and iraq. >> one of the things that

happened positiliticallpolitica disappointed. they saw the serious hippy movement around mcgovern, hence writing him out of history. suddenly you have the chastening among one state, and the government is saying, me, too, me, too. well, we have to be tough on this, because this is an issue that the country owns. you have truly, you have kennedy. and that really changes the balance, but both parties from. it no longer scoop jackson who challenged carter. you go from that to supporting reagan as part of the very broad tent that supported reagan being one of the elements that did that. in the '9 ons, as chris said,

you get open warfare. all of us eisenhowers. i'm against that in america and i think that's where that battle comes from. >> i think it had a locality to do with the end of the vietnam war and the end of a cold war. there was no, and the perception that the left had let the country down. any enter p ventalists, were not present, especially after the cold war, and eventually the democrats felt chastened with identification and about foreign policy and became more meat on

it. but also at the end of the cold war, liberated kohl sake yann war with informants personally. so there was a con jungz of hoom thought that the military. >> yes, the woman on the far left there. >> i would add to that last discussion is the brilliant lobbying that the defense industry has done, so when you see robert gates today trying to make very modest kulcuts in the military, you immediately see congresspeople, both republican and democrat, coming back and saying, we can't cut that weapon stm. given the public media wants to

attack the military. how can we work together from different sides of the idealogical spectrum, and what would be the thing to focus on? that that's not a very consistent smds for? is it the wafds the american public no longer wants to fight. >> i do think it going to be a menu of those option so they don't have local constituencies. it's easier to cut weapons, alternative bases. they can do something besides build a chip. that's a difficult thing. but i also think, somewhat naively, that strategy should drive for structure, not the other way around. as it is today, we have a

four-year structure and every four years the defense department comes up with a rationale why sef. leet start with a strategy first and then build the floor structure to meet the, but thaet the way it supposed to work. it doesn't work that noi. mack the case for a smaller, well restrained ground strategy on purely strategic ground. then show the that would go to down with that that's what i think is an opportunity given the other things we've talked about today for fundamental shift. >> i would just jump in and says, i'm the last bun tie that

were in terrible trouble force cally which is what we should do, anyway, about nrg. but if he with do, you're playing with my children and grandchildren's patry money. as i said, the new pugh numbers are compelling, that people want this change. as chris pointed out, they're not represented. i think paskagula has a big naval base, so guess what in they were funded whether it needed to be funded or not. that's the way it works. so there's always going to be this broad constituency that would agree with us that the consistent people who do well at it are far more motivated than broadly. the key to that is talking about the money because it affects

everyone, their children, their grand business. they'll come bang and say, you don't care about the country. absolutely the reverse. i care intensely about the country, and the reason is because if we take our fiscal help out of the equation, we're not doing our chin children on the berchl made. >> i think a lot of the other things were, unfortunately from my sper tech active americans don't to want knowing as how many dollars do we need for the bare minimum to protect ourselves from being captured by the enslaved martians? think of the opportunity and they want a vision of the world. i think chris wants us to have a

strategy-derived defense budget and spending, and that's good. that kind of analysis sounds good to me, but there is actually a whole raft of people who have strategies on the shelf and offer them to the administration and they think they have -- it's transformational diplomacy. there are all these words that come in. they think there is a strategy, it's just not the one that we prefer, there is the one that says, there is a tremendous balance on the world, let's go, and it's hard to tell people just in the abstract strategic sense, well, there are some costs to that, and actually your. it's very hard to control this without --.

t this is the appeal we might have made earlier, but part of what allowed president eisenhower to have that appeal was, oh, we need to keep powder dry for the long haul, we need to have an endurance race. there is a real threat out there, and unless people perceive -- well, there is money gns the feature. i just think the intellectual argument responding to that is it pessimistic. since that happening by, jat gee is not to be the rescue. >> unfortunately, i think we have come to the end of our allotted time. >> on that? >> i would ask all of you, i think, to focus on the last question that was asked, because

i think that is the most pertinent one. is dwight eisenhower a prophet and one that is a guide to a much better policy, or is he cassan dra, someone who gets a warning that no one lichbsz to. i tried to remainty mystic. concentrated benefits diffuse costs. to change the system that has developed and return to eisenhower's vision of a society with far more balanced priorities. but that is the task awaiting all of us, and i think people across the political spectrum have an interest in seeing some constructive fundamental

changes. please join me in thanking the members of our panel for their excellent participation. [ applause ] >> you're all invited to a reception >> starting tomorrow the house takes up a bill to repeal the health care law. watch the debate and the final vote which is scheduled for wednesday live on c-span.

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and now small business and the economy with officials from the fdic and the small business administration, plus bankers and business trade groups. moderated by john harwood, this is just under nine minutes -- 90 minutes. >> everybody is coming out. john graves, steven smits, rebeca romero rainey, chairman and ceo of central bank. anthony lowe from fdic, john harrison, superintendent alabama state banking department. kathleen sowa from bank of america your jorge corralejo from the chairman of the latin business chamber of commerce in los angeles. and danny denison the national federation of independent

businesses. welcome to our panel. [applause] >> now let me start out to get everybody's brief take on the central conundrum that was addressed by the previous panel. and that was a the contradiction with the fact that banks say they are ready to land but small businesses say they can't get loans. is it a regulatory problem? is it some other problem in the economy? >> i think there are a number of issues that play here. i think we are coming out of the worst economic conditions that i think any of us have faced in our lifetime. and because of that you've seen some tightening up regulatory requirements on a lot of the banks, which is -- appropriate tightening, absently. i think you've seen some changes to borrowers, borrowers credit,

and that's had an impact on their ability to access credit because they had some things. i think that some banks that are a little bit scared because what they've seen over time. having gone through that period i think we are now at the point where we'll see a lot more lending going forward. we've taken a number of steps at the federal level to try and help banks do more so that they can increase their lending. as you may know we just passed a small business bill that the president signed into law in september. because of that they are to programs that are very focused on providing banks with the capital they need so that one, they can get the help from -- so that they can get the easing of the regulatory constraints by the regulators so that they can land. and also so they can feel more confident that they can get those dollars out and use them properly. >> rebeca, how much of the difference is that going to

make? make? we had some objections from people opposed to it who said something so going to regard that as many t.a.r.p. and i want to be associated with the stigma of that program. >> i think it provides a tremendous opportunity. the treasury did a great job by different see what they will do as opposed to what t.a.r.p. was. is very different. those banks that are leading the capital, it will be night and day. you're a tremendous opportunity for them to leverage and get back to lending. >> steve, do you agree speak was absolutely agree. i think we've gone through a crisis. i think the recession that many of us have not seen in our professional lifetime, i think that our businesses are beat up. our small businesses, our banks are beat up. and i think that this provides a wonderful opportunity for banks that are looking for capital, and you know, i think it was too good at the right time. >> let me get a show of hands here. is there anybody on this panel

-- does anybody on this panel agree with the proposition that 12 months about the economy would be in a lot stronger shape than it is now? does anybody disagree with that? >> a lot? >> a lot. >> talk about a little. >> just coming from my experience in california, if you look at the level of unemployment and you look at the number of foreclosures, and it 2011 we're looking at another approximate 2 million homes added to about almost 7 million, that's going to keep things very, very rough. perhaps there's a major growth, but i think in the small business sector, i think it will be not dramatic at all. but they are fortunate. it's good news, i suppose the large corporations are doing much better and that's good. however, the money that they're making are not going into job creation so much in the states

we have seen. they go more into stock buybacks and acquisitions and these kinds of things. so we need to examine which we will do this afternoon, what are the opportunity for small business to make a recovery. there's no economic recovery for small business to generate 65% of the jobs. >> i think you'd see a lot better for larger businesses, but i agree for smaller businesses i think it's starting to improve. many small businesses are heavily invested in real estate, commercial and residential. and tell you that turning the right direction i think it's going to be a slow recovery for small business. >> john harrison, tell me from your perspective to what degree are we suffering from overreaction by regulators? and how much improvement can we get by turning those tiles as opposed to just waiting for the economy to let this whole process? >> well, the reaction is real, the way we see it, from our

banks in alabama, not a single one of them probably that if you dialed him up, they would not feel regular pressure when they are trying to make alone. but on the flipside of that, you know, banks cannot survive without lending. so, you know, we have tried to partner, we have tried to be involved from every aspect of making sure our banks were involved in the lending process based on what we hear from the banks don't want to land, or not lending. and when we surveyed that, we come back and our banks say no, we don't have the demand -- we're willing to lend. >> anthony, what's your perspective on that? it goes to some of the debate went politically in 2010 where you at some in the business

community who are complaining that the reason the economy wasn't doing better was because all these regulations and new laws that were created have answered your the fundamental properties there's no demand. is that the fundamental problem with lending to small business? is that economic conditions are such an the recovery will be so slow that there isn't going to be the scale at the event that we would like to see? >> i think that's a large part of the issue. we hear a lot of anecdotal comments, especially from bankers and congressional, that is the regulators that are causing the credit crunch, causing banks not to live in. when i talk individually with bankers when i'm on panels or visit a bank during an examination, they consistently tell me we are open for business. like the comment was made earlier. we are waiting to make laws but there's just not the demand. they just are not any particular situation right now what they want to expand their business. they are trying.

they're trying to conserve capital, trying to make sure that their business plan is still going to be feasible and reasonable going forward. i think it's a combination. >> do you agree with that? do you think lack of demand at the business level is the fundamental problem? >> well no, i think the promise low lack of demand. but clearly the lack of demand is there. in 209 we saw there was about 55% of all employers, small employers, and made some attempt at getting some credit somewhere. in 2010 that fell 48%. the number of approvals edged up slightly so i'm not sure that the total numbers change all that much from year to year. but clearly demand at least in terms of numbers and firms that wanted it was down. and recently substantially. now, you saw the fed survey of

borrowers -- or letters that come at a major banks, of course not the smaller, show that we are beginning to see something down -- that the downward trend really begin to reverse itself in october. beginning to see that the debt down, but still demand is a real issue. >> what is the perspective on the small business lending fund. >> could start by government will make significant or not? >> i mean, that's how we -- we supported $30 billion is not real money? >> we supported it as chamber when it was before the congress, but is it going to make a difference? not really. what you're looking at, looking at a situation where it makes a real assumption. the first assumption is that banks will have money to land.

that's not true for the most part. there are certain banks that do. but we see even a lot of small banks with lots of money that are sitting there and are putting any munis because they don't have customers that they can lend it to. and so you go through and you start looking at these, if not only do you have any money, do you like to deal with and that sort of thing. i would be curious to know how many banks have applied for this so far. i mean, i saw that march 11 was kind of recommended that you apply before then or whatever, and we are near that. but i haven't heard how many banks are interested. >> don, let me ask you. he broke his back getting the small business lending fund passed in congress, and if he broke his back, was he wasting his time? >> i respectfully disagree with

my colleague from the transient. we've heard from businesses all across the country you are saying, you know, we can't get access to credit. and i think there's an issue here, it's a bit more nuanced. dark -- is a bit of the geographic dispersion for credit demand across the country. servitor some parts of the country where you have banks who are flush with money and don't have borrowers. there are large parts of the country where businesses can't get access to lending because the banks are constrained from providing them with those loans for a number of different reasons. we think that the small business lending fund which it's a $30 billion capital fund will provide hundreds of billions of dollars in lending to small businesses across the country. it's not for everyone, not for every day, when i get to every business out there. but i think at the end of the day you will see a huge uptick in the amount of lending by banks because of the program.

>> rebeca, you're the reality check. who is right? >> i think there's a lot going on. our particular bank i'm not sure because we do have liquidity and we do have capital and we need to demand. in looking at a lot of my colleagues across the country, i think that there is an opportunity, there is a need for banks that need a capital so that they can. they are faced with capital concentration. any number of things that they're up against that they are not able to lynn. so for a lot of those organizations this will be a tremendous help. it's not the solution for everything but a part of the peace getting us there. >> cathleen, rebeca just dumped. who is right? >> i think it's somewhere in between. there are other -- i wonder how me banks need a capital. will be interesting to find who is applied for. i know there's reluctance to apply given some the statement that could be associate with it. so i do think it will help some

of the committee banks. there are provisions in their around capital access funds for states. i think i can do. those are borrowers at the margin. it will help some borrowers at the margin. >> john? >> well, you know, in alabama our banking department was a proponent of t.a.r.p. we thought it was an absolute outstanding way for our banks to get some much-needed capital liquid with the thought they would need. it was a government bailout. therefore, they took an awful lot of heat from their customers and some from the press and from the public in general, when actually it was a great investment for the government and for the banks, as it's being repaid with interest. this is the same thing with this fund. i see that our banks in alabama, we have some that need

additional capital, and absolutely the private equity markets are pretty rough. this is an opportunity for them to be able to acquire capital. however, sometimes i look at whether the real criteria, the ones that probably need to capital and could make it and use it, not going to be able to qualify because they have some problems in there. so the ones that are strong and healthy probably don't need a capital. therefore, they are not going to want to use this program. today, we have, we are around 145, 50 banks, somewhere in the neighborhood of $250 billion in assets. and i think we have one application on file.

>> steve? >> you're going to tell me i ducked. the answer really is it's going to be good for some institutio institutions, and other institutions are going to make a decision that they don't need it. and that's the honest truth. >> is a good thing that congress created. >> i think it's a good thing. i think it provides another resource and a tool for the banks that really look at this. >> critics say it's $30 billion slush fund. >> i don't see that at all. i see this as, according to our community banks, our community banks play a vital role in providing access to capital to our small businesses. and again, this is another resource to help strengthen his banks. >> jorge, do you agree with that? >> i think the con -- that's about as innovative as you're going to see from the government. you know, there's funds are for community banks. we've got a ton of them in

california. >> you have a low opinion of people to work in government? >> no, i don't. i think there's some good folks here this morning. the hearts and minds are, but my point is, i think it's a good concept. there's a lot of other aspects to that jobs program that show in addition -- additional innovation by the government. it's not enough, the biggest problem is it's a digit to small. if you look at the major, small business across the country and need for funding, but there are other things that are so important about this, alternative means of providing credit, and i think by looking at these kinds of things that you're looking at some extraordinary measures that could serve some good. the problem is there's not enough funding. >> i want to shift gears and talk -- i guess and cards with questions that were submitted by

some in the audience and some who are not here. one of the ones that intrigued me was this question which said, there's no proof that the use of the personal credit score is a major barrier to lending for some small businesses. what can be done about that? >> i'm not sure if i would agree with that concept. i know when banks are looking at their lending function and as i am making credit, credit may be one of the issues that they're going to look at especially a personal credit score. a lot of small businesses, individuals are using their homes as collateral. the personal wealth, its financing approved and those types of things, but a credit score is just one factor. i think most of our lenders, the bank as i talk with, there's a variety of issues that they look at and consider. >> i don't think it's a big issue. it's less reliance on credit goes today than it was at the height of lending when we were

doing income verification into more traditional lending on most of the small business credits, not relying on the credit score. >> this question might come from so in this room today, if this is your question and that was your question, do you want to rebut any of the statements that is not a big deal? [inaudible] [inaudible] >> let me had to go to the microphone so we get all this and repeat the question. identify yourself and we will start again. >> thank you. my name is mitch jacobs, an entrepreneur. what we're doing is using technology to collect financial

metrics a small businesses, main street businesses, and solve the problem all the time that goes into in evaluating the financial health of the business using automation to solve the problem. banks feel like the reliance on a personal credit score is still very important. and if they were to approach the regulator with a portfolio that had allowed 600 fight goes into. that have enormous problems. but the fico score is not at all, personal credit score is not at all relevant to the overall health of the business. it's much everybody said for the work involved in evaluating this is his is too much work. >> is the personal credit score they do at your bank? >> it's a part of the equation, certainly. we are working with individuals, it's their business. >> would you into 600 fico? >> yes. kosovo on our books. it's part of the equation. what we do as bankers is look at

the entire story and that sometimes it's good and sometimes it's bad. >> the other issue is 50 to $100,000 loans, where there's millions of those that need to be made to get this thing kick started again at and i think that's what the challenge comes in. i would be surprised, toshiba conversation about this, is that what you're dealing with those smart phones the reliance on the personal credit score is a major obstacle to small business. >> does anybody think he is a good point of this financial system and banks need to adjust to that point? >> he's got an extraordinary point, and i think that we've been doing -- our chamber, for members and other small business, we been a strong advocate of technical assistance for small business. part of that is that we can bring loans to bankers where we have a technical assistance agreement with them long term. it's not to suggest anybody is have technical assistance will be eligible for alone.

however, we can prove that this business is operating very efficiently, they have the ability repay the loan, and an opportunity for growth. that could be a measurement or a substitute as part of the credit analysis. >> denny, what you think about this question? >> for sal and fascinated by it. anything like this is always a great interest. at the second thing i keep thinking about is, if the studies i've done the using paychecks rather than fico which is the dun & bradstreet score. there's a clear relationship between who's better off into is not. there is a direct relationship there. but it's interesting because you're developing a new type of credit score that doesn't use of fico it sounds like to me. spirit and it's the smaller businesses.

>> but my point still goes to the point that you are starting a new type of credit score, just not using fico. that's a very interesting thing. i mean, i'm very interested and i hope you got it and it works. i mean, i'm all for your. >> this country has extraordinary technology assets, and there should be more discussion about using the technology assets as we try to solve the problem of delivering capital to main street. thank you. >> i want to shift a question about collateral, we had a discussion in the previous panel about real estate as collateral, and that was very difficult. here's a question. since the small business leaders will debate so collateral, i.e. real estate, with values down 30 to 50%, what other products are possible for small business? why not take warrants or preferred stock and invest in the outside? is that a viable way to compensate for what's happened to real estate, and how could that come to pass?

>> in my community preferred stock doesn't exist. so if you're trying to get to rural america, it's tough when you're looking for the collateral perspective and yet you can look at the history of the business. if we start making loans without collateral i'm not sure my friends at the fdic will treat us to very. so there's an impasse there. especially are talking world america. >> and income is this a dating suggestions? >> i wouldn't say that but i think the premise here, the majority of our institutions when they are doing lending and looking at which loans are going to approve or fun, they're looking at repayment capacity. collateral is look at as a secondary source. i think most bankers, anything they think they can liquidate at the end if they have to go that route and get repaid, they will probably consider it but most of army bankers are looking at repayment capacity, which the casual, the business plan, i going to be your -- are you

going to be a year from now, three years from here to replay my loan. >> they have been developing things along this way, or along this line. where it's a much more of a negotiated sort of thing, nontraditional way to he does talk about giving different types of paybacks and different types of, what can i collect? anyway, he is tying in certain types of ownership shares and so on. but it's negotiated sort of thing. the thing that makes it useful is that goes for certain types of business which is on the larger than small businesses. it's not basically the main street, the under 20s, under 30s. it tends to be the larger ones. that's what i think opportunities arise for such things as you are talking about.

>> one of the things that was mentioned earlier is that we've taken a number of steps at the federal level to support small businesses, recognizing that there are these collateral issues. one of the progress that was part of a small business jobs act is a billion and have state small business credit initiative. that program is specifically aimed at assisting states with their innovative credit support programs all around the country. those programs really do, i really aimed at supporting businesses that had collateral deterioration issues, their loan loss reserve, their collateral support programs all across the country. these innovative programs that have worked at the state level, obviously we are at the fiscal constraints that the state governments are facing these days. the federal government can step in and provide them with that type of additional funding, and we think at a bare minimum we will see about $15 billion worth

of additional lending for those businesses that are having the most trouble. >> collateral is an issue but the primary issue, i would reason for decline is adequate cash flow. that is the primary issue. when you bring up warrants, the reality is a lot of these businesses need equity injection. it's not living that they need. they need equity and i think the previous panel spoke to that as well. that's the angel investor network, that doesn't exist today. >> we are approaching martin luther king holiday on monday. and i have this question from the audience. and i invite, i read the question, but the first to submit a question to pratfall on when they getting into so we can have a dialogue. what can the president do before the 2012 election took 6 million minority owned businesses to create jobs more than 30 million -- were 39 americans are unemployed or underemployed? what's the answer to that?

>> i think there are a number of things that the president could do without any congressional action. i think part of it is in data collection. first before you know we're going you've got to see what you've got. and whether its contracts or lending. these kind of things. the key is generating contracts or small businesses. and if you generally look what data is available, and it's not generally that available but it can be, there very few contracts, government contracts or example or even the prime contractors. we need to analyze what is the measure of contract going to small business. this would generate jobs, create some collateral it's a data collection is critical that the president -- >> had the idea of making requirements sponsored not contracted? >> that's a possibility but i'm saying you can analyze what you do with a small business sector if you don't know what's going

on. once we can analyze that we can make strong recommendations are the president simply asked his cabinet members and regulators to provide him with a data on contracting data, on small business lending, and if you look at small business 24 out of 27 million are people that do less than 10 million a year, and less than 100 employees a year. so that i did not analysis is critical to do with unemployment, dealing with contracting come dealing with lending. all these things are a combination. >> this president has and is certainly some use the term postracial, has not been an advocate of race specific solutions. he's been talking about solutions, although some may be targeted toward lower income or less advantaged businesses. but what can be done specifically for minority businesses. >> we can talk about things we are doing as well. at the office, i look at our

role as actually filling in lending gap in our programs are designed to address where there are gaps. so with that said, is very clear that are underserved communities are disproportionally hard hit by this recession that we are going through. that's the facts. so to me that is a gap. and i take that, as i take it as responsibly to how can we collect out? one we were doing it is we recently announced our programs which are actually addressing are underserved communities. we will be offering our sba flagship government guarantee program where, for the first time, our mission-based lenders -- these are nonprofit small lending organizations that are inside of these communities all over our country that will now have the opportunity to provide,

you know, seven, eight loans to the underserved community. why is that important? it's important because, i think we talked about this a little bit, technical assistance. before joining the sba i spent 20 some years in the trenches as a lender, a small business lender. and my philosophy is really simple. it is that the attention that the small business owner places before this front doors of that this is first opened can be all the difference between a successful business or not a successful business. so most of our underserved communities we need what we call small loads, $250,000 under. the challenge for many banks, large institutions, is in order for the economics of providing a loan under $250,000, it has to be very streamlined quick decision. not a lot of handholding.

these mission-based lenders are built upon the platform of handles. attention up front, interest in the committees, they understand the dynamics of that community, and that will translate into success for the small businesses of the future. >> sir, if this was your question, let me just ask you how satisfied are you without the government is filling the gap and steve mentioned? and how effectively are major financial institutions filling that gap. >> they are not going to get. earlier regarding the contracts, one of the great things about the dodd-frank bill, in our opinion, is the peace that congresswoman maxine waters was supporting. that is a significant piece of legislation come if you will. it will have a great impact on

minority owned businesses and business and in general into a. because it requires financial institutions and other corporations that are doing business with the federal government to submit data to them regarding not only their employees, the board, what have you, but the contract, if you will. as was pointed out earlier, with the federal government we have been tried to get data from, in a sense for the past two years. to find out what percent of the contract was awarded to minority or women-owned businesses. right now the data we have is 2005, says that less than 1% for latinos, blackout businesses, asian on businesses, same thing. so we think this piece of legislation is critical, and we have taken it on ourselves to make certain that corporations have contracts with the federal government adhere to that piece

of legislation. >> don and steve, let me ask you why are the numbers so low as he cited? and secondly, why is the did not better? jorge was saying we need more data. why don't we have a? >> i can't speak to the first issue. i don't know the numbers right now. i know that we have a strong commitment. the president has a strong commitment to kind of secretary geithner has a commitment to this. and i think administrator mills as well to ensuring that we do the most that we can to support success of businesses in all parts of our communities. as today, i think the speaker is exactly correct. data is crucial to getting a better handle on what we're doing a better job and where we are not doing a good job. and i think this president answered a secretary geithner are willing to own up to problems that are there in the government come and we want to

work to do our best to ensure that a wide range of businesses have access to the opportuniti opportunities. >> he says the gap is not being filled. >> and i don't want to speak to the numbers. that's not my area in sba. though i can say is a strong commitment as of the sba, our role that we play to ensuring that small businesses have access to contracts, and i think we've done great strides. i think i've seen a significant amount of progress made with working with other government agencies to ensure that our small businesses and our minority firms have access to participate in this contract. >> he mentioned one of the strengths of the dodd-frank bill. let me get a show of hands on this panel. how many people here think the dodd-frank bill on balance is positive and is going to make a difference?

and who thinks they would be better off had it not passed? [laughter] >> you're not giving me eh? >> no. i'm not getting to that. there are parts of the fight and parts that are not so good. >> what is the biggest single problem? at the end of the day the administration and the democrats in congress were saying, do you want the old system on your something new? we've got to go do something and this is what's in front of us. what you think is the biggest single problem? >> well, the biggest single problem is the whole structure that be required. that doesn't mean something shouldn't have been done. quite clearly too big to fail is a major issue that has to be addressed. this is ridiculous that we haven't done it before. and there are lots of aspects to it. ..

>> it's definitely doable. we are concerned about having absolute clarity and simplicity in the processes as possible. it won't inhibit small business lending. >> i want to -- it will not inhibit small business lending. i want to shift to a different issue which, of course, occupied the first two years of the obama administration. that was health care. especially get a sense from the panel beginning with rebecca and kathleen has to how the passage of the health care bill is going to affect the viability of

business in the near term. we had a question from the audience that said, you know, small business formation, particularly with so many people over 45 losing their jobs is very dependent on health insurance. why not scrap the employer-based system for completely portable-based system. that's water under the bridge. but i'm wondering having passed the big health care bill whether you think it's going to make things better or worse for small business? >> goodness. this is a huge question. you know, i think as with a lot of the regulations, there's a lot of unknowns. my business i'm still trying to figure out what my health insurance what the impacts is going to be. we just went through health insurance renewal. there's a lot of questions. it adds one more thing that small businesses are having to figure out. i was in the camp that something needed to happen. >> you wanted it to pass? >> i think so. but there's still a lot of questions that needs to be answered. >> i think it gets to what

rebecca said. i think the uncertainty around how it's going to play out and what it means for small businesses it's just another thing that small businesses has to deal with today. that's the challenge. >> it's complex. the health care bill brings a lot of positives. there's still a lot more work to do. it's far from over. with businesses loses their health care services, they are dropping, and the situation is a lose/lose situation. companies are losing policies, businesses are giving it up for themselves, for their employees. so the health care bill, i think, provides some opportunities for some health care, minimal, at least, but it is positive. particularly given these times. >> denny, i suspect i know where you are coming from with this. i'd like to hear you explain it, and whether you think the bipartisan move towards repealing that requirement on small business transactions 1099, whether that's gotten rid

of and whether it's going to make a big positive difference. >> first of all, it's financial disaster. you can't add three million or 30 million people to the rolls and, you know, say that that's not going to have an enormous demand effect. our major problem. >> wait, the cbo said if the bill is repealed, it's going to raise the deficit by $230 million. >> just a second. just a second. first of alling you start out -- first of all, the major problem for the last several years has clearly been a small business major problem. this stuff is going up double digit rates. in the last decade, it's gone up like 130%, where wages and costs have gone up like 20%. so you've seen this huge gap that's going into health care. got to get controls on the spending side; right? or on the cost side. what do we do? go out and make it worse by adding 30 million more people to

the system with no additional supply. so we're already going to be short 120,000 physicians if nothing else happening. now add this demand, so my point is essentially that we're going to have a supply/demand that's going to be just unprobably. -- unbelievable. second thing is alone those lines, the financial shenanigans that have gone in. cbo has to abide by certain reinstructions. it's basically the ten-year window frame. one the ways that this thing supposedly works financially is that we start a system of long-term health care for seniors, which we begin to pay for in the time frame, but which extends way out beyond the time frame when the benefits have to be paid. the program doesn't even come anywhere close to paying for itself according to the chief actuary at the small -- or at

the social security administration. so you've got all of these sorts of things that cbo has to abide by that are essentially allows anyone who wants to to really play with the numbers. so we've got a financial, huge financial problem. our rates are going to go up. >> don, i think you are busted. >> again, i respectfully disagree with my colleague. >> you disagree with my numbers? >> listen. the millions of people who are now going to be able to access safe and affordable health care is going to fundamentally change the way that our economy functions. you are basically helping those folks who have been from a business perspective a drag on the economy because they haven't had adequate health care, they've had to go to the emergency room to get their services. you are now putting them into a

system where they can access the health care that they need to visit doctors and continue -- be part of that process of receiving the health care so that you can diagnosis problems before they become acute. so i disagree with you. i think it's going to be long-term saver for the economy. secondly, for small businesses and large businesses alike, these employees are going to be able to get -- are going to be much more productive employees because they know will have the health care that they didn't have before. you won't find them taking sick days or missing work because they weren't taking care of their health. they now have the ability to go to the doctor, take care of the issues, and come back to work and be productive. >> john, what do you think about that? >> i think it's a good point. if you look at the small businesses, what is small business lending, you can see the business itself has got to be able to make a profit. they've got that additional cost. plus they had the threat of what

was going to happen on the tax issue. so when you have the combination of the two, it makes them -- is there a business demand out there? for the lending? i understand in some businesses. >> now the tax issue has gone away. >> that dates them. but they are not applying for it. therefore, the banks cannot lend it. now when you get into if they qualify, some of them would be marginal. and then we would hope that's where we could partner with our sba, and have a leveraging and then it would be what would work and be good for all. and we could get those that needed it could get loans and partnering with sba. but there's still to me perception is that health care is a fear to the small business owner who wants to go out and create more jobs.

>> let me shift gears. i have a very interesting question from taylor webb who's a congressional intern who is somewhere in this audience. if you are -- if you did show up, make your way to the microphone. his question was not about regulators, or about financial institutions, it's about individual entrepreneurs. in light of the financial crisis, the appetite for risk has been reduced at the individual level. what do you believe is the best past to encourage individuals to take on large risks, such as starting a small business? what's the answer to that? what wants to take that? >> you know, entrepreneurship is interesting. people are willing to take risk. that does not seem to have slowed down. >> you don't think it exists? >> i'm saying entrepreneurs still rise and start businesses. if you look across the nations, a lot of businesses are starting up. particularly from the minority

community. latino community has grown at the rate of 30% in entrepreneurship. but i think, of course, there are problems with lending these kinds of things. what i'd like to suggest, again, speaking from my point of reference in california, there are a lot of opportunities for entrepreneurs that are developing in california. the access to capital programs for small and medium-sized businesses, assembly bill 1155 that offers these kind of moneys for investors that have gone away. there are a number of dynamic things in the works that we need to flush out and get government matching funds as well. >> may i suggest this is going to be a real problem. i'm hot sure it has to do with attitudes as one would think of that the entrepreneurial spirit is dying. a lot of it is going to be have to do with access to finance caused by housing. a lot of people who begin, use

their home as a -- the piggy bank, unfortunately. if we can call it that. and what you are seeing is, of course, the deflation of the housing market that isn't there anymore. and so you are having a series of folks who might ordinarily go in who cannot do so. and we are seeing right now in the statistics are beginning to start coming through that for the first time that in my memory we're having fewer starts in the last couple of years than we've had in the previous years. and so we not only have these group going out, but we have fewer coming in, and a lot of it is tied to housing. >> i want to come back to the housing thing, but taylor, do you want to follow up? and how jorge was suggested that the problem at the individual level was less significant than you think it is. go ahead.

>> just to give you some background from michigan. obviously, michigan has really been hit by this economic crisis. i also -- my grandpa started a small business. my dad used to have a manufactured home business that's basically going down as well. that's sort of the background for this question. but even so, like being from my hometown, and just being in the family that has lots of relatives who started small businesses, i can see the pinch in their pockets with, yes, their home is sort of the base for the loan for the small business. secondly, there might be areas that are more conducive to the small business loans being given out. how do you see the new policies that are supposed to be put in place and expanding and getting to some of the areas in the country that maybe most hard hit where housing prices like michigan have totally collapsed. >> steve, is it a small town problem that he's describing? >> without a doubt, there are

parts of the country that are feeling the pain much more than others. it's not going to be as simple as we're out of the woods. it's going to be regional. you can see parts of the country. i definitely see when we first started talking, we talked about are we headed in the right direction? i see good signs. i look at numbers every single day. where are we heading? what are we doing? i saw last quarter that the sba, as far as my loan programs, had the highest level of volume in the history of our programs, ever. the week before christmas was the highest level -- week of loan volume activity ever. that's all good. you know? i think that's -- but again i go back to do i measure success by how much volume we do? no, i measure success by i would love it if the gap was shrinking, you know, that does also tell me that there has been a big gap, however, we're

starting to see lending. they are taking advantage of these government programs. we provide tools, my mission really is i provide, you know, access -- i ensure access to capital to our small businesses through our lending partners to small businesses that otherwise cannot access capital on reasonable terms and conditions. and so really by watching our volume go up, it tells me that we're doing something right. okay, the recovery act and the extension of the jobs act at the end of september, our flagship program, the sba 7a had a higher loan guarantee and fee abatement for the small business owners the fees they pay for the government enhancement. basically, it created encouragement for the small businesses, and it also encourages our lenders, you know, the higher guarantee.

the other thing that i looked at, it was actually made me smile quite a bit. i was wondering, you know, i wonder how many of our -- because when businesses buy equipment, you know, that tells me that they are making a conscious decision to make an investment. that usually translates into growth; correct? that's a long-term decision. so i took a look at our flagship program sba 7s. -- 7a. what proportion is going towards business purposes. the recovery act kicked in. we talked about about the provisions that kicked in february 2009 and extent the jobs act in september. the charge is absolutely incredible. it doubled, the percentage of our loans went towards the business purchases doubled february 2009. that tells me that the entrepreneurs, the business owners are making a conscious

decision to invest. you know, and with the growth in our loan programs, it tells me that our lenders are looking at, you know, -- lenders need to lend. lenders want to lend. however, everything that we've talked about are challenges. so it takes a little bit of time of finding out how do i deal with those challenges, and one the ways to deal with the channels is to look at the credit enhancements that are able and how do we make it make economic sense? and how can we also control our risks? >> i want to go back to the real estate issue which denny brought up. it came up at the previous panel too. tom bell from the chamber when he was asked what you'd like to do government do, he said do something about the real estate problem. of course, on the one hand, we have people saying government is pouring money down rat holes, deficit is too big, they have to stop spending. on the other hand, do something

about the real estate sink hole. let me ask re beck da, kathleen, and denny, are private sector, and also jorge, what should government do about the real estate problem? let me ask rebecca, kathleen, >> i don't know. there's unknown and how in markets you don't have a lot of comps what you do. when you are markets where you are having to fire sell properties. i think part of it is the roll of the regulators and how we're working through some of these problem credits. but it's also very regional in terms of some of the local markets and how they go about dealing with it. >> i noticed the first panel didn't answer the question. i was looking for their answer. i think it's a huge issue. no easy solution. i think we need to get the

foreclosures behind us. we have a lot of people in their homes that can't afford to be in the homes. >> what's the role of government? >> i think helping the lenders get through the process. we continue to hear about delays. i think getting that problem behind us is very important for small businesses to move forward. >> denny, let me ask you about that and throw in one extra thing at the end. all of the sudden everybody is talking about tax reform. cool. let's take away reductions and get the rates down. mortgage interest reductions. is that a good idea. what should we do about real estate? >> i wish i had the golden parachute or the magic bullet on this one. i request tell you more about the problem than i can the solution. but for smaller firms, it's unbelievably important, just a few numbers, okay, 95, or 94% own a home. much higher than the average. a median, it's 60% more valuable. plus of those who don't have

home-based business that have a, you know, office or whatever you want to call it, almost half of those own that. particularly in the rural areas. and if we wanted to take it a step further, almost 40% own investment real estate. over half of which own more than one. so the small business owners are heavily into real estate to say the least. that's one the critical reasons that we have it. clearly the issue that you talk about in tax reform is going to come up. my gut is that small business owners aren't going to like a particular provision of what probably will be a major discussion on tax reform, and that is either elimination of the mortgage -- the home interest deduction, or at least capping it. my guess is capping it will probably be the one. and it's going to be central,

has to be central to the discussion, but in the short term, it's going to be really, really tough because we have this horrible problem and we have sat on it for two years and done nothing, basically, well, actually it's been about three or four years where we just sat on it, and heaven only knows what we are doing in the next couple of years. >> what do you think ought to be done on treasury reform? secretary geithner meeting with 15 companies and talk about the possibility that removing deductions that many businesses like and getting the rates down. when i was talking to analyst at the chamber. half of all business incomes goes to businesses that aren't organized as operations. you can't do corporate tax reform because those businesses are going to be paying 35%. it all has to be done together down the road. >> it's the s-corps what you are reforming to. clearly, i think tax reform

should be on the agenda. i'm old enough to remember the 86 act. it worked pretty well. all of the sudden you started putting holes in it again and so on and so forth. i think this is something good that can benefit smaller firms in the long term. particularly when it comes to simplifying it. there are certain ones, when you are talk about depreciation, and there are a lot of things like the home office for the little ones. doesn't have to be anywhere close to that complicated. but it is. the whole idea, what is an employee? doesn't have to have 20 tests. >> can it get done? can tax reform at the individual or corporate level or both be done before the 2012 election? or is it going to take longer than that? >> i think you can only discuss it for a couple of years. i mean this is huge. this is very, very big.

and i don't think that you can reasonably do it well in two years. >> jorge? >> getting back to your housing question. you know, it's extraordinarily complex, of course. but i think government can continue to play a major role in that instead of outlaying moneys for principal reductions, which generally are just not working if you have people under water and under wait for far more than a minor principal reduction, i think it's a waste of money. i have it for counseling, and you could utilize the counseling session to put people in the new homes which will reverse the trend that we have. that's a short note on that. but that's something that we've been discussing and taking a look at. when you are looking at the principal reduction versus the new home ownership. instead of continuing to lose

the existing house that you are in, you could buy something more affordable and reverse the trend that way. >> i want to ask john and anthony a question that was -- it came in in the notes that were sent by rebecca. i think i know where she stands on it. i'd like to get your perspective on this. it goes to some of the things that congress did in 2009, 2010 that sounded really popular. that's limit bank fees. over draft fees, debit cards fees. at the end of the day, banks have to be profitable and viable to help small business lending. are the new regulations and restrictions jeopardizing bank's ability to lend and ultimately hurting borrowers? john and anthony? >> yeah, you know, when we look at over draft fees and any of the fees that banks are bringing in, that's a large portion of income from some of our banks, especially small community banks. but, you know, i think the over

draft policy that we have, you know, put forth at fdic, it's looking at the tradeoff between the utility of what's being provided to the consumers, versus those cost. you know, we definitely don't want to, you know, put a temper down on any innovative type of business line. but we want to make sure that a consumer isn't getting some value for what they are getting. >> john? >> i con cure with -- concur with that. overdraft fees are important to community banks and large banks too. there are also some constraints that we have to use to protect the consumer. that's part of it. i don't think in -- where we see any of it that it has any reflection or creates any problems with lending. >> so from your perspective then, if you don't think it makes real problems in lending,

do you see it as appropriate protection for the consumer, as playing to the grand stand in terms of voters, and doing something that sounds great, but may have an unintended consequence? >> yes. >> yeah, i think it is important about -- and the premise of it is that we're trying to protect consumers. making sure again that, you know, they know exactly what they are getting, what value they are getting for the cost that they are paying. >> rebecca, do you want to smack these guys down? [laughter] >> i'll be nice. i think it's a fascinating issue. all banks are lumped into one category. look at myself, and look at community banks. we're in the grocery store next to these folks. we're not going to take advantage of our consumers. we have overdraft programs that allowed them to clear checks when they need to. we don't have some of the automatic programs and some of the different stuff that have been created. it's a community bank. just about everything that i do these days is now being regulated. what does that do our our

entrepreneurial spirit and our ability to balance? there are going to be times when loans are soft, and balance our balance sheet and income statements and do what we do, and not take an approach. some need the tiered approach to regulation, so we can get at the problem, because i agree some of the products have been taken advantage of. interchange, i'm not sure that's a protection issue. but it's going to get at the heart of community organizations. >> don, is it not a consumer protection issue, or is it? >> i think there are a number of parts of the legislation that would fit into the consumer production bucket, including this one. i think we needed to take some steps to ensure that consumers understood the products that they were getting, we're not getting charged too high fees on those products. and that we did in a way that also ensures the long term

safety and soundness of the system. i think we instruct a pretty good balance. the congress did a very good job on that. i understand that there are differences amongst the bank community in terms of size and the types of products and services that they offer. that said, i think they are -- what the legislation did was establish a baseline. this was not providing the types of fees of requirements on banks that a lot of folks, i think, in certain parts of the lobbying community on -- or the advocacy community wanted. they weren't as strong as those folks wanted. but at the same time, i think they were appropriate and necessary steps. >> rebecca let me ask you this, since you are from taos, and i'm guessing you would have voted for the democratic bill?

>> yes, i am. >> do you charge with the administration has gone bananas with regulation? >> no. headlines tomorrow. this is interesting. there's a time and place. and there's some need. i think what we are doing a lot with regulation these days is painting with a wide brush. yes, there maybe some quick fixes, but there's a lot of unintended consequences that go along with them. >> anybody want to? >> i wanted to address and agree with rebecca until i found out she was a democrat. she did. she hit the nail on the head about painting. it doesn't matter where you seize and exchange charges or what, you know, we've got to realize that we can't all be painted with the same brush. that has to do with state regulations and a state

regulators, as well as it does the size of the bank and the environment that it operates in. we still got to go back to some basic common sense examination of banks and look at them individually, look at them geographically, and make sure that we doing the best job to protect what is our main job. that's protect from my stand point the safety and soundness of the institution. >> john, is it federal government and federal regulators, are they capable of common sense examination? [laughter] >> that's a good question. one i will answer candidly. [laughter] >> they used to be. i see today more so that it appears that since we have had

this financial problem, banks have been suspect. we still have a number of problem banks on our list. and it looks like now that whether you are a primary regulator, state, occ, whether it's the fed, but it looks like we're all coming down from washington and at least what i see is that everybody wants to say, well, we can't do or we can do. but washington is making those calls and to me, that's not where we need to go. we need to be sending that authority and that responsibility down to that region and down to that level learn that should be able to work with that institution, know that market, know the economic conditions, and come up with a sound judgment. >> wait a minute, i thought you said a minute ago, it was a

mistake to paint with a broad brush. >> it is. >> anthony, he's painting federal bureaucrats with a very broad brush like that. >> with respect, i have to disagree. you know, when we proposed regulations or changes in our procedures, the majority of the time all of regulatory agents, we put these out for public comment. we take those public comments into consideration before we finalize any of our rules. the same thing when we get ready to pursue a corrective action, be formal and the informal for an institution that's having problem. that action is tailored to the specific needs for that specific institution. capital, management, whatever the case might be. :

>> a couple of things that public, and specifically to commercial lending and encouraging that banks to continue to renew credit, they extend credit. when you take those memos, we talk with our staff and encourage them come if you see a credit that's deteriorating or the clout behind a credit is

deteriorating by the individual still has payment capacity, let's not criticizecriticize that specific one. use judgment colleges balance. >> i want to go to the jury for one second. is there anyone in the audience who thinks there is a problem with consistency and coordination, and if so, raise your hand. wow. kathleen? >> we just heard that the humidity bank. >> case closed. >> if you're expecting that, the right routines in place but as long as you're inspecting, that's the case. i've heard that's committee banks, not a national bank issue. >> denny? >> i think this is an issue that is like many others we're talking about right now, and that is we are in a process of flux, what i call it right now. we've had this tremendous run up any amount of credit that smaller firms have been able to get going back into the '70s. and all of a sudden it changes very abruptly. and goes back down the other way.

we don't have rules and we don't understand one another anymore. everything is changing so we keep blaming one another as to what the problems are. and i'm not sure until such time that we don't get a little more stability and find out what normal means. we don't what -- we don't know what normal is anymore until we find that out, we will be pointing fingers at one another. i think that's probably another problem. >> any of our banks, if the bank or feels they are not being treated fairly or that we are not being balanced, we want to hear about that at a regional level, at a washington level. we have an ombudsman and the chairman indicated earlier on an earlier panel will have an 800 number that banks and consumers can call into. if you don't feel you're getting a fair shake, that we're not using, we want to hear about it. >> having kelly who may be in our audience come if so i would invite cavity step to the

microphone, ask how can local committee based organizations best work with the fdic? >> i think they're a number of ways. we have at several events around the country where we talk with community-based organizations about how they potentially can partner with banks to do activities, do so many activities. we also have fdic advisory committee that is composed completely of committee bankers. you can provide input to the group about any of our policies, practices that might be stymieing individual lending or small business lending. a number of things that we do across the country and a lot of our policies that give the public an opportunity to give input about our operations to what we're doing to what we can do better, what obstacles that we are presenting to lending. >> i want to go to it off the wall topic, not so nearly our agenda but its link to something

that's happening next week. hu jintao, the chinese leader, is coming to me president obama next week. treasury secretary geithner gave a speech yesterday and talked about issues related to american competitiveness, both decisions within this country and things we want china to do regarding the valuation of the currency. denny, jorge, kathleen, let me ask you, are you satisfied with the approach of the administration is taking to china? would be better off for american business if they were more aggressive in trying to press the chinese on protection of intellectual property, on currency? or would not risk a trade war that would ultimately backfire on everybody? >> it's a little out of my area of expertise. >> i'm going cheaply the same thing. -- i'm going to plead the same thing i don't feel confident your. >> just experience, not a great deal but let me make comments

with regard to the. there's no question that president needs to engage more with china. they are a major partner, hold a great deal of our debt, and we need to i think show more leadership. over the past of years that's asserted. and with regards to evaluation but also with regards to importing businesses. i'm on the board of governors, and we deal a lot with chinese companies, and some of them that are moving to this country. and being a small business chamber, we are looking to generate some contractual agreements with them to expand businesses for some of the products. there's major corporations moving here. overall, we need to play a much stronger role from d.c. we're doing some things in southern california. however, it's a far greater, far bigger issue. but on these kinds of things

absolutely we need much stronger leadership in all of these areas. >> john, i know it's not your area of expertise either, but should the administration be tough with china? some of the polls say they should? >> i think we should toughen up and we should protect the dollar and, you know, we spend a lot to lose if we don't because they already own half our debt, or a big portion of it anyhow. and i don't know that we want to get any deeper. >> i want to go to a question that jorge had sent, which is a site small business lending, what's that would have the greatest impact on the development and creation of the jobs? we talked about real estate. set that aside. what else even that government can do or that business can do that would have the greatest effect on generating job

creation, given the fact with unemployment still near, overnight% and it will stay high for a long time. who wants to take that? >> to some extent, the whole idea of the payroll tax being repeatable as two percentage points on individual site is a good idea. we are two years too late with it that's the problem. that should've been stimulus policy to begin with, is focused entirely on -- >> but going forward. >> going forward on his i don't see -- i think were limited by their money that we already spent. you heard senator warner talking about in the future the next couple years we have to start talking about deficit, where we are going and all that. so i think our options are really limited. and the idea that we now have begun to put an actual stimulus into place is probably the best will be able to do for a while, as long as we're not talking

about real estate. >> is there anything the government can do -- able to talk about the $2 trillion on corporate balance sheets that is sitting there, waiting to be invested. we've talked about the lack of demand. if that's a problem that is causing the money to sit there. but what can be done about that? >> that's going to come when there's a demand, when there's a demand for investment. you look at smaller firms right now, and you look for either a physical investment or you look for inventory investment, and i mean, we are barely back to kind of a very low level now. we are out of the out of their deaths. >> does anybody on the panel like the one at a preset spending and tax deal, is that a good deal? >> yeah, but i mean part of that is caused by sales. low, the big guys, yeah, they get good profits but a lot of them are coming from overseas.

rather than from here domestically. so if we get more investment we have to have more sales. >> don, you're a treasure, you're in charge of the economy. [laughter] >> what can we do to spur the creation of jobs given the fact that we are broke? >> i don't think there's anyone silver bullet. i think there -- >> are there any partly silver bullet? >> in the range of her today, spurring additional lending to small businesses, it's spurring innovation and the president has talked at length about his innovation agenda. so it's helping small business owners, entrepreneurs take advantage of the great ideas that they have right now, and being able to turn those ideas into products and services that they can sell both domestically and abroad. where i actually agree with my colleague, denny, it's finding a

balance of protecting american companies, but also ensuring that we are competitive globally. it's working all across the globe with our partner, our trading partners, to make sure small businesses, large businesses have access to the markets, but also have the financial wherewithal to do what they need to do. i think you've heard recently from the business roundtable that they expect their members to increase their hiring, to increase their investment in their companies, very substantially. and i think that will go a long way to turning around the types of increase in small business investment that we would all like to see. but it's not going to be one thing. it's going to be housing as well, assuring the responsible homeowners can stay in balance, that they have everything they need so that you -- is really just a blazing the economy as a

whole, not just one individual effort. >> i interviewed alan blinder very used to advise president clinton. he said look, we need to recognize -- is considered a moderate. yoyou, you say we need to recognize when a jobs crisis and we're going to be in a crisis for some good a time because it will be very slow out of this hole. we i do think about direct government hiring. unit, new deal kind of stuff. is that crazy talk? could it make sense of? >> i don't know that having federal programs aimed at hiring is the way to go. i'm probably not qualified to talk -- >> does anyone think that is a good way to go, direct government hiring? >> i think it is important because from our point of view in los angeles, southern california, los angeles has about 600,000 turn 13, probably more than any large group of states put together.

we have lost over a quarter of them. if you look at the desperation of these kinds of businesses, sales is critical. people need to have money in their pocket to buy from their local retailers. without it we are still seeing a flood of people that are going under. so i think that is very much a part of the stennis package. what's important to note is we cannot slow down or stop this recovery by the absence of stimulating the economy. that's a word that you have to look at. i think it has real value there. >> my comment is this. this country is small businesses. this country was built on small businesses. this country has been pulled out of the deaths of every recession we've gone through with the help of our small businesses, and this country will, the opportunities for school board our our small businesses. only two out of every three of us work for our own our small business, correct?

you know, why i worked with his small businesses for 20 some years is because i'm fascinated by them. they will find the opportuniti opportunities. they will find the opportunities come every single time. and so, we go back to what we discussed, sales. so we need to take a look at where, you know, where are the opportunities. were a global economy, exporting. these are the opportunities for our small businesses and we need to take a look at that and we need to see, you know, can we provide the assistance, can we provide a tactical training, can we provide the tools for our small businesses that really define us to take advantage of that? >> let me follow-up on that and testament on the panel because i've had some conversations with economists, left and right, who usually this part of the conversation is off the record

because of the politically incorrect, but when i talked to a few months ago said something to the effect that come on, we have a wave over romanticize small business. starting and stopping in a sort of thing. but if you look at it candidly, the best jobs are in large business, but jobs that pay the bills, have the best benefits, we need to focus more attention on increasing hiring among large businesses rather than small businesses. it's kind of like family farmers in an era where that a little bit obsolete. >> my comment is this. and i can drive through town and pointed to my kids all the businesses i felt over the years. i was in the trenches. i was doing this. in perfect example, businesses that i provided, may have provided a loan for our restaurant to open up a second location, and we talked about how me jobs isn't going to great for that restaurant, how many employees do you have? but as you walk through the

project and you step back and take a look at how many jobs has that actually touched, that project. the contractors, the equipment companies. it's mind-boggling if you stop and think about it i think we are underestimating that. >> denny, is it too much mom and apple pie talk about small business? >> actually it's been kind of interesting recently because all of the economist coming out with these sorts of things. but if you look at the bureau of labor statistics, what they call the bed series which is business employment dynamics series, which is recorded officially the number from 92 through -- well, i'm going. 64-65% of all net, underlying net, not just gross, net, hires versus layoffs, or if you know whatever. net jobs are created by smaller firms. and a goodly number of those are

smaller firms under 20. now, those are government members. i'm not making those up. and all the data that we have going back to about 1976, prior to that, says approximately the same thing. so all of a sudden we get somebody comes out, and i know who the people are, the suspects here, no, good people and they very bright people. but all of a sudden they come through and they say, yeah, but a lot of them are new, brand-new firms. well hello. they are small firms, are they not? we don't start firms at five, six, 700 employees. so that makes no -- i mean, that's kind of superfluous to the whole argument. and so, the job generation faces is quite clear going into this recession. what's going to happen after

this recession, i mean, we've been able to do this for years and years and years. a guy by the name of david berger wrote the original think that if no one has criticized him, but i think he is written has proven to be correct with data. so here we are, these are job generators. we went into this recession. we may be seeing something new happening from this recession. but basically it's indisputable. just look at the government members. >> with pestering defense of the contribution of the small business to the u.s. economy and a lot of hope things get better, then they look right now, we want to thank our panel and we've got two more speakers at the end. we're not quite done. thanks so much, guys. [applause]

>> health care agenda set to dominate house action this week. debate is set to get under way to mark with seven hours agree to.

>> i believe that the best way to carry on dr. king's work is to reach out to someone in need and to make an ongoing commitment to community service. >> on the 82nd anniversary of martin luther king jr.'s birth, he's the c-span video library. there are hundreds of programs on the life and legacy of the civil rights leader. fighter program, watch it, clip it and share it. >> the american bankers assocation was cautiously optimistic friday in its 2011 economic forecast. bank economists predicted sustained economic expansion including a modest increase in job growth.

expected to push the unemployment down to 9%. this is about half an hour. >> good morning. i want to thank you for coming as we present the aba economic advisory committees economic forecast and monetary policy predictions. you should have received a blue-and-white packet that includes our press release, forecast spreadsheet, and also the package includes a card with my name, jonathan snowling, which is a contact for you guys want to follow up with media interviews, following the event today. i would like to introduce aba's chief economist, jim chessen who will start the meeting off here today. >> thank you, john. let me add my welcome to you to

the aba and aba's boardroom. i've had the distinct pleasure of working with 14 chief economist for major banks around this country over the last several days. many of them were able to stay for the press conference, and i'll introduce them. you have the opportunity to meet with them afterwards. dana johnson from comerica is are chairman of the committee this year. unfortunately, he was unable to make this meeting in person. we have asked stuart hoffman to his are chairman last year and several times i think it is committee over several decades we've had the pleasure to work, who chaired the group for this session. as always, this group meets twice a year. as part of that meeting we meet with the federal reserve board. we do not discuss anything about that meeting. it's completely off the record. we like to keep it that way so if you have questions that relate to the fed, ask the fed. and we know how responsive they

often argue that. but we like to keep that relationship, you know, the way we've had in the past. what you here today is essentially the same type of presentation that we made to the fed, and just to be clear, this is the eac forecast and it reflects the feeling of this committee. with that i'd like to introduce the members of the committee on this side. susan hares from bank of america merrill lynch. scott anderson from wells. jon also from wells. scott brown from raymond james. george from huntington. end of annual from bbc a compass. with that let me turn this over to steve hoffman. >> thank you, jim. and good morning to everyone. thank you to the committee and my colleagues that were just introduced. we had a busy day yesterday, in preparation for that, a lot of

interaction and e-mails getting ready for yesterday. what i'd like to do is share with you the highlights really there are six, and as i look out tonight and see a lot of the money faces, glad to have you back. but there are six main highlights our economic outlook that as jim said we shared with the board of governors, and have been outlined in both the press release and, of course, the details about the numbers in the table. let me start come as i said there are six highlights. let's start with the outlook for real gdp. as the press release says in its headline, our committee, and again as jim emphasize, this is a consensus of our committee, and i'll talk a bit about the balance of risks around the. but our committee felt more forecast real gdp growth this year of around 3.3%. prosodic fourth the fourth order basis. that compares what we thought

we'll call potential gdp of around the center of around 2.5, 2.7 if i. we get to the economy would finally be growing sort of ahead of the speed limit. the long-term speed limit. in the coming year. in 2012 or 2013, we have three primary kinds of numbers, but we continue to seek economic growth in those years as well, maybe something closer to the order of 3%. in terms of the application then for the job market, which we are all focused on, that kind of economic growth we anticipated would add about just over 2 million jobs over the course of 2011, to the economy. last year they were just shy of 1.2 million jobs added. so clearly an improvement as economic growth is faster. that is enough to take a small bite out of the unemployment rate from of course it was 9.4 in december, although this may be me speaking, that could understate things of that.

the fourth quarter average of last year was 9.6. the forecast of our committee is that the unemployment rate in the fourth quarter of this year would be down to 9.1%. so even to 3.3% real gdp growth, while it is big enough to provide job growth and knock the unemployment rate down, clearly that leaves it well well above what the committee felt was sort of the long run unemployment rate which centered around 5.75%. figure of progress, but clearly a lot more that needs to be done over time to bring the unemployment rate and even closer or anywhere new closer to what we think it is the long-term potential or average. >> in this environment we thought it inflation would remain relatively tame that many of which measure of inflation you use, the cpi, seb deflator, core headline, some in the order of one to 1.5%. that would be pretty much in

line with what we had in 2010, even given the announcement this morning of the .5 rise in the headline cpi. cpi with .1 i think on a year-over-year basis. the core cpi was around three quarters of 1%. at our forecast it would be maybe a slight increase this year but something on the order of one, 1.5% which seems to still be below what the fed often said is its preferred inflation rate of somewhere around 1.5, 2% in terms of the core pc deflator. in terms of thousand risk to the forecast, having as jim said i've been doing this now for many, many years, but as chairman all through last year and on the committee the year before, i could say as i stood up in front of you the last year while we talked about the forecast, there was clearly a bias in a forecast to the downside. it was much more concerned that the extent of forecast was

wrong. it would be weaker rather than stronger. this time it's more balanced. around the 3.3% economic growth, the committee felt there are clearly still downside risks inn the housing market and house prices, problems in state and local government, financing, and some commercial real estate, and were oil prices to go substantial higher than they are. but they also felt their outside potentials. wealth effect on the stock market, stronger global economic growth would be another one. very, very healthy corporate balance sheets. so this time we felt more of a balance then we could have downside risks but we could have upside surprises and we thought it was sort of balanced on both sides. so not only is the median forecast higher, but some sense a degree of confidence in the odds of the myths are not all skewed to the, you know,

downside. and if it doesn't happen it will more likely be worse than better this time. maybe it will turn out to be given a little better than we had forecast. in terms of bank lending, the committee in looking ahead, vast majority of us thought the availability of credit to consumers and businesses would improve over the coming year, and there were some signs it had begun to happen. we thought there would be growth. we think consumer lending will rise around 2.5% this year and business lending around for .25%. so that would be growth in business loans that we haven't seen in a while. and we also thought the delicaciedelinquency and charge-offs on the banks books would decline a little bit as they often do in lag response to the economy. and and finally, in talking about the fed, forecast was that there would be no change in the fed funds rate. i think there were two or three people that did think the fed could start to gently nudge fund

rates up by the end of this year, but the overwhelming majority of us, sony the median was, that the 02 court-appointed fed rate charge we've seen for quite a while, will last about 2011.

at the end of my remarks and your questions, my colleagues also will be available to speak with you as well. so, questions? >> bill somerville from reuters. two questions in relation. where you foreseen such a jump in oil prices and secondly can you rate that is a risk to your forecast as against the european cup races? >> jack, i'm just taking a look. i don't know if we have a large jump in oil price is. in her forecast reducing the oil prices, like we talked about them is tantamount $9 a barrel and maybe some creep up in the spring as the seasonal. there was a downside risk that if -- not that we're forecasting it, but if there were a big increase in oil prices to play

constrains of that nature, that bigger increase in oil prices wouldn't have a specific number and in my mind in plea over $100 a barrel would become a negative or downside risk on not only a u.s. but global economic growth. it's not her baseline expectation. the baseline is oil will stay around $90 a barrel and to discuss a potential downside risk for some supply disruptions to push oil prices much higher over the course of the year. >> lesser risk than europe? >> we didn't order the risks. so we didn't exactly talk about the priority. i think though we might feel that it run up in oil to occur would be a greater risk. maybe i'm speaking for myself rather than the committee, more of a negative potential than any sovereign debt issues in europe.

[inaudible] >> how much of a fact do with bush tax cuts and the stimulus forecast? i assume that probably affected -- changed maybe to the upside for your group? >> yeah, i've used them to know what is going to happen with this goalposts in 2011. there of course questions about whether a temporary fix to be renewed or not in 2012, which we didn't specifically address. but i think it was a feeling that i can speak for myself but bush tax cut. i refer to it more again be speaking as the dog that didn't work for a bite in their briefs to go up. of course two of the cut and the accent thing as well as the extension of unemployment and if it. i think our group felt that degree of certainty in and of itself, so that wasn't what is going to be our tax rate was settled in to the extent that those rates are extended and

indeed modesty was coming from the payroll tax code was, i believe, part of the reason why the forecast of her group is a little higher than it was next month ago. but i can't say specifically we asked, how much mortgage you at your forecast in terms of jobs or gdp as a result of the tax cut? maybe a little later, you know, individual members can speak to that. that feeling with the degree of certainty that we now know what they did and that it was modestly stimulative probably did push out the bits are outlook and a greater sense of confidence in the outlook for 2011. >> crake rob, market one. realistic for 2011, what kind of factories in your forecast? will it be a head wind for the >> in terms of gdp numbers can we do a small increases in residential investment in terms

to what prices may be pretty flat, maybe a small increase in house prices. so i'd say it's more of a news show. it was a downside risk. there was concern there could be a bigger drop in house prices, perhaps from this foreclosure issue and how those results. i think the feeling was with some job growth and with some still fairly low although modestly higher interest rates, we do have the 10 year treasury rate up from around 330 currently to about 378 year and maybe fixed mortgage rate in our forecast up to i think around 528 year-end from around 470 today. but the feeling was that housing would still be somewhat of a traffic, neutral to a drag on the economy but, you know, not a new downward cycle, a quote double-dip housing prices. so clearly that was not what was propelling the economy.

with more investment, consumer spending come experts to global economic growth rather than any significant improvement in housing construction, home sales already wealth of home prices. [inaudible] >> how do you factor in the crunch on state and local government, especially -- [inaudible] >> yeah, we talked a lot about that at length. we certainly do that if they downside risk. the feeling was we talk about job growth and didn't break it down between private and public. i think the committee would probably agree the expect tatian 's jobs will decline in the public site areas so that the growth in jobs we get will be all accounted for in the air as opposed to the public site where we didn't talk about the numbers. we noted of course the public sector jobs have been declining all through 2010. we thought that would continue. so from a child's point of view

or an investment point of view, state and local governments would be a drag on the economy. i think we felt as a group that there wouldn't be a major financial and sent, a crisis event in the municipal market with bill over to the rest of the financial markets. another is obviously been a lot of publicity out that in the last couple of days, but we thought that if they downside risk, but was something we thought would be manageable and not a kind of municipal bond crisis that would become. >> will do. next question that i can repeat.

>> on inflation come with the kung fu strong is strong and would stay low throughout the or there for weather centers because of high energy prices we could see a pickup? >> the question was about inflation come how strong is the feeling it would stay low. the consensus was fairly strong on a one to 1.5%. we also do a balance of risks and come you know, in terms of economic growth in terms of inflation come out of the 10 people that responded, six felt they could be to the upside there was a solid consensus that would remain on the headline other commodity prices or food prices could push headline cpi data, but i would say that was

definitely not a big concern, not something that give us a lot of heartburn and quite balanced around the idea of continued low inflation. not deflation, but continued low inflation in both the poor and headline issues this year. and this will become more competitive on the global market. we certainly have exports as a source of growth for the u.s. economy. in terms of the value of the dollar, then you could look on here. we did talk to the value of the dollar. looks like it was fairly stable, but we don't forecast a significant, either rise or decline in the value of the dollar over the coming year. we didn't spend a lot of time talking about that, but i think in terms of the competitiveness in u.s. economy, certainly in the year ahead or let alone beyond, the feeling was that the

manufacturing sector and productivity improvements were making the competitive and quality of goods and that exports and their growing global economy would be part of the growth story for the u.s. economy in 2011 and not specifically discussed it, but probably beyond that as well. so i think the answer is yes. >> to questions about the sad. could you guys talk about that when you think they will start raising the federal funds rate, did you put any dates i'm not quite look like by the end of the year more people are expecting some growth. e.g. talk about 2012 at all? >> the question is than 2011 did we talk about when they will start to move the fed funds rate. we didn't have a large discussion about that. i think there was some feeling amongst the committee and i can

speak for myself but sometime in 2012, maybe towards the spring you could actually see the fed starting to raise its fed funds rate target. i would not see that as unanimous decision on the part of the committee. afterwards you can ask members individually. so we focused more on the fact that early for the next year that one could say you reasonably foresee that the fed would not be raising the rate. but i would guess that what we do this six months from now and i were looking up to 2012, there will be more than two or three people that would think the rate -- the target rate or the funds rate will start moving up next year. >> second question. >> on the bank reserves that are piling up at the banks and are being led, what's going on in that dynamic? will there be come a time when those funds will come out in the market funds? >> yeah, the question about reserves being one. our forecast is of the more on

the part of banks, you know, specifically tied -- the reserves are already there. so this wasn't enough reserves enough reserves and we felt the pull from the demand side of more parlaying, credit worthy borrowers as well as a willingness on the part of tanks to loan money that we would see a rise in consumer lending this year and an even faster rise in business, particularly the zero market, but smaller companies as well. a number of thoughts about our individual banks are competing aggressively for our borrowers in the middle market and smaller companies and so the feeling was those reserves are there, that the balance sheets and many companies are very good for those who want to borrow, there is a willingness on the part of banks and certainly an ability on the part of banks to lend money and this year we would see increases in loans, both for businesses and consumers.

>> would that include mortgage credit? >> we didn't specifically break mortgage credit out. i would think probably, depending on how the foreclosure issue works out, that's a major issue. i think the issue would be that mortgage availability, mortgage money would also be on the rise as well and that, you know, we talked about consumer, talked about business. but given what we said about housing it's sort of a neutral i wouldn't think we'd see a lot of demand for mortgage credit, but it could well be a pivotal or flattened up a little in terms of the bank. and of course their are many, many mortgage lenders beyond just simply what the banks do. [inaudible] >> it's also a lending standard question. [inaudible] would that be part of the equation or will it be driven by

demand? and perhaps the easing of lending standards? >> again, we didn't specifically targeted to real estate as opposed to other types of loans, but the vast majority of us thought eight out of 10 foresaw an increase in credit availability in the coming year as well as an increase in the quality of credits, not only new credit applying for loans, but those already on our books. so i mean, i can remember six or nine months or 12 months ago it was safe mixed bag. some said publicly about the same. maybe a few of us would've said improving availability and some would've said deteriorating. so the evolution of that question from this committee, since i've been watching for a while has gone clearly to the side that says credit availability is expected to be much better in the year ahead than we've seen in the last couple of years. and if that is much by demand,

should result in more loans made an outstanding. >> back to the federal quick. he said that no one expects the fed to go beyond 600 spending plan. how much of a factor in the overall forecast is what they're going to do, what you expect them to do? >> again, the question, repeating it, as no one is expecting the fed to go beyond 600 billion. you know, it's hard to answer your question exactly. that's factored in everybody's forecast. we all, i think, agree this monetary stimulus is coming from the purchase of 600 billion of some magnitude that they would not be a need to do anything beyond not. but i think the general back drop of a fad that completes the purchases announced and in the process and then not raising the fed funds rate in the latter half of the year is the degree of monetary stimulus or a combination that underlies the

improvement and is making a contribution to the improvement in the economy. we think it's effective, yes. >> did you talk about at all what happens if all of this gets withdrawn, both from the federal government on a physical level -- [laughter] and its continuing low interest rates for a continued. , the theory being that they're trying to help the economy achieve the escape velocity for you are suddenly confident job creation and so the government can step back. have you discussed that? >> at some of the question discussing the perhaps eventual withdrawal of either monitor any fiscal stimulus and the word you use is escape a life of a cow which actually is the title of my newsletter that i just

published yesterday, but that's me. that's not the committee. we have difference of opinion, sort of around the world self-sustaining. as a self-sustaining in the sense that the restatement upon both for there is a lot of monetary and fiscal stimulus. i think the compromise was we need more job growth, more evident than more solid job growth to really say we're in a self-sustaining economic expansion. so clearly monetary and fiscal stimulus is still part of the ingredient. it is keeping the economy growing and indeed may be growing more rapidly. in terms of looking beyond the next couple years, there was a lot of discussion about the eventual tightening the fiscal and monetary policy with frankly no agreement or no opinion as to what the economy or what it would look like or how it would occur, but the feeling that was probably not due 2011 event.

but out there there is an unknown richmond that fiscal policy is quite similar and at some point in the future, both of those will have to be less stimulative and just in that occurs come whether swiped 12, 2013, you know, we didn't come to any firm conclusions on that and i don't want to say was beyond our forecast, but will focus more in 2011 and to some extent 2011 and a in the feeling was that would not happen in that timeframe. or started to have been maybe in 2012, but not 2011. both on the monetary and fiscal side. >> could you talk about the consumer and given the savings rate? >> electric the saving rate was about five to about 5.5 to 6%. we think it took a little of the fourth quarter. look at the retail sales number,

you know, when we put it together it does appear as though the savings rate fell off a little in the fourth quarter and spending income. i think the feeling was over the course of 2011 that income growth generated by some jobs and maybe some hours worked would be a mindless consumer spending so that the pace of consumer spending, if you look here, as let's see, somewhere just around 3%, a little lower than the 3.3% were forecasting for gdp growth, so consumer spending is making a solid contribution, but clearly it's nonresidential for some it's nonresidential, but particularly business equipment in some exports. the feeling was in coma and grow in line with spending or the other way around. real spending would grow and mine didn't come, taking account of the tax cut that is occurring, you know, this year on the payroll tax of the

consumer spending in line with income would mean the savings rate would stabilize somewhere around 5.5% to 6% from three big move up from there it 0% or 1% through four years ago to 5.5% or 6%, but over the next couple years there wasn't a feeling would go 262748 or something like that, but nor was it likely to come back down on a persistent basis when consumer spending more than their income growth. any other questions? if not, thank you very much. as they say, i'm sticking around. my colleagues are sticking around. if you want to talk one-on-one, we welcome the opportunity and thank you for attending again. we'll see you in six months. [inaudible conversations]

>> chinese president hu jintao arrives in the u.s. tomorrow with a visit from the president among lawmakers and business demand and business gets underway wednesday morning at the white house and meetings at a news conference with president obama. later, he visited the state department with vice president

biden and a formal state dinner at the white house. the president will spend thursday capitol hill meeting with republicans and democrats, then speaking to the u.s.-china business council. that night he'll fly to chicago for maybe the chinese business owners on friday before heading home. next come a conversation about chinese president hu jintao and its visit the u.s. from "washington journal," this is just over 35 minute. >> we want to welcome richard solomon he served as the othe assistant state in the first. bush administration. morng also present at the u.s. institute of peace. good morning, thank you for being withs us. to turn her attention to china, the president of china in town this week for president obama's third state visit, but the backdrop of this is a trade issue we have an human rights issues the u.s. is taking him out with china. trade. will this result in any changes? >> i think it will raise issues. the exchange rate, concern

about intellectual property, china's inflation fears, et cetera. there are a whole range of very specific issues. but the significantance of this visit as secretary of state clinton pointed out, if we get some shared views of where the world is headed it can affect in a positive way the trajectory of this relationship for some time to come. and this comes at a critical moment because china is growing assertiveness holds the risk of repolarizing east asia, that the japanese, the south koreans, the mallations, others are quite concerned about china's pressing on offshore oil suzz, they're concerned about their unwillingness to get control of the north korean proliferation problem. so yes economic issues will be very clearly on the agenda. as will other issues. human rights is something that the president intends to raise.

but the broer set of issues and the question of where the president can make a real contribution is trying to gather a common perspective with the chinese on where this is headed. host: let me read what andrew higgins writes in hong kong. can you explain? guest: he has a real problem. he's approaching the end of his tenure and he wants a positive relationship. he can't have a punchup with

the president of the united states. that would affect him politically back home. and of course china's standing in the world. at the same time he's under real pressure internally. we saw this during secretary of defense's recent visit that the chinese military -- and it's not at all clear that the chinese military is under control of civilian authority. they're pressing for a much more assertive policy. they stuck the nose of our defense secretary into this new fighter aircraft and there have been other events over the past decade where the chinese military has seemed to be in a position to literally embarrass the political leadership. so he is cross-pressured in that sense. and he comes at a time when there's evidence that the chinese internally are debating to stick to the keeping a low posture, not getting too

assertive for fear of scaring the bejesus out of their neighbors, or to be more assertive. and he ds going to have to walk a deck cat balance between a positive visit and responding to these internal pressures. host: i want to come back to the comments of secretary clinton in a moment about the larger issues. but let me begin with the commerce secretary. he delivered a speech to discuss the trade deficit issues between our two countries and the impact it's having on the united states. >> it's important to note that since china formally joined the w.t.o. nine years ago it has made important progress opening its markets. tariffs have come do you know. property rights are steadily evolving. and great strides have been made to free the flow of commerce across china's borders. on balance, the competitive playing field in china is fair to foreign firms.

and we commend the chinese for that progress over the last ten years. and it's also not lost on countries in the west that on our march toward industrialization we sometimes protect the native industries with policies that today would mobilize an army of w.t.o. lawyers in opposition. those policies were followly then and they are surely folly now. host: your response. guest: we have a real problem with the chinese in terms of dealing with our respective jobs issues and protecting our intellectual property, having fair access to their markets. and this undoubtedly will be a major issue for the president to raise with their president. but the chinese are trapped in a situation where they mobilize their population with three decades of really fantastic

economic growth, about 10% a year, and they can't get off that tiger. they're very worried about political instability. that is probably the core of their economic policy. the effort to prevent political instability. so they're not going to give un on compromises that would lower their growth rate for them that's the basis of their political order and it's a great strain on this relationship. host: from the "wall street journal" last wednesday. china, now the world's second largest economy. guest: that's an example of where the chinese are pressing to establish a much more visible role for themselves. they've talked about creating a currency that would supplant the u.s. dollar. i don't think they're going to find a lot of support certainly in the short run for that. but this puts the pressure on

us to get our economic situation under control. host: from michael green, adviser, he has this quote that we found this morning in the washington examiner that the white house and the president goes into this summit thinging both sides eager to add a little more stability to the relationship. we go beyond that word. what would it mean? guest: stability would mean coming to some consensus and some adjustment in these economic issues which probably are are the the highest profile set of issues given the jobs concern on both sides. but nuclear proliferation is an absolutely critical issue. and we're not sure that the chinese have placed it as high on their agenda. they may not see it as a core security issue in the way that we do. and so some indication probably it will be more private than public that they are prepared

to work with us, whether it's north korea, iran, or even pakistan on the proliferation issue. i would say, would be critical. host: while this is happening, the recipient of the noble peace prize last month remains in a chinese jail. will that come up as a human rights issue? guest: i would be very surprised if the president did not raise that issue. he met in a very public way. so we know in terms of american foreign policy the support of our public for this relationship of human rights is an important issue. for the chinese, it is a very threatening problem because they are worried about their internal instability. one way to look at this relationship is that the chinese are coming to us with a kind of 19th century agenda even though we're entering the 21st century. they're trying to get control over their territory, just to

these economic developments, and even their political stability internally. they're very upset when our president meets with the dalai lama because it is seen as politically very destabilizing. so that is again the core issue and the human rights problem will be a matter of some contention, not a matter of consensus in this dialogue. host: our guest, richard solomon, the president of the u.s. institute of peace. done joining us from texas. good morning. caller: yes, sir. to start off with, as far as trade goes, in between us and any other country, it might be better if we didn't let corporate lobbyists take the lead on it because they're getting a pretty good deal to export our jobs overseas and they're getting tax breaks. and this all started with these right to work states. host: thank you. we'll get a response.

guest: our strength are economic innovativeness. and yes we're dealing with a problem where many jobs are going overseas. that doesn't have all negative benefits for us. but our strength and the challenge to our economy is to develop new technologies and new production arrangements that will keep jobs at home and that's a longer term challenge. we're not going to change overnight the comparative advantages of exporting production to foreign economies. what we've got to do is develop the real strength of our economy, which are our ability to develop new technologies. host: from the "new york times," china's winning schools. he points from beijing in his column.

guest: chinese culture has always put a lot of emphasis on education. and this is where this country expresses its tremendous dinism. it's something that should worry us and provide an impetus to improving our educational system. i was in graduate school and it

gave us a kick in the pants to make improvement in scientific education at that time. and what he points out is that again we have good reasons in terms of global competitiveness to get our educational system operating at a higher level. . . why was china outside the 9/11 towers, taking away over fields

which is a federal offense. i see >> guest: there's a whole serious and not theirs. the combination of terry's son, the turmoil in the world of islm islam, nuclear proliferation and genti have ana where president and hu j ointao have an opportunity to develop a shared disk. we've been helpful to china totl the degree which we deal with the terrorism problem. chinese from the weger region who were trying to destabilize their own country. our efforts benefit china significantly, trying to stabilize that dimension of our security problem which we share

with them. it is an area where we need to cooperate as with nuclear proliferation host. host: dr. solomon earned his degree at mit. we go to portland, ore., our line for republicans, good morning. good morning caller: . i want to put the issue out there that high-speed rail would bring this country together. with our scholastic system, we could improve on it to the point that it would be in and this product of china and china would be wanting to engage with us with high-speed rail. it would bring this country together for crossing the country left and right and it

would allow people do not understand -- not to understand that -- i am not making myself clear. guest: chad is a very interesting point. the chinese are developing a high-speed rail. they are under enormous pressure to get this system working. over a decade ago, i had a discussion with the chinese ambassador saying that because they had made a big investment in an automobile industry, they would trapped themselves in real dilemmas. they would need to import petroleum, at security, they would stress their infrastructure. they did not have the roads tuesday -- to cope with cars. today you go into beijing, it is a parking lot. as in every country, when you would get economic development,

people want mobility. there have been buying cars but they don't have the infrastructure to deal with it. host: didn't they stop the sale of cars for a period of time? guest: they are trying to control it. they are trying to go to public transportation, high-speed rail development. they are also trying to develop these technologies for export. as the caller suggests, this is a way of developing public transport that can be helpful economically, socially, and the chinese are out on front on this. host: one of our regular viewers says can you give a brief history of the china-to that relationship? guest: like the taiwan issue, tibet has been at the margins of the core of chinese culture. it is an area of their country that they don't feel they have full control over.

tibetan culture is quite different than han chinese culture. the chinese are trying to figure out how to deal with a restive population there where they have used military force as they did in 1959 to get control over it. that is why the dali lama is seen as a real threat to them. the chinese approach has been too economically developed a region in hopes that will hold the loyalty of the tibetans. it is a much more complicated issue because their religious question gets of the core of tibetan identity. this has to do with all the minorities, they are having real trouble how to deal with these national minorities. they are a small percentage of the population but they occupy critical border regions. the chinese will be very rigid on how they deal with issues

related to tibet in particular host: next is leslie, from brentwood, georgia. good morning. caller: good morning. i am an independent and i have a perspective that still has not been satisfied as far as what is coming out of washington. as far as the banking industry goes, i don't feel like there would be anarchy if we had not bailed out the bags. that is my perspective. my question to you is -- i was watching one program on fox of the other day and someone mentioned china and bailing out the united states. i thought about that and how can one state bailout and other state since the states don't own money? i want to get your perspective

on the idea that one state can bailout another state. thank you. guest: by think the key perspective is that the united states and china have an interdependence and economically. they depend on access to our markets. what they have been doing is buying up a substantial portion of our national debt. in that sense, they have sustained our economic growth and made it possible for us to maintain a level of consumption that they need because we are consuming all these chinese goods. people here are wary about the fact that the chinese do have so much of our national debt. they cannot just try to get rid of it all and go off in another direction because they do need a stable market here for their own economic growth. as i mentioned earlier, if they

can't keep their economy growing, it has a very politically destabilizing effect in their own country. this economic interdependence is something that our officials, the president, has to work with the chinese to see that there is greater access on our part to their markets and greater openness on the playing field. host: let me go back to nicholas case.of's he points out that in chinese schools, teachers are much respected and the most admired kid is most often the brain rather than the job for the class clown. americans think of the chinese strategic challenge in terms of the the new chinese still fire but the challenge is the rise of the chinese education system. guest: that is something that we do have to worry about. that article is very important because it emphasizes a critical

point. the chinese respect the innovativeness, the intellectual flexibility and creativity that is part of carry educationalc systemcarryristoff points out that at a higher level of education, the chinese want to come here. they have over a quarter of a million students here in this country because at the undergraduate and graduate school levels, our educational system produces people who are entrepreneurial, innovative, and that is something the chinese have not worked out in their own system. their culture is still very authoritarian. it is not all a negative story. we should certainly be well aware that they are determined to try to improve the quality of their intellectual capital through their educational system. host: part of the conversation

is on line on our twitter page. wal-mart is a front for the chinese government, is the comment. that is based on the amount of imports we get from china. guest: there is no question that wal-mart and other outlets rely on relatively inexpensive chinese manufacturers for their marketing. a lot of that will not go away. that is our system now, our wage levels won't support the kind of productivity and low-end products. our strengths are innovation at higher levels of technology. this gets to the educational system. we have to maintain our innovativeness, our development of new products and capitalize on that through our exports. that is our comparative strength.

host: the greatest difference in u.s. schools and the rest of the world is the number of days attending class is great in the u.s., 188 days, the rest of the world, 220, a huge difference. peter joins us from lakeland, fla., democrats line. caller: good morning. i am always interested in this conversation. i hope you can bear with me with three quick points. mr. solomon, with all due respect, china has figured out how the government works. they have goldman sachs, j.p. morgan, and the chamber of commerce. they don't care about human rights. they care about the bottom line. you have said two or three times now that we need to rely on new technology. we have the iphone, the flat screen tv -- solar technology. they have been developed in the u.s. and they get outsourced to

china. guest: that is absolutely the case. this is where our president i'm sure will press the chinese for adjustments in the way they deal with our intellectual property. so that we don't lose control of these innovative technologies. host: secretary of state addressing the larger issues between the u.s. and china. her speech this past friday at the state department. >> i would be the first to admit that this trust lingers on -- that mistrust lingers on both sides agreed the international community has watched the chinese evers to modernize and expand its military. we have some clarity adds to its intentions. as secretary gates stress in beijing this week, both sides would benefit from sustained and substantive military to military engagement that increases transparency. we need more high-level visits. , more exchanges from our

professional organizations and other steps to build that trust and understanding of intentions unfamiliarity. this will require china to overcome its reluctance at times to join us in building a stable and transparent military to military relationship. we think it is so much in both of our interests and we will continue to raise it and work on it with our chinese friends. host: as a preview to the speech is defense secretary gates. he was meeting with his counterpart at the great wall -- at the great hall. can we to reach the point that secretary gates and hillary clinton are talking about? guest: they have touched a critical and disturbing point in this relationship. there are signs that the chinese military is acting without civilian oversight.

they have produced developments which are contributing to this trend toward a re-polarization of east asia. the chinese military does have a view that is not up to the 21st century. they are still trying to create the region where they are the predominant player for this goes back to the chinese imperial past. one of the important contributions that the president can make and as visit is to highlight the risk for china quite apart from us of provoking the japanese and other countries in east asia into a confrontational mode. it is in that context that developing a perspective or on regional security is important to both sides so we don't see this re-polarization of asia. discussions with the chinese military and the development of military to military talks and

cooperation is that the core of it. we have cooperated with the chinese military, for example, with the piracy in the gulf of aden. that is a limited but important area of cooperation because the chinese need secure sea lanes of communication. we need to expand that so that china understands if they don't get north korea's nuclear program under some control, that will provoke the japanese and the south koreans to do things, much less to bring us into a defense role in the region in a much more active way that they will not like. mil to mil discussions are important for bringing a broad perspective on the security challenges we both face. host: our topic is u.s.-china relations. this comes in the week or the president will host a state visit for the president of china. we will have live coverage of the ceremonies wednesday at the

white house including a prime- time program on the c-span network looking at u.s.-china relationship and their business partnership and show you this is inside the white house including the toast of the two presidents which has become a tradition for these state visits. robert is joining us on our independent line from georgia. caller: good morning. mr. solomon, with all due respect, i am going to join the chorus of the calls to have been hearing before. we just came through the christmas holiday. we were instructed to get out and buy products, to stimulate the economy. if you go to wal-mart, target, costco, best buy, anywhere, where can you find any american- made products to buy it? we are making them all in china, india, or wherever.

when we ran out of american workers and they wanted to establish factories in china, the rule should have been fair to start with. when you set up a place to make products to import back into the united states, if they did not pay the american minimum wage, they should not have been able to bring that back to our shores at all. given what we are doing, look what a tiger we are building for us to have to fight later in that chinese military. thank you and i think there is a whole lot here that needs to be considered because we are setting a trap for ourselves, thank you. host: when was the last time you heard a u.s. politician of the words," buy american?" guest: our president has repeatedly urged a development not just of jobs but consumption

of american products. the reality is we are in a world where comparative wage rates are going to have a drawing of fact on pulling jobs out of this country. i am not an economist so i am not the best one to get into the details of how one tries to hold on to production in this country of low-end products. that is why i keep stressing that our high end products, we have to protect the intellectual property so that that does not go abroad. that will be a major factor in our rebuilding our economy. host: do you know approximately how much money we owe a chinese banks? guest: i can give you a figure. host: it is in the billions? guest: i am sure it is in the billions. host: how we thread the needle when we owe so much to chinese

banks? we have the two biggest trading partners, the u.s. and china. guest: you should get an economist in here who will get into this. host: as a diplomat, how you thread all of these issues with the state to visit? guest: secretary clinton pointed out how complex this issue is. we have a range of issues that do not form a nice coherent whole. we will be pressing the chinese for developments, adjustments in the exchange rate, which will make our exports more attractive and we have to work with the chinese who very slowly are trying to move not toward an export-driven economic development strategy but to develop their internal markets so that we can export products of our own area that is an area that we and the chinese a share

a common interest which is moving away from export-led growth to internal demand-led growth host: symbolism and protocol is important for all countries but especially for china. why is that? is that inherent in their culture? guest: the chinese are one of the great cultures of this planet. they have had an imperial history. they have been the predominant country in east asia for several thousand years. their very name, china, means the central kingdom. for them not to have the respect and understanding that they see as part of their culture and their history is a big issue which is hu jin tao will try to create the appearances of a successful visit even though we have all these difficult challenges between us.

the opportunity for our president is to really press on issues that will restore greater balance economically and cooperation on national-security issues. host: her. >> guest: thank you , steve. >> tonight, ahead of the consumer electronics association, gerrish appear on improving the business climate for innovation and meeting rising demand for broadcast back

then. for services like mobile web surfing, "the communicators" on c-span 2. >> the u.s. house begins debate tuesday in repealing the new health care law. >> chinese president hu jintao writes in the u.s. tomorrow for a visit with the president, lawmakers and businessmen and business gets underway wednesday morning but white house meetings in a news conference with president obama. later a visit to the state department with vice president aydin and a formal state dinner at the white house. president said tuttle spent thursday a capitol hill meeting with republicans and democrats and men will speak to the u.s.-china business council. that may tell frey to chicago or meetings with chinese business owners on friday before heading

home. >> as chinese president hu jintao repairs to visitors the forum on the u.s. and china. what or does it include atlantic magazine correspondent, had to resend your supporting from china and senator chris coons. posted by the progressive policy institute, this is an hour 15 minute period [inaudible conversations] [inaudible conversations] >> on behalf of the california washington center, i want to welcome all of you to this event. we are very happy -- my name is bruce cain, director at the washington center and professor of political science at you see berkeley, where we are very pleased to host this event and to give the space to the progressive policy institute. we feel that they do good work

and that this is a really wonderful program. for those of you who don't know, the university of california washington senators in many campus of the university of california. we have 280 students that come here every quarter in a safe here they take internships, including with groups like the progressive policies. we also have many, many students at many professors that are interested in affairs in asia, so this is a program to university of california's proud to sponsor. it's a very distinguished program and we hope you have a good day. thank you. >> thank you very much, bruce. we want to start this program by expressing our deep gratitude to the university of california washington center for making this marvelous facility available for us. my name is will marshall, but the policy institute and i want to welcome a today's form which is entitled, china's choice: regional bully for global

stakeholder. now, i know that this isn't going to have a provocative or into lots of people, including our chinese friends, but i don't think that the use of the b. word, bully is wrong, given what we've seen what they. it was just this last week the arm-twisting campaign to prevent countries from sending representatives to the nobel prize ceremony of the we shall bow, but that was part of a broader pattern that has raised considerable amount of eyebrows around the country and alarm within the region. there is also beijing's assertion of sovereignty, virtual complete sovereignty, the south china sea, confrontations they are over disputed islands of japan, which led to a good deal of unpleasantness and the rationing of rare earth metal exports from china. there is a program ofa