>> just to illustrate how u.s. is not engaged, and how we are not the matter, the subject matter of your policies, 20 years relationship. no u.s. president ever visited our part of the world. never. we understand the hectic schedule. we understand the vicious cycles. we understand all of the things. but you then should not demand that russian president visit more than 20 times, our china's president comes every year. so what? it doesn't mean we should turn our backs to you because we continue to understand that you are the sources of so many important things for us. and you should try to get into george doerr armenians, in order to really understand what we want to achieve come and what you can and should achieve in our part of the world. there are signs of some change. i came from new york yesterday,

and new york was the platform farm major brainstorming for new concept. this nice concept which basically speaks about bridging south asia and central relations through stable, very difficult to achieve. by the way i don't agree with you, there is uniformity in this government. puts us with russia and eurasia, south asia, department and dod is different issue. so there is a little discord over here, but i think that the robust considered approach in new york is something promising. different place, the historic mission of the united states is to balance other sometimes may

be dangerous forces when they are measured from different wings, for us and openness to the south because we're in our part of the world. and, of course, you us administration and the technological advancement. we consider budgetary difficulties in this country, which means that again sources will not be demoted. therefore, many things are spoken but that is where i'll place in our part of the world should come together for win-win platform. we are strong proponents and supporters of the win-win philosophy. for that reason, obama enjoys great recognition and respect in our country. particularly in our political elite. we hold about those things will do well, and will turn into practical policies.

and we hold that russia, china, india, u.s., europe can play a role in building this new silk road approach working together on management issues, on transit issues, on trade facilitation issues, on other issues. you just name it. you just name it. there are plenty of areas where you will be having no time thinking about suspicions, you know, if you concentrate on those areas of practical interest. thank you. >> very powerful. i wish we had time to ask each participant to respond to you in a way you would deserve. but we would have eight minutes left. so what i would have to do is to give an opportunity to to people to make a question, brief, and then i will ask the panel to respond very, very quickly.

will you identify yourself? [inaudible] what i'm going to say, my first comment, if we had spent 1% of the resources and staff on energy as a security issue, as we spend on missile defense as a security issue, we would have the kind of energy policy that the region deserves and that europe has on it. so i think it's a comment on her own priorities will put our money and our staffing. my question is the following. the assumption here is that, and all the presentations is that u.s.-russia policy involves rivalries about each country separately. this is something the ambassador just noted. but it's clear that the rivalry between the countries, i want to stick with central asia, is such that it weakens them. they don't cooperate economically. each one sees itself as a leader of the region, or as subject of

another country. and i realized that this is something russia and the u.s. cannot do for the region. maybe russia doesn't want to. maybe the u.s. does. but unless the country strengthened themselves they will continue to use u.s.-russia against each other as a way of playing, i wouldn't call it a great game. maybe it's a not so great game, of one neighbor against another. and continue to use the u.s. and russia to gain what is a position of regional dominance. so where does this point of view fit in in terms of u.s. policy? and not just a conference on silk road and talk about how great the region is, that actually in terms of getting the countries themselves directly deny that their strength will come from inside them and not from what the u.s. and russia decided? >> to take your last comment. [inaudible] spent a brief comment and then a

question. the comment is when i was in time discussing these issues a couple months ago and the chinese said, this is russia's influence. we recognize that the united states should, too. the question, you reject the idea of determinism. but there is such a thing as geographical determinism because that's the way the world is. rush is a neighbor to all these countries. it will be their neighbor forever. and it has constant and a during interest. what happened to be there now, particularly because of the war in afghanistan. because of these other energy concerns. but we can come and go and we probably will. if i was sitting in the kremlin, as mr. putin will be there now presumably until 2024, i would understand that just be patient because the u.s. is here and then it will go again. and my question to the panelists, do you really think in 20 years time the united states will be as involved or as

concerned about the difference parts of the different soviet space as is today or will he in fact retreat as we have done historically? >> we have four minutes left. i hate to do it, but i need to tell each of you to make it very, very brief. >> i'm going to ask a question, i will pose a for all of you to contemplate. is in the u.s. and europe's interest that turkey's gas flows to europe? and does the notion of eroding monopolies to point were actually diminishing european energy security by encouraging a china turkmenistan pipeline? open question. i challenge the notion in 2011 a great power needs to control its

neighboring areas in the same way that rape our state in the 19th century, precisely because landlords are not going to be happening anytime soon in that part of the world. and we are looking at a different range of threats that don't require the same degree of imperial control that the russian empire had are that the soviet union state in its periphery. so certainly russia has more at stake here than the united states. that's just a function of geography as you say, but i don't think the geography determines the mode of policy implementation, let's put it that way. and i think that russia policies can evolve and i think they have evolved. >> thank you very much. >> to answer the ambassador's question, the argument i was making was that, in fact, we ought to be working russia, the united states, with the countries of these various subregions on a more generous way of working together. the silk road infrastructure

ties these regions together economically and commercially is important. if you're thinking about security, obviously you need to talk about the security aspects of this. i would argue in afghanistan that the long-term solution afghanistan, for you and for us is a regional one, security architecture that will include russia, china, iran, india, pakistan, pakistan, as extent, uzbekistan and so forth. you could only get there by sitting down and having that type of discussion. so this isn't the united states and russia decided on their own to cooperate or to get the, but this is much broader regional approach. i would take that all the way around russia. and then finally russia quite frankly is not the neighbor of uzbekistan and so forth. it is separate by kazakhstan and near neighbors are much more afghanistan, pakistan and i would argue india. so we can't always assume that russia would be there forever either.

>> well, i guess first on toby's point, you know, i think we have this tendency in washington, i think your point is a very important point. and we have a tendency sitting here to view the united states and the american government as the architect, you know, of all of these different things that are happening. win, you know, as a practical matter, i think in many cases governments, factions within governments, factions inside countries that are not in government, groups of expatriates that don't even live in the country anymore. you know, they're all coming here and trying to influence the united states to do various different things for very different reasons.

and, you know, if you look at a case like iraq, you know, it's clear that that can be a real problem. for the united states in different ways. and i think something that we would be well served to get a little bit more of a handle on. angela i think, you know, i basically agree with what was implicit in your question. you know, i it's doubtful that the united states is going to be able to sustain this kind of a presence on a long-term basis. and i see that as a real reason to be talking to russia and talking also the countries in the region, kazakhstan and others. in a much more serious and honest way, and not creating by default, you know, these

expectations and miscalculations. and not deceiving ourselves actually by the way either. because i think that can also be rather costly. last thing very short, i was in china in august, actually at a conference sponsored by beijing university. mr. ambassador, on u.s.-china cooperation in central asia. they seem to be quite interested in what was happening in the region. i imagine there are a lot of different people in china and they all have different interests and perspectives. but the ones that i was around were clearly following things very closely. >> thank you very much. it was an interesting discussion. i think it went better than i expected. [laughter] we have had more -- and thank you for the. thank you to our panelists. thank you for the participants,

and thank you for c-span for covering it. thank you very much. [applause] [inaudible conversations] [inaudible conversations] [inaudible conversations] >> coverage continues in about 45 minutes with republican presidential candidate rick perry.

>> on sunday "washington journal" examines poverty in america.

>> the head of the american association of university professors says that tender and academic freedom are in jeopardy and need to be protected. >> tenure creates atmosphere on campus where people can speak freely, not just in their teachings but also in terms of university governance. if you don't like it proposal, you have to be able to speak freely about it. and administered should be able to do that as well. that shared governance is part of what academic freedom protects. without that you really don't have the expertise of the faculty available to you. >> cary nelson, author of new universities is an island, sunday night on c-span's q&a.

>> earlier this week the chief of the small business administration, karen mills, called on congress to pass president obama's america's jobs act. she spoke set the minority business conference here in washington for about 25 minutes. >> i've got to tell you, i love this song. welcome, welcome everybody to the 29th annual minority development week conference. i'm going to take a little executive privilege and ask everybody in the back to please move out. we are a family here so if you could please move up from the back i would very much appreciate that. on behalf of president barack obama and acting secretary of commerce doctor rebecca blank, we are delighted that you're able to join us at this very important event. this year in addition to our

guests from around the nation would have guessed from turkey, from england, from china, and from other parts of the world. and we all come together, not just to celebrate the entrepreneurial spirit of this nation, but we come together to learn about business opportunities in the global marketplace, to network and to build stronger relationships across industry sectors. we come here because it is crucial to our nation that we work together to rebuild the economies within our communities. and it is business owners, those of you who have taken it upon themselves to accept the risks and the challenge is to build a business for who are leading the way. that is why the theme of this years conference is emerging industries and markets, a blueprint for success. over the next three days you will have the opportunity to discover how these trade fairs and trade missions to expand your business. to learn about the international financing alternatives made

available to you through the federal government. to learn how to expand your business through acquisition, and we have a wonderful seminar that will teach you how to buy a business. and to learn how to leverage the vast resources of the small business administration. at this years midweek you'll hear from cabinet secretaries and senior members from the obama administration. you hear from ceos, a fortune 500 companies, and you'll hear from some of the most successful entrepreneurs in our nation. who have built their companies from small mom-and-pop organizations to global enterprises. i cannot promise you a lot of sleep over the next three days, but if you take full advantage of this conference, if you bear down and focus on the opportunities that are available to you at this time, i can promise you that when you leave

washington, d.c., you will leave with a new contract. a new strategic partner, greater access to capital and a greater appreciation for the opportunities in the global market. but all of this would not be possible without our extraordinary group of sponsors. what makes them extraordinary is that during these difficult times when companies both small and large are struggling to maintain, they stepped up big. they recognize the power of diversity and understand the future of our nation exists with the minority business community. by 2042, america will be a nation that has a majority minority population. it is imperative that the minority business community grow and prosper. unlike many other corporations, our transport sponsors understand the business case for rebuilding the minority committee. so i would ask that you join me in getting all of our sponsors a

warm round of applause. [applause] >> today, we are in a difficult economic period. when the president first took office our economy was losing 750,000 jobs per month. and while we have created 2.2 million jobs, they're still far too many of our fellow citizens who are unemployed. over 40 million americans are unemployed, and another 6 million have given up looking for a job. and we know that in this administration that the best way to create jobs is through private business ownership and stimulating the entrepreneurial spirit that makes america great. and the most productive companies that create jobs in america are your companies. those companies that are minority owned, women owned, and

those that are small businesses. minority owned companies great 6 million jobs for american citizens, and creates an additional 10 million jobs simply through their economic activity. but if we're able to eliminate the impediments to the growth of minority owned businesses, this sector of the economy has the potential to create 18 million jobs. the role of the minority defendant agencies to deserve -- for job creation by helping to overcome the challenges that you face in accessing capital, accessing contracts, and accessing the markets. we have been successful. since the beginning of the obama administration, we have helped minority owned firms gain access to nearly $7 billion of contract and capital, creating 11,000 jobs and saving tens of thousands of existing jobs. going forward we will continue to set greater and greater goals. we will work to better integrate our activities with those of our

corporate partners and other governmental agencies and other stakeholders. and we will work to reestablish our nation's economy by helping minority owned businesses embrace 21st century growth strategies, growth through merger, growth through acquisition, growth is a joint venture and growth through strategic partnership. and we will strive to help minority owned firms leverage their unique competitive advantages in the global market. why is this important? because the bigger your firm is, the better able you are to create more jobs for your fellow citizens in need. and nbda is here to help you. in the coming months one of the areas where nbda is providing dramatically higher support is in the area of federal government contracting. and i'm pleased to announce the establishment of our new nbda federal procurement center. this is a center which will be located in washington, d.c. is

the first center of its type in the nation. it will provide minority owned businesses who are interested in obtaining federal contract with the tools, information, and relationships necessary to compete for federal contracts, and to win. the center will join our national network of nbda business centers, and the opening of the center is a direct result of the obama administration's commitment to ensuring that all businesses share in the growth of jobs and economic opportunity created by the federal government. i would like to add that we just opened two new nbda centers, one in denver and one in cleveland. [applause] very good, thank you. and in the coming months we will open centers in new york, boston, connecticut, minneapolis, riverside, california, and anchorage, alaska. [applause] so would all the members of the nbda business center and network

please stand, all the members of the nbda center network please stand. [applause] thank you so much for your effort and your commitment. i want you to take note of these people. so before you leave, we implore you to please get to know the senior business consultant from our nbda business centers, and become clients of the minority business development agency. but even with the support of nbda, sba, and others in the executive branch, our nation's businesses still need help so that they can prosper and create jobs. that is why earlier this month president obama unveiled to the nation's the american jobs act. this plan which congress should pass without delay will provide significant new tax cuts to small businesses. specifically, it will cut payroll taxes in half on the first $5 million of wages paid to companies, and it gives

incentives to hire veterans returning from war. the american jobs act extends 100% expensing for capital expenditures in the 2012. so if you are thinking about buying new equipment, buy new computers, buying factory equipment, or if you have a biotechnology company, buying equipment for your biotechnology company, you can expense 100% of that equipment today. the american jobs act will also empower states with new flexibility to allow out of work americans to continue to receive unemployment benefits while they look for internship and apprenticeships. and this will create the stronger workforce for you and provide you with better candidates to hire as our economy moves out of this downturn. equally as important, the american jobs act payroll tax cut put more money in the

pockets of consumers today. under the americans jobs act, the average american family will have $1500 to spend that they otherwise would pay income taxes. we believe this will dramatically increase consumer spending which should help create greater certainty in our economy. these measures and others in the american jobs act such as modernizing our schools and rebuilding our infrastructure will boost private-sector activity, and put more people back to work your most important thing in the american jobs act is you. we need to hear your voice of support for this act. and so i want to conclude by saying, we are indeed in challenging times in this nation, and it is at times a challenge that we have the greatest opportunity to show our value. the president once said that we are who we have been waiting for. we are the ones that can truly change the world.

but we must be willing to embrace this view. the alternative is to cede ground to other countries, to let somebody else lead. but i would submit to that allowing someone else to lead is not what made you great. and it's not what makes america great. i'm quite sure that there's not one person in this room that would be comfortable with america being a follower nation. and certainly our administration does not accept following as a standard approach. as a country, we do not compete to place. we compete to win. so during this midweek conference let us all work together and win. thank you very much. [applause] ..

>> each year the agency leverages, get this, nearly $100 billion in federal contracts to small businesses and supports free councilling, technical tans to nearly 1 million entrepreneurs. before joining sba, karen served as president of mmp group which invested and grew businesses in such sectors as consumer products, food, textiles, and industrial components. karen understands firsthand the experiences that small businesses are having out here

in the market, and she understands that small businesses are truly the heart of our economy and critical to american competitiveness. we are fortunate to have a strong voice, national voice on small business, and supporting emerging entrepreneurs. it's my pleasure, ladies and gentlemen, to introduce to you sba administer, karen mills. [applause] ♪ >> good morn, everybody. >> good morning. >> thank you very much, david. it is just terrific to be here. welcome, welcome, welcome. we're delighted to see everybody at midweek and to have you here with us, and i really want to thank all of you who support midweek, particularly our great sponsors. again, let's give them a round of applause. [applause] how many of you out there are

small business owners? raise your hand. yes. well, everybody knows that minority small business owners are one of the fastest growing segments of american business, and we also know that this community was especially hard hit by this recession, so our job at the sba is to make sure that you have the tools that you need so that you can grow your business, and you can start creating jobs again. let me just look back for a minute. when i stood before you last year, we were just about to pass the small business jobs agent. this was the most significant piece of legislation for small business in over ten year, and i really want to thank you very much for the support you give

that. it passed almost a year ago this week. [applause] so -- and it was well worth passing for a whole lot of reasons you know. it resulted, for example, in the biggest quarter of lending in sba history, and at the end of this week, we're going to close on a record year of sba lending, so thank you. [applause] now, you may know that at the sba, we are three to five times more likely -- three to five times more likely to make a loan to a minority owned business or woman owned business than a von vengessal lender, three to five times more likely, but there's still a gap out there in lending to minority owned businesses and underserved businesses. last year, we needed a number of additional things to help that situation so for the first time,

we are allowing mission based lenders to make sba loans. if they apply and they qualify to our community advantage program, and we gave them streamlined paperwork, who doesn't like streamline paperwork to make it more easy? many of you participate in the aid program. well, we strengthed the program to -- strengthened the program to make sure benefits are flowing directly to the small businesses like yours, and we went after the bad actors who did not qualify. we also rolled out the women's contracting program. that was ten years in the making. very pleased about that, and we are helping women in over 3,000 industries where women's small businesses are underrepresented, and finally, the sba convened first ever counsel in underserved communities chaired

by catny hughs of -- kathy hughes of radio one. if you don't know her, you will. they advise us where to go next with regard to the three c's. what are we going to do with you this year? well, how about the american jobs act? as david just said, this is an absolutely critical priority, and the number one thing in this bill, i hope you noticed, is to help small business, and to help you do what you do best which is to create jobs. it's smart. it's bipartisan. it's paid for, and it puts more money in your pockets, so congress should pass it now. [applause]

now, david talked about what's in it for you, but i'm just going to rephrase that a little bit from the small business lens. what will it do right now for you small businesses? it cuts in half the payroll taxes for all small businesses, and it eliminates completely the tax that you're going to pay if you add new jobs and give raises to employees. that's going to affect about 350,000 african-american and hispanic-owned small businesses across the united states. 350,000 small businesses. it's also this -- this bill is also going to extend 100% expensing through to 20* 12, and that -- 2012, and that means more money in your pockets to buy the next piece of machinery or equipment and hire workers to run it. the bill also means tens of

thousands of dollars of tax credits for hiring the long term unemployed and giving even more tools to help them either get hired or start their own business, so we need this right now, especially in our underserved communities right now more than ever. [applause] there's hiring credits if you hire veterans, and as the president said, these are people who as you know fought for their country. they should not have to fight for a job when they come home. [applause] and one last point, but not least -- $50 billion in infrastructure. i know some of you are contractors out there, small contractors are really going to benefit from the infrastructure

investments that are in this bill. i'm also particularly happy with something else that we're doing for small business, and these are the small businesses who do business with the federal government like many of you here. a couple of weeks ago, the president announced and then told all federal agencies to start paying their small business government contractors in 15 days instead of 30. [applause] it's an idea called quick pay. yeah -- [applause] so i want to thank ron busby and a lot of you who supported this. i'm delighted to talk to an audience of small business owners because, you know, people might say, well, why is that such a big deal? you're going to get paid in 30 somedays, you just get paid in 15. well, you all know what i know. [laughter] right? when you consistently pay a

business 15 days sooner, that is a permanent infusion of cash flow into their business; right? you can put money towards working capital. you can expand your business. you can market your products, and you can create more jobs. [applause] one more thing. last week i stood next to vice president biden at a minority owned business in cleveland, and we made a big announcement. i am pleased to say, very pleased to say, that the sba has locked down $20 billion in commitments from our 13 largest banks to increase small business lending over the next three years. increase small business lending

by $20 billion in lending. i talked to the ceos in this process and after the meeting, and i'm pleased to hear they'll continue to focus on driving more and more of this capital into the hands of minority owned businesses and women own businessed particularly in the underserved communities so i'm very happy about the $20 billion. [applause] welcome to midweek. we have, as david said, a lot in store for you. i want to thank all the team here for their hard work in pulling this together. it's going to be fabulous. i regret to say i won't be with you after this morning because it is the jewish holidays, but are in hands. you'll hear from murray johns

who is keynote tomorrow and kathleen sebelius from health and human services. you cannot ask for a more committed set of advocates for small businesses, and as you know, you have a president who really gets it about small business, so i'm really pleased about that. [applause] let me close by saying, i get it too. i grew up in immigrant family, in a family of small business owners. my grandpa jack came from russia about the turn of the century, came to america. he was given access and opportunity, and that allowed our family to build a business and live the american dream, so my pledge to you and our pledge

across this administration and at the sba in particular is that we are going to provide access and opportunity to all small businesses and to minority owned small businesses, age -- and we're going to close those gaps because then you can do what you do best which is grow your business, create jobs, create a prosperous future for your communities and for this great country. thank you very much, congratulations to the winners of med week in advance, have a great time. [applause] >> ladies and gentlemen, karen mills. [applause]

>> should always start with the assumption when a politician or ceo tells you something, they are not telling you the truth. now, they may be telling you the truth, but the burden should be on them to prove it.

>> he's an eagle scout, editor of mother jones magazine, directed and produced three of the top ten grossing documentaries of all time, and also a best selling author. his latest, "a memoir: here comes trouble." on sunday, call, e-mail or tweet michael moore live eastern on booktv on c-span2. >> this is a dangerous time for britain and a danger time for britain's economy. the government's austerity plan is failing. you can sense the fear people have as we watch the economic crisis that stocked our country in 2008, threatened to return. >> with the british house of commons still in recess, annual party conferences are continuing in the u.k.. watch labour party leader ed miliband next sunday. and dave cameron.

>> host: we're pleased to introduce you to steve landafeld, director of economic analysis, and today it's what we produce. first of all, what is the bureau of economic analysis? give us some background. >> guest: the bureau of economic analysis is one of the two agencies, statistical agency in the department of commerce. we put together data from public and private sources and assemble it into an comprehensive consistent unduplicated set of

accounts for the country. >> host: one of the statistics you create is gdp. what is gdp exactly and how is it measured? >> guest: it's the broadest measure we have of overall u.s. economic activity including consumer spending, investment in plant and equipment, includes what the government spends, and then what we consume in terms of experts, exports minus imports. currently it's $15 trillion, and it's one grand damascus di ball measures from macroeconomic activity. >> host: why the change, and is there still a gnp >> expwhrg there >> guest: there is, but it includes net earnings from abroad, and while it's an important concept in terms of spendable resources we have, it disease not reflect the production in the united states. a decision was made, part of the

greater globalization in the world and u.s. economy was to go to gdp. >> host: do other countries use the same measures as the bureau of economic analysis? >> guest: yes, one of the beauties of national accounts is that we have a system of national accounts which is a set of essentially accounting guidelines. this is the accounting profession that has them. we have them in the public sector, and all nations follow and produce national accounts according to those guidelines. >> host: okay. there's charts we want to show you know, and this is components of real gdp, and according to the bureau of economic analysis, consumption makes up 71% of gdp. exports make up -- is it 13% of gdp? >> guest: right. >> host: government spending 41% of gdp. if you can walk us through the elements of what makes up the

gross domestic product. >> guest: okay. the consumption spending is about 80% of gdp is including in spending on durable goods and non-durable goods, things like tvs, automobiles, the -- >> host: no matter where they're produced. >> guest: doesn't matter where they are produced. we net that out later in the compensation of gdp, but it's what we spend, a net measure of the production of it, and then we have non-durable goods, your clothing and those sorts of things, and then there's services, the largest component of consumer spending which is your spending on college education, spending on movies, the whole range of financial medical care and other services which is the biggest exon. >> host: that's all under con which is 71% of the economy. >> guest: the next is investment spending. this includes investment

spending on things like plant and equipment swell nonresidential buildings, exploration, development expenditures for oil wells, as well as spending on software and other intangibles we measure. >> host: okay. exports. >> guest: under exports we essentially have all the goods and the services that we ship abroad, some people don't pay much attention to the services piece, but it's a significant piece of our trade and even more when there's a surplus, and then finally the government piece. i should note when we talk about this share of government, we are talking about actual government spending on goods and services. the amounts of money taken in in taxes and transferred through unemployment insurance and other programs are considered transfers. they are not part of current -- >> host: social security and medicare are not part of gdp? >> guest: are not a part of gdp. >> host: government spending, when they buy vehicles --

>> guest: when they buy vehicles, yes, it is. when they pay salaries, it is. >> host: currently government spending is 21% of the annual gdp. >> guest: correct. >> host: has that figure grown in 20 years 1234 what kind of trend? you've been director since 1995. since 1995, how has the figure trended? >> guest: that component has not grown as much as you see. for example, when we track total government spending and outlays, you see a bigger increase. that's what most people tend to focus on. currently that share that's grown, especially as a result of this recession, is about 25%, which is a record high. >> host: okay. you have another chart here, and we're going to put the numbers up on the screen if you want to talk with mr. landefeld. we'll get the numbers onts screen so you can participate. they are divided regionally.

tweet us at twitter.com/c-span wj or c-span.org. you have this chart, growth in gdp and standards of living. now, this begins in 1929 and it charts the national growth of gdp up through this year, and you can see the recession right here taking hold and bumping it down, but now it's back up, it's the highest it's will been in hispanic-owned -- ever been in history. i wanted to ask you is this almost exponential growth that almost kicks off in the mid-70s. what happened? >> guest: part of what you see there is just the, when you got

small numbers, you're going to get that kind of growth. actually though, where you see significant acceleration and growth is in the post-world war ii era. >> host: beginning right here or so. >> guest: yeah. in terms of growth rates, that post world war ii era was extraordinary were growth throughout. >> host: when you look here and from 1974 to 1986, it almost doubled, the gdp almost doubled. >> guest: i should point out that is nominal. that includes inflation. our inflation adjusted gdp does not show that because in the 1970s there was a ramp up inflation, and that's why people look at real or inflation adjusted gdp. >> host: now, this headline was in today's "financial times". u.s. hopes boosed by revision -- boosted by revisions to data. yesterday, you put out a figure on gdp and what was that

figure? >> guest: 1.3%. >> host: right, but what was the figure out yesterday and why yesterday? >> guest: we put out an estimate gdp which is out within a month of the end of the quarter, which is one of the most timely gdp estimates in the world. it's relevant to decision making, but that's going to get revised as we get more complete data. for example, the first estimate we don't have a lot of estimates of consumer spending, for example, and other components of the three months. we revise it when we get more complete data. it was summarized to 1.3%. we go through that series of provisions in the u.s. as we get successfully more complete source data. we garn guarantee the customers the general picture of economic activity will not change. when it's expanding or contracting, high or low or

components contributing to growth. >> host: it's a revised gdp, and what's that used for? who needs that number? >> guest: the -- we can start with the federal budget. the federal budget and projections of it which are great determine of policy are based on our estimates, and it's quite important because our estimates have trend growth and are more important than policy decisions being made. for example, there's a chart in the package here showing the effect of a half a percentage point error in our estimate of growth on federal budget projections, and if we are off by half a percent in our trend growth which is incorporated in the forecast, then the federal deficit over the long term planning horizon is off by over, on the order of $1.5. >> host: if you're off by one-half a percent?

i don't have that chart. do you have that chart? let's show this. explain what this means to our viewers here. this is effect of trend of gdp growth or federal deficit projections. this blue shaded area, is this the deficit? >> guest: that is the cumulative error in the deficit if it's off by half a percentage point. >> host: the error could be worth $700 billion. >> guest: accumulating over the period of a total, ill, of -- well, it's over a trillion dollars is the total. >> host: okay. >> guest: so, you know, when you talk about deficit reduction discussions we're having, you see the importance of baseline numbers to governmental planning. >> host: okay, what else? who else uses the numbers? does wall street care? >> guest: yeah, you have $170 billion worth of household

assets and business assets that are controlled but gdp's effect on consumer expectations, household exception, interest rates, exchange rates, so that's importantly -- in fact, the federal reserve, these are some of the ways they measure for their policy, and finally, it's used in as we show in that chart, the allocation of funds over $300 billion with the federal funds. >> host: how is it that gdp is tied to the allocation of federal funds? if congress wants to spend x number dollars on this program, what does your bureau of economic analysis have to do with that? >> guest: the most federal funds are allocated by funds formula, medicaid money and the fmap formula uses state personal income because we break it down to allocate the funds. >> host: so it is -- it creates the formula or helps

create the formula? >> guest: provides the numbers that go into the formula. i like to think of what it does is provide the tool kit for private and public decisions. >> host: i wanted to ask you about this chart that you have. recessions real gdp. here's you've got the chart showing the great depression, the 1930s, negative 26.7%. post world war ii average on recessions, negative 2.0% drop in gdp; is that correct? >> guest: right. >> host: and currently from 2007, the fourth quarter to 2009, the second quarter, 5.1%. what's the significance of this? >> guest: i think we put that graph in because i think it's useful to have some perspective on the current decline. it's called the right recession, and it indeed is. it's significantly lower than the average of all pass or any

one past recession we've had, but it's no magnitude of the great depression, a date back in the 1929; so we can measure that when it declined and unemployment was well above 25%. >> host: steve it our guest, bureau of economic analysis, and this is our segment, america by the numbers, greens boro, north carolina, ruth, you're up. go ahead. >> caller: good morning, fellows,. i've been looking in into understanding this recession thing. that chart is interesting. one thing i have not been able to understand is how financial services and things like when people are paying their credit card debt off, where does interest and principle show up in gdp, if at all? >> host: mr. landefeld? >> guest: yeah, your interest

payments show up in gdp. the component of our income. it is also to the extent it's interest on a home. it's included on our hiring and servicing numbers is where it shows up, those payments, because we always record both what you pay and what the business or other individuals earn in terms of interest because we have these double entry sets of accounts. >> host: next call for steve comes from massachusetts. hi, anthony. >> caller: hi, good morning. >> host: please, go ahead. >> caller: yes. the chart you showed earlier, gdp and adjusted inflation. i'm wondering what model is used to calculate the inflation? there's an old mod e eel -- model and new recent model. the old model calculated all the dollars in the world system. in the new model we just calculate the united states

dollars and our territories. it's more -- we're more dishonest and statistics are skewed today more than before, and i believe the inflation after world war ii because that's in the old mod ole, but -- model but around 2006 when they kick over, paul was the big advocate for the model, why change the way we calculate? well, it's more favorable view of it. dollars in the world we're more at 21% unemployment instead of 9%. guest: we have used the same model for g.d.p. over time, so i'm unaware what you're speaking of in terms of a difference. host: have we used the same model? guest: the model we used domestic versus international models goes back to the 1950's we have made other updates, of

course, you have to. in the way we calculate g.d.p. to better adjust for quality, there's been a major effort, but perhaps what the viewer is talking about is the affect in terms of trade, and we do publish command g.d.p. which will give you a notion of how the nation's purchasing power goes up and down. host: now are all these charts available at b.e.a..gov? guest: a lot of them are available through our press releases and others in business. we can certainly put them up on our director's page if anyone wants to access that. host: indiana, you're on. caller: first, the chart you

had at first seemed to add up to more than 100%. i was wondering how you reconcile that and how do you account for things like degradation like when the exxon valdez sank g.d.p. in aalaska went up because of the cost of recovery. host: thank you, john. guest: good catch. you must be an account yourself. what i left out of that chart is imports. they are counted as a negative in g.d.p., because they are not domestic production. and we measure it by final sales. with respect to your second question of degradation of the environment, that's an issue that's been kicking around citizens u.s. accounts were founded in the great depression in the 1930's, and yes, indeed,

people recognize the founder of the, that that is a net deduction that should be taken against production, and just as we depreciate and use capital in production, we should do the same for natural resources. the difficult thing is how do weness economics of pollution? most oil wells are not bought or sold or developed by the companies themselves so, there's no price we can put on those things but something the bureau has worked on in the past, but at the current time while we have some work ongoing to improve our infrastructure for energy accounting, we have no plans for expand accounts. host: demarle detroit. you're on.

>> i have a comment and then a couple questions caller: i'm really interested in the fact that they switched from mainly reporting g.n. foment g.d.p. i noticed you hadn't mentioned -- the [inaudible] the world is going through. i know we have not run a balanced trade since 1974 in this country. so -- that is not included. if we want to run a 3% gross domestic product increase, [inaudible] the reason i ask is because we're talking about 50,000 manufacturing jobs, and it seems to me if the right number were -- if more -- was imported -- instead of one day and disappear, people would realize what -- in this

country. guest: i'm sorry. we do adjust and de duct imports. for example, for 2010 we deducted $2.4 trillion in imports to account for our g.d.p. it's a financial concept or an income concept as well. but you're correct. we should and we do de duct imports. host: is g.n.p. always larger than g.d.p.? guest: yes, because we tend to have a surplus. host: what's n.r. inflation rate? is that something you mest measure? guest: the bureau of economic

analysis is the official measurer for inflation, but we do put out a protect thely used numbers which is a personal consumption expenditures which is quite similar to the c.g.i. in the second quarter it grew at a 3.3% rate if we exclude food and energy, it grew at a 2.3% annual rate. host: and you break that down between services, goods, durable goods and non-durable goods. guest: yes. host: does bureau of economic analysis decide if we're in a recession or not? guest: no. the n.b.r. discuss it and frankly we're glad they do, because it's a very political decision and best left to

external people rather than people within the government. host: good morning. you're on with steve landefeld. caller: good morning. i was wondering if any of his statistics gather the commonwealth like puerto rico. do you factor in what they produce and buy or sell? and also do you consider illegal immigrants and what they bring or take from the table? host: thank you. guest: the answer is u.s. g.d.p. does not include puerto rico. but we currently have a project funded by the department of interior in collaboration with puerto rico where we're trying to come one a consistent methodology for puerto rico. we spend a lot of time, because we also do the u.s. balance of payments where we have to track those flows and immigrant

spending sent back home yes, we measure it in the u.s. balance of payment. host: good morning. caller: i was thinking if you pressed your chaurts in ounces of gold instead of dollars, wouldn't they be flat? guest: well, ugh, we don't youzhny particular commodity pricing in great part because they are so volatile, and your picture will tend to vary dramatically depending upon the basis of your -- which is one reason why in general the u.s. and other countries have gotten away from fixed weight industries or in the example you use a commodity. host: steve landefeld, i guess i expected one of those four quadrants of g.d.p., which you have to be manufacturing. how come? >> actually, we do estimate it,

but it's in a different component. g.d.p. is sliced and diced in many different ways. we do it by industry which is where manufacturing would come up. host: as a shared g.d.p. does that mean also that manufacturing itself has declined in the united states? guest: no. it's grown, but as a shared activity, particularly services has been so large that it has outweighed that. plus, you have productivity growth which would explain some of the differences when you look at those relative to output. host: we've got this tweet by joe, remember, you're measuring production not the spending. do you understand that? guest: yes. i do. except the answer is we do it all different ways. we measure it by the production measure, which is where you get the manufacturing measure you

talked about, service. then we measure by spending on products, then we measure by the incomes earned from selling those products. so we actually measure g.d.p. in three different ways n which in concept should be identical but because of different sources we measure it and it varies quarter-to-quarter. host: steve in chicago. go, please. caller: hi, steve. you mentioned if your g.d.p. estimate is off by a half a percentage then the government's budget can be off by as much as a trillion dollars or more. so when they are making that budget, do they maybe nut a buffer for a half a percentage wrong on your g.d.p.? guest: a half a percent error is in our trend of growth for

g.d.p., so it's a persistent error. and they budget each year a table of -- it shows the alternative of economic assumptions including trend growth and g.d.p. and differences in our price index used in g.d.p. and other variables. host: portland, oregon, hi, you're on with steve landefeld, director of the bureau of economic analysis. caller: hey, good morning. i notice the caller, i think it was three callers back asked the question what is the -- do you track the amount of money that illegal immigrants spend versus sending back home. i was curious do you also track the amount of money the -- that our country spends in terms of

-- guest: we have state and local spending by the -- with a we -- host: for justice tweets in our growing debt has or soon will exceed g.d.p., and there is a growing chance of a decline in g.d.p. in ensuing years. i guess and he's or she is asking you for a prediction. guest: as head of a thattistical agency, we have now enough troublely say that yes that the u.s. debt federal debt is approaching g.d.p. i think it's around 80-plus percent.

host: but annual g.d.p. guest: i would remind viewers you're comparing stock to nbling so those are two different sets of statistics, juan balance sheet and the other a flow. and we find that recoveries, as the recovery we're experiencing now, do tend to be slow when you're recovering from a major reduction in debtor financial bubble, and we actually have a chart there, you have anytime your hand. it confronts the elements we're confronting. the green line was the increase in wealth we saw over time. the red line is what happened to our savings. we were getting so much in terms of depreciation of stock prices and the equity in our homes that we sort of cut back on saving out of current

income. what did we do? we spent it on consumption. well, then we had conference assumption and the recession and the sharp drop in housing prices. a as a result, there was a major reduction in household wealth of about 20%. and in those kind of as far ases and then i found through the research it shows slow growth at first then faster growth later on. host: next call for steve landefeld of the bureau of economic analysis. caller: good morning. my question is what i was curious about is does the g.d.p., the money we lend to other countries, the percentages on the interest rate, is that also counted in g.d.p.? and if so, let's say, like, in

1975, we lent russia a billion dollars. and then in 1995 we turn around and we forgive them the debt. wouldn't that make the g.d.p. from the scale you're doing, wouldn't it make it incorrect? therefore, you're basing it upon the interest rate you're getting from that country, then all of a sudden 10 years later that debt has been forgiven. wouldn't that make it kind of a scale that's incorrect? >> we have a comprehensive accounting system, so we have anytime our accounting and all those write-downs which would be reflected in the balance sheet then the income components would be reflected in our balance of payment account flows and g.d.p. and g.d.p. statistics. so we do capture those, and i

don't think there's any bias because of the coverage. host: mr. steve landefeld you have been the director in bureau of economic analysis. but your background, did you not work for the bush one white house? is that -- how do you keep politics out of b.a.e. -- b.e.a. in your analysis? getting pressured to put things in your analysis? guest: in my time as director of b.e.a., we really have had no political pressure. indeed i recall an instance where we had to change an update which lowered the rate going into a political discussion and that was raised by the director brown and he

said if it's the right thing to do, do it. 1c0 there's a lot of perceptions of pressure, but in reality we don't. and we are an all professional organization. i'm career civil service and everyone who works there is and i should add now the when i was with the counsel of economic that assistics -- i -- caller: in your tenure, i think you said 1997 to the present, i'll use my example. when we get the unemployment rate, what are the comp opponents of that? non-farm payroll comes from business and then the -- in the time that you've been head of it, how much of the precision improved or not improved in coming up with, like, the g.d.p. numbers. thank you?

guest: the numbers to keep up with the rapid changes in the economy -- we are constantly trying to come up with trying to keep up with them. but there are some gaps in our data. from the business sector leveraging, it looked pretty flat. we're working very hard and the dodd frank act included some things to help us out in terms of collaboration and rdsing some of the gaps. host: how do you deal with changes to the economy, the rise of the internet? i mean, how do you create new measures? >> we draw private and public data. so anything out there for usage for example early on when we

saw the rise and we thought it wasn't being incorporated in the normal resail source data, we work with the census bureau, the bureau of labor standtistics. the sourcing agency. we work with them to change their surveys which they are good partners in helping us do that, but that takes time, that's why we have the luxury of being the part that deals with that. host: you had numbers that you were going to release at 9:30 a.m. what were they? guest: we showed personal income, and we showed a drop in personal income. also showed a drop in real

disposable personal income and consumer spending in real terms was flat. host: do you create the expectations when they say such and such was expected, however, the real numbers are blah? guest: well, wall street and forecasters using the same source data we do attempt to forecast. they usually do a pretty good job of forecasting. they don't have the details we do. but our estimates look fairly similar. and so they put out that expectation. and then we put out the quote official date save which is the larger endeavor and detail. >> so were your numbers in line with the expectation numbers? guest: i'm sorry. i usually know the g.d.p. expectations although they are usually pretty important because this august number is as we just talked about,

consumer spending is 2/3 of the economy, so a lot of people look at it as the most recent comprehensive view of spending in this economy. host: a final tweet for you to clarify from k.p. patao. g.d.p. is off by one half percent regularly. make you feel good? this means a trillion-dollar mistake is taken for granted. guest: i wanted to clarify that yes, our numbers do actually -- if the reader is interested, you can go to the general -- to the b.e.a. website. you can go there. host: a lot of this information is generally there. steve landefeld is the director of the bureau of economic analysis, which is part of the commerce department.

thank you for in c-span's weekly series live from terre haute, indiana. tonight at 8 p.m. eastern. get a preview about eugene debs and what some of our other videos about him at our special website for this series, c-span.org/thecontenders. >> also tonight at 8 p.m. supreme court justice ruth bader ginsburg talking to law students at the university of california in san francisco about gender equality and other legal issues. you can see that tonight at 8 p.m. eastern here on c-span2.

former bb anti-chairman and ceo john allison spoke earlier this month on the 2000 a financial crisis. the event was hosted at the harvard law school tea party by the harvard law school tea party. and cambridge, massachusetts, this is an hour and 40 minutes.r >> good afternoon. my name is john thorlin and i am the copresident of the harvard law school tea party. in behalf of my fellow copresident, christopher mills and the rest of the tea party, i am proud to introduce today's speaker to my fellow students and members of the community ate large.school one of the things we constantlyy discuss and debate in law school is the verge of free market andw the ability of each person tof engage in rational trade with his fellow citizens to generate econe. most of our professors seem to adhere to three axioms regarding prey ics. thatbusinessmen prey on consumers to the extent t that they're able to in the absence of government regulation. interest is and need to be

guided by public servants. this self interest this of businessmen means that they are never going to help their fellow man unless the government forces them to. story contradict each of these axioms. he began his story -- his service in 1971 and managed a wide variety of responsibilities. he became president of bb&t in 1997. during his tenure, bb&t grew from $4.5 billion to $152 billion in assets. his success was inseparable from that of its customers. that success derived from multiple -- multitude of successful partners with businesses large and small.

he is a graduate of the university of north carolina at chapel hill. he received his master's degree in management from duke and diversity -- duke university. he has received six honorary doctorate degrees. he has been inducted in the north carolina business holophane. he received lifetime achievement award from the american banker. he was recognized by the harvard business review as one of the top 100 most successful sec -- world in the last decade. he has piled academic achievement on top of his business success. in addition to all of this work for bb&t, he has given generously to his fellow man.

the bb&t has spelled the programs at over 60 universities across the country to encourage the moral and at the could -- morals of capitalism. this background makes him uniquely qualified to discuss the most serious economic crisis to hit the united states since the great depression. one of the largest challenges to free-market capitalism and our nation's history. ladies and gentlemen, i am very proud to introduce mr. john allison. [applause] >> good afternoon. it is a pleasure to be here. i always enjoy talking to bright young people will be the future leaders in our society. my focus of this conversation

will be on the great recession and the ensuing failed economic recovery and the financial crisis that created that phenomenon. i wish i had a more fun topic to talk about. it is an important subject to talk about because of the broader implications and the decisions that will impact the quality of all our lives. i have five basic things. financial crisis was primarily caused by government policy. we do not live in a free market and the united states. we live in a mixed economy. the mixture of various a lot. the least regulated industry is technology. the most regulated industry is financial services. it is not surprising that the most regulated aspects is where we have the biggest problems. government policy created a bubble. that bubble burst, destroying

the trillions of dollars of wealth. a number of financial institutions made some very serious mistakes. those companies should have been allowed to fail. however, their mistakes were secondary in the context of government policy. almost everything we have done since the crisis started will reduce the quality of life and our standard of living forever. we've made a lot of serious errors in terms of improving our long-term productivity. finally, there were a number of economic problems, the real cause of the financial crisis and the real killer or philosophical. what happened -- and a real cure is philosophical. we built too many houses, we build houses in the wrong places. we should have been investing in technology and manufacturing capacity.

in education, agriculture. we should have saved more and we should have spent a lot less. we should have borrowed a lot less. this miss investment was destructive for a couple of reasons. housing is consumption. we consume housing. it is not like a manufacturing plant. once a house is built, it does not create any new job. we made a huge mis investment and consumption instead of production. we told a lot of people how to do the wrong things. for 15 years, we have this housing boom. we drove a lot of jobs overseas because construction rates rose. this is not just the destruction of wealth, it is the destruction of productivity, the destruction of people's ability to produce and create.

how did we make a mistake of that magnitude? three primary culprits. the federal reserve, the fdic, and government housing policy -- freddie mac and fannie mae. the fundamental cause of the financial crisis was errors made by the federal reserve. something that people that study economics and no is that in 1913, the monetary system in the united states was nationalized. we do not have a private monetary system. the government owns the monetary system. you cannot go out and print your own money. if you are having problems in the monetary system, by definition, they are government costs. -- caused. the federal reserve was created in three to reduce volatility.

unfortunately, what the federal reserve is the reduced volatility in the short term. in a free market, we are not omniscient. free markets are always -- that corrective process is very productive. it allows us to reallocate resources. when you take out the downside of the correction process, all you do is push problems out to into the future. it is analogous if you do not discipline your children. by trying to moderate the correction in the economy, they made them much worse. in addition, the very existence of the federal reserve allows the federal government to leverage dramatically. since the federal reserve was created, the leverage by governments in the united states has grown exponentially. why is that? california can borrow a lot of

money because they can tax people. they will run into a limit some day. on the other hand, the federal government can borrow a whole lot more money. when you can print money, it is a huge temptation to borrow. we have had a dramatic increase in leverage since the creation of the federal reserve. we had some very specific errors made by the leaders of the federal reserve. alan greenspan wanted to be the maestro. he wanted to be the hero. in the early 2000's, he created- interest rates. what that means is that inflation was higher than the interest rates. inflation was running 3% and you could borrow money at 2%. ben bernanke, the current head of the there are reserve, when

he took over the federal reserve, he converted interest rates. short-term interest rates are higher than long-term. that is not unnatural phenomenon. only the federal reserve can do that. if you invest long, you want a higher return because it is riskier. banks make money by borrowing short. if you convert the yield curve and create negative short-term rates, the margins go negative. that is why -- we are buying watermelons for $10 and selling them for $8. the banking business is a funny business. you can get higher interest rates by taking more risks. if you look at most of the bad loans that were made, they were made during the periods of inverted interest rates. at the same time, the federal

reserve, economists and ben bernanke were setting, this would not create a recession. not only did he give us incentive to create risks, he said, everything is going fine. in a fundamental sense, it is not mathematically possible. the secondary factor was the fdic. that sounds like a good thing. however, it destroys market. bb&t took over a failed bank in atlanta. a lot of banks failed in atlanta. it is a very typical story. 10 guys in the hotel business raised little capital. leverage that capital dramatically. they lend that to their cronies in the motel business. those counties go broke and that community bank fails.

large financial institutions that fail, countrywide, washington mutual, all financed high-risk lending operations using fdic insurance. without fdic insurance, the depositor would care about the strength of financial institution. they finance those operations. the proximate cause of the financial crisis is government housing policy. this goes back along time. the government is trying to raise the homeownership rate. homeownership is a good thing. homeownership is a good thing in one context for however, there is no evidence that owning a home changes human behavior. the evidence is the opposite.

giving somebody a home does not change behavior. it is consumption versus investment. we did it with the tax laws, community reinvestment act. the big event was a decision made by bill clinton in 1999. he set a goal for freddie mac and fannie mae to have at least half their loan portfolio in what is called affordable housing. a number of economists said, that is risky. the legitimate affordable housing market is not that big. they will have to take a lot of risks.

freddie mac and fannie mae,. government sponsored enterprises, even before they got in financial trouble, they were leveraged 1000 to 1. no private company would be able to leverage at that level. when they failed, they owed $5.50 trillion. now you owe it as taxpayers -- congratulations. they absolutely dominated the subprime mortgage market and day the -- they had a huge dominant market share and everybody else was competing. they kept lowering their standards. politics played a giant roll out with freddie mac and fannie mae.

i can tell you that from the personal experience. we were running the numbers and it was mathematically certain there were going to fail. anybody can hear said they were going to fail. we met with congress on numerous occasions and they were absolutely not willing to kill us. ar us. dodd-frank -- ready-made and fannie mac were huge political contributors. they were the biggest single contributor to the democratic party. they simply evaded. if you look at the financial crisis, there are a lot of nuances. the federal reserve planted too

much money to avoid a correction that led to a bigger correction. that correction got focused and the real-estate market because of freddie mac -- freddie mac and fannie mae. it was a destructive bundle -- bubble because we over consumed. we over consent and that is why we are having such a hard time restoring our production capacity. let's talk about some other aspects. one of the more destructive products that was outside of bernie madoff and -- any day and freddie mac. -- fannie mae and freddie mac. each month you owed more on your house. it was bad because you could qualify at $500 so you could buy a much bigger house. these products work very popular

in places like california, nevada, southern florida. house prices had been rising very rapidly. the theory was go by a big house and refinance in five years. they were not subprime targets. they were targeting mostly young people in the expectations that their income would go up. it turned out to be a very destructive product. people had massive losses in their mortgages. guess to the big players were. washington mutual, countrywide, all large financial institutions that financed those loan portfolios with fdic insurance. they could not have raised the capital and the private marketplace. in addition, they got into a vicious cycle with higher rates that they paid on specific deposits.

it became a vicious cycle using fdic insurance. bb&t chose not to offer a bad product. we chose not to offer it over ethics, not economics. however, we knew that these were bad products. we did not know the disaster was gone to happen in real estate, but we knew that home prices could not appreciate in a year. we were setting up a lot of young people for economic disaster. one of our fundamental commitment is to help our clients achieve financial success. never do anything that you know will be bad for your client. easy to make a profit in the short term, but it will always come to haunt you in the long term. if you do the right thing for your client, they will be more

successful. we decided not to offer the product over ethics. i want to come back to that in a few minutes. one of the interesting questions is how did the federal government and up dominating house financing in the united states? it is a very unusual phenomenon. it is not a natural phenomenon. our housing finance markets is far more specialized than europe. our housing market is far more socialize than the european housing market. if you go to a bank with a 95% probability, they will sell it to freddie mac and fannie mae. they have about a 95% market share in the united states. we have a government dominated financing market in the united

states. how did it happen? there are lessons to think about. it really started back in the 1950's. it is interesting what happened. when i got my first mortgage in 1975, i went down to a local savings and loan. you had to put 20% down. at those times, interest rates were 8%. the success rate were incredibly good. very few loan losses. they knew they were going to hold the risk for 30 years. into the market. they understood the local real- estate market. the savings and loan industry was systematically destroyed by a government policy. lyndon johnson was to create a

great society and wants to have a war in vietnam, said he did not want to tax people. the federal reserve lots that to happen. -- the federal reserve left that to happen. there is a long lead time, but in 1970, that turns into a roaring inflation. by the end of the 1970's, our financial system is under severe stress. the total reserve steps in, drive the prime rate to 21%. they have been doing it for 70 years and suddenly they're paying 16% interest. not a good formula. the few that may get to that crisis, they get some help from the regulators. the fslic cost the taxpayer $300

billion. they had to go work for the fdic. none of them ever got fired. the regulators of the savings- and-loan industry encouraged to hedge their home mortgage portfolio. here is the dilemma. you cannot have lunch a home mortgage. when interest rates started to fall, they prepaid their mortgage. the regulators decided that you could not make money in home mortgages. they forced the savings and loans to get into the commercial real-estate lending business. shopping centers, office buildings, commercial property. they helped create a commercial real-estate bubble that burst in the early 1990's.

only a handful made it through that cycle into that vacuum is where fannie mae and freddie mac took over the business in the u.s.. bb&t, we could head are risks because we were making loans to businesses. we could not compete with the federal government. they are leveraged 1000 to one, they have lowest -- the government guarantees your debts and you have an advantage. right? they did not do subprime mortgages. they drove all of the private participants out of the marketplace. by the way, i have no empathy for golden west. they could not compete against the federal government in the

traditional home mortgage business. the option was to go out of business or be creative if they had not dominated the home mortgage business, it probably would never been invented or would have been a much smaller portion of the market. it was invented in the u.s. in reaction to compete against the dominant government competitor. after they take over the prime market, bill clinton and the government in general but lot of pressure on ready-made and danny mac on the fannie mae and freddie mac. traditional banks, we did not to subprime mortgages. they had to find people to help them. they went to people like countrywide, washington mutual. they set up these programs so these companies would generate

subprime mortgages. they kept lowering the standards because they had to meet a portfolio or congress would not guarantee their debts. they got more broker relationships with more brokers. to go back to the old savings and loans, in the broker model, you make a loan and use salad. you really do not care about the rest. -- the risk. it leads to a lot of default. an individual says, i made $75,000 last year and want to buy a house. he rarely made $65,000. -- he really made $65,000.

some of that volume went into fannie mae and freddie mac. a fair amount of that went into the international market where these things were securitized. the security instrument is what made people buy them, standard and poor's and moody's are interesting entities. they're the only people that are allowed to write financial as to ms. that are held by public pension. that means they have an oligarchy. they're supposed to know what they are doing. they have a special certification. they did an awful job. that is where so much toxic mortgages were bought by hedge funds, pension plans.

people say the investment bankers were greedy. that cause the financial crisis. i will guarantee that investment bankers were greedy. i have been in this business for 40 years and wall street has been consistently greedy. but they were no more greedy in this for years. they were exactly as greedy as they were. it is the nature of the beast. they did make some very irrational decisions that had some severe consequences, but they are not any more or any less greedy than they always were. let me tell you call that unfolded in the capital markets and what happened. a lot of people that want to blame it on grade from that

statute. -- greed throw that out you. the idea is pretty simple. it is a credit default obligation. it is a way to diversify risk. it started out -- a bank makes a loan to general electric. it is a $5 million loan. even though they're a good company, they want to diversify their risk. they are looking at the same opportunity with their mortgage bonds. they have a mortgage bond portfolio. the people that would like to buy a-rated bonds, and the way we can do that is to create trudges -- tranches.

they went about selling these bonds in the marketplace, making a lot of money. ben bernanke in first the yield curve. i am sitting over at merrill lynch and i need some assets in my own portfolio. the only assets that i can make a positive spread and is a c- rated mortgage. i do not think it is that the height of a risk. i will hold it and sell the a's and b's. when the meltdown started, merrill lynch loses 100 cents on the dollar.

a year before they went, they were making a fortune. they go broke very rapidly. another interesting thing in the capital markets is something called a credit default swap. that sounds very esoteric. that is where aig was a big player. it is also a simple idea, it is an insurance policy. i have a portfolio of be-rated mortgages. for some reason, i'm going to hold that portfolio, but if i can get them rated a, the sec will let me have a lot less capital. all i have to do is to go over to aig, and they issue me an insurance policy guaranteeing me that bonds will default. i paid them a premium. the insurance premium -- aig

does this on a huge scale. they screw up a badly. the risk is greater. one of the interesting questions, why did we saved aig? aig is the large insurance company, but the subsidiaries -- there was something called a counter party. this is another explanation. the county party risk -- if you are the secretary of treasury and you spent your whole life at goldman sachs. you can honestly believed that if aig fails, it will take out

goldman sachs. that is simply not true. bb&t had a lot of derivatives and we hedged all for derivatives risks. we were doing business with bear stearns for 80 years. we did business with lehman brothers and we lost not a penny. only a few people, like goldman sachs, were really out the risks. that whole systems risk argument is an interesting argument. a couple of other thoughts about the crisis. there is an interesting myth is the the banking industry was deregulated during the bush era. absolutely not true. we're not deregulated, we were missed regulated. -- misregulated.

regulations increased exponentially. there was a huge focus on two things. the patriot act. sarbanes obsolete -- oxley. we are behind one back from the early 1990's. the patriot act was bare spots to keep -- catch terrorists. do you know what the probability of us catching a terrorist is close to zero. if there are that dumb, they will get caught anyway. if we caught a terrorists, -- the only significant conviction of the patriot act is eliot

spitzer. he was convicted of soliciting prostitution. in some ways, that is humorous and in some ways, that is poetic justice. in other ways, it should scare you. what is the terrorist risk of the governor of new york? why should that be used? what information is being gathered under the patriot act? i will tell you that your privacy is being invaded on to the patriot act. there is a huge focus on the mathematical modeling. all the mathematical models failed. we were told numerous times that if we just had mathematical models, we would be in great shape.

they can be very useful tools, but they have something called detail. -- call the tails. if something is one% probable, gives it enough time. if you build your house in a flood plain, you will have a flood. nobody can mathematically modeled human behavior under stress. all these models collapse. one of the biggest myths right now is that banks are being encouraged to make loans. the banking regulators have dramatically tightened lending standards. this happened in 1980, 1990.

the regulators always overreact after the fact. if you are a government regulator, you are a lifetime bureaucrats, you are not at risk, the only way you can get in trouble is if your bank is in trouble. it is a self protecting mechanism. i guarantee you that bb&t is putting people at a business that should not be at a business because of the banking standards. it is a tough regulatory environment. let's talk a little bit about what we did economically and we should have done. one of the most important things that we should have done is let markets correct. that is