a year ago the nuclear power plant in japan melted down after an earthquake and tsunami hit northern japan.

the keynote speaker today's atlantic magazine forum on the economy was fourth federal reserve chairman paul volcker. he said the tax code should be overhauled and the u.s. should consider a consumption tax. >> talk about yourself, how are you doing? [laughter] good to ask. thank you very much. i'm fine. i have an honest thing i want to tell you about. i want to tell you about the location when i -- my wife and i moved from my bachelor apartment to our starter home. its 1986 and we went to the closing of the selling of my

apartment and i was introduced to the real-estate agent for the lawyer of the apartment and was told that her name was jean dixon. i turn to my real estate agent and said is there any way that this is the jeanne dixon and she said yes, she is. so who knew that jean dixon was a capitol hill on real-estate agent. there was nothing interesting about it but when we finished we were saying goodbye to ms. dixon and she took my 22-year-olds wifes hand and turned the palm of words and she looked at it and she clasped her hands and said my darling, you are going to have the longest and loveliest life full of friendship and prosperity, and then she shook hands with me and took my palm face up and then she turned it back to just shaking hands and she said i hope you enjoy your new house. [laughter]

the connection between paul volcker killed my starter house in the 80's directionally i don't know that i would have been buying a house in the 1980's. i don't know if many of us would be buying a house in the 80's or how much of a market there would have been in the 80's without paul volcker. 1979, summer of 1979, jimmy carter appointed chairman of the fed. but i would like to do is read to you a bloomberg profile of the moment. so october 19792 months after the appointment was confirmed by the senate he convened a secret saturday meeting of said governors. some hold their offices they were going fishing for the weekend. he convinced them to switch the agency focused too tight money supply instead of setting short-term rates. when it restricted to money available to the bank interest rates served the economy into a recession and the medicine had to be painful to work said the vice chairman of the fed at the time. there were demonstrations every day in washington by groups

ranging from home builders to car dealers, volcker received karkh cookies in the mail -- car keys in the mail. almost 8% in one quarter to the remedy worked in 86 inflation fell to its lowest level in two decades. october, 1979, this sighting of the story inflation was 12.1%. when i was married in some timbered of '86, it was 1.5%. the canadian theologian who thinks the finest character quality is what he calls a long devotion in one direction. as we are in our six the decade of the teaching and public service. remember 1962, some of you remember 1962, gary powers released by the soviet union, johnny carson takes over the tonight show, bob hope at the

treasury department and 63 the deputy undersecretary of treasury and the nixon administration as the undersecretary of international monetary fund. 1975, the president of the chairman of the new york fed in 1979 the chairman of the u.s. fed until 1987. five presidents and a row, reagan, can become a nixon, carter, reagan, a 20 year hiatus of teaching and then the return to the national in 2008 was an endorsement of barack obama and subsequently his role in the economic recovery for the last four years. there is a vulgar rule but there's also for this moment in time a bradley rule which is always a really good thing when you get to introduce paul volcker at the podium so here is paul volcker and steve clemens who is my colleague at atlantic

media. [applause] >> thank you. ladies and gentlemen, there was a wholesale introduction and they're all parts of the introduction that for quite elegant. one thing about the introduction, david, i have heard a lot in the introductions over those long years and the introduction stands out as the most recent. [laughter] we have quite a challenge here today. i have for my account when i looked at the program for the twenties reminded economists on

the program they come from a range as occupations and then of course only a sampling of all of the professional in this right now. we have collective many years of academical lending to go on. and you would think that the flood of light for something. it keeps coming to my mind with a collection of theirs was unavailable i have to ask how would we ever get into this economic mess hall to get out. it went wrong because i am told that at the end of this program larry summers will be here and yes responsible for all of the

analysis and the priorities like we should do and we should not do and then go out and do it on your to be a little provocative and i do emphasize the perspective and i do have some idea about how we can approach that long-term perspective. we all know that the land of political economists has lost the sense of self-confidence that it once had. i entered the united states treasury in the midst of the triumph of the keynesian thinking and the consensus then was and i can give you of quotes from some of the leaders then we have conquered in the business

cycle. instead of course we have the long stagflation and a new way to seek the unhappy circumstances. then more recently in the 1990's we had those in the washington consensus the best expectations to the deficiency in for a year or two managed to balance the budget with the anticipation failed. the big lesson is in the uncertain world we should be wary of any seemingly simple and all embracing approaches towards economic policy. the period of success seems to breed over confidence and access, and those excess produce

the next crisis. there was little known not so known now who had the observation of the cycles in the fury of the seemingly inevitable competitive financial crisis in the 1980's but nobody was listening. the economy has perked up in the last few months but in my mind we are still far from the lack of activity. my impression is they are stirring a long ahead of us before we can claim anything like success and the consumption on the savings to cut the inventory for the strong and

lasting recovery. in the commercial construction for at least a year or so i heard. business investment has come up from low-level but it's still lagging until lower-level it is heavy in particular. i don't have any say on the short term growth problem. i do know that the immediate future we have to do what we can to sustain the program. and this means maintaining for a while the fiscal and monetary stimulus but that's not a recipe for sustaining a healthy economy over time. indeed we should know that crushing stimulus to long would be counterproductive.

i suspect hard but what is still harder is the reforms that will sustain the economy. we are in an environment of the resistance to change and the deep-rooted political polarization. i could speak at length for about the financial system but the opportunity to do that recently let me simply say the finance reform is a work done. some important areas have went into the market is one. what about accounting in the practices? what about the credit rating agencies and the money market funds to mention some important areas that have received very little attention?

even in those areas of international consensus seems to exist, it is difficult to actually implement the liquidity standards can parts of the legislation need to be nailed down in prison for stealing with could evidence and the more important parts dealing with too big to fail nds, the rule is one. but i want to emphasize something different today not the problems of the financial system that the imbalances in the real economy and what to do about them. the united states is a consumption economy. that's been proven for years and proven recently even a minute has lagged. a decade or more consumption has run into a collective

willingness to say consumers took on a load of debt in the process manly and home mortgages. to some extent the process had the options of real income growth for most households and extending over a decade or more. that's something that simply is not supposed to happen in the healthy growing economy. productivity gains are supposed to be largely shared but instead we have had a concentration of income growth at the very top of the population, 1% with an income distribution that has not been seen so top-heavy since 1929 which is a kind of interesting comparison.

something similarly we've reduced tax rates and increase both military and mandated spending. the manifestation of those public deficits were indebtedness. to the nation as a whole, it also inexorably lead to the laws from abroad ranging as high as five to 6% of all gdp. that didn't appeal so threatening when the surplus companies in particular would send manufactured good to us some say the consumption desire to accept payment in dollars and for the time being given the problems in europe and japan and

the substance to the to absence of the dollar in the emerging world the authority to borrow cheaply abroad remains. i also think it's true that borrowing is symptomatic of the underlining equilibrium that simply can't be sustained. who could imagine that financed but accumulate $3 trillion worth of reserves and other foreign countries if rauf offers a large chunk of the budget deficit as well as the balanced training. if the conclusion is sent to faeroe to think about them long and medium term. and as we continue with the stimulus right now.

now i know there is no political consensus today. the option that seems beyond me at least in this election year. but the electoral process doesn't produce some common ground for the policy decisions and then i feel that there are in variable pressures to come to bear upon the monetary policy and some combination of a weak dollar and rising interest rates. financial gunster institutions even if we are fully implemented within be in jeopardy. and i suspect this is new to the most of you in the budget deficits, certainly draw our attention day-by-day in the political process and otherwise. i think the result has been more

political posturing than reform. i wonder in all of my naivety whether the contentious year we cannot qualify the issues and at least lay the groundwork in the needed reforms. the other stores in the proposals to be named but little respected national commission on the fiscal responsibility reform. a long name for the some symbols commission. v. domenici rivlin commission, we have had the agreement last summer in the midst of the debt ceiling debacle and all of that suggests some ground, some common ground. but my point is none of those

approaches went far enough in terms of the economic programs we really need. to set the stage is let's start by setting up some points that seem to me to come and support in general terms of not in detail right across the political spectrum. if we want a strong military and national security system? if so, and i think we do, we have to assume for the time being they have to be reasonably limited. do we need to pay more attention to this infrastructure? if so, and i think that's correct, that means more spending rather than less. much of it through a state support and states are very heavily challenged the moment. we do need to sustain the

systems of higher education in particular but education at the levels and the higher education in particular is being threatened at the state level by the extreme budgetary pressures. we need to bring about a financial balance in the social security system in the decades ahead and we need to do it without significantly adding to the reliance from the already high payroll taxes. and of course there is the biggest challenge of fall in the health care expenditure pattern. nothing to add to that particular subject of health care side, but i do want to point out that i give seen many proposals that do not conceive that extended fees will continue to rise faster than the gdp deflated. it is just a question of how

much. today the federal government spends close to 24% of the gdp. that's well above. some of the stimulus spending we think diminished over time but even taking the most extreme proposals by the some symbols commission the spending of level would only go down to 21% of the gdp that is well above the past levels and under their own planning what take years to reach that goal. even then we look at that spending level and look at the present tax system we can't come close to balancing the budget. the revenue system is with such

a few exemptions and credits that it's leaking badly the system so complicated is hardly comprehensible. as things stand it is unlikely to be maintained and the 18.5% of the gdp nor does the political reality administrative capability or economic analysis see the marginal tax rates from the increased across the board and still generate enough. the implication is obvious very large changes are necessary and the need to be structural. they needed deviating and this is the jeter to pursue that process, debating even beyond the some symbols approach.

that commission and other discussions tend to take the page with the reforms of 1986. ronald reagan taxes i think three times in his administration after the initial reductions tax rates. but the credits reduced in some cases were in debt and resulting revenue increases would have lower marginal income-tax rates consistent with a net increase in revenues making the contribution to reducing the budget deficit. so simplification and revenue enhancement may in concept be possible. the complementary approach is

taking this to the corporate income tax. it all of that seems to me part of a constructive debate perhaps, politically possible in time but i don't want to stop there. we do need tax reform, we needed to think part of how we rely more on the consumption east texas incentives to move abroad and think about possible integration. we need to consider the impact of the federal spending policies on the state finances with consequences for infrastructure support and medicare responsibilities not to mention the 500 or 600 billion federal

spent each year go to the states if we need clarity and consistency in the state taxation and what everyone says about that deviate quality and consistency do not apply. we need to consider how all of the spending decisions go upon the designer for energy independence and go upon the environment. where we are that is a tall order. is it in possible to do? all i can say is i hope not. the inadequacy before the debate even starts.

consider where we were in the common concern and the possible consensus upon which to build. most important, we need to understand how much is at stake. the united states cannot be an isolated island. we live in a world of swilling concerns. we demand political securities that poses opportunities as we argue grave threats. if i measure one part of the problem is the united states requiring almost unchallenged leadership of the world economy but decades after world war ii it was the american vision and the american strength that shaped the world economy and the

economy increasingly market-driven open to the international trade and investment was unprecedented standards of living and whole nations and of rising from poverty. we've lost economic position that we are still the largest, richest, most innovative economy so we can still bring our influence to bear. for that, we have to do better. there's no way the world can thrive and isolation. you only helped shape those forces in the world and in the direction of the democracy and

prosperity. we can't do that with military force or political influence alone. indeed, only, only a strong and open economy can support and assure all national security, maintain a sense of global leadership and provide opposing systems. a strong economy is worth the effort that it will take to rebuild some sense of common interest and to undertake economic reforms we need. that's a big challenge to a scene out of the odds to the reality but one ressa tuck and the lesson is over who then we had better be prepared.

not so long ago in the new administration let's not let the crisis go to waste. let's hope for the slogan of the next administration as well. thank you very much. [applause] hispanics into very much. for those of you if you don't know i'm steve clemons. it's very good to have all of you here. you will see that when we do evens a dislike on united airlines we usually don't let people leave their seat and go into the hall and put things of the table we do them all in your seat and we are going to do that as we are discussing we are going to have staff votes so quietly clear your plate because we are not taking a break after this and we are going to proceed

the atlantic issued a money issue that, our finance issue on the front and i was talking to peter and other people in the room who were basically going to see bernanke as a villain as opposed to the hero and they see him as a villain for keeping interest rates low that either inflation or other bubbles are being created so if you're fed chairman to do with to have the federal raid where bernanke does? >> i'm not there so we don't have to make that. laughter cut i have a regular practice of refining -- >> we just want to see if you -- >> when i saw that bernanke is a hero bernanke is a villain i thought they were in public but it reminded me today even

somebody says you are the so be dealt reproof to a represented my mother and father from buying a house in the early 1980's because interest rates for 15%. then i the one of looker tool and somebody says your paul volcker, thank you, my father bought government securities at 15% that put me through college. thank you. [laughter] >> let me provoke you for a moment and ask you about your view about what happened in the financial crisis and the creation of financial instrument in derivatives that you have said created a lot of confusion and the preakness and distance essentially between regulators and of those playing in the markets. some might say you are well meaning but you don't understand the new math and that just like steel getting a touch stronger

you have a generation of people that despite what happened in the financial crisis nonetheless there is strength in the kind of leverage and that is out there and that there's been an overreaction to the financial innovation. >> all of those about the benefits from the financial and engineering was diffusing risk and risk kind of disappeared and then we have that derivatives to people that's fine but people just want to gamble with them as well and to have a situation some of the numbers are kind of enlightening. before the crisis but credit the fault swaps did not exist. they were invented in 1997 or something like that.

it just didn't exist earlier. by 2007 or 2008 there were $60 trillion worth of credit-default swaps outstanding. the default swaps are supposed to provide the kind of insurance policy. you get one of these to protect yourself when you hold the security against be felt, the case in point right now. but how do you have $60 trillion of the credit in default swaps outstanding to ensure the 6 trillion of the total debt outstanding? it suggests something is going on here that didn't have a close connection with the economy. it was elements of the casino, very complex casino with all sorts of senator dependencies

that counterpressure for the credit the fault swaps. i like to use a kinder word then collapsed, but i think it is a pretty good prescription of the hundreds of billions of dollars of government support in the united states and in europe and japan to support the system. that is not a viable enterprise system if you rely on that kind of government support when it came under pressure. that doesn't say the financial system is responsible for everything that happened. but what we do know is that fell apart when it came under pressure. >> today there's a wonderful of that in "the new york times" by a gentleman who just quit

goldman sachs apparently today, maybe less might and orchestrated his resignation letter along with the land that is essentially there's an indictment of this person of goldman sachs for plenum that casino economy and what he considered to be irresponsible ways that undermined the interest of the economy. do you have any thoughts on this? >> it's a strong piece but it is a reflection of the changing market mentality over the past 20 years old and sex for instance has long been the most respected of the investment bank's become very sensitive to avoiding conflicts of interest and focusing on those. two things, the one public used to be the partners were at risk

earlier a and a limited 90's they went public and got a big trading operation. that like other investment banks in the trading operation rather than the customer oriented line in operation and that changed the mentality, and afraid it is a business that leads to a lot of conflicts of interest. it leads to enormous conversations and that is obviously very attractive to young people and of these firms that attract the best of american graduates and of philosophy majors, doesn't make any difference. a lot of the problem was often wall street but now we have the question of how much of that

opportunity is really constructive in terms of improving productivity and the gdp? these were brilliant years for wall street but one perspective there's no evidence of that in the greater economic growth and the rate of productivity did not pick up as i noted earlier the average household had more in common a spurt of, virtually no increase. so we have an unbalanced economy and cents you've given me the opening to have a few, the so-called looker rules aimed at this the credit-rating by commercial banks by the nature indirectly subsidized by the government and should the

government be subsidizing and protecting institutions engaged in essentials speculative activities often at the expense of customer relationships and it doesn't lead to a cultural conflict of interest we just assumed to go without. so i hope that reform will make little progress in getting rebalancing incentives in the financial system in the fund returned to the old fashioned concerns about lending to small and medium-sized businesses and responsibility and taking care of your deposits and the critically important function of the banking system that's making payments rapidly and accurately all over the world. it's not a job in my opinion for the speculative institutions

hedge funds should quote and speculate individually but they shouldn't be protective of the government. the difference is those firms are going to be speculating doing proprietary trading should not be rescued by the government when they get in trouble. that is their own responsibility. [applause] most of them take the hedge funds in the past departments as eight should be. estimate your hoping for the more robust version of this is that inadequate? >> i don't think it is a question of robustness.

all of this fighting about the response in the banks and so forth is too robust and complaining -- >> may get a little v and not a big v. as the mikey of gotten into all the details you are not plan to give us any so to speak, so it is a interpreting it to strictly. this gets into the philosophical question another regulation and puddles on broad principles to try to make sure the banks understand the principles it and you check up on them later that sounds sensible but it goes against the grain of the regulatory philosophies in the

united states and the philosophy of those regulators they have been saying exactly what you mean by this, what you mean by that? if we hold the security for three days, is that okay? is that what you're telling us? if you are not then tell us that. you don't want to get into the till the that is that is all about to the estimate in a little when we are going to have larry summers appeared and bob rubin is going to train as right after you. there's a line of people that have been key economic advisers to the president's, and one of the people is the one that has a job now which is gene sperling the national economic advisor for president obama. when i look at the profile the other day looking a good jobs and infrastructure the polls that they put forward and when i dug into it looked like a lot of those pieces were things that you and alston ghouls be had worked on and thought about some time earlier, so my question is

do you think the president is free years too late with his jobs and infrastructure proposal would you have sequenced some of the obama administration put forward differently? what you have done more in the jobs and infrastructure on the front end? >> i would like to say if i were president of the united states we would have a sophisticated program. >> what we have is the backwash, a tsunami hit us in the financial system, did a lot of damage. debt in this economy relative to the size of the economy doubled or increased by two and a half times i think, just the size of the economy over the 15 or 20 year period and at the end of the date strangled us the great boom in home building but does

soon as it happened the prices went down we couldn't handle of the debt and people had saved in the period because the borrowing in the mortgage and you have a home-equity loan and then you have another your credit card and it was all great until the music stopped. so we have been living i understand in a situation where some people said this morning when it's gone to restore prosperity we give as much support as we can in the policy in the extreme fiscal monetary policy but there are not many buttons to push, take infrastructure, we have to concentrate.

it takes years to develop infrastructure projects to do it efficiently and effectively with a bridge in new york that means to be replaced for years but to replace the bridge is going to take six months to make the designs for the bridge, so that ought to be a big component of living and but it's not going to rescue things before the election. >> have you wrote an op-ed again about the dangers of inflation is? because i think that you begin to see in this lot to do the talks about a lot the chinese are worried the united states has so much debt that the way out of this is to inflate once we out in overtime shrink fat and end up with a lot less can

use it is dangerous thinking and i would like to understand what you are really scared about. >> what i was concerned about when i wrote that is in the natural frustration about the economy moving rapidly and one or two voices and the federal reserve maybe we ought to think about having a little inflation then people will spend money more freely. it's hard to think about how to spend more freely than we were spending. but anyway, let's have a little inflation. i think it is a kind of a doomsday scenario because these days people really felt that the policy interest rates remain as 2.5% volume of lending at 2.5% if the federal reserve itself

that is a game so you're not going to get any stimulus and you're going to make a lot harder to restore the sense of stability which i think is crucial to and they have done a good job at st. we don't forget about the importance and the autistic to that. >> i'm going to open it to the floor into questions from here if you would like to live and i'm going to ask the servers and i am very grateful you are helping to the but i'm going to ask you to keep us quite as you can. it sounds like crickets. george soros we were not last year described the financial crisis as not the first bubble with the super bowl and he often says it is interesting as larry was up there that responding to a super bubble that had burst

respond to the coup is a different kind fornication the typical tool used to respond to the recession won't work, and he would often say if larry summers is right, then he will succeed if larry summers is wrong and i'm right, then with the application of toole stated in the recession will fundamentally not sold where do you come out? was it a superable the first and we failed to remedy the problem or has larry summers while she was in his position using more conventional tools and responding to the recession? >> forget about personalities. the question is. >> they like names. >> i'm anonymous. the question is was this a super bowl, yes they didn't have the

characteristics that meant it wasn't amenable to the fix. the variety of business cycles in the 50's that didn't you had some excesses' in business investment and housing and have some inventories that was of enormous scale and when the economy went down and interest rates went down the adjustments were to be made and particularly what happened is because home building is responsive to interest rates the interest rates went down you would get a rebound in housing. if you didn't start out with the excess of housing the standout with the enormous excess of housing with a million-dollar home either in foreclosure big

supply so you get the no rebound in housing so i won't call them many recessions but the work of be shaped. it wasn't v-shaped after 1929 or v-shaped after this one. all things considered a think we are doing pretty well. we have had a couple of years of expansion. it looks a little better now on the age coming down, but you can't ask more than the economy is able to produce as a short run because we have not eliminated all the excesses and the overhang of houses and the overhang of debt is still there. >> let me take the first question if you will identify yourself, please. >> i am norman at the center for economic and social justice. one of the major points the we

made this morning was that there needs to be a challenge to the existing economic paradigm, and to dr. felker kung fu confirmed that that there is a need for change but there's also a need for the big picture. there is one big hole in the economic paradigm that's reflected -- >> i'm going to ask you to freeze it in a question because we just don't have time for statements so make it a question. >> the question is why in the existing economic paradigms' of all schools of economic thought deutsch the only focus on labor and not on ownership and has a potential additional way of achieving shared prosperity that it is changing the tax system, changing the federal reserve

policies, changing adding back glass-steagall powers within the financial industry so that capital credit is different than consumer credit so all of these fit into a way in which you can expend capital ownership as we have done under the law for the employees why can't we do this universally for every man, woman and child in america? >> of the things suggesting might be desirable to go back i think at least people talk about going back but it is a key issue which is a lubber leader earlier. there is a pushback i don't know

what paradigm but to the efficient markets, the rational expectation is pretty much been drawn but that is on a lot of the regulatory thinking and market thinking in the past decade or so. so if you sort out the kind of thing we are talking about, we need the debate come and that does come down substantially to the questions of fiscal policies and the spending policy and tax and there is a ms. moore agreement that can be developed in the moral consensus and that is apparent right now that is not apparent at all in the midst of the selection belli continue to argue that we can find

elements. >> and going to ask the servers to keep the cricket norristown. >> if you will identify yourself. >> my question is you mentioned that the country needs something even more substantial than some symbols and that is going to include some policies that are unpopular republicans and democrats. what you think is the most important economic policy that obama needs to convince the democrats to support and what do you think is the most important economic unpopular down a policy in the republican candidate is going to need to convince the republicans to support? >> what we can see on both sides right now sketched the kind of basic vision that the ec particularly for the budget policies and see what plans they

do converge upon as any possibility of reconciling the answer to that will be no they will not reconcile during the campaign but will there be enough sense of inflation to have some basis for a strong and comprehensive program and say in some respects going for instance beyond some symbols on both the taxation and the spending side but they've gone a good distance from one possibility to build on. >> mr. volcker. islamic please identify yourself. >> i'm a private investor and my question is about crony capitalism. do you think the concept of too big to fail might be like well

connected to fail, and along that line, why can't we have an tc concept the way we had it after the s&l crisis in texas and the sovereign states? >> the question as to how much the rescues are involved in too big to fail on the political instincts i think not much and may understand the suspicion but we had a genuine emergency and you have to draw options under taking to some political support for what ever and taking the national interest. it turned out in a periodic way

was an approach that in some respects didn't involve the old rf si the u.s. treasury but cattle coming u.s. taxpayer capital into the financial institutions. they were discussing it in an unplanned way and there was a fear of doing this and what would appear to be a kind of fear i think that was overdrawn that somehow when the americans see putting capital the thing that is socialism and the government control that was unwarranted and a lot of countries have helped the experience of putting capital into banks if and the haven't ended up running the banks and

they withdraw the capitol and pull through the bank. i wrote an op-ed piece before the crisis at the breaking point something might be a good idea. i can say the writing of the op-ed piece and the response i would have gotten you won't think there's any possibility of getting congress to approve that? and the answer is probably no because you have enough trouble getting the congress to approve after the crisis is so apparent. >> peter schiff? >> the microphone is in on.

>> the lost confident person to share the federal research but here's my question and it's a very simple one. you mentioned in your speech that use all of the biggest problems we have as a nation and i agree with you is that we borrow too much and spent too much coming yet then he went on to praise congress and the fed for the stimulus when the specific goal of the stimulus is to get us to borrow and spend even more if the problem is too much borrowing and spending how is the solution that we borrow and spend even more? >> thank you. stat sometimes there is a word for this but i can't remember sometimes you have to take a little medicine to make it better. in a sense of this kind of a binding in the time.

>> i appreciate you asking that we have to continue. >> it could make it worse, but the time being the units for the economy and i think it would be worse without. >> let me push a little bit on this issue. another analogy is used a few turning to the skiff and turn away that is one of the analogies people often use it after the '97 and '98 economic crisis i remember larry summers at the time was the deputy secretary and essentially worried the global growth would plummet and so the deal was that the u.s. economy had to keep chugging away and keep the rest of the world moving and that's of the era of the lower interest rates wasn't to keep america going but the rest of the world moving. then the question is when we create that climate which alan greenspan and others were a part

of have you created a new set of interest that are going to turn out of that and a different way of asking peter schiffs question that are we in it in a system where we become addicted to a narcotic of cheap rates that is creating a different set of incentives and disincentives in the economy? >> having the interest rates are accepting come it's not a normal economic situation in the difficulty and extreme shock to the economy which comes along fortunately pretty rarely. .. ..

and in a sense it was successful. mexico had a good recovery but there is a lot of criticism in the amount of money involved and why do we have to get so deeply involved. as i observed it, the first section of the united states government was to stay away. we don't want to get involved in every crisis every place in the world, so it's a small country and that's alright and we don't need to jump in. indonesia is a much bigger country. imf got involved and we didn't

like the japanese getting involved. then it got pretty bad and then it went to korea. now we have a bigger country. korea got in trouble, and so ah-hah that was going too far. so, we jumped in and helped marshal the banks together to support korea and ameliorate the crisis. but indeed that was a good example of a relatively small country getting in trouble, but that country getting in trouble, a very sharp sword -- fluctuation and the exchange rate. its neighbors got in trouble. it happened there why cannot happen to indonesia and why can it happen to malaysia? and at the end of the day, it

was necessary, quite correctly, that the united states better become more active in this deal and move to stabilize the situation. you can say, so suppose korea or at worst defaults. if korea went into default, the answers are not easy but i don't question at all, if i question anything about what happened then maybe they should've gone in earlier. >> we will take these two questions quickly and line and i know bob rubin is here and we will move immediately to the next session. just the two of you quickly, two quick questions. >> there has been a lot of quantitative purchasing of debt. how do you see this unraveling? >> unraveling?

>> all the debt that has been issued, for money that has been printed to basically purchase big debt and remove it. >> are. >> you are talking about the federal reserve? >> let me get to the next question, so debt unraveling. >> mr. volcker you said something to -- any initial innovation doesn't do too much good for economic growth so my question is that, the financial immigration and the financial -- contributed to the widening of the income gap in this country? >> we are not going to solve the income gap in this country and solve our budgetary problems with financial immigration. financial innovation can solve real problems. financial and assault on cannot

solve real problems. it's not going to reduce the amount of consumption. it's not going to increase savings. forget about financial innovation. [laughter] if there's anything we have had enough of its financial innovation. [applause] on the question of the federal reserve. this is a very unusual situation. the federal reserve has done things unimaginable a few years ago. all sorts of unorthodox things. but they do not in my judgment present what i would call a technical problem. as the economy grows, we have got the capacity to reverse in an orderly way what otherwise would be excesses of money reserves and so forth. the problem will be the everlasting problem of central

bankers. do you begin tightening up soon enough when the economy is launching on an expansion? who ever wants to tighten up at all when unemployment is still whatever it is? it can always get better so leave it alone. and you begin taking, typing moves however mildly, they are likely not to be widely welcomed in the political environment. central banks have to do that so i think it's a central bank policy problem. it's not a technical problem. >> you one last question is i'm looking out my team. it appears they are not here and i'm not going to go off stage and invite elizabeth baker. i know in my digging around of

your work, you are deeply concerned about the state of public administration, those that are tasked with stewardship responsibilities in the government and in the next row bust phase of your life, you have committed yourself to doing something about it and trying to change the quality and support for those people who are serving and government. i would like to share with you or have you share with the audience what you are doing on that. >> a long-time concern of mine is how to improve public administration. i think part, only part, of the problem the ideological problem we have on both sides. government is terrible and government causes all the problems and government rescues everything. neither is true. what we need is an efficient government that is widely supported and trusted. it does what we need. government needs to be efficient and effective and largely

trusted. that is not what we have. you know it's great survey taken over the years and in a lot of these things they asked the same question every year, literally for decades. one of these questions is, do you trust your government to do the right thing most of the time? it doesn't seem like the most strict test you can imagine in a democracy. do you trust your government to do the right thing most of the time? recently the answer to that question is about 20% and i think the most recent survey actually shows below 20%. so you are not going to have a very healthy democracy if 80% of the people don't trust the government to do the right thing most of the time. some degree of skepticism is a good idea. we ought to be skeptical about all those politicians and bureaucrats but we can't be so

skeptical that we don't think the government can do anything right and we can't trust them. we are going to be suspicious of everything they do. i don't think the government is fully incompetent or anything else but i think there are areas where it is not very confident. we need to concentrate on those things and help restore and one element is restoring trust in government. let me give you two obvious examples of recent events. hurricane katrina. we have spent a lot of money on emergency management. it was considered a total flop, responding to a hurricane that had them predicted. with good reason i think. and then a few years later we had this oil spill in the gulf of mexico. didn't know anything about it. i didn't even know we had an agency which purpose is to protect the safety and

reliability of offshore drilling. but we have such an agency. they obviously are not doing the job. these are two very technical problems and nobody is going to argue that it makes sense to protect against oil spill's. nobody is going to argue that we don't need a capacity for emergency assistance. can't we do that kind of function though reliably? that is what this is all about. i want to give more attention to this kind of problem. >> i appreciate you sharing back. bob rubin is here, and chairman folk are -- [applause] we invited you here today to talk about stuff we wanted but we would love to invite you back to talk about the things that you want to talk about. let me invite elizabeth baker keffer to take the stage. thank you again, chairman

vulgar. [applause] >> more from today's economic conference is coming up on c-span2. in a few moments, lawrence lindsey and economic adviser to president george w. bush. 's time warner chairman and ceo jeffrey spoke tonight at the economic club of washington.

>> lawrence lindsey led the economic council during the

first two years of the george w. bush administration. at "the atlantic" mega-zine form on the economy today, he said neither democrats nor republicans have credible economic plans. he was interviewed by "the atlantic" editor-in-chief. [applause] >> thanks everybody for joining us. former governor, former director of the national economic council. we are just going to dive right in. there has been a lot of discussion about how difficult the last decade has been in the global markets and global economies. we don't need to belabor it but what is your diagnosis of the problems that we have faced? >> you know i think the guilt that we should all have four little bit of hubris is in order. my profession started talking about how the economy had changed, how we were in a new normal, how we conquered variation and all that tends to

do, you have a long period where everything is moving up, as people tend to take more and more risks because the longer it goes on the more things keep going up and the risks build up. we had a huge crash in early 2000. it had a bad economic effect. we polled the pulled the textbooks off the shelves. we started up again and well back, everything worked in a bat only filter confidence further. that near death experience, having survived it, made us even braver and we all took more risks and i was very interested in an observation that nobody saw it coming. well, we all kind of got into it. we are all in the establishment. people in this room i would say would tend to be the centerleft establishment and i tend to hang out with the right establishment that we are all the establishment and we blew it. we are the ones that are supposed to be keeping an eye on

it and we didn't. in fact we enjoyed it. we enjoyed in the '90s and we enjoyed it in 2000 we weren't indeed skeptical. my message for today is the public out there is mad at us because they hold us collectively responsible, and you know, the usual line in washington is to sort of pooh-pooh it, they don't know what we are talking about. they actually do and if i could leave you with a thought today, it's that we all in the establishment need a little bit more introspection. we did a lousy job and we had better start focusing on the quality of jobs we do rather than staying oh it's the other guys fault. [applause] >> that is a very laudable thing. what is the key to actually making that happen? >> what the shrinks say, the first way to solve the problem is to recognize it. simply talking about it is important and i think each side

has to start holding its own officeholders accountable, publicly and viably. you don't know my history. there is a reason i'm in the private sector. [laughter] and i think we have to do it. we have to hold their own side accountable because they are the only ones that listen. so i can tick off a bunch of examples of how we have neglected the quality of policy. these aren't hard. i don't mean -- need a calculator. we can talk about them with 30 seconds of mental math. will give you an example of how bad it is. let's start with obamacare. burst the left and then i will pick on my side. every are estimate of what is going to happen on january 1, 2014 has the costs of obamacare way, way higher.

it's very simple. i is a firm choice to buy my employee $6000 of coverage myself. paying the government $2000 to take my employee off my hands. in fact i could take a $4000 savings and split it and get the employee a 2000-dollar raise and $2000 of my bottom line and shove the rest on the taxpayer. private-sector estimates are that 30% of the private-sector plans will hold. this is mainly "the new york times" what is commonly known. okay, so we are going to lose $4000 on each of 30% of the workers in the workforce. 140 million workers times $4000 each. that is the mental map. obamacare is going to fail on january 1, 2014 or shortly

thereafter. why are we holding them accountable for that fact? one aspect that i guess this would be more bipartisan although the guy worked for pushed immigration reform. we all want to pass citizenship. i'm for it and i had got three kids adopted from overseas. i am very much for immigration. part of my family. i went through the naturalization process within. i went to arlington to go through. the doors open at 8:30 and you had better get in line by 6:30 or you want it a number to get ahead in the queue for the rest of the day. that is what is going on in the ims. we now process 800,000 people a year. let's say we double the capacity of the ims and we do another 800,000. if we built the fence, no more illegal immigrants, just to process the 11 million who are

there, no new additions, we take -- it would take is 14 years. how is it that we in a bipartisan way and establishment are putting forward an immigration proposal that in 30 seconds i've described is mathematically impossible to carry out? we should be ashamed of ourselves. we should get our math right. it's really no different than estimating the cost of the iraq war or what have you. on each and every ground, and thus we start holding our own people accountable, simple basic math, we are going to be digging our hole deeper. i don't care how you solve the deficit problem and i know we are headed there next but we will not solve the deficit problem unless we start making smart decisions, getting quality out of our money and not just worrying about a few hundred alien here in a few hundred billion there. >> before we talk about deficits i want to talk about the ability to reach clarity on some of these issues in the presidential selection years. you are the economic adviser to george w. bush and you studied

the dynamics of the campaign promises and then actual administration followed through on that. what is your analysis of the current climate for realistic economic policies as a part of the campaign? >> right now, neither side has a campaign in place that is realistic. on the republican side, we have guys fighting each other and are not devoting to the resources. the president has all the resources in the world plus the whole government and he's not doing anything. for example you don't put forward a budget that has a print for one years economic growth at 4.5%. that is la-la land. no president should do that and the media, especially a sympathetic media to be calling him on it because that is who he is going to pay attention to so i think those side can do better

than what they are doing. in 2000, and i'm not sure why it was true in that case, we had an internal forecast. that forecast actually turned out to be closer to the mark than the ones that the cbo was using at the time. we had a budget. we actually imposed it on ourselves. i'm not saying everything was perfect about the campaign but i think at least we need to take good-faith efforts good faith efforts and we are ready with you know, ridiculous slowdown. the slowdown was worse when we came to office than what we have thought that we had a policy in place to deal with it that fit within the budget constraints. i don't think it's that hard for a campaign to do it, particularly if you insist that we do it. one way i justify the reason we had to do it was there was a lot of skepticism about then governor bush's mathematical

skills and so maybe we were being held to a higher standard by the media and we had to sort of counter that. i think that proves to me why each side should start holding its own accountable. if the base -- basically sympathetic media started holding this president accountable for the kinds of numbers he is putting out, those numbers would approve -- improve and if "fox news" started expecting the same thing of romney and santorum their numbers would improve as well so i really think you know, we in the collective establishment if you will, the blame is on us. we are not holding our own guys accountable. >> in a perfect world what are a few of the keys that you want addressed during this election year, brought to the national discussion on, voted on ultimately? >> well, i do think that the key question we face is how to get

our fiscal house in order without wrecking the economy. if you take out the loony arithmetic and you you know a simile basically keep doing the same policy that we have been doing, we will have greek level deficits for the rest of the decade. we are running about 10% of gdp, maybe down to eight that basically that is where we are. that is not sustainable. we often say that you know, if greece could have only printed its way out, it would have been fine. well, we at the printing press are at a committed. i don't know of anyone is noticed that the fed is committed to holding down long-term interest rates as well as short-term rates. they are already doing everything they can.

let me put the size of the problem into perspective. last year, uncle sam borrowed an average of 2.5 percentage points. the average in the last 20 years, which was sort of you know, after the new normal came in, basically low historically, was 5.7 percentage points. that 320 basis.different times the size of the deficit at the end of the decade, and debt at the end of the decade amounts to $800 billion a year in added interest costs. added interest costs, that is larger than the defense budget. that is roughly twice the current corporate tax receipts. it's about 80% of personal income tax receipts, so in other words not to shrink the deficit but just to pay the average at interest costs we basically have to -- completely or we would

have to have an 80% rise in all personal tax rates. it doesn't work. the math doesn't work, that markets are going to call on us long before then because we are in a situation that economists call the fiscal dominance. our monetary policy, unintentionally, has now become dominated by fiscal necessity and we we are not admitting it to ourselves yet and we get there because we chose to and i'm not criticizing chairman bernanke for the choices he has made, but those are the facts. we are not going to be able to back out of our current highly expansionary, highly accommodative monetary policy until we get our fiscal house in order. and if we continue to run deficits with what we call it, old-style monetary policy,

pre-euro monetary policy, we know where it ends. history has done this over and over again and it ain't pretty. >> so you are very concerned about the deficit and you think the estimates for growth and spending are nonrealistic in the public generally. how do you tackle this? isn't a combination of tax increases, cuts in spending? what is the responsible approach to dealing with this? >> yes, we will need all of the above but if i can go back to the original theme, we need quality as well as quantity. because, if you simply do they tax increases and spending cuts needed to make the -- and you continue to spend as wastefully as we do now, you will doom the economy. so what we have to start thinking about is how do you

improve the quality with which we collect taxes, and how do you improve the quality with which we deliver services? that is what i think has to be on the agenda right now. you know we all talk about tax reform. i think if you look at what is actually being proposed, there is lobbying proposed in the administration but even on the republican side i would give it at best a c-. you can do a lot that are. my site can do a lot better on the taxing side. your site can do a heck of a lot better on the spending side and that is where we have to focus. again, if we, and i'm going to again say collectively of the establishment, we are going to be held accountable. it is our job to get these people to do the right thing and that is wide week, especially you media guys who are out

there, need to start holding these folks feet to the fire. >> tax reform. can you go into a little more detail on the way you would approach it? >> sure. on the personal side, start there. you know, i think that bowles-simpson made a good step in that direction. but they collected more revenue with lower rates across the board, and a much more progressive tax plan. that was because olds dominated and i might want to treat it here and there but us cert might doable. we can pull 50 examples off-the-shelf. corporate tax reform. here is a simple case on tax

reform. corporate tax reform, your eyes are already glazed over, i know it. i'm going to give you two words that you should listen for, because these are words we all understand the meaning of and when you hear them from a politician you know they are feeding you a line because they don't really understand it. my favorite is the word territorial. everyone is for a territorial tax system. the presidents ford, romnius for it. what is territorial mean? it means you can tax things within the territory. very simple, plain english. let's think about this. we have after japan, the highest corporate tax burden in the world. so if we apply a territorial standard and don't cut revenue

collections, we just put on the highest corporate tax burden on things we do inside america. it's not that jack -- not exactly a job creator. when they hear the word territorial they don't know what they are talking about as far as job creation. the right word you'd should hear from them, which you don't, is border adjustable. border adjustable means when it hits the border coming and they are subject to an adjustment that levels the playing field and when the goods go out they are subject to a border adjustment on tax rebate and that levels the playing field. ..

we're not. very simple. i hope i didn't go too jargony. listen to what the words mean and politicians when they say it. we have a few minutes for questions. i will give you a few minutes to stand up to the microphones over there and over there if you want to stand up. if you have a question. while we're getting the

questions ready you referred briefly to the activities the fed and bernanke. do you place yourself either the villain or hero camp on bernanke in your assessment of him? >> well, i've had four stints in government and for me to think that anyone is anything other than human, after all that, you know, would be crazy on my part. >> yeah. >> so basically i think he did a heroic job under very difficult circumstances. in general i'm a member of the central bankers union. international brotherhood of central bankers and we have a union card and we do not criticize our brothers. i do think that in going back to one of keynes's famous lines, we're all run and we're all dead. keynes justified term of short term action.

not a way of denying in the long run we are all dead and the more years we drag on doing the same old thing the closer we are to dying and that's why we had better start paying attention to it. this is not a long-run sustainable policy. monetary policy a way of buying time and if we don't use the timewisely, we're just running up a bill without having solved our problems. >> we're going to go to questions. please state your name and affiliation. >> peter tanis. mr. lindsey, what, the example you cited border adjustability which was very clear and very interesting, wouldn't we accomplish the same thing by 150 other countries do by imposing a value-added tax? >> absolutely. my, i didn't get this chance, i once testified before the senate in fact i was on a panel of four people.

this is clear across the political spectrum and we didn't compare notes before we went in and what we told the senators was, all four of us was, you know, we should have value-added tax. the senators then proceeded to tell us you know that the senate voted 93-2 to never even consider a value-added tax? well, there we are. so what i think we should do, if you're to follow that logic, you want to pack everything into a value-added tax, right? not just the corporate tax. you want to have the tax system be border adjustable. that is how you make america competitive again. that is how you get rid of self-inflicted wound. if i could revise and extend my comments. my simple tax reform is scrap income-based taxation and go to value added based taxation. there are ways of making it progressive. not going into the details.

make us border adjustable and makes us competitive, what we should not do, and what we should not do, i see laura taking notes so i want to make it clear, what we don't want to do is add another layer of taxation and another layer of accounting on top of what we already do. that will make things worse. substituting a value-added tax for income-based taxation will make things unambiguously better. >> question. >> see how easy it was? right now if they would just duck down and let us govern, right, we would be fine. there we go. >> we're ready. i'm ed levy, a recovering government economist and now a freelance writer. you mentioned before what you say is the u.s. one of the highest corporate tax rates in the world but aren't in fact our corporations paying effectively only about the average tax rate compared to

the other industrialized countries? >> yeah. see, so again, i i think the way to think about it, we economists agree that activity, decisions take place at the margin and so when you have at high marginal rate and a low average rate you're really doing damage because you're doing the maximum disincentive effects while at the same time not collecting enough revenue to justify it. so, yes, i think that would be an example of why we cry out for tax reform. plus, the complexity of it all is just ridiculous. >> time for one more question. get the microphone on. keep going. >> i'm casey with the american society of civil engineers. a number of the speakers earlier have spoken about infrastructure investment as maybe a piece of the, you know, the fiscal discipline going forward. any comments on the role of the private sector in

infrastructure, public sector, state, federal? i just haven't heard you comment on that ish you issue yet. >> great. i'm all for it. i want it to be done in a cost effective way. and what is interesting is that in general our actual, say road construction costs, are much higher than elsewhere and the reason has to do with federal contracting rules. here again, i could see the eyes glazing over. what we have done is made getting a federal contract, simple federal contract, so complex that only largish firms with a dedicated to person to filling out the forms actually can get the contracts. dedicated person or personnel. it is often a department. so, you know, a new construction company where

the guy hires his cousins doesn't have a chance. we have rules that compel the paying essentially of union wages. we have set aside rules where companies basically set up dummy corporations with, you know, that have the right, quote, ceo, in order to qualify. we have all kinds of rules and regulations that are environmental that just aren't cost effective. i'm not for no environmental regulations but making a real cost benefit test here. i think if we were able to get those kind of changes in place you could do 25 to 30% more of what you want to accomplish for the same amount of money. that is the estimates that are out there of how much our ridiculous regulatory burden is driving up the cost of infrastructure spending. by all means let's do it but

let's get maximum value for the buck. >> okay. our time is up. larry, thank you very much. >> thank you. >> that was great. >> still ahead on c-span2, more of "the atlantic" magazine's economic forum. next we'll hear from former federal deposit corporation chairman sheila bair. then gene sperling, president obama's economic council and former pennsylvania governor ed rendell and former congressional budget office director, douglas holtz-eakin.

>> sheila bair headed the federal deposit insurance corporation from 2006 to 2011. in an interview at wednesday's "atlantic"

magazine forum on the economy, she said she supports free markets but not quote, free-for-all markets. cnn business reporter, ali velshi introduced miss bair. >> i couldn't help but think when we were listening to larry lindsey and he kept refering to the sympathetic media and whether or not i was part of that mess, so i'm going to try and be very hard-hitting. sheila bair, good to see you. we've had fantastic conversations today and there have been a lot of digs. people have been taking dig at the other side idealogically but we have had no knockout punches so we hope to get one of those from you. let's start by talking about the thing i see newspapers all over the place. obviously everybody is ingesting this information about the bank stress tests. we, because you were here today we decided to move up the results of the stress tests from yesterday. so now they're out.

now they're out. when you and i talked about this on tuesday morning you suggested that not everybody was going to pass with flying colors. generally speaking it would probably be more good than bad and a negative result wouldn't necessarily mean that a bank is in trouble. i would suspect you would know that more than most people. give me your evaluation first of all of the stress tests. >> so the stress test was to determine what the banks equity to risk based assets in a very high stressed economic scenario. 13% unemployment rate, 50% drop in the stock market, i believe 21% drop in home prices that would be a very, very dishe is tested economic environment and clearly not one anybody is predicting but a lot of people weren't predicting the 2008 crisis either. so the fed wanted to make sure even in kind of distressed environment banks would have enough capital to keep lending, right? that was the problem in 2008. a lot of them didn't have enough capital to keep

lending. they pulled back. they pulled back their loan balances. they pulled back their credit lines. that was the big catalyst for the recession. so this is a very helpful exercise. it began in 2009. it is forward-looking in its approach. i think the examination process precrisis was very static. so examiners would go into a bank and is the bank making money right now? and the evaluation examiner's evaluation of the financial institution would be pretty much based on current profitability and examiners had not and regulators had not and regulators had not what happens in. i have a adjustable rate mortgage borrow can't afford if refinance. that kind of analysis wasn't done. they're trying to do it now some that is a very, very helpful thing. so i think it is an evolving process. i think it is getting better when we first did it in 2009 the stresses weren't too

stressed t was 10.3% unemployment rate was the distressed assumption. unemployment peaked at 10.1. now 13% is clearly distressed, very disstressed economic environment so that is good. the fact that they're making the results public for individual institutions, that is also very good. and that means there are differentiating among institutions. they're saying some institutions are stronger than others. they all are meeting regulatory capital standard and they're all still solvent after this stress test but some are better than others and i think that is good too. i think, you know, during the, financial stabilization measures euphemisticly called bailouts, there was a lot of kind of painting everybody with the same brush. i think that was unfortunate. we did what we had to do. but you don't want to punish good bank management by putting everybody in the same group. i think the fact that these stress tests differentiate. i think that is constructive for everyone.

perhaps puts a little more pressure on banks not doing so well for market participants to ask them questions and challenge them. as to why they're not doing better. so that is, those are the positive things. i think about the stress test. so ask me to take a few punches. so i will tell you areas where i think the stress test could be better. one area is that the focus is really on what we call risk-based capital. so there are two types much capital standards for banks. one is capital based on what is called risk-weighted assets. a bank can have lower capital if they say their assets are not very risky. so that, there is a lot of subjectivity goes into how risky assets are. so risk-based capital is actually not always a good barometer of bank health. leverage ratio, which is the other capital measure we use here in the u.s. is simply your tangible common equity to your total assets, right? so that is, you don't try to weight or exercise any

judgement how risky the assets are, just the leverage as capital as a percentage of total assets. precrisis we found, there is a lot of academic analysis and by the committee showed that those banks reported very strong risk-based ratios but very weak leverage ratios were the ones that got into trouble and leverage ratios, when the crisis came, really the market completely discounted the risk-based capital ratios. everybody looked at the leverage ratio. if you look at the fed's stress test results, and i would encourage those of you who would like to do so you should also look at the leverage number because there are a number about banks that have capital, leveraged capital ratios below 3% which implies a leverage of over 33 to one in the distressed scenario. if i were a regulator i would be very troubled by that so i would hope next year that the fed will also make decisions about capital

adequacy more heavily focused on leverage ratio as well as the risk-based ratio. there are also, i think, there are some questions about how the loss of on housing. housing is a big, big question. a big drag on the u.s. economy. a lot of exposure to the mortgage market. either directly with loans in second liens that banks hold in their portfolios or through their mortgage-backed securities investments. so there is some of the market commentary is asking whether the losses that are predicted, housing-related losses are as robust as they might be. i don't really express a view on that, but i think it is healthy analysts and others are taking data fed made available and doing their own analysis. regulators are not infallable. a lot of this is subject to judgement. so the market taking a look at these stress test results and doing their analysis and asking questions i think is very healthy process and very good discipline on the

banks themselves. also, the stress tests are really focused on credit losses. what happens if a borrower can't make good on his or her loan? that was clearly the driver of the 2008 crisis. people couldn't pay their mortgages. going forward though, and i probably this has been addressed by some of your other, this excellent list of speakers you have today, what's the future risk, right? and should perhaps interest rate risk be built in to the stress scenarios of these stress tests because clearly interest rates are not going to stay this low forever. as the economy picks up steam and there are alternative places for investors to put their money and as europe also repairs itself, interest rates are going to go up practically. i think stressing interest rate risk as well as liquidity risk in future stress tests would be very helpful. a lot of banks had capital

solvency problems but all of them really had liquidity problems. they didn't have enough cash to meet their obligations. they're doing a lot better job stressing liquidity going forward would be extremely helpful as improvements to these stress tests but overall i think it was good we started in 2009. they have gotten better and i'm very pleased that the fed has been so open and transparent about the results. >> one of the issues we talked about with respect to risk-based capital ratio is that the things that the bank would determine were safe as few as five years ago are -- >> were not sif. >> were not safe. in many of these cases these banks would have held sovereign debt. >> that's right. >> so how do we, how do we in the world of evaluating banks come to some consensus how we evaluate what a bank holds that is safe? >> right. >> i think there will always be some judgement which is why you need a leverage ratio and risk-based ratio. we have that the united states.

they did not have that in europe. european banks were able to hold zero debt capital in sovereign holdings. that is key part of the problems the european banking system has now. so you will always have an imperfect judgements about how risky bank assets are. i do think though that it is important to have hard and fast parameters about what the risk weighting can be. the basil ii capital standards which the fdic which i personally fought very hard and we blocked implementation here. basil ii allowed very large banks to use their own judgements and models to assess risk weight and there was no floor how safe they could say the assets were. they did that in europe. we stopped it here. european banks, not all of them, deutsche bank did a better job than others but most of them were saying and there is a barclay's report on this, really excellent analysis shows that the european banks were saying in the depth of the recession that their assets

were getting safer. sorry, that can't happen. if you're in recession loan defaults are going up and delinquencies. you can not really rely on bank judgment and models to do this. we feel strongly there need to be some hard and fast parameters. minimum capital on mortgage can not be below x. minimum capital sovereign debt can not be below x. that is approach under basil one and another capital framework called capitalized approaches that the basil committee approved, having hard buckets of assets, hard and fast levels for each category in terms of what the risk weighting can be. >> you make a good point that the 19 banks that we did the stress tests on, it's necessary for different banks to be measured differently. we would love to be able to put all banks on one grid and figure out how it works but if this is important for these systematically important banks, why don't we have a process, particularly one that is public for all the rest of the banks and one of the

issues we, we struggle with is the fdic does have a list of banks that are it danger but that is not public usually. >> right. the troubled bank list is really banks that really are in trouble and that actually, historically only 20% of banks go on the troubled bank list actually fail. that is the reason they are put on the list so they're given close supervisory attention and most are nursed back to health and acquired by stronger institutions. the reason for keeping that confidential is to prevent bank runs. so i think contrast that to a stress test that applies to everybody and really, is, you know, i guess theoretically it could show if a bank was insolvent, precipitate a run, wigs with the largest institutions first year we did this showed severe capital shortfalls at some of the banks. the first year the government said basically had the tarp program. the government said we will come in with capital to backstop the weak banks. fortunately they have gotten

stronger now so i don't think any of them are on the precipice the way some of them were in 2009. but, it is always a delicate balance between transparency and protecting stability and trying to guard against bank runs. so for a weak institutions it may still be solvent but needs a special attention to get back to health. >> you and i got to know each other through the worst of times really when things really started to go poorly for a number of banks. >> right. >> the fdic had really developed what seemed in the midst of this financial crisis a relatively efficient system whereby in many cases banks would announce that they were closing up on a friday afternoon and on a saturday morning people could get their money and new branch would be open on monday because they had an acquired with few exceptions. looking back on it, tell me things you think really worked well and those things you would have done differently now that you know what you know. >> that's a really good question. i think, the first thing

thing i regret, the bank was quickly becoming insolvent but it was not, had a liquidity run because senior public official talking about its financial stability and saw massive amounts of deposit insurance running and had to close it early which did not give us time to find a buyer that was july of 2008, early on, we only had a handful of failures. and the primary regulator of the bank wanted to close it a few hours before regular closing hours to facilitate calls to members of congress to let them know the bank was closing which is typically a courtesy extended by the primary regulate tore who charted that institution. i questioned that and went along but wish i hadn't. what happened the bank was closed by the primary regulator a few hours before

normal closing. still had people coming through the bank. there was a loop on some of the cable network shows showing a woman, i will never forget bang on the door trying to get in. i was horrified. the irony was, we arranged for a press conference, telephonic press conference friday after indymac was closed for press to call in to explain the process. we didn't have a buyer. we set up what is called a bridge institution. fdic took control of management of the institution. hardly anybody called in. as soon as this loop of woman knocking on the door, you probably remember this. >> yes, very well. >> it really just scared people. and so i was annoyed with some of the cable news networks they were hiking this up so badly but i regretted we did not wait. an effort i got to tell you rule was we don't close any of the institutions until after regular closing hours. one thing we did do right helped us with indymac and subsequent failures, that was only time that happened, we started public education

campaign actually beginning of 2008 and in conjunction with our 75th anniversary. we thought having our 75th anniversary would be a good catalyst for having a purely aggressive public education campaign about deposit insurance because we had this benign period in banking for some years. people had just forgotten that banks fail. they don't need to worry about it. the they're under the fdic insured limits. so we did start that early. and i think that did help us. we ramped up the efforts. had ads out and psas. we ramped it up after indymac. since that was already happening it really helped. the other thing which i had done earlier was there was a lot of controversy about whether hedge, nontraditional investors like hedge funds should be able to charter a get a bank charter and buy a family, failing bank process. and, we stepped our toe, put our toe into that. we were in 2008, we really needed bank buyers. we needed new capital coming

into the system. it wasn't like we were going to be choosy about, well you can come in but you can't. we try not to exercise judgements based on business models anyway. if you have capital, you've got good management you should really get a charter. nonetheless these nontraditional investors, not a regulatory culture. and so we started to seeing, started letting them bid. other otc and states started chartering their new banks. so we let them into our bidding process. i really, saw some things that were quite troubling. particularly part of their proposal being they would flip the property, flip the property very quickly. flip the bank very quickly. i did not want people, i wanted bidders but i did not want people coming into the banking system not looking as a long-term investment. they wanted to run the bank and provide banking services. so we did. a few of them slipped by and i got guidance out much higher capital requirements for nontraditional investors and there are-year lockup

and other restraints that put an end to that. but a few got through before we did that. a few things i would have done differently with respect to that but overall i think fdic performed really well. we closed 350 banks and $800 billion in assets while i was there and stabilization majors for some of the larger banks that were in ill health and it really, with the exception of that blip with indymac it went quite smoothly. we, "60 minutes" actually did a piece on a bank failure that was another high-risk decision i made. you let in a "60 minutes" crew in you're not sure where it will happen and where it will go. i had faith in our resolutions people and our process. we let them accompany resolution team on bank failure t went smooth as silk, it all did after indymac. gentleman and his wife came in. closed on friday. reopened with another bank. opened on saturday morning. came in suitcase with his

wife and was going to pull his cash out. we had greeters at the door talking with him of. after they talked with him more, he decided i will leave my money in here. "60 minutes" filmed whole thing. when he was leaving saying how wonderful the fdic is. it was really a very big confidence-instilling process and worth a lot more than the paid advertising and public service messages we had done. it was really, turned out to be a very good thing to do. >> what is your sense, i don't know if our friend peter schiff is still in the audience, but peter, is here? are you here, peter? i will ask a question peter would have asked mostly because he told me would have asked it. to what degree, first of all, larry lindsey pointed out this is probably, i don't know how he figured this out he felt this audience might be center left audience and he comes from the center right. but you certainly from a economic perspective didn't come from the center left

and yet you are strong, you were a strong regulator. you believed in more regulation and some degree however you want to code it, you are still talking about things are a good amount of regulation for the banking system. how do you square that with a world talking about less regulation for financial services even though the public isn't necessarily seeing it that way? >> right. >> we are in this world says government messed this up and let, loosen the reins to allow these bangs to make some money? >> so, you need some, ronald reagan, i am a republican, lifelong republican and, believe in basic republican philosophies and ronald reagan once said the role of government is not to protect us from ourselves. it is to protect us from each other. and there is difference between free markets and free-for-all markets. markets need basic rules. if you don't have basic rules, common sense rules riglously enforced innocent people will get hurt.

innocent people got hurt in the crisis and government failed in its responsibilities. that is not to absolve banks or financial institutions. so much occurred in what is called the shadow sector, not with fdic-insured banks. not absolve all managers what they did. they get paid a lot of money to manage banks responsibly. they shouldn't have to have examiners and government coming in there to tell them how to act responsibly. government has rules. greed will always be there. you need basic common sense rules. we foregot that. we god carried away with the idea of self-policing markets and it just didn't work. i like regulations based on reinforcing economic incentives. that is why i like capital standards. make people put skin in the game. make it hurt, if they take risk and lose money make it hurt, make it her for them, not for the government make it hurt for them. risk securititation. people securitize loans retain downside risk if

those loans and those mortgages and securitizations go bad. i think, activitis-based regulation is good. but if i'm going to have a rule, you need these types of rules too that says you can only make mortgages where the borrower can repay the loan. well that is going to get you into 1,000 questions. what is the ability to repay mean? what kind of documentation of income do you need? what about adjustable rate? can they make sure to pay the adjustable rate? the answer is yes. there are lots of different questions you can ask. if i say to that person, if you originate this loan and put it in securitization, for every dollar of loss you're going to take five or ten cents for yourself they're going to stop and think about it, okay, well, this person has adjustable rate mortgage. they're already at 35% dti, starter rate. what is my chance having to take a loss? i think those kinds of regulations are based on economic incentives, really at end of the day, could be much more effective. you need activities based restrictions as well. i really like the skin in the game requirements.

>> i want to invite those that have questions go to the mics. we do have a few more minutes for questions. while we see if anybody has got any, couple weeks ago you were on a show from me. ed clark from td bank was on as well. he was crowing about the canadian banking system. is there a banking system out there that is something we can take some lessons from? is canada it? is there somewhere else? >> they never have had a banking crisis as far as i can tell. they're doing something right. regulatory culture in canada is stronger. i think the people would, say tradeoff is less innovation in canada. not all innovation is bad. you need some innovation. there are good innovations too. we clearly went too far in one direction. i think we have some things to learn and stronger regulatory culture, stronger acceptance of regulation and better industry standards for common sense regulatory

structure i do think is something that we could import here. >> paul volcker said earlier, forget, what did he say? forget financial innovation. didn't do any good for us. please identify yourself. who you are with. >> warren coates, retiered from the international monetary fund. >> you just through that out like it was nothing. >> still actively consulting with them by the way. market discipline of banks relies in part on depositers carrying which bank they put their money in. deposit insurance removes that particular incentive. this is normally focused on smaller deposits. >> correct. >> the coverage limit was raised recently and was pretty high to begin with. do you think it's too high in terms of getting the right balance between protecting. >> that was raised on your watch. >> that's right. that is a very good question. congress sets the deposit insurance limits. i was supportive of

temporary hike. i think the permanent hike can be justified. i'm not sure people with less, even $250,000,000, especially these days because so many people have, don't know where else to put their money, they have their money in the bank, folks under those insured deposit limits are going to add a lot to market discipline. certainly the average main street family they're not going to go to the fdic website and download call reports or go through financial analyst reports. you're not going to get a lot of market discipline from main street depositers. i do think it is important for them to have peace of mind, a safe place they know they can keep their money readily available for them. there is good public policy for that. deposit insurance provided that service and it has worked very well. i do think that large uninsured depositers as well as bondholders need to have a lot of skin in the game and understand that they are at risk of loss. this is one of the reasons

why so vigorously opposed to too big to fail. at the end of the day too big to fail, bailing out bondholders and you're not going to take any losses. the government will come in. and these large bond investors are quite capable of looking or getting answers from the megainstitution for large financial institution analyzing what is on their balance sheet. if they're not getting information they need to ask the questions themselves. they do need market discipline from that sector. if we don't we're really in the soup. that frankly was the driver of the crisis. a lot of investors were not providing a lot of cheap funding to institutions assuming the government wouldn't let them not go down and they proved to be right. which is why we fought so hard for dodd-frank for resolution authority that the fdic would have tools to impose losses on any creditor if one of these institutions failed. >> final question. >> my name is bonnie. i'm business reporter at

"huffington post". my question do you think the financial industry i in current form is hurting economic growth in any way? what does the government need to do make a financial industry a more sustainable source of lending and growth? >> that is really good question. look, we did what we had to do in 2008 and 2009. in 2009 we could have done a better job forcing banks to clean up their balance sheets, if we bail them out all forcing them to shed bad assets. we could have got a lot of mortgages restructured if we forced banks to do better job cleaning up their balance sheet. we didn't do that so that is water under the bridge. i think that would have helped. if we had the resolution tools to put clearly insolvent institutions in resolution process i think our economy would be stronger now too. the problem when you prop up inefficient players you, you know, you have have bloated sector. there is correcting sector in the market. financial services got too

big and left it big through the bailout. nobody but lehman brothers and wamu which was fdic insured institution were allowed to fail. so you prop up inefficient. they're still there to compete with the efficient and have a very large financial sector. look at bank balance sheets. i'm delighted banks are getting healthier and they are in a better position to lend and loan balances are starting to pick up. if you look revenues are going down. smaller pie and still a lot of them out there competing for it. i do think that will continue to be a hindrance to the economic recovery. that is just over time will have to downsize and instead of having it done more quickly when these institutions failed in 2008. >> unfortunately that's all the time we have. sheila bair, thanks very much. always a pleasure to talk to you [applause] >> more about the economy still ahead on c-span2. next, we'll hear from gene sperling, the head of president obama's national economic council.

then a discussion on policies for reviving the economy with former pennsylvania governor ed rendell. and former congressional budget office director douglas holtz-eakin. after that, a look at u.s. military priorities with congressman buck mckeown, chairman of the armed services committee. and later, time warner ceo jeffrey bewkes. >> our ancestors came across the ocean in sailing ship you wouldn't go across a lake in. when they arrived there was nothing here. they built their tiny little cabins and they did it with neighbors helping one another, not federal grants. [cheers and applause] >> this is also the time to

turn away from excessive preoccupation overseas to the rebuilding of our own nation. america must be restored to her proper role in the world. but we can do that only through the recovery of confidence in ourselves. >> a year ago the fukushima nuclear power plant in japan melted down after an earthquake and tsunami hit northern japan. tomorrow the senate environment and public works committee looks at the safety of nuclear reactors in the u.s. you can see the hearing live on c-span at 10:00 a.m. on thursday. and then at 1:00 p.m. eastern, the defense and foreign policy analysts discuss the u.s. national security interests around the globe and the role of national security issues in the 2012 presidential elections. that's also live on c-span.

>> one of president obama's top economic advisors said on wednesday the president has been quote, bold and aggressive on the economy. at an economic conference in washington gene sperling called on congress to pass the president's job creation legislation. [applause] >> gene, as many of you know has been at the center of democratic policy-making and politics for more than 20 years now and served in the same capacity in the second term of the clinton white house. if memory serves serves was the key noth tore on the bibipartisan budget deal in '97. i think cheryl sandberg of treasury, formerly of

treasury and now of facebook -- >> kind of doing okay. >> once said of you, she said i have seen heads of state cower before this man. so maybe you can tell us a couple of those stories. and "the washington post" recently referred to you as obama's jobs creator. which is actually a pretty mighty responsibility. so i thought we might as well start there. there have been signs lately of a, what seems like a slow and steady recovery. i think that has been the consensus view on this stage today overall. >> yeah. >> yet we remain in a very deep jobs hole. consumer debt remains very high. where do you think, what is the realistic range for the unemployment rate, in say, six, seven months from now? >> it is an absolutely great idea for people in government jobs like mind make projections where the

unemployment rate will be. it always works out well. there are never unexpected headwinds or unintended consequences that get in the way. so it is just a great idea but i will probably take a pass. [laughter] so, you, here's what i say and people here know the basic story. basically this is a story about climbing out of a very, very deep hole. and again as this audience would know, when you are doing that, certain types of recoveries where there has been defined by perhaps hire interest rates, higher inflation, pent up demand for houses and cars, in '83, in '84 a recovery can be robust. morning in america 1984 was basically people deciding to buy houses and cars again. when you're coming back from this type of a recession, a financial meltdown, a bubble, you, you are still, people are still deleveraging and

that is frustrating because you can't get quite the rip-roaring bounce you would like when you were inheriting such a deep hole, unemployment bordering on 10%. that said, you know, i think we've come a long way under the circumstances and, in terms of jobs, we have made significant progress. we have a long way to go because of how deep the hole we inherited was and again, in light of the nature of this recession and nature of the type of recovery. but just a couple of points, if you actually looked at last year, the amount of private sector jobs created in 2011 was actually 2.1 million. 2.1 million private sector jobs is a fairly solid year historically. why did it not feel so good? it did not feel so good the hole is so deep. people are still hurting.

because our country is facing a significant amount of long-term unemployment which more difficult on the economy. more difficult for our labor force in the future and most importantly, most difficult for families to be, to be unemployed for a year, year-and-a-half, two years, all those things, make it more difficult together with, still trying to get the housing market coming back. so, but when you look at that 2.1 million, then you realize, that in the last two months of this year, we've actually seen over 500,000 private sector jobs created in, in the first two months of 201. so, i think when you look at private sector jobs you do see progress. again, it doesn't feel as good as it should. not because it is not progress. not because we haven't come a decent way. but just simply because the hole we inherited was so

deep. >> but, let's take the particular date of the election out of this question and, you are in this extremely important position, leadership position, try to give us some sense for what lies ahead for the country. how long think it is going to be before we see 6% unemployment again in the united states? >> so you keep going back to that. maybe i should start with the, you know what he told me? compare president clinton and president obama. >> we'll get to that. >> then ask me do i love mom or dad more. those are good questions to ask. >> actually hillary clinton and barack obama. >> let me make, let me make a very serious point which is that, we talk about certain of the events in the economy. there are certain things of which, there are certain headwinds you have to deal with that you have either inherited like the fact that

you were coming off a deep financial recession and you're deleveraging. you can't get away from that reality. you can't control things like arab spring that increased gas prices, some of the mideast tensions that are increasing gas prices now. the tsunami's impact on the global supply chain that helped slow the recovery last year. but, right now, there are things we could be doing or could have done that could clearly and directly have had a greater impact on job creation and re -- reducing unemployment. let me mention too, there have not been a lot of things wrong with two jobs number, in january you saw 9600 teachers lost their jobs. that got better in february. that is not an act of god. that is a act of public policy. president obama as part of the american jobs act called for $35 billion fund for teachers and first-responders. there is no reason that we should not have passed that.

there is no reason that we want to have larger class sizes or laying off teachers at this point. instead of losing 9600 jobs you would have been gaining that would have helped unemployment numbers significantly and helped our schools. secondly, construction jobs was one of the few weak numbers in february. that is another self-inflicted wound. this president has proposed as part of the american jobs act, accelerating 50 dad billion additional beyond current transportation baseline infrastructure. he called for 30 billion, modernizing all of our schools, a third of all our schools and project rebuild proposal. now these are all important proposals. most of them are dealing with defered maintenance. you know you don't get points for not doing defered maintenance. i always say if i like to

eliminate my directv, nfl subscription, we save $230 of con assumption in my family. . . is the unemployment rate for construction workers. so i think that had to past the american jobs act in its forum most people would be projecting we would soon be heading into 8%

in to assess seventh in the unemployment rates and if you did the two things i spoke of, which were have the 30 billion-dollar fund to prevent teacher layoff at the acceleration of $50 billion of infrastructure, $10 billion to infrastructure banks, the school construction, unquestionably we would be seeing strong construction loan job growth which would have to give this economy more momentum, and i think it's very sad because the last time i was here there was nothing more bipartisan than infrastructure, and the fact that the republicans in congress have chosen at this time not to work with this president on doing so i think it's unfortunate for those workers but the economy at large. spec given that he made fun of me before we can at asking the question so i might as well give you the opportunity to do it in front of these nice people why

didn't he propose the americans jobs act years ago? >> three years ago my recollection was the president had just been inaugurated, and on february 17th, he passed the largest recovery act the country's public ever seen $800 billion. he passed something twice as large as the americans drawback to. he passed by one vote on february 17th less than a month after he had come into office the president signed the american recovery act. $800 billion was a two year plan and he did it by a one-vote margin in the senate having gotten the republican senators from maine to support although the insist on bringing down the

spending so this was the most that was possible to get, the boldest proposal you could get in a swift and quick period of time and i want to remind people how important the speed was. i see endless articles which would be the new definition of be very good about could it have been a slight but larger let's just remember what we know now. in the fourth quarter of 2008, our economy was losing growth at 8.9% rate i know you erie lot of numbers but take it in perspective. our economy was tracking the pace of literally nine per cent. in the first quarter it was contracting at 6.7%. so over that six months, our economy was contracting at nearly 8% pace. that is the worst six month

period other than did the demobilization after world war ii since the great depression. we were losing 800,000 private sector jobs a month. our economy lost 3 million private sector jobs in the first four months of 2009. the stock market went as low as 6500 in march, and people were betting, many were betting it would go below 5,000. there was very little demand seen anywhere else in the world. so the president comes in and actually passes into law the american recovery act on the 17th, less than one month after he's inaugurated. the idea that one should have waited months and months to haggle over whether you can get more here or there would have been tragically irresponsible. we face a potential spiral down that could have led to another great depression. instead we return to growth in

the second half of 2009 and one year after we were losing 800,000 jobs a month. so that's 800 billion. that goes for the first two years. yes in 2010 some people were hesitant in the congress to do more while such a significant amount particularly infrastructure was still being put in place in 2010. in december of 2010 at a time when most people were saying congress would come and check their mail and go home during a lame-duck, this president sought for a 242 billion which was a payroll tax cut which was 99 weeks of unemployment insurance and was included 100% expensing for businesses and the extension of virtually every low-income tax. the to wonder if 30 billion that he did then ended up being absolutely vital insurance for

2011. we didn't know at the time gas prices were going up the dollar. had the president not put an extra thousand dollars in every family's pockets with the payroll tax cut i think that we would have faced a much more significant chance of a double-dip recession in 2011. the things he did then and his insistence on the payroll tax cut and unemployment i think provide a significant cushion to this recovery to absorber the external shocks our economy took and help keep our economy resilient enough that we are now in the position where we see the potential for more momentum in our economy. >> i would like to come back but first staying with the question of jobs moving to look ahead again in a subject that you have thought a lot about which is not just quality of jobs, and david mt has made the argument we

particularly lost what he calls the middle skilled jobs could be good jobs that could be held by people with high school the educations, and what we have seen is a lot of lower skilled jobs being added in food preparation and other areas. challenge that if you like but i will also like for you to look ahead, i don't mean to keep on this question but talk a little bit on where you see the growth areas of particularly middle class jobs in the in coming years. >> others out there can correct me, but i think the largest job growth has been professional business services by far if you look at the three-point line million that has been added over the last 24 months, and on manufacturing we had well over 400,000 in the last two years which is the strongest increase in manufacturing jobs that we

have seen since the late nineties, but i think part of the reason in this time in dealing with our deferred maintenance and the roads and bridges and highways and airports and schools was that there is 17.1% unemployment in construction workers, and those are a lot of middle class jobs that are important to me, and so we accept and embrace the idea that we should be doing much more and the president spent the entire fall fighting for that. now what i want to say but life is almost contrite from the president's state of the union and it's particularly interesting and i think it is the reason for greater optimism about the next few years could be seen when the president did his sourcing form before the state of the union. we got 40 companies there.

our supporters, no reason for any of those people to be there other than they were companies that had decided to bring jobs back to the united states when they had jobs in mexico, etc., and when you listen to why they were bringing jobs back you heard both business leaders and labor leaders saying the united states is more competitive now than it has been for a couple of decades and was interesting some of the things they talked about the would be helpful. one ig and you heard this from the president's job counseling and it's something we believe in which is the united states should be caring about how strong its manufacturing and particularly its advanced manufacturing bases. beyond the 11 million jobs, it is pretty clear that manufacturing punches above its weight economically and it's for

the innovation economy, 90% of the patents, 70% of the private research, 60% of exports come from manufacturing. there's an excellent article in the business review in 2009 that talks about when you let manufacturing decline because of recession or a particular trade imbalances that the problem is that you have lose your innovative and skilled work force necessary to take leadership in the next new thing in manufacturing. so i think one of the things we are doing is making a strong push to strengthen manufacturing to make it more competitive for people to locate here and again, i don't think that -- before i think when you made this push you felt like you had the wind in your face. i think now you have the wind at your back and to have the top consultants at many places and the council tinker and other skilling companies that if you

look at a deeper view of your cost and if you look at the next ten years as opposed to the previous ten years you will find that the united states workers for productivity and salary are now going to be more competitive just from a cost basis productivity, efficiency basis than location and what many of them said were important was one of the degree that your encouraging manufacturing, the degree that the united states is doing things like we are doing the select usa making it easier for people to figure out how to invest and locate and encourage foreign direct investment there was a big push on the community college site. several companies said when they were looking there were looking where they have the skilled work force comes a college completion, high school completion, the particular skills were important, but several said that in the absence of that welcome the commitment of the community college to gear up and help ensure they can tell

the work force was essential in the location decision, so i think that we as a country could have a major commitment to infrastructure which would be good for our long-term productivity and growth but would be helpful for getting some of the middle class workers back into the economy and back on jobs. i think the commitment of manufacturing, on the r&d extension on not just the general skill increases that are specific where communities have the ability to figure of where the skill and the job gains are with major employers and orient not ten years from now but right now how to fill the jobs was at the heart of the state of the union speech and was giving a blueprint not just for the next 20 years or to get out of the crisis but what we can do in the next few years to stop the leak to start bringing the good jobs back and make sure our workers have the skills to fill them. estimate what are you going to

do about gas prices, what can you do whacks [laughter] >> we would prefer they went lower than higher. [laughter] it's a fairly direct answer. obviously for families who are still struggling having to pay the extra amount of the gas pump is at a personal level a headwind they would prefer to be about, but i will say that you saw this president fight and refuse to go on vacation or let anybody else on vacation until he extended the payroll tax cut. at that moment the gas prices were at $3.29. now they are at $3.80. futures market would suggest they will go a bit higher. of the thousand dollars, the $80 a month that people get is

probably about double what most people are paying an extra gas prices one, so i think it is important that things senator carper who is just leaving said before and others to pass the payroll tax cut is a cushion and a buffer for families who are dealing with your gas prices and provide some cushion and a buffer for the economy. we also have a situation now while that is discouraging for families you also have more positive things happening at the same time, the strengthening of the job market, some families starting to see their pensions and going back to where it was prior to the crisis, so it is a headwind that we face but it's a headwind that we face in the mix with other things that seem to be clearly in the right direction. in terms of what we are going to do as the president says all of

the above. you have to seize moments like this to make people realize how just economically in seen in this for our economy to be so dependent on the global crude oil prices. when the global who crude oil prices are themselves so dependent on so many different security issues and some of the most fragile parts of the world this is a moment for people to seize things like with what the president called for for this role which seems to get to 54.5 miles per gallon by 2025. something they could reduce our dependence on oil by 2 million barrels a day. it's a reason to do more whether it's on the drilling site but not just for renewable energy

for the advanced car vehicle proposal that the president did, and obviously it is a moment when you have such high prices to make sure that you are not weakening the cops on the beat who watch whether there is any manipulation or price gouging anywhere in our economy. that's why the president has had a very strong funding for things like the cftc and why some of the reforms we did more to make sure the of the tools to limit the position, the amount any one can control in the future market. it gave them power to deal with margin requirements under extreme circumstances. those are all things the president has proposed and passed that gives us more tools to at least ensure again the illegal manipulation of oil and energy prices and those are things we are fighting every day to keep them from being funded

from lobbyists weakening and are challenging the measures in court. >> i'm going to ask one more question and open up to you if you want to start moving towards the microphone and the question is we were joking about obama and clinton comparisons, but listening to you talk in particular about how you think about jobs and job creation coming you were a hillary clinton by when you joined the administration and you've been portrayed in the books about economic policy making including this new book as having advocated what wound up being losing fights for being tougher on the banks during the bailout, seeking more stimulus early successfully pursuing the social security tax cut. now you are at the very center of economic policy making of this ad fenestration. without asking you to comment on those books specifically i'm

wondering how you change your has the president changed? [laughter] >> i think number one when the president ran, his focus overwhelmingly was on the trend in our economy in globalization and other measures in security for the class and income inequality and when i met him and started talking to than the central, and a fife and he asked me to look at the chapter of his book at the time, he was as thoughtful as any political figure i've seen about the largest structural challenges our country faces. one thing president clinton and president obama will say is when your president you fundamentally have to deal with the hand you are dolph and he was dealt the worst financial crisis since the great depression, and i think

that this president has come on from the beginning with a comprehensive strategy. we inherited the worst job market, the worst financial situation, the worst deficit the you've probably ever seen, and it is difficult in the challenges he inherited to improve all of them, and at times you have to focus like a laser beam on one particular thing. that's the nature of the system comes a the president focused on getting the recovery act and the financial stabilization because if we didn't prevent our economy from going into the great depression, none of the others would ever be possible. i refused even for one second to in any way accept or tolerate the notion that this president hasn't been bold and aggressive and courageous on job growth for deficit reduction. i think read on my vacation the

lords of fi finance. i look at what happens in europe right now and what leader has done more to immediately upon taking office to the most difficult things come politically unpopular things which comes for everything in a financial stabilization as quick and with such force and speed as president obama did. we take for granted that he passed and $800 billion stimulus, didn't just propose it, he didn't just proposed, passed into law and signed it was then one of taking office. the financial rescue was essentially in place, the stress test, within three months of taking office. we take those things for granted. the president went -- so when we come at 2011 and face the debt limit crisis and we are engaged in a fiscal effort to get the fair and balanced grand compromise on the discipline people say in the two or three

months you were doing this you were not focused on jobs. well it is true that when you were locked in the negotiation, the bipartisan negotiation you have to finish the things you're doing. it doesn't mean our plan our strategy for ten and 11 wasn't to bring back this economy about jobs and the confidence and long-term investments that come from ensuring nobody thinks the united states is heading for the crisis, those are not contradictory goals. they are as complementary as hitting and good pitching to a baseball team and it is exactly the right recipe bold jobs at the same time that you are getting confidence and that your long-term fiscal situation will be improving. so i think that this president has had a consistent vision in what has been difficult is the circumstances that he inherited. >> lead with the american manufacturing coalition. we represent a significant percentage of the u.s. textile

industry. two short questions. >> can you make it short? >> why is in the long administration supporting the bipartisan legislation, and number two, why include communist authoritarian nonmarket if you are for free trade? >> i think if you look at our record, this president has been very aggressive in taking action to ensure we have a level playing field with china this is the only president who has used this authority that was a part of the china wto agreement, and he has taken more to trade actions against china and the predecessor. you have seen a very important case on her china, you have seen

the success of the case, you have seen the president just put forward a new inter agency train enforcement task force to make sure we have the capacity, the language skills, the expertise to bring more sycophant cases against competitors who are not playing by the rules. i think this president has taken a very aggressive approach, much more so than the predecessor than leveling the playing field with china, and i think you have seen that consistently and even over the last two months. we do every that the currency should be market based. it has improved under president obamas watch and urging, but not enough. but i think if you look at our overall policy towards china, it

has been one that has been very tough. it has been one that has been the essentially saying to them that as you are playing a big role in the global economy you have to play by the rules and we are willing to use the structure of the wto to enforce that. >> i have to tell you i think you've done a brilliant story of telling what i call the obama story. occasionally obama does it but i would say most of us have no idea what an extraordinary job he has done because somehow you are not getting the story out. i felt this from the very beginning and impossible. >> i want to ask why they haven't been more aggressive about getting the story out because it has been so good.

>> we are going to put you on the run. [laughter] >> i'm going to give a serious answer which is i think that, you know, any white house tries to show the country focusing on this specific thing one at a time getting that done making sure everybody understands the pros and cons when you inherit a crisis, when you inherit a potential economy that could be going into the depression you don't have that luxury, you have to come with overwhelming force and speed on different areas. i remember so well i was at the treasury the first two years and importantly the first six months. what was happening the things we were dealing with in the recovery act and the stabilization to the chrysler,

gm, and it's just overwhelming. so that's not a communicates in strategy that is an economic crisis strategy and to have to do what you can and i do think that people will see that story and i think we mentioned the automobile the industry i think that is the most clear aspect something the president did in march of 2000 - the political what advisers will be happy to tell you they knew was going to be enormously politically unpopular and he did it because i was the right thing to do and i don't think there is anybody anywhere that unless they have a free specific and calculated agenda who doesn't recognize what a difference that has made not only for the comeback of the american auto industry, not only for the perhaps million jobs that were saved or more, perhaps what has it done to our manufacturing base and future.

estimate i'm afraid that is all we have time for. thank you. [applause] if there's anything that concerns the american family today it's this colin code our government hasn't caught up with the new facts of american family life. families change, so why can't washington? new facts, mom is working.

nearly 65% of all mothers are working part-time, full-time all the time. keeping the family together. making ends meet. making america more prosperous. working mothers need affordable day care and the pay they deserved. too often they can't get either. a year ago the nuclear power plant in japan melted down after an earthquake and tsunami

one discussion from the atlantic magazine for on today focused on policy ideas for boosting economic growth. we will hear from for our congressional budget office stricter douglas holtz-eakin and former pennsylvania governor ed rendell among others. this is just over an hour. [applause] >> good morning. i think it's still morning.

thank you, elizabeth, for the great introduction to it i think she told you everything about me except for maybe my shoe size. but we will leave that to be a secret for a little later. it's a huge pleasure to be here with you this morning. obviously this could not come at a more exciting time and a more timely topic that we have to discuss today. so the of caq is very proud to be an underwriter of the atlantic economy summit. the caq, just briefly, is a public policy organization based here in d.c., and our mission is to focus on enhancing competence and public trust in the capitol market through a public company auditing. so i of course am very interested to hear what only with our last panel had to say even though it was a bit pessimistic, but also what our next panel will say. hopefully they will have ideas the will give us some optimism. one of the things the we do at the caq is an annual survey of investors, and these are main

street man on the street, woman on the street investors. and we have just issued a few months ago our fifth annual survey, and i was very pleased to be able to present those findings working with the atlantic on their investor confidence form in washington, d.c.. and so some of the things we found is despite the bad economy, man on the street, the thousand investors that we interviewed or that we surveyed there was still a remarkable amount of confidence in the system. seven of ten, 70% indicated that they had confidence in u.s. publicly traded companies. the was down 5% from the year before. but still remarkable given the economic times we were in. they also had 61% of them had confidence in our u.s. capital market. the percentages were not so high with respect to a european companies and a european markets

however, but we also asked the investors what kept them up at night was the question that we asked them and not surprisingly i suppose 59% of the question would answer that got the most response was 59% was not having enough money for retirement and then coming in second at 54% was not having enough money if they were to be injured or suffer a serious illness. so our findings i think have special relevance for the next panel. unlike that panel i am not a medicare or social security expert, but like many of you hear the audience i am a baby boomer and i can't help but wonder what is on the horizon for us especially as we have heard peter note on the last panel of the ratio of retirees to active workers as the figures are going to be alone in the coming years.

it's been estimated that ten years ago there were approximately ten new members in the labour force for every retiree. in another ten years the predictions are that there will be ten new senior citizens for every new worker said that has been a flood of the ratio in a 20 years and which i find quite alarming myself, and as tom noted in the last panel, we need to pull forward the shared prosperity if indeed we are there going to rely on each new worker. i'm hoping by the time the caq as the next main street investor survey this coming year the numbers will be better and there will be more optimism in the system, very much looking forward to the next panel. if our first panel was the panel of doctors diagnose and the problem, i am hoping that this coming panel will be the doctors to prescribe ways to jump-start the economy. we are in good hands with their

thompson who is going to moderate the panel. derrick is a senior editor at the atlantic where he oversees business coverage for the west side and he's also a visiting research fellow at the kennedy for a responsible federal budget to the new american traditions we are in good hands with derek and our panel of experts. thank you. [applause] [inaudible conversations]

the >> i'm going to be the ringleader of the guinness world record for largest panel one washington. we have with us doug holtz-eakin of the american actions for rahm, kevin keller cheeks degette officer financial planner and also annette nazareth, governor ed rendell, peter schiff, executive officer and chief strategist at the specific counsel and finally, sherle schwenninger economic growth of the american foundation. the name of this panel is the no-nonsense prescriptions for jump starting real economic growth. this does not suggest the panel before and after are nonsense but really that we hold ourselves to a higher standard of no-nonsense. [laughter] i'm going to start with you on the subject of nonsense, washington -- and both sides agree that we need tax reform, number one. the same time, no one seems to

understand how to get tax reform when using to get republicans and democrats in the same room at the same time given the deadline they come up with a plan that seems to always have three variables. one is lower rates, to is reduced tax expenditures spending and number three seems to be raise revenues slightly pitted the same time obama believes the tax plan doesn't lower rates. mitt romney -- it doesn't raise revenue. who's right, obama, romney were the democrats and republicans sitting in the same room and why does this issue matter so much for america? >> this is washington, so i'm right. [laughter] i think you have to recognize a couple real buddies. income tax for almost 100 use and can count the number of reforms on less than one hand, so the going in proposition tax reform is hard and you shouldn't expect to see something.

member to come mr. romney and president obama brann for office you shouldn't listen to them. [laughter] number three, it is true that tax reform is more efficient with the broad rates to grow more quickly, and right now i think the commission, the rivlin domenici with the broad base and more revenue reflects three things we need, we need to grow and have to have a growing more rapidly it's our top priority right now and no one's idea of the organization and the corporation income tax so you've got to get there and do this tax reform. number two, we worry about the workers in the economy increasingly the corporation comes down to the workers in the less wages and the jobs not being there and number three, we

have a big debt problem so i think you look at one bowles-simpson and pre-that we get this done to estimate another is the graphics and we are going to be covering a lot of ground so we are going to be jumping a little from issue to issue but there is a line that connects through it. annette cut 80 million people, the generation is coming to turn 65 in the next few years. this is going to put new strains on the kind of social that we have and it comes at a time when people have lost their savings and our depending on retiring in the next decade so you're in a time of potential loss to the of lost personal income what sort of ideas should americans have for investing responsibly to create a secure retirement and how can the government help? >> i think that retirement is personal and i think to have a

lot more focus nationally because this is going to be one of our great challenges as apparently the earlier panel's book about this the 80 million baby boomers who will now turn 65 and comes to something like in 2065. we now found ourselves as you sit with the economy that's done poorly. people are basically borrowing against the 401k. the safety net we were used to having years ago, the pension plans people relied upon it don't seem to exist anymore. social security is a sleeveless confidence than we did before, and the private plans for what we are devotee relying upon the this was not intended to be front and center of the

retirement it was supposed to be supplemental. so, what the imperative is now is that the responsibility for their retirement savings has now fallen very much to the individual, and i don't think that individual in the country are really on armed appropriately with the information they need to do that effectively and the area of the protection and to understand what the risks are and can better understand what it is they are investing in and i think we have the serious issues in this country with financial literacy. it is really astonishing for the country that is educated were that so little and understood about investing in. wim went so these are things we've to focus on very much and quickly. as the mature organization recently released a study that asks people about their attitudes towards retireme