have additional polygraphs. we have to find out how this all happened. that's to some degree closing the barn door. so, i think it is laudable that he has taken that step but the fact is we need to find out how that happened and who did it. thank you very much. ..

[cheers and applause] this is a busy week, by the way, for the supreme court. i think all their work highlights the leadership failures of our current president. you see, when he was running for mop is, he said he would make it his first priority, first your agenda to reform our immigration system to make it work for the american people and those who want to work. he did not do that. why is that? to the democratic house, democratic senate, all the support he needed 30 did nothing. why did he fail to do that? the supreme court had to step into steve had to step in.

states find a way to solve the problems he didn't address, try to address in the way another supreme court is looked at it and what we're left with is a bit of a muddle. what we know as the president failed to lead. he failed to do what he said he would do. [cheers and applause] so instead of focusing on immigration getting the economy growing instead focused on plays caught obamacare. as you know, the supreme court is going to be dealing with whether or not obama is constitution, it's obamacare is not deemed constitutional, the first three chapters of this president's term will be wasted on something that does not help the american people. if it is deemed to stand, but i'll tell you one thing. we have to have a president that

we'll get rid of obamacare. we will stop it on day one. [cheers and applause] what we are witnessing is a failure of the president's policies. he did not do with immigration. he put obamacare is a higher pretty of our economy and has resulted 40 straight 40 straight months with. this president has not been working in the right way for the american people. it's time for that to change. [cheers and applause] now, he is an attack back to you guys. he's in a tight spot because he said when he ran for office he would turn this economy around. you may recall he sat on the today show if he didn't turn around the economy within three years he'd be a one term president. [cheers and applause] and so company gave his speech

the other day trying to convince people he had to turn the economy around. he said the private sector is doing just fine. the voice is just like the voice of 23 million people around the country shot dead inside her not so happy. the private sector is not doing so fine. when people are promised if they let the government for a $787 billion that unemployment would stay below 8% from the day screamed out no economy has been below 8% sense. they saw an economy growing at less than 2% the first quarter of the year. people as economy recognized its not doing just fine for the president had to change his tune. now he says look, my programs are working fine. they just take a long time to be effective. to give me four more years. we will not let them turn a one term proposition into an eight-year proposition . [cheers and applause] let me ask you.

do you think obamacare is working just fine to get americans back to work? do you think shutting down the keystone pipeline from canada is helping american people? do you think raising taxes on small businesses like that back to work. what do you think about that avalanche of new regulations? does that help americans get real jobs? they are out of ideas. out of excuses and will vote them out of office. [cheers and applause] one thing he said in a speech of his. every american deserves a free shot and i agree with them. every american should know if they work hard and get an education and not the right kind of values they have a fair shop for a bright future and be able to provide for their families to realize their dreams.

and i look at the business record. do you think when we passed trillions of dollars onto the next generation at this president is given the next generation a fair shot? >> no! >> evening when 50% of the kids graduate from college this year can't find jobs, jobs commensurate with their schools, that gives college kids a fair shot? >> no! >> do you think when they put the teachers unions that had the interest of the teachers and the kids that gives them a fair shot? >> no! >> do think what it takes tax dollars from you and then uses it to give aaron t.'s and investment into some of the businesses, does that give the american people a fair shot? >> no! >> when it closes down coal mines with the oil resources and gas resources, does that give the people who work in

industries and others i fair share? minitel you if there's ever been a fierce state that does not give a fair shot to the middle-income families of america, its president obama and that is why he's replaced in november. [cheers and applause] let me tell you, if we get a new direction this country coming to see an economic research and double surprise a lot of folks. i'm commenced america's economy will come roaring back. i'm convinced they'll happen. to me tell you how we'll do it. number one, will take advantage of energy resources. coal, oil, gas, renewables. [cheers and applause] the other day the president said he's in favor of all of the above. and i wonder what he meant because he's made it harder to mine coal, harder to use coal,

harder to get a reliable supply of national gas, drilling for oil. it's a wonder how you can say he's furled the above. and then it hit me. he strolled the sources of energy that comes from the ground. i'm not from below the ground. we take advantage for comes from above the ground and from below the crown to get energy independence. [cheers and applause] >> let me tell you what else will do. i'll take advantage of trade with the nation. a highly productive niche and like we are benefits of a can of been on market square reseller good, particularly next-door like in latin america, nations have it figured this out by the way. china and european nations over the last three and half years have negotiated 44 different agreements with other nations around the world to open up markets for their goods and put people to work. guess how many agreements the

presidents negotiated quiet >> zero. no new agreements to open markets for american goods. i will go to work to open up markets and make sure we trade with them on a fair and free basis. by the way, when nietzsche come as china has cheated castilian property, patent design, i will crack down on them. the president said he would. he didn't, i will. we look at good job by treating around the world fairly. [cheers and applause] you know, one thing that frightens people thinking of investing here with capital and building new businesses and startups of all kinds as they wonder whether the dollars will be worth anything down the road because of all these deficits running. trillion dollar deficits every year. this president broke the record. as a matter of fact, he's put together almost as much public dad as all the prior presidents

combined. if i'm president of the united states, all recognize that as both wrong and economically come also immoral to pass burdens to her kids. i will get us on track to a balanced budget. [cheers and applause] and i'm going to get rid of the big cloud of uncertainty hanging over all sorts of small businesses that want to add employment. i'm going to get rid of the cloud of obamacare returned to personal responsibility state rates as it relates to health care. [cheers and applause] to get this economy going, there's one more thing i might mention. that is this economy runs on freedom, not government. we have to get government smaller and freedom a great deal grader. you should know across the country, we are still a freedom of pioneering, innovative, can-do people.

you may not see it everyday because you don't feel the places i've seen in this campaign. i go to various parts of the country and i'm inspired by what i see. i was with a woman who in las vegas has a business. she went furniture to casinos and conventioneers that come to las vegas. i wanted to her warehouse. looks like most big black not to hide sofas and coffee tables and when the president had not to bother coming to las vegas to go to comp the meeting, her business collapse and she thought she would lose would lose all their employees and business comes potentiated can-do idea. she sat all have these people are to make furniture, not just rent it. now she makes furniture insults around the country and employs people. that the attitude that exists in this country. [cheers and applause] i met another guy who said he was not rates to them. my guess is he's real smart, they just didn't like to study. i don't know the answer to that.

they talk to is that. he said i don't want to go to college. his dad said you need to go to college. he said i want to burn money from you. i can't remember the number, 10,000 or $20,000. a lot of money. want to borrow that from you and start a restaurant. his dad said okay, if you can pay it back at the end of the year, with interest, then you can stay in your restaurant business. but if not, i'm sending the course of your life in a different direction. so the kid took the money, started a restaurant. he found out $10,000 or $20,000 to couldn't build much of a restaurant. the only thing he could make with hotdogs and hamburgers, but the growth in the ventilation system was too expensive for the money he borrowed, so he decided he would mix images instead. now jimmy john's house a lot of restaurants. hundreds, thousands of restaurants come employs a lot of people. that is the kind of can-do attitude.

medicaid name harold hamm. a truck driver for 10 years. saved his money driving tracks to get an education. get the college degree in geology. he has been to look at maps of the united states, concludes there must be some energy in the mountains of north dakota. canseco is that there is towards drilling for oil. first well, nothing. second well, nothing. sixteenth street dry holes, gets nothing. i'm told a dry hole costs $5 million you can imagine mike got investors to get that money. in the 17th pick up the return because they got the black hole known as oil. it's now estimated there are about 20 billion barrels of oil. harold is doing just fine by the way. american entrepreneurship, innovation, freedom. freedom and free enterprise drives our economy and i'm going to bring it back.

[cheers and applause]. [cheers and applause] this is how the founders saw it, you know. that's how the founders and vision america. they didn't want to have a country dominated by, driven by, guided by a government. instead they want a country driven by free people pursuing dreams. so they set in the declaration of independence that it was the creator that endowed us with our rights, not the government. [cheers and applause] and you know those rights. they said we would have the right of life and liberty and the pursuit of happiness. and i pursuit of that phrase, they were referring to the reality that here in america people would be able to pursue happiness as they choose. the government would not tell them what they had to do. we would not have a nationstate to people you can achieve your dreams as the place are born

from language of origin. instead, this is the land of opportunity. this is where you can pursue those dreams. that is what has made america what it is. it is not government. free people pursuing dreams. we want free people here in america. [cheers and applause] the president said he wants to fundamentally transform america. i don't want to transform america. i want to restore the principles that make us the hope of the earth and i will do it. [cheers and applause] i'm a consequence of doing this right compared with going down the path we arrived could not be more stark. the president put us on a path to europe. europe doesn't work in europe. it will never work here. the right course for america is to restore those principles that made it such a powerhouse. economic freedom thomas mall

government. taking advantage of natural resources like coal and oil and gas, have a trade with other nations, cracking on those itchy, having a level playing field between labor and management, building infrastructure that makes us more competitive. things i will do a fine president to look at this economy going again. as a result of doing that we put people back to work to convince the american people their kids will have a bright future. that is that the election is about, getting america to work again for the benefit of the american people. [cheers and applause] and there's one more speech or factor, consequence of making the right decision. and that is the consequence for freedom itself here and around the world. see, i happen to believe that american strength is essential to preserve liberty here and elsewhere.

i was in great britain sometime ago and got the chance to speak with tony blair and current prime minister david cameron and other leaders of the government there. one of them said something to me, which will not leave my memory. he said this, he said mitt romney, if you're lucky enough to be elected president of the united states and you travel to other countries, you will undoubtedly have reversed for you to mistakes they believe america is making. but please don't ever forget this. what we all feel the most is a weak america. america's strength is essential for liberty here and around the world. [cheers and applause] the world has seen that strength time and again. the world has seen a strong america in the past. i was on memorial day in san diego and celebrating with our veteranthe honor associated

with those who serve our country and those in the past. three veterans introduced in the second world war, one of film was a lookout on the uss tennessee in the day of pearl harbor. he said as he looked up and saw the aircraft coming in, his eyes locked on the eyes of the pilot bringing an armament that would attack our ships. he was injured in the cockpit that day, but wanted to serve for 33 years in the u.s. navy and the audience applauded as they recognize the sacrifice for america. [applause] such an outcome of the wwii veterans are not as many as they used to be in those letters are with us can't hold the torture freedom is highest used to. it is not america's torch, but america's duty and honor to hold that chores, hope and opportunity. it's our time. we have deceived that torch. i love the country and what it's going to do for the world.

we have to be strong, have strong families and values, a strong economy and strong military. america's strength is key to the world. i'm going to bring it back with your help. we're going to win in virginia, when in november. thank you for your help. look at the job done. thank you so much. thank you. [cheers and applause] ♪

>> i could have told you at the beginning of this year that here is how we would run the republican primary and the republicans would look in people. there it in nominee and that the republicans attend rally around

the nominee mature nature would reveal itself that it was going to be close and i would've told you the media would be bad at enron and a surging flagging. and now, that is -- i was tight with the next phase is going to be. the next phase if the media will become more alert to the fact that governor romney has been completely evasive about his position has been all over the lot on many of them in a straight play a game of hide and seek with the american people. i think the news media will be challenged to challenge him to be more forthcoming. and then the story is going to be that for a while. this is the nature of this business. >> automatic budget cuts would eliminate $500 billion from the national defense budget over the

next 10 years weird cuts caused the quest ration are the result of an earlier congressional agreement on raising the debt limit. a group of analysts at the brookings institution looked at the effects of these cuts. this discussion is an hour. >> would like to begin our first panel. at the pleasure and honor of moderating this panel as well. i have a great group of here discussing things after our panel will have a brief break and then peter singer will convene our second panel. to my left, ron hoskin can a senior fellow in economic study of proteins. many of you know his distinguished career will know about his role in welfare reform when he worked on capitol hill the 1990s, but he's always been balancing at the welfare reform attempted to reveal his fiscal constraint with concern for nation's media and economic future and that continues to be the theme of much of his work recently. to my right is david worn, as

many of you know the most dynamic country today. david has been good not to join us on previous brookings events, especially related to ongoing working group on the future of the defense industrial base and his perspective is extremely informative because for one thing he works for a company that has been innovated in trying to help protect our country with more economic needs in many cases. he has a voice willing to consider various kinds of fiscal restraint, but i will let him speak for himself or put them in perspective and not to make sure countries stay strong in the process. finally, to the far right is steve bell, for those of you in washington for a while or new, you will know him. nonetheless either way as senator domenici's right-hand man, a man who is one of those inside washington people we all read about it may really exist not just in time clancy novels and other traumas, but real life and he's one of them.

for those of you know senator domenici's role he's a statesman trying to assure our nation's fiscal solvency and economic future for many decades and of course we had discussed that endeavor back when senator domenici were in charge. again we need to turn to them for advice. steve has been central in the new bipartisan report on sequestration. i will begin with him and work this way. each person will get a few opening thoughts as i ask about questionable go to discussion and to you. steve, we just had this excellent presentation from senator ayotte talking about the broad challenges of how the defense department would be affected by possible sequestration then we all know that sequestration to review the basic points would be about $500 billion in additional cuts over the next decade on top of 500 billion already happening on top of additional reductions and

more spending, which were always intended to be temporary but nonetheless with putting this in context. i wanted to ask you to some race through for the main findings of the code of the bipartisan policy center reporter. what you're most concerned about concerning sequestration for better or ill. not everyone here is has adamantly opposed to sequestration like scenarios everyone else. we all have concerned and i think most of us will be speaking for myself or against it. but i will let steve speak for himself and highly with the bipartisan politics indicated about the potential for america could kick in in january that nothing happens on capitol hill in the meantime. >> it's always a pleasure to be here, especially with the former cbo analysts of high repute and it had an opportunity to go through some of this. in 1985 with something called a grand open heart attack.

i was staff director at the time. mr. domenici was chairman. mr. bill hoagland was made deputy nfl just have to write that language. that was the first time we had sequester, as far as i know as a legal term in the budget lexicon. i didn't approve of it then. i don't approve of it now. i don't think congress needs a coming down because they can't do its work. we get them and i've been on 11 campaign in addition to doing work on budget. we elect them for a reason. we elect to the and we elect them to get this done. when someone says in this bunch say publicly publicly if united states editor congressman, we can't do this. we need something to force us to do this or to do it for as, then you know something really important has gone wrong. our report is very simple. jim jones used to be nsa direct

air. pete domenici, dan glickman who among other things was the chairman of the house intel committee. the white paper says three things. one, fiscal policy. two, defense policy. three, stupid defense policy. understand the nondefense it doesn't change are approaching 100% to 200% of gdp -- debt to gdp ratio except two years. instead of 2000 ready to be a 200%, we would be at 2030 with 100% of those cut taken from the smallest part of the budget about 35%. the largest and growing part untouched. a fiscal policy. economic policy had the misfortune of having spent 10 years on wall street added to phone firm called salomon

brothers and i cannot imagine a more fragile time to be doing silly things with serious subjects. and i think this is a silly thing. were approximately 1 million lost jobs in civilian and non-civilian areas over about a two-year period. people at bigger numbers, but the fact is starting this august, when the unions and the companies are going to start talking about more notices, earlier in new york than the federal bill, so we'll start there. people will be scared. the economy will continue to slow down. someone who collaborated with us on the report says questers 30 started. they're already starting to feel it. that is twice the pio reduced the estimate for the second half of the year and by the board of governors came out with the unusual forecast down. and finally, can you imagine

anything dumber than taking all programs regardless of merit in just cutting them across the board by nrk 15% over the last three quarters of the fiscal year 13? he's got a program seven years old and you are funding it out. going down by a year. another program bringing sabers two years into his tenure cores into account both by 15%? that is not good defense policy and i think it was unanimous in our group and we did have a variety of people that there's lots of ways to cut defense. this is the worst. >> very provocative and hopeful opening. the same broad question to you. i know you are not unafraid to consider defense budget changes, even reductions personally as a person to begin the office and

also corporately but i'll let you speak for yourself. how do you situate sequestration within the context of overall defense budget reduction. is it a bridge too far? is it doable quest could you speak to where we are in the reduction process and what the sequestration possibility means to you? >> sure. first of all, thank you for having us back or grow with possibly surprise is a bunch of nerds get invited back to the party. i will beg your forgiveness as i did last time that if i say some that sounds crazy because it's because i'm from california. you know, it was difficult quite frankly for me to begin to engage in any sort of thinking about this because it just seems so crazy when you dig into the details. i will try to parse out some of the craziness from the underlying issues that are involved in this. first of all we are willing to

as currently proposed to the hobby. that impact across the board. it is our hope is something rational oaxacan. as an engineer, my mind immediately jumps to the classic theory came up chicken problem, we are driving down the road and you find yourself in a game of chicken in the current strategy is for you to visibly rip your steering wheel off of the column and be seen to throw out the win no which is the purge the department of defense is going around town saying exec were not going to think about this. the concern of course is the strategy is if you're counterparties taken the same approach, you perhaps put yourself in a position where even to rational parties are unable to go uninhabitable catastrophe. we hope that's not the case. if it is, bad things will happen certainly, but we do think there's some interesting and

more logical elements of the conversation to be discussed, implicit in a lot of people's responses to the sequestration is the underlying belief that lower defense budgets inevitably lead to capability and a diminished industrial base. i've spoken of this group before about our thoughts on both of these points and in summary we don't necessarily think that either follow. certainly in this environment it would be silly for us not to knowledge that deleveraging needs to happen. the government needs to figure out how it will spend less money on these things. defense will suffer even if it's just a 10% on top of the percent on top of 20% mccurdy discussed. if we actually care about outcomes than the industrial base, we should be talking about those questions as well, not just insanity of the opposed approach of sequestration. i do have thoughts about all those things. the main underlined, perhaps

three layers that are very probably and actually goes again one layer deeper to ask the question, is there something even more fundamental overlooking right now. the reality is as an economic growth arguing about whether we spend 3% or 4% versus the price getting smaller. so are there actually some tie-in for this conversation largely surrounded our views in the rate of innovation in this country that perhaps educate this at an even more fundamental level. the things we are concerned about it as an opportunity for discussion as well. >> good, we'll come back to that. braun, if you could frame for us, a lot of people this group are defense specialists first and foremost we have to talk about sequestration as the acts had been overcome at the guillotine hanging over, the

chief city parts of the federal government that could be a set of comparably. i wondered if you could also, the economist who looks at macroeconomic issues talk about sequestration from your vantage point. there's been a discussion that the domestic side actually grew too much in the last 10 years and maybe a little bit of belt tightening is not such a bad thing, but maybe this is the wrong way to do it, maybe it the right way to do it. can you help us begin to frame quite >> let me first observe that i've never been on a panel at her cancer and/or elsewhere he's on the far right. the obvious perspective is on the far left, which is even worse. the biggest problem of sequestration is it's way too small, which is the way for really beat ourselves in little bites? i mean, the problem with the comments the senator made his will have to do six, eight times as much as the authority done. if we do it in little bites like

this, especially if we cut defense contractors and start with this and, to me that's probably the worst thing to do because defense is powerful and your terms as well. they can appeal to the safety of the country is the senator did and everybody in the defense committee does, we had to have across the board cuts. we have to go beg of steve and his colleagues have been saying for years now. so the whole approach is just flawed. the second thing is both a previous panelist pointed out across-the-board cut her truly insane. i mean, that's a crazy way to do things. i spent a lot of my time studying the obama administration's evidence and policy, sweeping the country, not just the administration that the scholarly world the wide-awake pay more attention about what really works and is the president said in its inaugural time sense, we have to cut the work and spend more money on things that do work.

i'm so across-the-board cut is absolute date the opposite. the next point is that we are in this suit now i sequestration. we made a promise that i would disagree and make decisions about wise decisions and so forth, but if we can't sequestration that will be $2.1 trillion including what we got last year and that's a good down payment. so there is some progress. they want other fingerprints rather than the committee. it does a move move in the right direction. so all things considered, it is a lousy way to do things, but not only that we have to do a lot more and there will be political repercussions either way. in the long run if we don't continue to kick the can down the road, through the repercussions down the road we take expects that there'll be

repercussions and the worst thing about the way we doing it now is for going to take a big hit on public satisfaction in defense contracts and so forth and then we're going to have to come back and do it again, come back and do it again. so the politics is very rugged. we need a big agreement. to the extent this takes any steam out of the agreement is a big mistake. >> let me press you on something implicit in watch her remarks were, but the discussion here today the weather is obviously people adamantly against sequestration, let me make sure i heard you right. sounded like you're not in the crib because it sounded like the bigger problem is we haven't gone far enough. perhaps he didn't use that word but i'm assuming that's one of your kids turn. they be tax reform, but it doesn't sound like you are unduly worried about cuts in discretionary budget, either defense or not defense. you are concerned about the budget deficit is so great that it trumps whatever ugliness you

might forecast in the wake of sequestration bowhead. >> i completely agree with that. we need defense cut. i'm not sure what the level is good i'm not an expert in defense, but we need cuts in discretionary and you're exactly right they've increase quite rapidly and we can figure out a way to make cuts in discretionary nondefense discretionary that would be okay. would be great, but would be okay. but everybody knows we will make serious progress until we do something about revenues and entitlements. there's a little teeny piece of entitlement, about 16 billion, something like that. to release the pressure a little bit. that is nothing compared to what we could get. we need reform and entitlements. we need more revenues. republicans have to come to the table. i don't see how they can continue to avoid it. so yes, i am guilty as charged. >> interesting. we don't just want to be obviously preaching a single

message that some of the brookings. and i'm sure it's not reflected of everyone am panel two. so when they start first, david come with you. he summarized the pass we see first of of all and were spending, which is going to be in annual terms more than $100 billion a year covets as high as 17180 and it's now down to half that and it's headed down to 40, safety and the next couple years. that's a big chunk of more than 100 billion on the annual defense budget although was never supposed to say that way indefinitely obviously. sort of an annual terms of $50 billion chunk coming from the first tranche of the budget control act, 487 billion now there is this additional, roughly $500 billion cut that would have been the dod under sequestration. how much of that can you live with or is it not so much the members that they put them, but when the time sequencing msd was discussing earlier, sort of the

blind way in which they apply to all accounts? what troubles you the most? at what point if you could rewrite sequestration, how would you do with? >> is that one question? >> cat. >> implicit are those two points i started with. there is an assumption that less money being spent on defense implies less capability and a diminished industrial base. certainly if we just do what we're doing right now and spend less money on it, i think it reasonably follows will have less capability in a less responsive industrial base. the point that i try to consistently make an vendor can see, i don't know she's here today, i'm not bitter day or two ago is there perhaps opportunities now to look at less money to create a different pattern of spending come in the same way perhaps i often times

gets cited by my peers in the valley that we are living in this capitalism exclusion of all, but that somehow when there's less money to time, that doesn't immediately need the capitalism will respond, for solutions to challenges. it doesn't always say we pay more to get my spirit that doesn't follow to me, pay less to get less perhaps. i believe the more innovative spending within the government, more opportunities to look for ways for example to open a government programs of record as one possible example to disrupt innovation from other areas of the market. certainly recently with our friend pat spacek's, this works, even in areas that would have thought the space launch, no way could the market come. that's something the industrial base must do itself. maybe, but the market will find a way. that is largely what this country is premised upon. that's the kind of capability side. but for the impact on the industrial base beat?

if you believe the total defense is officially allocated across the market currently, certainly spending less will give you less capability across that base. certainly i don't think it is a contentious point to make there are inefficiencies in the allocation of the defense spending. whether you can cut the fat without the muscle is perhaps where the debate is occurring. certainly my experience of the last seven years trying to bring disrupt divinization shows it is possible to do more for less within the government and not for the government is traditionally chided for doing less or more of the same for war. >> steve, let me turn before we open it up. i like to ask you to respond to wear in the conversation because he made very punchy, pithy eloquent statements earlier expressing your disdain for sequestration is a fair word. what we are hearing from our

colleagues on the panel if they have little lies stridency and objection, to at least some aspects, least a magnitude of is proposed. something the supplement could live with. and i prefer, but could live with. you are dementia in the way in which it was programs as well as bad. if you could rewrite sequestration, how would you do with? how much cutting its okay? how much do we need to mitigate this to have a good note? >> this sounds like a chicken answer, but i think we all know that the defense budget is suffering from the same in the federal budget suffers from. pena for personnel, retiree benefits, retiree health benefits, consume larger and larger proportion of the budget. so when someone says to you, whether you spend 4% of the budget as a percentage of gdp on defense, it's an irrelevant the

because before 1975, we didn't have an all volunteer army. we didn't have to increase benefits to entice enrollment. we did have to give people 20 and out and say i have a 100% disabled veteran from the war and other% disabled, so i'm speaking -- our families always been in the military. so after my stepfather come would you be going to pay $20 a month more for tri-care. he said sure, $20, of course. we are talking about that kind of thing. we have the federal budget being eaten up by medicare, medicaid retirement programs. we have the defense budget being eaten. if you look at lines rograms. we have the defense budget being eaten. if you look at lines across personnel, and this is what we spend for everything else. they're about ready to cross. we will spend more money for

personnel and benefits ban on all the rest of the stuff we do including the stuff we spend overseas and more. that is the real problem people don't want to wrestle with when we started this thing. chuck wall said you know they're going to bring this building down, don't you? that's the building where we are. i said who? he said the vfw. but those were the people that would be upset, the people get the benefits now and get benefits for ever and oppose any benefit change. so i think you really have to look at the budget and kind of discrete pieces. and say what are you going to do about the hollowing out already occurring because of all the money we have spent on benefit? i think it's a little more complicated subject and i don't gets one -- i don't think it's

one sequester will solve. i think it is one that will take a couple years to solve until people like walter jones stand up and say, hey, we are spending too much money on benefit. >> might come as background to sequestration, why are we here in how sequestration? i mean, think of the logic of it. 30 or 40 years ago we spent something like 55% of our budget on programs not appropriated. our denver something like 35%. this issue shift to the entitlements and were not willing to do anything about entitlements. we're not going to increase revenues, so what do we do? we come up with something like sequestration. the money is good. we've got to do this. we'll do it even broader, but the focus on this one area because politicians are like them to tackle the heart of the program just doesn't make sense.

no one thing about the psychology we had to ponder his meeting site based on comments like the senator made show that people are aware, wow, it would cut defense is much cooler could jeopardize our national security. secretary of defense, generals make powerful statements that americans are listening to that and that is exactly what steve wanted to happen when infinite sequestration. he was supposed that so much pain on people that they'll do the right thing because otherwise they won't do the right thing. hopefully meetings like this will convince republicans that we need more predators and democrats to change entitlements and we can get a big deal that will relieve pressure from 35% of the budget that were not trying to balance our total spending, which makes no sense. >> alaska air fine question. steve, if i understood you right, et cetera that you were saying you might or might not be able to live with the

$500 billion in defense cuts as long as you could have control over where they were applied over what period of time they were phased in. is that affairs every quack >> it is because you go down one level and you see what the money is really being spent. you have to make -- by the way, this is not a call for the draft. please no one take that as a call for reinstatement of the draft. you take a look at where the money is spent. take a look at someone missing for 20 years, gets out of 39 and lives to 79. so he works 20 gets 40 years. plus tri-care for life. and you have to ask yourselves, as very many communities asked themselves around the country right now, can we afford, even for a work, policemen, firemen, those important people, can we afford to do this while we are not getting new ambulances and

fire trucks are the most modern i.t. equipment? and i really believe that the money that needs to be found in defense, by and large is money we are unwilling to touch because it benefits people to whom we made promises on those promises they probably can't keep in their entirety and no one wants to say that. >> i'll make one comment myself as i get the token hockey didn't realize i was going to be that when the conversation again. just one comment, which is there's a lot of very rich and provocative porton stamens that will be living with the need to do a lot of what you three have been talking about, whether we like it or not. my own assessment is that there isn't a net savings, even in the ideas you're talking about to realistically get the additional 500 billion sequestration of department of defense budget. it would cut substantially and

make it unrealistic that we could rebound from keeping folks from the broader middle east and stand strong in east asia pacific region. i suggested programmatic cuts beyond the current thinking that even if we do that because the obama ministration hopes for reforms that may or may not generate savings they are planning on. we will do very well to even out another 100 million over 10 years to his currently in the book, sequestration and add another 500 billion. the arithmetic is not a. i'm not saying there's bottom-line objective answer but i want to add that to the mix and now go to all of you. with back on the same ground rules as before will start in the back. please identify yourself and pose a question. >> i am harlan ullman. first, think the panel for the stimulating than provocative session. i think you guys are wildly off

domestic goods they think it's going to be a lot worse case. the world economic situation is dicey at best. if the euro collapse is the pressure that will put is huge. you have a political system that is broken unless one party wins both ends of pennsylvania avenue and 60 votes in the senate, there's very little chance of anything being rationally done. even worse, no matter who wins the election you have a real chain in the leadership of all the departments and so it's going to be five or six months after the election are more until you have a chance for people to position and talk about reprogramming and the like. i think you're absolutely right we have to make far greater cut to her overalls bending. there's probably not going to be any agreement between differences overtaxation and spending. give me a couple of big ideas, how you do with the system broke and we have to accommodate that cutting trillions of joints of dollars, doing it in the sense of the way in who to bk to lead

lead the charge quite mr. obama is not going to do that unless he's today maybe not then. mr. romney will not do that less is elected and maybe not then. as an american citizen, how do we do with the looming catastrophe ever recognizes is coming, but nobody really wants to stand up and take a really tough choices that will be made. >> let me say one thing is the background here. in this room five or six years ago, alice rivlin stood up and said during a debate like this that she was afraid that we would not solve this crisis until a disaster occurred on until there was a crisis, some sort of financial crisis i think it's still a realistic possibility. were going to have some kind of disaster are given worse in our recent financial disaster before politician will face what they have to face. having said that, the revenue side ironically for all is the

easiest. the tax code is so bad. in fact, i'll tell you how you might get republicans to do appear a tax code is so bad that everyone agrees you had to broaden the base and reduce rates through the classic way to reform. you should have a broad-based embolus rates possible. you can do that by getting rid of the polls. that's politics comes in. you've got to move a lot of people i think. you can't just do it for a few people. it's got to be a lot of a lot of sacrifice them a lot on the spending side. the way you do it is you do it in a way that might be revenue neutral. republicans say yeah come to fix the tax code. we're not raising taxes. not praise, but not additional revenue. then you put it premium, where where the note at a certain amount of revenue, then there's some failsafe procedure where you do raise rates or do something to raise the revenue.

i think that is doable and would give republicans cover and in fact eventually will do something like that. on the spending side, remain convinced there's lots of spending that would be a lot safer for the country than defend spending. we spend a lot of federal dollars in education. i can't see that it's done a lot of good and we could save 20, 30 billion on education spending. so you get several places like that and i think at that. alice and i wrote a chapter five years ago where we propose some kind of cut like that that added up to a very substantial amount of money on this ending side. so i think it could be done. it could be done in a way to do the least damage to the country, gore is going to face the risk of senator talked about, but the less government you stand could have an impact on economy. it's inevitable. but what stood out once we can survive for two years and that

things will return to normal. >> obliged to ask a question. i am surprised to be characterized as an optimistic respect to. i never cast that way back in the valley. but you know, when i look at the data and the data shows in median household income stymied for the last 30 years, and maybe rising slowly, butler said because of the top-end. you know, my concern for my ability to this at the start is that we have an economic growth problem here. when we have an economic growth problem here, everything becomes zero-sum we sit around figuring out which path will rupture safe which peter. that is not encouraging for anyone to be a part of i don't think. the perspective that has increasing resonance in the valley is there is a technological innovation component of this that we really need to refocus on. we have perhaps all been blinded by the computer age, perhaps

high finance and thought were actually living through an age of technological innovation here. if you sat for a few minutes and thought about other areas further south is, phaps transportation were moving slower today than 30 years ago or energy for oil, are we still innovating? is still the engine of growth in this country, we are having this conversation 3% or 4% of an ever decreasing pie. this is a particularly relevant conversation because the department of defense clearly has a history, a robust history of helping this technological innovation in this country. unfortunately, it's a rather teach it and helping out in this country. there's a reason that necessarily has to be true. i can see again an article yesterday posed any number of areas where they could really fire technological innovation in

this country and again what i would argue is the root cause of us have in the conversation, which we are having serious on conversation and everybody is unhappy. i do think there is a way out of this, but it's going to be hard. >> let me speak very briefly about something fairly complicated, but which have been speaking on the for the last two or three weeks. can we avoid as much damage as possible in a lame duck session and quiet notice i'm not talking about big huge things. one specific thing. had we passed a continuing resolution by october 1st, get through the election and then minimized the damage the lame duck will do on maximizing the opportunity and the 113th congress, that we actually might be able to go toward the big chill run is mentioned. believe it or not there's a way

to do it. someone they briefed yesterday said to me that's great, that's rational, that's really intelligent. but she don't have any of those horrid because were not rational at pier. this person has been up there 20 years and she is a very smart person. there is a way to compel behavior shirted sequestration. because we have so many members of congress who are new, to be fought with you, it is going to be very difficult to tell them how to do this without them saying, my god, why washington d.c. cobbled the coup. i think using the powers the senate house has, you seem something along the lines of enhanced reconciliation instruction and i hate to say that again, but that is where i come from, i think there is way to get us into next year with

minimal damages and the best chance to get the big deal, which is taxes and entitlement. so i know there's some senators and congressmen thinking about it now. they don't dare before the election sado out and i blame them, but there are people thinking about it. i want to say there are some very good numbers on both sides of the aisle who are briefed by mr. dudley, chairman of the federal reserve bank of new york and other people over the last few weeks to understand what coming out and are thinking very actively about an amazing, get a good deal, even with this congress after the lame duck. so i'm a doer, but this one time i'm going to think of a happy outcome. >> will come back to it. i will take two questions before we go to the panel.

>> you talked about sequestering. congressman added smith, ranking member of the house armed services committee has made the point that by jawboning this holds thing, don't worry, we don't have to worry about the initial intent of senator graham and others. ..

how do you convince the american people how serious this is? >> hello, i'm from the observatory group this is from steve bell. let's suppose for the sake of argument that an agreement is not possible in the lame-duck session on the sequestration to avoid the automatic cuts? to what extent does the a administration have discretion in terms of the timing of how serious it implements the amount of cuts because i've read that they may have some discretion in terms of how much the appropriate to the various agencies. >> if you could flesh out a little abo this idea that you had to avoid it. >> there are two acts you have to keep in mind. when a scud united efficiency act, and one is something called the and impoundment control act.

in between those two things it said you can't spend money you don't have appropriated to you. it's a felony. and you cannot in count money except for certain specific process these. most agencies are going to have to spend some money in the first quarter of this year in the upcoming fiscal year. it sounds very arcane but it's very important. some people said there would be no obligations in the first quarter and that would be entirely in probable. the only question is how much will be spent by the agencies in the first quarter? our estimate is about 22%, not 25 which is what you might think that first, but about 22. how many can be played by the omb within the 22? in 2013, almost none. why? because this is a program project activity level very granular level.

you have to reach it if you are at the department of treasury covered symbol, and those are hard decisions since you don't make anything. you've got 5% of your contract in for such things and 95% of your people and this today will turn over $150 billion worth of national debt run by ten or 15 people in the treasury. they're going to have to at some point lead off people. through attrition which is pain to do or worse, trying to leave people off permanently. there are not as many games that can be played as people fear. democrats think they could be played in defense and they've come to me and said how can we stop these games? republicans think they would be played in the non-defense. and try to tell them really the omb is going to make a final

calculation. if they do what they did in 85, they are going to go down to the lowest level enumerated specifically in an appropriation bill or report accompanying the appropriation bill which means fuel, air force, you know, the categories you know better than anybody and some .15% of the magazine is not a great thing to have. >> do you want to comment? >> my response would be with the article in "the new york times" this morning. once people see what the cuts are going to be down to the granular level. i don't think the of the option of not coming at least close to $1.2 trillion. it would be a huge problem

people would lose the election over this city are going to get they're some time. the timing or discarding now and when people you haven't seen them yet. there's a huge problem out there people don't know exist. they will have 26,000 teachers somewhere this morning. we need to see theo wendi when we know exactly what they are going to be and then who is really going to get mad and do something. >> adam and his military base i guarantee you -- my brother used to live right outside their -- when those folks see what the impact is going to be on small business that serves as the personnel on the base to housing, to all of that at some point and i think it is going to be in september after the august recess and they will start

caring about something other than just the 401k, they will start worrying about the grocery store and all of a sudden go to five. that is starting now. there are people in this audience from lockheed martin that have already started slowing down with the are giving. so at some point guys are going to go back to the banks when they've had lines of credit for 20 years with 150 billion in akron ohio and he's going to say okay i'm going to run up my line of credit, the bank is going to say you have that contract signed? we've only had it for 20 years. we've got the fdic looking over your shoulder, right? why don't you wait until you get the contract signed? i can't wait that long. this not exaggeration. that slowdown is starting now and i don't think it's an exaggeration that the defense industry made up. it's not something that secretary leon panetta made up. if you go out to mexico where

the defense spending is really, really important, you are starting to see the slowdown and there's not all just because we ran off the people bit by bit by bit. you are seeing people scared, and not doing anything. you want to worry about your 401k when your wife or husband loses their job. >> let me ask a question on that and have a round for the panel before the break. could i ask is this more right than wrong there will have some discretion and that's a lot of what you're driving at is the following statement at least mostly right the next year the typical federal agency of sequestration occurs is when to have to find 15% reductions, 12 to 15% reduction in its work force expenditure, meaning that since you're usually not going to fire people. a federal worker to two months

of furlough the likely sequestration. >> you can't reduce people's pay in the federal government. that's against the law. where you are, gse 14 level three, that's where you say and at some point you are the manager of an agency and have to say to people look, i don't know how long we are going to be able to do this. i saved money. i'm doing everything i can, but you all ought to know that probably we are not going to hire a replacement for genie when she leaves and i need three more of you probably by the end of this year. in the economy which is weak, where people are slowing up their retirement plan any way because the last three and a half years, this is not holding a good tidings i don't think. islamic let's take more questions and have a final round of responses. we will go over here and then here in the aisle to finish.

we want to make you famous. wait for the microphone. >> jeff bagley and i have no dog in this fight. but i haven't heard of any discussion of a government shutdown. what do you think of the possibility of a government shut down like we had in the clinton administration that forced people to act? >> over here in the ogle quickly >> my name is jordan. this question is probably mostly for david. i know that there's been a lot of talk about the industrial base and there are two things going on right now one year to buy them and the government and they are supposed to help them survive the budget cuts. the government with export control reform moving from state to commerce said that the defense industrial base and then also this idea that the defense contractors are trying to transition from manufacturing to

services because asset services don't get cut as hard when the defense budget hammer comes down. could you speak to help the defense industry is thinking about these things and whether or not these transitions are naturally going to help them to stay afloat? >> do you want to start? >> sure, i can try. the overarching theme of trying to answer this question is the debt to which you had probed the insanity of a lot of this is something i can't come close to touching the export control is even as a smaller business has benefited us tremendously. i know that for larger companies there will hold true as well. as the transition from service to manufacturing i think i mirror a lot of the commercial industry in harboring the skepticism about the cost model

inherent in a lot of the services provided to the government and the incentives that generates so i don't know that i'm as bullish as although that may actually end of being great for the industry i don't know that i'm bullish about the export reform. to talk about contacting your congressman and senator its rented it to the leadership level when the house and the senate and it's going to be my think a very difficult. will we have the government shut down? i was involved in the last one when i was told by very smart republican leader don't worry, clinton will get the name and i was lucky because the 1997 and

january watching mr. clinton get free unaudited as president of the united states not speaking for him, but - sense is the house republican leadership more than almost anything in the world hopes they can avoid even the hint of a government shutdown in the october continuing resolution period because they are not suicidal. they want to stay the majority. i don't know whether they have the vote to do a semi clean sea are. i don't know. i don't think anybody knows. but when we get to the debt ceiling which is not a government shutdown which is much more interesting if you can look at it from far away like if you lived in china you could look to pay our debt, for example. i think that's going to come in the moment of real truth.

if we go through what we did last august, we did not understand we were dealing with a global financial infrastructure. at some point friends of mine that used to work for me in the market this the special equity market are going to run. the panic by the they said to me don't worry. if the panics starts i will be the first out the door. [laughter] >> i want to ask one final question before we go to ron for the ultimate wrap up for the panel, because i want to make sure that your expertise on the hill we get people a clear sense of what is the issue here. we talked a bit about the furlough and the possibility of that as one necessary response because of the way that the sequestration language has been written that it has to apply to all these different accounts. let me imagine a big ship being built by one of our friends and industry for the u.s. navy and

let's say it's a ship that takes four or five years to build and it's only one or two into construction. congress has the right to look at the process decided it's going well to decide if we need the ship but usually congress is going to keep funding it because there are inefficiencies deciding halfway through the construction we don't need it anymore as we don't usually do that. what's going to happen to that ship in the sequestration because the company building is presumably going to have let's say 80% of the funds they would have needed to do the construction of the piece that was intended does that mean they go at that pace and the fire 20% of their work force and maybe drive up the unit cost because the inefficiency is introduced or is there some other mechanism? >> i don't know if there are any contract officers here because what will happen is the government will say termination of the convenience of the government that's in every contract clause and they will say remember we told you the 72 appropriations.

we don't have it yet in the contractor, let's say general dynamics will say we have a contract here that says if you do this to us halfway through this in damages. so at some point you have to say how much are we going to say will be here by cutting this and how much are we plan to pay in damages because of the contract? we are trying to do that now. it's extremely complicated. but the fact of the matter is to define a billion dollars in the defense spending beyond where we are you're going to have to cut more than 500. there's no doubt about that because you are going to pay substantial penalties for the weapons systems that were halfway through or two-thirds of the way through plus the unit cost is still weak. >> if you could say anything at about the shutdown question. >> i agree the government isn't going to shut down and if i

didn't agree i wouldn't say it all out but i went to the government shutdowns the republicans perpetrated in the nation back in '95 and '96 and they said the country will blame clinton for it with the everything, and this comes out of the republican philosophy no one cares. they are not even going to notice. so i would say within about eight nanosecond's, the "washington post"featured stories about these the right in employees that work so hard year round and now they are not going to get. they had great stories about families that drove all the way across the country with their dog and everything and they couldn't get in the national park. that's what's going to happen. so republicans -- and your right. other members are not going to let that. they will do everything they can to keep it from happening. but it might be a good thing. i thought about this several

times in this conversation. we need an outraged public but we have to do something about our situation. this is only a footnote to what's coming if we don't address our problem and the polls show that they understand we have to do something about the deficit. the final thing i would say is sequester is a horrible idea. you call them stupid in these different ways. i completely agree, but it's better than nothing. islamic don't want my thoughts to be about export control not that they are not wonderful. about the great quote the french political philosopher people see i would feel that if i walked out of this room without saying we are clearly the most innovative country in the world still and if we are not seeing this as an opportunity as an opportunity as this deleveraging

opportunity to think about how we are thinking about these bigger picture items we are missing the real opportunity. we have to refocus on growing this. that's the solution triet espinel i have to add one thing to that. philosophically, you are white to see those opportunities and make them work, you need leadership and that is the main ingredient either in the administration or on the hill. >> we will take about a ten minute break and reconvene. please join me in thanking the panel. [applause]

this is the conversation we need to have in this country

that nobody is going to have. what role should the government play in housing finance. >> if you want to subsidize housing in this country, and we want to talk about it and the populace agrees that it's something we should subsidize then put it on the balance sheet and make it clear and make it evident and make everybody aware of how much it is costing. but when you deliver through the third-party enterprise fannie mae and freddie mac can you deliver the subsidy through a public company with private shareholders and executives that can extract a lot of the subsidy for themself that is not a very good way of subsidizing homeownership - we've seen at the end of the movie in 2008 to

the microsoft founder bill gates was the keynote speaker at this is the mission of public land grant universities. this will bring the upcoming 105th anniversary of the act which created a the land grant a university system. mr. gates talks about the state of america's higher education system he coachers the bill and melinda gates foundation a private charity with a $33 billion endowment. >> we are talking about who should be the keynote speaker at the 150th anniversary celebration of the act. we immediately agree on a first choice bill gates. someone who would not only help us recognize and sabrue the last 150 years challenge us and work with us in the decades ahead. together with his wife bill co-chairs that bill and melinda gates foundation which works to expand opportunities for people

around the world. there foundation is the leader and efforts to approve global health coming alleviate poverty and expand opportunities for women today increased access to and success in education. the efforts to expand the global are unprecedented and truly exciting. it is built on a simple premise that all lives have equal value. that powerful statement resonates with all of us. and it is rooted in the same philosophy as the act we are celebrating today which has extended educational and economic opportunity. the gates foundation has involved many of the same endeavors that today's land grant universities are. in particular improving educational outcomes, expanding access across the country and also in addressing some of the

grand challenges globally such as an eradicating disease ensuring food security and developing new sources of sustainable energy. through modeling its funding, but also its thoughtful approach to philanthropy the gates foundation is a valued partner of american universities and others committed to improving the human condition. we could not have a more committed and passionate ally in these pursuits. on know all of us respect and admire greatly what bill gates devoted to his wealth and life, and we are delighted to welcome him to this celebration. join me in welcoming bill gates. [applause] >> thank you. i'm grateful for your invitation

to address on this special day and to express my gratitude i brought this bag with me. this bag is actually helping lift 10 million people out of poverty. in central and west africa will grow black eyed peas, they are hardy and protein rich, and unfortunately, tests called weevils' destroy half the crop after it is harvested determine the time or they did until researchers from purdue university developed its three layers and cost less than $2 it keeps out the weasels and it increases family incomes by over 25 per cent. [applause]

it's a good example of one of the many partnerships our partner house with members across the country to the american public colleges and universities to the finest research in the world. you create knowledge not just for its own sake and on behalf of our foundation, i want to thank you for that. today though, i want to focus on the one thing you do that is even more important than the research and that is providing greater education to almost 5 million students. the morrill act created in the public colleges, quote, promote a liberal and practical education of the industrial class's. there were to break through ideas contained in that sample sentence. first that higher education should be both liberal and

practical, that it should address the society's needs, and second, that all people should have the opportunity to obtain it. these ideas amounted to a brand new vision for higher education. based on the conviction that a bigger more diverse group of well-educated people would be an aspect to our democracy and a boon to our economy. this provision power of america's economic dynamism for more than a century. your graduates help build this country. recently though, education advocates have been looking at the international competitors, and what we see there is other countries have seen with the u.s. did well that we build a system of great cultures, and in many respects they are copying what we did and in some respect

and in areas like completion rates, some of those countries are doing even better than we have done. so what that says to me is that we need to double down. we need to take this aspect that's dominated the world and make it even better. there should be no doubt about our starting point. we are still by far when it comes to research teaching and learning of the top universities the very best in the world. however the major trends are guiding us down a path that mainly is away from the historical commitment to equity and opportunity. first, there's the financial constraints. in the past generation, funding for full-time students is found by 25%. i don't mean to tell you that this is something that we face

every day. the fiscal crisis has accelerated this trend in just the past five years, for example, my home state of washington has cut funding for higher education by 17%. as the result of this in the steadily rising cost of running your institutions, the financial burden of college has been shifting to students. they pay an average of $45,000 out of pocket for four years of public school. federal money has helped bridge the gap for a while. the federal spending on higher education has gone up quite a bit one of the faster growing items in the budget. the stimulus package helped the state budget for a couple of years that now have come to an end. the program alone more than doubled in the past decade but unfortunately it is unlikely to

continue that path and it's not on a sustainable trend in fact if we look out for 2014, there is an 8 billion-dollar funding gap just for the program alone so that is one trend that is troubling. a second trend that is troubling is the sort of travel moving towards higher status for exclusivity. when the news rankings come out of a judge you essentially on how selective you are more of the inputs coming into the institution. they look at the faculty, the amount you spend on various things and subjecting impressions of academic reputation, so these measures are standing in the way of having real measures of value added that we need to root out

what best practices are and continue to benefit from the work that all of you do. i understand these incentives are hardo get around but in a sense it is a type of zero some competition and exclusivity. one symptom that we see of this is acceptance rates at many universities now hover around 50%, and that doesn't count a large number of students the don't even bother applying because they know the bar for a mission has continued to go up and up. so, in short, fewer people or those that want to attend the universities are getting in and those that do are paying more. so this can't continue if we all have the goal of fulfilling the

mission of providing broad educations we have to look at how we can reverse the spiral and let in as many people as can be successfully educated, and they have to get the education of lowest possible cost. private universities can choose to do so would as public institutions come in your prestige comes from the commitment to equity, opportunity and excellence. and so, it is not a point of high status to keep students out, but rather letting them in and even taking students that haven't had the greatest high school education or don't have the highest scores giving them a high-quality education. as of today it is a great day to pause and look to this group's leadership. you can steer your universities

out of the trend by making innovation a priority for the sector that you lead. 150 years ago, in your predecessors started a new conversation about the purpose of higher education. you can start the educational but the changes required to keep serving the purpose. for example, we can move beyond the question of how can we get a lot more public funds? unfortunately, in the near term there won't be much additional money. the rising share of both federal budgets committed to health care broadly defined needs little room for flexibility. the mathematics are quite a brutal. and whether there is more money or less money in the long term which will also focus on the children to figuring out how to do it best particularly the

money devoted to financial aid. how to the ticket and get better results for students. the first is the age should be structured to incentive for both institutions and students incentive to raise completion rates come incentives to raise income and employment of the graduates. if we look at just completion rates for the apl institution that over 60% and the four year rate is less than 40%. now, behind those statistics are stories of students that are not succeeding but end up with a lot of debt trucking those students, understand what is going on for them should be more important. perhaps a huge should have somehow be tied to the

institutional practices. they create this strong incentive to adopt the practices that have been seen at the best institutions to boost graduation rates. what if students felt that financial incentive to reach the important milestones on the path to graduation? we can't be agnostic about what it subsidizes failure or success. the goal is success, a degree in the shortest regional time for every student that puts them in necessary work without just planning the most prepared students and without sacrificing quality. policymakers are starting to look at what some of these incentives for completion might look like. i hope he will join them coming you and your students will have to live with policy changes that are coming into those changes will be more effective if you contribute your expertise early in the process.

a second principle that i think is valuable for the s financial aid is to make the need based aid a priority again. in the past 30 years, the percentage of money going without demonstrate financial need has tripled. this is somewhat a consequence of the spiral giving the top students scholarships is a great way of persuading them not to pick another institution, but it also means that money is being spent on students who may actually need the least. colleges and the most value when students come in who are less prepared but lead with of the same knowledge and skills that other graduates possess. so preserving your money for students who need it also serves your economic mission. educating a student who might

not otherwise go to college generates a much higher return on public investment than to frame the cost of an education and student might have paid for themself. we also have to engage in a new conversation about the role of technology. after all technology has come a long way. it's easier to store all city essentially free to do it. there are tools now that let us build wonderful interactive courses. students of course are more accepting of this being part of their educational experience in fact in some cases the demands are getting ahead of the supply so how do we use technology in a number of ways to augment what we are providing? technology may help us to serve both inefficiency and in terms

of quality. technology should be reexamined to look at the whole college experience. how do we track with a student is coming to the electors and engage them and understand what is going on with them? that is an area the for-profit sector does some things better interesting. we've seen technology come into several different areas for the university's piloting these things. the personalized education so students spend more time on the concept they are structuring. hybrid models improved the quality between students and teachers and simulation deeming it can engage students and in creative and applied ways of these innovations are largely still of the pilot stage and will take leadership to move them beyond that. once it is taken to skill,

technology can change the financial calculus and give more students an opportunity to earn a degree. there is interesting models to build on. often the state university in tennessee recently created an advisor system the dupes students a list of courses by looking at their transcript and looking at the data from hundreds of thousands of previous students. it's almost like the way that netflix suggests movies but instead of just suggesting class you will enjoy its those you will be able to handle and help get to their degree requirements. across the united states the average student graduates with 20% more credit than necessary. now in some cases this is fine it is simply them seeking to broaden their educational experience, but in many cases it is because the courses are not available or they don't have

advice about what would be best. its applications that can address the issue and do it in a way that is pretty straightforward to the institution. the results that he has been promising students with a letter grade better suggested the antanaclasis they pick the old fashioned way. similar systems and other universities have been proved retention rates by more than 5%. educational technology will probably have its greatest impact in terms of the learning itself. a great example of this is the arizona state university recently designed the introductory math course taken by 8,000 freshmen many of whom came in with poor preparation not ready to do college level work when they enrolled. instead of lectors, the

developed hybrid class is. the students are given a piece of adapted computer software that looks at where they are and understands exactly what they've learned well and what they haven't come and it focuses the students knowledge they don't have. it gives reports to the professor said they can work with students in small groups. they can organize groups that need help, they can organize groups for the peer learning that turns out to be very powerful, and the results on this are very impressive. they've taken a course that is often the worst experience and has terrible completion rates and raises the completion rates by 17% while cutting costs by one-third and a large number of students were able to finish weeks before the end of the term so to get the knowledge up to

par and still have time to devote their other class's. certainly in areas like the retial maffei see the future for education looks more like the course than a does like the traditional course of liberty. the whole area of the open online courses is receiving a lot of attention now and in some ways you might say well, what's really new here we have the open course for a long time, we've had interactive courses like carnegie mellon open learning institute, so is there some breakthrough in the technology cents isn't some dramatic breakthrough but what is being done that i think is exciting is they are taking three elements, break the deal lectures with the inactivity built into the

lecture so at ten minute intervals your concept cement those so that is the duty of the great elector together with interactivity. the third thing they do is they get a lot of people often as many as 100,000 taking the course at the same time and so they have lots of pure education going on the answering questions looking at each other's home work giving advice and then the teaching staff is merely reviewing all that activity to make sure that it's high quality students aren't being misled. the fourth piece more challenging is how does this connect up to. they are giving out certificates but not fully endorsed to grieve said it is an area there will definitely be some evolution, but this is a very important

movement. you will need to think about how your institution should get involved. there are two leaders in this. they have over 40 courses from the university of michigan from penn, princeton, stanford, and the courses themselves are free to everyone. you only pay to get the actual certificates. theoretically, the courses conserve millions of people. so it has a real opportunity to step back and think about who are the best lectures and what can we do with interactivity and how we need to supplement that with the face-to-face study groups laboratory, what are the skill sets that we really want to pull in for a hybrid type model? i know some critics worry about the loss of the interaction that certainly is central to the high quality education, but this

technology is well conceived actually can be to strengthen those interruptions the arizona can free of time and allow the professionals to be working with students who need that help in a more direct way. so these i think really do represent something important that we all have to contribute to and think about what the rule should be. so in some ways it is in its infancy. we need to look at different types of students particularly students that are not well motivated. we can say definitely that the original group that signed up for the machine learning course that wasn't your average student, those were some highly motivated people, and so that's where i think the heiberg brand has to come in. technology can't do everything but for schools that want to be at the cutting edge, experiment in the field is very important.

when we look at the number of students being educated, your institution has grown at 2% a year so it's interesting to ask what advances in the use of technology allows you to grow even more and serve students? for 150 years, year education has been an incredible source of strength for the country, and there's no group of institutions that showed that better than the ones represented here. our nation has done better at sending lots of young kids to college than any other. and you're institutions have shown that equity and opportunity have -- don't need to compromise excellence. if the nation had chartered a different course 150 years ago and occasion continued to be reserved for the select few, there's no doubt we would be less competitive today.

instead we decided to build something new and better and created these universities that are the envy of the world. that is why young people keep applying an ever greater numbers and they are willing to take on tens of the thousands of dollars of debt to get a degree but because they know the education you provide is the key to the future they want so badly. they know you can make their dreams come true. we face a huge challenge like we did in 1862. how do we cope with these budget constraints without sacrificing the quality on which the society relies? can we be innovative and effective of the most talented students as we are with the most prepared once? can we apply resources in new ways so we consider to everyone who wants access? asking and answering these questions is the key to building the legacy that you inherited and that you now hold.

i believe it is key to the future of the country. i have great optimism that he will once again some in your ability to innovate and that you will see clearly where higher education needs to go and leave us there. thank you. [applause] >> i told you he would challenge us now we get a chance to challenge him so we are going to open for questions. i know there are some people in the audience that are chomping at the bit, and i'm having trouble seeing everyone. i don't know where the microphones are. i'm assuming you will get to someone with a question. i'm going to ask the first

question while you are figuring out of the logistics. one of the issues that some of our institutions found is that young people are coming out of high school unprepared for college work. the have to take remediation, development of education. your foundation supports work in that area, something you are interested in and i wonder if you can share with us what you found to be the most promising. >> the boundary between high school and higher education is really not well handled today. if you are a student in high school, he will to be able to go on line and have some assessment of your net capability. you should never have to go in and take the qualifying exam and get surprised by the results the you get. it's disheartening for the

student because they just get a number. they don't get told you need to work on fractions or scientific notation they just get this number and then they go to a remedial course they just sit there and they're not sure every day is this the part i already understand or is this the part that i completely messed up? 70% of the kids that go to that remedial math class never get a degree so it is just bad in every way. the idea is to have the knowledge we expect you to have a math say algebra to have that be well understood and there's the so-called common core effort adopted that will lead to that if. you can have different ways of teaching the core concepts are the same and the on-line material like the academy actually has adopted the common

core very quickly you for the purpose of the next few years the different states are getting their tax codes and future training into that and that will be coupled with the online exams that he conspired in the jobs and you can be poignant to the various materials that are either by yourself or with a teacher or some type of coach of the hopi did -- help you get there and puts huge cost on the system to kind of clean up these problems and have it be a lot more open about what is going on the edge a lot more efficient and positive for that student said that as a boundary but in reading and writing and math that has been very problematic. particularly just coming out of the inner city high schools. >> questioned? >> whoever gets the microphone first gets to go.

>> thank you for being here. i am the chancellor at north carolina state university. throughout your career and in recent years. i know you get a charge out of interacting with our students. tell us what you think the challenges and opportunities are for students these days. >> it's interesting to talk about how do they take an institution and how we're are they about the goal they were going into the institution? there is a big difference between kids who have a group and ones who don't. it's fascinating to talk about how much you work during school, how much you were thinking about this that you're building the overtime. what you think about the quality of your teachers to you get feedback about the different experiences you are having the one thing i've been interesting is are the kids who don't complete. the fact that even in these very

top institutions, leader 40% its surprisingly high year that you asked me before i saw the statistic what that number would be. and so sitting down and talking to them where did you feel like you got lost? and what kind of intervention would have made a difference for you to stand with it mostly financial, we do discouraged about your ability? why did it go off track? >> clearly there's a lot of amazing professors the reach out and get engaged with students and it's always wonderful to hear about that and it makes you think okay if that is the best practice, is that measured, is the reworded and spread out to other universities. it's always impressive to me the energy the students put and to

get an education and this leads if you are going to spend this for years and that is going to do something great for you but you look at those application reads the even stronger today in the economy if anything meant more people wanted to have that provincial. on the side of an employer from microsoft we went to the elite institutions and we took the degree we could hire the very best students, and we were quite picky about where we went to high gear and exactly what courses we thought they should have taken, and so, we were expecting universities. we were not considering ourselves the ones that would have a lack of education. we were going to take the people who were already very well prepared on the institutional hands to get somebody those

skills. this and that we are interested in increasing the graduation in this country that is a goal every institution in this country shares. one of the things that apl is working on now that will be important for policy makers is a different way of looking at the graduation rates because right now we don't capture the students that transfer and in graduate from another institution, which is a significant number in american higher education so the developments like that we can add to the data available will help us understand better the path for college students in america. another question, yes, please. >> good morning mr. gates. i'm the president of montana state university. thanks for the message this morning. you shared with us exciting ideas. do you have any additional exciting ways in which technology can be enhanced in higher education? and also, what is your advice for institutions that want to

leave in these areas? especially in the current budget environment. >> there's no doubt that these technology enable mense should be able to help with budget constraints. for example, if you take the electors of your big courses and choose to put them entirely on line, that is not to have a physical get together, then in many cases that takes what the enrollment limits is for the courses and gets rid of it and it's the size of the hall in many cases, and if you actually have feedback systems where you take the study groups that are often grad students and really help you understand who is doing a good job in those things and you have a preview system in those roles, then that is the

real thing that drives the call that you are the people in the sections so they are kind of an irony that large lecture which technology can provide something that is bitter because you are using the world class lecture, it's interactive in a way that you are not having to go for 30, 60 minutes without setting and practicing the knowledge your gain enough there's clear evidence that interactive understanding of the material. i think that's sitting there and why isn't it being grabbed on to? i think it is the financial pressure hasn't been strong enough for some institutions to take that lead. it may be that the teachers don't want to do that but that's just sitting out there is a very

clear thing and hardly adopted at this stage whatsoever said that's partly why we and at the beginning because it is only as you get that type of adoption used in a hybrid mode if we don't get the hybrid mode of what we are going to get is eventually a system of accreditation that has the same prestige as the colleagues which is independent of how you learn the knowledge. that is there will be people that certify that you have the equivalent of the four year degrees of the and players will trust that just as much, and that will have a lot of people were experimenting how they can prepare people for dhaka but they won't be bundled together the re-dedication and the degree right now so there will be this system that grows up outside of traditional the education particularly to the degree that these online are adopted in the mainstream education.

>> who has a microphone? there you go. >> university of tennessee knoxville. we are delighted to larger to be. you're foundation as many great things. of looking at the post secondary level that looks like to focus on community colleges or funding and i was wondering if you would explain why you are doing that. >> that is absolutely correct. other than our scholarship program that creates the millennium scholarship program which ends of sending kids primarily to four year colleges and every high quality like this one, the rest of what he has been done focuses on the community college. i think most of what we are doing there in terms of how we attract students and how to intervene, redesigning the remedial math and i think a lot of that has ability to all colleges.

but when we look at where the low-income students end up going in this country, it is overwhelmingly to the community colleges. now, fortunately many of those students if they do well after two years than in the show up in your institution and there's some selection because those students tend to have a better completion rate if they had gone through and done that they have a better rate than people that come to you in the first year. so it is a very attractive cohort that we should all want to grow because in terms of educational dollars spent, they are actually getting a four year degree for the lower-cost than people that take another path in the system. so we saw that there is less philanthropic money involved in community colleges, less attention. there was more use of that joint professor and more need for student tracking and for the

need for actual measurement of who the good professors were to create a professional system around that and also, there was an ability to read where you have adjunct i know that there are lots of challenges for that but it is a system that if you have a quality measure you could immediately decide who to give bonuses to and who to bring back so the pnac on the quality and understanding is very, very high. if you put that into a mother system, what are you going to do with the data that comes out of that? ..

>> we are losing ground globally in this context that i would like you to comment about how we can work more effectively,

starting even at the middle school level and high school as universities to try to stimulate a more effective pipeline for these students into our universities. >> it is a fairly stunning fact that all the rich countries, europe, japan, the u.s. less and less of their graduates are going into science and engineering, and yet come if you look at the salaries for the job, they are very strong. and it is very unusual, very unusual things. the computer science department. many of them are over 50% foreign-born uc berkeley campus, which is 77% born on 10 foreign-born. and you get the irony, which is if you go to hire those people, they can't get their id cards.

companies like microsoft great like five jobs around each of those engineers. we do it wherever we can get engineers. we agree that they have to go back to india or china. that forces those other skill sets to be developed in those countries. definitely, there is an attrition in terms of interest in math and science that starts in high school and at the end of college it drops off law. even as people come to microsoft as an engineer, more men and women move into marketing and general management type of roles. more women move and then the males do. we just have this incredible attrition, both in terms of the absolute numbers and in terms of women and minorities. by the time you take an

engineer, a career of tenures, that is a very male nonminority, asian, caucasian percentage of doing that. how we can make math and science less daunting, how we can make the image of those a little different. i think there is good work that is going on with that. some of the way that science taught in high school is called the history that teachers teach science in different ways. i know some of the universities have combined a number of the science courses. we really need to seek out the best practices on that. those jobs, more than other jobs, more than other jobs, they

do tend to drive those patterns. the fastest-growing in the u.s.'s physical education. historically, the u.s. for people into the new field. what was big and important. now, even in terms of how much we have people in the cutting-edge field, it is relative to the asian countries. >> thank you. this is now -- i'm going to asked the last question because i have been charged of keeping control of the schedule. i want to take a little bit of the shift from the conversation. honestly educational attainment is a high priority for us. but land grant universities are also deeply involved in addressing the global challenges that the gates foundation is. we think of this 21st century land-grant model as organizing and addressing security and opportunities for economic --

economic opportunities for women in public health. spend a few minutes talking about some of the most exciting opportunities that you see for america's universities to be engaged in a the kind of work that drives you around the globe. >> i think universities are doing a far better job making us aware of conditions around the world. when i almost graduated. [laughter] when i almost graduated from harvard, i have no sense of the living conditions around the world. today, universities have lots of courses. they tend to get students out there. they bring in the the information. i think that awareness alone is an extremely valuable thing. to get rid of crop disease, to design new things, to cure

disease, it really reinforces that u.s. universities are at the cutting edge. it is something about 70% of our brands, if anything, we try tried to go to institutions in the developing countries ourselves. we have two equally meritorious proposals, we would favor the poor country where the problem actually is in that location. for most, what we do is leave university would be the u.s. state institution. they are doing a really good job to run institutions and the trials and there is some secondary benefit that comes from that. one thing, even though we are

talking about it, i do want to show you my optimism for the state of innovation. the other universities around the world participate in innovation, that is actually a good thing. just in the u.s. alone, whether it is material sciences, understanding chemistry, the basic digital levels. energy advances across the board. understanding how to make new vaccines from the immune system, a lot of that pushed their, trying to understand diseases like aids. it is so exciting. thank goodness that plants have the same genetics as humans. so much money, billions and billions were spent sequencing tools. this is the golden age of

innovation red integrate school, professor, students, u.s. institutions are doing the same things that allow our foundation to be very optimistic about improving life in the countries -- the poorer countries, whether it is childhood death that is now down to a million a year, i could see pat to get that to 4 million and then down to 2 million. malnutrition to be the planet. climate come a certain limited resources, i think we will be able to meet that challenge. it is almost a paradox, making it broadly acceptable and scaling it up is a tough challenge. >> that is absolutely right, and we look forward to working with you and the gates foundation.

thank you for being here to help us recognize and celebrate this important event in the history of our country and of higher education. thank you for challenging us today and thank you for the partnership for the gates foundation. [applause] [applause] [applause] [applause] [applause] [applause] [applause] first, we will look at the intersection of television and the internet. and if regulators can adapt to changing media landscape. live coverage begins at 10:00 a.m. eastern. at 2:00 p.m., a hearing on the weather analytes run by the national oceanic and atmospheric

administration. noaa and nasa officials will testify. you can watch live coverage on c-span 3 and online at c-span.org. >> i could've told you at the beginning of this year that this is how it would run. the republican primary and the republicans will look enfeebled, there would be a nominee, and that republicans would then rally round the nominee and the true nature of the race would reveal itself, which is going to be close. i would say that the media would eat that up and then i would say that the media would eat that up and then romney is surging, obama is lighting, i will say what the next it will be. the next stage will be the media is going to be more alert to the fact that governor romney has been completely pervasive about his position. it has been all over the lot on

many of them and has tried to play a game of hide and seek of the american people. i think that the news media will be challenged to challenge him. the story will be out for a while. this is the nature of this business. >> look behind the presidential election process when you want online at c-span's road to the white house and the c-span video library. >> a house oversight subcommittee today told a hearing on the jobs act that securities regulations on small businesses. it requires the suscom to allow covenant. this hearing is one hour and a half. >> good afternoon, and thank you all for being here today.

this is the subcommittee on t.a.r.p. financial services and the hearing today is for the j.o.b.s. act. overseeing the effective implementation that can oversee american jobs. i will start today's hearing, as we always do, by reading the committee's mission statement. the oversight committee mission statement is used to secure two fundamental principles. americans have a right to know that the money washington takes from them is well spent. second, americans deserve an efficient and effective government that works for them. our duty on the oversight and government reform committee is to taxi strike. the government is accountable to taxpayers. they have a right to know what they get from their government. we work tirelessly to bring democracy. this is the oversight.

i now recognize myself for five minutes for the purposes of an opening statement. approximately three years into our economic recovery, america's labor and capital markets continue to face unprecedented challenges. the u.s. unemployment rate has now been above 8% for 40 consecutive months and nearly 24 million americans are either out of work or underemployed. despite various government initiatives. to make matters worse, outdated and new government regulations continue to limit the ability of small businesses to access capital, which is the lifeblood of our economy. preparing and stripping our markets will not occur overnight, nor will it be accomplished by more government regulations. in an effort to address these challenges, the focus of today's hearing is on a bipartisan bill signed into law this past april.

it is to promote capital formation for small businesses by relaxing various securities laws. titled the jumpstart ask him is commonly referred to as j.o.b.s. act. this is a significant victory for entrepreneurship in the united states. i'm particularly proud that the efforts by this committee mission by chairman darrell issa that in march of 2011, his letter to the securities and exchange commission chairwoman, mary schapiro, helped develop the jobs act and modernize our securities laws. for instance, limitation on the ban on general solicitation, a rule that has been in place since the securities act of 1933. it will improve the ability of small, private businesses to communicate with investors and raise capital. creasing the private shareholder

capital from 500 to 2000, the company may have before registering with the sec, it has been welcomed as a logical investment. visibly reduces the number of instances a company is forced to endure in sec process because they attracted too many accredited or institutional investors. title iii of the j.o.b.s. act they stop plesac -- they stop legislatio is based on company. after introducing the first round of funding bill in congress, reached out to my colleagues on the other side of the aisle to build a bipartisan coalition that we can actually enact this bill. to address the concerns of the interesting part. specifically, i want to commend congresswoman carolyn maloney, who serves on the subcommittee

who serves and also serves with me on the financial services committee. we often don't see eye to eye on matters of public policy, but in this instance, we collaborate and work together to take the legislation that i introduced to improve it. now, carolyn had a number of concerns about fraud and a number of investor protection ideas. a very balanced bill that we were able to pass, not just on the committee, but on house floor. and before it came to a vote on the house floor, president obama put forward an administrative policy that he endorsed and would sign the bill. due to a new senators who misinterpreted the spirit and

promise, the senate inserted imperfect, we will discolor imperfect provisions. they jeopardize the vitality of equity-based funded and sec rulemaking. the sec considers comments regarding company, the crown funding title of the j.o.b.s. act, it is clear that the 11th hour changes have unnecessarily made sections of the j.o.b.s. act and ambiguous and inconsistent. today's hearings serves as an opportunity for congress to hear from knowledgeable folks. academic experts about these provisions of the j.o.b.s. act and i want to get their thoughts. that is what this is really about. our intentions for congress and

the sec to work together. to ensure that effective rules are promulgated that will allow crown funding to floor-ish. it lurches, i think that small businesses have another opportunity to do so. i thank the witnesses for making the trigger and i want to thank the ranking member for his involvement in this area of public policy as as well as many others. without them i recognize the ranking member for five minutes. >> thank you, mr. chairman. i want to thank the chairman for holding this hearing. to examine the implementation of the j.o.b.s. act. the j.o.b.s. act, as you know, was passed with bipartisan support and signed into law by the president on april 5, of this year. the act alters federal security regulations to make it easier for small businesses and startups to raise capital.

for example, it will create a unique status board companies to test the idea waters. the act will also lift restrictions on the ability of startup companies to raise capital. startups come if they survive, their earliest years, make an outside contribution to sustainable job growth. content will now be able to raise the capital they need through private funding. this is a welcome step forward and the president will endorse the idea in the two dozen post-it of the union address when the chairman of the subcommittee response to the original crowd funding legislation forcing together these issues. at the same time, the regulatory restrictions that were rolled back by the jobs act were originally in place. there are legitimate concerns that prevent this kind of activity from securities regulation that will open and expand opportunities for fraud.

keeping our water clean and safe to drink will protect us against unsafe products. there were too many hurdles to raising capital, the sec's mission is to protect investors and maintain fair, orderly, and efficient markets. rulemaking under the jobs that should follow the same process and procedures as in the past. there is no reason for the drop act should be prioritized in front of the dodd-frank rulemaking, which has been delayed and faced scrutiny from congress and the courts. the same should apply to all by law. possibly the dodd-frank in the jobs act two sides of the same coin. during the financial crisis, financial regulations were deficient. banks collapsed from the housing market and investors lost their savings, homeowners lost their homes, lives of americans lost their jobs. by passing and implementing

dodd-frank, we will ensure the next generation of americans is not so vulnerable to financial catastrophes. at the same time, we can also recognize not all relations are necessary, and we have to sustain job growth more than productive. that is why i am proud to support j.o.b.s. act. we must ensure these two acts of congress are limited in a timely, responsible fashion. thank you, mr. chairman, and i yield back. >> i think the ranking member. members will have seven days to submit opening statements for the record. i will now recognize our panel. mr. brian cartwright is a scholar and president at marshall school of business at the university of southern california. a senior advisor at potomac global partners and former general counsel of the securities and exchange commission. thank you for being here.

mr. alon hillel-tuch is the cofounder and chief financial officer of rocket hub inc. and for those of you not familiar, it is a fantastic crowd funding site. doing exciting things. mr. steven bradford is a professor of law to university of nebraska college of law. and he has written numerous works on crown funding. mr. john coffee jr. is a professor of law at columbia university law school. it is the policy of this committee that all witnesses be sworn in before they testify. you if you could please stand and raise your right arm, right hand come actually, do solemnly swear or affirm that the testimony you're about to give will be the truth, the whole truth, and nothing but the truth? >> all right. you may be seated. let the record reflect that the

witnesses answered in the affirmative. in order to allow time for discussion, we have a light set up for you. members of congress, so they are very simple. we will give you five minutes to summarize your opening statements. the opening statements, your written statements is part of the record. we will begin. mr. brian cartwright, you're recognized for five minutes. >> chairman mchenry, ranking member and members of the subcommittee, you have honored me with your invitation to appear before you today, and i think you for having me. you have my written testimony, and i won't try to rehearse that testimony again here in these introductory remarks. instead, i want to phrase the questions to follow by offering perspective on why the jobs act was passed with the support of

the administration by overwhelming votes in both houses of congress and what i think we are here today. the j.o.b.s. act was passed because there is a bipartisan understanding that something has gone quite wrong in the world of american public companies, particularly the newer, up-and-coming companies. after all, the number of public companies, exchange listed companies come has declined dramatically. in the roughest of numbers, we have gone from somewhere around 8000 exchange listed companies to something in the vicinity of 5000. that is a dramatic drop. it has happened because none of companies are signing up to go public to replace those who drop out. the number of initial public offerings is far below previous levels. the most alarming development of all may be this. and i know this from my days in

practice. back in the day, venture capitalists would take a successful, innovative new company public. many of those companies would then blossom and grow and produce countless jobs. and we know that most of the jobs actually come after company goes up. that is what used to happen. upwards of 80% of the time. but today, that number has changed. over 80%, approaching 90%, a successful venture backed companies are acquired, rather than taken public. that makes all the difference in the world. because we know that acquisitions, rather than [inaudible] off and subtract jobs. because the choir seeks to achieve efficiency is the press release will you symmetrically see. just imagine what the world

would be like today if microsoft had been managed to make it as attractive as possible to its most likely potential acquirer, ibm. ibm had in fact acquired it. estimate you that if that had happened, seattle would be very different city today and to replicate that hundreds of times over, the u.s. would be a very different country today. companies that originally venture backward something like 20% of the current current gdp. imagine the problems we would be facing if we didn't have that 20% today. it is illustrative of the developments that i believe that j.o.b.s. act. which come, in my view, only makes quite modest incremental tweaks to the existing system. time will tell if those modest

incremental tweaks will prove sufficient to get us where we need to be and maybe some of the questions will be directed that way. the jobs act is a welcomed, probably bipartisan attempt to move us in the right direction. of course, even those modest steps have been resisted by the defenders of the status quo. the fcc needs to be encouraged to move at deliberate speed to implement the jobs j.o.b.s. act forward. i eagerly anticipate your questions and i thank you for your time. >> is determined, ranking member and members of the committee, my name is alon hillel-tuch, i am a cofounder and ceo of rocket hub. i think you the opportunity to give my testimony.

background on rocket hub, it is an established website where we provide a thousand campaign so far since 2010 and raised over $2 million to promote small businesses. the successful campaign has provided funding to businesses of all types from the local bakery to a startup developer of medical devices to enabling the financing of a film production. it is really the abdication of application of new technology to an old idea. people have always helped raise money for new business. ..

platforms must provide investors information, including financial statement to raise them in the 500,000 or such other nonsense the commission may establish. i believe that $500,000 threshold is to love and a financial statement should not be required unless the issue raised is 1 million. crimefighting typically attract startup companies and small business is not that statements of these come in these may have little or no operations relevance. they do not provide more meaningful information as compared to unaudited

statements. they provide entrepreneurs, which might really killed us. making this change could face small businesses tens of thousands of dollars for up to the opportunity to take full advantage of the platform. a secondary commission to exercise discretion while making it's really been really bad minimizing upfront expenses to -- bring your small business the two crowds on pure colophon classrooms charge fees for projects to allow businesses to access initial cost which is critical that they attract support for the project and they have to fund to pay fees. the idea does not attract support the cost is minimal and hatch bring you up and come back in the future of a new idea. in implementing the job site, it's important that the commission considers that this careful fee structure the platform should charge fees and products for not imposing binding. this structure will allow more small come jesus god running while reducing the risk of their unable to track thing.

one area congress should address a jobs act is to raise the exemption to 1 million. it will allow more businesses to need capital to utilize the not dead. a company that seeks than 1 million is unable to use cut funding for provincial capital investors credit card debt for small business loans. these sources may not be able to small businesses, especially women and minority that dismisses in the small-business space outside the high-tech model. bruce and the one crowd on the two more effectively compete as a source of funds in venture capital and give small businesses more options to drive down financing costs. crop farming can be an important economic tool to help small businesses grow a drug job creation and i believe everything the costs associated with financials to raise money

elegant and aligning the interest of come panisse, investors and five funds to success of the structure would increase economic and if it provided a. the first increase in number and types of companies to raise capital and expand the role of small business finance. we also expand benefits to crimefighting investors a lot of small investors to participate the wider range of companies, including those in their communities. i will quickly close at the response to two, questions. first is the crowd funding the two front fisheries? no. it won't. in fact, structures minimize risk. crowd funding is transparent and substantial feedback with participants. the crowd tells police players and keeps them honest and regulators try standardize understandable terms across the offerings. a thank you for your time and look forward. >> thank you so much.

professor bradford. >> chairman mchenry, breaking member quickly and members of the sub committee, good afternoon. mc bradford tim russert like university of nebraska. much of my work focuses on small business capital formation under federal securities laws and it's an honor to be able to address in the subject today. i've recently written two articles on crowd name and i would like to focus my comments on the crowd funding provisions of the jobs act. i believe the crowd funding could spark a revolution in small-business financing, opening up much-needed new services as startup capital. but if that happened is in good part of the regulatory burden. those small offerings would be possible only if the cost of complying the securities regulation doesn't consume a large portion of the offering proceeds. the new federal law created by the jobs act is an important first step but the exemption is

incomplete until the sec enacts regulations. the usefulness of the crowd funding exemption will depend in part on how the commission exercises at the rather substantial rate dilatory authority. a written statement includes a number of specific recommendations concerning the crowd funding will not be happy to discuss any of those members of the committee. the time available and want to limit myself to form part points. first, cost is a critical consideration for the small offering crowd funding facilitates. because of that, that the sec regulation should be a flake candidate unintrusive as possible. in the name of investor protections, the statute already imposes significant regulatory requirements on both issuers and on the brokers in funding portals to act as intermediaries crowdfunding offerings would increase the cost is an

exception without much additional benefits and would also be inconsistent with the rest of the jobs that i'm tran j.o.b.s. i am the capital formation. second, at the expense of any additional regulation is required to should be imposed on crowdfunding intermediaries, brokers and funding portals rather than on the edge for newer raising funds. crowdfunding intermediaries will be immersed instigated and heavily capitalized in the small business issuers engaging in crowdfunding. those brokers in funding portals can guide them through the regulations. there will also be a repeat player so they can spread in the regulatory costs over a large number of offerings. because of that it makes sense to send regulation and needy areas rather than on the come to me is raising money. third, the sec crowd to regulation should be clear, concise and written in plain english. the sec requires corporate

disclosures to meet requirements in order to facilitate understanding by investors. in drafting the crowdfunding rules, the commission should follow some plain english standard in order to facilitate understanding and compliance by crowdfunding issuers. many of the small business issuers using the crowdfunding exemption would be legally financially or the decay that peered at the regulations again; he complex, those businesses on a sophisticated security council to guide them through the regulation. that would significantly increase the cost of the offering up with a small offerings, cost is so important. that leaves issuers the two alternatives, either they navigate the complex rules on the run in which case violations are likely for there is simply not use the exception of which case the promise of crowd name will be realized. the best way is to write the rules so that small-business

entrepreneurs cannot understand without hiring expensive attorneys. fourth and finally, the sec should adopt substantial compliance rules to inadvertently violate the requirements exemption. the exemption contains the detail and as i said come issuers using it will not be sophisticated good because of the hostility in the burton is the height of the consequences of a minor and material technical violation or drastic behemoths of the exemption in violation of securities that are my abilities to return all the money to every single purchaser. other securities act exemption protects issuers to substantially comply with requirements that the exemption were reasonably believe the requirement of the exemption on that even if it turns out they aren't in the sec should include rules in the crowdfunding regulation. my written statement includes a number of other specific recommendations for my time is about absolutely thank you again thank you again for the

opportune need to talk to you today. >> i certainly appreciate it will not recognize mr. coffey. >> thank you ranking member quickly, members of the subcommittee. my name is jack coffey and i've been working in the securities regulation initial public offerings for over 40 years. botany made three basic points all briefly appeared first, i believe the greatest enemy of job creation today is not over regulation, but the loss of investor companies. today, american investors have lost confidence in the ipo market place. this is evidenced by the facebook fiasco, drying up of the ipo pipeline and the lowest trading price of most of the recent social media initial public offerings come all which are trading below their offering price. the erosion confidence goes all the way back to the first of the internet bubble in 2001 which

has not been restored. more recently has been a new focus. investors are again and again complaining about the prevalence of select to disclosure and ipos. as issuers seem to be taking us into a curb and facebook, projections and forecasts to preferred institutions and investors. a number of problems with the ipo market place today in a group many comments that the oversight committee chairman i sat in his recent letter to the sec and his views they should be greater attention given to the role of option than this process. the oversight of the ipo process, i would point you particularly the problem of the exposure. no efficiency and direct disclosure with fairness and i think there is reason which the jobs that actually compounds this problem is they set forth in my written testimony. on the move to my second point. the j.o.b.s. act on virtually every page requires the fcc to adopt new rules and impose

fairly tight timetables and the first of those deadlines expires on july 4 with expect to crowdfunding. under recent decisions of the d.c. circuit court of appeals, these proposed rules at the sec must've done shortly are vulnerable to judicial second-guessing. the d.c. circuit might find some cause to be overstated or it might find some benefit to be understated, or it might even say the empirical studies done by others relied upon or just not reliable. all of this has happened repeatedly in recent decisions. as the result, the sec fans at risk that its rules could be found to be arbitrary comic appreciate others have gone three for recent occasions. as a result, virtually everyone affected by the sec rules today under the j.o.b.s. act hasn't been to sue. if they're not happy though find an attorney and then we will go to court.

this will result in continuing uncertainty, confusion and delay in implementation process, even if the fec makes the superhuman effort, litigation is predictable because someone who is not happy with the rule now has a better option of selling. the third point relates to the second. i reviewed the nation's most recent policy statements including the statement dated march 16, 2012 set forth this current guideline on economic analysis and sec rulemaking. i believe the new guidelines properly integrate economic analysis with the rulemaking process that do require the commission to consider economically reasonable alternatives to the rules her post and they do require the careful matching the cost of benefits. of course i cannot tell you the commission will always follow these principles and rules not yet proposed are formulated, but i can tell you what every

commission does come whatever growth may make, there is still a real prospect the d.c. circuit could disagree and substitute its judgment for the commission's judgment. if that happens, i cannot tell you that a federal court is a better judgment or greater expertise in the securities and exchange commission. it is not our expert, number since it to the market. as i do not think we will come out with better rules through that process. my bottom line here is the sec caught between a rock and hard place i've been asked asked to expedite rules and is trying to do so places a summit sympathetic -- quite skipped school rulemaking in general. i see the specific examples that you might like to do so for your questions. the sec has to adopt rules on the use of audited financial statements from esa file that periodic disclosure offering cover both under section three b. and under the new crowdfunding exemption. the commission is due in the congress was told to do, but i

think we'll see a long battle because i predict those unhappy with rules will try to exercise the judicial action. ultimately, the danger here is we can get back to the lot era of the 1930s and courts could constitute analysis and preference is for those of the agency by saying the freedom of contract. though the same day interfere with proper cost-benefit analysis. there's a danger that lives here and i'll stab at that point. >> i think the panel for their testimony and your written testimony will be on the record. i will not recognize myself for five minutes. i securities regulation -- we have a foundation of 19 dirty three, 1934 are the essence of security regulation, so the foundation of what we deal with today. and at the time, congress is

acting to deal with a challenge, which weighs the folks standing on street corners talking to securities. times have changed. we now have the internet. what we found what i've said multiple times before is that under the mentality of the sec, the website ebay would not be able to exist because the sec would not be there to root out folks that have low were not words from purchasing products. instead, we know that ebay sells billions of dollars on a yearly basis between people that don't know each other. two individuals of average means that don't know each other. but under the sec mentality, that simply would not take place without massive fraud.

but then we had the sec and we have none to very large failures of the sec to root out fraud among regulated entities and that is unfortunate. and the crowd finding space or in security at all. so there is a question of how we work this out. mr. hillel-tuch, you mentioned you believe that fraud could be in a sense rooted out through the power of the crowd. could you explain why you believe that? >> absolutely, not a problem. crowdfunding is very transparent. as i mentioned earlier there is a lot of feedback from community participants. in a sense the crowd basically polices players. it keeps them honest. the beauty about crowdfunding is to have centralized location, which is a portal that allows for communication by potential investors to analyze fees and

offerings in the web-based structural class portals and regulation permits disclosure and investor education. we definitely expect portals and operators to undertake the gatekeeping role and authenticating issue identity and crime and standards, but what we have noticed historically is the crowd is extremely wise and assessing potential risk. on top of that, looking at the 1930, for example, you didn't have the information you have now. i'm able to go onto google, for example an research a company to see the track history, online presence as well as offline and pulled the credit score can research the individual from the comfort of my home. something every investor able to do now that simply did not exist before computers and the internet. the access to information now is that a level unheard of and were not utilizing it in a proper prevention.

so proud prevention, professor bradford route you mentioned in your writing and also in your testimony today that imposing additional layers of mandatory disclosure on the issue or, rather than the portal is not the best way to root out fraud. can you flesh that out for us? >> well, it is mostly because the entrepreneur's season has come a relatively small on frames, relatively inexperienced entrepreneurs simply can't bear the cost of that burden. if i make in a $200,000 offered it doesn't take much cost before you can do it. every dollar paid for regulatory caused for the intermediaries and makes more sense to the entrepreneurs than imposing complicated disclosure requires

that these people are going to fully understand without having to hire securities council, which is another expense. >> to the 50 states have the ability to root out fraud? >> the 50 states in the sec. no one is talking about the antifraud rules. the states under the j.o.b.s. act has the ability to enforce the fraud restriction here that is not preempted. it has the existing anti-fraud rose plus the existing anti-fraud and crowdfunding provisions. and that is the best way to attack fraud because that only imposes cost on the fraudsters. the problem with expensive mandatory disclosure requirements imposing costs on everyone to raise money for entrepreneurs to raise money for their business and every thing we impose on them and my name is try protection is borne mostly

by honest people. >> welcome the team that are your testimony. i expect the sacramento questions so now recognize mr. quickly for five minutes. >> let's say, gentlemen for the sake of argument a little bit of the difference on most of the transactions that take place on ebay. most people know when they are buying a bike on ebay, but some of these investments, acknowledge a little sophistication involved and i supported this act to protect and knows the sophistication involved with it with people who aren't as part goods and investing in the first place.

>> that is actually a great position we can discuss. what is very critical, what a portal provides in this structure is standardization of a lot of the requirements and the education is absolutely necessary to the different levels of sphistication, granted assuming they are a sophisticated. that said, to refer to what you are able to provide and we completely agree with professor bradford, it is critical to make it i a seamless and low friction as possible and to decide the fact of the sec can very easily make this cost prohibitive as completely necessary.

for fraud and investor education go very much hand-in-hand. one of them i notice that crowdfunding right now is a lot of that number comes from individuals in the neighborhood. we have an example right now the tea shop in kentucky raised in the community and the committee knows that shot. the community raises funds to get there to help the shop succeed in the the businesses that are not venture back of all right now, but they've members in the community who believe in the business, want to support the business and her breakdown not permitted permitted to do so. the education level is different. they don't have the interest of getting a short-term return on their investment. they are looking at long-term strategy. >> professor bradford. >> i'm perfectly willing to concede what is on ebay is different from security insecurities or without a doubt more sophisticated than most of the products sold on ebay. but i do think that what ebay has learned through their platform about preventing fraud is useful to set seven.

for a fraudster if i get money is money. doesn't matter whether i'm beginning to sell people security workers that i don't eventually deliver. i think the experience with ebay shows a couple of things. number one that shows we can use that platform to sell things. we cannot fraud protection techniques in place to help prevent fraud, but having said that i'm not going so far as to say that securities crowdfunding ought to be unregulated. some of the things we have in the exemption limit how much people can invest that she does see when people buy goods on ebay. some disclosure about what is going on, with the entrepreneurs going to do, clearly out to be more regulation of crowdfunding than there is of ebay. no dispute about that. >> mr. cartwright if you want to weigh in. >> yes, thank you.

talking about fraud small options. i would like to stir the baseline of where we stand today and i feel very passionate about this. if you spend most of your career and a large law firm where you are too good to work with small offerings, we don't see much of those. when you go to work at the sec can't you discover that there is an alarming, shocking amount of low-level fraud. i call it security street crowd. it is guys who make up completely fraudulent press release says and schemes the claim that the company has cheated major contract with some chinese company you are a technological breakthrough that has commercial advantage.

i mean, hard-core securities fraud, hard-core wire fraud. hard-core behavior. or they exploit an affinity. the members of their house or if they have not background, recent immigrants trying to make their way in america and there's way too much of it and it's disgusting. and they are doing not under the existing mom and amazing sometimes most of them don't even care about the exemption from section five. if you are willing to blow through the most fundamental fraud provisions of the criminal law, they're not worried about whether you have an extension for the otherwise applicable perversions of section fe. but if they are, they're claiming 504 typically erroneously. the way to address this -- it is a problem because it's brought the sec to address and the sec doesn't have the tools. we talked about the sec be the cop on wall street. but it's not a cop, bad tie.

it has a civil jurisdiction. it can do search warrants. they can't do wiretaps stings. and most importantly, you can't go into federal court and bring a case then ends up with a conviction that puts people to jail. that is under the department of justice. but the u.s. attorneys offices around the country who are responsible have a lot on their plate and this step is pretty small time. at the sec, the attorneys used to refer to it consistently has little cases. they don't get much press. the small people who are innocent are harmed. i think the way to root out fraud as it exists under existing law and under crowdfunding or any change in the law is to direct resources in an efficient fashion to bring criminal cases against these people are. very frustrating for enforcement

, lawyers know these guys shrug off the civil case for the sec. it's the cost of doing business. they don't mind when they're taking the proceeds and spending events were scarry's comment% of what they claim. we need something and maybe there's other ways to do this, or something like a national task force injustice. national side has the scope and scale to develop the expertise and efficiency to root these people out in the u.s. attorneys office around the country can or for those small cases criminal prosecution. we started putting these people in jail, they would pretty soon be a lot less.

i think that's what we have to do. >> thank you for your comments. to that point we've retained steve fraud prevention and prosecution within the laws that currently exist exists for crowdfunding. that way you have, you know coming your county prosecutors and state prosecutors can actually go after these small fraudsters and i appreciate your >> mr. chairman, the state law enforcement is critical here because they do, at least in some jurisdictions are prepared to handle matters so much smaller than the federal authorities will. frankly, i think we still take more. >> with that, will now recognize the vice chairman, mr. guinta. >> thank you all for testifying today. i want to address my first remarks to professor coffee. thank you for being here. you mentioned the arbitrary capricious findings by the coors. i am assuming you are aware of the fact that the sec recently instituted new and stronger cost-benefit analysis policy?

>> if you'll turn on your might. >> i understand that and i was referring to their new guidelines as of march 13, 25. >> i appreciate that. my question but the gist by the fact that there's going to be at greater after cannot put into cost-benefit analysis, wouldn't that necessarily reduce the amount of risk of any arbitrary capricious findings? >> i hope we have a better accommodation between the sec could one of our best federal agencies and the d.c. circuit court of appeals. only time will tell. the ease with which these firefighters were overturned creates a strong litigation. someone will always feel injured a new sec rule and there's a strong incentive to