sharing cone septembers can be -- concepts can be practically done and they can get some, because they

have been tested over a long period of time in a very large environment. in terms of then, what can be done in three years, we certainly feel we can start toe get the early spectrum access systems up and we believe that we also can start to look at receiver protection limits that will make this all feasible. and i know you've talked about that, paul, in previous interviews that you've done. so when you put all that together with small cell technology, it says that you can actually get started in these band and have something up and running in the next three years. >> host: we are out of time. >> guest: i will offer something. >> host: very quickly, mr. mundie. >> guest: i think when we see other changes like this. when people got excited about wi-fi and bluetooth you saw this incredibly rapid evolution of those technologies. my own belief in the president signs this and the spectrum will start to become available i think we'll see rapid adaptation

of lte system that the carriers are now basically deploying, modified. it already starts with the idea that they want to aggregate frequencies within these bands that are incrementally given to them but they're all different around the world. so they're already building an ark tech ture that has this kind of flexibility. they haven't sort of made the final leap that they realize they should be able to aggregate the carriers to the sharing bands dynamically. i predict myself you will see that happen over the next few years, if that goats done. >> host: craig mundie and mark gorenberg, members of the president's science council we've been talking about the point realizing full potential of government held spectrum. thanks for joining us from redmond, washington, microsoft studios. paul kirby, thank you as well. >> next former wall street executives discuss the u.s. economy and the dodd-frank

financial regulation law. then retired admiral william fallon talks about the arab spring, iran's nuclear program and u.s. foreign policy towards the middle east. and later the education department's third annual bulllying prevention summit. >> i had no idea about the experiences of many of the people who were essentially my predecessors as correspondents or diplomats in berlin and, despite all the time i had spent in germany i hadn't spent a lot of time thinking about what it would is been like being a correspondent there in the '20s and 30's. how would you have operated? what would you have noticed or not noticed much less how would you have acted. >> coming up next, a look at financial regulations and the state of the american

economy since the dodd-frank financial regulation law. "new york times" columnist joe nocera moderates the panel discussion between former wall street executives and the assistant treasury secretary for financial institutions. from the hamptons institute, this is an hour and 15 minutes. [applause] >> good afternoon, we're glad to be here to talk about economics, finance, regulation, wall street and various other things financial over the next hour-to-hour and 15 minutes. so, hope you stay with us and enjoy it. let me start by introducing the panel.

to my near left is ken miller, the president and ceo of ken miller capital who is one of the more prolific writers and best thinkers on wall street. he has also been, served successfully as vice chairman of merrill lynch capital markets and credit credit. credit suisse first boston. he served on a number of boys, viacom, kinder care learning and lowe's corporation. it is a long list. he is an active member of the council of foreign relations. board member on the committee of u.s. china relations. we'll ask him about china today which is one of his areas of expertise. in the middle here is cyrus amir-mokri, assistant secretary of financial institutions. a post once held by sheila bair in a previous

administration. cyrus is most recently served as a senior counsel to the chairman of the commodities futures trading commission where he was also the agency's deputy representative to the financial stability oversight council. he has also been a partner at the law firm, focusing on a complex securities and antitrust litigation. to my far left is one of the legends of wall street, joe parella, chairman and ceo of parella, weinberg and partners. he has also been a, several senior positions at morgan stanley including vice chairman, chairman of institutional securities and institute investment banking. and of course he was the founder of, cofounder of waser stein pa rella and before that with his late parter, bruce situationerstein, ran first banking desk. memmably in my own

experience my very first business story in 1982 was about boone pickens's first takeover attempt of citi service and bruce and joe were on the other side of that deal working for citi service. it was a memorable way to be introduced to the world of business i must say. cyrus, let's start with you. just because this is such a, this is the second anniversary, this weekend of the passage of dodd-frank, the financial regulation bill. and we'll talk a little bit about you know, how wall street feels about these regulations. whether they make sense or not. whether there's overreach but as a member of the administration that helped push them and pass them and is now in the very, very complicated process of trying to get them up and running just give us a sense, please, of where we stand with dodd-frank at this moment in time.

>> sure, joe. i, the bottom line in my view is that very, well first of all, dodd-frank includes some essential reforms for the financial system that were put in place. you all remember where we were in the fall of 2008 with the financial system at the ink about. we needed to strengthen the financial institutions. we needed to reform our regulatory structure. we needed to put in place reforms to improve some of the shad dough banking system and how it works. bring the derivatives market into the light of day. it's, overall, you know, those, the basic contours of

what the financial system should look like have been put in place through the legislature. the regulators have been working extremely hard over the past couple of years to further define those contours. they have, you know, there has been a lot of, articles, especially in the past week for instance, and this has been a criticism that a number of people have mentioned over the past couple of years as to why isn't this going more quickly? i think there was a judgment made very early on that the results of the rule writing should be the to calibrate properly the details of the reform effort, to get things right. emphasize quality over speed and that's what's been going on. and when you look at where we are two years from the crisis, i think basically in

the area of clarity with respect to where the rules are headed there has been significant progress. 90 plus percent of the rules have been proposed. many of them finalized. many important ones have been finalized. many other important ones are soon to be finalized. and also i think our financial institutions are much better off than where they were a couple of years ago. >> well to take one example. if too big to fail institution was on the brink of failure, would dodd-frank, would the federal government be able to close it down? >> i think what you have, joe, in the legislation and in the rules at the fdic and the fed have put together are the basic outlines of what would happen in the instance of major financial

institution whose failure would have financial stability implications. what that basic outline of action is going to be. so if you put title two together with some of the other authorities for instance at the federal reserve and the fdic have you have the basic template for how it's going to happen. >> joe, what is your take on the amount of regulation about, basically what the government has done in a regulatory framework since the financial crisis? >> well, there's a certain fundamental things that happened to, to the world of finance and it sort of raises a question in my mind, and again i'm speaking personally, not for my firm, and that is whether or not

the creativity and ingenuity and in some cases diabolical nature of certain kinds of individuals that exist in all walks of life can be kept up with by regulators? so, you know, impolice it in the word regulation is that somehow there's real regulation going on and that one's able to protect the society from the excesses of the events that happen on a regular basis and have happened throughout history on a regular basis in our industry. so if you look at the financial system it basically evolved from a very low-tech paper-based system to, and, i might add, privately-owned so that the people who worked in the

industry had their houses, if you will, on the table every day up for capture if they misbased and lost money. and that system evolved to one that was very technology-driven rather than paper-driven and one which was publicly held so that the institutions had permanent capital which got pushed to the limits because of the pressure on public companies to perform. and then that all culminated, and this is a very short history, with the demise of the barriers between the things that were once security companies and deposit-taking, federally guaranteed institutions. and so, and these aren't my thoughts because, you know, i having started a company

six years ago that now has 425 people in it, i don't, i have never read dodd-frank, okay? so you know, it's, how many pages? okay. the original glass-steagall act was around 35 pages. so i haven't read it. and i don't spend a whole lot of time obsessing about it, because in a sense i'm in what you call the shadow banking industry and in a positive way. just about every business that commercial banks are in today are being set upon by new entrants that are picking apart the different businesses they're in, with the exception of two things. market-making and lending. those are, there is nobody trying to get into the lending business in a big way. so, so i'm like, i come from the school that says, these people are so smart and so

crafty and so creative, and many times in a very positive way, that it is very hard for people that are sitting in a building reading e-mails and looking at charts and stuff to know what's really going on and to prevent the next debacle and even in the best-run-instutions like jpmorgan. we all heard for months and months that they were the best-run. you know, they woke up one day and some guy called a whale in london cost them $6 billion. okay? so in other words, i'm not against regulation. all i'm saying is, in the words of henry kaufman, who was the chief economist for many years at solomon brothers and who, a lot of people have a high regard for, who is an economist. he says, dodd-frank enshrined too big to fail. >> cyrus, we'll give you a chance to respond to that in a minute but ken, i do believe, had some thoughts

also about, you know, basically what needs to be done to rein in wall street and to regulatory and otherwise, right? >> well i do have some thoughts about it, joe. i think the problem with regulation is that it, as joe said, it enshrines a certain protocol and then people make it their job to get around that. so remember the body count in vietnam. people shoot for a target. then there are unintended consequences like the whistle-blower part of dodd-frank which tends to chill internal discussions. and then there is the sheer complexity of it. but my basic issue with dodd-frank, and on balance i agree that it is a step forward, a good step forward but my basic problem is, again taking up on joe, it's not going to solve the cycle

problem. there will be additional panics because it's in the nature of banking to run businesses on leverage. which means they borrow 10 to $30 for every dollar of equity they can rely on and when people change their mind about the stability of the institution there's a run on the bank. and as merwin king, the bank of england guy said, when there's a run on the bank the only rational thing to do is to participate. so i have some ideas about what to do about wall street but it gets down to my perception that we've allowed wall street to get away with a worshipping at the altar of short-term greed. i can talk about that later. >> you will get a chance to. cyrus, why don't you respond. >> let me just make a --,

joe made a number of very important and interesting comments. there are a lot of them. let me unpack a couple. as to whether there should be regulation or no regulation, i think, i don't think that is really the debate. i think the, there does need to be regulation. i seem to recall that david hume once made this point, i can't vouch for it but he once said rules of ad are important for people to understand basically, what's allowable and what's not. and in fact that could be, that is in fact liberty enhancing. once you know the rules of the road you can act more freely and you aren't dealing with chaos. so that's just at least in my mind, it's not a question of regulation versus not regulation. so, if you're going to have to regulation then you have to think about, you know, what are the problems that you're trying to solve? and one of the major problems coming out of the

crisis it seemed to me was, trying to do your best to see to it that the kinds of activities that were just described don't cause what economists call negative externalitis. that is, you know, firms should be free to fail. you can't really ultimately micromanage how a firm takes risks or, you know, tell them that this is a better judgment than, than, unless it has negative externalities, in that case you're trying to put together a system that contains the negative effects that the firm's behavior is going to have on others and that was essentially what a lot of dodd-frank tries to do. and so to take the example of too big to fail, and going back to the question that you posed, joe, which is, does the legislation provide a framework where you can deal with the situation like that?

in fact it does. so, the entire lodgic of title two, the resolution, provisions is as follows. that, if there is a firm whose insolvency is going to have consequences for the financial stability of the united states, a determination is made by the fdic, the federal reserve, secretary of the treasury, and the president, and so it is, it's a very tlibttive -- deliberative, accountable process and it has an entire mechanism allowing for a variety of different approaches to the firm, to, using both, you know loo liquidity measures and other measures to try to contain the problem firm so it didn't have the collateral effects that we saw, you

know, in the example of lehman brothers and, you know, even going back to ltcm. that's the way the legislation tries to deal with this issue and so i would respectfully disagree with joe and his, and his assertion that dodd-frank doesn't address the too big to fail problem. >> well, let me, let me phrase it this way. i kind of want to start with ken this time. you know, one of the things, one of the things about glass-steagall is that it changed the world. it said we'll split these companies up. if you're this kind of company you're an investment bank and you can fail. if you're this kind of company you're a commercial bank and you will be protected but you can't do anything dangerous. it changed the incentive structure of, and actually worked pretty well for 50

years or so. dodd-frank it seems to me accepts the world as it is, and tries to fiddle, fiddle on the margins as, i'm underselling it but it doesn't fundamentally change the nature how wall street operates, how it makes money and it seems to me the london whale, the jpmorgan example, is a really good example how, you know, nothing at its core has really changed. and so, ken, i want to ask you, do you think, the incentive structure on wall street needs to change and if so, how would you do it. and i want to ask joe the same thing? >> well, i do think the incentive structure needs to change. you know in dodd-frank there is a clawback provision for listed companies. but clawbacks means once you've earned a big bonus, someone can come and get it. that's not quite enough to

discourage risky behavior because if i don't have $5 million and i can put it in my pocket and hope for the best, you know, that doesn't solve the problem. i think that the real problem is short-termism. a huge emphasis and excessive emphasis on speed. i think the culture of wall street needs to change. and i disagree, i don't think dodd-frank has solved the problem of too big to fail. i think that when you talk to practitioners in the area they say, well, you know if this institution goes down, it has a living will. we will do this, we will do that. the problem is it is never one institution at a time. so you have to address the recompense issue. and you can do that one much two ways. you can put a he will seeing on it. you can say it is just a, you know, for example, 100% of base or you can tax it so that people can't earn outrageous amounts of money in short pareds of time.

>> all right. joe, what do you think about the incentive structure? and you began your remarks about the extent to which, when you started in the business they were mostly private partnerships and your own money was at risk and now it is the shareholders money. >> right. it is like allowing the croupiers to play with the house's money in las vegas. if they win they take the money home. if they lose, the house blaz loses the money. that is basically what happens in a lot of cases. and. i spent a lot of time at morgan stanley working with vikram pandit who is now ceo of citi and vikram had a mantra he would always keep pe guy. and he came into take over citi after the debacle. he said, joe, don't ever forget it is the traders against the house. that was his warning all the

time. so on the other hand, you know, it is kind of hard to, to regulate in the worst sense greed and in the positive sense people's ambition and entrepeneural spirit and their desire to do better every day than they did yesterday. so you have to sort of ask yourself, what's the price of failure? and the airline industry, it's pretty simple. the chief safety officer is the pilot. that's why you see them walking around airplanes a lot of time before they get in and actually fly you to where you want to go. and they have got a pretty good safety record. and that is a regulated industry. so you sort of, you know, i would be focused on what's the price of failure for an institution? and there's a, you know, a danger there of overreacting, you know. like, jpmorgan has a loss,

so people get into this barclays mode and then they want to oh, let's take out the ceo. that is like screaming for democracy in the middle east. you know, be careful what you wish for because it not necessarily going to be better people coming along, if you do that. having said that i think you have to focus on what's the price of failure and focus on, a, the shareholders getting wiped out which i think is, the model you all are following with the fdic. shareholders get wiped out. the subordinated debt holders get wiped out. the senior debt holders get wiped out and the company is forced to sell assets all with a view toward protecting the taxpayers from having to come in and ultimately bail the institution out. but i think the to sit around and say, well, you know, okay, you can make $500,000 a year but you can't, or you can make $5

million a year, a-rod makes 25 million a year, right, alex rodriguez, but you, lloyd blankfein, can't. i just think that's a, you know, that is not the road we should go down. i think there should be a price for failure. it ought to be high and a ought to be enforced. >> ken, i believe you have an opposite view? >> well, joe, i think the financial sector is different from every other sector. i think a widget manufacturer is constrained by space and time. you can have a factory and you can run three shifts but there's only so many tractors or batteries or things you can make. but what i think about the financial sector is that it's a place where the rubber never meets the road. in fact there is no rubber

and there is no road. the fact is that you can move almost unlimited amounts of money in extremely short periods of time. so i think we need to treat the financial sector differently from other sectors of the economy. >> and how would you treat it? >> i have said, i think that we would make an attempt to change the culture and tell people you can work on wall street at a regulated institution but you're going to earn your money over time and, it's not going to be a bonanza based on risking the balance sheet in a given year. one of the problems with regulation generally is that, it has to be ubiquitous or, or you create kind of black markets and other places and i'm not quite sure how i would deal with that but in general i think if we're going to change the culture,

i mean, if we're going to change short-term greed into at least long-term greed or maybe even just make it a place where you realize you're doing the kind of good you're supposed to do, which is allocate society's resources, where they need to be allocated, and create liquid markets, we're going to have to make some changes that dodd-frank didn't address because it addressed the symptoms and not the underlying cause. >> before i move on, i am curious what you think about this whole idea about the importance of changing incentives and whether the regulatory framework does that or not? . .

addresses it with respect to potentially dependent on their resolution mechanism with respect to shareholders and coordinated debt holders and so on but also management, too. there will be consequences for management in title ii come and there are also management who has overseen the failure of the

firm and is going to have a very difficult time i think what getting another position in the financial-services industry. bugoing back to your point about incentives before the fact of incentives, it is in the point what do you do after the failure are the consequences of failure and the sufficient deterrent. the point that he raises is before failure how do you lessen the probability of let's say reckless risk-taking, and i think there are many different ways of progressing and i think the new legislation and the new rules and attitudes that legislators have and even possibly management in the financial-services industry today although i'm not quite sure about. but the capitol rules, the rules around risk-management, there is

supervision around the risk management. you mentioned it is risk averse. mabey risk averse less of the kind is going to be at least given the capitol rules and the liquidity rules and counterparty exposure rolls that you have fernald the major financial companies maybe those are going to be the kind of breaks that people are going to at least i think they are with that took us where we were a couple of years ago. so there are a number of different speed bumps or whatever you want to call them and shock absorbers the you could put into place to try to achieve exactly what ken was describing before the fact. now, whether the ultimate the substitutes for someone's

judgment, that is a more difficult question. i don't know that that's the case. and can you -- what is it about compensation that you can do? the legislation addresses some of that as well in the form of instances when a public company has had to restate their financials, there are also provisions where the bank regulators have authority around excessive pay for the managers of financial institutions. so there are certain measures on the say on pay provision giving shareholders more of a voice, so there are those kind of measures put into place ultimately under the structure of the corporate law how much the agent that is bank managers in these days and financial institutions and public companies how much they are paid in the state corporate

law and so on right now is a matter of the shareholders and what they decided but the legislation does put in a number of different mechanisms to address precisely what ken is talking about. >> a couple comments where other pressures can come from first of all if you look at the performance of financial companies these days, they don't look anything like they did during the days of let's save the early part of the century. so, companies that were then earning 20 to 30% return on equity are barely error lane 5% today. for two reasons. london, there are certain

businesses that they are not allowed to go into any more. number two, the capitol, the strict capital rules have been imposed on them, and so that then has a derivative out, which is the shareholders are sitting in there as they should, watching their investment decline in value seeing the returns godown and st. yours are too high so there is going to be a market force that puts downward pressure on compensation that the large institutions because the returns that they were earning ten years ago are not there. second, there is a new force at work in the market and it's called a shareholder activism, and it's a group of people we can mention them him in no

particular order or distinguishing one from the other, nelson and others who basically buy the shares in companies in and do things when that the traditional institutional investors who might be thinking the same thing like fidelity for any of the others were but don't go to management and threaten them and raise the roof if something is going on the don't like. so, i think if the low returns continue and the compensation at the big institutions don't come down quickly enough because they are coming down, i think it is an industry that is right for shareholder activism. right now i think they are being held off because what is called

on wall street the black hole. in other words, when people wake up and they find out that an institution could lose $6 billion on a trading position, that makes it to the collectivist investor think once or twice before they want to take the plunge and wonder what they are getting into. on the other hand, nelson did fire from that run by my late partner, and i think that he hasn't spoken yet as to what he really wants to see happen there. but i wouldn't be surprised on the composition ratio even though it was hard as and affirmed that kind of falls into this too big to fail category because they are not in a lot of those businesses. so to summarize what i said i think market forces are coming to bear on these big

institutions because the returns are down and it's printed drive the ratio down and there's also the potential for shareholder activism. there's a lot of anger it's almost four years later and there's still on the one hand and enormous amount of anger in the country at wall street and the wall street firms, and on the ever had, there's a lot of anger on wall street and at the president coming and i guess i want to ask you what do you think -- why do you think that is either just a fight? >> well i think there is a nuanced answer to both questions as far as the anchor the country feels to the bankers, yes, it is justified. but it's not exclusive, the blame is not exclusive to the

bankers. there were many, many constituencies that participated in creating the problem. the people who sold the loans that shouldn't have been made, the rating agencies, we could go over a litany of them. so, the fact that wall street did what it does come and to keep all the blame on the bankers seems to me to be unfair as to the other way around, i don't get it. i think democrats always have a tough time on wall street. i remember when ted kennedy was on the rise and the silly jokes that were made among us. and i think that bill clinton didn't get his due for all the good things that he did for the economy. so i think -- and i own personal criticism for president obama she made some priority choices about what he was going to fight

for but i don't think wall street's criticism of obama is totally fair. he has moved down the populist road cities after votes. but in general i think both sides are being a little unfair. >> you have any thoughts on this? i bet you do. >> i think that he's right. most people on wall street tend to be on the financial conservative side of things, although you could argue there wasn't a lot of financial conservatism and the bush administration. and i think there were lot of people on wall street that were critical of the fiscal policies there. but i think there's a little bit

of not deutsch real, but a let down on the part of a lot of people because the president had tremendous support from people who might have traditionally not supported a democrat three and a half years ago. and i think his -- and all those i talked to i won't bother with the refrains for years a government instead of moving to the center he seemed every time he was up under pressure which is much more to the left so that troubles a lot of people died on wall street and that is his tendency to steer it towards the left rather than towards the center and i think that is where -- it's not so much that he

criticized wall street for the behavior because a lot of people think that they haven't even had there, things yet unclear that seems to be far removed from the center and that troubles a lot of people that are supported for years ago and i don't know if he would regain their support, but those that i know that i'm close to one are pretty convinced they are not going to support him this time around. that is a way of yet. >> the one to respond to that -- >> i will just a couple of observations. i support the president and i want to address the two questions that you mentioned that maybe in a slightly different way. i think that one of the things

that happened four years ago was a decline in the trust with respect to the financial system. there is no question about that even financial institutions when they dealt with each other as you remember when the credit market for example closed in 2008 people just didn't know whether they could trust their risk management of another financial institution to lend them money what kind of relationship they are going to have with them and the policies the president has pursued, the stress testing has been really to try to restore this trust among the financial institutions in the first place, and also our society generally and financial institutions and how well managed and sound they are going to be. so, i think you're right.

i think there was a decline in trust, and i think the policy of this administration has been to try to restore that trust. >> one thing our country has done much better than europe for instance is shore up the bank capital, and our banks are in fact much healthier now than almost any bank in europe which causes me to want to shift gears and ask my camel for their views on the crisis whether it is salvageable and what kind of destruction it could bring if it came to that. anybody want to start? >> no? i think it could be pretty bad myself. >> i will start. >> it's obviously something that

is a serious concern to financial stability oversight council report mentioned it, chairman bernanke mentioned it in his testimony before congress the house something that is of a concern with economic growth going forward in the united states the secretary of treasury all engaged with the europeans assessing a significance i don't think there is any question. the couple of points that i would make in addition to your assessment are the europeans have come a long way since august 11th. we were not sure where they were headed. i think they've made tremendous strides to at least put together an outline or a direction in which they are heading.

there will be bumps in the road as you know that there is an outline for at least bringing together the banking regulation which is very important, they're has been a lot of progress made in trying to build a credible financial walls. there are regular meetings between the authorities at different levels and so, all of those are extremely positive signs. there is a natural aspect of unless something is done you don't know where it is going to end up, but i think that a relevant baseline of reference is where we were in the summer of 2011 and how much has changed since then. >> woo-hoo getting back to the question about the president, i think in fact the president has

done quite a bit of job on the economy in terms of getting things back on an even keel. i think the treasury department as first rate from top to bottom, and i think that they've been very favorably disposed to business in particular inappropriate way. the president tends to get blamed for everything if it rains the president get blamed. when the crisis first broke out, a friend of mine said to me this is like trying to get 30 hank paulson to agree with nancy pelosi. it's a very complicated situation on the ground without a fiscal union. my impression is that angela merkel is starting to move a little bit. i think that arnall is pushing

her and is doing a great job. but with a situation can be solved and the world of the united states has to play is a much more difficult issue and i think the president has a good team on the case but i have no idea what they are going to be able to solve the problem and i'm with you, if they don't i don't think that the uncertainty has been discounted in the market. i think that a pyrotechnical blow up in europe would set back our recovery plans any major way. >> i'm not so sure that there is much that the united states can do about it. it is a european problem, and what it does is makes the u.s. with its problems look relatively attractive to people around the world. so, i have a sort of fundamental

view of life and that is if there is a loan out there somewhere in other words somebody has borrowed money, one of two things happens. it gets paid back or somebody loses. and everything that has gone on has sort of then movement towards preventing someone from losing with good reason because if you are kingstown to what they were, the institutions were worthless. so, you know, there is this dance going on that is trying to finesse this basic problem of life and that is that if he alone isn't paid off, somebody is going to lose money. and, you know, some very traditional people would argue that the answer to that is not to print money. on the other hand, that has been going on for decades now, so there is no stopping that. i think that there is very little for the united states to

do that except for the average for the good outcome, which i think would eventually get to because the alternative was probably worse than what they are going to get to. >> the president running for reelection you have a situation that you are basically not in control of in any way, shape or form that could blow up on you and that is just kind of life. we've been going for a while. i wanted to see if there were questions from the audience and i'm not sure how we do this. are there microphone's the you hand out? no, yes? all right. let's start there we will get their let's just get a microphone. >> there are four microphones up here. >> we will start with some questions and we may internet sometime from time to time. we want to hear what is on your

mind. please ask in the form of a question, that is my one request. thank you. yes, right here. you had your hand up first. >> i would like to question the idea that true capitalism is at work on wall street. under true capitalism the attractiveness of the industry should draw so much competition that no company could get too big to fail and if it did fail, the penalty would be on the company and its stockholders, not on the public since those important tenet of capitalism are not working, i would say capitalism is not alive and well on wall street. further evidence of that is the corporations are too big to fail. they are too big to regulate. the man in charge of regulating them, senator dodd said he wasn't even aware that she was getting a break from his bank on

his own mortgage. if the person in charge of regulating the banks didn't know that -- >> let me finish. >> the final piece of evidence is that when something goes wrong on wall street. the question is coming. besio -- [laughter] you can't have a question without evidence. the ceo comes to the congress and he says i have no idea that happened to use of the two big to fail and regulate and to bid to manage to come here is my question. what is the conclusion? >> well, it's not just too big to fail. it is complex and interconnected. so, if i could have imagined a piece of legislation that says you can only have to rule floodings of x on the balance sheet.

i don't think that was solved the problem. but generally you're right. the essence of capitalism as it is laid out is created destruction and if there is no destruction for what's happened we say in the private sector bad stuff flows downhill so you get a problem to the c.o.d. and he gives it to the senior vice president or the vice president or the associate and the is as yet finally solved the problem, but in the financial crises around the world, that stuff flows uphill, and because the system was at risk governments around the world had to step in and grab the problem and in that sense, the questioner is absolutely right. anybody disagree?

the point of the questionnaire are important ones and questions we have to think about the size and the consequence and the risk taking i intend to agree with a lot of what ken says but i wouldn't necessarily discount the competitiveness that exists currently on wall street and in our financial system. i think the banks compete every day for a number of different line of products and their business what is on the institutional side or the consumer side. it doesn't mean that we should not be policing them all the time very vigorously that there should be formerly and now may

trust lawyer they can be aware of the importance of both having a competitive playing field, but also making sure that there is no anti-competitive behavior to distort the markets. so these are very important points that are raised and we should constantly be policing them. yes, sir? >> yes, the first secretary of the treasury under fdr and was a man who was president hall so i felt that that should come out. my question to you is fdr came in with a clear question and secretary was right behind him. i came in with a clear idea that i would have huge change the commission had a lot of information out there. is the problem that we have had the result of the fact we have

and have the same clarity of who was at fault and what needs to be done. [laughter] >> of the kennedy for along time and it's not like people woke up in 1929 and said we've got a problem and we know how to fix it. it took awhile however bad our problems were four years ago, they are a whole lot worse back then. the very first thing fdr did as president was call a bank holiday to stop the run on the bank so the legislation that followed established things like the fdic which by the way

roosevelt himself didn't even like, and we had a much -- there's a much lower regulatory free-market there was a much deeper need to i think for the creation of rules that didn't really exist, which is not to say i am not a total fan of dodd-frank. i do think it is overly complex and so on. but, i don't think that it is completely parallel to say that we should have followed the aaa followed how och and questions and why certain things and that is not the same world as 1930 and it is in the same world as 1950 and i don't think people

today would want to trade the way they live for the way people used to live that is one guy i would make. second it's a lot larger today and a lot more complex, what is ge that used to be relatively simple and has to be over 50% of their business outside of the united states and a financial institution and this is the point i was trying to make early on which is i don't think the regulators can keep up with the way in which these institutions more for and the gulf and i agree that you need to have rules of the road and try to please them as well you can't ten. but ultimately, let there be a high price for failure. a price that the management's pay, the boards and directors'

pay, the owners and shareholders pay because without hitting over their head, that should modify or at least hold their behavior to achieve the objectives that the policy makers want to achieve. is there a hand? yes, sir. >> i want to ask about the consequences of the two kinds. one is let's take the movie inside job which is right on topic to what we are talking about and i think it won an academy award. and just take all of the characters in there that were responsible for the financial crisis. you have the two leading professors. one is the dean of the major business school in new york and they've really did some pretty bad things. they were okay in icelandic bonds and they admit to this or they actually live on camera

that they weren't but they were. okaying those bonds, and those two faculty members were here on cnbc as if there were no consequences. the anyone watch that movie? >> can you let me respond to that for a second? the academics did were embarrassing, and nobody has really taken on the academics before the way the inside job did but not necessarily illegal. having said that i've written a number of columns and i feel very strongly that one of the failures of the justice department has been a failure to prosecute big fish who helped bring the system down. [applause] there's been an incredible lack

of action on mortgage fraud and so on and so forth. so i think that's a failure of this government. i'm not going to ask to agree or disagree with me that i do feel strongly about that, and a consequences if you create a company that systematically rights from event mortgages, somebody has to go to jail. [applause] and nick i once asked a justice department is anybody from countrywide on any level of four down had been prosecuted and the answer was no. sprigg even the board of trustees had a business school can't take any action it's as if the movie didn't even exist. and one other question if i may was been watching for 40 years,

and i think every year the republicans have always tried to cut down -- i used to work at the sec. the use to cut down the budget year after year after year and finally when you have a case of bernie madoff and you see what happens when you have insufficient funds to have a good enforcement staff you think that the consequences in the 2008 election are the consequences and wall street now of the regulated community would be regulation is a good thing. how can the people who probably invested that there wasn't enough regulation still skew so far to the right against regulation. [laughter] >> the -- i sometimes say that on capitol hill the financial

crisis is like the eighth season of dallas. if anybody remembers that season, the ninth season began with one of the characters making it and realizing the entire agency had been a dream and hadn't actually happened. [laughter] but, you know, one of the ways the battle was being fought between democrats and republicans right now is that democrats are trying to push forward on dodd-frank and republicans are trying to squeeze the budget of the regulators to make it more difficult to carry out the regulations. that is just a fact. >> let me ask you a question. you are calling for criminal prosecution of the various wall street figures. without naming names, and obviously a fraud is something that people should go to jail for. is their anything besides fraga that you think the leadership of the financial sector should be criminally liable for?

>> i think that is a really hard question, and i do for my own sort of investigation from the book by roche, you know, there were certainly people what wall street firms who knew that they were creating tripoli their lives that were full of junk and putting it on their own balance sheet. was that a mistake in judgment or was that fraud? i think it is a pretty hard call, but i would also like to know that during the s&l crisis over a thousand people went to jail. >> sometimes what happens in life is that there is a shift in popular sentiment and all of a sudden what was within the guidelines is outside of the boundaries and when i was in my

most active years on wall street we had a thing called structured finance, and the job of these guys that work at rocket science level intelligence was to interpret the accounting rules and the tax rules to get the most favorable treatment under growth and that meant sailing very close to the line they were in change and there were dogs and some of them got into trouble. so i think one of the problems with this idea of criminal prosecution is that it is very easy to agree that when people sold crack and called it a gold, if they knew it, they should be prosecuted but there were so many things done by rating agencies and lawyers and accountants and international this and that.

to grab one of these you have to grab somebody that was a egregiously in the wrong i would think. and it hasn't been done. >> one of the reasons is because some people would argue that it all started with pressure from the political class to do certain things that these creative people figured out how to do and make money in the process. so, you know, if you sort of -- when you have something like this happen there is plenty of blame to go around. it's not just somebody running a wall street firm and that is to blame. somebody comes in and says we want you to make loans and marginal neighborhoods and these guys are rocket scientists and figure out how to do it and then duped the rating agency into giving it a triple a rating. i think ultimately if you wash

all that laundry out there are a lot of people but got subsidized loans for mortgages and that won't look good. so i think that is a part of the problem that the reason it has been all washed out is because they don't know where all of the roads will lead and some people may be don't like it leading to their back door. >> you know, in our mythologies of corporate democracy, the buck really stops of the board of directors. when i look at the lehman brothers crisis, i say where is the board of directors? shouldn't they have placed besio before the problem? what you have countervailing issues. you can't -- if you throw the whole board in jail or you prosecute them who is going to want to serve on the board of directors? >> its more fundamental than that. when we started this session, i

mentioned there is a long history to how we got to where we were and that wasn't the purpose of the session about jim markets is sitting here in the front row and is a partner of the old goldman sachs, and he can attest to the way the firm used to run and the way the other wall street firms use to run. it was a different world all the firms were private. they had a different risk profile, and there wasn't pressure for quarterly performance that the public firms are subject to. once you transform an industry from private ownership where people's money is on the line every day to the public ownership with permanent capital, and all the pressure for performance, it is very hard for a regulator to monitor every little thing that is going on in

these companies and that's why you have to sort of bus tours of the more fundamental question and that is a question about the structure industry what businesses they should be in and shouldn't be in and which former chairman of the federal reserve paul volcker tried to address and i think it is going to be hard to go back to the glass-stegall era and the old goldman sachs and the old morgan stanley and the old lehman brothers, the crisis of the time and when i left business school there were firms like dillon read, horned lower, dozens and dozens of firms.

from time to time they went under but it wasn't in the earth shaking event other than the people that worked there lost their jobs. so, that's not the world we live in today. >> in that little time we have left just want to ask each one a few. what's going on out there and thinking about whether they are slowing down and whether that is granted be a problem for us and more about our economy to you see signs of hope and where do you feel like we stand? >> in china i'm looking for some serious near-term preservation is. i think the housing market was basically they'd get the low hanging fruit. they have a model of investing and stimulating the economy through cheap capital it's also

about the chief capital they get from this financial repression they are in the negative interest rates on that and that money is funneled into the economy, and roads, bridges and tunnels are built, housing is built, people move from the countryside to the city and productivity goes up. but for now the chief environmental input has been used so i think they have to go through a period and they are trying to slow down the housing bubble so that they can start providing cheap housing for the people. in the long run, china is a powerhouse. they've got a lot of problems to solve, and of the party is feeling very insecure right now. what's your take on our economy?

>> well, i think that we're feeling very insecure. we have a trillion sitting on corporate balance sheets. we can't print our way out of this problem. we've got to find a way to stimulate the economy and get the velocity of money out and the fundamental problem i would see as the political economy, which is you've got 8% of the electorate that hasn't decided. both presidential candidates are named in the battleground states, and so neither of them is willing to say anything bold or to get anything bold going. i think one of the problems we are feeling is we have a president who came in on a bold change platform and we didn't get that. and so, the economy is just a above zero growth.

the jobs are not there. i would personally look for some political boldness. ausley laughed when we heard about the idea from new gingrich about building a colony on the moon but at least a was bold. >> i think first of all i just want to mention that we have had positive job growth since that trust that we have in a 09 every quarter. it's not been enough for sure. but, just so we are on the same page on that, you know, there are part of it probably is the phenomenon that is hidden we

have your opinion out there that may have an impact. we also have fighting some of our fiscal issues. i think we need to put that house in order. i think, you know, there are these certain major uncertainties of the outcome is going to be that has an impact and the clearer the picture becomes in the outcome. >> well, you know, i hate to be mr. down be, but americans tend to be in patient, and i feel in my lifetime become more instant gratification, and you mentioned something happened four years ago that started more than four years ago, but of the bottom

line result of what happened was that a lot of wealth was wiped out from the middle class by relating that to agnes and donna who were from italy and where i was born in newark new jersey and when they could they bought their own home in the religiously made their payments and that was basically the savings account for the average american citizen, and so, that system pretty much reigned in place until this crisis and there is only one thing that happened that didn't happen to my parents and that is one day the average american woke up and this nest egg that they thought they had didn't exist, and when you have that amount of wealth destruction, it doesn't get cured or overcome overnight and it has an impact on people's

behavior, buying habits and the like. and so, i don't think there is a messiah held there that's going to come along in the slow return to normalcy, whatever that is, and i think that is one of the reasons you are not hearing anyone making any bold claims. having said that, i think to say you are going to raise taxes is pretty bold because most people don't want to hear that. and there are a lot of things that could be done to incentivize people to behave in a certain way like repatriate earnings that exist in american corporations if they bring it back and invest in the united states. a lot of college kids i talked to today can't find a job. so you could provide an incentive for corporations that higher college graduates. i mean, there is a lot of things that could be done besides building and calling on the

moon. , but i think we need to keep in mind all the time that this was a very profound event that had a very fundamental the impact on the net worth of the average american family, and it is going to be a long time before that is recovered. >> the colony on the moon would be a stimulus plan, however. we are out of time. i would like to think you all for being here. i want to thank the panel. [applause] >> federal reserve chairman ben bernanke will talk tomorrow about personal financial education.

next a look at the arab and spurring and the israeli-palestinian conflict with retired admiral william fallon who said the u.s. needs more leadership and the region has great geopolitical importance. serving as the commander of u.s. central command from 2007 to 2008 and resigned following an article in "esquire" magazine. this is about an hour and five minutes. >> my name is darryl and i mississippi professor of government at dartmouth and i'm also the coordinator of the centers more on peace program. it is my great pleasure to welcome to dartmouth and to

introduce to you admiral william fallon. admiral fallon spend more than 40 years serving in the united states military. he began his career as a naval aviator in the vietnam war and then served in a variety of positions and eventually command positions culminating first in his position as combatant commander in the united states specific command which is the position that is responsible for all u.s. military forces, plans and operations in the entire region of asia. he was subsequently the combatant commander of the united states central command which has the same responsibility but for all u.s. forces in the middle east. these are arguably the two most important positions in the united states military, and had oral fallon is the only person that has served in both positions. since his retirement, from the united states navy four years ago, admiral fallon has begun a second career of public service and served in a variety of

boards and commissions and panels related to higher education, related to various congressional commissions and also for the private sector. admiral fallon is an expert will only on u.s. national security policy but u.s. foreign policy. about two minutes ago, before we walk out here, he said what are you going to say in the introduction and i gave him a 22nd version of this and he said forget all that stuff. just say to use to fly airplanes and he wishes he still did. [laughter] with that please join me in welcoming admiral william fallon. [applause] thanks for the kind introduction short and sweet and following my mother's good advice to be seen, be seen and be gone. i hate to stop making excuses but as you can probably hear, i

just spent an hour and a half a bunch of undergraduates here and i was screaming at them to make up for an hour and a half. that is actually not true. i think this comes from chasing my grand kids around montana last week. come back here. come back here. anyway i'm delighted to be here with you today. at the dartmouth this is my last visit to the campus and i like what i see. i particularly like the factor that's about 40 degrees cooler and very grateful. timing is everything. let me get into it. just to talk a little bit about the middle east and our interest in the policies related thereto. it's an area of high interest and a fair amount of my path that's been in the area.

but what i would like to begin with is this. american interaction with the extent of the middle east actually came early to the young nation through the u.s. navy and its deployments against part in the 19th century and in fact until recently the u.s. presence and focus in the middle east region has been primarily maritime overseeing u.s. economic and security interests with only a small footprint. now, my first personal experience in the region was about 35 years ago and i was actually visiting in the capacity and a professional capacity as a naval officer. this 35 years ago is not very distant at least for some of us

at a certain age, but it is a relatively recent from the historical perspective considered but from this course back a couple hundred years ago sustained u.s. engagement as recent has only been predated by my visit for about 30 years. it's pretty upsetting. i was arriving at the mediterranean seaport he might ask what is the admiral know about the middle east and west we pay any attention to them at all and there's an awful lot written and written on the campus and many people know many things my perspective is a little bit different than some might have encountered and i

visited every country from the arabian peninsula through southeast asia and all of the waterways. much as occurred on this part of the world in the last four decades and for better or worse by an unseen for most of it and it's the most vivid experience in life revolved around people to the diverse culture of this region a woman by the name of dela so let me set the scene. 1977 and on the first aircraft carrier to ever visit the state of israel and the u.s. navy ship to ever call in this country so we enter the harbor, and a couple of us went to the shore

to set up some things and we are greeted by this short energetic woman that seems to be everywhere and she comes up to me and cubs my hand and hugs me and says my name is gela and i am pleased you are here we are so happy you come to visit us fifth and we have people that want to share your enthusiasm she was a wonderful woman from azerbaijan in the early country, and she seemed to know everybody in the country.

it doesn't matter whether they are jewish or arab or christian who were visiting she seemed to know everybody and her enthusiasm for people and the possibilities of people doing things together is quite contagious. i asked her what she down here employed at the israeli government or the u.s. navy hired her. she looked at me strangely. no, i came because i want to welcome you. we want to welcome you. meet my friends. i stayed in touch and have seen how many times and the last 30 some years and remarked to several people that if she were the president, maybe not likely to be the prime minister, if she were the president of this country, things would have happened probably a lot faster.

she showed me what was possible. she would take me out when we have time and introduce me to people every religious and cultural and travel persuasion we could imagine and it's actually a pretty diverse country and people are in lebanon and jordan and egypt and in turkey and just about every place else in the region i have to tell you i have to confess she is not quite so enthusiastic today about the longer-term as she was back in those days. but she still has an optimistic view of people. so i took a lot of lessons from that first meeting and i keep in mind. anything is possible if people are willing to work for it. and she certainly is. i digress. back to the policy. the policy-making and execution in this region has been shaped and pressurized by political and economic and security factors.

you might ask so what. what's different. for this reason and legislatures. while the middle east is complicated by acutely conflicting religious and ethnic and social issues and there's land, the sand, the vast desert areas, millions of square miles of mostly parched earth, rocks and sand. sand on the move, shifting constantly in the wind coming and there is the silence, the emptiness, the absolute absence of sound in the desert that envelops the census like a shroud. i didn't appreciate this until i actually experienced it. i've vented asserts many places.

they've never been keeping that in the desert as i have in several places in the middle east to have this feeling. it presses down on one everywhere. it is an assault on the senses. it is an ever-present reminder of the unforgiving environment in which the survival is a today where people with with a shrewd interaction. ..

>> millennium here has featured change and conflict, alliances, they often shipped. now the united states. with a little more than half a century of experience in the region, half a world away, has inserted itself in endeavors to craft a policy. it can be grouped into three main categories. economic, political and security. in the economic sphere, the defining issue the participated in renewed american interests in the 1940s and continues to shape engagement today can be expressed in one word. oil. the energy sector, by vast

petroleum and natural gas, reserves in the region of the industrialized another development in the nations of the world. >> recognized by the u.s. and on other industrial countries, created a harjo carbon dependency that magnify the influence of this region of the world economic and political status. the middle east embargo in the 1970s and the returning spike in the 1980s sent shockwaves rippling through the financial market. persistently high price of oil was a result, and resulted in small behavioral changes from the u.s., japan and western europe. namely reduced consumption,

albeit slight, in a pursuit of alternative energy sources. you demand from china and india to power the developing country has had baseball in the middle east and identity resources. the ripple effect of supply and sensitivity have maintained a high level of u.s. interests in the region. a major factor in the energy business in the available supply since the 70s has been the international oil cartel, opec, the organization of petroleum exporting countries, which has influenced supplies with a resulting impact on supplies on other nations. by the way, replacing the railroad commissioner of texas, for those with memory. as the arbiter of world oil prices. of course, this country tends to

act in its interest, unanimity will not act in opec's behavior. the track record of the group in line with various wars and international tensions have resulted in higher prices and is a major factor in the world economy. with high impact and high interest world leaders. opec has blamed a new factor in the past decade, which has supported the unusually were on a historic basis, high prices would be interesting will futures is an asset class and world financial market. i believe this is truly becoming a factor in keeping the markets up. u.s. policymakers have achieved only spotty success in moderating oil price fluctuations. supply and demand for oil and gas will continue to be at or near the top of economic concerns regardless of declining u.s. imports from the region because of worldwide energy

needs. virtually all of these are conveyed by sea, along with other commerce in the region. these commercial lifelines are the economic lifelines of the world and special interest of the u.s. and its identity for addressing this interest, the u.s. navy. of particular concern are the three major merits. potential choke points through which they are all energy exports in the region. strait of hormuz, and the suez canal. more than half of the oil and gas coming out of the golf actually continue around through india and through northeast asia. the straits are high interest

all throughout the world. as we are aware, these points, namely iran, yemen, somalia and egypt, our current points of purity and stability. we mentioned previously but to emphasize again the interdependence and counter activity of world economies guarantees the impact of events, good or otherwise, in this region, for world economic and political entities. given the near instantaneous transmission of information around the world, the combination of high energy demand, limited reserves and nearly continuous turmoil and attention on the region. the latest anxiety and potential for interference or manipulation of the energy flow.

segueing into the topic of security is a driving factor of interest for the u.s. we note in stability, conflict in wars are continuous hallmarks. the postcolonial era in the region is featured conflict of one kind or another spending the entire middle east through the north african area and beyond the call. in addition to concern about energy resources, the region feature commonly in the cold war. and witnessed the emergence of authoritarian leaders almost everywhere. the creation of the state of israel has proven to be an enduring flashpoint in arab and israeli relations. in a split up since the 1940s. the u.s. has had a robust marathon presence the end of world war ii. but only a modest few ships in the gulf through the 1970s.

u.s. military forces became much more attentive with the rhizome rise of the iranian revolution procedure of the iraqi war in 1980. it was a series of bloodletting that was in the status quo antebellum between iraq and iran. president jimmy carter came into office not long after the oil embargo in 1973. having been deeply disturbed of the economic impact and u.s. dependency, he famously declared the energy crisis the moral equivalent of war. this concern heightened by events in iran and the soviet invasion of afghanistan, led to another declaration, the

so-called carter doctrine, as stated by president carter in his state of the union address in january, 1980. let our position be absolutely clear. an attempt by an outside force to gain control of the persian gulf region will be regarded as an assault on the united states of america in such an assault will be repelled by any means necessary, including military force. this message was aimed primarily at the soviet union. this restatement of previous and more general warnings by truman and nixon, started wheels turning in washington and elsewhere. in fact, the time the u.s. had scant military capability in the region. and it recently begun strategizing about potential middle east contingencies.

establish a task force was directed to focus on the area with the aim of ensuring stability and commerce. a few years later under president reagan, that reservation was upgraded to full combatant status as the united states central command. the high-level military attention that continues today was institutionalized man. u.s. forces, again, primarily marathon, began spending more time particularly in the gulf. with both wrong in iraq as they jockey for advantage. throughout the 1980s. relations between the u.s. and around were contentious, setting the stage for what has become a decade-long of animosity, distrust and posture. this has evolved to the situation today in which iran is working hard to achieve an upper

hand against preemptive action and nuclear weapons capabilities. saddam hussein's invasion of kuwait in 1990 and the resulting us-led coalition from iraqi forces led to the first large-scale introduction of u.s. ground and air forces for the region. this influx of man and woman power and culture was viewed with anxiety and the gulf states. especially in the kingdom of saudi arabia. but it's a good, albeit reluctantly, in order to counter the aggression. expulsion of saddam's forces from kuwait featured a diverse coalition of forces and throughout the region, carefully assembled by the u.s. and is is considered the high watermark of regional security cooperation debate. iran, of course, did not join the coalition despite a decade-long conflict with iraq, in fact, agreed to terms ending hostilities with saddam, shortly

after the latter invaded kuwait. in the aftermath of the first gulf war, u.s. retained a higher profile military presence in the region. mostly naval and air forces, but including a substantial ground capability in kuwait. the focus now is to contain iraq, as if saddam continues suppression in the south of iraq, threatening neighbors against western interference. it is noteworthy that eventually all u.s. military presence is were removed from the kingdom of saudi arabia. tensions remained high in the '90s as they frustrated every effort to stabilize the region. despite enthusiastic intentions by president george h. w. bush and his administration, to

leverage the cooperation experienced during the gulf war to encourage settlements of these really in palestinian issue, no real progress was realized and that security situation continued to feature almost constant conflict by military and terrorist actions and all-too-familiar creature of the amnesty between the sides. attacks against the u.s. on september 11, 2001, headlined the seriousness of security threats posed by radical islamists, organized by al qaeda on the direction of osama bin laden. these attack attacks had huge repercussions on the world. the complexity and enormity of regional security issues and second, the consequences of perception by people. it is ironic that many of the radicals that caused so much

pain and last decade, were the same people who we supported with financial material resources just a few years previously in afghanistan and the struggle against the soviets. the complex and seemingly contradictory lines of activity in the region merit our attention an attempt at understanding. the second issue here of perceptions, our own people in the region is related to the previous one. a key attribute of our perception of the middle east is generalization. a common inclination for simple understanding but one fraught with peril was to know our differences but people won't together. this oversimplified perception coupled with the enormity of fear, outrage and the desire for retaliation, which ripped our nation and elsewhere, post 9/11, complicated our ability to plan

strategically. we would do well to remember that the middle east defines generalization. after 9/11 we witnessed afghanistan to expel al qaeda, the invasion of iraq in increasing hostility and relations with iran and the movement of forces throughout the nation. let me summarize recent security issues and the repercussions today. the wars in iraq and afghanistan and their consequences. finally, the continued threat of radicals enter attacks supported by regional entities. linkages about that, lingering mistrust of u.s. intentions continues to motivate potential

terrorists. we are focused on regime change, following the iraqi model. u.s. support for recently deposed and currently challenge governments is viewed with great suspicion. moving to the social dimensions of u.s. policy, we were immediately in uncharted waters. the unprecedented events commonly referred to as the arab spring, have challenged conventional thinking and appear to be moving in multiple directions. first, let's talk about some background. after our initial foray in the 19th century, the significant event next to occur in the region was president franklin delano roosevelt on his way back from tehran, he went to malta

and including egypt, and then boarded a u.s. navy ship, interestingly. which set sail for the great lake. in a period of a day and a half, president roosevelt entertained free three visitors. images and pictures of him at the time showed a serious situation and how ill he was. when he asked to meet with three leaders in the region. , individually, first, mahmoud ahmadinejad from saudi arabia. king farouk of egypt. in the emperor of ethiopia. i am seeing pictures of these events and they were entertaining if nothing else.

a picture of this, it was a u.s. navy heavy cruiser with guns and anchors in the middle of the lake. part of the suez canal passage. along comes the destroyer, bearing the king of saudi arabia and his entourage, which were in the hundreds. they all came aboard and pictures of the king and the president sitting together. in the line of what must be 100 watching intently. it is noteworthy that politics, not oil, highlighted each of these conversations with the president. king farouk was interested in getting out of egypt.

the king returned to ethiopia. a very strenuous terms, against the formation of the jewish state. as we know, the end of control, which borders arbitrarily the powers set in motion events and activities which vexed policymakers today. governments which replaced the orioles were headed without exception at one time or another. the absence of democracy, individuals and groups, including well-known entities like the muslim brotherhood in the [inaudible name] party,

generally did little to address the need of advancements of individual citizens. with the cold war's backdrop, regional leaders often they were, seeking economic and military support, and we usually reward them for their cooperation by the great powers. the u.s. has often found itself in regional policy dilemmas, as it strives to boost democratic processes, yet not alienate longtime supporters who are otherwise stable economic security arrangements. ultimately, vertical sediments and solutions must be found and should be the long-term aim of the united states. but where to focus first to with issues in the region, it is understandable that policymakers are often challenged with the

issue du jour. something comes up every day. and we have to deal with it. but we do it at the expense of the long-term issues. the three big challenges in the region today that overshadow all else, by the way their linkage between these two, first, the uprisings and protest are in record numbers. second, upon its request for nuclear weapons while continuing to inflate revolution and export terrorism. third, the long festering impasse between the israelis and palestinians. some are of the view that if only palestine were solved, everything else would be resolved. i don't embrace that view. but i do believe that a solution, no doubt imperfect, and not without risk and anxiety must be found for this problem. the status quo is untenable for both parties.

the resolution of the conflict is a crucial and vital national security interest of the united states. the u.s., us, american leadership is an essential component, catalyst and conference provider if we are ever to see a google lucian accommodates israeli security interests and palestinian sovereignty. iran, with the first shock waves of the postcolonial era itself, would be to overthrow the shop, has exchanged one type of authoritarian rule for the other, albeit with some trappings and government. the right to return to the historic dominance in the region, but they continue to arrange things to start trouble in and around palestine and israel and neighboring iraq and afghanistan. as with other top issues in the region, this one has many layers of complexity, including

centuries-old competing, disputes, and anti-americanism as part of their credibility and visions of historic renderer. resolution of this issue will involve the u.s. and require a vast reservoir of intern pension planning, terrible executions and a lot of patience. the last of the challenges is how to deal with the monumental achievements in the end of the colonial period or the popular movements sweeping the region are the clear indicator of dissatisfaction with the recent status quo. out with the old, and easily understood message. what remains to be seen is what macs. we have seen a revolution and governing from the past, more often than not, some degree of chaos, or at least untidiness and dues. we are inclined to admire actions that oppose tyrants.

the problem, of course, is without her international and institutional structure of governance, the process is a little different. it is no small matter to establish the training and experience and checks and balances necessary for a functional government. the challenge of establishing representative governments, functional government institutions in which citizens have trust and confidence and is daunting and unsettling for us to watch. what should we do? first things first. we must ask ourselves before we can credibly convince others of the righteousness of our policies. these steps have to be reduced and the government must be put on financial footing that than it sounds. we should fix primary education. it is abysmal in far too many places in this country. we need to refocus innovation and emphasize research and development. that is the future cop,.

do not accept mediocrity for fear of offending. it is all too prevalent today. we have an unparalleled legacy of national behavior based on principle and values in this country. let's return to basics. let's hold our officials accountable. act responsibly and for the common good. treat people with dignity and demonstrate good behavior. people notice if we offer a good example and walk the talk, we enter policy discussions with credibility and competence. we tend every day business with principled action. policies should follow a description of fairness and collective good and freedom of choice. we don't turn our backs on friends. the principle preference. engaging on the three big

issues. bad news with the festering israeli conflict does not get better with time. iran is not just going to melt away in the desert heat. the revolutionary wave of self-expression will continue. we can help, by example, and by assisting with the tools of institutional government. this is not easy. it is going to require planning and patience and go full employment of all aspects of american national power. keeping in mind that changes ever present, technology advances with astonishing celebration, human behavior is reliably, if unpredictably, return. 200 years ago, an adolescent found an interest in economy and national reputation, in the middle east and north africa. not a big issue and a long way

from home, but vexing. her leadership established policy decided on a course of action and used the capabilities of government to resolve the issue. the message of those actions when a long way to establish the reputation of the united states. we have many good reasons to act as a major power in a beacon of freedom that we have become as a nation. the middle east needs today more than ever, american leadership. the sand will continue to shift, but we should not shy away. people in the region act on yearning for change, freedom and choice. the region has great geopolitical importance for the u.s. and these are reasoned, thoughtful, and carefully planned engagement. let me finish with a few wines from hov longfellow.

we can make our lives sublime and departing, leave behind us, footprints on the sands of time. thank you very much, you have been kind, and i will be happy to try to take your questions. [applause] [inaudible conversations] >> what i learned from iraq, where shall i begin. i have an answer when i showed up on the scene over there actually in 2006 the first time, during the war. the response was i cannot undo what has happened in the past, but i can work on where we are now and what we are going to do in the future. what we did was, the lesson here is that it is extremely complex.

before we jump into such endeavors again, we need to do an awful lot of studying, i believe a lot more than we did at that particular time when the war began. because the old adage that things are often not as they appear was oh, so true. we learned a lot of hard lessons at every level. some very challenging circumstances, we had engagements that rival those of world war ii in intensity and casualties, unfortunately. they went time and again to what they were asked to do. at the end of the day, it is all about people. you have to have a level of trust. somebody asked this question today. let's talk about trust. without trust at every level, we

can't succeed unless you are a dictator or tyrant and can direct things that happen, not for long. so we spent the better part of the year, trying to build trust with the iraqi people. because of the end of the day, it is their country. and they had to step up and take over and solve the problems. it is easy to say from a distance that we should've done that earlier on, but we didn't. they didn't trust us and they weren't sure what we were going to do. some of them are probably going to walk away the first opportunity and some thought we were never going to go away. and everywhere in between. we have to work at establishing trust, nicky back out of that, you get back to higher things, it's a good thing. we act based on principle and we try every time to do the right thing, to have a measured response to the challenge. it would be nice if everyone in

the world were basically decent human beings. they are not, unfortunately. they are not at all. but we spend our too much time, in my opinion, digging ourselves out of holes that we jump into instead of taking a preventive step that we could and should be doing and let me give you a couple of examples. there are many troubled areas in the world. areas and regions and people that could use our help in the system. but we have this aversion to doing things in many cases, spending money to engage in international affairs. it is really tough. it is a tough sell on the hell and i used to try to convince the leaders that he would fund an ounce of prevention today, we would prevent -- look at all the chileans we have whistled away

in last decade. i had a fraction of that money, during the early part of the war when i was in the pacific. i was thinking of the good i could do in indonesia and the philippines and malaysia and india. i don't mean giving things to people. dead set against the basic welfare business, is empowering them to fix things to get competent at running their countries and running their infrastructure, and they do it. in many cases they need help, our help. this is a much better use of our resource than digging ourselves out. i think we have seen this before. sir? >> i'm sorry, i feel my failed my duty here. i am not supposed to talk until the microphone gets in front of your face.

the helpful people will take care of that. >> you talk about spending money. my question is, would you address your thoughts on the ceiling and endless desire of the corporate and political pressure by companies that make a lot of money by selling military equipment, what we have now and what is accurate, is that they are trying to force greater expenditures through congress and even the military people are asking for, and if we are the only remaining super power, we over militarized. >> the problem with this is that we live in an era of sound bites and in opinions. and we are constantly bombarded by people who have something to say about an issue of which they generally know little.

but they focus on an issue. so let's pick this or that company, who is lobbying to build more at abc or whatever that thing may be, and should we buy two of these, 20 of these, or 200 of these. who knows. the bigger picture issues and my sense. we have a decade of expansion of the department of defense budget, and regrettably, most of that money has been whisked over to the side and form places. during that time. we unfortunately invested very little in the future. the wise household and business does near-term things, midterm things, and long-term planning. in the u.s. government spending arena, that equation is usually

out of chilled. so you could find every angle on these arguments and find a piece of this is absolutely accurate in the piece that is not accurate. we know that defense spending is going to come down. with certainty. it's started already and it will continue. exactly what the level is, it remains to be seen. it ought to be $333 billion because i don't have a visibility. but i will tell you one thing. there's an awful lot of stuff that is wasted. and it is wasted for 100 reasons. in the process. just the process itself consumes incredible amounts of money. the big thing that i believe, first things first, instead of haggling over the 233 or 243, we need to get the big picture right and get the budget going.

that means some things will calm down and some things will have to go up. but instead of haggling over my pet project or my influence for my contract or my lobbyist thing, my opinion, the guys that are elected that we have elected need to get their act together and they are long overdue to come up with a coherent plan that gets us in a state of solvency where we actually have credibility when we talk. can you imagine is talking to countries, maybe other than greece about getting your financial house in order with all that we have seen? come on. i would say that the challenge and i was talking to a student today, a bunch of bright young people, in my opinion, we have an opportunity to play with balls and juggle balls.

people in this country are confused. they can't see the really important things, stuff that is of interest, but at the end of the day, what kind of impact will it have on the future of the country? little to none. so i would ask that the discourse focused on the big items rather than in his 3995, and of course, these are billions because that is the number two shorter in washington. there are some things that we need. some things we can do without. and you have some people that have been working pretty hard. they actually have to institute these budgets. i had my personal preferences. i am a guy that was always inclined to go with smaller, leaner, meaner reasons. the least i had some span of

control. the next student? >> okay, go ahead. >> from a strategic perspective, is the u.s. aligning with israel a gesture is in the middle east region? >> are you going into the media? >> i don't want to give you a hard time, but i will. >> this is the kind of framing, and this is a question i have heard before and seen all the time, that doesn't do justice to the issue. the issue for us is to believe what i say about the pinciple being the guiding light of execution of policy, crafting execution. the principle is israel is the only country in the entire middle east, that has a true democracy. now, it is not pretty, and it is

screwed up and they can't make a decision and they have 100 other things wrong and there are so many other parties, they ought to do themselves a favor and outlaw half of them, but i have enough trouble here without getting involved in israeli politics. they are an exemplary democracy where people have a say on who is in the government, what they do and what they spend on how they act. regrettably, that can't be said about many other places. people remotely in the region. what do we support? is a pain in the neck? we disagree? under different approaches and lack of tact? again, big balls and little balls, this is an exemplary kind of government that takes care of

its people. this is what we want to encourage. and then there is a lot of history, which we could spend an hour on. but on the other hand, just because we support democracy and just because we uphold the opportunities for freedoms and choices doesn't mean that we can condemn our behaviors. and so, again, much easier for somebody like me on the outside, i was is there a couple of weeks ago, so they probably don't want to hear it again, but there are some things that they ought to tend to businesses do. of all the things that keep people in jerusalem awake at night, and there are a lot of them, you have to live in a state where death and danger lurks everywhere.

in a lot of cases this applies to a lot of countries. there has been a lot of mayhem and terror. people are tired of it. on the other hand, if they don't solve this issue and come to an agreement with the other people who live in this region, this is not going to get better. it's going to get worse. the results on either side are going to continue to try to force something and it will blow up. so we have a challenge. we have to work with them. we have to encourage them. we have to insist on them and again, longtime friends, they have supported us and many things we supported them for a lot of reasons. you could go back to these claims and counterclaims. one of the biggest problems in the middle east is fact -- don't

bother me with facts. this is about perceptions. i was in washington on the hill and i was a dumb young whippersnapper that thought he knew too much. and i was in the hearing and being pummeled by some witness that was outrageously expounding on something that was just not true. so i grit my teeth and waited until the chairman said what you have to say about that. and i said well, mr. chairman, in my world, i deal with facts. and i have not heard many facts are today whereupon the chairman leaned across the table and put his finger out towards my chest and lectured me for the next five minutes and said you have something to learn son. the perception is you guys are screwed up in this amount. in the middle east, the legends have become enduring myth.

many people in this light on 10 region believe things that are absolutely not true. they have heard the story so many times and it becomes part of the fabric of life. it is really tough to change these opinions. some years ago they figured out in an era of relative peace, not in work. maybe the conflict and bloodletting will make them come to their senses. we are the only likely facilitator to broker a deal that might be enjoying in this area. we will just have to work on it. it's a long answer, but it's typical of the issues and there is almost nothing that is simple. nothing that appears, as they

say. maybe in the background. i will work my way back. okay. >> i would like you to comment on an early news show today. they interviewed a former ambassador from syria. his comment was, bashar as-assad's is never going to stop fighting. the opposition is never going to stop fighting. and he said it was up to the u.s. to stop it. which i interpreted as sending troops in. would you comment on this? >> i don't think i would sign up for that description. i think bashar as-assad's days are numbered, it's a matter of time. he will not go easily her quietly, but it is pretty obvious that the level of discontent and discord is significant. at the end of the day, he has,

in my opinion, a strong quarterly of supporters, but it is a distinct minority in the country. they all have to be weighing their options right now. there is the opposition, and as it gets older, unfortunately we will see more violence. but i don't think it's going to last forever. for us to jump into this frying pan, if i were still in the region and this was my responsibility, one of the first questions i would ask is what you want me to do. ..

>> and try to minimize the damage, but i don't think it's a great idea for jumping in the middle of. somebody on that side. when much of the turmoil in the middle east seems to involve sunni muslims versus shiite muslims but i gather these animosities and rivalries go

back centuries in terms of extremely violent. one of the prospects for stability to learn something approaching democracy in countries where there is animosity so long that apparently continues to exist. most of the countries don't want much of a conflict within the country. bahrain is an exception right now because you have a sunni family leadership that's now 20% rest of the population is 80%. it's a very small shiite minority. the issue has been iraq, where about half of the population as shiite, and the sunnis and the kurds share the rest of the

country. there's an awful lot of opinions offered when i was still serving out their, and one of them was because iran was shiite and they were helping the iraqis that in the blink of an eye as soon as we left the place would turn into a shiite stronghold twice as big as iran today if he and that sent tremors of fear through all of the goal fees being those countries on the south side of the arabian gulf. back in washington they had a lot of veterans about ideas and i used to shake my head and say fifth. the leadership in baghdad right now and mulkey and his government owes a lot to the iranians most of them took shelter in iran when they were being persecuted by saddam

hussein. they were heavily dominated by shia. but these people have been around a long time and one of the things we don't pay attention to, but they do, is that iran is overwhelmingly shiite but iran is run not by arabs. it isn't likely to be run by arabs, it is mostly persian and their view in my opinion from the research and experience is that the arabs are out there but they are not at our level. the shia arabs in iraq are well aware of this, and so however much support maliki may get from iran, the idea that iran is going to go in there and called all the shots i think is highly

unlikely. we are not going to solve a split in a slum that is for the manila to rebel about. at least in the middle east because they so many centuries of domination by the sunnis that they have not had expected the persecution complex by the opinion and they are looking behind there is a baathist behind every three it was less in the country and you get irrational from outside view. one of the areas which i had in mind area of responsibility was indonesia. it's overwhelmingly muslim. much greater population than any country in the world, and they are not radical at all. their brand of islam is very

benign compared to the devout muslims, but they are not given to these extremes which gets feedback to some of my earliest impressions in the region. i think more than a little of it has to do with the environment. this is really tough territory. go back and look at what is going on. it ought to be read a given all of the threats. it's a very tough territory. there are shia sunni disputes, but it's interesting when you start peeling the onion back on some of these. for example, they dominated syria to held the extremist in gaza interesting. they're looking for whatever

help they can get and looking to the trouble anyplace they can do it is a marriage made in heaven just like the crooks and criminals everywhere in the world. so it's a factor and it's the concern. no doubt about it my conversations with king abdullah and saudi arabia and jordan, the other gulf, they worry about. why are they worried about it? they are all worried about the retribution thing. maybe they feel a little guilty for the centuries they weren't even a round about what ever. the other concern some people might put it up to me somewhere else. the gentleman with silver hair my hair color we like it. >> to bring it back to the navy

a little bit, in the arabian sea and the gulf, the naval buildup that is going on now, what do you think would happen if the iranians attempted to close the streets or created an incident in the gulf? >> well, first of all, back to basics. as i indicated in my talk, we are his or we our presence has been maritime. the countries out there don't want a u.s. footprint of much dimension. it doesn't fit culturally with the more conservative countries along the gulf and so it's the way to go. the iranians, they might try at. they will do it at their peril. it's just a matter of time because they can't really match up against us. so, unfortunately you get a lot of posturing and political reaction. so, we are getting back to budget stuff now.

there's not a whole lot of slack, just aircraft carriers. my son is a naval aviator he just finished his fifth deployment over in the gulf and he's shaking his head and saying these guys should be sent back to a six month turnaround. they said i'm not sure how long we keep this up. they say how do you do this? there's too much technical detail for this audience. but the way to do this we can better street power. periodically, show that we have the muscle and the wherewithal and the training and execution to enforce what we need to do. the message needs to be sent to these guys because sometimes they have short memories or they are revolutionary enthusiasm might overload their brains.

my experience out there is when i dealt with the albanian navy they were pretty professional, but the revolutionary guards that had been given the upper hand by khomeini now they are not so disciplined. they have some cowboys in that crowd and that is the danger is that one of these yahoo! is screwup and somebody thinks that they are really in jeopardy and something starts. if they are starting they may be temporarily successful but it's not going to be for long. the thing i always end with is iran lives or dies by its oil exports and gas exports. they all come out through the gulf, if it gets closed this just another nail in the coffin as far as their ability to continue to sustain themselves. so, i think that talk is cheap, but the thinking needs to be

cautious, mindful, and we are -- it used to bug the heck out of me because the media was always trying to fight me to say something they could trumpet back. this is an area that is much better done quietly not just this particular thing of the whole business of operating in the region. it's what they are used to and what we ought to think back and start doing but we have to get back in the mode of thinking and planning long-term. important things first and then worry about the little things. it's been a pleasure to be with you. thank you very much. [applause] >> thank you so much. [applause] >> i would do advance but you don't want to see that. [laughter]

the people who were my predecessors of course diplomats and berlin, and despite all the

time i spent in germany, i hadn't spent a lot of time thinking about what it would have been like to have been a correspondent there in the 20's and 30's and how would you have operated. what would you have noticed or not noticed and much less how would you have acted? marlo thomas said schools should enact a zero tolerance policy towards bullying. she talked about bullying stories from her own line and about responsibilities parents have. her remarks came during the third annual bullying prevention summit today that was hosted by the education department. this is about 55 minutes. >> principal assistant secretary office of the elementary and secondary education. ♪

>> good morning everyone. how are you all doing? good. welcome to washington dc. welcome to the third annual summit. my name is michael and i am the deputy assistant secretary prefer the office of elementary and secondary education at the department. the mission in my office, the office of the elementary and secondary education is to promote academic excellence and ensure equitable opportunities to educationally disadvantaged and we have a number of great efforts and programs to support this mission race to the top early learning challenge which provides kids with a great opportunity to start off by particularly high needs kids to give them access to high-quality early learning programs. we have our title i program which provides resources to support low-income kids and make sure they have the support and

the service necessary to succeed. we have a grant to improve teachers' effectiveness. we have programs to turnaround all of those low performance schools, english language acquisition services, after school extended learning time, we have secondary programs that are geared to ensure kids have access to rigorous high quality programs like ap or i.t., dropout prevention programs, and ultimately, ultimately our vision of success and our vision of success is to make sure all kids are on track to graduate from high school, college and career ready. but i've got to tell you, as everyone in this room knows, we are not going to be successful in our efforts, we are not wedded successful to make sure all kids are on track to pressure from high school, and career ready if a child isn't safe for doesn't feel safe and we are not just talking physical