paul volcker on banking standar standards. this is just getting under way. >> i think it's generally agreed you're one of the clearest thinkers of this field. you're probably one of the most experienced practitioners that we take evidence from. can i begin by asking you about one aspect of the very interesting piece that you

provided to us. this is a three-page sheet. in section "d" item three reads and i'll read it out, based on the american experiment the conditicob september can maintain toe tool independence is difficult to excomplain. is that a gentlemanly code? to go full separation? >> it won't work. if you really want to separate some operations clearly and decisively, you don't put two folks in the same organization and say they don't talk to each other. we've never had anything so

quite so comprehensive but have had different subsidiaries of the banking organization with prohibitions with the bank. we tend to break down. because of pressures from the institutions itself. as we moved away from concentration on traditional mer kmshl banks which is other functions and subsidiaries, the federal reserve rules out in theory is we now permit another subsidiary unless they provide

support for the bank in time of need. let me just repeat what is used to hear from a prominent banker. he just loved is affirm point, which is to name parts of the institution, it will be protected to the extent possible, each part will be protected. they are going to protect. as i understand it before our security, that would not happen. i think you know. >> you said it would be permeable over time. does that mean it's worth a try?

>> that's up to you. i'm not saying that. i don't mean to sug that but when i read the victories and i'm not a great expert ob the. the treasury paper and all say we're going to have a fence. that's where the problem begins. i understand that need. that gives a question without any at all if you do this and have this exception i say e, yes, let's have this bigger. you get the same customer in two parts. it depends on how you do it.

potentially you have you have the customers in two parts of the organization. to think that either parts will take account in dealing with that customer seems to be strange. >> i thoi we can determine the strong sprens in separation? >> in reading the proposals you make is my reaction is i understand why you want the separation. but for some reason, it's not realistic. >> that opens up the question, what should be separated? and you're on record as saying pulling out as much as the report is proposing would be to

amount to another. you describe that as radical and yould explain win -- would you explain why is this. >> these institutions have customized relationships that have been proud of. i think that implies a responsibility. you do worry about the customer. . you schon be, anyway. the proprietary trading activity doesn't develop that

relationship. someone wins. somebody loses the relationship. i think in part that's where the facts got in trouble. that activity became checkered. very high levels of compensation which affected the rest of the organization. so take that counter parting stuff out of the organization. lots of other people in the market can do that the other part is what we think is

connected. shouldn't be engaged in proprietary connectivity. that takes care of if payment system. it's more and more important in a globalized woorld. it has to be done quickly, safely, that's what the big banks do. nobody else in the united states or in the uk is equally committed to making it medium sized. eat before the crisis or during the crisis. the importance to protect people with their money and give them a

safe place to put it. those are all public functions. they're all protected every place. when push comes to shove, they get double. you shouldn't do that when people are just engaged in trading for their own account. without any public responsibilities as i see it. that's the heart of the matter. >> i'm very pleased you would come in at this time. i think we suffer from a major confusion that you can help us sort out. in the u.s. they're returning

following the advice. and we have in the independent banking commission a halfway house. and it should go the whole way. this is a completely wrong characterization that i think of what you're saying, you're saying they can't a wide rapg of functions that can be alongside the payment system. then there are another type of transactions that shouldn't be there at all. they should go off right to a separate institution. and in terms of scope you allow a larger scope to remain in. in terms of separation, when it happens, it happens in a much

more radical way than being proposed here. woef we have to muddle twine between the two. in the noncommercial banking part of the organization you can list all the functions. but the heart of the functions there are trading this a broader sense. whether it's customer trading or pure speculation. this is between the customer relationship and impersonal relationship. that let it and left special trading outside the organization.

>> i will sim simplify that. you people understood better what these alternatives are. if you have in the model a company whose directors are -- and none are directors of the group, but group on the or hand is responsible for everything going wrong. if something goes seriously wrong in the end, this separation won't prove effective.

you have in this second company that has the more sophisticated products? it has a separate board it won't be confined there. and the grub directors cannot ignore what they are doing. >> i am certainly saying sna. my imagination could be crypt or something. you seem to visualize an organization, a holding company.

he can do this. i don't know what it means to have an independent board subsidiary to another board. they decide how to allocate capital. a certain amount has to go to the bank. following the law. just as narrowly as we can. there's nothing in it. negative says you have to put more capital in there if you are worried about it. but this is all kind of awkward.

you're going to think about how to use the strengths to support the other part. it's human nature. i'm not saying it's impossible. you can try it. it's sort of going on. >> okay. in your next commission you said the internal of the dominant international banks has changed dramatically. they will have essentially techal misjudgments by well meaning people. how much is a failure within the banking world. how would you characterize the changing in culture?

how would you karkize the changes, and is it possible in your opinion to get the tooth paste back in the tube? >> i've been accused of that. and one of the thingsry ebb t big new york bank at that point, bun of the biggest banks in the united states. things vice president changed. not in major terms of the bank. should be working for the bank

as a whole. for the customer they shouldn't be seeking big rewards in themselves. contrast that to what goes on themselves. tremendous part of the conversation not just in bonuses. compared to what they would have been 20 or 25 years ago. no what kind of climate does that create? they get to elaborate a little bit. people who criticize this rule, they are sure to speculative access. infact, a lot of things are at the heart of the banking crisis.

why did that go wild? i would argue that the kpep sags practices crept in into trading parts of the bank. so the lending offices said, how can hay make a lot of money and get a big bonus? over simplifying a little bit. it's true. the chairman of the citi bank. the biggest bank. a couple of trillion dollar banks. he said to me, we put these two different kinds of organizations together and it different work. and it's a cultural problem.

you didn't just regular rate the losses. it created a tension in the bank is that very healthy. very open about it. i think he's right. >> are you saying that the approach that breaks apart those cultures perhaps for bankers might put the toothpaste back in the tube? >> i think it's entirely practical. you can take out the pro pry tear trading. # the possiblies, hedge funds and equity funds. it was basically pro pry tear trading, too. and we have not mentioned two with words, conflict of interest

either. but those ak at this timetivities inperfectly involve major con flicks of interest. wrour not going to avoid all of the conflicts of interest. you have customers who compete where each other and different activities have different conflicts of interest. you have rules to moderate them. when you're conducting an organization, you're not paying any attention to the customer. whatever you're doing, these are conflicts. how can you run the business completely insulated from the trading books you're writing?

my biggest concern is the whole thing. >> you balanced most of the question. there seems to be a major bank failure every ten years or so. >> yes. sometimes the same bank. >> sometimes the same bank. that was the failure and so on and so forth. that was on the scale of 2008. but major issues. whattics it so difficult for regulators to foresee what is going to come?

>> things are going well. the economy is slooifing. the banks are making money. and you suspect some weaknesses developing. you go to the bank an say i don't think you'll have enough capital. i think you lay off the activity. he says, i know more about banking than you do. we haven't had a serious loss for four years. you think you're going to tell us what to do. i'm going to the congress nan. i will tell the regulator to get off my bank. this has bothered at that point, nobody. they have a lot of lempbl when things go bad.

it's engraved in my mind, personally. shortly after i became chairman of the federal reserve board. i within the to chicago. with the reserve bank there and other people. i i would ask the chairman, at that point you could not branch them in chicago. in the state of illinois. but these were big banks. the biggest in the united states. build upon basically borrowed money for the basic deposit couldn't be that big. so i thought, well, i'm going to talk to him. nobody is talking to them. i think you people have

undercapitalized. so i said, who are you? there was no law. there was no regulation that governed how much capital we had. one of the banks went bust. relying upon regulatory discretion, which you have to do a lot, but it's a structural problem what i'm saying is absolutely agreed. you're looking for structural changes. we're putting the board somewhere a little differently. they're worried about the same thing i am. this is removed from the basic function. we're on common ground. it's just a sengs of how we do

it. >> thauchk. there's been a loss of discipline and the natural and ethical has been ignored. that takes us into the field of culture and ethics. is it a place for culture and ethics in banking. what is it? some would say you can put your finger in it, and there's nothing of substance there. these go hand in hand. >> in the case of the banking, it's a simple proposition. you have customers that we don't have over a period of time. you have the kmirs that say with you and are profitable. you're not going to say you're

going to sell whatever you get rid of because it's possible at the moment. and that's the distinction i see between the, you know, the counter party where none of those responsibilities in the relationship. all of these claim relationships in their own party. the relationship is everything. they put that in a piece of mail they sent to me. but that's not true for the trading operation. the relationship isn't everything. it's how much profit we can make on the trade today. they haven't lost all sense. but efrl they lost a lot of it.

i discovered it wasn't very effective. but the sec had a rule book, that said an investment bank that they were supervising did certain things for which they had a relationship. and they had other things for which they had no responsibility. i don't think it's much realized in their own approach. that has been certain around in the back of there anyway. actually in the written regulations for a long time. i'm not saying anything new. it's different. the impersonal trading oermss are different from a continually banking relationship.

>> do you think that makes it? always behind? the expects at the time in a down and out kingdom. is this the best stuff onto the biggest banks and the less qualified onto the smaller? what we asked them, if they look to the business model, they say it was none of the by talk. >> i think it's chronic in the ability that we're talking about. the conflict that you're talking about. that's why it is part of the human nature. there's difficult problems. but that's why, i think, it is correct that you want some

structural change that's change that's kwleer enough that it's not easy to get around. the regulator can say i'm sorry, i don't know more about banking than i do. i have to enforce the law. there it is. when it comes to important points, that's what you want. you don't have much leverage if you don't have some statutory plain english rules. plain ek lish is a bit of on axsy mora oxymoron. there are endless criticisms.

why can't you do something schi simple? this is tough stuff. even though there are instances where the kpleer principle doesn't make sense. if you keep making exceptions to it the time, it won't be sufficiently disciplined. the problem begins when things are going well. anybody can put a lasso around

the banks whn they're on the brink of bankruptcy. when they're doing well you have to get them under control. how are the people in the united states realize what is going on with the subprime mortgage thing. weem in the credit standing. >> in the field that has seen a volume accrual with bankers taking bonuses get there today. that problem still seems to exist today and is unique to the banking system.

what chance do we have of that being abolished? discipline has arised. that happened to the chairman of the standards committee foundation. they began realize iing. when you get down to the detail how much the regulators are similar to the problems of the accountants. and drawing some of these difficult distinctions. the accountants are in a better position. but somehow they lay down the rules and everything follows. but there's a lot of controversy

in the accounting rules. sometimes you wonder. i talked about the bank credit. the united states on a clear capital standards. they just didn't have it. citi bank had a ratio of 2% and the big chicago banks were around there. this sounds crazy. but i assure you it's not crazy.

i've been reporting accurately. i was visited by the biggest banker in new york. he said, i want to tell you my bank doesn't need customers. what do you mean? # we make a profit every year. now, he was not entirely. he really felt that. he was the same banners who believed they don't go bankrupt. but things were going well.

so all this stuff. all this stuff, in an effort to get capital standards up. the desirable efforts still exist. don't count on that entirely. because that's subject to all kinds of uncertainty. the there are so-called risk based standards. they had the assumption that they didn't have a risk. the mortgages had almost no risk. what two things went bad during the eye sis? mortgages and sovereign debt. they had no risk waiting. has that changed entirely?

i don't think so. they have hundreds of different waiting for different assets. you got so many that you don't know what any of them mean. everybody said you can't possibly think you're on the same risk waiting for some small little manufacturing company like general motors, can you? he says general matters was aa. didn't need much so forth. to years later general motors goes bankrupt in a way you could not have foreseen. so there you have very able

working people working very hard that don't trust the judgment and able to administer the standards over times. >> everything you said so far makes a great deal of sense. but i would like to go back to the question of the rule and all of that. you make the point that this reinvents the location. and you pointed out the

differences. the fact is. -- who directed and responsible for the game shup of shareholders. would you say there is another reason of the note you gave to us, which is extremely helpful where you refer to the cultural problem and the change in the culture of that. if we are addressing a culture problem ape we are charge to do that and maybe that's the reason we didn't address it. thn it's difficult to understand

how they can be completely separate and indeed two totally incompatible cultures within the same organization. >> with difficulty, certainly. i done want to be in charge of saying that. they're aimed at the same thing that american law is aimed at. creating some separation. and the court is trading locations. so the question is, the united states g forward from the unjust trading. people say, well, that doesn't

lapse with us. you can make the distinction that has strong arguments made against it. they're saying you can't do pro pry tear trading exit in the nonbank part. looking at it, all these things, the big companies, they can't deal with the retail bank at all or the work conditions, the payment system has to be available to everybody. this that come is in retail fraud? the companies are interested in different payment systems. i don't think so. >> two questions from that.

affecting your case, on the same fundamental analogy, completely institutional separation. the question of where the goals of line. and you say effective contribution on one side, trading on the other side. there is a whole range largely in the trading nature which not strictly speaking proprietary trading and trading on behalf of corporate accounts and the same trading culture you describe. >> you are right. trading isn't nominally proprietary and a trade is the trade so if you want to make money on it, there is a

distinction that can be identified and it is a full's errand to look at that transaction and say that is proprietary or customer trade. you can tell overtime. it irritates me but every management, sensibilities, big banks, maintain very close control over their trading operation. they report daily. they know what the decisions are daily. they get what the value war risk would be and if they see too much risk they won't do it. and they have other controls like the aging of the inventory and why is the trading volume solo and inventory solo or vice versa? and the key to meet in enforcing united states lot is simple in

concept. you have to have an executive officer and board of directors understanding what the law is and there's a difference between proprietary trading, if u.s. the bankers finos the difference you will always say yes because he can't say anything else. they can't tell the difference between proprietary trading and marketmaking and they have to make a rule to control their trading. will be perfect? know but the supervisor can look at that rule and then what you are going to do so-called metrics. and they will have maybe too many but seven or eight metrics they look at. it would be very important. ordinary trading operation, not a lot of volatility. the aging of the inventory. the size of the inventory, the

hedging of the inventory. there are things you can look at that are going to give you a pretty clear evidence as to where as their regular matter proprietary trading is going on. you don't have to catch every transaction and that can be effective. i have had a lot of traders tell me that. on that particular point it is clear, we're going to take all trading. what do you do about the trading? you can't do any underwriting in the bank itself. in the logic of the american

system underlying the relationship, financing the customer and keep the customer and the security, we want to make a loan, security or adviser and the same customer to me. some trading is inherent. whether that is the operation or not. [inaudible] >> separation allowance both rules and proprietary trading. you say the title and what they say -- [inaudible] >> would you not agree that is

rather important issue? that we have been putting too much on the supervisor and the more market, reducing the complexity and difficulty? >> this is the most important symbol, banking regulation. i don't think there's any data here or with dodd-franklin. dodd-franklin is the law at this point whether it is perfect or not. as to how to deal with financial

institutions without, quote, bailing out. they have enough resources to run it as it should be run for continuity in the market. that institution will be liquidated. liquidated is a strong word. you liquidate by selling parts to institutions and somebody goes but by that nature resolution process will stop management from going depending on what happens but creditors may be harmed too. that did not happen during this crisis in the united states in particular. there were a few cases in which stockholders lost. many cases in which stockholders lost money. there were not many cases where they were worked out with changes with their management. there were no cases where the

creditors lost. maybe one or two cases where creditors lost but in the middle of the panic sets the speak was saves the institutions and now you have a way to avoid that and it won't work. complicated international institution with other operations. portfolio of the other countries, because these big banks are big in new york and big in london and scotland. true of the american banks and british banks but an interesting statistic was given to me and looking at the so-called resolution process, big american

banks and how important were the operations outside the united states? they look-assets. 85% of the assets in these banks outside the united states itself, only 15% in the rest of the world and 5% or so in tokyo, no other country had more the new one. the banking system, the american bank up 1% more than any single country. and japan, they are not doing these things anyway. that is not such a big problem but the u.k. probably, u.s. regulators working very closely together to my understanding on what they view as a concern and

all of this too. and europe and britain and the united states have the same problem which is inherently an international problem. >> if i could paraphrase what you are describing it strikes me what you are saying is one side of the package to the fact that it equally balances interest of shareholders and staff and customer and there is another part which only benefits the interest of the shareholders and customer is completely excluded from that. [inaudible] >> historically important -- see the economy working, commercial

banks doing their essential function. i can see the economy working without the amount of speculative and proprietary activity. i am not saying that is wrong but let people do it who are not protected by the government, permitted to say they don't matter. they can do all or none. that is what the investment banks were doing and were immensely profitable but they got in trouble and now why make themselves and the banks? they want the government to support them and at that point the government wanted to support the only one they could support was the bank and now they don't want to get up banking regulations because it is dollars and cents. they can finance themselves.

they are not confident they can finance themselves economically. >> i'm interested in your idea of cross contamination of the institution from proprietary traders with no interest in the outcome compared to the other people who have outcome for the customers and i go back to the deregulation of the city of london at the time the stock exchange had two clear functions. one was that if you took positions on the balance sheet your marketmaker and if you were an outside investor can you talk to customers, you would never take off of your balance sheet. that means putting the customer at the core of the stock

exchange. do you think we lost something special? >> you have all this dysfunction in the bank's. a hole technological revolution made it much easier for different types of institutions to deal with each other and make it easier for traditional institutions to get these activities and you have at the same time quite fundamental, a philosophical approach that said markets that take care of themselves and a whole blossoming theorizing of the efficiency of markets, market participants, rational expectations. and things were going well for a

while so the whole implication was leave it alone, the market can take care of itself. you have that from time to time but they will control of themselves because it is in their interests to control it themselves. that viewpoint isn't very popular given what happened. it was not consistent with the sub prime mortgage market. obviously went well beyond any self regulating function until it went over the cliff. this is a whole philosophical development that affected regulators and politicians. it is a different climate.

going back where we were 30 years ago? no. we can do things around the edge. it is more around the edge. petted is not the whole thing. i get a little irritated when people say wire you worry about proprietary trading? that did not cause the bankruptcies. it certainly contributed to some of them that that is not the point. is the cultural variation. and where is the corresponding of the offsetting benefit? there is a public benefit of reasonably active markets. a lot of people are willing to do that. that is what the investment banks were doing all the time and hedge funds were doing.

they're not publicly supported. there are largely financed by pockets of -- limited partners and money is at stake and not financed these days but to water their financing is not whether they have 3% more 10%. it could be 50% or 75% or 40% so that is different. let them rise and fall on their own. >> pushing the to fix back in terms of standards. using part of the answer could be more professional standards to introduce professional standards within the banking industry? >> not just in the banking industry but better extended to the legal. [laughter]

>> i don't want to hurt any feelings. we have a real problem. look what is getting more attention. what about auditors? anybody -- does anybody here -- >> it won't the. >> we don't want some professions to go away. there has been a change. is that an example? part of the compensation question too. >> looking critically at the hole ratio of signals, sorry to come back to that but you have been very diplomatic about ratepayers so far and we have

listened carefully to your criticisms. can we fix the rate case or come to more affect? >> you impose it right now. it will be effective to considerable extent. for i might argue that you didn't have to go that far, big business lending more difficult, or the payment system for whatever, you really didn't need to go that far. can you make it effective? depending where you are now. >> you mentioned comments to the daily telegraph that it would not work in foul weather. >> these problems are very

early. without knowing there are leakages if you want to call them that. they're always are in the trends because there are advantages in that. that doesn't mean it won't be effective to impose this for. their saying over time those are likely to get bigger rather than smaller. that happened last year. somewhat influenced by knowledge of southwestern. it is a very simple law, simplifying a little bit but the bank can't fade. government securities and a few others things. did not hold the security in your account. it is appropriate for customer you can't deal with it.

then you have a subsidiary that will work on the subsidiary. and somehow the baggage is put in. if it is not engage maybe they will do some underwriting that we are principally engaged in. for 30 years people assumed you can't do it and the banks -- it took me three or more principally engaged. we made up the subsidiary to sell out over something and principally engaged in capital market but we wanted to do some underwriting. that is what the law says. in our great wisdom, 75% of the activity you can do it but another challenge for the federal reserve, affectively 25%

or 30%. in 30 years a lot of traditional securities were added to what was possible for of bank subsidiary to do because you could find language in the law that said some discretion. there is some justice -- by the time there are dollars to tactics -- >> the original -- slightly amended was investment banking would be easier for and remedial banking would be there. what you are saying is financial innovation will change. [inaudible] >> there are a number of things

for, commercial banks and retail banks and wholesale banks. can a big company put the target on retail banks? maybe you can. and retail banks -- very simple stuff. or is that all so -- what folds and along with you do? endless numbers. but you can read them. >> this hole ratio about having to pay for part of the bank, aboard, overall boards to allocate capital. that is one of the big concerns.

>> the way you do this is the overall board in the end can allocate the capital and finance the provision of the law that says subsidiaries will be responsible for the retail bank. it is an unusual provision. they are part of the same thing, the stockholder has an interest in both sides. may not be impossible for at the end of the day the stockholder, the immediate stockholder, the

stockholder -- he knows what he is buying. whatever influence on the retail bank. that is something to work on. >> some of the larger significantly important banks warming to the proposal with changes in the boundary. is it possible the experience of the volcker rule in the united states where there have been changes, is it possible to be absolutely definitive about it? what implications does that have for regulation? >> a couple problems. dismissing proprietary trading. but the law says quite reasonably it is not a

proprietary position. the banks, the whole position, we have some stocks against the standard and poor's 500. that is not a hedge trading position. it is a hedge fund. the law says you have to be practical about it and hold the security. if it had a strong position, that is a hedge. that is okay. they then say this particular security is not traded very frequently and can't take a short position against that particular security but suppose we take a position against a similar security. at the end of the day that is

what they're struggling over writing regulations. it is close enough they will say okay, but then how do you define that? problems and noble rule, no question about it. similar problems. the credit default swaps didn't exist. a wonderful instrument. somehow -- great hedging instrument. that doesn't explain how at the beginning of the crisis estimated $60 trillion on credit default swaps, a universe of

risk. they are hedged six times over. don't do it in the banking system. >> one final question. bonet united states going ahead with the volcker rule, considering the proposal, we are considering pickups. it will not cause any problem? the banking system's, nationally? >> there are complications in breaking the law, this clamor.

it is a little tricky because foreign banks can't do proprietary trading in the united states. they can do whatever they want to do outside the united states. so long as they're not doing proprietary trading with americans, that creates a practical problem, a more difficult problem. apparently, what people are talking about, a lot of trading activity around the world wherever it originates, at the end of the day we clear where the facility is with these

transactions. you interpret the law to say clearing transactions through the routine new york facility makes it -- an overview. the law says something about there is an american connection you feel proprietary. in the ordinary market it is proprietary. you are trying to fix that up and then work together. the idea is everybody is doing the same thing. coming back to the beginning, philosophically they are calling

down. they are worried about excessive trading, proprietary trading and the implications of that so there is some common ground. a lot of common ground. >> maybe the hegemony over the volcker rule, at a little pass a year. >> we will call of the love rules. >> thank you, mr. chairman. to some of the comments you made about your long distance visit to continental illinois chicago. to be fair, i enjoy continental illinois on the day that ten banks in the shopping center in oklahoma fan, continental illinois women. i do understand the issue and, the capitalization affecting

risk. if we could go back and take a little more around proposals 3, you have been quoted discussing the practical difficulties, upsetting capital and stability requirements. .. requirements and i mean, is your view that the bassle 3 approach is just the wrong approach and we should be using a different strategy or that we should be amending somewhat and adding other features to bassle three? >> one feature that's very important that i guess hasn't come up, which many of the american regulators feel very strongly about, and at least continental regulators don't seem to feel strongly enough, given inevitable practical problems and identifying risks and appropriate capital

requirement against different risks, there ought to be -- you can think of it partly as a backstop. there ought to be an overall leverage requirement. the risk-based assets are not small, but there are many banking assets that aren't covered at all by the risk-based approach. and there's been some interesting studies recently i've read about, that said looking backwards, what can we say about what banks did best during the crisis and which is it worse? and they concluded that the banks that had the biggest capital, whether or not they conform to bassle two at that point, did the best. and they did the best because capital was allocated. the united states thought it out years ago to the extent we had anything and gradually developed the leverage ratio.

and with much fighting, tleverae ratio was kept in the united states with bassle one and two at a quite low level. the feeling in the united states, i think i can say, is yes, you ought to have a leverage ratio and it ought to be higher than what they're talking about in bassle, significantly higher than what they're talking about in bassle. but i don't know whether that will ever be agreed in bassle but yes, i think that may be more important than the risk-based standard. i mean this is the way you get at the fact that some important risks are not covered at all by bassle. now the difficulty with it is, is we used to have it that way. they said okay, we got one capital standard for the whole bank we're not going to buy -- in american terms we're not going to buy government securities anymore because we just want to hold things that are more profitable.

we don't want to allocate 5% capital against government securities. and whatever you're doing, there are going to be games played. it's inevitable. so you try to make up the rules somehow anticipate that as best you can. but i really would say strongly that i think the risk based standard ought to be self-invented by leverage ratio. >> so leverage ratio to set the floor, to set the floor. >> yes. >> yes that's -- and then a risk-based mechanism. >> sometimes it may not always be the floor. it may be part. >> good point. i mean that chimes in very much -- i suppose some fds comments we had here talking about the complexity that's of capital and liquidity requirements as in a sense potentially being part of the problem itself.

that's something that tends to lead to gaming as well. is that a view you would take too? >> yes. part of the problem with bassle two as i understand it, apart from the obvious omissions of sovereign debt and mortgages, is they struggled for ten years to come up with bassle two. by the time they came up with it we had a big crisis. but they were struggling over how do you evaluate risk? and they thought, well, you know, originally they said, we'll let the standard & poor's and moody's and so forth. we know how good that was at the end. they said we don't want to rely -- this is an outsider too. they said banks that have a good internal risk base system we will give a lot of weight to. we will see whether we like the system and we like the system we'll rely upon the bank system.

and that sounded perfectly reasonable but we found out a lot of banks that thought they had a good system did not have a good system. they broke down. all i'm saying is complicated how do you avoid the complications? the complicated will break down too. i come back to very simple thing, a few simple rules, statutory rules, can't be changed -- can't easily be changed, ought to be the backbone of this. the most important one is the reconciliation procedure. now we have a reconciliation procedure in dodd/frank. most of the people in the market say i know, but it won't work. forget about it. and we'll be back in too big to fail. it would be helped if we get a uk/u.s. agreement, little harder to say. and if we can get a simpler one

we have all the better. but i think we have common ground on proprietary trading and hedge funds and equity funds, handled differently but at least there's common ground there. and i hope we get common ground on a leverage ratio. >> could i just pick -- something on the leverage ratio to push a little bit more. one of the issues and you've raised it, be sort of i think you called it the unfinished reforms about the nature of bank capital and a question about the usefulness of contingent debt instruments. do you have a comment on that as we think through the leverage ratio? >> i know that's a big issue and it's a trade within europe. for some reason or another this was proposed in the united states back with the latin american debt crisis. that's how old i am. as a measure and we had an internal banking crisis following that.

this idea of convertible debt, converting into equity and certain conditions was thrown out at that time, particularly the then chairman of the fdic. was pushing it. the banks never have liked it. people in the market tend so say sounds good, but won't work. people won't buy the securities. if you get this risk in buying debt securities might as well buy equity in the first place. from the bank's point of view they think it's too expensive. it's on the table now and i think that ought to be looked at very closely and it would be good to have -- it's not an area you need common ground in every country, but if it's good in europe it ought to be good in the united states too. >> could i just ask you almost

passed the contrarian view, because one of the issues we testled with and i'm sure you do as well, how do you get safer banks on the one hand and yet, fuel sxheconomic growth on the other. just -- is there a risk, sort of the general movement towards tighter capital and liquidity standard could choke off lending and economic recovery? i don't know if you have some comments on the experience in the u.s. which may be a little different from us in the uk? >> i mean theoretically it's possible. i don't think we're in the range where that's relevant frankly. bank lending involves risks. >> yeah. >> i guess in my head those risks are socially useful. if they're not overdone. you want banks to make loans and make loans to small businesses and risky businesses but you don't want them to do subprime mortgages with no down payment and no credit history and all

the rest. get some kind of a balance. >> mr. volcker, i wanted to ask you a little bit about the wholesale markets and banking. but you've set out some wonderful insights and you said a moment ago we need a few simple rules. the volcker rule is a simple rule. why does it need -- >> sounds simple, doesn't it? >> why does it need such a vast complex amount of regulation to enact it? >> pardon me? >> why -- the volcker rule is a simple rule. why does such a simple rule require vast quantity of complex regulation to make it happen? >>. >> i don't think it does. i don't think it requires some regulation. you know, part of this is power of my opponents. how many times have you heard

that the role -- the proposed role a year ago was 300 pages long. it wasn't 300 pages long. it was 35 pages long and at 160 ba pages of questions that lobbyists said would work. won't work, we have a 300-page rule. i'm cheating a little bit. the rule was 35 pages and had an appendix of 30 or 35 pages laying out the metrics i was talking about. now i hope they're getting this better. this comes back to this vexing question, principles against rules. and there's no doubt that the american legal system, american habits say we want a rule clear and simple, black and white, so we know when we're obeying the rule. they don't say we want to know how to get around it too but that's part of the deal.

and you take that attitude, there were 400 bank lobbyists down there lobbying the agencies on this regulation. and make a million, spell this out exactly, we don't like it. how do you tell the precise difference between a proprietary deal and a -- i think you can shortcircuit all that by relying on what i said earlier. making sure that general policy is clear, incorporated in the bank's internal -- they can write the regulation themselves internally, subject to review and then you look at the statistics. and that's not a huge -- shouldn't be a new imposition because they all have these daily statistics anyway. they might have to tweak them a bit or add one or two but it's not that they're starting on vir

begin territory with a whole new reporting burden. they already have the reporting burden inside the bank. >> thank you. and turning to the whole concept of wholesale banking, you've mentioned earlier that figure you've stated before of $60 trillion of cdss, $6 trillion of that actual debt, and in the article that i read, you went on to say over the years banks have become much more obsessed with trying to make money by trading between themselves. is there any actor or practical common sense commercial purpose to the instruments that are being traded? is it necessary at all? >> well, see, the proposals made, okay, credit default swap, that's kind of an insurance policy. you take out -- you will pay for somebody else to take the credit

risk. as you pay in fire insurance or anything else. now, people point out the difference between credit default swap and insurances it's against the law to take out fire insurance on your neighbor's property. for fear you burn it up. but nobody is -- nobody is preventing ten credit default swaps against the same security. and so the proposal said okay you can have a credit default swap against your loan. you own the loan, xyz company, and you want to sell a credit default swap or buy it, you can buy it, pay a fee and buy it, okay, that's your insurance policy. that sounds reasonable, right? insurance. that's what it is. but then they say, but, you know, the person selling that

insurance has to have a market for derivatives so that he can hedge his risk. so he sold the policy to you. he now has the credit risk and he better lay off some of that credit risk to somebody else. and now we have two derivatives and maybe three derivatives. exponentially it rises and in the end it's not anything, it's a pure -- people are taking the risk without the instrument or without the basic loan. >> does that activity multiply risk in the system rather than spreading it? >> i think demonstrably it has led at the very least to these interconnections between -- it's certainly a big, big amount of trading that involves many instituti institutions. it's not, you know, you're not playing just with one other

institution or not just playing with yourself. you're playing when the derivative goes bad, god knows how many other people are involved in that. and that's what we're feared to happen when lehman went down. that was cleaned up pretty well, i think in the end. but there's undoubtedly a lot of interconnections. >> if we have -- if we identify social use i think the phrase used earlier, socially useful or socially required side of banking the payment system, you have the deposit collection the loans to small businesses, to proper mortgages to houses, but equally you have a required commercial side in investment banking, the sourcing of capital fo expansion, initial public offerings, all which is useful commercial or social activity, it seems this bubble on the end -- >> that's what -- in the bank --

>> exactly. but there's this bubble at the end where a bunch of guys selling things that nobody wants, nobody needs, aren't useful, don't contribute to commerce and what we're saying is we'll let them -- like the horse racing industry here, running horses, and then the bookie industry over there, just betting on it and make money. my question is to date we're talking about how we contain that and control it. nobody seems to be asking the fundamental question of should it happen at all in the first place? >> i'm a modest fellow. my imagination doesn't go that a fall about these things. there is some function in trading activities whether it's derivatives, they buy something, they want to sell it, you need some traders.

the more argument you get the more liquid that market is, by liquid, they mean ease to sell without any change in price, the better, that's a change in market efficiency, i say yes up to a point. but liquidity is not a additive good no matter how much you have. because it may lead to behavior that in the end is unfortunate. if people can buy very complicated risky stuff they probably shouldn't be in in the first place, and they buy it and say i can sell it tomorrow, that's a very liquid market. maybe too liquid. if they're buying that kind of stuff maybe that leads to behavior that in the end -- this point is often made with respect to pension funds actually.

rather endowment funds that have traded much more actively and was really quite dramatic in terms of the turn joevg of these institutions and they can do it because stocks and bonds are so easily tradeable. but at the end of the day is it really good these institutions have been turning their positions so much. you would have a nice argument about that. >> thank you. >> mr. volcker, going back to this much quoted statistic about your rule being turned into a 300 page rule book that you mentioned a minute ago, are we to take it from your relies that you think the integrity of what you proposed is still there, despite all this lobbying by banks to chip away at the edges of it, rather than you taking a view that the integrity has been undermined by making it more complex than it need be?

>> well, really tells the initial regulation was more complex than it had to be. i don't know what the new regulation will say. i do not believe that the thrust is being chipped away, no. maybe there is a particular deminization expectation for risk funds and hedge funds that really is, not going to be a make or break thing. the law is pretty precise about what you can do. they'll try to find a way around it. but no, look, the amount of proprietary trading in american commercial banks is today -- i have no measure but it's without question diminished. because even if the regulation is not fully effective at the moment, they can see you coming. they've all -- we're talking about relatively few banks that do this. don't forget that. you're talking about five or six

banks in the united states and you want to say, eight or ten that fight with you, but only six or seven banks in the united states that do this in big volume. most banks, they may occasional occasionally, but it's rare. they used to -- some of the big banks, i guess most of them, had a division two years ago to set up proprietary trading, some of them said proprietary trading, sometimes they had another title, but they were for proprietary trading but they kept separate from theest a esee rest of it. they are outlawed by the law in any interpretation. you can't have a unit of a bank sitting out there doing proprietary trading. now the only argument is, okay, so the proprietary trading moved three trading desks down on the

trading floor and he now calls it market making. many of those aggressive traders are less because they can go somewhere else. they can go to a hedge fund. it hasn't affected us. i think flagrant violations you can identify. >> sounds like three quarters still at least. >> at least. >> just going back, the paper that you gave us has a section on it, titled "vicars, volcker under the ghost of glass steagall. i want us to be clear of your view of this because going back to the question asked, there is some confusion i think or misunderstanding about this. you said in this paper that the approaches of vicars and linnen appear close to the form of

glass steagall restrictions in the u.s. which broke down over time and that made a precautionary lesson. hearing you describe your own proposal, to me that sounds more like a glass steagall two type proposal because it's proposing a complete separation between two sets of activities, rather than a ring fence within the same company. so who is closer to glass steagall two? is it you or vickers? >> they both have relevance. i said that because it would allow more functions in the overall organization than my rule. but you're right. on the original design of glass steagall, it changed over the years, but in the original designs -- well, it -- what i

was going to say wasn't quite true. absolutely prohibiting trading but it didn't. it permitted some trading in the bank itself, certain securities, which got broadened, and it did not prohibit so-called dealing effectively in the subsidiary. now what i think of is, there were lots of rules in the united states between the bank and its subsidiaries. so that's what made it kind of restrictions on dealing with the subsidiaries, not as strong as vickers at all. in that respect vickers is much stronger than glass steagall, attempting to be much stronger. i say to the extent they exist in glass steagall they broke down over time and i fear that might happen in vickers too, yes. >> can i ask you about just one

or two areas as we come towards the end. we're often told i suspect in the united states and certainly in the uk, that the financial services industry contributes a huge amount to the overall economy and, therefore, we should be very, very careful with doing anything that might spook this industry. but you've also said that a lot of the energy and innovation in recent years has been pretty worthless is your famous quote about the only useful innovation about being the atm machine in recent decades. >> that may have been a little far reaching. >> do you think the contribution of financial services to the overall economy has really grown in recent years or has most of this growth been in terms of its own size and the rewarzs within it? >> well, i'm afraid i think a lot of it is spinning your own wheels and making money doing

it. there is a calculation, i don't -- that the losses from trading, not just proprietary trading, but the losses from trading in 2008 in american banks was all kwaequal in size all the money trading in this century. i think i came out even. looked very possible for a while, but when you got in a crisis it blew up. i didn't calculate that number. i can't even give you a reference for it. but that point has been made you can go check and see what it says. but you know, a lot of this is, i think, basically, you know, the banks, with this clever financial engineering, to make up all kinds of complex

instruments, the simplest version, if you give us your money for five years, you will -- we will guarantee you against any loss and if the stock market goes up, we'll double whatever the stock market goes up until that happens. and, you know, not going to take any loss, may double my money in the stock market. you kind of forget back in those days when you paid some interest. you would give them the money for five years that's 25% in interest you're not making. right away. they're able to offer that deal because they got guys down there, my grandson used to be one of them, they go down there and they work on their computers and they buy options and puts and calls and so forth, and they can shape that instrument in way that the bank isn't ending up with any risk or any substantial

risk. that particular structured transaction in fact they're not going to sell it to you unless they're making 2% or 1% or something. you can argue that's a useful service. i'm not stopping anybody from doing it. but an awful lot of activity of that sort goes on. which i doubt makes an enormous contribution to risk taking, economic activity, whatever. a lot of this is pure activity, some of it is counterproductive for the reason i suggested. it's all to the extent the complexities of this led to the breakdown then it's counterproductive for sure. >> following the crisis, slerneslern e certainly in the uk there's been a lot of criticism of regulators and the role that regulators played in not blowing the whistle, not as to use a phrase, taking the punch ball away at

the height of the party, what do you think about the quality of leadership in a banking industry? say the regulators, why did so few bankers themselves speak out, if any, against the culture of excessive reward, risk taking, incentives and all the rest of it that led to this? what do you think about the quality of leadership within the financial institution itself. >> this is part of the whole cultural and intellectual climate of the times. the amount of money that some traders are making, and the amount of money these executives are making, at the top, you often see the statistics that maybe the chairman of a bank when i was in banking might make

50 times or 40 times what the average employee makes. now he makes 500 times the average employee makes. it's a difference in scale. and may be smarter than they used to be in those days and more aggressive and they take advantage of enormous complexity and they get people who understand the complexity and can make money on the complexity and may end up taking big risks in the economy but in the short run they're making a lot of money. i do think that's changing. nothing like adversity to change people's minds. and i think bankers have begun to realize they kind of let the rules of the game change, not because -- partly because of regulation but partly because of losses that were taken and the instability and you see some

changes. i don't know what the changes yesterday, but i -- interesting speculation. >> justin has one more question for you. then i'll ask if you have anything else you would like to add. we've kept you quite long enough. >> mr. volcker, based on what they were just saying a few minutes ago, historically london was restored to a position as a major international financial center through essentially regulatory and tax ar ba traj in the '60s with the opening openi euro dollar market to evade certain issues in the united states. and that moved to a lot of assets over here. you have commented that roughly 85% of u.s. banks overseas assets are in london and the rest is small change

essentially. how much danger do you see of a seismic change similar to the reopening of the euro market if london london had strict regulation through regulatory arbitrary. people upping and moving that 85% somewhere completely different. >> well the argument you hear all the time. those are the only two senators now that have the capability to size the knowledge, whatever to really do this in a big way. but it will grow over time. and i think the more we internationalize some of the basic regulations, that's what it was all agent. level the playing field.

it's obviously not ideal that the united states has the local role, but i don't think it's entirely terrible either. because they are both ending up in the same way to see which one is better. and i would prefer otherwise, but i don't think that's the end of the world for british banks or american banks. or for either one. you get europe to follow suit, as they should. they are not the enormous threat right this minute, but they could become obviously. >> but by threat, you mean threat to the financial system? >> yeah, yeah. just to kind of benefit to the economy. characterization of all kinds of statistics and i'm going to give

you an uncertain statistic. we added statistics for value added by industry in the united states. i'm sure you have them here. it's pretty tricky. it's pretty straight forward in the manufacturing business. if you look at value added numbers in the united states for the first decade, the decade before the crisis rough ly, you'll see phenomenal numbers, value added in the united states of the financial industry went from 5 to 10. if you look at it in real terms, it went up very little. so you had all this additional activity and all the additional profits yet somehow the

statisticians said there was no technique over what you had before. it's hard to believe that those calculations for finance are extremely difficult to make. but at least it's in the direction of saying a lot of activity here that didn't have any striking relationship. i'll tell you, the machine does improve productivity. >> one final question that we haven't asked you is whether you think a lot more could be done by tightening up criminal sanctions for serious wrong doing. for bringing in tighter, stronger criminal sanctions for serious wrong doing.

>> it's frustrating because there has been some wrong doing, but what people say, it's very hard to see actual violations of criminal law. you can see a lot of bad behavior, but if you have a case to bring to the jury that beyond doubt, beyond a reasonable doubt this guy had in his mind that he was doing that deliberately. it's easier to bring insider trading cases, but that's not easy. that's the one place we're seeing people being put in jail. >> i promised you before we started that i would give you an opportunity to say anything -- you had a note there right in the beginning that you thought you might want to make. i kept within the two hours.

>> i appreciate your asking when you sit here listening to all these unreasonable propositions, but i would -- i said it many times. i think volcker, dodd-frank are both the actions to perception of the same problem. and they have all some effectiveness i hope. it's not the only problem. we have problems of resolution authority. but it is a problem. >> you have given us a great deal of food for thought. we're extremely grateful that >> as election day draws closer, we'll be bringing you more candidates' race from across the

country. today from linda mcmahon and chris murphy at 4 p.m. eastern time a. at 7 p.m., george allen and tim kaine. followed by the senate debate in wisconsin between tommy thorpe and congresswoman tammy baldwin. >> we have come too far to turn back now. [cheers and applause] the american people have worked too hard, and the last thing we can afford to do right now is to go back to the very same policies that got us into this mess in the first place. i cannot allow that to happen, i will not allow it to happen. that's why i'm running for a second term as president of the united states. [cheers and applause] >> the middle class in america is getting crushed, squeezed because incomes are down at the same time gasoline prices are up, health insurance premiums

are up, food prices are up. it's really tough being middle class even if you have a job in america. so we're going to go to work to create more jobs and more take-home pay. tsa why we're in this race -- that's why we're in this race. we need a strong america so we can provide for the future of this great country. [cheers and applause] >> watch and engage monday as president obama and mitt romney meet in their final debate moderated by cbs' bob schieffer from lynn university in boca raton, florida. our debate preview starts at 7 p.m. eastern followed by the debate at 9 and your reaction at 10:30. all live at c-span, c-span radio and on loin at c-span.org -- online at c-span.org. >> a group of education policy professors yesterday discussed ways to improve u.s. schools and student performance. they considered ideas for improving incentives for schools and recruiting better teachers. there the aspen institute -- from the aspen institute, this is two hours.

>> welcome to the aspen institute. my name is ross wiener, vice president here at the aspen institute and executive director of our education and society program, and on behalf of the harvard graduate school of education and the american enterprise institute, welcome to today's panel on the futures of education reform. so the last 30 years in education policy in this country has really been dominated by standards and accountability reform. and while we've made some modest progress, especially in elementary math, we really haven't made the kinds of dramatic progress we want to see, and really it leaves us with a status quo if terms of achievement and equity that is, it's not sustainable, it's not acceptable morally, socially and economically increasingly. so, and even with those results the current education policy debates are largely about how do we get better at the standards and accountability work that we've been trying to do over the

last 30 years, and those are very important issues around how do we get smarter, how do we complement those policies, how do we extend them from just schools to principals and teachers. but into this context then comes the working group on the futures of school reform. so about four years ago a couple of professors from the harvard graduate school of education who are here today, bob schwartz and jal mehta convened a group of scholars, of educators, of researchers and policy experts to really have a different kind of conversation, to really sort of question some of the basic assumptions and ask are we going in the right direction, are there more promising foundational principles on which we could base educational improvement efforts and education policies. they studied examples from across the u.s., internationally and other areas of social science research to, again, get

at this question of what should the future of school reform look like. and they have produced a volume of essays, and if you don't already have it, it's available for sale out front, the future of education reform. and i think the futures of school reform, i think one of the interesting things about the group is that they didn't come to consensus, that wasn't the goal. it was really to help each other hone a set of ideas, a set of proposals that then could be shared to start to get all of us to question our assumptions, to really try and look anew at these issues. so there's some tension in the ideas you'll hear today, there's some come me men tearty, they don't necessarily carve out one vision. that's the job of all of us, how would we reconcile these ideas and make new paths forward. so today we'll hear from six of the authors. each will articulate their big idea. they'll talk a little bit about

the problem they think it addresses and why they think it'll improve education. then we'll hear from a couple of expert respondents who will provide a reality check, who will give some of their ideas about how we might move forward with these ideas and then, hopefully, start us off with some questions, and then we will certainly engage you, so think about your comments and your questions. and so the format of today we'll do two panels, and so now let me introduce the first panel, and then i'll introduce the second. so in terms of the authors from the futures of school reform, we've got bob schwartz from the harvard graduate school of education, terry from stanford university -- terry moe, and helen janc malone, an advanced doctoral student from the harvard graduate school of education. after they propose their big ideas to you, ask they will take about five minutes each -- and we'll try and keep them to that -- then andy rotherham, a founder of bellwether education

consulting firm will, again, give some of his comments and start us off with questions, and then we'll have a period of q&a and comments and discussion with the audience, and then we will slip in a new panel which will be jal mehta from the harvard graduate school of education, rick hess from the american enterprise institute and richard elmore, also from the harvard graduate school of education, and heather harding, vice president of teach for america, will be the respondent for that panel and then, again, we'll open it up and bring everybody in for the discussion. so today i hope is a great opportunity to question our own assumptions, to probe our own thinking, to hopefully come up with some new ideas. but we should be mindful these aren't primarily academic issues, abstract issues. they're education issues, they're policy issues, they're political issues, and we really do need to be thinking about how, what's our plan for

dramatically improving education many this country. so i hope we can go from some of these big ideas to where do we think this takes us. you know, and maybe start to talk about are there other incremental changes that we can make on the path to transformation. what ought to come next. so i'm excited for the conversation today. i really am honored to be up here with these folks and so glad the aspen institute could participate in sponsoring this discussion. so let's dive in. bob, i think you're going to kick us off. >> great. thanks, raz, and thanks very much for organizing and hosting this event, and i also wallet to thank -- want to tank your colleague, katrine wallace. who's done a lot of work here. a little over 20 years ago they basically said the whole system needs to be kind of reimagined and recreated. an unusual opportunity, kind of leveling the field and inviting

the legislature which in turn hired a set of experts to come in and help redesign a state education system from the ground up. at that point we really didn't know a lot about how other systems that routinely get high performance were organized, so the set of ideas that were cobbled together for kentucky that became the framework for what many other states did including my own state, massachusetts, we're drawing from high performing organizations in other sectors. our team which consisted of ben levin, the longtime deputy minister in ontario, adam a researcher from wisconsin and i, all three of us have had over our careers a fair amount of interest in looking at other education systems around the world. ben and i in particular have done b a lot of work for oecd. adam as a researcher has studied other systemmings as well. so i kind of -- our kind of thought experiment, if you will,

was to say imagine a judge now in another state basically declaring in this current system unconstitutional and saying redesign a system from the bottom up. what would happen if you actually tried to design a state system not by imagining what works, but by actually looking across the set of consistently high performing or rapidly improving education systems around the world, looking for those common elements that are in place and actually trying to see to what degree could you redesign a state system. and i think states are the right unit of analysis here for a bunch of reasons. one is very often when you talk about finland, singapore or even ontario, people will say, well, how can you compare these small places with the u.s.? and i think the way to think about that compare is at the state level. so what are some of the kind of core principles, if you will, that seem to undergird those systems that have not only had routinely higher performance,

but actually produce more equitable outcomes than the u.s. does? i won't run through -- we have a list of seven, i'll just mention three or four of them. obviously, fundamentally in some ways most important is these systems really pay a lot of attention to recruiting, developing, retaining, supporting teachers. they focus first on really creating a highly-talented teaching corps. they pay a lot of attention if a kind of thoughtful, deliberate way to the recruitment and preparation and support of school leaders. they obviously pay a lot of attention to creating funding systems that do not rely on the vagaries of local tax bases but operate on the premise that you need to create not only equitable funding, but you then need to make sure those schools and districts serving the highest district of kids get disproportionate resources in order to level the playing field. they pay a lot of attention to building support systems for students, trying to catch them

early before they fall behind. typically through a common curriculum, at least up through the middle of high school. and then most of these systems -- and this is an issue in which identify been spending my time -- most of these systems from the middle of high school on to not operate on the premise that all kids are going to go on to university or four-year college, but they expolice is sitly acknowledge and build systems to support the majority of young people to combine work and learning through their last years of high school and what would be equivalent in the u.s. of the first year or two of a community college to make sure those young people come out with skills and credentials that will get them started in the labor market. they don't close off opportunities to further learning, but they acknowledge the fact that a lot of kids by the age of 6 or so -- 16 or so want to be in adult settings and want to be in a situation where they are working and learning simultaneously.

so those are some of the key ideas, at least, that we saw as principles. i'll just make a couple of comments on two of those features because i think in some ways they're the most critical. on the teacher side, you know, finland is a place that we tend to pay a lot of attention to, but what you need to know about finland is they made a or very deliberate decision to kind of close town their relatively ineffective teacher education institutions, move teacher training into their higher universities and raise the bar for entry. and by raising the bar for entry, they in a way did for their whole system what tsa has done in the sense of making, wanting to commit to teaching, making this a more elite process. so they recruit only from the top quartile of high school graduates, they have a demanding and challenging process for selecting teachers, and con intent subsequently they've been -- consequently they've been able to design a system on confidence that teachers have the core knowledge and skills to

be able to function, so there's much less emphasis on kind of top-down accountability. on the school to work side, i'll make a quick observation, and that is that these systems have managed to actually create social partnerships which bring employers, educators, um, union representatives and governmental representatives together to really design these systems that really do support the majority of the young people to, again, complete their academic education, do it in a kind of applied way and get launched on careers. i think i'll stop because my -- i've gotten the one minute sign. [laughter] >> terrific. thanks, bob. terry? >> okay. well, paul hill and i decided that we would focus on choice and competition and how we think the american education system can take much greater advantage of what choice and competition

have to offer. whenever people talk about choice and competition, it seems like it gets stereotyped in terms of the free market, but i think this is really the wrong way to think about it. think about the economy. um, the economy that we have is not a free market. not even close to a free market. we have a system in which we rely upon the market to be sort of an engine of efficiency and productivity, and it's good that we do because markets are these really powerful mechanisms. but they also produce problems. if we just left the market alone, we'd have problems of monopoly and price fixing and te sentive practices -- deceptive practices and all sorts of other things. and as a result we have a framework of rules that constrain and guide the way the market works.

and that's the key role of the government. and so what we have is a mixed system and throughout the developed world countries have mixed systems of government and markets. so you have an all-government system on one end of the continuum, a free market on the other end, and basically we're all if between somewhere, right in and what we're doing is we're finding a mix of government and markets that seems to work well. and this model does work well for the economy. and what we're saying is we should think of education that way, you know? and it so happens if you go back like 100 years, our education system was essentially created by the progressives around the turn of the century, and there were party machines and all that, good for them. and what they did was they created a big bureaucratic education system which was a huge improvement over, you know, what they were fighting against. but they took no advantage of choice and competition which is sort of understandable for the

time. but we, basically, now have inherited that system, and what we have is a purely governmental system, and we're sort of camped out at one end of the continuum. and what we need to do, i think, um, if we're going to have a system that is dynamic and has the right incentives, right? and gives people lots of options is to move. toward the center. and so the odd thing is that the system that we have now that everybody knows about and that everybody is familiar with is institutionally extreme, right? it's way at one end of the continuum. pleasure and what we should do is not move to a free market. we should just move to the center somewhere and take more advantage of choice and competition. all right, well, that's what our paper's about. so what we suggest is a way of doing this. and one way -- there are ore ways to do it -- is to just

reeve the current system in place -- leave the current system in place and then introduce a lot more charter schools, have vouchers for disadvantaged kids, um, allow virtual charters and hybrids and so on to have all sorts of new rules for online learning. but in general, um, the role of the state would be, it would run it own schools as it does now right through districts, but also it would create frameworks that would constrain the way charter schools and vouchers and so on work. so, for example, with charter schools i think we should just take all the ceilings off, encourage the proliferation of charters, but then there would be rules, right? that govern their add pigs, there would be -- add pigs, there would be audits, they would have to meet certain standards, and i think much more rigorously than now bad charters would be shut down, right? so there would be basic rules.

but within these rules there would be, like, thousands of charter schools. and the same thing with private schools, they have to meet certain standards, they have to assess their kids, and if they don't do a good job, they get kicked out of the program. so basically you have a choice system, but it's not the wild west, you know? it's a regulated system just the way the economy is regulated. and so the bottom line for us is that what you would do then is force the regular district schools to compete with all these charter schools and private schools and let them do what they want. if they want to have collective bargaining, good. that's up to them. but then they have to compete with the other schools that don't have it. so if they have, you know, restrictive contracts or if they have other ways of organizing that they think work well, fine. then people don't have to go there, or they can go there, right? but they should have all kinds of other alternatives.

and we make no presumption from the outset on what the best way to run a school. the school will decide that. and the system will just evolve over time, and who knows how many kids will wind up in charters or private schools. families will make their own choices based upon the kinds of schools that emerge, how good they are and so on. so there is no one best system, but what you want to do is create a framework that encourages effective performance, effective organization, gives everybody the right incentive. >> terrific. thank you, terry. and, helen, if you'd be the last of the authors, and then andy will bring it home for us. >> so professor -- [inaudible] and the massachusetts secretary and i focused really on -- [inaudible] so we looked at the logic and standards-based reform coupled with disappointmenting data -- disappointing data, and we realized we need a much broader solution to look beyond the

classroom to address issues of high poverty for students of color. the current delivery system is definitely not work, the results are not there. if we're serious about the achievement gap, we need to look at more comprehensive solutions than those strictly within the compound of the classroom. of course, we're well aware of school factors, there was skepticism around addressing solutions for poverty because of the high financial and political costs. we also know that some folks do not -- [inaudible] as an excuse why bad schools continue to teach. but from our standpoint if we only focus on standardized testing as the only yardstick about how our children are doing and social factors not related to -- [inaudible] and if we also see community services as unnecessary add-ons, we're just going to continue to be baffled by high dropout rates and a low acceptance and completion rate in college.

and, um, you know, our premises, we have students who are coming into our schools whose basic needs are not being addressed be that -- [inaudible] we generally expect them to be motivated and ready to learn. equally so, it's unfair to us as teachers particularly in underserved areas to wear all the hats, to be the social worker and physician and guidance counselors, and that's not a system that really supports teachers or students. so what we see is that if we focus on a comprehensive solution, we'll -- [inaudible] by providing intervention and prevention and community service -- [inaudible] learning opportunities for children so we can see that, um, students will be able to get these sort of learning supports both -- [inaudible] and outside and teachers will be left to do their business of teaching and not wearing all the

other hats. so really our kind of key question was this how do we -- [inaudible] educational versus just the school system to really support our most low income students, high poverty students? and our solution is really to look at an integrated, year-round, interagency approach where we really complement the federal, state and local initiatives -- [inaudible] so it's not -- [inaudible] higher education. one that's really utilizing all the available resources. and our solution definitely not abstract. we think this is happening across the country. we see the -- and the impetus is usually pretty much the same, equity of educational opportunities, customized learning and -- [inaudible] for students and college readiness and preparedness for students. so some of the examples on state level ready by '21 initiative --

[inaudible] take manager of a role to implement services -- taking more of a role to -- [inaudible] community learning centers focusing on district wide initiatives. in oregon we see this at the community level, so you are probably most familiar with the -- [inaudible] city level, for example, there is the case management program called city connect in boston. that's as well on the school level connecting to the community, and we also see organizations in the center, so at stanford you see the archives of using data at the center and focusing to support community and all the stakeholders. we also understand that there have been past challenges associated with the integration. we're just finding guidelines,

inability or lack of -- [inaudible] for agencies to collaborate, lack of willingness to change on the organizational level and -- [inaudible] staff practices. so we're aware that those challenges exist. however, we're also hopeful because we're seeing why at this time it could be different, and part of it is because there's a growing evidence base that community services make a difference. fifteen years ago most of this data and these evaluations were not even available, and now we're seeing that we actually do produce -- [inaudible] report that we can actually see improvement in student learning outcomes on grade level. secondly, we're seeing the -- [inaudible] of government is actually focused more on addressing education and social issues, and we're seeing that the data is playing a central role. we're seeing more integrated services and data sharing across a variety of stakeholders. so we feel this way we can start to focus on indicators that are

quantifiable, that are near term, and they're linked to the schools. of course, we realize that there are existing issues around the vertical and lines of federal, state and local that we still have the deal with issues on the judicial level as well as higher spectrum. and within the -- [inaudible] dividing lines around the programs and funding. but we feel like the integrated approach is really the only way to really be serious and address this issue, and i see -- [inaudible] [laughter] >> terrific. thank you, helen. andy, what do you make of all this? >> thanks. thanks for having me. um, so i'd say two things. first of all, a good part of my work is in public policy, so if i'm here to be the reality check, we're in huge trouble. [laughter] and the other thing is i was involved in the project, so i went up to boston with my colleagues, and it was a great project, it was a terrific chance to sort of step back from the day-to-day and have this

conversation about if you're serious about moving t political arguments we have, having a substantial deviation or two what would we have to do, what would that look like. and it was a terrific conversation. i guess i'd say, so i'd summarize the project you saw a little bit here, kind of like the boston red sox. some wins, but a lot of disarray and a lack of clarity about what exactly comes next. [laughter] it would be -- >> ouch. >> it would be glib to say that, like, you wish you could take a little bit of each one, but you do. people recognize their ideas themselves, each one n a way it's a depressing commentary on how dysfunctional our debate is. there was good ideas from these three panelists, there's going to be good ideas from the next three. so specific comments on that and sort of three ideas at the end, my job to bring it together. on the international there's, obviously, a hot to learn, and i -- a lot to learn, and i think

we can give short. >> shrift to that. and there's also, in general, just an enormous correlation causation fallacy, people pick whatever their thing is whether it's choice or national standards, and they seize on that and ignore all these sort of contextual factors. i'll give a plug, i also write a weekly column for time, and my colleague has an important book on international comparisons, sort of unpack that and how the debate is driven by advocacy points of view rather than sort of thoughtful analysis. i think this chapter is thoughtful on what we can learn, but there's a couple things you have to keep in mind. first of all, culture matters. we have different cultures. but these are huge issues. i mean, this idea we have a culture that's about second chances for kids that's integral for who we are. that's a really big deal, and when you look at how those systems and even finland which right now is sort of the flavor

du jour in the education debate, there's a sorting mechanism there that's just different than what we do here. maybe efficiency means we should do that, but i think you really have to respect those cultural issues. we have a stronger sense of class mobility. i don't think you can say we're in any way living up to our aspirations, but it is an aspiration, and that's a stronger and more important part of our culture, political culture and educational culture than it is in many european countries. and third, the big issue, the design of the system. the federalism is one piece, highly decentralized, the number of choke points, and right now we're having a national political debate where one party can't stop talking about the national education crisis but refuses to propose solutions to address it, and the other party wants to propose solutions but has to tiptoe around them unless they get painted as the party of big government. and that, in a nutshell s the 2012 education debate.

and so we can't sort of underestimate as we think about these things how much that matters. on the mixed model, look, i'm sympathetic to it, in fact, i worked on the chapter in the interest of disclosure. i was too busy to be an honest co-author, but this is the model that i'm most sympathetic with for two reasons. one, i think there's promise there. but second, i think it's going to happen. so if you want to look at the future, i think school choice, it's like gay marriage. if you look at the polling on gay marriage, tell me somebody's age. are they over 30, under 30, and you can tell with really good probability what hay think about -- they think about gay marriage. right now there's consequences, but over time it's going to happen. i think school choice is the same way. it is going to happen, and you see this across a range. there's sort of not only the politics in education, the demographic politics just across a range of institutions. so it's going to happen. so i think the question there in terms of this issue of the future is not an if question, it's a how question and how to

make it equitable, and i think the big issue embedded in -- and there's parking lots i i -- parts i disagree with. i'm certainly not a luddite, i spent the early morning hours this morning with my daughter on my ipad doinging, but there's -- doing smelling, but it oversates the classroom -- [inaudible] but in general i think the key question you have to ask about this, and we rarely talk about it head on is in a more choice-driven system, how much unevenness of quality are we going to be willing to tolerate in order to foster these goals of customization and so forth? we dance around it, and it's a really fundamental, a really fundamental question that we should just talk about directly. there's a terrific short story called the one who walks away from -- [inaudible] some of you may know that story, short story from the early '70s, and it gets sort of abstractly at this question of how much inequality should you

tolerate in order to have excellence and goodness. for some we shouldn't talk about it abstractly, we should just hit this question head on. it's where we're going with federal policy, and there's just important -- there's important trade-offs that underpins a lot of what we're arguing about. i think that fundamentally if you want to question about the future, that is the question, and it's a systems question. so finally on poverty, um, you know, i think it's a straw man in the debate. i was on the panel a few years ago, and we were asked why does nobody talk about poverty in education? and i thought to myself, are you kidding me? that's all we talk about. i think where the disagreement really is around two things. first of all, how much it matters and how we should consider it in terms of education policy, and secondly, i think it's a question of sequencing. it's a question of how do you sequence public policy interventions and so forth.

there's compelling proof points right now that all else equal, schools can do substantially better than they do, and so lifting our aspirations in terms of what we expect in accountability systems, what we expect in policy is a sound thing to do. there's also a compelling evidence that hitting these issues, 0-5, good prenatal care particularly for women in poverty, good early childhood education, high quality that prepares kids for schools, that these things matter. but in education we say let's do both. and that's generally a copout. that's really code for let's do my thing. [laughter] and when you look around, harlem children's zone, the harlem issue, it's very compelling. these things can matter, but do you know what matters mostly when you dig into the data? the schools. they're the predicate. and we're not going to have sort of of these transformations happen in a linear fashion. these things happen through the political process, so there comes a question are we going to wait to address the issues we

have with schools until we can address the issues with poverty, or are we going to do whatever we can in and i think that sequencing irk shoe is -- issue is enormous. three big things where i think you see some overlap. first of all, you can see where helen and the things she's talking about and terry's talking about actually overlap where you can have sort of better integration of a social services and a more choice-driven system. i think the international lessons we can learn, i don't think they're going to happen on a macro level, but you can see them playing out in a my row way in these different interventions, schools learning from these practices, tic these. i think the big one that we do have to tick on is assistance level finance. if there's a scandal in education, it's how we finance schools. but in general i think these things are going to happen on a more micro level, and then the third point on integration in general, i think you can sort of see general integration, social

services happening. you can see that happening in these different models, and it doesn't have to be sort of its own silo. so with that i look forward to q&a and thanks for having me. >> thanks, andy. and did you have any questions for the panelists? >> yeah, i do. terry, i like the mixed model, but i think it's appropriate we're at the aspen institute where they have the executive compass where you have to balance these things like efficiency, inequality and so forth, and you have to balance those in decision making and public policy. so, you know, in the abstract it's easy to say we'll be able to protect equity because the free market issue is a straw man, but in practice how should we think about this question of sort of this trade-off between efficiency and equality in terms of how we think about schooling? if you're a policymaker, how should you be thinking about that? >> well, i don't see why there has to be a trade-off. i mean, i think the current system is horribly inequitable. that's what they want. and i think what we want to do

is move toward a system where money follows the child and where poor kids and kids with various kinds of special needs get a lot more money than other kids do. they have backpacks with more money in them. and that can be adjusted. so, so equity becomes a fundamental part of the framework that's imposed on the system to try to make the system work the way we want it to work. and i think this would provide a huge boost to equity and give disadvantaged families many more options. you can see what's going on in harlem. you know, they had 14,000 ap lints for -- applicants for 2700 slots in charter schools there. why? people want more choices. they want out of the schools which are not serving them, and they want into something else,

right? and providing them with that is a huge boost to social equity. and what we want to do is to make that happen on a large scale. and it happens through a framework that is intended to make it happen. >> so how would you respond to the plan is, obviously, other countries -- and you hear this a lot -- other countries that are our competitors say, please, keep doing what you're doing. more choice, keep it decentralized. they love it. so how would you respond when you look at a lot of these ore countries that do outperform us right now. choice isn't a big part of their system. >> well, you know, i think these international comparisons are really just lead to a big mystery, you know? why is finland outperforming us? and i think the only honest answer is nobody knows. and, you know, you're just getting at it in a big way by saying, look, culture is huge, right? and it is huge. like compare the japanese and

americans. why do japanese kids outscore american kids? well, you know, japanese kids, for one, are studying all the time, and their mothers are driving them the study all the time, and a lot of them go out of school in the afternoon, and they go to another school, they go to private school, right in their whole culture is completely different, and then you say what is it about the way the schools are organized that make our schools better than ours. i don't know that their schools are better than ours. we don't know that. so it is very difficult to know what it is about these school systems that makes them better than ours. it's also impossible to know whether they really are better than ours. we just don't know very much. >> [inaudible] >> you've got to -- [inaudible] please. >> yeah. two things. one is i think we tend to use culture as a copout. yes, there are cultural differences, and when you look at the way these very impressive

school-to-work systems operate all over central and northern europe, you know, they are deeply embedded in culture. there's a long tradition, etc., etc. but, you know, the challenge in doing international work is to try to kind of separate out to the degree that you can what is a product of culture, and what is a product of deliberate policy decisions or actions. and jal and i had the experience of working on ontario and finland chapters for an oecd book that, actually, arne duncan commissioned. because he said i'm tired of simply, you know, every four years getting the results from p, isa -- pisa and seeing we're in the middle of the pack. take a close look at those systems that have not only been continuously strong performers, but the reason we're interested in finland is not just its high performance, it's the system in the which social class is the least predictive of educational outcomes, where there's the narrowest within school and

between school contradiction. .. for northern european countries and especially for canadian provinces, yes, we should be taking a look and try to figure out are there some things we can

learn. i'm very tired of the american exceptionalism. we are so different. the argument you raised, you have to say, we might aspire to social mobility but if you look around internationally, we have now fallen well behind other countries, even england. the embodiment of a class system. there is no more economic mobility in england if you're born in the bottom class then there is in the u.s. we can say we want to be the country of infinite second chances. more than half of our kids arrive at age 25 without a college degree and without credentials to function in this economy. we can say that's terrific, they will get between 25-50, maybe. but meanwhile, we are losing a whole generation of young people because we are not willing to take a look at the other focus equal attention on those not going on universities. >> so the question that falls on that, i will ask a couple questions and then turned over to bring the audience and.

up, i want to stick with you, we shouldn't ignore examples. you know i had the privilege of going to finland this summer and i found it, i was looking for very discreet lessons to glean and bring back. and i found actually the cultural distinctions, the broader social context in which that takes place is quite significant. it was a very challenging trip for me. you talked about their ability to attract teachers from the very top. they are much more selective even about who goes to college just to begin with. they don't have the same kind of open access, huge university and college and community college system that we do. and then it's after you get into college which means you're in the top third of their high school graduating class that they may get very selective about who can go into teacher prep. it's a very virtuous cycle. people stay for the whole

careers. there's a very high social status to being a teacher in finland. my question, if that's what they've got right and we haven't got yet, what do we do, what practically can policymakers do to elevate that, the teaching profession so people really do want? i would open it to anybody, but bob, if you would start off. >> i do think that this issue of actually trying to raise standards of the much more selective even at the front end about who can get into a teacher preparation program, whether it's university-based or not, is a piece of the strategy. i do think that making, and our context, here it really is a big context difference, but because in most other countries once you come in, because they control insurance and have high entrance standards, once you're in your

in. is not a question of having to pass through three years and then qualify for tenure. i actually think our not taking the tenure process seriously here is, has huge consequences. and not paying any attention to performance either around the tenure decision or around role differentiation is a big factor. again, i don't mean to minimize the challenge of trying to figure out how you actually make teaching, give teaching a kind of status in the society that it has in other countries. part of it really is cultural, but again using the finnish example from singapore or the example from canada. in canada, when we talk to folks there doing the ontario study we asked about teacher preparation. they said, we have a lot of confidence in her teacher preparation institutions, but guess what? we have a bit of a leaky sieve

because ontario is so close to michigan, we sometimes have people who cross over the border, to their teacher education and lower standards, u.s. prep programs and didn't come back in and teach. not a great commentary on our system. >> i think that's right, and we need to pay more attention to town and what we're trying to do right now is evaluate ourselves out of a bad pipeline will don't pay a lot of attention to that, and we're trying to impose evaluation system to address on the back end of it, and has all kinds of bad problems and we should be more serious about talent. the other part, we don't talk about this directly, we need to stop treating teachers like dmv clerks. that's a blunt way but that is how we treat teachers. little ways in big ways. some of it, there's a custodial function in teaching. you are the custody of children so you can't just take off when

you want. you can't just come in late one morning. there's things they are, but we do a terrible job of sort of having schools adapt come have a workplace adapt to what it is the professionals want now, some degree of flexibility even within those custodial constraints, mobility, not having a flat profession. this is not a union, anti-junior stuff. the unions are talking about career ladders for generation. but it's really hard for teachers to move up without leaving the thing to want to be which is to be with the kids. we are not good. what it does happen it's sort of under the table. someone gets to be an administered halftime. we need to get more serious about that. we need to get more series by giving teachers flexibility and so forth during the week. you talk to teachers, they are frustrated. there aren't many teachers in the room today because there in front of the classes. you can't have a system or teachers come and go, but this idea that teachers will have to always be in school the entire week and they have to do saturday's the things rest of us

do on a week. it's an antiquated notion i think we pay very little attention to that side of the croatian and that's a big reason when you talk why the lead. it can be very constraining profession. i think that, every bit as much as the other factors, one reason people don't go into it or they don't state. we need to have a frank conversation about that. >> that's great. one more question. really going back to the choice and provider, multiple four-rider concept. to my members, to benefits ought to come from that model that doesn't do a great giving, some carriers, ted, you have suggestions about a policy can move us. one you mention is we don't actually, we don't keep the far end of the bargain, they just stay around. how can policy just be smarter and more effective? the second one is, there's this concept that competition ought to drive changes. it out to make the incumbent monopoly a little more, you

know, transformative, to transform itself to try and compete for the students. even in places like d.c. where you've got a big a pretty healthy choice market, or is it toledo but also in ohio, or dayton, i think it's a date and that. it doesn't feel like we're getting those benefits that it's pushing on the system to change. maybe you disagree. so either disagree or are the ways that policy can make those, get us more of the benefits of that kind of multiple provider market? >> okay, regarding the first, i think we should just have laws that set criteria schools have to be if they're going to do -- [inaudible]. so now you know, the original idea of the charter school is if you get a chart for five years or whatever, if you don't perform a closed up. it doesn't happen. it should happen. you can certainly write the laws in such a way that either

incumbents on the are authorized to shut the schools down if they don't meet certain criteria, or there should be another agency of the state or whatever that shuts them down. we could make this happen. it's just that so far policymakers have not approached it that way, and they should. okay, the second one is very interesting. competition doesn't always work to produce, let me put it this way. districts and even -- don't respond to consider the incentives are there for them to perform and produce better products. and some of them don't respond well to those incentives. might produce that product. and after in a private marketplace, all of these firms -- [inaudible]. the problem in the public sector with schools is they don't go out of business. they just hang around and our bed. they say we are so bad we need more money.

so that's sort of the way it works, and they stay there forever and the little kids are in their classrooms and they are learning nothing. so this is a very bad system. in a competitive system that serious, right, you wouldn't necessarily expect that, let's say in washington, d.c., at district schools are all going to respond to the incentives, that if you have enough choices out there, then you can build the systems that is inclined toward people failing out of these bad schools because they had so many other alternatives. and the bad schools that don't respond to the incentives, and there will be some, will go down. that's what you want. also i think there should be criteria for regular public schools so that they get shut down, or transformed. so i think you have to expect that not all schools are going to respond to the incentive. you want those incentives because many schools will

respond to them. but if you don't respond to them they should go down. >> i would so i don't disagree. i just read seems like a system that demands politicians to show backbone consistently. so i just worry about that. >> this is just our vision. >> so let's take some questions or comments. and please identify who you are, where you're from in terms of your organizational affiliation, if there is one, and then share your thoughts or questions. right back there. >> my name is elaine and i'm from the broader approach to education. i'm going to be really broad, bold and paraphrase barack obama last night a little bit saying, and also talk to the moderator. a question for all you, but i think i can take offense of the idea people who take poverty seriously and think that kids come to deliver an party or near poverty or who have really high levels of needs are copping out.

and saying that we need to address both. and i decided this is directed to all of you on the panel. i think that's a copout. and i also am wondering where you're getting the data to say that the schools matter more. the reality is that there low income kids, already a year, more than year behind. every year the amount of time they lose, the amount of school of business during the summer accumulates up to another four years by the time they receive six great. the gap between the lowest income kids and the riches kids tend to be one to two years but it's hard to argue that schools are mostly responsible for this. or that fixing schools alone to do the trick. i don't think we are copping out. i think what we are seeing is it a copout to say we can't address the other thing. even if we address everything in school, some learning loss will be there. even if we address everything that happened in the classroom, perfect teachers and everything else going on, kids would still arrive in kindergarten a year before. so i'm wondering how it a copout

to address those things are whether it just doesn't make effective since? >> i wouldn't take how, i mean, and i will say, i will say one other point. taking poverty seriously, everyone takes poverty seriously. no one -- find a person doesn't take it seriously. the disagreement is about what it means for policy and how we should approach it for policy. and so when you go to plays like harlem and juicy democracy prep, very best schools out there, they don't do a lot of the other services that the other do. in its own people who got some services in q2 didn't go in the same household, the school seem to matter more. there was a national experiment -- natural experiment. i'm certainly not saying we should not do the i'm all for better integration. we still have a lot to there.