that, in "the new york times" capitulation without whole deal. >> "the new york times" -- what was the last part? >> cooperation or use of that information, however you want to frame that. >> i guess i can address that briefly. valerie plame wilson was of course the undercover cia officer who was, whose identity, whose employment with the cia was classified, and who, "the new york times" and everybody else wrote about, and there was this long running attempt to find out he was responsible for that, but ended as often as these inquiries do, with scooter libya being prosecuted for perjury. angina, i just don't think i would say about that is you do have to be careful on the receiving end, you know, to sort of think about are you being

used in some political way, what is the new start of what's been revealed, you know. you know, are you inadvertently becoming a tool of some political party or vendetta or whatever. >> last question over here. >> i think we all agree that the informal use of leaks, however we define it, has worked fairly well for the administrations, at least since the roosevelt administration during world war ii when they brought publishers into the cabinet and had very routine, informal meetings with newspaperman, told them things that probably they didn't want published and the threatened with prosecution if they were published. but perhaps we passed the high water mark with some recent statements by the chairman of joint chiefs of staff, who seems to have we interpreted the first amendment and said that retired military personnel, particularly senior personnel, and former military personnel don't have

the right to speak in political context. and there's been really a positive of any, from the media about the chilling comment which i think is really a way that the message is sent in the political world in washington. people don't get prosecuted. somebody comes up and puts their arm around your shoulder and says she, jonah, it was nice you nice you are tied retired. however, if your corporation wants to do business with government, you will shut up. we just don't see much except that the piece published in "the wall street journal" a few weeks ago. >> i mean come on someone with some of those cases. they go back now about five or six years. i think in the middle of the bush administration i've talked to some of the flag officers, retired flag officers, who got phone calls, threatening that their pension rights were going to be under review and things like that. i think it was a completely outrageous statement at this and why -- i think obviously serving military officers is one thing,

and didn't have all sorts of obligations that they limit directly their participation in public debate, public discussion. but once they are retired and completely free to speak, and i think they can play a meaningful role in public debate conversation. and then to use the power of government to silence them is completely outrageous. >> they're not completely legally free. >> secrets. >> they will all have signed, you know, agreements not to talk about classified material, even postretirement. and there, too, i would just note that almost, even though number of cases from the late '70s, early '80s established the government could bring civil lawsuits to enforce those agreements, barring publication of a memoir, seeking damages, money damages for something published in a government has not gone there. but again back to the point, you put it will, maybe the arm

around the shoulder during the work. i can't really speak to that but i think it's right to the extent that there might be chilling going on, it's behind the scenes flavor in the legal system, that has what's contract with. i want to say a quick one on the valerie plame thing, which is has a very unusual case for the government and legally in the sense that there was a special prosecutor, patrick fitzgerald, appointed to run the investigation, political pressure made it so that the doj felt it had to do that. the acting attorney general dave patrick fitzgerald under the terms of his written to investigate the leak all the authority of the attorney general in the matter. that's what it said. that effectively undermined doj's long-standing policy making a very tough to subpoena journalists. because you need the attorney general's express approval is, to issue a subpoena to a journalist when the attorney general is there.

that's not often forthcoming but you also need other stand to be met as well. patrick fitzgerald, having effective unilateral subpoena authority, subpoena judith miller, matthew cooper, other journals. judith miller spent 85 days in jail. if anything i think highlights just how tightly doj and the government has found itself in the normal case, setting -- unlikely to yield prosecution because it shows a system that really wants to catch leakers looks like him and it's pretty harsh. >> thank you for that reminder that this conversation started well before the obama administration, and we are so focused the present -- we did a conference at the old center i think for a five years ago on this very topic of secrecy. and i went through the transcript last night, and now that i've listened to did i want to say, we think we're having the same old conversation but we are not.

we are not really looking towards solutions and remedies, and where we stand in terms of the interests of these between long and policy actually. so what do you know it or not we have actually come some distance, which is what the next that is going to talk about. so get some coffee, get some cookies and come back. thank you. [applause] >> [inaudible conversations] >> wednesday from the british house of commons, prime minister's question time. because of daylight savings time in the uk, this week prime minister's questions will air at eight am eastern instead of its usual 7 a.m. you can see it live here on

c-span2. now more from the fordham law school conference. next, we hear from former cia acting general counsel john rizzo, and former justice department inspector general lyn fine. posted by the center on national security, this is an hour 20 minutes. >> okay, marty has charged us with finding all the solutions, and luckily i'm only the moderator so i would have to charge the three of you with giving us some solutions. i think the way this panel is organized is to provide context for what you just heard. i hadn't quite realized it would work as a will that we have the right people to give the right context, both in terms of the law, in terms of the post-9/11

decade and where it's taken us, in terms of the self-regulating institutional function of government, to figure out its own problems, make its own recommendations and maybe suggest its own solutions. and in terms of what all this means from the point of view of working in the field, on the ground, inside a covert realm. so we're going to try to tie this all together today by looking at some of these issues. and i have to trust that we're going to get to some answers to our panel today is very distinguished. first, stephen vladeck was a fellow at the center of national security this year, who is a law professor at american university. glenn fine who is somebody i think many of us in the audience knows and who has always wanted to become is now a partner at decker, who was the inspector general for the department of justice for many years, and who's going to talk to us a

little bit about what exactly that is. it's been referred to so many times during today's proceedin proceedings. and john rizzo, who was the former acting general counsel of the central intelligence agency, who is now a partner at steptoe and johnson and of the hoover institute, and who you will be so happy to know has a book that he is written that will be coming out soon. called the company's man. so i think we should just get started but i think we can get started with you, john, to talk about what's come up with all of these, the references to links which was not have the day began, it was have government officials you are here decided to cast the tone of the day. it stayed as a threat to outcome and just how from your point of view, can you can touch was this, not the present moment but generally, how they secure within the context of national security? and, indeed, the intelligence

community. >> thank you, karen. it's a pleasure and an honor to be here with all of you. this is been fascinating to listen to all of this, all of this dialogue today from people, if i have not met before now, but i've respected from a distance. yeah, i was interested to see how this discussion has largely devolved into the issue of leaks. i know we're supposed to be looking forward, but since i spent the last two years writing a book that was struck by looking backward, i'm going to exert myself and try predict the future with leaks. and my bottom my prediction is, 30 years from now -- did anyone hear anything what i said before? [laughter] >> anyway, you didn't miss

anything. 30 years from now, i were predicted to be a similar panel, different people, but a similar panel discussing the phenomen of leaks and what to do about them and how the problem of leaks is just getting worse than ever. and there will be distinguished journalists on the panel decrying the government's efforts to chill the news media, and making news media job much harder. the point is that i was fortunate and cursed, simultaneously, for having lived with the issue of leaks for my entire career. i served under six administrations, both parties. every administration decries leaks. every administration thinks the leaks occur on its watch are the worst and most egregious in history. many administrations, including

the current one, also come into office claimed there'll be a new transparency with the american people. which historically, in my experience, roughly translated into well, we'll be transparent about what the guys before us did, but in terms of what we are doing, we are keeping it secret. so there's a certain rhythms to all of us. i was interested, i thought it was kind of, make it through this entire day without anyone mentioning the valerie plame case. so i'm glad actually that it came up briefly, because to me, obviously that was certainly the most, the most -- during the bush administration. and it crystallizes to me the sort of confounding, many

confounding issues that surround this whole subject of leaks and why frankly i became cynical over the years. about leaks, about how bad they were, relatively speaking, how to investigate them, how and if and what should any new leaks legislation but i literally had three file cabinets in my various offices during my career filled with nothing but legislative proposals on leaks, leaks provisions. didn't try. never really gotten anywhere over the years. but i imagine that they will, as we speak, there are new efforts. the plame prosecution, first of all, it was my duty at the time as chief legal officer of the agency to report the leak of ms. plame's name to the

journalists. that's what the offices charge within, doing, reporting leaks. unauthorized disclosures in the me. that was the leak. and it was a bad thing. it was a badly. ms. plame was very confident, very discreet covert officer. her name should not have been exposed like that. so there was no question but that was something we had to report to the department of justice. that said, in the range of lea leaks, and later on perhaps i can get into sort of rough numerical game about the number of leaks currently as opposed to 10 or 15 years ago, but the truth is in the scale of things, that was not, that leak was not terribly damaging to national security but it was very

damaging to ms. plame's career, which was unfortunate, and deserved on her part. but the fact was, although leaks of classified information that i became aware of, that was way down on the scale. in terms of seriousness. the other thing, the other criterion or the other characteristic it had, which typically does not make for a fruitful the investigation is that many people inside the government necessarily knew that ms. plame worked for the agency. so those are the two main linchpins of how serious a leak and whether -- you can prosecute. that case that neither of those categories, and yet, and yet what ensued was a four-year investigation of prosecution, as was mentioned, it involved bring

a special prosecutor with unfettered powers who subpoenaed a journalist, said journalist spent 84 days in prison. for refusing to testify before the grand jury. in all result in the conviction of a man who was not the leaker. the actual leaker, as you all recall, was a senior state department official who, early on, came forward and said she, i screwed up, i did it. so that is why, at least in my case, i've become very, very cynical about new ideas and new initiatives about leaks. i mean, we're always going to have leaks. it is the nature of the business. we may have more leaks in the future, and that maybe for a number of different reasons.

one of which ironically has to do with the post-9/11 reforms i think, in that because of this need to share more information, the idea of breaking the stovepipes, more classified information is shared among many more people across the government, eric it made more generally available. you know, that in essence is what made wikileaks made. state department military decided the only way to more effectively communicate with one another was to put all upon the siprnet. and that is how private man get hold of the. i'm trying not to be overly cynical, but i just think we're going to be living, we'll all be living, we'll have to live with the phenomena of the leaks for a long time to my friend ken wainstein also recently alluded to so-called authorized

disclosures. and again, that's a phenomenon that is not a partisan thing in my experience. i remembered during the bush administration, it was her by frustrating to us at the agency to get a directive passed down from the white house that we wouldn't cooperate with bob woodward in what turned out to be two books he wrote. about the war on terrorism and, i think the other one was on wmd. we were basically directed to make ourselves available to him to discuss matters that certainly in my case i thought were classified. now i'm on the outside, reading

scott's piece, reading david sanger's piece. is easy the become cynical because it doesn't take, judge roberts said, a scholar to realize that those pieces are a senior government officials that are talking to the journalists. my point is, that message that sends down to the rank-and-file, to the career people in the intelligence community is that they see the seniors talking, apparently with impunity, to journalists. but yet, you know, at least at the agency in fear of god is put into them about not talking to any journalist about anything. and again, that's another reason, over time i grew somewhat cynical, for being a real effective way forward here to deal with this matter. let me, let me leave it there

right now. and i've other comments, if time permits i will jump in. >> glenn, i want to talk a little bit about, to pick up on what john was saying and talk a little bit about in addition to what it means to be secretary-general and where you roll is, how much of it is retrospective and how much of it is in the mix of discussion. but it also likely to get at the topic of how you do this when you are no longer income and maybe you have been out long enough, but how common is there a change of perspective as your work in government gets behind you a little bit, or does it really stay the same? i'm just curious. >> i'm not sure i've been out of government long enough to really make that transition because i still talk about the office thing we did this, we did that. it's not me anymore. but i was in the office long enough and i feel committed to

it, and committed to the role of the inspector general in various ways, particularly and the transparency issue. because i do think secretary-general, and we heard this this one, are an important function in the federal government to help the transparency and effectiveness and oversight over the government to stop would like to talk little bit about the role of the inspector general and what we did and now they can increase transparency, even in the national security world. so that our inspectors general in every federal agency but i was the inspector general of the justice department for 11 years. most inspectors general are appointed by the president, confirmed by the senate, and a bipartisan consideration that you are not aligned with one party or the other pics when the administration changes all the other political appointees change, except for the inspector general. we don't have to submit our resignation to i remain in the administration for the clinton years, through the bush years after the obama years.

for for 11 years i was there. our role is to detect and deter waste, fraud, and abuse, and improve the economy and efficiency of the agency. but our role was also to promote transparency and what the agency did, because i believe very strong and we believe are strongly that it was important for the citizens in the at the government was doing. that's the point in the law enforcement context, but in the intelligence area as well. we did reduce intelligence matters ranging from review of the robert hanssen case at the fbi, why wasn't the robert hanssen could be a spy and fbi missed for several decades, when it initially came out, the fbi said it was because of his wily tradecraft picking out to exploit the system and we are asked to look at it determined that that was not true. that they had lax internal security methods and that he it needed improvement. not only did we do that report but we also made public the findings of the report. a lot of people said how can you

do that? this is a very sensitive area. it's top secret area, we push very hard to make an executive summary of the conclusions of that report now because we believe strongly that the citizens deserve an invite to know what's happening in their government. every also believed that focusing attention on a mat in a public way could have a positive effect on the fbi, and it was true. and i do remember when we gave the report to the fbi, we don't have the authority to declassify information or to let information out at the agency believes is classified or too sensitive to release. we do have unfettered access to all the information in the agency. they have to give us the information, and we handle it appropriately. but when we write our report we ask them, what is either classified or too sensitive to be released publicly? and often what i would have happening, quite often, was that they would overclassify things and redacted whole paragraphs and pages. we would push very hard on that

to say to them, what is it about this paragraph, what is it about the census, what is about the specific words that would harm national security it was released? and we found that they had a hard time explaining it for certain reductions that they made. and we often found that this is not a science. so and of this work it wasn't mathematical. it is in part. and you'll have people disagreeing come even within the agency, about what can be released and what should be released and what is too sensitive to release. you give it to one person and for sample in the fbi, the report, and we would get a very significant reduction. would give it to another person, much less significant redactions and they would argue with each other as what could be released. we felt very strongly that it was not sufficient to simply, with a broad strokes, redacted all sorts of information from the report, that they need to

justify why would harm national security, which is the standard after all. by pushing back we often got much information out in the public that it turned out wasn't able to be released into the public an insight on what was happening within the agency. and maybe that thing with any agency, being inside and having access to information, you have an ability and the role that is almost unique in terms of the institutions that are overseeing the federal government. because you know what is happening within the agency, you know where the bodies are buried. you know how the agency operates and you have an ability to push back when the agency says oh, you can't look at that area, you can't release that information. i found it was also very important to get the support of the head of the agency, the attorney general, for the work we did. i was very fortunate because although i worked with five

attorneys general, attorney general been a, attorney general ashcroft, attorney general gonzales, attorney general casey, attorney general holder, everyone of them supported the role of the ig to not interfere with our work, recognize that we are trying to improve the performance of the agency and to increase transparency in agency to the extent that it could happen. and we did that any number of of very sensitive reviews, reaching from the hanssen case to the fbi's information, what they had about nine 9/11, intelligence before the attack, how they treated detainees after the attacks, with the fbi witnesses at guantánamo and iraq and afghanistan, and how the fbi handled nation security letters. to some of the most sensitive areas of the fbi we were able to look at, and the department of justice were ever to look at and were able to provide sunshine of those areas and make

recommendations for improvement. and the fbi and the department of justice, to its credit, i think were very receptive to the recommendations. they often would try and justify and the policies, but would agree with recommendation. after all, that was what we're going to do as well as provide transparency on the actions of the department and the intelligence agencies of the department of justice. a lot of what we did was retrospective. we would look at things after they occur such as 9/11 attacks and by the fbi and department of justice knew about it. but a lot of it, we were getting information as programs are ongoing and we would look at them as the programs are going forward. for example, with national secure the letters, we got information about misuse of national secure delivers and we decided to do it as they were being used. as he was ongoing, i think that was very important. and we had, i think a unique

ability to go in there and find problems with it that, to the extent the fbi didn't know that there were these problems, and when we found them they were surprised and also willing to make change because of the things that we have found. so we were able to do both on the real-time basis and also i retrospective basis. and we tried to give both of them. so i do think that there are many entities and institutions that are important to promote transparency and to promote oversight over our intelligence agencies. and we've heard about them this morning to record about the congress' role, with hard about the presses roll which i think is a clinically important role. we've heard about the role of the courts and which also is a critically important role. as well as the role of outside advocacy groups. and interest groups that can have an important role. by also believe that an internal

mechanism such as an inspector general office, strong and specters generals also taken place, we'll look for problems that will make things transparent and have an important effect, even in the intelligence area where there is very important national security information, some of which cannot be exposed i believe, but much of it can be made public without hurting the nation security and that's a we tried to do spent i had a couple follow-up questions. part of the issues education for people in the audience is, you write these reports. who do you think your audience is? >> with multiple audiences. our audience is partly -- we have an obligation by statute to report both to the attorney general, the head of the agency and to congress to keep them currently and fully informed of any problems we found. so our audiences are multiple. one, it's the agency itself, the people who are running the program. two, the congress which has oversight over the programs, and i think they have an important right to know.

and three, two large extent the american people. the american people have a right to know how their government is operating, it is having problems, have how it can be improved. we thought we should make that known and write our report for those multiple audiences because i always told people we need to write us a technical expert technical expert understands and recognizes that there's benefit in the report, and by. we need to write it so that a member of congress who picks it up will understand what's going on and one each to be done. we also need to write it in a way that a layperson, the public can understand what's happening and what should be done as result of a report. >> ultimately when you look at, and you've written i think the most serious reports, ig reports to come out of the past decade, the post-9/11 decade. and when you look at what you've written on asls and fbi generally and about the tension, et cetera, you parse the conversation to talk about what

has been withheld for national security reasons in terms of clear national security concerns? what's been -- maybe it wasn't malicious and again and where it really is an attempt if not space what we've done speak as i think there is to some extent that tendency as a human tendency to try and minimize and not disclose, and there's information. and we find that sometimes when we provide a report to the entity. and particularly the substantive area of people who are involved in the program would be much more interested in having more of a redacted that i think some of the standard transport people are professionals who dealt with the foia matters and declassification asia pivot the pace picks i think there is that natural tendency. but i think it's important to push back and make, justify why particular sentence down to the

cents, down to the words would harm the national security if it was released, which is the standard, after all. and why is it that this would provide information to the bad guys that they could exploit in some way as opposed to something a program is not working and needs to be improved. because i think that embarrassment or showing weaknesses is not sufficient to make something not disclose will. day to improve the program rather than simply say we need to withhold information about a failing program. >> we will come back to that but i want to turn to steve. so steve garvey up to start this part of conversation which has to go with where do dan it between secrecy and transparent you right now in terms of where we've come over the past decade plus? what you think the big challenge is going forward from what you've heard today? >> i think john put it rather nice when he suggested that 30

or so that will be another panel. i think i might be on. [laughter] >> because if you go back and look, there was all this -- he had -- about how to amend the espionage act, the bottom of national security leaking and how to strike a balance between the media's right to pursue national security investigatio investigations. and this action all this beautiful rhetoric from one of john's greatest hits at caa, tony, about the difficulties that individuals in his position face because of how -- [inaudible] so i think where to start with the observation that, that the structural problem, is not new. right, the structural sort of tension here is not new. the thing, i also think, there is some different qualitatively

and quantitatively about the last decade. i think the difference is, although the law hasn't moved that much in defining the parameters of the boundaries between government, i think the net result has been less information to the public. part of the reason of that has nothing to do with the legal regime within talking about here, leaking prosecution, but rather with the general growing hostility in general. and the extent to which it's been that much harder far outside the nation's you can't let them inside the national security content for private individuals to sue the government. under almost any claim almost under any theory, especially in national security cases but not uniquely to national security cases. and so that internet the more pressure on individuals i could claim, as his colleagues and his fellow igs to serve the function that for the better part of 25, 30 years the public has been at least cooperative serving, in so far as exposing

noxious waste, fraud, and abuse, because i think that's, the igs i think serve a very important function but the rtp limited limits. versus the and one is going fine. i think we've seen reports about other igs who have been less i think regress in their pursuit of the statutory duties. but they may need isn't necessarily investigate all wrongdoing by the agency. it's more precise and more specific. i'm not sure want them to be the only people tasked with is responsibly. it seems to me if we're going to start a conversation toward meaningful reform, that congress has to perceive i think into different directions. one, how can we restore the rule of the public and actually updating this information. how can we bring back the sort of utility of public litigation and not just in the national security but especially in a nation security context. then second, what role can congress play, because it's

congress in changing the law that is driving this conversation. but we heard a lot about congressional oversight and how congress will supervise government action to i think what was missing from the conversation was congress can also play a more direct role in actually legislative rules that govern the cases. it's taken as a given that congress is now the constitutional authority to interview with executive branch's classification powers. if that's true, that is belied by historical practice because there's several statutes. the atomic energy act is the most prominent where congress has specifically legislated rules for classification, procedures, standard, rules for declassification and so on. i don't mean to say the atomic energy act is the answer to this question. we've all watched reference confidence to which the answer the atomic energy act of making 54. no. but if you think that what i think john and i part company is

that i don't think this was sort of all, this is how it is, this is how it always has been, this is how it always shall be and so we should extend the. i think there are parts of always be -- potter stewart did a great speech in 1970 forward said the media is always going to want to try to obtain classified information and the government is was going to want to try to stop them. that's never going to change that we shouldn't be surprised by the. i do think we do not have a star's conversation about how much less the government, the public knows about what the government is up to and what role congress and then through congress the courts may play in sort of each weight that today. that's sort of what i would start. >> do you think. >> and publicly believes it doesn't know that much about what's going on? seriously. they know about torture. they know about rendition. they know that whatever you want to say about guantánamo. i mean, they know about the predator drone killed and. they may not know so much about it, but do you really think -- what's actually going on?

is there a public that is clamoring for more information? you hear the word transparency but what is it that you think the public, and i don't mean just the new kinds, the public wants that they're not getting? spent i'm glad it's important we just english between your time and the public even though i am a new yorker. >> one in the same. >> right. i do think it's a tricky conversation because i think ken is exactly right that the public knows a whole lot, probably a lot more than john successes would like them to know about what we are up to. the flip side though is there's -- i think per the earlier conversation that there's a lot to be said about the government formally acknowledges what it is and is not doing. and that plausible deniability is not, you know, is not just a joke anymore. plausible time billy -- deniability is what it's all about. they can always say that didn't

happen. you know this better than anyone in the torture conversation. there's still going of people out there who say we never torture. notwithstanding the senate armed services poor, not with any the number of, to my view, uncontestable sources. suggesting that we give. and so i think part of the purpose of formally acknowledged, knowledge, that's a weird construction, is to provide leverage for those who want to sell the conversation once and for all. right, i mean, if you back up a step, if you take away from this context, in the holocaust denying controversy, the most important thing that happens in the conversation is the ability of folks on one side, the deborah schultz of the world come is to say here's all of the official documentary proof we have and i think that's what information minister that because impact show party conversation you can say all,

i'd about this but because you can prove that certain things happen in a way that settled the debates we can move on. so i think the public may know that but the public doesn't kn know. >> that's really weird. >> john, you should weigh in on this, because one of the things that say when i worked on by the intelligence community, one of the things that system i think is that however much we know, as i was going to be so much that we don't know. and so i guess what the question is, when you think about classification versus not declassification but classification versus public knowledge, is there a sense that there's always going to be a certain amount known and we need to decide rather than not what now it's going to be known on what is going to be known? is there a sense of obligation to the public in this regard speak with you. i mean, this was brought, i mean, in the post i live in years. sort of self-indulgent view

because that's what i evolved from being an under the radar lawyer to a notorious public figure overnight. so some personal bias in this, but i think, you know, now that i am out, i think, at least in the agencies own institutional protection in self-interest, we should have pressed the white house, these are white house calls, nonagency calls, to be more -- some other word other than transparent, but forthcoming, about what is being done in the war on terror and what wasn't. because there were many leaks that were actually actors, athletes were not accurate and were, you know, egregious. and we should have done it. with respect to the

interrogation program in particular, i personally think it was a huge mistake, and i take responsibility for this because i was in a position where he could've done something about and should have known better, that we weren't at least more forthcoming with the congress. we kept it in a very tight box, leadership in the committees as a result, our elected representatives knew nothing. all they knew was what they were reading in these press accounts. and i think it's going to be agency a considerable damage. you know, it did many come it cost me cover people anxiety, subsequent investigation. so it was a traumatic experience. and i think now, knowing what we know of course, it's much easier, but we as an agency should have been looking more to what we thought we felt could be made more public.

and rest assured, there's still a lot of secrets that are secret. so it's not like everything -- >> such as? [laughter] >> there's some good ones, too. so it's not, i don't want to be overly gloomy. secrets can be protected, but they have to be tightly protected. and my experience on covert action programs is no matter how departmentalized they are, a leak. they leak. >> the truth will out, no matter what. >> bad news especially. bad news always comes out. >> so i guess the follow-up question to get to the remedy is if we were back in the situation, and it worked in a way that you now think would have worked well, what mechanism would you have needed? wasn't just being willing to say in a certain context?

do you need some kind of normal, normalized way of going to congress? is it an ig thing? what is the mechanism you think would've made it right? >> well, i think, i'm, one thinks about the agency, the fbi is much better at this, always has been, about presenting public face. what the public gets about the agency is, you know, the spy stuff, i mean, the movies and the spy novels. i always thought the agency could have come and to answer questions i think to me is going to be an optimal, would've been an optimal way to do it, at the cia director, for instance, even more frequent press interviews, he can go on "meet the press," face the nation. present a public face and explain, as i say, as a controversy over the interrogation program, built and

built as close to 11 years went on. bill in front of the american people and explain, one, you know, why were we doing this, what it was yielding. and the kinds of mechanisms that were being put into place to try to minimize or certainly ensure that they wouldn't be this flagrant kind of abu ghraib stop abuse. i think to me, i think it would be terribly effective. i'm just a regular guy and the public. i'd like to see it spent sort of going directly to the public, in some ways maybe not the cia director but in some ways the wake obama administration has chosen the official after official in front of the public

whether it is john brennan or harold koh or -- >> and do what? >> i think it to first get out, okay. i will continue. i'm just saying -- >> there are things we can't tell you about so let's tell you in loose terms of the picture you are aware there are things we can't tell you about. >> right back and i think the other thing about it is we haven't gotten to it that essential to talk about procedural issues rather than substantive issues, we will get out there and talk to you about substantive issues in our context. but what the public really wants to know, this one is time to get a before combat the public wants to know is what our procedural issues but how do decide to going to have to -- how do decide he was your enemy, whether it's inside or whatever it is. and who's deciding how do decide? i think when asked the question what does the public want to know, i think one of the things they want to know is what is the process by which this is happening, which may be in some ways is a development of the whole conversation because maybe getting to the procedural issue

and acute issues is important. .. >> who has done some very, very important reviews. they do have a little more of a mindset because of the nature of the work and of the agency that the reports are not going to be made public. and there are reports that can be made public even if it's just to the extent of very general basis on what's going on or the type of oversight that's being done that can reassure the public that there is adequate mechanisms to make sure that there is oversight over very top

secret and, um, closely-compartmented programs. it's not simply the decision makers making decisions on their own without any oversight whatsoever. >> and in that regard, you know, i think one of the more interesting moments, right, in this conversation is so after "the new york times"/washington post leaked the warrantless wiretapping program in december 2005, the justice department puts out this white paper, right, in january 2006 that is, basically, you know, the ready for prime time version of the legal arguments in support of at least the publicly-reported aspects of the or terrorist surveillance program. and, you know, i had substantive objections to some of the analysis in the white paper. but it was, i think, an enormously useful development both from the administration's perspective insofar as putting out the league rationale and from the perspective of solidifying what were and what were not the actual legal objections to the program. and so even when the actual internal report or the relevant

olc opinion or whatever can't be released because it contains sensitive material. that doesn't mean that's the end of the conferring, that there's no other way for the government to actually share that which, i think, the public wants to know which is why do you think you can do this and what is the authority on which you're basing this conduct. and that's a distinction i think we should draw more going forward. >> and can we trust that what we're hearing is accurate and the truth and that we're not being misled. it has to be another piece of it. so i just want to get to another question from you, glenn, which is -- because john answered this, and i'd like you to answer it. if you could fix something, what would you fix? or change? or reform? to get better transparency in terms of government self-regulation? >> um, i'm not sure what the fix is, but i did see in my time there sort of there's extreme

differences of opinion about what should remain classified or too especiallitive to be released that the -- sensitive to be released that the fbi had law enforcement-sensitive which could encompass all sorts of things and what could be released. and so i do believe there needs to be better guidelines and guidance on what is actually encompassed by those terms and what, um, what would harm the national security. it's too individualized now, i think, to the person who's reading it and doing the classification review, and i do think there ought to be greater, um, uniformity in what gets classified and what doesn't. >> and, steve, do you think that's possible, that there could be uniformity across the agencies in terms of criteria for what determines a threat to national security or not? >> i think there could certainly be more uniformity. i think, you know, perfect uniformity is probably not

obtainable in the abstract if for no other reason because so much of fbi's concern is law enforcement, so treasury, for example, might have a very different view of the role of financial transactions. but i don't know why -- to me, the effort is worth it, right? i think, you know, with the understanding there might be case-specific variations, i think there should be one set of uniform criteria, um, with, you know, some adaptations to govern this. >> right. i mean, i think one of the things that might be really interesting to think about in terms of the criteria is what it means for something to be imminent. what's a long-term threat and what's a short-term threat and how do you distinguish. so i'm interested, glenn and john, if there's any sense of distinguishing between those things. when you say something's a threat to the united states, you could probably play a lot of things into a long-term threat, if this happens, if this happens, if this happens. is there any sense that it has to be a threat to national

security in a shorter period of time, or is it just -- how does that appear to you? john, do you want to start? [laughter] >> well, yeah. these are not, these are not easy calls to make. um, generally, um, i'm staring at the camera here, so i'm self-censoring as i talk. generally in the post-9/11 years the internal criteria for the more aggressive, shall we say, counteror terrorist actions is that the target, the individual or the group has to present a continuing and direct threat to the united states' persons or interest. it, for instance, you know, we could not have gone and captured, let us say, a

al-qaeda guy who would basically been a bad guy in the early '90s, say, in africa with bin laden but fallen off the radar since then suddenly turns up, turned up after 9/11. he was not, there was no intelligence indicating, no intelligence indicating he was a continuing much less direct threat. but, i mean, you know, these are easy to parse in, you know, in conferences in law schools. i mean, it is far, it is far messier and far more -- [inaudible] frankly, when a target suddenly appears on a screen. as the lawyer would say your asked to weigh, well, can we or can't we, and you're going to lose him in 30 minutes, so let us know. so it's very hard and this notion of writing regulations, i

know instinctively as lawyers we like regulations and criteria across the board sort of easily understandable. glenn's right, i will tell you there will be -- the intelligence community, certainly, i can speak for cia. cia will fight tooth and nail being shoe horned into a general criterion about what constitutes national security. and they won't do it. i mean, fbi will have a different perspective, dod will have a different perspective. it's just not, it's not going to happen. i mean, it's not going to happen, it hasn't happened up til now, and really i will bet you anything that it's just not, it's just not in the cards. it's not the way these institutions operate. >> i mean, i, you know, john and glenn can obviously speak to the constitutional side may better than i can, and they may well be right that the agencies will fight and tooth and nail. if there is a question that such

actions could be imposed on them. information relating to the national defense, it's a statutory term. presumably, congress has the power to give content or further content o that statutory term. so i'm with john and glenn on that point. i think maybe the better solution is process where there's noticing common rulemaking where there's a proposed set of standards, and individual agencies have to show up outside the context of the case where the politics are going to skew the considerations and to say here's a general category in which it could be included. i mean, i think that would be an interesting exercise if nothing else. >> with, perhaps, constant review -- >> yeah. >> so that it can change over time, right? glenn, do you have anything to add? >> in response to your question, i think the threat can be immeant or a long-term threat and can still be threats that need to be addressed in the national security context in the declassification review. what struck me when we were

doing our reviews was not the imminence argument, but the mosaic argument that this alone won't be a threat to national security, but you combine it with this, this, this, this and this, and they spun it out so broadly that anything could fit within that mosaic theory, and anything could, as a result, be, remain classified or too sensitive to be released. so i think that, there was a tendency for potential abuse of that theory as opposed to the imminence theory. and that's why we would try and push pretty hard. how does this harm the national -- what's the scenario that it does. and if there's a reasonable, um, theory on how that worked, we would accept that. but often times there was no theory about why this should remain undisclosed. >> i have a general institutional question for all of you in terms of how government functions in these ways. and that is that, um, when

you -- bart gilman and jane mayor both wrote about this for the bush administration about how when the cia briefings were given to the bush officials at first, there was sort of a lack of knowledge of what this meant and what context they were actually in. and so what i'm curious about is when you get a new administration -- which could happen -- you get a new president and a new team, what are the mechanisms, and who are the people that brief them in such a way that they can help you and others shepherd this conversation about how to assess a threat and not -- especially in the mosaic scenario where so many different scenarios can be laid out that look potentially dangerous, and you need the people in the room that can leaven the conversation with a little bit more of a long-term understanding. >> let me try that because i went through several of these in

my time. i mean, i was a liaison with greg craig for the transition from the obama -- i mean, from the bush to the obama administrations in that transition period. you know, typically, you know, presidential candidates, even the nominees of the party, do not get really what president-elect bush memorable my called the sexy stuff in terms of briefings. the two candidates, i assume governor romney's getting these now, the nominees of the party are offered intelligence briefings by career cia people. but they're more, they're analytical, what we used to call pee and glean briefings which is one of the many euphemisms from cia days. i'm trying to approach them in my memory because i can't get ahead. but their analytical. they're not operational, they're not given a lot of specific

details about agents and agent operations that only, that only happens once the election takes place. once, you know, if it's in the case of a new president, um, obviously if president obama's reelected, then this will not happen. but that's when they get the review of all the ongoing covert action programs. that's when president-elect obama first got his detailed briefing on the enhanced interrogation program. you know, by that time much of it, any reader of "the washington post" and new york times probably had about 85% of it, but that was his first official briefing. that's when, that's when he, that's when presidential candidates typically -- it's a crash course, i guess, is what i'm trying to say. he and his incoming national security team have to get briefed up very quickly and get, be ready to act from literally january 20th on threats, and

there were threats on january 20th, 2009. so, um, you know, it's been a, i mean, it can be a frantic process, but, you know, like a lot of things about the american governmental system, it seems all crewed up -- screwed up, but sometimes we always seem to muddle through, but that's how it happens. >> we would always brief the incoming administration -- not the president, obviously, but the attorney general, the transition team about the top challenges in the department. we would have a list of top management challenges, and the top was always counterterrorism since 9/11, and we would assess where the department was, where it needed improvement, um, what programs we had reviewed, what other programs needed review, and it was always a very important briefing for them that they were, it was eye-opening to some extent, the scope of the challenges they face when they came into the administration. >> i mean, one thing had to do with longevity of officials. i mean, you've had bob muller, the head of the fbi, since 9/11.

kind of interesting in the transition, and i think one of the things that has to be thought about just in terms of reform or not reform is, um, sort of institutional memory and the kinds of people that get chosen to run these agencies. so you're not always reinventing the wheel, because the idea that we're going to be here in 30 years -- i don't know about me, but you -- >> you will. [laughter] >> be here in 30 years discussing this again, i mean, i think it would be nice if it wasn't the same turn of the wheel. because if it is, then there's a certain kind of complacency that can set in which is this is part of the cycle. and i get the feeling that's not exactly where we're at. >> i just want to make two points. the first is i don't think it's the longevity at the top that matters nearly so much as in the middle. >> [inaudible] >> well, and even the career civil servants. back then my sense is that the obama administration was surprised just how deeply ingrained certain -- i don't want to say pathologies, but

certain approaches, certain understandings of the world were in various parts of dod, doj, etc. not as a negative thing, but an inculcated, institutionalized identity that you just can't change with an executive order. so insofar as that's true, i think it's unrealistic to think that any president no matter what his electoral mandate can walk in the first day and say, i'm going to, you know, close guantanamo. but the flip side of that is that i think that suggests then that the answer is not on the executive branch side, the answer more sort of an inner branch mechanism, right? more sort of a dialogue and more sort of a clearly contemplated role, perhaps even in the transitional phase, right? for congress, for the courts. just to be clear, congress has a very defined role in transitions. they confirm the president's nominees. it doesn't just have to be a love fest. it can actually be a serious conversation about, you know, policy agendas and things that

are important not because it disqualifies a candidate, but because congress wants to get on the record what the priorities are for the next administration. and i think the courts have more of a role to play. you know, it's not a coincidence that the supreme court did what it did right at the turn of the obama administration with the two or three high-profile terrorism cases it had before it. it was saying, hey, show us what you've got. we'll give you another chance. so i think, you know, there's always going to be pressure on the executive branch no matter what else is true to go as far as possible within the limits of law to protect national security, and we should want it that way. um, but we also should accept that that's going to be true and create defense mechanisms toward it, to sort of, you know, put pressure on in the other direction. >> glenn, you look like you had -- okay. i think we should open it up. we don't have a lot of time left, and this is the last panel. i think we should open it up to the floor. um, if anybody has any questions, and i don't know where the microphones are. are they anywhere nearby?

this one first. you have to wait, sorry. >> thank you. picking up on something that mr. rizzo said that the cia will resist to death, apparently, any attempt to impose standards of what constitutes national security or a threat to national security such as mr. vladeck suggested and also the fact that he talked about the national interest of the united states, thinking back historically i wonder whether we might sometimes see the cia perceive national interest as including the elimination of a chilean president or the elimination of an iranian president because

that, i think, looking at it historically were two events that created major problems for the united states subsequently. i think the problems with iran today are directly attributable to the elimination of of the chilean president by the cia, and i think general expectation is that it was the cia. so i wonder, is that something we might face again with an independent, free-ranging cia? >> believe it or not, i'm not old enough to have been around at cia during those events. [laughter] nor the bay of pigs. some law student actually got up to one of these things and asked me, you know, how did i handle the bay of pigs. it was very depressing. [laughter] no, i, you know -- well, you know, cia's uniquely an arm of

the president, the white house, whoever the president is. and every president has been that way. and, again, this is a bipartisan thing. um, some presidents have come in sort of initially wary or suspicious or in the case of president carter, i think, fairly hostile to cia. i'm telling you, once they -- i think senator moynihan said at one point, well, now it's his cia. so there were, they tend to get very aggressive. now, those, i certainly wouldn't dispute any characterizations about be careful what you, what you cause to happen in terms of reverberations down the line. um, but, i mean, you know, people should never forget that cia didn't dream up the idea of let's bump off value yen day or overthrow the shah. even in the wild west days, cia did not, did not, you know,

conduct plots against castro in the early 1960s because it thought it was the right thing to do. it was because the white house, the administration existing at the time directed them to do it. the difference today is presidents have to go on the record. if they want cia to do that, they have to write a presidential finding and tell us to do it, and that finding has to be reported to congress. and i came in at the, you know, it was right after the church committee i was one of the first lawyers hired. i was 20 years old, i didn't know anything. but the finding process started from that date. and my experience, my authorizations over the years findings can be terribly sobering instruments on a president. [laughter] when, and this was one of my jobs, my predecessors' jobs. okay, you want us to do that? okay, sign here. i've written you a piece of paper, sign it. you'd be surprised how that has a deterrent effect on some

overexuberant -- i wouldn't say presidents, more likely some overexuberant aides around presidents. by god, you work for us, and this is what you'll do. so i guess what i'm saying is i'm sure that possibility, i suppose, could arise again. i don't think it's nearly as likely than it was in those bygone days of yore. >> other questions. over here? >> we've mostly focused on the american public keeping the u.s. government's policies in check. um, releasing information and legal arguments can also help mold international debates about the legality of certain programs. over 70 countries now have drones, and in the absence of official statements, there is a vacuum for these other countries to draw their own limits. do you believe that the

proliferation of drone technology will compel the u.s. to efficiently state its own legal justifications to inform future international debates about drone technology? >> um, you know, if you don't mind, i'm like the rest of you, i have no idea at this point what's classified about this topic at this point and what isn't. so i'm a bit constrained to get into that level of the specifics. i will say this, though, in terms of legal justifications, making public legal justification for what are perceived to be controversial activities, i find it, i find it surpassingly ironic that the obama administration two or three months in office basically

declassified all of the olc memos. euphemistically referred to as the torture memos. again, i'm not objective about this because i was the lucky guy who had asked for it and whose name was on all of them. but as you recall, there was the program's over, it's, you know, we need to get, we need transparency to get it out there. american people deserve to know. now, again, i'm only speaking now as a private citizen. this is not based on any inside information. all i know now is what i read in the media. but according to media counts, the obama administration is resisting making public its legal analysis on why, why it's consistent with international law and u.s. law to conduct lethal actions against an american citizen. they're withholding that. so, i mean, i don't understand, i guess, is what i'm saying. >> let me interrupt to ask a

question of all of you that i probably should have started with, um, and i thought i might end with, but i'll ask it now, which is, um, what do you think? this was raised many times today. is it okay the way it is right now? do you think we've come between all of these debates, between 9/11 and now, we've sort of come to a way in which we are dealing with the, that gray area, that necessarily flexible area between secrecy and transparency in a way that this is what we do, we debate it, we leak some things, we don't leak other things, some things are authorized leaks, and we're sort of making our way in a way that makes us happy. are we in that zone? >> well, i mean, i think so. and, again, i wish i, i wish, i mean, the system, the way the reality of the situation, um, i just don't see -- i just see it continuing. everyone seems to muddle through. i mean, scott shane is right,

virtually all media outlets, journalists, reporters when they have a story and they know and they understand it contains information that may be very sensitive and classified, um, they all virtually always come to the agency first and say, look, this is what i've got. um, and, you know, there's back and forth that goes on. um, even when, you know, even when the stories are sensational and actually, you know, bad news for the agency. journalists are willing to horse trade. and the agency historically got us involved in a number of these discussions, you sort of negotiate. you try to figure out a way to get the worst stuff out, you know, or reset so that true

damage isn't done. on the other hand, fully realizing that, you know, we may not like it, and we certainly didn't like it at cia. but as a practical matter, historically, no one is going to prosecute a journalist. i am convinced of that, a u.s. journalist. it will just not, it is not going to happen. so the reality, that's the reality we have to deal with, that these stories are going to be published, and, you know, by and large i think, i think both sides have been responsible over the years. you know, there have been some exceptions, but -- i mean, i just think that the notion of sort of you take these situations, you muddle through, and you work out this modus vivendi on the government side with the media, and somewhere in that mix information comes out that's, you know, frankly, informative to the american

public but at the same time -- at least in some instances -- you know, does minimal harm or manageable harm to the national security. that's just the reality. >> right. on the other hand, there is, as we discussed earlier, there is lots of information that's very old that has never come out. and so -- >> yeah, i can't, i can't, yeah, i don't understand that myself. you know, this story argo, you know, that was one of my, that was 1975 when that happened. that was my first sort of exposure to a covert action program. now, i would have thought that one would have stayed secret for 30 or 40 years. inexplicably, the agency declassified it in 1997. i don't know why. i honestly don't know why. people have asked me, why did this get declassified? and i don't have an answer for you. i don't think it was an foia

request. i think tony mendez was writing books, but they basically, you know, someone in the agency, information, foia section decided it was time and it could be declassified. and as of note, this thing's now 30, 40 years old, it's still technically classified. so, i'm sorry, karen, i can't -- it's a rubik's cube. >> i think the pendulum swings, and it has swung. i remember right after 9/11 the pendulum swung very, very hard towards protecting classified information, protecting counterterrorism programs. and the first major report we did after that was the treatment of undocumented immigrants after the 9/11 attacks, and we were roundly chastised by certain individuals and groups for disclosing information that they said would harm counterterrorism programs, that we were contemptible for doing it.

and i think that was sort of the first report that we had done where we criticized some of the counterterrorism programs that arose after the 9/11 attacks. i think we have swung further in the other direction now towards fuller disclosure, and i think that is a good thing. um, and i think we do have robust institutions that pursue those, that full disclosure. i do get a little concerned, and we heard about this from the previous panel, about the ability to disclose information that is much more widespread because of the bloggers, because of the proliferation of electronic media and the availability of that information. so i think we will always be struggling with this issue, are we going too far one way or the other, and i think there's a natural tendency to compensate as time goes on. >> i come at this from a different perspective than john and glenn, and so i think not surprisingly i don't know that the pendulum has swung back as

far as perhaps glenn does. let me put it to you this way, in the guantanamo habeas cases, a statement that a detainee makes to his lawyer cannot be swung back to him, right? a statement that he made to his lawyer -- >> yeah, i know. >> -- can't be shown to him, right? and reynolds, right, the case that, the sort of fountainhead case for the state secrets privilege. it could not turn over the accident investigation report about this bomber crash because the report contained the sensitive national security information. um, we know now that, in fact, the reason why the air force didn't want to turn over the report was because the report said the crash was caused by a air force's negative and had nothing to do with the secret equipment onboard the plane. so i guess i'm worried about a system where we sense that the real check on government abuse in the context of secrecy is the media, right? i mean, i think the media plays an incredibly important role,

but they are not constitutionally deputized, um, as the special prosecutor, right? they are not constitutionally deputized to be the, um, in britain they call it the independent reviewer, right, of cowns terrorism. i mean, one of the things i found remarkable about the public editor column from this weekend, my colleague, ben wittes, wrote this post on a blog absolutely, positive live tearing apart the column for daring to suggest that the times has been insufficiently aggressive in investigating because, as ben wrote, it's not "the new york times"' job to do the work of human rights and civil liberties groups. and that got me thinking, well, then whose job is it? you know, if it's not going to be the times, and if you're going to shut out private plaintiffs from pursuing this information, i don't know, you know, that leaves a sort of a vacuum. and i would have thought that responsible government would believe that the vacuum should be filled by the government, right? as opposed to by law professors and, you know, senators or

national security. i do, as i said in the beginning, i do agree with john that the debate is not in any significant regard different, um, insofar as the tensions, um, from what it's been really for the better part of the post-world war -- the better part of the last 70 years. but i do think that we are leaning more toward a lack of public accountability than at least i'm comfortable with, um, and, you know, maybe that's just because i'm a, you know, law professor who hasn't spent time in the trenches like these guys. >> you know, i think it's a little uncomfortable to talk about the pendulum swing back, to talk -- when the actual accountability for so much that has happened hasn't occurred. and the question has been left to the ngos, the think tanks, the press to sort of figure out, well, who exactly is responsible for bringing that accountability about? it got less to the government, the government has decided that they're not going to pursue any

of this accountability, and so i find this very, um, sort of upbeat, optimistic conversation in a realm in which i for one, at least, am not very upbeat and optimistic. and so i think that's rather interesting because i think what's happened just from my -- and feel free to contest this -- if you're in government and you have felt that pendulum swing or been part of that pendulum swing, you see a denies that -- you see a distance that's been covered. if you're on the outside, you don't feel that pendulum swing. we're incredibly grateful to the reports and the exposures and the authorized leaks. but there's still a sense that the full story of exposure has to include some kind of for lack of a better word accountability, some kind of narrative that says this can't happen again, and this is how we know it. instead what we've seen is -- and, steve, please, feel free to

jump in -- but instead what we've seen is a chilling effect whether or not you prosecute somebody from "the new york times" or not. there has been a ripple of fear throughout the public sector, the media included, sometimes the defense attorneys and the legal establishment on just who's going to be, um, who's really being, um, labeled the enemy or not. and so i'm happy to hear that the pendulum has swung, but i would say to say that it has swung back may be a little -- steve, would you disagree with that? >> no. i mean, to the one place where i actually have some support from my otherwise academic observations, right? i was at a house judiciary meeting in the summer where i testified alongside ken wainstein who was on the panel this morning. and, you know, i don't think it's an overstatement to say that the members of the majority on the committee were very enthusiastic that more journalists should be subpoenaed to testify before grand juries, and if they wouldn't testify,

indicted not just for contempt or for obstruction, but for violating the espionage act. you know, it is certainly true, and it is unquestionably the case that the principal constraint on government overreaching in this field historically has been sound prosecute tore y'all discretion, and it hasn't mattered what party was in the oval office, right? it has always been the case, republicans, democrats, president bush himself, right, were adamant about not using the espionage act in this way, about not pushing the envelope which helps to preserve, which helps to chemothe pendulum -- keep the pendulum from swinging too out of kilter. but it's a pendulum constraint and not a real one. and i think the real question is ultimately, a political concern is only as good as the politics of the moment, right? and there's going to come a point in the not too distant future where the constraints come off if there's another attack or a damaging security leak. if we find out -- this is just

me totally, you know, this is not true, right? [laughter] if we find out someone leaks the security plans for the benghazi consulate on a web site, i mean, imagine what the blowback would be, right? so i think it's perfectly right to say where things are right now, you know, is okay because it looks okay. i'm just not convinced that, you know, below the surface there's actually the same protections that we would like to be there. >> and i'm not -- >> well, i would argue that the pendulum has swung, and that doesn't mean it won't swing back, you know, again if something happens of a momentous nature. but i would agree with one of the earlier panelists who said i don't believe that reporters are cowed, that the interest groups are cowed. there is a robust pushback on secrecy from many different levels. that does not mean everything gets out, nor should everything get out. but, um, we have institutional structures that are pushing very hard, much harder than when i

first got involved with this back in the '90s and, also, right after 9/11. and i do see sort of a robust press, i see a robust advocacy groups and interest groups and plaintiffs' groups and a lot of whistleblowers that are very willing to come forward either to the ig or publicly or to congress and, also, you have some pretty strong advocates of whistleblowers in congress as well. so while i'm not saying that it is in the perfect spot or that this isn't an issue that needs to be constantly addressed and the subject of these kinds of conferences, i do believe that there is a strong institutional framework to, for -- to help transparency occur. not the least of which was the inspector general within the agencies as well. >> um, perhaps that's a good note to sum up on. so i guess i should make a few comments on what's happened over the course of today.

despite marty's challenge, i don't think we've solved all of the issues. what i do think is clear is that when you're not living in a bubble of fear, you can discuss these issues. and then when you have something like 9/11 in your face, it changes the dynamic of how you define national security. so going forward, our national security challenges are going to be goodness knows what, but they will include the cyber threat, they will include whatever happens with al-qaeda in the middle east. and so these issues are going to come back. so i guess where the pendulum is going to come back. so i guess maybe where we can end today is just to think that starting with what ken wainstein said this morning is that the closer that law enforcement, the intelligence agencies and the executive can get to being on the same page in a nonfearful bubble, um, to the journalists, the ngo groups and the others,

the inspector generals who want a kind of transparency as their purpose of being on this earth, um, the closer we get now, um, the better it's going to be for this, the next go round and what it is. so, um, i will, i will leave you with the thought that john and i talked about before which is that, you know, ultimately the truth will out, and the bad truth will out first, i think, is what you said. >> absolutely, yeah. >> and on that note, thank you for coming and stay around. [applause] knox knox. [inaudible conversations] >> thursday the rhode island first district debate between representative david sicilline and his republican challenger, brendan doherty. some events have been canceled because of hurricane sandy, but as long as the debate takes place, we'll bring it to you live at 7:30 p.m. eastern on

c-span. [inaudible conversations] >> now, leon cooperman, a former general partner of goldman sachs and founder of mega advisers hedge fund, speaks to students at roger williams university in bristol, rhode island. he made news earlier this year for charging president obama with engaging in class warfare against billionaires. his remarks about economic expansion and the investment outlook are just over an hour. [inaudible conversations] >> ready? everybody's ready. good afternoon. glad you're here. my name is jerry, and i'd like to welcome you to our leadership institute's distinguished leader presentation. we are very glad you're here. first, an announcement before i forget it because i've always wanted to make this kind of announcement, please, turn off your cell phones. this is being taped by c-span,

it is being -- we have a live feed going over to the library for the overflow, so i ask that you do turn off your cell phones and bear with us on that. i'd like to thank you for joining us today, and our president, president ferris is here, along with the vice presidents. we're also joined by special guest mario gobelli who is, of course, the name sake of our school of business, but also he was our distinguished leader, speaker in 2011. so it's great that mario was able to join us today to honor his friend, lee cooperman. [applause] mr. gobelli and mr. cooperman go back a long way to the days of columbia business school 45 years ago, so we're very glad that mario is here to help us

welcome lee cooperman to campus. mr. cooperman's leadership in the financial world is without peer really. i mean, i do know that he kind of doesn't like the term legend, but he and mario are legends in the field of finance. i heard it on cnbc, so i know it must be true. [laughter] we have two legends here, and we're very proud of that. he spent 25 years at goldman sachs and retired from his position as chairman and chief executive officer of goldman sachs' asset management in order to organize his own private investment partnership, omega advisers, a hedge fund. mr. cooperman's devoted 45 years to the financial industry. he's the senior member and past president of the new york society of security analysts. he doesn't, he said earlier at a meeting today he doesn't particularly like talking about himself, but he really needs to because he has a really incredible career and, also, i want to point out that not only

is he a leader in the world of finance, he's also a leader in the world of philanthropy. he is, um, i was reading an article from "the wall street journal" about him, and it was entitled "giving ores a chance at -- others a chance at the american dream." and that really struck a chord with me because he talked in that article about he feels that he lived the american dream, and he has devoted a good part of his life to giving others the opportunity to pursue the american dream. he is, he and his wife are signatories of the giving pledge, a public commitment started by warren buffett and bill gates, that commits billionaires to give away a majority of their wealth to charity. he's taken a lead in that. he's a longtime donor to the columbia business school. he's a recipient of the american jewish committee humanitarian award, the seton hall humanitarian of the year award, the boys and girls' club of newark award for caring. again, he's just, you know, a real leader in both fields.

he has a master's degree from hunter college, an mba from columbia business school and, importantly, an honorary doctorate from roger williams university. so it's my pleasure to welcome lee cooperman. [applause] >> i think better without a jacket. thank you very much for that gracious introduction. when i hear introductions like that, i think i've got to keep in reserve my obituary. [laughter] it's a pleasure to be here, particularly since i was asked by one of my great friends. mario asks, you deliver. because i know when i ask mario, he delivers. and that's the essence of a good friendship. i've found over the years that sessions like these are as

valuable to you as the quality of your questions, so as you see when i develop my background, a lot of different areas we could touch on. i'm going to leave it to you. don't hold back. i'm very open, no secrets. so i'll be happy to respond to any areas that you would like me to develop more thoughts on. as the cover sheet shows, i'm going the talk a little bit about life, hedge funds and the investment outlook. i think probably the most important thing i can talk about is life because, you know, i've spent 45-plus years in the business world, and at the age of 6ed and being an investor for about 45 years, i'm entitled to be a bit of a philosopher. so given my diverse background, i can respond to your questions from a thurm of vantage points. first, i'm a poor kid out of south bronx that became successful, so i could speak to the issue of being poor and being rich, and that's an easy

one. rich is better. [laughter] second, i've been a south side research analyst, a cell side portfolio strategist, i call them pontificators, and the chief investment officer of a money management organization, so i can speak to being in the brokerage business, selling research is services to beam on the buy -- people on the buy side, and i can speak to the buy side where i am presently. thirdly, i was a director and chairman of the audit committee of automatic data processing for 20 years, so i can speak to issues of corporate governance and sarbanes-oxley. and lastly, i've had a large number of philanthropic involvements, so i can speak to a view towards my an throe by. and really it's been a great trip for me from humble beginnings in the south bronx. my dad, may he rest this peace, was a plummer in the south

bronx -- plumber in the south bronx. i was the first generation born in america. mario, technically, was the second generation. his grandfather died in the coal mine in late 19 -- 1890s, i believe, and his dad went back to italy but was born in america. but mario's equally a success and deserves all his success. but i think in describing my trip from the south bronx to here, it should be an inspiration to all of you because i say this with great sincerity that with an average iq, a strong work ethic and a heavy dose of good luck, you can go very far. i started my journey going to public schools, 75 in the south bronx. i then went to morris high school in the south bronx, and then i graduated west bonk bronx, i went to hunter college city university of new york, now called lehman college. i spent four very happy years there. i met my wife of 48 years in our

french class our sophomore year, and given my skills at language, i would probably still with at hunter if it wasn't for my wife helping me in french. after this presentation, i'll probably have a problem with english. upon graduating from hunter, i worked for about 18 months for xerox corporation up in rochester, new york, and then i returned to new york to columbia business school where i got an mba, and that opened the door to wall street. so, you know, my first observation is whether it's right or wrong, getting that advanced degree is what improved my credentials, opened the door to wall street. i'm sure goldman sachs is tough enough probably not to recruit necessarily at the undergraduate level, so that mba opened the door to goldman sachs for me. i myself prefer ph.d.s working for me, but that would stand for poor, hungry and

driven because i did not learn my drive from columbia or hunter, it's something innate, i guess you learn from your parents. ever since it was introduced to the marketplace, i have used -- and this is true, i used it this morning -- the men's clone called obsession by calvin kline. and frankly, that is the word that i would describe, use to describe my approach to the business. not only is investing my vocation, meaning that's where i earn my living, but it's my advocation and investing, to me, has proven as a means of supplementing my income. so it's all-consuming and a shorthand translation in my case would be the harder i worked, the luckier i got. and i would say that hard work has never killed anybody, and i think to be successful in your chosen field of endeavor, be prepared to give of your mind, your body, your soul to achieve that success. i show the people that work for me the slide for those in the

back that may have trouble seeing it, it's a simple slide, makes a lot of sense, right? every morning an africa gazelle knows it must run faster than the fastest lion, and every day a lion wakes up and knows it must outrun the slowest gazelle. and when the sun comes up, you better be running. i tell my people there's a message there. in my industry, basically, roughly speaking if you allow me to round off, there are 10,000 mutual funds, many of which are very competently managed, that will manage your money for less than -- 1% or less, let's say, and there are roughly 10,000 hedge funds that request some variation of either 1% or 2% management fee and 20% of the profits as their enumeration. so assuming for the moment your clients are not multis, meaning fools, and our clients aren't, we have some of the most

sophisticated clients that have money with us, if they're going to pay you some variation of 2 and 20 and can get the exact same performance prefee from a 1% manager, there's no reason they're going to be investing with you. so if your client comes with you, basically, they're coming with you because, basically, they think you'll outperform. when the market's doing well, you figure out what to do, and you make more. when the market's underperforming in a defensive mode, you figure out what to do and get hedged and get defensively postured. so when i look at this slide and i tell my people this, you know, you've always got to be on the balls of your feet, no resting on your laurels. if you want to get paid more, you've got to produce more. simple as that. and if you're not prepared to give of the body and the mind, you're probably in the wrong business. now, these are some of the elements of philosophy that i have. i think they're the right philosophy, and i think i want to share them with you because it took me 45 years to develop this philosophy. i see a lot of young, nice faces

in the audience, so i want to impart this to you early on in your careers. so andrew carnegie said around 1900 i wish to have as my epitaph here lies a man -- and i would insert in today's age or woman -- who was wise to bring into servicemen or women who knew more than he, okay? so one of the great secrets to success, in my opinion s to surround yourself with the most able, capable people and don't be threatened by them, but be benefited by that. and over my career i have been very fortunate to have in my servicemen and women that made me better than i was. and i was able to hold on to them because i properly shared the fruits of our labors with them. i created the business, i raised the money, but i understand the importance of having quality people at your side, and so i properly share, you know, the benefits of my business with people. that work with me. my personal philosophy of life i summed up about, i guess it's

now four years ago when i took my entire family -- at that time i have two sons, 46, 43. they were a little bit younger four years ago. my two daughters-in-law, my at that time two grandchildren, now i'm lucky enough to have three, but three and done. i like them so much, i'd like to have more, but i can't control them. i took them for an all-expenses-paid vacation to a hotel, and i explained to them that statistically a male that survives age 65 will on average live to 82. so the good news if i'm average, i have about and years -- 13 years left. that's not a very comforting number, i might add. [laughter] and the bad news i've already lived 75% of my life largely in front of computer terminals investing. but i gave them four observations about life that i would give to you, and that is, number one, there is nothing more important than family. they root for you and care about you the most. so stay close to your family

under all circumstances. second, and i really consider mario one of my great friends, but it's great to have friends, but to have friends you have to know how to be a friend. so be trusting, friendly and supportive of your friends, extend yourself whenever you can. in the words of ralph waldo emerson, the only way to have a friend is to be one. and i think that's very important in life. third, i told my kids never do anything in life that if what you did appeared on the front page of "the wall street journal" or "the new york times" that you would be 'em embarrassed. live your life as an open book, and that's the best way to conduct yourself. and finally, which is going to seem very remote to the vast majority of the audience because it's far down the road, when you've achieved financial security and success, share with others less fortunate than yourself. in a biblical sense, we are our brother's keeper, and ily think we have -- i think we have a moral obligation to help others in need.

over the years i've read a lot of words of other people that are struck me in a manner that impressed me better than words that i could make up. so i've used the words of others. so william -- i don't know any of these people, by the way, i knew henry ford, i knew who he was, but i don't know the other people. the first respect of a gentleman is those who could be of no possible value to him. i've seen over the years people that treat very nicely people in a superior position to them but are nasty to people below them. there could be absolutely no value to them, sad to say. and i really detest that kind of behavior. so my view, conduct yourself in a manner, respect people no matter what they could do for you whether above you in life or below you. but treat people with respect and dignity, and i think it'll come back and, basically, reward you in many ways. henry ford said the best way to make money in the business is not to think too much about making it. warren buffett, who's more of a

contemporary, one that mario and i have great respect for, he says go to work with the people you respect and admire. don't worry about the money, everything else will take care of itself. and is, you know, we're all economic people to a degree, but i think it's very good advice because you're not going to do well with something you don't like. so find something you like, do it with people you respect and admire, and hopefully the rest will take care of itself. ill skip the chinese proverb, but william ward, i tried to google him, but i found out there about 50 on google, but i thought his words were very succinct and something i believe in, you know? before you speak, listen. before you write, think. before you spend, earn. before you invest, investigate. i do that most of the time. before you criticize, wait. you know, words hurt. before you pray, forgive. before you quit, try. before you retire, save. and before you die, give. and i think that's a very good

sequence of advice. now, i have a granddaughter, believe it or not, who's very poetic and very into the nonprofit world. she just turned 14. she's been writing poetry since the age of 7. she just came back from two weeks in santa fe, new mexico, on a educational two weeks for a charitable giving and charitable involvement in the communities. and my family is jewish, and rabbi hill el said if i'm not for myself, who will be for me? if i'm not for others, then what am i? if not now, when? and my granddaughter's courtney, and these were her answers, and i believe in them. if you are not for others, no one will be for you. you show others how to be more more than just themselves, and they will be for you. the time is always now. so now or never. so i would sayer irrelevancy to

you was, you know, giving is probably not something you can aford to do now financially. you are in a very, very competitive world today, and one of the things you should do -- hopefully you want to do out of your own initiative, but at a minimum to improve your competitiveness in the world is try to find community act difficults that you can give -- activities that you can give back to to distinguish your resumé from the next person. because people like me are getting resumés in every day in this difficult economic environment fromfy -- from phi betas, and they're looking for a job. what you've got to do is find a hook on your resumé, and to the extent that you show a high sense of community involvement on top of good grades, that may be a way of distinguishing yourself from the rest. now, also, you want to go into a field that you have an aptitude for. as i said, you're not going to you can seed at something --

succeed at something unless you have an aptitude. so i thought i'd put together a list of things i look for when i interview people. basically, a desire and commitment to be the best, a strong work ethic. here i am, the introducer says legend, and i keep saying a legend does not have an alarm clock that goes off at 5:50 in the morning to drive to jerseyty to be in his office at 6:45 every morning and go out every night of the week and try to figure out ways of beating the market. you know, that's, legends do something different. but, you know, these are some of the characteristics i look for. this, by the way, slide deck is available to you in hard copy, and to the extent you want them through the administration of the university, you can get 'em. but if numbers don't speak to you, in other words, you know, ben graham wrote a book called "the intelligent investor" in 1954,. >> in the -- and in the book he

hypothesized that analysts evaluate management twice in the process, once through the numbers. in other words, when you look at a company, the company's growing at x and return on investment is y and profit margins are whatever and return on capital, whatever. those are financial statistics resulting from the efforts of management. so you want to look at the financials, but also you want to look at the management face to face and try to assess whether they understand their business properly, whether they have the right moral compass, whether they're people you want to invest in and bet on. so i think if you don't like working with numbers and you don't like working with people, my guess is the area of security analysis might not be that appealing to you. if you like working with numbers, that would be something that would be important. i found a tremendous amount of interest in the hedge fund industry over the last five or six years, but i want you to know it's not a one-way street.

so this is an article written in fortune magazine in 1970 or '73 by a very, very distinguished writer, her name is carol loomis. she actually writes a lot of the annual report stuff for warren buffett, and she couldn't have been more wrong because this article was written to ring the death knoll for the hedge fund industry after the '68-'70 bear market. other than the mutual fund that i and michael, everyone got pretty severely beat up, okay? but today i could name 50 hedge funds that are over $10 billion. so the argument that the industry was over was totally wrong, you know, in that what is most striking to me, the largest hedge fund in 1968 was $220 million. start-ups are starting with billions of dollars today. so it's a cyclical growth

industry, and if you produce the returns, you'll grow. and if you don't, you'll atrophy. it's a little like darwinism, right? survival of the fittest. so don't think if you go into the business that it's just up, up, up, up and no hiccups along the way. what separates the men from the boys is how you do in periods of adversity and how you deal with it. in the last 20 years i've had three years where i've had losses for my investors. difficult, it's hard to pay your people, you lose a certain amount of self-esteem because you got the environment wrong, but i always stuck around to fight my way out of the hole and come back. and i think it's important that you understand it's cyclical. let me tell you a little bit about omega before getting into the investment outlook. i'm trying in this brief talk to touch on a number of different subjects to see, you know, what interests you. students, probably the most interesting thing is getting a job upon graduation, so we talk a little bit about philosophy and technique. to the corporations in the

audience, you want to know what's going to happen to the economy, interest rates, so i'm going to try to touch a little bit of everything and then let the q&a drill down to where you're most interested. but i'll talk a little bit about what omega does. we're a liquidated hedge fund with what we call a macro capability. macro being bonds, currency, commodities, so we have a little bit of an overlay. we manage about $6.6 billion in total. we have 40 individuals of the firm, about 14 of which are partners in the so-called incentive carry that we earn if we do well. we try to make money for our investors in five different ways, no one way is more important than the other way. i'd say the largest returns come from the third element on the list. i see we didn't have a slide on that. but the five ways we make money are, number one, basically is market direction. i don't care how smart you are, a rising tide lifts all the

ships, a receding tide lowers all the ships. so we send a lot of time at omega with my partner, vice chairman of the firm, studying the economy, market valuation and trying to determine whether the stock market's undervalued, going up, or overvalued, going down, because that determines our exposure to risk assets. stocks are higher risk assets that is cash and short-term bonds so if you think the market's going down, you want to be defensively postured. number one. number two, we do a lot of work in the air of asset allocation -- area of asset allocation. we look at stocks and can bonds, and within bonds we look at government bonds versus industrial bonds, high-yield bonds and structured corporate credit. and we're trying constantly whether it's united states, canada or western europe, we look at all these different markets to try and find what i refer to as the straw hat in the winter. during the winter people don't buy straw hats. hay buy them in the summer.

so if it stands to reason if they're not buying something, it could be potentially undervalued. so we're looking for something where we think it could be changed, in the summer they're more recognized. third, where i spend the bulk of my own personal time is undervalued stocks on the long side. we visit companies, we knock on doors, we quiz managements, we study industry statistics, evaluation and try to determine whether a stock is mispriced. we buy it if we think it's undervalued, and we're patient capital, wait for the market to recognize that we think we recognize, stock to appreciate and then move on to the next undervalued security. fourthly, which distinguishes a hedge fund from a mutual fund is two things; an egregiously high fee structure. most mutual funds manage for 1% or less and hedge funds charge a similar to larger fee and get a percentage of the ups, and the other thing is you can sell stocks short. the best way to understand that

is you sell something you don't own because you think it's overvalued, and you buy when it declines in price and cover your short. so you not only make money long, you can make money short, and you participate with the investor in a share of the profits. and finally, we do a certain amount of what i call macro investing where we have, might have a view of interest rates, we can go long or short of bonds. we can go long or short commodity like oil. oil's currently $100 a barrel. we develop a few as the global economy is slowing, oil going to be in excess supply, the idea of buying it at $80. >> so it could be currently, it could be commodities, it could be bonds. and so this is what we try to do. for 20 years our returns have been 13.5%, net of all fees to

the investor which is approximately 550 basis points in excess of the s&p 500. we've done that on average about 70%. so we've been less than fully invested and have achieved the return 550 basis points in excess of the market. now it gets a little more difficult, talk about the investment outlook which i think a chunk of the audience is more interested in, and i'm really kind of in formation because i've been optimistic the last two-and-a-half years, but i'm beginning to become a bit less optimistic. rather than overwhelm you with the specific forecast, i'd like to show you my methodology. because if some of the things i'm looking at don't resonate with you, some kind of analysis we're doing, again, it should tell you something about the right clear path to pursue. but the great warren buffett once observed the forecast of the future, tell you more about the forecasts than tell you

about the future. so i think i've told you a bit about myself where i did not mention that of the 6.6 billion that we manage, roughly a quarter of that is the capital of the partners of the firm. so warren buffett has popularized this notion he eats his own cooking, we eat our own cooking because if we lose money, we're going to lose more than anyone loses because of our investment. if we make more, we make more than anyone makes because of our investment. so in this a sense we have a complete alignment of interest. we live in very exciting times, but i have to say the the message i'm giving now different than the last two-and-a-half years, is i think the stock market's in a zone of fair valuation notwithstanding the large number of risks out there. and every forecast or market view is based upon certain assumptions, so i'm going to tell you what mine are, then i'm going to develop my view with more detail and more statistical

substantiation. my first assumption is the economy continues to grow, albeit at a slow, subpar rate of about 2% and that we don't fall into a recession in the next 12 months. that's very important because most every recession i know of is preceded by a bear market. so if we don't have a recession, the likelihood of a bear market, i think, is small. secondly, and this has taken a lot of brain power from a lot of people, and that is that the ecb, european central bank, continues to act to stabilize the financial system in europe much the way our fed did so in the united states and that these eurozone governments, particularly germany, act in a cooperative way to fund weak european sovereign debt needs. and further, the european banks raise the costly capital they

have to raise, shed troubled loans to opportunistic hedge funds like ourselves, and they earn money with a positively-sloped yield curve, and that in conjunction with the passage of time, the european financial institutions will earn their way out of the hole they're in. and let me just say on that score there have been two schools of thought the last two years on europe. one school of thought has been that the problem is so complex, so difficult to understand that it exceeds one's bandwidth, and they don't want to invest. they think the consequences are so catastrophic. the second school of thought which i have pursued was 45 years of investing. when everybody's teeth is gnashing about a problem, everybody believes something if it hits is so catastrophic in its impact, it generally doesn't hit. so maybe it was an easy way out,

but what i've been saying to myself is that the break-up of the euro and the eurozone is so catsic in its impact over europe that the ecb, the imf -- which is 70% funded by the united states -- germany, france, china, japan will all chip in to do what they have to do to kick the can down the road, and we will not have a catastrophic outcome in europe. that is still my belief. and when people start to think more along those ways, you know, if you listen to what germany's saying today versus what germany was saying a year ago, it's totally different because germany understands if euro breaks apart, they're a major loser. why? if the deutsche mark starts trade anything a separate currency, it'll go to a level like the swiss franc, so it's in their interest to keep the eurozone together. it's more complicated than the united states because in the united states we have one central bank.

in europe you have 17 members of the e.u. each with their own views, so it's more difficult to bring everybody together. and the third assumption i'm making is that china's in the midst of a soft landing, not a hard landing, and that we'll have growth in real terms in china somewhere between 6 and 7%. and that has to be watched very carefully. the chinese government, i think, is in the early stages of significant easing. they cannot afford a significant economic slowdown and recession because of the potential for social unrest in the country. the best way to think about the problem china faces is very simple; it's a nation of 800 million farmers that only needs 200 million farmers, and those 600 million people start to move into the cities, and they have to have employment. if you don't have employment, you're going to have social unrest. so the biggest challenge is to find jobs for 25 million more people every year, and that's what they're working on.

so my principal conclusions in the equity market are driven off of these observations, and all my discussion that follows justifies these statements. no recession of forecast on the horizon, valuation reasonable, investors have derisked, okay? and the conclusion i had tonight got called this way on tv, stocks are the best house in the financial asset neighborhood. it's not clear whether it's a good or bad neighborhood. i still believe that, by the way. so the first thing, let's talk about the economy because i think a picture's worth a thousand words, and basically as you can see from the middle column the average economic expansion when one gets going, basically, lasts about five years, 60 months. now, i'm not here to debate whether this expansion's going to be longer or shorter than average, but if i had to debate that, i would argue it might likely be longer than average

because so many sectors of the economy are still operating below potential given the severity of the recession of '08. so autos are just starting to come back, still i think below trending demand. housing is way depressed, way below normalized command. retail sales still below normalized demand. so i think, as i said before, most recessions are preceded by bear markets. if we're right, we're about little bit past the midpoint of this economic expansion. it's not logical to expect a significant market decline. the reasons for our relative optimism in the economy are in this slide. you know, we're all -- we're unhappy that employment's not growing 4 or 500,000 a month, but it is still growing. it's growing subpar -- excuse me -- a lot of reasons we can discuss later, but employment is improving, and the average monthly increase has been somewhere around 140 to 150,000.

there's still pent-up demand in the consumer sector, the consumer's balance sheet has been improving. residential investment is way below trend. you know, housing starts are way below demand, and i won't read every one of these factors, but i think these are our reasons why we stand before you, i stand before you expecting economic growth to continue. our economic framework is on this exhibit. we're expecting something between 2 and 2.5% growth, and basically, um, it's not ebb you lent, it's not a feel-good environment, but it's an environment of growth. the reason i say it's not a feel-good environment, and you should understand these statistics, in the u.s. economy typically the labor force, number of people seeking employment, grows about 1% a year. the productivity of the labor

force or grows about 2% a year. so you need to be on 3% growth in the real terms to make a dent or even to keep unemployment level. and we're not growing at that rate. we're growing at a very sluggish, subpar rate. you can argue for the different reasons the need for government to delever and get their house in order given the size of our budget deficit, the uncertainty that exists in america over the fiscal cliff and the tax regime and perhaps anti-business policies being practiced by some -- we're not going to go there too aggressively. and so, um, you know, whatever the case may be, the economy's growing, but it's not a feel-good economy because the growth is not rapid enough to reduce i the level of unemployment in the -- reduce the level of unemployment in the economy. giving you some support, very important area of the economy to both the consumer and consumer psychology is housing. and you see really the ingredients for a decent size recovery in housing activity. affordability is near record

high, that's the top left-hand slide. home prices to disposable income is running near record low levels, so houses are cheap. in fact, the value of a home is a function of the capitalized cost of renting. rents have gone up much more relative to house price, and so now it's actually with cheaper to buy a home than to rent. but people have not been doing it aggressively yet because one of the most important expenditures they make in their lifetime is a home purchase. and to the extent that they're not confident that the home prices have bottomed out, they don't want to make that jump, that leap. but as they start to see evidence of house prices bottoming out, in certain areas you're back into bidding contests. they'll be more on optimistic. so home ownership has declined to very low levels, rent is a percentage of the mortgage payment that is at a record high, again, it's cheaper now to buy than to rent. and you can see existing home prices are starting to rise,

builder confidence is rising and housing inventory has come down over the last few years, and a lot of sectors of the economy, all this excess inventory has been absorbed. so the conditions are right for housing, i think that's an important underpinning to the economy. the second area we're talking about is the fed, and when mario and i came to wall street 45 years ago, there was a very trite but very correct statement, and that was the central bank or federal reserve board wrote the market letter for wall street. when the fed was tightening, it was restrictive and negative of the market. when the fed was easing, it was positive. well, that's not the u.s. fed, but central banks all over the world are telling you they want more growth, are willing to risk nor inflation -- more inflation, they want more employment, and they're driving interest rates to relatively noncompetitive levels. so here you look at money supply growth exploded over the last couple years, the federal reserve balance sheet has exploded as they've taken loans

onto their books off the banks to give the banks more ability to lend to the private sector, and we're dealing with a federal funds rate that has been zero now for a couple years and just recently fed chairman bernanke spoke and held out the prospect that interest rates would remain in the short end zero for a couple more years. then you look around the world. there's the ecb balance sheet, it's a percentage of the gdp, bank of japan balance sheet, percentage of their gdp, bank of england balance sheet and its percentage of their gdp, and the message is all the same. there's been 250 easings by central banks all over the world, and my guess is china is in the very early stages of their easing. and that's got to be viewed positively. another common sense way of explaining it, and let me say this later, and i'll try to remember not to repeat myself, but basically all of us in this audience to varying degrees have a challenge with divesting our financial assets. some have little, you're going to school, you're getting an

education, some have more than a little. but what are your choices today? your choices are, basically, cash which is zero, u.s. government bonds which i'll discuss in a little while, it's about 1.5, 1.6%, hardly a positive return after taxes and a negative return after inflation. high-yield bonds, i'm going to show you in a little while they've dramatically been repriced, or there's common stocks. as we go through each of these internships in the next few minutes, you'll see why i say stocks are the best house in the financial neighborhood. now, very important to any value investor is where you're getting into the market because you can be very right on your stock pick but wrong on your entry point and not make any money. so i try to give you where we are today in the market versus historical perspective. so for the last 50 years ending 2010, the s&p multiple averageed about 14.9, and in that period of time where it averaged 14.9,

the ten-year u.s. government bond, to the right, averaged 6.67%. well, here we are the market's about 13.5 times the estimate of earnings, roughly 10% below its long-term average, but the u.s. government bond at 1.6% is almost a quarter of its long-term average. so pe ratios are quite low, extraordinarily low. when the inflation rate in the country ranged between 1-3%, the multiple on the s&p was actually close to 17. if i look at this exhibit against a span of time, stocks are cheap against their history, they're cheap, very cheap against interest rates, and they're very cheap against inflation. i think the stock market is suggesting, and it's probably a good suggestion, that we're probably going to be looking at higher interest rates over the next few years and slower economic growth versus history. but to the extent that's being discounted, that's a plus for the market because you're buying into something that already discounts a conservative set of assumptions.

now, i'll give you a parallel. in the year 2000, the last bubble, it was in technology stocks. in 2000 cisco was selling at 100 times the analyst estimate of earnings. okay? it had no dividend, so the yield was zero. and u.s. government bond rates were 6.5%. fast forward 12 years, today, cisco is ten times the estimate of analyst earnings down from 100 times. stock yields 3% versus 0 and ten-year governments are 1.6 down from 6.5. so you can now buy cisco -- you can debate the growth rate -- that yields twice what ten-year government bonds are yielding, okay, and a multiple that's one-tenth of what it was 12 years ago. so valuation looks appealing. secondly, i don't believe the returns will be as ebb lent going forward, but whenever you've bought into the stock market in the range of 12-14

times earnings where you are now, the return one year later was about 15%, three years later averaged 16% and five years later averaged 15%. so we're buying in a historical context where returns prospectively are very attractive. for reasons i'll discuss later, there's always a dark side, i don't think returns will be as attractive as they've been historically going forward. i find this chart very interesting. at omega we made a great deal of money in 2010, 2011 and partially this year in high-yield bond markets. if you look at this bloomberg chart, in november of 2008 it was a once, i think n a lifetime -- i hope, because the suffering and the pain you go through in those periods are so dramatic, you don't want to live through it again -- but i certainly would say it was a once in a generation opportunity in a high-yield market. you could buy secret securities

in a company yielding 120%. two-and-a-half times what the long-term return the equity market has been. if you look at bottom footnote, i guess i have this pointer i could be using. got to find where it gets on the street. here it is right there. when the high-yield index was 25%, the s&p multiple was 13.9. the high-yield index is now sub-7%, and the multiple on the market is not materially different than it was in the 2008. now, we're getting towards cyclical peak earnings, but nonetheless, the high-yield bond is about a quarter of its peak, yet the multiple in the market is not substantially different than when high yield was four times greater. credit spreads are his corpsically -- historically very tight. so that once in a generation opportunity is gone. then here mario and i always had a favorite professor that shaped and nurtured our interest in security analysis, his name was

professor roger murray at columbia, and i can remember like it's yesterday -- unfortunate, it wasn't yesterday, it was about 45 years ago -- he told the class 1958 was a famous year in the equity market. he then went on to explain. 1958 was the year of the yield reversal. prior to 1958 stocks yielded more than bonds. we were coming out of world war ii, there was a great fear of a post-world war recession, depression, letdown, and then begin anything 1958 -- beginsing in 1958 when the country saw the economy growing and stores opening virtually every week, the market bought into the concept of total return. they said the return of stock is not just a dividend, but it's a dividend coupled with a growth in the dave dividend. well, we've tawrned back over 50 years in history. as you can see from this chart when i put this together, over

half the stocks in the s&p 500 now yield more than bonds. definitely government bonds are artificially depressed by the fed's, you know, policies, but this is higher than it was in 2008 which was an important mark, a bottom on 45%. and you look back over the years, nothing like we are now. so you can find many, many, many, many stocks, and i hope your investment club that's managing mario's money which he knows we'll never get back or the other money in the university in your investment club activities, that you're seeing many, many stocks that are yielding substantially in access of bonds, and these are growing companies. now, i have -- i was probably somewhat inappropriately quoted, i should elaborate, i was correctly quoted, but probably an inappropriate statement, but i made a comment about six months ago on tv that i wouldn't be caught dead owning a u.s. government bond. and ha's kind of -- it's not an outlandish statement, a correct statement by the way, but too

strong. what i meant by that is not that i question the u.s. government's ability to pay us back, they'll be fine, but you're just not being compensated for the risk. so i felt it incumbent upon me to explain my position. historically, the yield's in line with nominal gdp. nominal gdp is the summation of real growth and inflation. so if you say to yourself that the world we live in could be something like 2-3% real growth and 2-3% inflation, that means nominal or top-line gdp which is looking at a company's sales and that we're growing somewhere between 4 and 6% per annum. keep in mind at 4 percent we're not going to absorb more unemployed people, so social policy will be tilted towards trying to generate more economic growth. well, if history repeats its and a ten-year government bond goes back to nominal gdp, that means

that in a few years' time, the ten-year bond would be 4 or 5 or 6%. well, this is bond arithmetic. i printed this to get up here in time, but if we go from 1.5 to 4 in three years including your cue bob, you've -- coupon, you've lost 11% of your money. ..

something that surprised you. welcome in the last five years we've seen a significant the rest by the public and by institutions of the equity ownership was a what would the trade be? it happened this year. the market goes up because of devotee expected it would go down so you look here and you see every year in the last five years the equity fund as of the public. what are they doing, buying bond funds even though it is up 14 or 15% this year what are they doing? then you look at the pension fund sector. pension funds have gone up 60% in the year 50. most of them have assumptions on the pension of seven or 8% a year. you can't do it on a fixed

income, to be realistic private equity or equity. then you look here they've got 29% in the financial assets in equities down and the holding the stock fund to equine holding them. so i say the pain trade to the public is if the market went up and is not going down. now i don't want to stand here in front of you and appear like the village idiot, because i'm not. the economy faces a significant number of issues we have to deal with and the one is the so-called fiscal clef. if nothing happens, there's legislative tax increases that hit the economy the $576 million which is a little bit less than 4% of gdp. if we continue to have gridlock in government on the fact

republicans and democrats can't stand each other on a refuse to believe that. at the end of the day it's the same group that didn't like each other in 2008 but the legislation to get the economy out of this sharp dive so rather than push us into a dramatic recession that there will be compromises but it's not 100% clear that it's going to happen so it's something we have to think about and worry about. i have a firm view we can talk about that later in q&a but that is a personal opinion. a lot of people with different opinions. i'm very concerned about the huge buildup of federal debt. this common sense observation was founded in 1776 and we had no debt.

1776 in 2012 to 0.16 trillion that is going up by over a trillion dollars a year now. it's unsustainable. we have to deal with this. the commission came up with incredible ideas that we've done nothing with them. unless we move in this area, i think it's going to be a significant issue and while we are not greece, we could have similar types of problems not the same degree as you can see what is happening to their relative size we've got a problem and last there is a huge legislative tax increase on the horizon not particularly friendly towards the capitol formation. the current tax dividend of 15% i guess you can see right there 15 if obama has his way it is almost a tripling and will be

about 50% or so increase in the tax rate of the capitol gains and if you lower the return on investing you will lower the amount that is taking place so we have to resolve these issues that confront us and nothing is going to happen until november 6th when we see who the leader of the country is and who controls congress said these are factors we have to worry about. now, my observation was to go back early in my career. i see that with a big smile and a certain sense of modesty but i got my m.b.a. from columbia on january 31st 1967. i had a child while why was that business school who was six months old by the time i graduated. i had no money in the bank and a student loan to repay. so those of you in business in

sure you've learned if you have a liability you have a negative net worth. i hope we learn that and basically i had no choice but the good work immediately. so the next day the very first of 1967 my father of my career at goldman sachs. for the very first come 1967 there was roughly 850. the low and behold 15 years later it was age 50. i made my money by finding things that were very cheap that for of 700 on the dow or the equivalent and the mark was going nowhere. i can very well appreciate a scenario where because of the need of the government around the world to get their financial house in order, the next few years we can remain in the environment as we deal with the fiscal cliff and the deficit issues and the market sees the

need to deal with them in an intelligent fashion. folks in their early 20s and late teens you can live through this. another three years the market is granted be free painful to me but i'm going to do at because this is what i love doing and i have an obligation to do but i've got to manage it intelligently and properly. i am a value investor. what does fallujah investor mean? it means i want more for less, so when you look at the stock market basically it is an index of 500 companies. on average about 5% to would on average about 2%. a little over two times the book value in the index a debt of about 35% of its capital and debt to equity it returns on the

equity currently about 16% and normally it is closer to 14 or 15 and the ratio for that statistical collage is 13 and a half times, so the value investor on looking for companies and growing more rapidly with a low multiple or have more dividend yield in the market and the low valuation or give me a lot more asset value reverses the value that i am paying for. that's what it is all about sciu can be valuing investing by apple computer at 120 billion in cash comes of the 12th and a half times earnings of 50% of equity this capital in the balance sheet but if you have a view of that growth in think it won't be like it's been the last few years but they will grow 20%, so it's a growing four times the market. you have to accept technology risk. three years ago we were standing here talking about the fund on

the blackberry and now in the united states of america its dropping at a rate of 50% per annum. i joined xerox out of hunter college, my first job basically all about photocopied. somebody is up all lesson so we have to make a judgment call the this is what it does. it looks at more for less. i said at the outset that i was becoming a little bit less sanguine. some plans to pour in the midst of trusting the viewing and you need time to think things through but basically the market now is about 13 and a half times the earnings. that's been the upper end the last three years. second, the third quarter this

year will be the first down quarter year over year since the third quarter of 2000 line so the increase is a million reading and could be down for awhile and that's a factor. as we get close to the end of the year the fiscal cliff issues starts larger and there's the tax policy that i mentioned before and i am the first to admit china is slowing more than expected and has to be watched carefully. finally the ec there's a lot more things to do regarding fiscal integration, bank sector unions and stuff like that. so we have adjusted ourselves to a level of fair valuations of the market has fifer set up, 10% down but i intend to follow the

advice, he was a professor of columbia and one of his students went to the professor and said to you have any advice now that i am graduating? so, right now i would say i try to develop their reasoning why i think midterm with much risk the market as a reward but i don't do any that is properly selected maybe we can make money for you and the market that we save to network if i had access to public markets i think the interest rates are at the generation low i would plan will the economy if i were a student going out to pursue my career

just to the best education you can come in to get the best grades you can come and get back in community service and resonate from the next person and a very competitive environment and a street in the credentials. we will stop here and take questions. [applause] we have time for only a couple questions because he has to be on his atf green and if he doesn't get dealt in about five minutes. >> is this a jury or who are these guys? [laughter] >> my name is sam. my first question, you put a lot of reliance was fundamental

analysis on this value of companies and then based off of the fair market value. where some of the key indicators that you base those decisions on and how much reliance do you put towards the behavioral analysis? >> i am very analytical. my team who derives models and revenue, cost, earnings, growth rate, market position, growth in the market, so on and so forth. we have a certain view of what it is more of and if it is selling we hypothesized in the book and the security analysis if they had a ban of intrinsic value, the job of the security analysis is to recommend securities below that intrinsic value as the result of the growth rate returns. the most important thing for me is the free cash flow. unless you generate a free cash flow to have the luxury of pursuing the alternatives swift

that cash flow they can invest in their business and buy back equity and pay dividends that is the elixir that keeps things going it's honest management i would not invest with something in this size. now we've invested knowingly with competent people because they were just too cheap to ignore but more often than not you go to bed with dogs and we up with fleas. it's a lot less zeros in the sense that he believes in a well rested a company with his favorite expression was he like to invest in companies managed by an idiot because sooner or later in a yet will be running them and that is what he said. but anyway, i would like to invest in businesses that our cash flow generators, run by capable management, the management is properly incentivized to do the heavy

lifting and five benefit from their hard work so the best case in point a terrific guy in manhattan was invested with berkshire hathaway for 50 years he moved out of the partnership and i think he is worth three or $4 billion. the essence of investing the company make sure he is compensated and benefited from his performance. >> i apologize if i went over. i can't believe. >> i'm also a student fund manager. during your experience and investing in china how did you get around issues -- >> different question. i have no investments in china.

i have one investment in asia from the asian insurance company that is growing rapidly used to be controlled by aig but a spinoff of the public so it's a rapidly growing but i'm not a big investor in china. there's enough in europe and canada that it's not as global as some of the people. >> why did you go off and start more of a traditional route working for the treasury or another government agency? >> i would still be at goldman sachs. i had a lot of vigor. i retired for one reason. i spend my first 23 years in the firm a big part of running the research department in the firm came to me in 1989 had been

adding the prior year's to making the state not being the money management business and so they can to me in 1989 and said you were right and we were wrong could you build us the asset management business and so we left research to start and return as the ceo but after a short period of time i saw that the objectives didn't mesh and this is of critical voltmann i had 25 years as a glorious firm of the assets equal revenue they wanted to manage as much money as they can get their hands on because that would grow the business and my objective was different i wanted to invest, have my money alongside of them and manage a rational sum of money where i could deliver good returns. after a year of doing what they wanted me to do the needed to be on the road making the marketing presentations starting the new product lines and i started the

first mutual fund with goldman sachs since the depression. they wouldn't put their name on it because john who is passed away his father saved the firm in the great depression goldman sachs trust came out with mutual funds at the top in 1929 and went to new zero. if you open up "the wall street journal" you will see 40 or 50 different ones goldman sachs is selling to the public so i wanted to be in a different kind of business so i have retired. now she asked them why he robs the banks and he said that's where the money is. to manage for one person or you could have a variation of one or 2 percent or 20% and you ought to be more entrepreneurial and you may like what the investors, the hedge fund business was more logical for me. i don't know if that answers

your question. i apologize i wanted to cover a broad range of subjects. you can feel free to reach out and get this presentation and i would like to in part of the columbia business school we like to work to give them guidance and help out and i am sure we visited the business school and everyone was kind of depressed. he said if you have a columbia m.b.a. and i will say the same to you he said $100,000 now for 10% of your lifetime earnings. i'm sure you will be very successful and i will take them to save your lifetime earnings. spec the faculty staff administration, thank you, mr. cooperman. >> thank you so much.

>> a live look at the c-span cameras in front of the white house on pennsylvania avenue the federal government closed today. president obama announcing a while ago that he is staying in washington today and canceling planned appearances in ohio tomorrow. those announced they would cancel those tomorrow. the country coming back into working order with air traffic resuming leader. the airports and also the early sector resume tomorrow in the state of maryland. the president already declaring earlier stage of the sastre new york and new jersey and cnn reporting the u.s. death toll from the hurricane is now at 21 with ten of those in new york

city. soa look here at the white house on a rainy and windy tuesday one week to election day and now through election day you can watch our coverage of the presidential candidates and the dates from key house senate and governor's races from around the country. and a look at what is ahead here on c-span2 today. up next conference on the implementation of the dodd-frank -- that will be followed by a panel discussion on national security up next the george town hall university's center for law, economics and finance recently held a conference on implementation of the dodd-frank 2010 dodd-frank law. the first panel looking at whether it goes far enough to protect the nation from another financial crisis the featured speakers include scott alvarez, the general counsel of the federal reserve and richard, the

acting counsel of the fdic. this portion is one hour and 20 minutes. >> good morning. i am honored to be the moderator of this distinguished panel, and i know we are going to have an interesting discussion and a little bit of debate. the good news is we don't have to compete with monday night football and the playoffs. gentlemen, let me take a couple of minutes to kind of set the stage for the discussion. what is fascinating is the dodd-frank act, landmark financial reform legislation has provoked more controversy in discussion since it has been passed than even before it was passed. 2010 was a pretty easy call for politicians in some respects going into the 2010 election cycle because public opinion polls overwhelmingly seem to demonstrate that americans have a vivid awareness that in the

inclusion of the international u.s. economy had been averted by the massive infusion of government capital into the financial-services industry and trillions of dollars of guarantees and liquidity and that this crisis was basically caused by a combination of risky and abusive wall street practices and acts of government policy and oversight. so in that the dodd-frank act was born and in so doing, it's every major provision seems many of these haven't even been implemented. today it seems to generate controversy whether it's the creation of the consumer financial protection bureau, the too big to fail policy of the federal government, the skin in the game rules, the noticeable

absence of the gse reform. the bottom line is it signals of the end but rather the beginning of a vigorous debate about its provisions. before we start i want to read a few quotes from folks that have weighed in on this debate, most notably president obama and governor romney in the most recent of the first presidential debate october 3rd. governor romney come every economy has good regulation at the same time, regulation can be excessive. the dodd-frank act as a number of provisions that have unintended consequences that are harmful to the economy. it's killing regional and small banks i would repeal and replace it. president obama. the reason we've been in such an economic crisis is prompted by the behavior on wall street putting main street at risk. we stepped in and had the toughest reforms since the 1930's and so the question does anybody out there think we have too much regulation on wall

street? senator warner of virginia who was involved in crafting the bill, congress never gets it right when you are looking at a massive reform legislation the first time through. you come back to or three years to do collections legislation. the secretary of the treasury with tim geithner in an editorial march 1st strong defense of the dodd-frank act asking them to remember the financial crisis of 2008 when you read about the hundreds of millions of dollars being spent lobbyists trying to weaken or repeal the financial reform. they are not perfect but if they had been in place it would limit the financial crisis. community banks. the capitol requirements and increased dodd-frank regulatory burdens were intended for big banks and will effectively put community banks out of business. interesting enough, former

citicorp executive an interview with squawk box what we should do is split up the investment bank, have the banks be depositors and make commercial and real-estate loans and not risk the taxpayer dollars, banks that are not too big to fail. former fdic chair sheila bair recently had a white paper saying of the law clearly a stylish as the framework that allows financial firms to fail while preventing catastrophic harm to the economy. it effectively ends too big to fail and out walls the future taxpayer bailouts. finally, rolling stone magazine now we could spend all evening about the financial crisis, but a lot of them would have bad words that we can't use your but i will just conclude with a

quote from the recent article on the lobbying efforts by dodd-frank. the system has become too complex for the flesh and blood people who make the mistake passing a new law means the end of the discussion when it is just the beginning of the war. so the question is on the table. dodd-frank, too little, too much or is it just right? it's a great pleasure to be here. i want to thank john bachmann and the gw small community for giving me the opportunity to speak with you today on behalf of this panel with a variety of points of view and hopefully it will be an educational few minutes for you. to figure out whether the dodd-frank act went too far,

didn't go far enough or is just about right you need to start with an understanding of where the dodd-frank act is. while much is still speculating there is substance set in the act that it's useful to begin a discussion about the efficacy of the basic tenets of the dodd-frank act. so, from history and beginning in the summer of 2008 through the enactment of the dodd-frank act, during and following the worst financial crisis since the 1930's, the federal reserve and the other financial regulators asked the congress for three types of tools to address and to the extent possible fend off incidents that would threaten or harm financial stability. first, we ask for authority to take stability in the financial system into account in the supervision of the financial firms and beyond the traditional

review of the safety and soundness of individual firms. second, we asked by action of congress or other authority from the agencies to fill in the gaps in the framework established by the congress and the original regulatory system to cover parts of the financial system that were not covered and to allow some regulation of the shadow banking system. third, we asked for a mechanism for implementing an orderly downsizing or unwinding of a failing firm outside of the bankruptcy. so the dodd-frank act tried to address each of these requests among others. on the first one, it provided the banking agencies and the other agencies enhanced supervisory authority focused on financial stability. in particular, there's section 165 of the dodd-frank act which requires more stringent standards to be applied to large bankholding

companies and the firms that are designated as systemically important by the financial stability oversight council. dodd-frank required standards and a whole variety of areas, capital, liquidity, risk management risk management, counter party exposures, resolution planning and a whole bunch more. so what's new about this? what's new is the legal and supervisory basis for all of these authorities is financial stability. we already have standards in these areas that were focused on the safety and soundness of individual firms but now we were given the authority to consider all of those areas and whether there were some of fact on an individual firm affect on the financial stability or the system's effect on individual firms that gives a new dimension how you look at all of those

standards. the other thing new is it extended the standards to them on banking firms designated as meriting supervision. so this began to fill the regulatory gap that was posed by some of the risk to the financial system. another area of the congress provided and helped is the requirement that the agencies consider the effect on financial stability of every bank acquisition by a large bank holding company and a sizable acquisition of nonbanks by large financial firms and the designated. related to this the commerce granted authority to break up large firms if they would pose a threat to the financial stability among other things. cities focus on the size and structure granting authority to limit expansion or to require divestiture based not on

competition that safety and soundness and on financial stability the federal reserve and the other agencies are still fleshing out the framework for analyzing financial stability for purposes of these provisions so there is a lot of work yet to do. clearly size will matter in deciding whether the firm's pose a grave threat. but the size alone is too blunt of an approach so the agencies are also considering interconnectedness among the firms, the substitute devotee of the firm's and other services, the complexity and foreign operations, the ability to resolve them in a way that is not disruptive to the financial system and also factors the would indicate that a particular firm is especially vulnerable to financial stress from outside its own walls. so there's much more to do but we have begun that task.

the dodd-frank act also expanded authority to identify through the examination practice at the financial firms that pose a threat to financial stability. so, this allows the agencies to use one of the most powerful tools understanding how the system works, using the tool as the system cui important firms as well as bank holding companies and thrifts that are already subject to supervision. finally, i would point out among the many tools is an early remediation authority that allows the agency's to increase supervisory attention and requiring improvement the the financial firms as the decline based on measures of the evangelist the capitol of the organization so based on the risks they take or exposures they might have beyond their capital position. so these are all tools that we are still fleshing out.

it's going to take time to work them out and they will all have costs on the financial system and they will need adjustment. the agencies are doing their best to get the framework in place for the supervision as best we can at the beginning, but as senator warner mentioned, and as gerry mentioned, senator warner is quoted as saying we need to come back and revisit this as time goes on to try to get things right. it's hard to eliminate all unintended consequences from the start. so dodd-frank responded the second request for the tools to address gaps in supervision by establishing the financial stability oversight council which is the head of the rita bender agencies that oversees the head of the system plus the federal office of insurance and representatives of the various state regulatory agencies. it is charged with monitoring financial systems for emerging

risks to the financial stability recommending actions to address risk to financial stability and recommending steps to congress to fill the gaps in the regulatory system and weaknesses in the functioning of the financial system. designating the non-bank firms to pose a risk to the financial stability but live largely in the supervisory shadow of the merits among other things. they published a number of reports and studies the kind of things the agencies have to do. it's published some guidelines on how it will approach the designation process and hurwitz thinking about financial stability and the factors it considers. it's began reviewing large funds, large and complex firms to seize the designation as appropriate and it's begun to make recommendations to congress. so it's beginning to work in the ways - to dodd-frank envisioned.

on the first point, establishing a mechanism for winding down large financial firms to pose a risk to financial stability in the economy as an alternative to bankruptcy i'm going to leave to rick from the fdic that is quite the expert in that area. >> but i would like to end with some personal thoughts about where the dodd-frank act fix. it's built on the modern model of addressing and preventing the financial crisis. that is the government supervision and regulation is necessary to monitor and offset the extremes that come from self regulation in the capitol society and it's built on the idea that the government must impose discipline on businesses where they have an incentive to the downside risk that could have potential harms to society

generally. neither extreme of self regulation our government regulation will assure that there is no financial crisis ever done. we are after all a system of human beings to read the question is whether we are prepared to accept the cost of the system that we choose to implement. the dodd-frank act clearly has a cost to. it's going to have greater regulation that will affect how the business is run and how they provide services to us, the cost of the services, what services they provide. but the question is whether it creates a safer system so i believe the dodd-frank act has the potential to reduce the cost and to make a safer system if we implement it wisely. though i am quite humbled by the idea that we will never be able to prevent all financial crisis i look forward to today's discussion and the enlightenment that will come from interaction

and different points of view. [applause] >> good morning everyone. it's a pleasure to be here to discuss this timely and important topic dodd-frank command i want to thank you it won't surprise you all to know that i wholeheartedly agree with sheila bair's position on this that dodd-frank has e effectively ended too big to fail. title to is the liquidation of farby and would like to point out dodd-frank addresses a lot of other areas as well one of which increased your deposit insurance coverage it to under $50,000 so you should be thankful for that as well. [laughter] shortly after the statute was

enacted the fdic created the management institutions to address. we have two titles under title won the largest bank holding companies and important financial companies are subject to heightened supervision and this requires the companies directly submit resolution plans on what we call living wills to demonstrate how they would be resolved under the bankruptcy code, and after last september the fed and the fdic issued a rule to implement those provisions under the act and they've already been filed by nine institutions and we are already in the process of reviewing those plans. under the regulation the second set of plans will be given july

and the first was due for institutions to enter the $50 billion next july and then at the end of the year we will get those between 50 to $100 billion. we've already reviewed the first set of plans for completeness and we are making appropriate communications with the institutions and we are in the process of giving credibility reviews. if we don't find the plants to be credible, and this is ann trinkle process, the company can be required to submit a revised plan, more detailed plan, and we could if that plan doesn't meet the requirements and pos strict requirements with respect to capital and liquidity and other things the fed and fdic would have to agree on this and if the company fields to submit a satisfactory revised plan within two years we can actually in consultation jointly directed

the company to divest certain assets or operations would be necessary to facilitate an orderly liquidation. the fdic has also put into place its own rules for the depository institutions by a $50 billion or more. we did that in connection with each resolution plan. they're the institutions are subject to the act and we require those institutions to show that the resolution could be done in the least cost manner which is what happens under our statute. so these resolution plans provide value would insight into the inner workings of these complex institutions and the industry in general. and they allow us to further refine our existing resolutions strategies under title to. our efforts therefore serve as a foundation for the resolution planning activities under title

to in the event of the financial company entering the resolution. and again, it also as space was mentioning we had this heightened supervision by the fed would cheerfully of waves us getting into a situation where these authorities have to be implemented. so turning to title to, the financial crisis we lack the authority and the powers now available under this resolution of already we were basically forced to either choose between bankruptcy or bailout. under dodd-frank, bankruptcy remains the first and preferred option. bankruptcy remains the fewest options.

title to its resolution date for resolution would have an adverse systemic effect on the entire financial system. some of the policy goal is to liquidate the failing any way that mitigates risks to the financial system and also minimizes moral hazard. the statute prevents any taxpayer bailout and provides a liquidation process for a disorderly collapse and ensures they do not have a cost. and that of the third parties are responsible for the condition or held accountable. how does this work? for the fdic to be appointed as the receiver for iowa sifi we have to have a determination and an expedited review process that

is available. it's very similar to the systemic authority we used in the last crisis a few times which i thought we would never use in my lifetime. but it's pretty amazing and it involves a super majority of the fdic or determining that there is a systemic risk to the financial stability of the united states. super majority of the federal reserve board. these are recommendations made to the secretary of the treasury who then consults with the president of the united states and makes a determination to appoint the fdic has the also consult as well. and if we are dealing with a broker-dealer and the fcc instead of the fdic and if we are dealing with insurance, a large insurance company that would be the federal insurance ce