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tv   U.S. Senate  CSPAN  April 5, 2013 9:00am-12:00pm EDT

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in 2003. when the committee was faced with a stubbornly weak recovery from the 2001 recession. it had cut the federal funds rate to the very low level of 1%, but unemployment remained elevated, and the fomc saw some for the way to stimulate the economy. in this situation it told the public that it intended to keep the federal funds rate low for longer than might have been expected by adding to its statement the words, in these circumstances the committee believes that policy accommodation can be maintained for a considerable period. so let's just cause here and note what this moment represented. for the very first time, the committee was using communication, new words, as
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it's -- mere words, as its primary monetary policy tool. until then it was probably, to think of communication about future policy as something that supplemented the setting of the federal funds rate. but in this case communication was an independent, and i believe an effective tool, for influencing the economy. the fomc had journeyed from never explained to a point where sometimes the explanation is the policy. by the eve of the recent financial crisis, established the fomc could not centerline on a record of systematic it as a substitute under unusual circumstances, for which history had little to teach. i think we're all fortunate that
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policy makers had learned this lesson, because the fomc was about to encounter unprecedented economic conditions and policy challenges. the financial crisis and its aftermath demanded advances in fomc communication as great as any that had come before. the situation in 2008 and 2009 was like nothing the federal reserve had faced since the 1930s. in late 2008, the fomc cut the federal funds rate nearly 20, essentially as low as it could go where it has remained. with its -- nearly the zero. with its traditional tool for expansion area monetary policy, ma lowering the federal funds rate off the table, the fomc turn to unconventional and, in
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some cases, newly invented policy options to try both to help stabilize the financial system and to arrest the plunge in economic activity. the public at don't accustomed to monetary policy that focused on changes to the federal funds rate target, with occasional, and at this point pretty limited, guidance that a particular policy stance would probably last for a while. beyond the task of describing the new policies, extensive new communication was needed to justify these unconventional policy actions and to convincingly connect them to the federal reserve's employment and inflation objectives. the best known of these unconventional policies is large-scale asset purchases, what's commonly known as quantitative easing. starting in late 2008 and continuing through today, the federal reserve has purchased
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longer-term government agency debt securities, agency guaranteed mortgage-backed securities, and longer-term treasury securities that have added about $2.5 trillion to our assets. these purchases were intended to, and i believe have succeeded, and significant lowering longer-term interest rates and raising asset prices to help further the federal reserve's economic objectives. this is an easing of monetary policy, also known as accommodation, beyond what is provided by maintaining the federal funds rate close to zero. but it's important to emphasize that the effects of asset purchases also depend on expectations. if the fomc buys, say,
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$10 billion in longer-term securities today but is expected to sell them tomorrow or very shortly, there would be little effect on the economy. current research suggests that the effects of asset purchases today depend on expectations of the total value of securities the fomc intends to buy and on expectations of how long the fomc intends to hold those securities. to make these asset purchases as effective as possible in adding accommodation, the fomc, therefore, needs to keep medicaid the intended path of the federal reserve security holdings years into the future. and i'm going to return in a moment to current and possible future ways in which the fomc does and might communicate such information.
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the at unconventional policy designed to contribute monetary easing was almost purely communication. it is enhanced forward guidance about how long the committee expects to maintain the federal funds rate near zero. the situation in early 2009 was similar to 2003, but yet more challenging, because in that earlier episode, the fomc at least retained some option of a further reduction in the federal funds rate target. in 2009, communication about the future path of the federal funds rate was the only option. well, initially, the forward guidance was simple and familiar. the fomc statement noted that quote economic conditions are likely to warrant exceptionally low levels of the federal funds
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rate for an extended period. the committee didn't enhanced its forward guidance in augus august 2011, when it substituted at least through mid-2013 for the words, an extended period. this date was moved into the future several times, most recently last september when it was shifted to mid-2015. this calendar guidance was an advance over the indefinite extended period, but it suffered from an important limitation. the date failed to provide the public with a clear understanding of what conditions the fomc was trying to achieve or economic conditions that would warrant a continuation of the policy. the consequences was hard for
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the public to tell whether a change in the calendar date reflected a shift in policy or just a change in the committee's economic forecast. to help provide greater clarity about the committee's objectiv objectives, in january 2012, the fomc adopted and released a statement of its longer run goals and monetary policy strategy. the statement laid out for the very first time the rates of inflation and unemployment that the fomc considers consistent with the dual mandate. the dual mandate. specifically, it stated that the longer one inflation goal most consistent with the fomc's price stability mandate is 2%, and that the central tendency of
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fomc participants estimates of the longer run normal rate of unemployment ranged in 5.2, to 6%. as the statement also made clear, economic developers may cause inflation and unemployment to temporarily move away from those objectives, and the committee will use a balanced approach to return both of them over to to the longer run goals. on the one hand, for example, the current rate of unemployment, at 7.7%, is far above the 5.2-6% range in the statement, and it's expected to decline only graduate. inflation on the other hand has been running at or below 2%, and is expected to remain at similar levels for several years. in this circumstance, both legs of the dual mandate called for a highly accommodative monetary
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policy. with unemployment so far from its longer run normal level, i believe progress on reducing unemployment should take center stage for the fomc, even if maintained that progress might result in inflation slightly and temporarily exceeding 2%. the committee reaffirmed the state in january 2013, and i expect it to remain a valuable roadmap for many years to come, indicating how monetary policy will respond to changes in economic conditions. meanwhile, the fomc has continued to enhance its communication about how it would use the federal funds rate to return inflation and unemployment to its longer but objectives. -- longer but objectives. last december the committee replace its calendar guidance for the federal funds rate with quantitative measures of
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economic conditions that would warrant continuing that rate at its current very low level. specifically, the committee said that it anticipates the exception of low levels to the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the committee's 2% longer run goal, and longer-term inflation expectations continue to be well anchored. i consider these thresholds for possible action a major improvement in forward guidance. they provide much more information than before about the conditions that are likely to prevail when the fomc decides to raise the federal funds rate.
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as for the date at which the tightening of monetary policy is likely to occur, market participants, armed with this new information about the committee's reaction function, can form your own judgment and alter their expectations on timing as new information a cruise -- information a cruise. these thresholds will allow private-sector expectations of the federal funds rate to fulfill an important automatic stabilizer function for the economy. if the recovery turns out to be stronger than expected, the public should anticipate that one or both of these threshold values will be crossed sooner, and hence the federal funds rate could be raised on your. conversely if the outlook for the economy unexpectedly worsens, the public should expect a later lift off in
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rates. that expectation would reduce longer-term interest rates and thereby provide more accommodative financial conditions. the threshold guidance for the federal funds rate looks ahead to a time when the economy has healed from the worst effects of the financial crisis. getting back to more normal economic conditions will allow for a more normal approach to monetary policy. and i look forward to the day when we can put away our unconventional tools and return to what now seems like the relatively straightforward challenge of setting the federal funds rate. at some point it will be appropriate to cease having to accommodation and, later, to begin the process of withdrawing the significant accommodation required by the extraordinary conditions caused by the
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financial crisis. and i believe that, once again, communication will play a central role in managing this transition. let me start with our current program of asset purchases which was last in september 2012 and revised in december. notably, the fomc has described this program in terms of a monthly pace of purchases rather than as a total amount of expected purchases. the committee has indicated that it will continue purchases until the outlook for the labor market has improved substantially in a context of rice stability. in its most recent statement, the fomc also indicated that the pace and composition of the purchases may be adjusted based on the likely efficacy and costs of these purchases, as well as
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the extent of progress toward the federal reserve's economic objectives. in my view, adjusting the pace of asset purchases in response to the abolition of the outlook for the labor market would provide the public with information regarding the committee's intentions and should reduce the risk of misunderstanding and market disruption as the conclusion of the program draws closer. the federal reserve's ongoing asset purchases continually add to the accommodation that the federal reserve is providing to help strengthen the economy. and ended to those purchases means that the fomc has ceased augmenting that support, not that it is withdrawing accommodation. when and how to begin actually
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removing the significant accommodation provided by our large holdings of longer-term securities is a separate matter. in its march statement, the fomc reaffirmed its expectations that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the current asset purchase program ends and the economic recovery has strengthened. that means that there will likely be a substantial period after asset purchases conclude but before the fomc starts removing accommodation by reducing asset holdings or raising the federal funds rate. to guide expectations concerning the process of normalizing the size and composition of our balance sheet, at our june 2011 meeting, the fomc laid out what
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it called exit principles. in these principles, the fomc indicated that asset sales would likely follow lift off of the federal funds rate. it also noticed -- noted that in order to minimize the risk of market disruption, the pace of asset sales during this process could be adjusted up or down in response to changes either in the economic outlook or financial conditions. for example, changes in the pace for timing of asset sales could be warranted by concerns over market functioning or excessive volatility in bond markets. while normalization of the federal reserve's portfolio is still well in the future, the fomc is committed to clear indication about the likely path of the balance sheet.
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there will come a time when the fomc begins the process of returning the federal funds rate to a more normal level. in their individual projections submitted to the marche fomc meeting, 13 of the 19 fomc participants thought the first increase in the target for the federal funds rate as most likely to occur in 2015, and another expected that to occur in 2016. but, of course, the course of economy is uncertain, and the committee added the thresholds for unemployment and inflation, in part, to help guide the public if economic conditions or developments warrant liftoff sooner rather than later than expected. as the time of the first increase in the federal funds rate moves closer, in my view
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they will be increasingly important to the committee to clearly communicate about how the federal funds rate target will be adjusted. so i hope i've been able today to convey the vital role that communication place in the federal reserve's efforts to promote maximum employment and stable prices. communication became even more significant after the onset of the financial crisis when the fomc turned to unconventional policy tools that relied heavily on communication. better times and a transition away from conventional -- unconventional policies may make monetary policies less reliant on communication. by hope and i trust that the days of never explained, never excuse are gone for good. and that the federal reserve
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continues to reap the benefits of clearly explaining its actions to the public. i believe further improvements in the fomc's communication are possible, and i expect they will continue. so let me stop there and thank you. it's been my privilege to share these thoughts with you, and i very much appreciate the invitation to join you today. [applause] >> i would like to thank janet for two things. first, for showing up your and speaking in a language of probing -- approaching english, and second, forcing you think print has a future. if you can demonstrate that, we will carry you out of here on our shoulders, and you won't have to worry that any government salary anymore. [laughter] >> well, it's a concern we all
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share. >> that is a common concern. now, something that i was not originally in our conversation, but if you look at the papers today, if you could offer, if you do choose some sort of concise explanation for what in god's name is going on with this foreclosure and this whole thing with consultants. if you want to address the out of. >> let me try to do so briefly. today, the gao issued a report that criticized the fed for a flawed review of for closure documents. talk about procedures and monitoring consulting firms. so let me say that the fed undertook an independent foreclosure review in order to help borrowers who have been financially injured by service
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or errors. we were -- we work with the -- they took this effort because they supervised most of the services that were involved. and our prime objective was to get help borrowers as quickly as we caught possibly could. well, it turned out that over 4 million borrowers were likely affected. and identifying and getting remediation to them turned out to be an immensely complex, slow, and costly process your so initially we believe that the review was something that would help, but once we're in the midst of that, it became clear that the review was serving actually to delay getting
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meaningful help to borrowers. this is obviously a development that we were not happy with, but when we realized that, we decided that we need to go in a different direction, and we tried to take what was the best available option at that point. and so we are in the process of getting money quickly to borrowers, and that should be happening within the next weeks and months. we think that that's the best option. gao has provided some useful recommendation for how we should continue working with a few servicers that were not part of the recent settlement, and we will take those recommendations. >> if i can translate that, always at risk, does that mean
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that if you knew then what you knew now he would have done it differently? >> absolutely. >> very sober, what would you done differently do you think? >> -- very carefully, what you think you would have done differently? i promise not to -- spent perhaps we would have taken an approach of a simpler category of harm as with done now, and pending payments more rapidly, not getting involved in detailed reviews. >> more money, less practice spent right. the money that was agreed on has been eaten up by very costly reviews and spending money for consultants, and these reviews turned out to be commonly, a file might be 2000 pages or more, and a review could take
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10, 20, 30, 50 hours of a single file. and that turned out not to be a workable approach. >> okay. we will let it go. is there any other questions, good luck in trying to get a better answer. for her. now, also one thing before i go on, your definition of inflation, the fed fed's come it the same as the definition we write about in the newspapers. in newspapers we write about the consumer price index. you use something called if i can remember this, the personal consumption expenditure index. >> you've got a. >> thank you. see, i am a good student. and if you are off its -- would you advise us to also put in -- i have no idea where to find the
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damn thing, but do you think that would be helpful? because i keep hearing complaints and people saying how can the fed said there is no inflation? and, of course, the things the big wild swings are not in the personal consumption, they're not the pce index. >> the first thing i want to say is that when the fed thinks about inflation and underlying inflationary pressures in the economy, we don't just monitor one single index and blind ourselves to what's going on with the others. we routinely look at the consumer price index, the pce price index and a variety of other indices of inflation that tried to get a good sense of what the underlying inflationary pressures are of the economy. so while redefined our longer run objective to be concrete in terms of the pce price index, we
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by no means focus solely on one number and not looking, we look at a whole variety of industries. now, the second thing is that -- variety of indices. over most areas, all of these indices tell the same story. and give roughly the same signals about what inflationary pressures are in the economy. the cpi that you focus on most of the time and the pce index really move together very closely. the cpi is produced by the labor department. it's the best known index. the pce deflated is produced by the commerce department. i would be happy to point to where you can find it on the website. >> just don't charge me too much. >> it's free.
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>> we can't afford anything. >> why did we choose the pce rather than the cpi? it's a more comprehensive index with many methodological advantages. it covers a broader array of goods and services that the typical consumer buys than the cpi does. and in particular, medical health care expenditures are extremely important to consumers, and the cpi coverage is really, frankly, very limited. and i think it's widely agreed that the pci does a much better job of covering medical care costs that are important to typical consumers. now, it just so happens that over the last year, the pce index has increased about 1.3% over the last 12 months were as
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the cpi has increased about 2%. right now at this point there's a difference, and it partly reflects the fact that rings have been increasing and the cpi gives a larger weight. but this is an aberration, and by a large these indices don't tell different stories about the economy. >> thank you. now i've learned something. i have so much to learn. i'm almost to the end of my questions. it will be someone else's turn soon. one of the things that i recognize because i'm old and i have saved, is that the programs you have of holding down longer interest rates have displaced me to my, i have to say profit from the bond market to the stock market. roughly a million times, it is that in order to bail out the people who are imprudent, who
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were imprudent, you, you the fed, ended up having to penalize prudent people who are trying to hold their savings to we talk about this. it's a known problem. do you want to discuss the trade-offs in that or any aspect of that? or whether it bothers you, which i'm sure it does. >> does. i appreciate you raising this question, because i am very well aware that this is an important and a very legitimate concern for a lot of people, particularly retirees who want a safe way to save, want of bank deposits, to hold cds, and the amount you can get on those is pretty close to zero. and we hear all the time, and, of course, it's natural and it is difficult. so there's no question about that. so why would we do this?
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the reason we do it in the reason we think it's in the best interest of the economy, overall, is because we think it's a way to simulate a faster economic recovery. and we think that that's going to be good for virtually everyone in the economy, even including those who are suffering from low returns on their cds. because when you think about people, they are not just one dimensional. there's more to their lives than they have cds and bank deposits. people where a lot of different hats. most people have some investments in the stock market, or exposed in some way to the stock market. and the policies that we are pursuing probably have been good for stock market returns. most importantly what we are trying to do is to stimulate
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borrowing. and a lot of people even retirees, baral whether to refinance a mortgage that helps them or to buy a new house. and their children and i have grandchildren. and they think about their children and their families futures, what are they thinking about? i have a kid is graduating from college and entering the job market. can my child or my grandchild find a job? what about me if i want to supplement my income and work part-time? can i find a job? and i think when people think about all the different concerns they have for the economy, and all the different tasks that they wear -- hats that they were, and think about what the broad steps, the consequences is, yes, the low rates of return on safety posits, that's a cost but there's a lot of other benefits. and i would say, look, how are going to get interest rates back up to normal level when we have a normal economy, and when we could have a normal economy?
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when we're finally able to stimulate a strong enough recovery to get things back up to normal. >> okay. i'm not going to step on that egg, but that's very good. unending going to ask the rest of my questions, because that's a good answer and it is getting late. so it is now time for the house to ask, just identify yourself, your organization, promise that you are a member congress dan at the microphone is your guarantee you are a trend by them and try not to be as long-awaited as i am. spent high, dr. gellin. thanks for joining us. on a panel this morning a couple of interesting points raised and wonder if i could get your reaction. one was that the fed policy of ultra- low rates was not effectively enough to stimulate in the broader real economy and that was being used to advance
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most by banks, institutions like banks and other players in that space. so i question on that is, could you tell the audience your what you thought that? the second point that was raised was, it's either incorrect or ineffectual that the fed has mandated two things. stable prices and full employment, and that full implement, the fed might be better off without the full implemented. and you talk to that issue as well? >> great questions. i'm happy to address them. so, with respect to the impact of our policies, do they have an effect on the economy? just look at what's happening in the economy. housing is really beginning to recover in a way i think is very convincing. and house prices are going up and they're going up more than i would've expected six months ago, or even nine months ago. and i think it's making a whole lot of people feel a lot better about their financial situation.
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and, of course, housing, house prices are down 30% and housing activity is low but it is beginning to rebound. look at consumer goebbels, purchases of cars. they have been holding up well. even though at the beginning of your weird tax increases that you would've expected to make negatively impacts been. people have to borrow to buy cars. i don't have any doubt that our policies are contributing to the lowest interest rates on whether it's borrowing for a car or borrowing for mortgage. we are looking at historically low interest rates. and i believe that is it's not holy cause by our policies, but our policy is contributing. and that's was going to get the economy moving and that is
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spending. when we get more instruction activities and more spending on cars, and consumer goebbels your that creates jobs, and jobs creating come. and when people have been, they feel better about their economic condition and they spend. and that is the virtuous cycle we need to get this economy going. so that's the purpose of our purchases, to get interest rate step and i think it's been successful but there's a lot of studies, and i think the general can conclusion from what is uncertainty about how large the effects are, they virtually all come, that i've seen, come to the conclusion that these purchases have been helpful. my guess is if you ask bankers and the bankers frankly come in and complain to us about low interest rates and say it's hurting them, not helping them.
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so on that, you know, we could debate that but it don't think that would be the general view defined in the banking community. on the dual mandate, let me say that, why shall be a interest in unemployment and inflation? okay, so this is the mandate congress has given us. i'm strongly supportive of it. if you ask the typical american what do they care about, do they care about inflation? absolutely. do they care about the job market and whether or not they can find a job? absolutely. these are two things the american public i think cares deeply about. most of the time there isn't a trade off in terms of trying to appease them. inc. of now. we are very focused on employment. we are very far from full employment, but is there a trade off in terms of inflation? no. inflation is running at or slightly below our target.
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i would say that at this point there are many, many central banks around the world that has adopted what's called formal inflation targeting regime's. where their prime objective they're given, they have been given, is to achieve numerical inflation target over the medium run. but if you look at what they do and to look at their mandate, you will see that for almost every one of those central banks, they are also encouraged to use monetary policy to support economic growth and job creation to the extent that they are not furious, long lasting trade-offs. and if you look at the behavior of other banks, the bank of england over the last several years would be a case in point. they are just as focused on both objectives i would say as we are.
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so practically speaking, there really isn't that much difference, if any, between what the fed is doing and what the other major central banks are doing. >> thank you. i think we have an auction process in the last question. i think we're out of time, and kevin could shoot us. can we go along? go along. just like football. >> i am with cnn money. among fed watchers right now, you're considered the favorite to follow ben bernanke should he step down when his second term ends in january. if that were to happen, you would be the first woman to head the federal reserve in its 100 year history. i'm not going to ask you about that because i know you won't comment -- [laughter] but among the central banks of the world still remain an old boys club, so does broader economic concession which is made up of only about a third of women. so i'm wondering if you can comment, do we need more women to lean into economics?
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and to lean in to leadership positions at such a banks, and what could that mean? >> well, thanks for that question. i mean, yes, it's the highest level of central banking your there are very few women. but i am pleased that the representation of women is increasing a lot at other levels, at lower levels of central banking and in the financial markets, in institutions more broadly. i've taught in an mba program for a good share of my career, and over the 20 or 30 years that i did that, the representation of women in those programs increased dramatically, and we are really seeing women get ahead and making a difference, and moving up to the highest
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post. on i really think that this is something that's going to increase over time. and it's time for that to happen, and it's a great development. >> my name is greg field. i'm currently a research fellow at harvard law school. my project i'm working on is dodd-frank, and one of the things i am interested in your opinion on is why is there such a plodding pace of implementation in dodd-frank? and what are some of the institutional challenges for an organizational, organization like yours as that law is of limited? >> well, it has been an enormous challenge to implement all of dodd-frank. as soon as the legislation was passed, we sat down and made a list of all that we had to do to
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carry out what the feds part of this was. and we identified 252 separate projects. >> that's all? >> well, there were items like volcker rule, small things like that spirit which still nobody understands. >> some of them were small but they were things like that, residential mortgages, and other things that are really major efforts. so first of all, there's been a huge agenda of work. first of all, it's complex, and we don't want to put rules into effect that haven't been thoroughly thought through where we have, we need to get input from the public, public reaction. we put out notices of proposed rulemaking for comment. we are working jointly with many other agencies here in the
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united states to develop these complex rules. and it often takes time to try to reach agreement. we want domestically to level the playing field in terms of we all agree, you know, for different parts of the financial industry what the rules should be. but even more challenging and very important, the financial industry is global, and we don't want to put in effect rules in the united states that will affect our institution and to find that they are completely different rules in other parts of the world. so ideally we would like a level playing field globally, and we don't want to -- we don't want a set of regulations where as soon as we implement them, firms will say leave the united states and go off to another country because our rules are tougher, or vice versa. and we are working very
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constructively and actively with regulators all around the globe to see if we can move together jointly. and i have to say, i understand we say this process has been slow. it's been a couple of years now, but gee, if you saw how much is going on and how much constructive dialogue is taking place, and ho that we've got an agreement on so many important things, aren't enhanced capital requirements for globally active banks, we agreed globally in basel on reforms to derivatives, on liquidity standards. i think we are really making a lot of progress and i know you can say what has the fed done in six months. we want to do this right and we want to move forward jointly. this is a great deal of what
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we're spending spirit it will be before the end of 2015, won't it? when you lose and everything. spent i sure hope it's a long time after that. >> i am promoted as wondering if you could comment on the bank of japan's aggressive monetary stimulus overnight? t. think it will work and how does it change your thinking about the global economy and u.s. monetary policy? i guess i would prefer not to comment on the details of what the bank of japan announced, but i surely say that here's the country that has suffered deflation for well over a decade and have very weak economic growth. ..
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>> the united states, europe has slightly, a slight different set of problems but very high unemployment. the united kingdom with high unemployment and slow growth, japan. we really all face a common situation where we've had disappointing economic performance, and we're all taking steps, all of us different panelings of upon tear -- packages of monetary policy steps to try to address that. so i think that's something that's completely appropriate. you know, about a month ago the group of seven issued a statement because these
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policies, um, of can have some impacts on exchange rates. you know, issued a statement saying we really think it's entirely appropriate for countries to use domestic policy tools to promote key domestic policy objectives like trying to achieve full employment and price stability. so in that sense, you know, i think what japan is doing is something that's in their own best interests, it's something that, if successful, will be good for stimulating growth in the global economy, and it'll be good for us too. >> okay, last question. >> okay. [inaudible] hello, dr. evans. in your speech you said the 2005 oil spike didn't lead to an overall inflation quote because the public believed the fed would keep inflation in check. what's the evidence of that, and do you still think the public has that faith in the fed? >> so i'd say the evidence that
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people believed the fed would keep inflation in check, we look at, um, many different measures of inflation expectations both survey-based evidence and evidence that we try to read out of financial market prices like the difference between nominal and inflation index bonds. and if we look throughout that period, we can see that inflation expectations remained extremely stable and well anchored. i think the other thing we can see is that in contrast to the 1970s, um, although there were a sequence, they were unexpected. i mean, 2005 oil prices rose, people thought, oh, well, that happened once, that's going to be the last year. and it turned out the next year and the year after.
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in each case, you know, oil prices rose through a sequence of increases in oil prices. in each cases they were -- in each year they were unexpected. forecasters were surprised. but one issue is, okay, of course we saw that show up in energy prices, but did we see any pass through to other prices more broadly, so-called core inflation? and during all those years there was little or no pass through into core inflation, another place -- enter all right. we're not going to have -- >> you can do it afterwards. >> fed and other factors that caused the lack of pass through, i guess is what i'm asking. what is it that the fed -- as opposed to other factors, deflation, technology, many other factors. >> well, i guess i would just, i can't prove this to you, but i
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would contrast this with the 1970s when we saw shocks of that sort that, um, induced workers to really try to protect themselves from what they thought was going to be chronic inflation by trying to demand wage increases which their employers gave and passed through into inflation. and we saw inflation expectations spike. and we went into this set of oil shock increases in 2005 with now a decade and a half of a really strong record in terms of having kept inflation around 2%. and i think that was the difference. but, you know, i can't disprove that there is some other theory that could explain the same thing. >> dr. yellen, thank you. i hope you don't bill by the hour. [laughter] [applause] >> thank you very much.
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>> in the interest of -- >> we're live with day two of the society of american business editors and writers' conference, panel discussions scheduled throughout the day including on new revenue avenues for print journalism, federal regulations in the financial community and also student desk. this just started about a minute ago. >> the state of journalism this year. if you haven't read it, i read it on the plane ride here, so you don't have to. for the past 15 years, news organizations have been forced to trade print dollars for digital dimes as revenue from print evaporated faster than digital revenue has grown. now things might be even getting worse. the news industry may be entering the era of mobile pennies. print ads fell for the sixth on sective year last year by -- consecutive year last year by about 7.3%. for news magazines single-copy sales were off 16% last year,
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yet the atlantic, which is here today to present reported subscription increase of 6%. the two biggest developments of last year probably were digital pay walls and reduced print frequency. and that captures the odd mix of expansion and contraction now typical within the news industry. digital pay plans are being adopted right now at about 450 of the nation's 1400 dailies, and they appear to be working even at small and mid sized papers. for now the consensus on the future of print seems to be shifting with more of an industry acknowledgment that it'll be around for years, even decades. contributing a smaller but still significant portion of an organization's revenue. to quote media analyst ken doctor, until recently the holy grail was summed up in two
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words: replacement revenue. now the jig is up. no matter how fast you shovel digital dirt into the chasm of print loss, you can't fill the hole. companies have started to experiment in a big way with a variety of new revenue streams and major organizational changes. some of these are too new even to be measured industry wide, but they are showing signs of stabilizing revenue which certainly is promising to hear for us. here to talk about those things, um, first of all, is kate merrimont for gannette corporation since 2008. her one-line job description is to elevate the journalism across the country. also with us is chris hendricks, vice president for interactive media at mcclatchy company, and this is astounding to me, since 1999 he has actually been involved in digital at mcclatchy since 1994, pre-browser days. and filling out the lineup is
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kim lau who's vice president and general manager of atlantic digital. she came to the company in 2012 having been with hearst magazine since 2006. what we'll do here is we'll start out each participant, each panelist will have a relatively short powerpoint, and then we'll open things up for questions. if you ask a question, care to ask a question, you need to be a sabu member, and you need to go up to one of the strategically-placed microphones and identify yourself, then ask your question. and with that we'll get started with chris hendrix. >> thank you. one of the things about being at it so long is you get to the point where you need glasses to readment. [laughter] read. i'm trying to get the running here. still a little brief about mcclatchy and what we are about. you know, the company itself -- it's up there, good. you know, 30 daily newspapers located around the u.s. from
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miami, florida, all the way through anchorage, alaska. lots of different markets. we have about a 2.4 million daily circulation, 1.4 billion in revenue. 200 million of that in digital revenue, and about 40 million uniques come to our site, our digital assets every month. but the hallmark for mcclatchy is all about journalism. believe it or not, this is where we start, quality journalism. we have one 52 pulitzers. "the new york times" has won more than us, but we're not a big name in all this. small little company out of sacramento, california. if you look at our strategy about revenue diversification, you know, traditionally newspapers relied on print and the complimentary advertising that went along with it and believed that the two were inextricably linked. with our mission being journalism, our feeling is, look, it doesn't matter where the money comes from. allow us to continue our
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commitment to journalism. so that's what we seek to do. and whether it's print, whether it's digital, whether it's niche products, it doesn't matter to us, and we've diversified over the last probably two decades away from print deliberately, even before the digital came along. we were still looking at diversification as a strategy. our recent press release for the fourth quarter shows what that means for us. 36% of our total revenue now comes from nontraditional revenue sources. 16% from niche products, we have over 200 niche products that we publish regularly whether they be digital or print. and another 20% coming from digital, pure digital, that's that 200 million i talked about, and the rest coming from traditional print. our strategy is to continue to evolve the print, but also to take advantage opportunistically of things we see happening in the market. so we will continue to believe in print. one of the things that you can see up here, i guess you can, is there are four touch points from our q4 release that were
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interesting. one is we refinanced $900 million worth of debt. we pushed out a bunch of bonds to 2022 at a lower rate we currently have those bonds sitting at. conventional wisdom suggests newspapers are dead k. i'd rather rely on the marketplace to determine that, and clearly these financial folks believe we have at least another decade. [laughter] second, as you can see the diversification points that i just mentioned. so what's our strategy? on distribution channels we need to master all the channels that are out there. we're all aware of them, print, digital, e-mail, everything we can. but with a focus on the consumer and how they consume. so the channels are where we're focused, and you can see here the different times of day and the different behaviors that each one of these channels have, and we're working hard and diligently to master all these channels. each one has different, compelling reasons why consumers like them. we know the web sites are shallow,fully-by readership, we know that on the tablet the consumption is ten times that. so we have to learn how to
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publish content and differentiate ourself in all these channels. that's what we're about. but it's also about advertising, as i said before. we need to make sure that we are developing new revenue streams at all times. i'll give you a few examples, and i don't want to bore you to death here, but as you can see on the bottom here, there's a bunch of different brands here. some we own, some we partner with. we sell other people's products. we sell yahoo! inventory on their web sites. it has nothing to do with us, but we have a sales force who's capable of doing that. we do it profitably, and it allows the journalism to continue. we develop our own brands. you'll see some of these deal saver, our own version of groupon. you hear the woes of living social and groupon, but we have advantages in our local marketplace that is we believe make us successful. we use our newspapers, we use our local sales forces, something that most of these competitors don't use, we use our local relationships, and we also know something else in our deals product, that our readers
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are much more affluent, much more educated and spend more money when they walk into these stores, and they're reasonable people. not the traditional groupon person. this is a highly profitable line of business for us. it works, and it will continue to work. we don't look at it as we're going to flip it out, take it to market and monetize it. we look at it as a way for us to bring new customers in at the low end of the spectrum into our realm of products and services, our agencies, and then work with them to be successful and work them into more successful products and sfts that we have. some of them impress local. this is our play at the small and medium-sized businesses. a category that newspapers traditionally could not attack because of the cost structure of print. we were priced too high. with the disappearance of large advertisers and consolidation of retailers, we're forced downstream. but we can't just jam them into print and lower the price there. our cost structure still remains. but we can develop bundled products and services that they need and want in the digital
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spectrum whether they be mobile landing pages, search engine marketing, whatever it is. we bundle it up, and we work with them to help them understand the performance of the products and services. we launched in the line of business in two markets last year to test it. it was in kansas city and also in fort worth. it's successful, and we're currently rolling it out in more and more marketplaces. here we rely on our core sales force to sell it as well as dedicated sellers. we're pretty much agnostic about that debate about sales people, whether they should be selling everything or certain things. we believe it depends on the product. so when we need to hire direct sales, we will. when we think the core sales force can handle it, let them do it. preprints are a large beast for us. it's a lot of revenue. the sunday preprints are still utilized, still a very profitable business for us, but we worry about where is it going to go digitally. so we, the industry, founded a company called wanderful media, and they have a product called
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find and save which, basically, is the digital equivalent to preprints in the newspaper. it's a comprehensive strategy. cars.com many of you don't know, but some of you don't, cars.com was created by newspapers. it is a complimentary product to our automotive section to the newspapers. career builder also owned by newspapers, complimentary product to what's in print. so this fits with that strategy of complimentary products and services to the print products. but we're also opportunistic, and fuel saver is an example of that. the last thing i want to touch on is our digital print strategy. we launched all our newspapers last year. our print subscribers are engaging it. we increased the price for them, they're engaging these digital products, and we're capturing a lot of digital-only subscribers. we know a threshold model, and the next speaker will speak on
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that topic which is very similar to ours. thank you very much. [applause] >> thank you, chris, from mcclatchy. now we'll hear from kate from gannette. [inaudible conversations] >> what does that meansome -- mean? sorry. [inaudible conversations] >> okay.
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we're good. no, we're good. >> not anymore. okay. [laughter] yep, we're good. sorry about that. technology is not my forte. um, the -- much as chris was saying, gannette has worked to diversify our portfolio over time, but what i'm going to focus on today is just the content piece of it specifically because we launched a new subscription model last year, um, that has been very successful. so i'm going to focus on that today. we in our annual report last year showed that digital revenue was $1.3 billion, 25% of our
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revenue is now from various digital sources. but we believe strongly that print has a long, a long future. as rob was saying, there's a growing belief in that, and we certainly believe in that. we think that print is an important part of a rich portfolio that we have to deliver to our readers. so we launched a new subscription model last year, and the idea is that our content has tremendous value. people like what we do, what you do. people crave information, journalism more than ever. so it has value. and we can't, we can't do this business and give it away free. people do value what we have. so we've created a new way of delivering it and monetizing it.
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so the concept is that people don't subscribe to a form of delivery, they subscribe to the content. and then you pay for the content, and you may access it any way you want. through any of our digital products, through traditional desktops, through print, your choice. but you're subscribing to the content. the, um, every subscription includes digital access, so it's full access across our portfolio. so you may choose to have delivery seven days a week, just weekends, you may access it any way you choose. we launched this about a year ago now and rolled it out across the country into 78 of our community newspapers. gannett owns 81 community newspapers plus "usa today" and 23 tv stations. this model does not apply to "usa today" nor our television
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stations. finish this, what i'm talking about here today are our community newspapers from very large detroit, phoenix, to mid-sized markets to very small markets. we've completed that rollout over the course of last year. it was ambitious. we were sprinting, but we got it done. we know now that more than half of our readers are getting news and information from multiple, at least two platforms, multiple platforms every day. so we feel like we have to be there. and it's working very well. we have had growth in subscription revenue of 24%. that, that's tied to the fact that we, too, raised prices when we went to market with this. we felt like we had been undervaluing our content in some ways. readers see more value. so we did a rate increase that averaged 32% across the board.
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people are adapting it. our unique browsers are up, our mobile views are up substantially. we have 47,000 digital-only subscribers, but well north of two million subscribers overall and about half of those have activated their digital piece of their subscription. another important part of our plan last year was something that we called content evolution, the idea being that we have to give readers unique, high-impact journalism to distinguish ourselves and to be of value. we cannot produce the mundane. we cannot produce commodity information that you can acquire numerous places. we have to give -- if we asked readers to invest their time and their money with us, we have to give them something of value, and that needs to be unique, high impact local journalism.
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so we really focused on in every market understanding what are the key audiences and what do they care about deeply so that we're targeting our content. we do not have a paint by numbers approach to journalism across gannett, our approach is you and your market need to understand your readers and develop the content they most want. and we really focused on that, too, as we rolled out this program. we invested in people, we invested in technology to make this happen, we identified key places where additional staffing was needed to support the content evolution. we distributed iphones to every single journalist across the company so that they could do more video, file from the field. so we invested if making this happen. -- in making this happen. moving ahead this year, we're focusing on expanding our
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digital portfolio with native ipad apps, new android apps. we're working hard to sustain and build retention, and we -- our goal is to increase our digital-only subscribers between five and sevenfold. so ambitious plans there. so that, at the highest level, is our approach to print, is to say it is a part of our full portfolio, and we are happy to report that our readers are embracing that. >> thank you, kate marymont from gannett. we'll now here from kim lau from atlantic.com.
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>> good morning. um, so i'm more or less the odd man out because, obviously, i'm not coming from a newspaper background. and i think being in the magazines there are certainly a lot of similarities to the business of newspapers, but there's also some distinct differences. you know, just to start i think the atlantic is a brand that has been around for a very long time, so we were originally launched in 1857, and, obviously, over the years have been known to contribute to many areas of importance to the evolution of this country and to the national debate. one of the big differences, though, between us and some of these newspapers, i think, is that contrary to most newspapers' history, we actually
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for a long time were not making money at all. and so it wasn't until 2010 where we actually posted our first profit in sort of recent memory, at least in the memory of our current owner. it's not about the decline of print but really the rise of digital platforms and the growth of the brand. in fact, as you'll see in a couple slides, we're pretty solid today and there certainly are challenges, but it's not the story of decline that i think you typically hear in the market as we talk about that piece. um, today though, obviously, our digital efforts are a big piece of what we do. i was brought on to the team in 2012 as their first general manager for digital, and really i think that's just an acknowledgment as we continue to grow of where we have to invest to make sure that we can continue to innovate and continue to reach our audiences
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wherever they are. last year we saw about almost 30% of our traffic coming from social on digital. we see about 40,000 average facebook recommends per cover story and a fair amount of twitter usage as well. if 2012 one of our block bust wither stories which i think -- blockbuster stories which i think by many accounts we believe since we've been recording reach had more readership than any of our other stories before us was anne marie slaughter or's why women still haven't -- still can't have it all. it certainly wasn't a new conversation, but it did spark a new debate that continues today and, you know, i think we're really proud to be part of that conversation and to be contributing to the national debate there. um, more on facebook, more on twitter. i think the interesting thing about this slide, actually, is, you know, one of the things we
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get asked a lot and the one of the things that i think we have to rethink as we grow is who are our competitors. and in the digital realm when you start to look at who your competitors are, we do look at brands like the new yorker, like the economist, but really our competitors in the digital world today are much larger, and there is a lot more variety there. so, you know, you see brands like the daily beast or like gawker that are purely digital brands that we're now adding to our competitive set. so the atlantic is really about using the trust of our brand and then building on top of that with innovation to find new audiences, to increase our reach and really to increase our impact. is -- and so when you look at us today, we are still the magazine, um, and if many ways that's sort of the core of our business. you know, that's where the
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biggest ideas sort of get explored. but we're also, you know, daily and hourly and by the minute on our dot.com property. we've also expanded out with additional digital properties like the atlantic wire and atlantic cities. very important piece of our business is our events business, so, you know, we're now live. we do -- just don't want to get this number wrong -- we do more than 30 events a year and have a fantastic team that's really out there bringing what we do in print and online to life with real audiences. and then, you know, mobile is sort of on here because increasingly, obviously, mobile is part of digital, but increasingly people are fragmented in how they want to consume content. and in 2012 30% of our audience was coming from mobile devices whether that be smartphones or tablets. we expect that's going to
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continue to grow, and, um, you know, i won't be surprised if that reaches 50% by the end of this year. so lots of new challenges, but also lots of new opportunities. just to cover sort of the key pieces of business here, so as rob mentioned in the intro, the atlantic subscription base was up 6% in 2012. newsstand was actually down a little bit, so net-net we were up about 4.3%. this is very notable, and i think certainly relative to the competition really makes us stand out. the interesting thing about it, and for anybody who knows sort of the bowels of circulation modeling, a lot of companies are able to boost their circulation because they're actually losing money on circulation. we don't do that. this is, actually, a real increase, and i think it speaks to the fact that the brand of the atlantic has grown, and the reach of our brand has grown as we've been able to expand in these other areas and really
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grow our audience. so we see our circulation being very strong today. certainly, i think newsstand in general for magazines is challenged just as, you know, barnes & noble's shut down stores and as the pressures in the grocery aisles continue to sort of decrease the amount people are spending on discretionary magazine purchasing. but, again, subscriptions are up, and we see high demand for that. live, as i mentioned, some of our biggest events washington ideas forum, yesterday we had a conference here, women on washington which is an ongoing series where our own linda douglas was interviewing valerie jarrett. fascinating interview, and if it's of interest to you, you should check it out online. aspen ideas fest call, new york ideas. for the first time this year
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we're going to be doing a festival in d.c. in the fall. all sorts of great events where we're bringing sort of the biggest, boldest thinkers together with thoughtful and influential people to have the tough conversations about where this country's going and how we make it better. um, digital, so these numbers are actually comscore numbers. last month we closed out with 12.3 million monthly uniques on the atlantic, and so we continue to grow. you know, i think again it's interesting pause it's all totally organic -- because it's all totally other begannic, largely driven by social, and it's been a pleasure to see the brand continue to be well received by the audience and to be distributed in that way. um, mobile, i actually hate to use the word "mobile" because it lumps a lot of different strategies into one bucket which is not really correct. you know, what i would say about this is we have mobile optimized sites, we have, you know, we
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have digital replicas, we have ipad apps. all of them have sort of different business model, and all of them are important as we think about reaching our audience as we go forward. and then finally, i think, just the last thing i'll say about 2013, for the atlantic it's really about pursuing new platforms and new ways to reach our audience. so two things that are our focus in this year, we're heavily focused on other paid content revenue sources. so, um, you know, how else can we build on the atlantic's trust and innovate against that. we just announced today a long-term partnership with long reeds.com that will help us continue to sort of highlight the best of long form journalism online. and, you know, we're also, we'll also be launching new products as we go, so more e-books, um, and new digital products that will really spread the atlantic even further. and then, finally, we're going
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to spend a lot of time investing in video this year. so i think the future of media brands as to be multiplatform. you know, tv is sort of the last space to really see some of the new media disruption, but we're starting to see that as cable ads decline and people are, you know, increasingly the younger generations have no intention of ever signing up for cable. they're consuming all of their media online. so as we look to those trends, you know, video's really going to be the next frontier where we have to be making a name for ourselves in that space. so, um, that's the atlantic in a nutshell. >> thank you, kim. now that we've heard from our panelists, we'd like to hear from you. if you would approach the microphones and identify yourselves, maybe we can start out back there with mark. >> good morning. i'm mark, i'm a sabew member and formerly worked for "forbes" magazine. what i'd like to hear from each of you just quickly, everybody's
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trying to figure this out in terms of do paywalls work, do paywalls not work. how do you convert people from free to paid, or is the web only going to be an advertiser-supported platform at a very diminished advertising revenue model, or are you at some point when things reach a critical mass going to be able to charge more for ads on the web? because right now it's, things are growing, but for many places it's not a money-making proposition, or it's a break-even or a slightly profitable proposition. so when does it become a profitable-profitable proposition, and what's going to happen? consolidation? branding? i mean, what is the future? what is the strategy? i think that's what everybody here would like to know other than things are growing and things are getting better. is it a certain brands will be able to command pricing power or certain brands will be able to paywall off things? so any insights you can offer to
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that would be greatly appreciated. thank you. >> chris, would you like to start? >> i think there are like 30 questions -- [laughter] >> how do you make money on the web is what i really want to know is rather than just put a bunch of content up or put a paywall up or put a lot of different segments up. how do you really make money? lots of money? >> well, one is the diversification strategy. we did about $200 million, and it's very profitable, more profitable than the actual printed version of the newspaper. so it's a matter of what are the product selections that you're put anything place and not simply relying on display advertising as solution. that's where you're seeing there's tons of inventory. the inventory's outpacing demand, so the prices are coming down whether it be at the national or local levels. the rates are coming down because it's almost commodity, buying an impression. >> right. >> so what other businesses can you be in? one of them happens to be paid. now, paid as you described it, you know, everybody says paid, i say which paid model are you talking about? there's a threshold model where
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you let people sample, and after a certain period of reading they are asked to pay, then there's a wall garden where you say you get nothing until you pay, and there's all sorts of derivatives in between that. we have applied the threshold model. we're not going to get casual readers to convert into fully-paid at this time, so go ahead. have 15 payments for a 30-day cycle, after that we'll ask you to pay. we've also gone back to our most loyal readers and said, look, you get all these extra products for free -- not free, but you get a slight increase, and you will have access to all these products. those are the ones we want to push into the digital spectrum over time or when they're ready to go. but on the digital-only threshold, you can play games to capture more and more digital natives, if you will. then we have a strategy on top of that, the revenue diversification strategy we talked about where we sell all
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kinds of products and services. cars.com is a great example. cars.com, our automotive category is a growth category for the business for us. it is also a category that's inverted where there's more digital revenue coming to our country than print revenue. 53% of our total automotive franchise is digital. we sell automotive inventory systems to dealers, okay? we go out, we sell them this inventory system that allows cars on their lots to pump up into cars.com where people can find them. that has nothing to do with display advertising, but it's a highly-profitable business that builds over time to the point where our second largest digital category is automotive. my point is that i don't think there is a answer. the answer is to find profitable businesses that you can leverage off an existing enterprise or incrementally add to your enterprise that will be the solution over the long haul. and we are in so many businesses now, our portfolio of businesses, our relationships and partnerships so big, but net-net they're growing, and
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they're more profitable than the printed product. >> thank you. could we hear from the other panelists just quickly? >> okay. kate? >> um, yeah, i would give much the same answer. journalism is our core business, and we are profitable. we, we're in careerbuilder, we're in point world. we, too, have diversified. i guess i would disagree somewhat with the idea that we have to figure out a way to make money. we are making money and supporting our journalism. >> yes. i mean, again, for us as well we are profitable. in 2012 60% of our ad revenue was coming from digital. so, um, it's false to say that we actually are not making money from digital. you know, i think for us we have a unique, influential audience, and that's part of the story. so our cpms are actually, you know, fairly substantial. they're not -- it's knotts the bottom of the -- it's not the bottom of the barrel. but certainly the damage, i
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think, as we go forward generally the fragmentation of media means that the days of having, you know, one or two business models -- because i would argue that in the past it was sort of an advertising and a circulation model -- the days of that are gone. and so as we go forward, the real challenge for us is that we have to be able to do circulation, we have to be able to do advertising, and we have to do advertising on multiple platforms. um, but we also have to find other ways to continue to reach our audience and to monetize them. so that's the challenge, is diversifying, doing more things, doing those things with the same amount of people. you know, it's just it's a more frenetic pace, i guess. >> thank you very much. >> next question. >> hi, my name is kevin grant, i'm an editor at global post, and, kim, this question is directed to you. actually, i know a few weeks ago one of your editors sort of had a dust up with a correspondent, she was trying to reach an
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agreement with the correspondent on a fair fee for a story. so i just wanted to ask you what is your approach in budgeting for editorial, and how are you trying to approach that in a way that's both fair to your correspondents, but also good for business? >> yeah. i mean, i will say, first off, the atlantic is very committed to paying journalists. that is, you know, we value their work, and that is, you know, it is our position that they should be paid. i think the different -- the challenge today is that in online the way the business models work we've actually found that it makes more sense to have more people on staff, and that's where the bulk of our content comes from. our newsroom is, actually, we have 70% more paid editorial people on staff than we had in 2010. so we are very committed to journalism and to paying for it. you know, i think that scenario
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is something of an outlier. our policy generally is to pay our journalists, so, um, it is true that freelance budgets are much low or than they used to be in the digital realm though. >> and can the other panelists also talk about sort of budgeting for editorial versus business interests versus new investment in technology platforms and expanding reach? >> do you want to take that? [laughter] >> i'll go after. >> you know, i, i'm a content person. i'm not in the business side. so, no, i can't, i can't answer that because i don't really know. >> fair enough. never hurts to ask. >> from our perspective it is to try to preserve as much as we have in the past. it's not possible given the circumstance we are in in declining cash flows, but we have done the best we can to preserve the quality of the journalism we produce with the
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assets that we have. so that's the last place we go when we look to cut. >> thank you. >> next question. >> hi. deb nelson from phillip merrill college of journalism, and this is for kate, because it's content. you said we have to give readers unique, high-impact local journalism and then you seized us by saying you research what they care a. what is that? >> yes. as we went to market with this new plan last year, we rolled out a program of research in every single community. and it's different from community to community. um, what readers care about in asbury park, new jersey, is very different from what they care about in palm springs, california. so, um, we did both qualitative and quantitative research in every market to narrow those things that people care about most. and so each community has a written plan. they know who their audiences are, and can it's not, it's not universal by any means. >> but to the content of that,
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some examples of some friends you're seeing -- some trends you're seeing across, you know, across your newspaper, your news organizations. >> not -- it didn't surprise us, but we were delighted to find that just without exception the number one interest is watchdog journalism. everybody expects us to be their eyes and ears and stay true to that mission. so that was really excitingment watchdog journalism was number one everywhere. but there it splinters. um, the environment is big in a lot of places, raising a healthy family is important in a lot of places. but then there are very unique things, too, like in many our military communities the issues of retired military folks are very different from, you know, people other places. so there were some broad themes, but we're trying to drill down into very precise topics.
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>> thanks. >> next question. >> hi. i'm beth hunt from american city bids journals, and i suspect i'm to not to technology person, kim, in the room who's wondering why you didn't talk about courts. >> well, really only because i'm here representing the atlantic as a brand, and so atlantic media as a company has several divisions. of we've got national journal, government executive and the atlantic division, so my focus really is just the atlantic division. confusing because there's lots of atlantics in that. i think courts, though, is a great representation of our company's commitment to funding new, you know, new ventures that are dedicated to great journalism and new topic areas. and courts had, you know, went out, they had great support from advertising as they launched last year and continue to see really a really fab house reception. so, um, i didn't mention it just because it's not part of my business, but it is certainly
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part of our strategy as we think about new opportunities and new ways to reach niche, influential art audiences. >> thank you. >> next question. >> hi, i'm jill jordan from the "arizona daily star". i had a follow-up question to the question just before me for kate about the areas of focus and the qualitative and quantitative research you mentioned. i wonder if you could just go into a bit more detail about that? i understand that in some places the staff was doing a lot of interviews at the community, and i wonder how you even started to get to the right areas of focus. was it open-ended conversations like focus group kind of things, or did you sort of know where you were headed in each community? enter we started by bringing all of our editors together for a couple of days in virginia and reviewing how to analyze all that data that's available to us. so that that was the science of it. and we gave them tool kits on how to do that. but then we also instructed them on more the art of it.
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getting inside people's hearts and brains. and, yes, we tried to involve staff members very broadly in very deep conversations with residents of their communities to get beyond the obvious answers, to find out what east really day in and day out part of their life that maybe we were missing. you know, we can get so focused on the institutional and the things we've always done and lose sight of people's real lives. so it was we were trying to weave the two together and stay true to our core values of journalism, but layer on those things that people also might care about that we were missing. was that close to what you were looking for? >> thank you. >> next question. >> james -- [inaudible] i write about the economy for newsday, and my question's for both kate and chris. i'm wondering if you're seeing as more people are using apps, more people are using web sites that we're actually seeing an
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increase in print subscribers. and the reason i ask you is because we have news actually late yesterday, early today that yet another newspaper, the cleveland plain dealer, has decided to eliminate publishing on several days. so i'm wondering what you're seeing in terms of that relationship between the print business and the digital business and is digital actually produce anything some cases more -- producing in some cases more print subscribers? >> the answer to the last question is, no, from our perspective. in fact, doing paid has proven to -- it's slightly increased the decrease that was going on. but that was only pricing kind of sensitivities as a result. i will tell you that as we look at the different products that we have placed in front of the existing core readership print delivery subscribers, we're seeing a faster migration growth of leadership in the replica edition of what we do which we used a company called olive for
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which is interesting. but then if you think about it logically, you think, well, they understand how that works. if they're moving across for the first time, it's a digital only. instead of having an app or a web site, they don't really know how to navigate that. we hope we can then push them across to other digital assets. so i think the real growth has come on the digital-only subscribers. i think that's where there's a lot of opportunity to bring in the digital natives, the folks who -- you know, newspapers like to think, well, everybody should read us. well, at 35-40% penetration, the majority of people aren't read anything that form, so you have to see where are the pockets of opportunity. i believe, though, that the question of how long will print be along is a relatively good question, but, you know, looking in this room every day 10,000 baby boomers are retiring, and they have a habit and they're living longer, so i think there's a long leg on print. there are pockets, there ares of people who have been able to turn circulation around, and we hope to do that, but i don't think that digital is going to
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do that. >> yeah. i think that it is helping stabilize, but i don't think we're going to see a land ramp in print -- a rapid ramp in print. but we are seeing a rapid ramp in overall consumption and overall revenue. um, i didn't -- i don't think i shared the figures earlier that as we rolled our new subscription model out last year, we saw $20 million in additional revenue, and this year we will see $80 million because of this new plan. so it's supporting the journalism. and we think print will be around a long time. >> do either of you, do either of your companies have plans to reduce print delivery this year? >> no. >> no. nothing from our readers has suggested they want newspapers only certain days of the week. >> okay. next question. >> hi. sara warner, safew member and editorial director at aol. so a question about social, and this is for all of you but speckically for the atlantic. one of the things that we, i
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think, struggle with is we can have a social strategy, but how do we quantify and qualify whether those referrals coming in do the -- does that traffic stick, and do they stay? because you can have all the likes you want and all the tweets you want, but does that necessarily -- are you correlating in any way that traffic and how it sticks and then they become subscribers? >> um, so i don't have anything that ties that exposure directly to subscriptions, but i can say that given that we didn't necessarily change any of our tactics in the last, um, you know, couple of years on circulation that the growth that we've seen in subscription i would, it's not purely scientific, but anecdotally i'd have to say given where the market is going that there's really no other attribution to that other than increased exposure which i think has largely come through social.
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i think the question about the return on social is one that we consistently have, and, you know, it's interesting i think in traditional web discussions it's always been about how do we get more page views out of a visit. and so your constantly thinking about, okay, you came to my site, how do i keep you here longer? that is probably the one thing other than unnatural tactics like using slide shows, use page views which we really don't do, we've -- i've really struggled to move the needle on that. i think we have to shift the conversation from that goal, though, and it really has to be more about ongoing repeat visitors throughout a month and throughout a period of time. because what we're seeing is increasingly people -- we actually do have a robust front page, and there is a core audience that comes in through the home page and consumes content, and they do consume much more than the people who are coming in through side doors. but increasingly, twitter is the home page for a lot of people.
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my husband is a perfect example of that, you know? he will never pay for any pay wall. you know, he gets all of his information directly from twitter, and he consumes a ton of news, but it's all, you know, i'm following the writers that i like to follow, and i'm going to get what i want from them. and so, um, i depress to answer your question, i think on the one hand i think trying to place a value on the social doors versus the other is maybe not the right conversation that we need to be having. and i think we're still trying to figure out where that evolves to and how we get a more holistic view of valuing our audience. generally, i would say, you know, one of the amazing things about what we do is there's so much data, but one of the things we still struggle with is actually tying the offline with the online, you know, with the tablet, with the mobile sites. so we've got a lot of initiatives where we're going to try and be, where we're going to put things in place where we can actually do a better job of tying those things together so
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we have a more clear picture of what the audience is actually doing. >> great. and if anybody else -- >> i will tell you that was a great answer. [laughter] >> you know, it's kind of, it's better to understand who the influencers was, and that's what we're trying to dial into. it's an experience. it's kind of like if you're looking for a car and a friend says that's a great car, and you go to the lot and say i want to see that car, and somehow you're going to jump into a truck next. that's not going to happen. somebody recommended something that was not a value until it was recommended. it's a very jarring experience to come out of facebook, for example, to the sacramento bee, jarring experience for someone to say here are all the trucks. so i think it's better to understand who influenced, who that influencer were and how do you get them to be more influential with your content since they value it? >> great, thank you. >> next. >> hi, john chesto with the boston business journal. of i have a question for kate. i'm specifically interested in are there certain markets or
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papers where you can say the pay wall and the digital-only subscriptions are working better? you know, are you selling better in major metro markets? are you selling better in isolated markets? can you name some papers where they've been really strong in places where you had some trouble? and also do you have a universal strategy for the porousness and the metering of the pay wall, or does it vary from market to market, and how does that affect your engagement with social media? >> um, trying to think where the greatest successes are. we have in many almost every market -- let me back up and say part of that rich research that we did was also to build a business plan so that the meter is unique, the pricing is unique in every market. it was not a one size fits all. because different markets have different price sensitivities, you know, some have taken price increases p recently and others
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hadn't. so different plan in every market. and i can tell you that in almost every one of our markets we're exceeding our business plan. we, you know, we expected some erosion because of the price increase, and we have held better than we anticipated almost across the board. so we're very pleased with the outcome so far. is there a difference between major markets and smaller markets, um, no. i think it probably has more to do with the nature of different markets than anything. >> do you mean if it's, if there's more competitors with available news, it's harder to charge for the news? >> the it's, we have to invest harder in building our brand and keeping or acquiring the readers. the more competition there is. >> so what's the -- how many
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hits do people usually get? what's the range per month? >> do people get? >> yeah. if i don't subscribe -- >> oh, a consumer. >> yeah. >> i think the low end is about five, the high end is fifteen or twenty. again, it's different from market to market. and we adjust as we, as we see necessary. >> thanks. >> okay. we'll hear from the final two questioners. alan. >> hi, i'm with cnbc.com. in the scramble for revenues, advertising's getting more and more aggressive. i believe the atlantic had a little snafu with scientology a couple months ago. i'm wondering where do you draw the line? do you have procedures in place for what kind of advertising you're going to take or not take? and, you know, is it formal? is it you wait until editorial screens? [laughter] tell me a little bit about how it works. >> we do now. [laughter] you know, i think that scenario was regret bl, but it taught us
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a lot, and, you know, we had can and we continue to have very robust conversations about how we handle those things. i think the atlantic has had an interesting past few years because we've gone from being unprofitable, um, to profitability and to, um, you know, continuing to try and support the journalism that we're doing. we didn't have policies before, and that was a mistake. we were moving too fast, you know? when you're a certain size, it's to some extent you can avoid a lot of the problems. i think we had finally hit the size where there were just things that potentially were slipping through the cracks. so, you know, none of that debacle, you know, we knew right away when we saw it start to blow up that what we had done wrong. it wasn't a question of, um, you know, disagreeing or being in denial. you know, we recognized our mistakes, and we moved very quickly to try and rectify those and continue, i think, you know,
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now we're in a position where there's a lot of people doing negative advertising, and there really aren't standards for it. you know, everybody's sort of making up their, you know, their rules as they go. i would say -- and this is where going back to the competition side, you know, we do look at buzz feed, and we look at these other brands, and that's really in the digital world who we consider, you know, the competitors or the people that are sort of leading the way into a new era. so but what we've learned is that people will hold our brand to a much higher level, um, that we have to be more up front, that in order to respect that trust that we have with our audience that the bar for us is different. and so, you know, i think we've made a lot of progress. i think, you know, going forward we do think that our advertisers have ideas and messages that can contribute to an overall conversation, but we will not make the mistake of not being clear about that in the future,
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and, you know, i think we believe in that as a business model, but it's one that we definitely had to make corrections on. >> oh. we definitely have policies and procedures in place both for content and for advertiser types and categories. that's a little more relaxed than it is in print. we have procedures that if there's a question that even can roll all the way up to the corporate offices to me, to anders gillen hall or to steve best forward, vp for -- bernard, vf for advertising. but that doesn't mean you won't see the lose 30 pounds in 30 minutes ads on personals. >> we, too, have policies in place. but they're constantly having to be reviewed because new forms of advertising keep emerging. so, you know, it's an ongoing conversation. we try to stress that our news folks and our advertising folks tacking those head on -- tag l those head on in advance and don't get sneaked in. >> last. >> yes. as one of those baby boomers who
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has read print all her life but finds herself -- >> identify yourself. >> oh, i'm sorry, diana henry, contributing writer for "the new york times," i find myself consuming even my favorite newspapers op line these days. what's happened as you've studied it to the demographics of your online audience? particularly in terms of age, but also in terms of socioeconomic metrics if you've measured that, and that's across the board. are you getting a younger crowd or not? thanks. >> the answer is, yes, it is younger, but it isn't wildly younger. it's about 10 years younger on average on the digital side of the equation. it is getting younger, but at the same time the print audience is definitely getting older just by mother nature and also by people who are leaving over the last, you know, since 2008 time frame. our circulation has dropped in half, and a lot of those were younger readers, also households with, um, you know, the disposable income is not the same as what was left. so a lot of the older readers
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are more affluent, more educated than typically before, but we are recapturing some of them online. now, on the mobile side of things it's even a younger crowd which is good. there's no real revenue stream there yet, but it is good from a readership standpoint. >> i would echo all of that. we, too, are seeing the younger audience on phones but a slightly older audience on tablets. >> yes. >> ditto. [laughter] >> all right. two things. first of all, thank our -- join me in thanking our panelists today. [applause] and secondly, please visit our exhibitors down the hall. they're an increasing part of conference, and they need your eyeballs. thanks.
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[inaudible conversations] >> we will break for about 10-15 minutes. this break is brought to you by the mcclap chi company, and there are snacks available. [inaudible conversations] [inaudible conversations]
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[inaudible conversations] >> our live coverage of this conference will continue much of the day here on c-span2. expect it to last until about 4 p.m. eastern with a couple of breaks expected between panels. that's what's happening right now. the focus on the next panel is on the effective changes in financial regulations on business, and our deliver coverage will continue in a few minutes. the labor department released the employment report today. 88,000 jobs were added in march, the fewest in nine months. the unemployment report dropped slightly to 7.6%.
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the associate press rates that while this is the lowest in four years, the rate fell only because more people stopped looking for work. the government counts people as unemployed only if they are actively looking for a job. finish and tonight in prime time here on c span 2 we'll focus on our booktv "in depth" interview with senator tom coburp of oklahoma, a medical doctor who served in the senate since 2005. senator coburn is also the recent author of "the debt bomb: a bold man to stop washington from bankrupting america." booktv tonight in prime time here on c-span2. >> a look now inside the omni shore ham hotel here in washington, d.c. where the export/import bank is holding their annual conference today. we're carrying live coverage over on c-span with a panel right now on strategies to remain competitive in global markets. participants include xerox ceo ursula burns, citigroup chairman michael o'neill and retired
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general james jones. and just looking ahead at the schedule, coming up at 11:00 remarks from transportation secretary ray lahood. and then at 12:45 eastern vice president joe biden will deliver the keynote address. live coverage today on our companion network, c-span. and, again, here on c-span2 we'll have more live coverage of day two of the society of american business editors and writers' conference when it resumes. [inaudible conversations] [inaudible conversations]
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>> when the conference continues, the focus will be on how to landscape the business landscape has changed since the 2010 revamp of regulation. and until then the rule role of social conservatives in politics from this morning's "washington journal." >> host: he's with the southern baptist convention, he's president-elect of its ethics and religious liberty commission. good morning and thank you for being here. >> guest: thank you for having me. >> host: what is the southern baptist convention, and how does your role relate? [inaudible conversations]
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>> guest: will really be twofold, to speak to baptist christians about ethical and moral and public policy issues and help them to equip churches to address those things, and then also to speak for churches in the public square, in the culture, in the political arena on those issues. >> host: and you have a background working in politics right here in washington d.c. you worked as a capitol hill aide to former mississippi congressman gene taylor, who was a democrat. >> guest: yes. i started as an intern and worked in various roles over a period of four or five years. great, great memories and great friendships. >> host: what do you see as the role that religion should play in politics and legislating law? >> guest: well, religion, of course, deals with ultimate matters, what we value, what it is that we -- how we see the world. and so i think religious people must be involved in public policy matters because as citizens of in this republic, we have a responsibility to care for the good of our neighbor, to
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maintain the common good of the nation. and i think that the nation has an interest in seeing to it that religious believers are involved in the process. after all, what religion teaches us and shows us is that the state isn't ultimate, the culture isn't ultimate, there are ultimate priorities beyond those things. so it helps to shape and form the virtue of the citizens. and so when we come as christians or as muslims or as jews, various other religious backgrounds, we're speaking to one another not in order to in any way oppress one another, but in order to persuade one another. these are things that we ought to agree on, because they're for the sake of the common good. >> host: how does the ethics and religious liberty commission make relationings? how do you determine what message you share with both the southern baptist convention and the general public? >> guest: well n a variety of ways. one of those ways is through the resolutions process in our denomination where southern baptists gather once a year. it's an open, free and
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democratic process where southern baptists speak on various issues. we're concerned about the issue of abortion or sex trafficking or aids in africa, any other variety of issues. and then that helps to form a consensus as to what matters to us as southern baptists. and then also to speak to one another, calling churches to give attention to things that perhaps we haven't given attention to in the past. >> we see in national journal this piece, why the culture wars now favor democrats. it's no coincidence that gay marriage, gun control and immigration are all in the news this month. their prominence measures a critical political shift in the culture wars, to fence and the defense have switched sides. what side are you on in the culture wars? are you concerned some of the issues you advocate for are losing in the polls now? >> guest: well, i don't like to think in terms of culture wars. i don't think we are at war with one another in this country. i think we have very deep
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disagreements on issues that matter, but i think we come to that with civility and in conversation. i do think that as evangelicals we need to recognize that we're not speaking asthma yoretarians. we're not standing and saying everything we're concerned about is by fessty what the entire country agrees with us about. on many issues we're going to have to have a prophetic voice to a culture that largely disagrees with us and say let's think about what it is that you're forgetting and what you're bipassing on a variety of issues, and that's been the case with evangelical christians and with baptists particularly, all the way back to the founding of the republic when baptist preachers were the ones am tating for a first -- agitating for a first amendment, for instance, for protection of freedom of conscious in religious liberty when that didn't seem to be a priority for many people. >> host: the pew forum on religion and public life looks at attitudes on gay marriage,
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and we can see how it breaks down along religious lines. un affiliated, p 7% favor same-sex marriage. white evangelical protestants, 24%, and you can see here other groups in the middle. black property standpoints at 34%, catholics 48%, white main line property stabilities 55%. dr. russell, how do you hope that the supreme court rules on the gay marriage issues we saw argued last month? we're looking at proposition 8, defense of marriage act. >> guest: well, i hope the supreme court doesn't usurp the democratic process and allows this conversation to go on in american society. i as an evangelical christian believe that marriage is a conjugal union, lifelong union between a man and a woman. but i think that's the kind of debate we need to have within american society. what is marriage? how ought we to understand its definition? because i believe that the state doesn't define marriage, the state peerly recognizes something -- merely recognizes something that already exists. so i hope that the supreme court
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will recognize the goodness of that ongoing debate in american society and doesn't usurp it. also recognizing that the government has an interest in providing a definition and maintaining for the protection of children and families and future generations marriage. so i hope that the supreme court will take a prudent action there. >> host: let's take a look at another issue you've been writing about, immigration. here's a piece you authored a couple years ago, "immigration and the gospel." and you say there's a question about our mission when it comes to immigration. there are upwards of 12 million undocumented immigrants in the country right now, and many more in the latino community who came here illegally. if our response to them is to absorb the nativism and bigotry of some elements around us, we are showing them an image of what the bible calls the flesh rather than the spirit. >> guest: yes. >> host: how do you believe the issue of immigration should be handled right now? what should happen to those in the country right now illegally? >> guest: well, the first thing is i think we need to recognize
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that those who have immigrated to this country are persons created in the image of god, and they bear dignity and ought to be loved and respected. and so i think that the kind of language that we use in this debate ought to recognize that and to see that. and so terms of derision toward immigrant communities, words like anchor baby, for instance, i think are dehumanizing and denigrating, and we ought to be standing for our neighbors who have immigrated to this country to say these are not things, these are persons and ought to be recognized as such. and i also think that we ought to, we ought to welcome the kind of consensus that i think is happening on the country on both the left and the right. ..
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democrat line. good morning. >> caller: good morning. i just want to bring to light the of religious legislation that's on the floor of the state legislature in north carolina about declaring a state religion. i really do think that the religious right evangelicals, etc., are engaged in the war
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against the rest of the country or non-believers as they would think. but they do want this to be a theocracy. they are working towards this country being a theocracy. and it even goes as far into the military where people are coerced to either be religious or express their religionocity or be subjected to discrimination within the military. religion has no business and politics just like for gay marriage. this man from a religious point of view has nothing to say about who gets married. >> host: let's get a response. >> guest: the last thing that we as evangelical christians would want is a theocracy.
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we believe that as christians that people are reconciled to god through the power of the spirit, for the proclamation of the word, not through the action of the state. and so having some form of state in force religion would not create religious revival, that would not move us towards the gospel. the would simply make religion the equivalent of a driver's license. that's not what we are for. we are for religious conscience where we can have the playing ground to seek to persuade one another about these things that we believe with ultimate fell you. but i am able to speak to my neighbor about the reality of the gospel, the christian message and my neighbor is able to talk to me about secular progressive values or buddhist understanding of reality. and we have those conversations honestly. that doesn't mean we don't bring our sense of what is important in to the public square. we all do.
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we all bring a certain understanding of what marriage is and ought to be, what ought to be recognized as marriage. we don't claim every relationship to be marital. there's a reason the state has an interest in marriage. and when it comes to the military, no one supports coercing anyone in the military into any religious belief. to the contrary what we would want is to have the freedom for the chaplains who are there after all to accomplished free exercise of religion to be doubled to practice and to empower a hint the service men and women to live out their own beliefs freely and that means muslim chaplains being free to be muslim and free to be catholic and evangelical in praying in the name of jesus and speaking the whole council of god as we believe i this religious liberty.
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>> host: david, independent line go ahead. >> caller: i have a question for you. you've talked about immigrants and all the problems with immigrants to get this is the southern baptist convention, very wealthy convention. >> i wouldn't say we are a wealthy convention at all if you do the demographics we would be a lower blue class convention. >> caller: if i'm not mistaken about six months ago, you had a president or one of your persons that stole a bunch of money from the convention the and you had to have him step down? >> guest: no, that's not my -- >> caller: i guess my one comment it was about the immigrant coming and going. i think if you have an attitude like that who is going to feed these people. i think if you can take that attitude u.s. the church should take care of those people and
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closed them because they have enough problems of the country and the closing argument is if we all stop complaining and we all start doing something about it things will start changing in this country. many immigrants are coming to this country and not in order to take from this country but in order to provide a better future for their children standing in a long line of immigrants that come to the country all the way from the very beginning seeking to work hard and make a life for their children. of course the church needs to be on the front lines of minister in all of those who are impoverished and vulnerable him into a rooftop and that is what they are doing. go to an evangelical church or roman catholic church and he will probably find ministry taking place right their at the front line welcoming them into the country and helping them to get their feet on the ground.
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so i think that is already taking place. i think what we shouldn't do is to see immigrant communities as takers in the way that your question would imply. we need to see what these immigrant communities can bring to the country and how we can help to give them a step ahead. >> host: let's take a look at american's perspective how the legal immigrants should be dealt with. 59% said they should be allowed to apply for citizenship and 25% say they should be required to leave the united states, 11% allowed to stay but no citizenship. we recently found a major collision of the groups calling for what they are saying should be a clear path to citizenship. >> guest: i think it is a growing consensus to say we agree more than we disagree on this issue. no one is for totally open
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borders. we all look for border security to enforce law of the country, and no one is saying that we ought to have the kind of police force that would deport people. it's to say how do we justly and fairly and humanely help people to become contributing parts of the society and have the kind of future that they came here looking for. many the reason they came here many committed christians i would add who share many of the same values that i share so i think there is a growing consensus. what is the path to citizenship mean? it means we do not want people to be left in the shadows. we want them to come forward and move forward with us as a country. >> host: how you talk to republicans who don't agree? look at others in both the house and the senate some of whom are
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soft professed christians. how do you speak with them about these issues? tesco most people have legitimate concerns and so some who are fearful of a path to citizenship are are doing what we don't want to do is to somehow penalize people who play by the rules and we also don't want to tear down the roof of law. we've been getting mixed messages to immigrants all along and my predecessor of the commission has said that our message at the border has been simultaneously keep out and help wanted. i think that's true and since that is the case we need to find a way to take the next step so i think the concern is valid at the front end but i don't think ultimately it is workable. >> host: the president-elect of the southern baptist
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convention and religious liberty commission charged by the southern baptist addressing moral and religious freedom issues. he mentioned his predecessor leaving that position. in your 60s coming you're 41-years-old. what does that mean to have a young person in this position? >> guest: i'm not sure that is young. >> host: compared to 66. mr. wilson as the chairman, president and chief executive officer of the corporation and allstate insurance company. he was named president and operating officer in 2005, became the ceo in 2007 and chairman in 2008. he's held a number of executive positions serving as the chief financial officer from 1995 to 1998 than the president of allstate financial and serves as the president of the protection of the company's property-casualty insurance operations. he joined allstate in 1995 when
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he was vice president of the strategy and analysis. he was managing director of the mergers and acquisitions from 1986 to 1993 and has held various financial positions at the corporation from 1980 to 1986. he holds active leadership positions in the financial-services industry and the community. he's chairman of the roundtable and the financial services round table. he's a board member of the u.s. chamber of commerce, world business chicago, the economic club of chicago and catalyst the leading non-profit organization to advance women and business. he's also served as the deputy chairman of the federal reserve bank of chicago. we share that common state. he holds a b.a. from northwestern university and a bachelor's degree in business administration from the university of michigan. we welcome mr. wilson today.
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>> the format here is two consecutive introductions and then mr. willson will speak. >> i was the president in 1983 and i first got involved that before anybody ever heard in 1970. i have the privilege of introducing eddie brown. we have been hearing bits and pieces of the story for decades now when he was a regular on the wall street week television show. a couple years ago he got it all together in his autobiography beating the odds was a terrific book was 99.9% of all of these biographies are published by the person that sells. in this case a was john wiley whose published some of the very best business books for decades
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and it is a terrific book. he grew up and the odds were stacked against him. he was born in poverty and when his mother was 13-years-old he was raised largely by his grandparents, he started driving when he was 6-years-old, she ran moonshine for his uncle when he was still in grade school and so he turned himself into a high achiever when he got into high school and his mom who had been missing in action since he was to i think or something like that turned into one of the good guys and helped him transform himself he became a high achiever and benefactor in high school and they came and picked up the tab for his college, she got a degree from howard
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university here in electrical engineer and neck to the connect came a surprise at ibm and a stint managing wealth in columbus india a decade running money in the 1983 brown capital management in baltimore. he's still there managing about 5 million with this investment company giving away his own wealth with his wife sylvia and 22 million over the last 16 years or so with his wife sylvia and he knew what he wanted to do and his book is also a very inspiring story. his nearly 51-year-old marriage to his wife with their two daughters of is the story and he is going to talk about state
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public pension funds and some of their issues and problems, it was dealt with at a conference in arizona a couple of years ago >> good morning. i'm tom wilson. i've never run moonshine but i have sold worms before. first you can tell from my biography that i became the chairman and ceo before the financial crisis. what i thought i would do today is share the experience that you have all had about reporting changes have happened in the world over the last five years as it relates to consumers. we've been talking of the changes and china has of course grown tremendously. the leverage went from being good to bad to reducing leverage. we've had entire companies
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decimated and ceased to exist and the ceos five-year for underperformance and the world just keeps changing. so we are reacting to that. you react to it and of course consumers react to it. so the topic today is to talk about consumers and to share perspectives with you on how they change, how allstate has adopted to those changes, and then if you will give me the space i will try to talk a little about how the changes affect a broad array of industries including your world. so, let me start by telling you a little about all state. we got our start a little over 80 years ago. it was an innovation created by sears it was 1931, general what was on the train that they use to take from lake forest to downtown chicago and the general was on this training and his friend said you should sell insurance and they were selling
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a lot of other things at the time and, you know, in those days it was wal-mart, target, home depot all rolled into one. if you wanted to introduce a new product he would need to go to see years there were one of the most innovative companies in america so just as today if you want to introduce a new product you have to go to minneapolis for target or atlanta with home depot and in those days you to come to chicago. so sears is very innovative and they decided they were going to innovate and sell insurance by selling it directly through the catalog. they have a huge catalog at the time and go around the insurance agent, so then what happened that was 1931, 1933 there is a world fair in chicago and the enterprise guy set up a booth at the world fair and he sold a ton of insurance policies and they
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said okay we've got this we are going to follow the consumer so rather than sell just to the catalog they decided to build and agency force and as a result of that they built one of the largest exclusive agency networks in the country selling insurance from people to people not just through a catalog. and originally, our agents or employees and they worked in the stores for many years right by the escalator you'd look around for a washer, dryer and we would quote cure insurance at the same time. we've come a long way from their. today all st. agencies and specialists are independent businesses located in virtually every community in america and along the way we've built a great brand it used to be the name of a sears tire, allstate the way that we've now build and of course the good hands, you are in good hands is extremely
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high recognition and its highly respected by most americans and trusted so then in 1995 we were spun off from sears and today of course we are one of the larger corporations in america we serve over 16 million american households we don't just provide although insurance today, homo -- homeowners insurance and in the united states and the second largest auto insurance. last to the revenues for about $34 billion and was purchased in the 100 largest companies in america. all from an idea on the trade, and we are a major employer we have about 38,000 employees and then in our agencies it's about another 30,000 people who work in those local communities to only work on all stat products. we have a $97 billion investment portfolio, which provides capital to of course hundreds of businesses around the country. and we are very involved in the community.
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last year we gave hundreds of thousands of dollars to the communities, organizations over $29 million. so, along the way as we currently kept innovation as sort of a part of our core goal we have adapted as consumers. just as sears had to adapt and people want to buy through people, we started to change. so in 2006 we launched a product called your choice although which had new features like new car replacement, declining deductibles, both of which you can see copied by competitors. we've sold over 500 policies with those in the futures. we are the only company that offers a claim satisfaction guarantee commesso if you are not completely satisfied we give you your money back. and in less than two years, we have built a virtual good hand roadside product which doesn't require you to pay up front has only a million members. we are also one of the leaders in the space.
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why do i go through that list? secondly it shows that we continue to adapt the changes in consumers' and running our business model i think that is true of many businesses in america that if they don't adapt you die. the model that sears moved away from in 1930 really began to grow in the 90's so you have the computer technology that gave people the confidence to do things on their own and the internet made self-service better and that move was an further fuelled by the advertising from geiko, progress of direct suggesting people do this so they start to move that way. today entrances the tenth largest product advertising category. i believe it is larger watch the ncaa this weekend you are likely
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to see a few categories. so we continue to adapt. in 1999 in response to that, we began to sell direct as well so we sold it under the allstate brand you didn't have to buy through the agencies. when the markets change it's often hard to tell exactly where it's going or what you need to do so in that case the conventional view is that it was splitting into two categories, agents and by direct. the conventional view is that would be in a steady decline and that was mostly older customers who didn't really interest and technology and were more comfortable with technology. the model was assumed to attract younger customers that viewed insurance as a commodity and the only thing they cared about was price which was reinforced by the advertising so in that environment we launched and went
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into the direct business and built a successful direct business over the tenure period but we were not taking the share away from geiko and progressive so we said let's look at the customer and see if there is a different answer. in our market research concluded that the two segment argument was partially correct but it was overly simplistic. first, consumers didn't segment well on their age or use of technology. everybody uses technology to date. my mother is 87-years-old, she has a facebook page and a kindle but she likes to get local advice. there are also young people when it comes to a complicated insurance also want help and don't really feel like they want to do it on their own. many of those people want to start their work on the internet and do a little research to compare so you have to think
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about how you add up to the changing customer world and there are also customers the vertex of the willing to do it on their own and are highly focused on price and they are due by us and other people but you can't segment them by the age or their background, so the age you have told people in both categories that will help or don't want help, so our research shows there were not two segments but there were four. if we can put that slide up this is what we call for square which breaks down the consumer insurance market based on preferences for the type of interaction and their belief about insurance companies, this interaction is in the horizontal scale so on the left-hand side are the consumers that prefer to get local a device and assistance as it relates to their insurance. on the right hand side our customers that feel comfortable handling insurance on their own. on the bottom half for people
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the value in jergens and see a little difference between the brands in the markets and the top half our consumers that see little difference between insurance offerings we call brandt initial. so the agencies in 10,000 locations in every city in the country to provide local advice and we have a strong brand we do really well in the bottom left segment that is a segment of the market for us and that is the heart of the business. in the segment it confirms if you look at the market share if you look at all state of the lower left it is over indexed. it is much how year than the market share in the total insurance industry. the same is true for geiko and progressive on the lower right. so we have a direct business which was trying to serve the lower right but we were not taking a share so what we
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decided to do is repositioned the allstate brand to the lower left and then we bought the insurance which serves the lower right-hand side, so that gave the ability to compete on a variety of brands but to go after the customers needs and we can compete hard and if a customer a proposition that meets the needs of the people so rather than thinking about it as just how do you buy it it's how do you buy it and evaluate. when you combine that with our financial brands we are the only company with the ability that serves each segment of the market with a unique value proposition just for that segment. so the learning from this is very simple, it's important not to fall into the tierney and is very easy to split the world into two groups. we all do it coming young and old. but the world is more complicated than that as
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consumer markets develop particularly as people get more information the markets tend to become more nuanced said it's a mistake to serve the broad market with one solution say you have to the to the consumer trend in a more granular way so timid that point i thought it would be more interesting if i was a little provocative and moved, took risk of moving out of my direct experience, so what i would like you to do is give me the space to use the media as an example. this case i need is just the willingness to listen before you judge or reject and my goal isn't to tell you what to do but to link our experience with yours. so let's talk up the media that follows politics and then the media that follows business. some of you know we have a partnership with the national
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journal. every quarter we do a poll called the heartland monitor which is about giving a voice to middle america on economic issues so we've learned a lot by doing that over the last three or four years so we take that learning and the research capabilities that gave this for square model and we said let's look at where people think about politics and of course the tendency is to segment the market into three segments save conservative, independent or a liberal or republican independent and democrat. most people think it is about one-third you can argue about a percentage point here or there is lots evenly. in 2010 we did a deep segmentation on the market and what we found is that the market is more complex and could be segmented along the two dimensions how can consumers trust whether they believe in the public or private sector solutions here are the results on the screen as you can see
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there are six segments and it's a lot more complicated than the third in fact the two segments of each extreme carhart core democrats and republicans and what's interesting is the segments are much smaller, about half of what he would typically think of as republicans or democrats and you can see that on this slide as well you get the top left and the lower right those would be the people you would consider to be the far extremes but what you can also sees that amounts to about a third of the market in total not two-thirds in the categories. if you look at the political media you see companies that are appearing to be using to segment solutions and by an outsider to the industry some kind of outside the store looking in the window but it appears foxx and msnbc have staked out positions at either end of the spectrum
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the focus their story selection and reporting to search what is the core of the two segments. the problem of course with that model then is that in between the two lies about two-thirds of the population so you're not really serving them as well and those people are not being served by those particular outlets. it doesn't make it a bad strategy it just means they segmented their work. we haven't researched the media market, but the segmentation for business is also multi dimensional. there are probably some people that fall into the traditional model which is both pro-business and then. there is a much more complicated segmentation as well, so then the question for you all in your business is who do you write the stories for? what is the headline that you are using to attract the reader and what is the segment that you are trying to appeal to get them
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to come into. this is of course the age where it is complicated to get its complicated by consumer trends and all the things that we know and it is an increasingly complicated world but thinking about the consumers in the model and changing your approach to work is what it's all about because in the and it's about serving customers that keeps it all productively employed. let me close with a slightly different change. there is a natural tension between the business world and journalists and that's okay because we have different priorities but as i hope you realize all the good work we do in the business world whether that is for consumers or job creation and communities, know that i appreciate all the work you do and the challenges you face. so in preparing for this today i thought what is the purpose of journalism?
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of course you can go on the internet and get about 1,000 different answers but 1i like the best was the pew center had a group called the community is concerned journalists, and they said the central purpose of journalism is to provide citizens with accurate and reliable information that they need to function in a free society. so, it's accurate and reliable information they need to function in a free society. as we are getting that information they are processing it to what for the segmentation is so how do you present that information in a way that meets them. the heartland monitor which i mentioned we do every quarter also tracks one of the things that have come through long and clear. it is bigger than the budget
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deficit and growing as rampantly that can be corporations and the politicians and the media we of a treaty to trust deficit when you are trying to communicate. we are not really reaching out and meeting them with the segmentation they are thinking about. maybe we don't get the message is quite right because we are not thinking about who they are. it's more than any other institution. that's probably always been true but what hasn't is the trust level of institutions have been going down. we need to find out how to change that. the newspapers and public radio, not on line information is due to the fact the explosion of the wild west of different opinions
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whether they are vetted. what the deutsch cross t's people they recognize and meet the balance which is of course. so the consumer world and changing technology were dealing with an increasingly sophisticated reader. door industry is trying to adapt the economic model in technology. so according to the pure research a number of employees in the newsrooms have gone down by 30% and it's about 16,000 people which is the same level as we had in 1978. at the same time over the last eight years or a shorter period of time it might have devoted coverage to business tripled so you are asked to do more with less. for those of us who are talking about and are complaining about
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we do recognize there's not a whole lot you can do about it when you are told you got to get the story of in 15 minutes. we have to meet the needs of being a nuanced journalist with investing time and relationships and building information is important. let me close by thanking you by playing a vital role in society to help shape the information to make sure they shape and in a way that they can listen to it for being diligent and adapting to what is a changing world. they follow our customers as we have for our entire history. thank you very much. [applause] >> one of the things i've been
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curious about affects the great recession on behavior. if you have any insight on the consumer behavior and changes in the last five years. >> if you look at what does that mean you also see a trend towards people saying i would rather work for a big company or small company that may change. they don't believe they will have as much opportunity as their parents did, and scores that is proven not by the fact if you look how many lives at home and how many grandparents or caregivers. they started with those of us
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that her 55 like me those people that are getting to know that as a result i think we see consumer trends shift a little bit in purchasing power. i don't think we see as much conspicuous consumption going forward as well. >> i cover for newsday and i am going to be parochial and ask a moment about sandy. sandy did have an intact on the financial reform in the fourth quarter and a number of insurers are taking a second look about whether or not they should be doing business but we your heavily hit by the hurricane. i'm wondering what to see for all state in terms of a future coverage in the state's and also
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how you see the long-term impact on your financial performance from the store if there is any at all. >> we've been looking at this issue for the high capacity since i came to all state 18 years ago. and in 2005 after hurricane katrina we made a dramatic shift in the way that we approach that business as opposed to what the industry did. so over the last seven years we have been redesigning our products. we've gotten a lot smaller and we are down by over 1.2 million households over the last five years. and we have had to raise our prices. the reason we have had to raise our prices is the weather is worse. anywhere you look if you look at our business it has about 6 billion. in 2006 and 2017 was about a
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billion dollars or so on average. the last four or five years on average, $2.5 billion so you're talking about a 30% changing your revenue going out to the catastrophe. so the weather is different. i don't -- i am agnostic as to what got us there but we are a believer that the weather is the more different and a volatile and as a result, consumers need more protection. so, consumers will end up paying more to protect their homes and need that protection. we've made a lot of progress over the last five years whether that is how we design our products or price our products and where we sell our products. the industries are following us at this point, and i would say the next two or three years you will continue to see a lot of competitors do what we think we have already accomplished.
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stat real-estate seems to be coming back to the u.s. and i wonder if you see that in your business. >> i will go up first and then come down. we had i think $25 billion worth of various kinds of real estate that we owned whether it was securities or mortgages and things like that. today i think we are down below 11 billion. we move quite aggressively in the 07, 08, 09 time period. i wish i would have moved faster but we've reduced to that. the markets do seem a little more stable, and we are actively investing in the real estate, but in a way that protects us from rising interest rates. we are a believer that interest rates will go up and reposition our portfolio that way so invested in real estate we would not be interested in buying an
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office building that has a trip on that lease from a big corporation with six fixed rate. we are interested in investing in things so we are moving from a lender to people who own the things so we are investing in things like timber and power plants so the amount of money put into the system we want to protect our investments. >> time for one more. >> you gave away part of my question and the federal reserve policy affect your business and portfolio. you talked about some of the ways you are addressing that in the fixed-income you do have, how are you managing that and preparing for that change?
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>> a couple of ways. first we want to make sure that we alone money to those people that can and will have the ability to pay us back in different environments. so for the next speaker be owned $26 billion worth of municipal securities and today less than half that amount because we are concerned about the burgeoning if half obligations many minutes of how these have. we thought -- we also do not really have much in the way of investments in fixed income in europe because we are concerned about that. in terms we've dramatically shortened our portfolio. we sold most of the law enforcement of the portfolio because i am a believer that at
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some point -- i don't know exactly what will happen in the interest rates. we make our decisions on a risk return basis and we don't think that a return investing in the loan bonds today is worth the risk. it may be fine. people may do fine with it but for us we think it isn't right. [applause] >> good morning. thank you very much for inviting me. you know, dave asked me whether i could keep my remarks to maybe 15, no more than 18 or 20 minutes and i said absolutely. when i made the first presentation to the major institutional client that happens to be the largest public pension plan in the united
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states i got into the room and had no expectation on the committee there was a huge digital clock they had on their in red. i walk in, sit down, didn't say hello, how was your trip from baltimore to sacramento, nothing. said mr. brown you have ten minutes you may begin. >> i said absolutely. i can do that. i have selective hearing. as journalists, i know you heard certain things, but the one thing that i remember from his remarks is an investment portfolio of 97 billion that caught my attention.
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thank you. [laughter] for letting me know that. i wasn't planning to say anything about brown capital management but i said maybe i should just say one minute, two minutes worth. when i started in 1983 there was firm in baltimore. they had something on their letterhead and that said founded in 18 something, the oldest investment bank in the united states. i was tempted to put on the letterhead founded in 1983 the second oldest african-american owned firm not in the united states by definition but in the world. i didn't do that.
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i give my friend john rogers investments in chicago credit for being the oldest african-american owned investment management firm in the world but i always had in john's presence that brown capital is the second oldest but it's only by six months. john started in january of '83. i started brown capital in july. so we are coming up on our 30th anniversary in business. and we are going to be doing some special things to celebrate that. we think that is worth celebrating. what do we do? we manage money across all domestic ranges come small, med, large. we are growth managers. we have an international product or service managing money outside of the united states. we have a global service managing money anyplace in the world, which of course includes
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the united states. and we have been doing it for a long time with a very distinguished record. now when i had the opportunity to come before this prestigious group of journalists, i said what should i really talk about? well, many years ago when i went to southern california to visit a perspective i thought this gentleman from and i didn't remember having met him many years earlier in the previous job he said you can come in but you have 0% chance and i have an investment committee distinguished people many with investment backgrounds. they've given me a 9% return objective. there's no way that i can achieve that by investing in the traditional domestic equities
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bonds categories. so i'm going to have to go way out on the risk spectrum hedge funds, private equity, venture capital in order to have a chance of meeting those of my assignments so i've reducing my equity asset mix from 60% to 20 and of course you are a lonely. i would suggest you consider some long storage strategies, something that is going to jews the potential return. but what about today is the challenge as i see at in public pension funds because they have
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a similar challenge. it's not 9%, but i think they have an unrealistically and i should say many of them have an unrealistically high what is known as actuarial rate of return assumption. i am looking at it. i have no dog in the fight. i'm looking at it as a concerned citizen. a taxpayer. how is this going to work? i tried to find information i want it to say all states in the united states, with the unfunded pension liability is to but i had trouble finding it. i could buy the data but i said no i'm a concerned citizen. i should deal to get this information free every single state in the united states many of them with multiple pension plans.
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i want to know what is the unfunded pension liability. what percentage is actually funded. i finally found a free source. so i have some data on the chart i will show you in a moment that shows the liability, and i just took a cut. what states 60% or less of the obligations to retirees have been funded? that was my cut. so there are nine states out of all of the state's where the pension liabilities underfunded 60 present or less. the other thing i wanted to know that i have trouble funding from the public source is i want to see the return assumptions known as actuarial rate of assumptions for every single state to see how realistic they are.
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so for the first set of data, the latest most comprehensive study was done by an organization that tom mentioned the charitable trust but it hasn't been updated since fiscal year 2010. that is the latest publicly available data that i've been able to find that gives the state by state. then the national association of state retirement administrators published in 2012 the other piece of information i was looking for and that is state-by-state for the pension funds what is the actuarial investment return assumption so those are the two things i would like to share with you and then lastly, what about investable asset class is? what is the forecast by some
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knowledgeable people what is the kind of consensus on what's out there in terms of prospective rate of returns whether you are talking about global private equity from domestic public equities, flexible capital bonds and you can kind of look at it and decide for yourself what are the chances. if you mix and match in certain ways of realizing these assumed rate of returns so that's basically what i would like to share in the next few minutes. but my ultimate objective is icy sporadically by journalists one and two. one time you talk about a little i. wednesday talked about utah from
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a disclosure standpoint for their meetings for the lack of transparency and they talked about a few other states but i haven't seen from the press. not one or two but across the united states. but think about employee retirement funds. you have city and state, you of corporate. you have public, city and state what the public many of them with multiple plans. so that's what i want to show. and can you get me to my first
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slide. >> my first slide is kind of state-by-state 60% or below. so you see that. so looking at the first column and the second column is the actual liability unfunded pension liability in dollars, but the column i would like to focus on is the% funded of those liabilities. how much are they actually required to contribute in the next fiscal year? this was fiscal year 2010. but% of that actuarial requirement for the next fiscal
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year did they actually fund? so this was shocking news. the nine of the state's, 60% or less are the obligations are funded, and notice the last column how many of the state's actually funded the next fiscal year required funding? illinois only funded 87%, connecticut 87%, kentucky, 58% and so forth so that means they are getting further behind. so when you look at the next fiscal year unfunded% it is going to be even less. to me that is a major problem. a major concern. the experts say that to be called the, a pension system
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doesn't count by the way i am not talking about health care benefits, that is a whole different subject. the numbers are even worse across every single state in the country. this is just pension retirement benefits. the experts say that at least 80% of these liabilities should be funded to be, quote, healthy. how many of our 50 states meet that criteria? well i didn't want to show every single state on the slide so there are 15 that actually have 80% or better of their liabilities funded. there are some really exceptional ones and i singled out the state of wisconsin, 100%
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of the liability funded. he asked me how was wisconsin? that's what he was asking me on the side, terrific 100% funded. south dakota and north carolina, 96% funded, and a state of washington, 95%. so i stopped there. so that's pretty good. let's go to the next slide. you said only hit this button. okay. so this slide says what are the actuarial rate of return assumptions and how realistically are they? this is the investment return the states are using to compute
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their own fund or i should say their liabilities. there are -- there is one state with a 6.75% return assumption. that's very, very low. in but it's two different systems within that state, indiana public employees retirement system, indiana teachers' but basically one state, to plans. there are 43 states with an 8% assumed investment return and there are three states with 8.5%. i would say that's very, very high. connecticut teachers come houston firefighters, illinois teachers standing out there on the tail with many states over
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the past few years have reduced the rate of return assumptions, of the 126 systems throughout the 50 states, 45 have reduced their rate of return assumptions about 8% remains the dominant return assumption. 43 systems throughout the country were using 8%. the average is 7.8%. so, if we go to the next slide, i will let you do the mixing and matching and decide for yourselves. i don't want to give the source for the first slide i think is that the charitable trust, and the second slide with the specific actuarial rate of assumptions i think i gave
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credit to the national association of state retirement administrators this 1i didn't want to put the source, it's pretty close, some are much more comprehensive than others in terms of asset class, but these are real rate of return assumptions excluding of course inflation assumptions. and as you look down the list, it went from highest to lowest and you can kind of see. so if you are talking about u.s. or domestic asset class is, you may add two to 3% depending on your assumption the next several years for inflation. if you're talking globally you may add four to 5%. but even doing that, what this shows is that to get

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