the banks to seek even greater security. and i don't think economy can function well if, in the financial sector there isn't that decent amount of risk taking. i'd be interested in what my colleagues think. >> i just want to second the main point of ned. because to be one of the biggest reasons why the uk's recovery has been so much weaker than the u.s., but also one of the reasons why the bcb talks about the monetary policy being ineffective in the euro area is because of this breakdown in small business and new business lending in countries where there's fewer alternative channels come in terms of diversity banks of diversity of instance than india's. i agree with the mission in years but i think it's a major story for why western europe including the uk are behind. >> so, a couple of comments on the. with respect to small business and credit availability, bother is an issue i think we have to

understand that the issues of small businesses is less credit availability and demand. tanks don't want to lend to businesses that have no demand, were not credit worthy, particularly today. so i think that's where we have to keep in mind. it's true that banks now take fewer risks. so, that's the experience. after the financial crisis, that's what supervisors and regulators demanded that's what basel iii agreement it maybe that's what dodd-frank is about. so never let a crisis go and wasted, timing is bad, the timing is bad, taken when you can get it. so what we have here is a situation where there's a little short run thin, long run game. dealing with issue of future financial crises, reducing the probability that that will occur. that's what is going on in the supervision and regulation. but it's hurting in the short run, okay, but that's what you

sometimes -- it's not a question of tommy. you can't say we will do later. you never would have done it. >> i don't think the financial crisis over to because banks were habitually taking too much risk. i think the financial crisis occurred because, for reasons that are complicated, they behaved very stupidly with regard to housing. they seem to lose their common sense. but i, so i don't see that we need to be going down the road of less risk taking. >> let me just a capitalistic buffer against stupidity as well as risk-taking. >> it is. [laughter] i think the other thing though is one thing we've learned from the crisis is that there isn't a single interest rate or a single credit supply curve for the

whole economy and that sort of the point of what we were just saying, the small and medium enterprises, different countries are facing different credit conditions. so why am very sympathetic, you want more capital into banking system, that doesn't, it's not in contradiction connects point to a generalized reduction in risk and perhaps excessive generalized reduction in risk is not the response to a more specific set of figures that the bank is engaged in. with agency problems, with derivatives, with compensation problems. and this is why it may not be enough for future financial stability to just focus on capital. >> this debate won't be settled today. i would like to get back to the markets of central bankers. larry, as a longtime jacksonville it can be, how do you interpret the chairman's absence this year? must be one heck of a schedule conflict.

>> yes, although it out to august. that's a bit surprising that he couldn't manage his calendar better than that i suppose. look, it's somewhat of a mr. peck it's a surprise, but we all have to come up with answers. i'm asked all the time. here are my speculation. so there are two things. the chairman is likely to leave when his term is over. this is his last jackson hole. one of his great objectives was to depersonalize the fed did the last thing he wants this to be is about ben bernanke, congratulating him. this meeting is about papers, networking, hiking as it always should be. and second, this is another good time for chairman to come and do any future action. because much of that future action will be done by the next chairman. this is not a good time to change the ball in any fundamental way.

so if i had to guess, those are the reasons for the scheduling conflicts. >> at them, itching to jump in i will ask you one question that falls that before we turn to adam. if not chairman bernanke, who sits in the office a year from now? >> well, i would say that janet has the right of first refusal. she has extraordinary experien experience, obviously being on the board, then being vice chair, being president of san francisco but competing president, being there at a time of great stress talking a lot about exit. the event of bringing in, transition to someone who has that kind of experience because what will go through during the next chairman tenure is an unwinding of a lot of this. and so i think she has the right of first refusal. one of the things that's difficult is coming up with two,

three. spent adam? >> i wish iscoming at a jackson hole pointer i agree with larry's point about chairman bernanke not wanting to personalize. we were writing about that a good 15 years ago. i think he didn't want to go last year. that's why we moved by one week was because he initially said he wasn't going to go and then they moved it so they could trap them and say his schedule is open. it's a more general thing. than they continue to the next chairman. >> when we were preparing for this thing yesterday, adam, you told me your very skeptic of the idea that a vice chairman becomes chairman. can you explain that? >> i'm not a great skeptic of the deserving is of a janet yellen or some previous vice chairman to become chairman. i completely agree with larry's assessment of vice chair yellen's expense and also she is

brilliant. so it's not a question of qualification but however you should know to history does not been a vice chairman our lives not in the last two, 60 years a vice chairman has been promoted. not out on blunder, not manly johnson, not, you know, pick the list. so the idea that there is a right of first refusal or there's some presumption that the vice chairperson has to be promoted is i think actually contrary to history and the pattern. so let me just say there's no right of first refusal that she is vice chairman. no, not at all. she has the right of first refusal because she is janet yellen, okay? because of her experience, the fact that as adam said she is a brilliant economist, and that experience, not so much as vice chair, but that experience on the board during this crisis and her, you know, her ability as an economist and her experience, that's what sets are out there but i agree, nose -- no vice

chairman has ever been selected as the chair. >> i mean, larry has been in washington long enough he should know merit and appointment don go together. [laughter] i mean, again, this isn't about vice chair yellen's merit. this is about likelihood. in general presidents appoint federal reserve chair people where they have some personal relationship with. and this particular president is at least reported in the media for the very high emphasis on personal relationships. i'm sure president obama has high regard for her but i don't gegive a particular since they'e close. stick some time -- spy hesitate to interrupt. at them, your last answer begs a follow-up. >> if i have to bet on someone other than janet yellen which i think if i was hedging my bet i would responsibly do, it has to be tim geithner. no, are there any questions from

the audience? >> that's certainly stirs the pot right there, but let me do a couple quick questions at you because you got a couple along the same lines from several people submit questions. the first one a want to throw, has dodd-frank constrained growth? larry meyer, any thoughts? >> i have a very definitive answer, who knows? but in general i think, we're not talking of future growth. but right now i think basel iii is a story more than dodd-frank. and i think that that has been a drag on the economy. i can't tell you how much, a modest drag, second order, but people do spend a lot of time trying to quantify it. >> ned? >> i agree. i have no idea what the quantitative effect might be, but i would think it would be yet another factor tending to

slow innovation and slow investment. >> one last question in you and has to do i think touched on already, the proposal regarding banks would require 15% capital charge on the nation's biggest banks. what do you make of that kind of capital requirement for banks? doesn't make sense? you talked about capital being the ultimate protection. larry meyer, maybe adam posen conduit to win for? >> just as i think too big to fail is a genuine issue. i commend the centers for trying to make a practical proposal out of it. but what we really care about is not just too big, but to systemic to filter and it's not clear the direct size link numbers are the right number. i hate to really complicated basel stuff but i think that that is still too blunt an instrument. we'll have to work a lot harder to get the right response. response. >> it seems to me if we're going

to construct the banking industry in that way, we ought to be simultaneously thinking about how we can aid the economy with some more financial entities. we have to help give birth to some new financial entities that will take the place of the bank lending that is not going to be done with very heavy capital requirements. >> larry meyer you get the final word spent on nothing but without. what i'm familiar with under basel iii, a surcharge for semantically important financial institutions. and i think that does make sense. the story here is not just bank failure, but the macro consequence of a system of the important bank failing. so those banks i think as recently should be required to hold more capital relative to

smaller banks where there is no systemic implications. you can argue about what the capital is, but i certainly agree that basel i basel ii andl iii every complicated in doing that and sending those risk weights can be very challenging. >> a final question for you panelists? >> i think it's been a great panel. we could talk about these things for hours and hours. we already over time. larry, ned and adam, they do so much for your insights. >> dan, thank you as well. thank you to our panelists. [applause] >> at them, appreciate it. we'll get our nextel up in the moment. we will move from another lighthearted subject to the state of america's debt situation and deficit. here in the united states of another all-star panel and they're getting might appear,

introducing as they get set up just a state. a reminder football before do that about submitting questions, q&a at bloomberg.net. if you're watching on c-span or watch it on your bloomberg terminal at bloomberg.com, please submit questions. you can try to get to me of them as again and again look forward to the audience participation. it is what i'm going to call up your house hunt, my colleague from blooper, host of political capital, a columnist and basically still the hardest working report of bloomberg their cable. and host this nextel. with chris van hollen, the democratic congressman from maryland who is the ranking member of the house budget committee, so we talked to on the radio basis about the state of deficits and debt and what's going on with the budget battle, the elusive search for a grand bargain. where john podesta, the chief of staff of president clinton, he has run the center for american progress, a regular for some bloomberg as well. and gene dodaro who was the comp troll general of the nest is

hosting the government accountability office and again, a voice on these issues and someone who was a referee in washington on some of these issues. so with that, al, please take it away. >> peter, thank you. can everyone have me back there? peter, i will look at my clock very carefully here, 24 seconds i think. first of all, it's nice to be here. it is tougher to talk about the deficit and debt these days than it was years ago when i was covering ronald reagan. i as president reagan when time is he worried about the size of the then huge debt and he said no, i figured it's big enough to take care of itself. unfortunately, i guess we don't have that luxury today. the other thing, when i first came to watch didn't we mention scandals. watergate was the extent of the than a member of your institution, wilbur knows, a powerful member, we ended up and he was running around the rousing with a stripper named fanny fox. went into the tidal basin to

today the scandal is dead ken rogoff and carmen rogoff and then carmen reinhart cheat on their excel sheets for debt was i really prefer fanny fox. it was a lot more fun. but let's start with the rogoff, rinehart controversy today. did the premise of the great peril and the priority of debt that we all, not we all, that many people except for five years ago, was it exaggerated? let me start with you, mr. comptroller? >> i think the debt and deficit issues our series issues, particularly over the longer-term. as we have doneoimlation, we show that theecent actions by the congressnd the administration have brought the deficit down over the next few years. but in 2016 it begins to increase. we have a huge wave of demographic changes occurring

where almost in today's society, we have about 8000 people a da 6 between now and 2029 on average will be 10,000 people turning 65 a day. so those demographics are going to hit the medicare, social sturdy and job programs and it's going to cause the deficits to increase in future. so while we've taken some short-term action would have a huge long-term problem. >> let me stay on this for a second, no questions there's a demographic problem that we most other countries have. but staying with the excel spreadsheet controversy, are we exaggerating where bit of whatever percentage of gdp, the injured able to do the economy, i guess i'm asking is paul krugman writes? >> a couple things. rst of all, i agree with the gene. you look at the out years as we all know because of demographic shifts and rising health care costs, you've got to get the

long term, long-term deficit and debt under control. otherwise if the economy improves you have the squeezing out effect and that will have put the brakes on the economy. but the problem has been that people apply that analysis to the here and now, and they said that we have to act today to cut deeply into near-term deficit, even when the economy remains very slow. another referee, the congressional budget office, projects that three quarters of the deficit in 2014, three quarters of it is due to the fact the economy is slow. that you have less demand. and so the last thing you want to be doing at that point in time is pulling back qu andic deeply. things like the sequester simply put the brakes on economic growth. so to the extent people saw that and they said we need to immediately cut back in detroit years, deep and quickly, it is a

mistake because it puts a drag on near-term growth. at the same time you can take actions today that kick in over a phased period of time over the long term to address the out your deficit and debt which we should because as the economy improves you will have that effect. so it's always been partly a timing issue, but that study was misused by many of my republican colleagues to argue for the so-called cut and grow. and cut and grow is not the way to move forward. >> john, we're going to talk about the long-term chronic debt and what we should do about it. but short-term should that be action to extend his? should we be spending more money and the next two or three years to get the sluggish economy and somewhat better shape? >> well, one version of a stimulus would be to get rid of

this crazy sequester. which i think you saw how it's blank on faa when they were faced with having to go to the airport and stand in a long line and not get on an airplane spent it is unconstitutional for a member of congress to have to wait five hours. [talking over each other] >> you have to take a car. >> use a helicopter get there. >> but, you know, i think that what, to just come back to your original question, i don't think that this study caused a stampede towards cutting vital government service. it was used for the purpose. and i think in the short term now we will have to focus on health and state of the current economy getting growth stronger, getting jobs growing faster. and i think that means that at a

minimum what we need to do is look towards investments that can be done in the short term, particularly on infrastructure and other places that would put people back to work, get a little more juice into the economy. and i think you could do that in the context of a long-term plan. but she was talking about out years. the out years or 10 years away. >> actually talk about 2016. >> it takes up a little bit in 2016 under the current baseline. but we have gone, when simpson and both were first meeting in the summer of 2010 and try to put the plan together, the cbo projection was that debt to gdp ratio is going to go over 100% by 2023. now we are looking at it, someplace around 73%, 75% if it's not. and the pics uploaded from 2016

to 2023 but it's a pretty flat line. after that we've got the challenge of the retirement of the baby boom. but really the issue there is structuring medicare in particular, but her health care system in general to reduce the overall cost of health care, unicom in the society and to produce better results to lower costs. that is i think was going to make a big difference over the long run, not cutting head start, affect a, customs. and the severe cuts -- >> the president did offer entitlement cuts in his budget a few weeks ago. is that the blueprint for the kind of long-term deal that you all think is necessary? >> i think is to put things in historical context, right now the debt held by the public is over 72%. but in the last several decades it's been around the mid '40s

percent. so we're in a much more in debt now as a percent of domestic product and we have been historical. so the our margins are a little thinner as we go and face this democratic wave going for the. in order to even stay at the 72%, our projections show the if you solely to revenue you have to cut, increase revenue 44%, and if you cut savings you have to cut it by 32%. if you're only going to cut expenditures. just to stay at the ratio in the long-term. so in time reform, yes, needs to be on the table. revenue needs to be on the table. there's a lot of smart cuts that could be made in the discretionary. >> how substantive are the entitlement cuts that the president proposed in his budget? does that get you where you want to go, or at least a component of the? >> it's a good starting point for dialogue but i think there has to be a broader dialogue in the future.

>> congressman, what is your take on that? >> a couple issues. in the president's budget also includes things that john is talking about, talking about those briefly. number one, first principle should be doing no harm. the sequester is doing harm to the economy as we speak. the congressional budget office estimates that by the end of this year if the sequester remains in place we will have 750,000 fewer american jobs in this country. i have a big employer in my district in the biomedical area. that cuts to nih have caused them to impose a hiring freeze. this is a sort of invisible silent job killer because there are people are just not hiring because of it. so first, do no harm. second, we have huge infrastructure in the country. american societies of civil engineers has given us a rating of a d+, nothing anyone can be proud of. we have 50% unemployed and the construction industry. it's a no-brainer to have more investment international infrastructure to help be more

competitive. against our major trading partners. so we should do that right now. second, i do believe that we should take action now with respect to long-term. i think we need to build on the reforms made in the affordable care act that they can to bring down the overall cost of health care. moving away from a fee-for-service system because the fee-for-service system is one of the worst designed. nobody really has an incentive to save money. so center for american progress, bipartisan policy committee, the brookings today, have all come out wth ideas to help us do that come by reducing overall costs in health care system, not simply shifting those costs off to the medicare books onto the backs of seniors, which is what the voucher proposal would do. so i welcome that, that move. the president built on some of those ideas become the other ideas in the president's budget

are more controversial, and i have some substantive concerns with them. and we can talk more about those, but the overall crux of the present budget, it's best to boost the economy can do no harm by replacing this cluster and take a balanced approach to long-term deficit. gene mention if you'll try to do on the tax side or the revenue side or the countryside you make very sustainably, unacceptably deep cuts. or an excessively high tax increases. that's why the president has proposed this balanced approach. >> if you were to get a vote in the house, and that's a huge if, on a balanced approach, the president's entitlement and some revenues comparable to that, could that with the cole changes and with the means testing medicare, could that when a majority of votes in your democratic caucus? >> well, the president's proposal, especially the chained

cpi peace as relates to seniors on social security is troublesome because there's quite a bit of evidence that would suggest that senior spend a to point time -- -- faster and cost compared to regular. so if it is supposed be an accurate measure of increased cost we should make sure it's an accurate measure for all the constituents. so that's an issue. that conversation at least is alive on the democratic side. on the republican side have rejected it entirely. the idea of one more penny of revenue for the purpose of reducing the deficit or let me say that again. they have said that there will not accept one tax break, loophole closure in order to reduce the deficit. that's what the grover norquist pledge says, and that is their position. so they reject from the starting point the idea of a balanced approach. and that frankly has been the

impediment to moving forward, but it's going to have to be part of a solution going forward. >> why is it so hard to come back to infrastructure, the chamber of commerce is for it. the afl-cio is forward, and infrastructure program. mayor bloomberg is for it. governor rendell, governor schwarzenegger, republican governors. why is it so hard? >> you know, i think it's a combination of all that was just sent. this virulent antigovernment almost pathology that sits amongst a good chunk of the members, particularly on the tea party side, and the inability to find financing mechanisms, because it requires some resources in revenue to be put into place there. i think, you know, whether that's tried to find through

traditional sources by raising energy taxes or by trying to find it by producing the polls by getting rid of the penalty, you know, the generous support the oil and gas industry has. there's just no capacity right now to get any revenue passed through the house to support those funds. so the president has proposed some of the. he has suggested creating an infrastructure trust by creating a little bit more of a feed off of extraction of oil and gas on public land. is just the appetite for that. you know come in the house. whether you could find a way through by getting a bipartisan deal in the senate as we saw can operate at the and of 2012, and then see if you could kind of force a vote in house. i think that play has run out. i think the house is very dug in

they're not going to accept any additional revenue. revenue. >> let's stay with the senate for a second. you think it's possible right now as you look at that political interstate and you know a little bit about politics, john podesta, that you could get those, in the senate to go along with a deal that includes higher revenues and includes something like obama's proposed entitlements, to replace the sequester? >> my view is that they should just agree that they hate each other, and -- [laughter] >> and that's a place where they can start finding consensus, that they don't come to come all the dinners aside, that the kind of revenue the president is for palace program whenever passed the house under this -- and, therefore, i actually am coming to a solution, that they need to have a shorter term plan to get them through the next few years, getting rid of the sequester,

restoring the investments that when the baseline that are still soberly restrained it was agreed to in 2011, stop this craziness over the debt limit, and just get a deal together that can last through speed but that would have to involve higher revenues. >> yet, but the number is a lot smaller than if you have -- >> one of the arguments that the tea party, republicans make is the reason we don't want, whether its infrastructure or these other investments is because it's wasteful, inefficient, it's counterproductive. ...

they were put in place and by historical standards the amount of fraud and waste in that program was not anywhere near anybody's expectations. that was handled very well and holds judgments whether it was spent in various ways or not. >> there was a lot of fraud and waste. >> not by -- >> that is the perception people don't have. the interesting point, part of the argument, there's a sense among republic that there is huge boondoggle and pork baylor -- pork barrel and waste and fraud. >> that is just wrong. g a o and others monitored it. it was part of the line our

republican colleagues who voted to a person against the recovery bill put out. the overwhelming number of economists who look at this have said obviously that helped prevent the free fall in the economy and we have had some gradual growth, gradual which is why we need to take this to the next step in terms of removing the sequester or the investment peace and deal with long-term deficit anna balanced way. in your point on the infrastructure kind of interesting because we had a hearing the other day in the budget committee in the house on infrastructure. the witness that was called by the democrats, our witness was a person from the united states chamber of commerce, representing people in labour and the work force and arguing

that in the tradition, the old bipartisan tradition the government played a role in national infrastructure from canal to railroads to the interstate highway system, continuing -- we're going to get beaten by our competitors. because of the tea party influence on the republican side, we should localize our infrastructure program and the concern is don't fill in gaps between airports, seaports, roadways, transit. >> interstate highways. the county line. >> this issue is something that used to have bipartisan consensus because of a very different philosophy among the tea party caucus in the house is not moving forward. >> financing the nation's transportation infrastructure on the high risk list for a number

of years now because of the revenue sources haven't kept state and local governments under fiscal pressure so there is the real debate that needs to take place about the responsibility, how to move forward and there haven't been good measures of performance in place to demonstrate improvements in safety and infrastructure that recently passed legislation by the house and now requires better measures, hopeful that that will increase confidence and will return you to the investment in that area. >> someone alluded to the debt ceiling a moment ago. i think it was august 2nd, sometime this summer. are we going to go through another wrenching ordeal? >> i hope not. i am worried. for this reason. i believe that the speaker of the house john boehner would

agree it is that bad idea to do replay of the summer of 2011 where we went up to the deadline, created all sorts of uncertainty. it had a negative impact on the economy. you would like to avoid that. the issue is how? how to put together the folks from the house of representatives including a lot of tea party republicans that would allow us to lift the debt ceiling which we typically hit on may 17th, through management techniques, treasury department might get us as far as september or october, nobody knows. they would like to avoid it but don't know how. so they come up at least for now with this caucus mamie idea that you are selling to take your bills but not all of your bills. they called the debt prioritization. >> that would be -- if i wake up one morning and say i will pay my mortgage but not my car. >> they want the united states

government to do that, which would be disastrous, a terrible signal undermining the credit rating and hurt the economy. that so far is their response. we will pay some of our bills but not all. we will pay the bondholders including china, but we won't pay our troops in the field or other contract -- that is not a solution. there are two ways to deal with this. one is to get a long-term -- we have made $2 trillion in deficit reduction in the next ten years. the president is proposing 1.8 -- that is not possible, then we have to take more bite sized proposals but they will require targeted cuts shutting down tax loopholes, tax expenditures and

there has been resistance. john mccain and others have suggested they might be open to that kind of thing to replace the sequester, focusing primarily on defense side of the sequester. they made some statements to put together a smaller package but even that because it includes closing tax loopholes for the deficit and rocky times. and i am nervous that the speaker had intentions. and the clock ticks. and a proposal to deal with it. >> and play hard ball in this? the republican party also. >> one thing that is different

is the president means what he says so hold onto your hat because they are on their own. >> he said he would negotiate $200,000 cap. and negotiate over the faa a. >> once concluded and what -- wants the white house is concluded, and this is almost a constitutional issue. in the summer, we are not going to do it again and you could provide a lot of examples. and we are not going to negotiate with these. and we will see where it ends. and this is just one. and it get to the edge.

>> and another crisis. and increased the federal borrowing, and the yield spreads between corporate bonds and treasury bonds, and narrowed in that period of time, we recommend it and the only way to change this on a permanent structural basis is to raise the debt ceiling when the budget passed in the beginning of the year at the time you make revenue. we did this after the fact bans to limit borrowing for spending, it is not an effective way to manage so we are hopeful that some point that the change we made and not this bifurcation. and approving a budget and decide later how much to pay for

and a gain is in place for a long time but peter cook has questions from the audience. we have four minutes left. i will say when i first came, and all time congressman from massachusetts, for every spending bill, i say congressman, if anybody did that it would be anarchy. is this place on the level? >> jim burke. >> let me put a question to your panelists. how would the pedal quantify the overall r o i or stimulus? >> you want to take that first? >> hard to do. a lot of our recommendations for the agencies better evaluate the effect of the stimulus money including the transportation area and other areas so there were controls in place to prevent fraud and abuse but there wasn't enough in my

estimation evaluation on a program by program basis what the results really were. >> let's just look at the macro level. in january when the president was sworn in he put his hand on the bible, the economy was dropping at a negative 5.5% rate, cedar decline at that moment in time than the great depression. number 2 almost 800,000 americans lost their jobs in that month. the sequester which was the first major order of business to pass the congress in february. >> sorry. thank you. the recovery bill clearly had an impact through the economy stopping the free fall, turning the corner and taking the s in the right direction. you just have to look at the chart, the pattern, the economy

going like this and turned and began to climb. >> a thought experiment between the u.s. and the u.k.. they don't have perfectly parallel economies of similar structure to the economy and the u.k. government tried in the other way and are in triple digits session and had zero growth. they keep pushing out the time at which they are going to stabilize so it actually had the opposite effect which is to kind of increase the debt load because they can't get the recovery up. >> one more question here. the subject line is the fiscal multipliers negative, a federal government too far away unlike the states, the government spending money does not help the economy, and matters what it spends on. why should we expect the huge deficit to help us? >> chris van hollen?

>> it does matter. there are some investments that provide a greater return in terms of our future. i would argue infrastructure ve, investment in education is important, science and research at the early stage is very important. we also know that in this period where you have all this slack, you have trillions of dollars on the sidelines primarily because the lack of demand moving forward and making these disasters now and help the economy in the short term and the long term. i should say that i do believe we should also act now to put in place balanced approach for long-term deficit reduction. i am not saying wait to do that but it should be phased in over a longer period of time. most of the real demographic push comes eight, nine, ten

years out. it pays to face those changes in on the health care side that we talked about, but it is very shortsighted to cut deeply in individual investors. a drag on the economy and hurts the long-term economic growth. >> there is plenty of savings, we are short on time but the a example is a good example. we are not just talking about spending a lot of money and trying to raise demand. look at what happens when you cut core government services. what is the ripple effect in the real economy when you cut cuts in things and air-traffic control and t.s. a agents? it is $100 billion the sequestered in a $16 trillion economy but when you're cutting off the things that grease the wheels of commerce that are part

of core government service you are going to have a dramatic impact on the overall economy, much bigger than a portion of extraction or demand. >> quick close. >> no question in terms of our view the federal government is on long-term and sustainable fiscal path. the sooner action is taken the better. we have to balance the near-term versus long-term for economic growth purposes but the other element in that question was who is closer to making the decision? state or federal government? the big missing element in my view is the interrelationship between the federal finance and state finance. fastest-growing source of revenue state government has is federal grant money and that changes the whole dynamic. the state and local sector is under the same fiscal pressure long term that the federal government is. >> if anybody wants to know more

about that, there's an gao report put out yesterday on that subject. thank all of you and all due respect to president reagan i am afraid this problem is too big to take care of itself. this is really very interesting. [applause] >> for leading that discussion, i am waiting for our next guest, the pleasure of talking to, fcc chairman julius genachowski. the president holding a news conference at 10:15. maybe he will update us what is going on in terms of the debt and deficit and other issues. we will update as best we can. i am also told that i should let you all know that wi-fi has been reset. to gain access please disconnect and reconnect and you should get a strong signal. on that note we hope you have more questions coming and i will grab my seat and invite the chairman of the fcc, julius genachowski. is being labeled the exit

interview which is hopefully at way to characterize it. thank you for joining us here. he has announced five months that he would be leaving in the next few weeks i think he said. it has been a few weeks but he is still there and we appreciate you joining us to talk about your time at the fcc and the challenges still remaining at the agency and want to remind anyone not only have you been there four years but a lot of people know that you knew president obama in law school. i learned a few other things about you recently. at the correspondents' dinner you served on the iran-contra staff at the time. i did not know that. i thought i knew most of the things about you but did not know that. and won't ask about iran-contra but i will comment. you were also a midnight d. j.. that was your first experience in the broadcast world. >> i also worked on ambulances

in manhattan which convinced me not to do that as a career because i didn't drive them but i was an emc and worked with private ambulance companies and they love going wrong way really fast down the avenue, 1-way avenues in manhattan and i thought was pull was safe. >> brought unique perspective on the 911 system, the communication that needs to go through to make sure ambulances are going in the right direction. >> absolutely. >> let's talk about your time at the fcc and what has been accomplished. as you look back right now, was it a harder job than you thought? was it you are most proud of? >> it is a hard job. i knew something about it. i spent ten years in the private-sector, internet and media and earlier in my career at the fcc, it is a hard job and the polarization of washington hasn't made it any easier and inherently we are at a time of

incredible change when it comes to communication technology. and the right set of policies to drive innovation, to drive economic growth, it is not easy. combine that with polarization, a challenging job. i am proud of what we have gotten done at the fcc. >> i have seen the list of accomplishments counted by your support and the acc itself. let's talk about broadband access, the broadband plan that was implemented. where do we stand in terms of broadband access and every day americans being able to use those high speed devices, use their ipads and other devices. what changed since you took over? >> think about where we were four years ago. on the mobile side we were

talking about the possibility of a e innoti and we were talking about is looking at south korea and japan say and all that stuff is happening there and we were talking about global infrastructure, mostly in europe which got ahead of us on wireless. today u.s. has gone from laggard to leader. mobile innovation around the world, people using american air when, american mobile operating system. take a look and operating systems and percentage of mobile devices, american made operating system, from 20% to 8% largely as a result of apple's i owe as and mobile androids, mobile infrastructure in leading the world's in 4 g, we have more 4 gee subscribers than the rest of the world combined and this is an extraordinary platform for innovation and will be for quite some time. on the wire side, we have raised

more fiber in the u.s. in 2012-2011 than in any year in the u.s. since 2000. we are making real progress. i am happy if i can point to correlation as opposed to causation in terms of what the sec did but these outcomes have been our focus and why we have been focusing on spectrum, the airwaves, the invisible infrastructure and what we need to do to take care of that so mobil continues to be an opportunity, focus on driving investments in mobile and wireless broadband and they are big idea to develop a market based mechanism to reallocate spectrum from over the air broadcasting, people said it would never happen but it happened. transformation of put $5 billion

year universal service that had been a telephone focus fund we have updated to broadband fund so that was not going to happen in washington. certainly not on a bipartisan basis until we got that done, taken steps to promote competition in the mobile space and smart steps to preserve internet freedom and innovation on the platform. i am pretty happy with what we have been able to get done. big challenges ahead of the u.s. to a strong country. >> let's talk about individual items. i heard you talk about the spectrum. shortage confronting the country? advancements made in things like 4 g in the united states. to what extent is the spectrum shortage, the options still brewing right now for a lift off if you will, what happens if it doesn't happen? what happens to broadcasters who voluntarily agreed to give up the spectrum? what is the risk to the u.s. economy and this incredible technological explosion?

>> why do we need the spectrum so much? we care about infrastructure and we should, we understand that in order for us to be globally competitive we have to take care of our infrastructure. we understand we have to take care of communication technology infrastructure and innovation infrastructure. mobile infrastructure is the hardest thing to talk about because it is invisible. the real infrastructure is you don't take care of that for mobile, a throttle the mobile opportunity. fact people think about. and device like this, and i phone put the demand on spectrum that is not 10% or 20% or 100% more than the phone you had before but 25 times more and tablets put a demand on spectrum and 150 times more. no one in the last 20 years of policymaking anticipate that but we really had to act and this

idea we developed, the intent of auction idea is just one of the big ideas to free up spectrum and make sure we have the best mobile infrastructure in the world. some people misunderstand the intent of the idea, some commentary recently that all we need to do is say to broadcasters you can use the spectrum for anything and that will solve the problem. that misunderstands how spectrum is allocated. broadcast spectrum, tv channels we watch, the we watch on cable or satellite are allocated in swiss cheese fashion around the country with a lot of that -- and you could say these holes in swiss cheese could be used for broadband, doesn't do a lot of good the way our mobile infrastructure is work and the options says we are going to create incentives for

broadcasters to exit and then we are going to do something only we can do which is shrink down the amount of spectrum allocated in broadcasting, move some broadcasters as necessary and free up brand new continuous spectrum for auction. as an example of the essential role government can and should play in making sure we get the country's innovation infrastructure right and way that through smart policies we can add tremendous value to the economy. through this continuous spectrum will free up billions of dollars and have a multiplier effect on that. >> stop right there. i spent in my journalistic career ten years in local news, local broadcasters to hear you talking about this and get really nervous. even if i volunteered to do this i will get move to a new spot and people have to find me

again. this makes broadcasters, small broadcasters really nervous. this is the financial opportunity they will get many of put some are worried about the change. >> a couple things. broadcasters are in different categories. some are absolutely seeing the opportunities here and there is a group of broadcasters say and we are interested, let's participate in the development of the ftc roll. the largest broadcasters have also been neutral to positive on this because if it is not large content company you are a multi platform content monetize their. if you want to be able to monetize content on everybody. we really do care about the system and we will work with it. the broadcasters who are most concerned, focus on broadcasting

and move their channels from here to hear, we will be compensated for that. it will be additional to diddle transition. there is some cost to that but the important thing from an american economy perspective and global competitiveness perspective is we have to do this kind of thing in order to states locally competitive and remain a leader on mobile innovation so we have to get through to figure out the best way. >> talk about the other side of the situation, there have been questions how this option is going to work. i saw a letter at&t's and the other day with strong language, they were worried about a letter the doj cents suggesting ways to set this up, calling basically to set this up to allow smaller players like sprint and t mobile to prevail at the expense of verizon and at&t and even said rates.

is this option raise? >> not all. there are two fundamental goals we need to meet on this forward auction side. every mobile operator out there including the largest ones need more spectrum. many things we are pursuing. they all need more spectrum and i am convinced it will be designed so the everyone can get more spectrum. and the same time it is important for innovation economy that mobile remains competitive. when we had our first interview one of the topics that came up was mobile space is moving toward duopoly in the u.s.. we will have two carriers and that is going to be it. i am convinced that that would be a very bad thing for our innovation economy in the u.s.. this platform we now have overseeing all this incredible innovation and apps etc. would be at risk.

it is why i did something that was are hard call, took steps to block the at&t/t mobile transaction and other steps to ensure a fair competitive landscape. >> you think that was the right call. >> absolutely. look where we are now. and right decision. three years ago,.5 years ago the u.s. mobile market was on the doorstep of duopoly and people thought it was inevitable. some people thought was an inevitable face a go ahead and approve the transition happening anyway. with the market now. if you look at t mobile and sprint, instead of moving down they are moving up. they are getting stronger and we're seeing a healthy competitive market, t mobile trying and new business model. meanwhile at&t and verizon are doing exceptionally well too, increasing their investment in calfs decks, innovating, helping drive our economy forward. one of the things we have been

able to do is at&t did not get -- >> we are going to break away from this to take you live to the u.s. senate. there will be a short pro-forma session today, no legislative work expected. we will return to the bloomberg summit immediately after this session. ..

the presiding officer: the senate will come to order. the clerk will read a communication to the is that the. the clerk will read a communication to the senate. the clerk: washington, d.c, april 30, 2013. to the senate: under the provisions of rule 1, paragraph 3, of the standing rules of the senate, i hereby appoint the honorable carl levin, a thor from the state of michigan, to perform the duties of the chair. signed: patrick j. leahy, president pro tempore. the presiding officer: in my capacity as a senator from michigan, i ask unanimous consent that the senate request the return of the papers on the bill s. 85 from the house of representatives in order for the secretary of the senate to make corrections in the engrossment of this bill, as authorized by order of the senate of january 3, 2013. is there objection? hearing no objection, it is so ordered. and, under the previous order, the senate stands adjourned until 2:00 p.m. on friday, may 3, 2013.

>> that wraps up today's pro forma session in the senate. lawmakers will meet next for legislative business on monday, may 6th at 2 p.m. eastern. we're going back now to the bloomberg summit, finishing up this interview with outgoing fcc chairman julius genachowski. >> well, i think a lot of people are satisfied. when i took this job four years ago, net neutrality issue was a radioactive battle between the tech industry and the isp industry with a tremendous amount of uncertainty, and it was slowing down investment and commitment to the space. and, you know, i thought we're going to try to resolve this. and it was a lot of work, and it wasn't easy, but three years ago we adopted rules at the fcc, a strong and balanced framework to preserve internet openness. i set out as a goal for that, let's have a framework that

drives massive private investment to both sides to our innovativers, our internet, technology, mobile innovators on the software and applications and services side, and let's drive massive private investment to our networks because we need both. we need really exciting apps and great networks. and if you look at the world three years later, a couple of things. one is, that happened. these are just the metrics. private investment in the edge software application service is way up, and private investment in networks, also way up. the u.s. is youing faster -- growing faster in terms of wireless capex over everyone in the world, including china. asia overall four, europe zero. and that's been the story the last couple years. last point on this, people aren't talking that much about net neutrality these days.

they were talking a lot about it then. why is that? it's working. early stage investors are investing, the networks are investing, we have processes for resolving disputes that come up. it's working. there is the litigation that's pending. i think it's unfortunate, it's the single biggest source, the litigation, of potential uncertainty in the space. but i think around the industry with the exception, as you mentioned, the extremes, but it's working, and it is something that i'm proud of, and i think we all need to work together to sustain this balanced framework and make sure that an open internet, an internet that's open for innovation sustains itself, is protected as we also insure that there are incentives for massive capex in infrastructure. >> you can win that case? >> i think we're going to win that case. and more importantly, i think we've won the debate on what the right answer is. one, that we should protect internet openness and freedom in

this way that drives private investment, and i think that in the last three years as everyone's been complying with these rules, we've seen a hardening of business norms, social norms for businesses and speakers and networks that is extremely important. you can only do so much with regulations. i do think it's important that these enforceable rules stay in place, but i think there's now such broad recognition that this is the right thing to do that it will sustain itself. i think we will win. i think we'll win in the d.c. circuit, i think we'll win in the supreme court if it got there. >> all right. i know we've got some questions. >> hi, peter. the first question comes from bloomberg's own bob lighten. with so much between fixed and wire broadband, doesn't that -- wireless broadband, doesn't that imply less restriction over time? >> i agree with the premise of the question, that you need less kind of business behavioral regulation from entities like the fcc.

we are not there yet when it comes to the provision of broadband to the home. in many parts of the country, there are only two choices. in some places, one. i do think wireless does provide a potential opportunity for competing in the broadband to the home space. lte is a very robust technology that could be a substitutable product for wired broadband. we're seeing that being explored by businesses. we're not seeing it at the point yet where consumers say, yeah, i've got a choice now between the different options including fixed wireless. we're doing everything we can to make sure that we're not a barrier to the rollout of that service to consumers, because that kind of competition would be fantastic. >> i'm going to do my best to keep us on time because that's my other job here.

so i'm going to end this with one final question foryou, and that is as you get set to leave the agency, what's the note going to say inside the desk drawer for your successor, and have you recommended who that person should be to the president? [laughter] >> well, i won't answer the last question. first of all, i think, listen, i think my note will say do the right thing, you know? study the economics, study the technology, do the right thing. and one of the things, you know, i was taught never to leave a meeting without an ask, and so i'll treat this as a meeting, and i have an ask. i think one of the things i saw a lot of stakeholders do over the last three years that was very helpful is that they gave the fcc the room to do the right thing even if they didn't always agree by participating in an honest game, a fact and database process. and a lot of these issues are zero sum, there's a winner, there's a loser and then moving on. and respecting the agency when it had a thorough, fact-based analysis and did the right thing. i'm convinced that you can do

the right thing in washington and get away with it, and i would encourage my successor to optimize for that. >> chairman julius general gena, thank you very much for the time. best of luck in your next endeavors and thank you for your service. >> thanks, peter. [applause] >> thank you, nila, as well, for helping out there. we're going to keep things going here with our next panel. we're moving on to talk about the divide between washington and wall street and bridging that divide. issues about regulation, financial regulation and a whole lot more. i'm going to call up to the stage robert freedman, the editor at large of bloomberg news, and we're going to talk about -- bring his panelists up here as well. michael bodson, david mccormack, he's the co-president bridgewater associates, former undersecretary of the treasury and also gary parr, vice chairman ofly saturday, joining us up here on stage. gentlemen, thank you for being here. appreciate you joining us. again, a reminder to everyone,

submitting questions. i sort of soaked it up last time. that was on me, i'm sorry. robert, i'll let you take it away. >> thank you, peter. welcome, and thank you, fellow panelists. i noticed on the program, and perhaps you did too, that there's no description of this panel other than the title. i assume that's because people here felt there was no way to bridge the divide. but i'm going to try to do it, at least talk about it anyway. the -- i want to start off by beginning with the question that came up at the end of the first panel about the brown-vitter legislation. and, gary, i wondered if you might speak to this. there has been, um, of late a lot of unhappiness about the so-called big banks in the u.s., the feeling that five years after lehman brothers, three

years after the dodd-frank legislation we still haven't done enough to rein in the behavior of america's biggest banks. it's prompted calls for raising capital, it's prompted calls for curbing certain risky activities, and it's prompted in some cases cause for just outright breaking up the banks. this is not a discussion that's happening only in the u.s. it's certainly vibrant in the u.k. and in europe as well, and it doubled up last week in this bill that came before congress to impose a 15% capital ratio on banks with assets of over $500 billion which is about six u.s. banks. gary, what's driving this dissatisfaction? is this the right approach for congress to be legislating capital levels? and is there any chance that it's going to go any place? >> right.

so i'll be brief on that. one, the consequences, negative consequences of the crisis are still being felt, so it is not surprising both here and in europe that politicians get a lot of mileage out of going after the banks. but secondly, i'd say there is a real, genuine frustration and appropriate frustration that laws, whether it's basel iii or dodd-frank, are bogged down in detail and haven't been implemented, the drafting still ongoing. so in response last week a new bill to simplify this. let's go after something that's easily defined, not too comply complicated, put in more capital. i think the number one issue is to have higher capital requirements. so there are a variety of other things, but i'd say there's actually something there. now, as to what the right number is from a protecting the system, the higher the better. so they came up with a really big number. so i think it's a natural

response to 2,000-plus pages of dodd-frank still to be defined and a lot of work to be done, to keep it simple. >> and the prospect of it going any place? >> low. very low. >> so you think capital requirements are a better strategy than, um, forcing banks to either split up or not engage in so-called proprietary trading, whatever that may mean? >> if i were ranking, there are a lot of things to do. but the number one item i'd have on the list is capital. and the more you have, then by any definition you take risks, and you get lower returns. but you are protecting the system. so i think that's a good measure. and far better than simply saying break up the banks. i don't think that is sufficient. >> so the issue is how do you measure the capital, are you using risk-weighted assets -- >> right. how simple or complicated do you want it to be. >> and what the level is. and behind in this is this notion that somehow or another we're still at risk. the banks are at risk and,

therefore, the financial system is at risk and, therefore, the economy is at risk. there was, there was some discussion, um, earlier on in the first panel also about whether we're weighting down the banks with too many, in the urge to, in the desire to make them safe, we're making them so unrisky that they're not lending, they're not helping stimulate the economy. it's a drag on growth. do you want to talk about that for just a minute before we move on? >> sure, i can touch on it. i think that's a bit of a -- i'm not concerned about that. because in the u.s. in particular we have such fluid capital markets, there are a lot of different ways for capital to move to different markets if there's a need for capital. in europe, though, because europe is more dependent on the banking system, the capital markets are not as developed. but i actually think i'd say in the end i think the banking industry puts that forward, don't put so much regulation unless you're impugning. i really don't believe that given how fluid the capital markets can be. >> david, i wonder if you can

pick up on that. one of the consequences of higher capital requirements for the big banks is more of the risk moves outside the banking system to hedge funds like yours or other, um, parts of the financial infrastructure. is that a good thing? is it finish are you happy to have that, to take on that risk? what do you see as the consequences of this from your perspective? david just works for one of biggest hedge funds in the united states, and as the actual bridge between wall street and washington because he used to work in the treasury department during the financial crisis. so, um, brings a perspective that i think may help us sort of get at some of these questions. >> well, i think the short answer to the question that affects us is not much. so in other words, not much of what's happening -- and we talked about earlier before we came out -- is affecting us. it may over time. but i think the, you know, to sort of step back and follow up on what gary was saying, i think

that the conversation at least as you read in the newspapers today is pretty narrow in the sense of more regulation, less regulation. i think there's more legs to the stool here. i think the answer to the question of are we safer today is a lot safer today in the sense of -- in the u.s. in particular -- given the raising of capital and the rating down of bad assets. it's a market contrast to europe. and if you would have gone back to 2008 and listened to the conversation between the europeans and us then, it's pretty ironic that we are where we are today. but i think there's regulation, there's capital standards and the harmonization of those capital standards. one of the reasons i think the brown-vitter so problematic is because of it's an isolated, u.s.-centric orientation, and then there's market discipline. and resolution authority and all the things that go along with that to insure that the appropriate actions will be able to be taken and investors aren't protected by government

backstops and so forth. so i think it's a much broader discussion. and each of those areas, i think, is somewhat stock in terms of the evolution of policy for some of the political reasons gary mentioned. >> can you just talk a little bit more about the dissonance between national and international regimes? you mentioned brown-vitter would be an exception, but switzerland did this on its own, imposed a higher surcharge on its own banks because the assets of the banking system are something like six or seven times the economic output of the country which is -- somebody woke up and said, hey, this could be dangerous. >> right. >> so they put their own, their own higher capital ratio on it. is that a bad thing that countries are acting op their own based -- on their own? >> i think by and large a bad thing, and let me describe why. i think if you step back and say we're in the middle of a classic deleveraging, that imposes a level of pain and duress which creates all sorts of protectionist tendencies. and authorities, regulators are

understandably trying to take steps within their international context to protect from another one of those in the future, but we've had 35 years of globalization, 35 years of movement towards global capital flows, and i think there's yellow flags. i wouldn't say red flags, but yellow flags of some of the things you might worry about having in terms of protectionist type movements. a good example would be the ftt. a whole conversation's happening in europe. i think some of the things the fed's considering within the addressing foreign banks, all of these appropriately-focused, well-minded people thinking, trying to do the right thing, i think the combination of those things over time could be very problematic. so i'm worried about it. now, with that said, i think you look at basel iii, and there's all sorts of issues with the way capital's weighed. it's not to say we figured out the right global regime, but i think the starting point would be a global approach that's sensible and that could be applied appropriately within

each sovereign needs to be the way that we're going to operate in a global economy. >> mike, um, maybe you can talk a little bit about this issue as well. mike runs the depository and clearance corp. we were talking beforehand about his rocky start to his job last august, first day on the job there was the knight capital fiasco about, what, two months later, even less, his offices in manhattan were flooded by hurricane sandy and 1.7 million pieces of paper documenting stock certificates, etc., was washed off the shelves, soaked, and they're still drying out, i think. [laughter] so washington regulation's probably low on his worries list, but can you talk about it? >> sure. >> you work in a field which is

truly global, and yet you have to deal with variations and dissonance on these regimes. can you just talk a little bit about what you see in response to what david said? >> sure. i mean, i think what david hit one of the key issues was coming out of the g20 two, three years ago there was a sense that there was going to be global harmonization or cooperation amongst the regulators. i mean, i think there was a view that there were some basic tenets for financial stability and market transparency that was needed. there was the underpinnings of dodd-frank, so i think there was a hope that there was going to be a new era, that people understood coming out of the crisis that the world was actually connected and you had to work together. and i think, unfortunately, the concepts were agreed to. and now comes the execution. and the execution has gotten to such a level of specificity that there's really been an opportunity lost, an opportunity missed on a global basis and even within the united states to, you know, to rise to a new level. we run something called the

global trade depository for otc swaps. the view that having a single view was a good thing too to ha. you know, basic fundamentals. if everybody has a sense of the pie, you can slice up the pie. you may not see all of it, but if everybody's looking at the same one, you can have a dialogue, you can see risks building up, you can see the flow of collateral. a simple concept but a very powerful one. what you're seeing in the execution process we now have three global -- we have three trade depositories here in the u.s. i think there's somewhere between 8-12 applicants. how is that going to work in a stress situation? i think it's just a microcosm of what's happening. in the rush to get the regulations in, the mandates are out there, every market regulator has to go national. they're worried about their own marketplace. and this whole sense of global community, global cooperation has disappeared.

here within the u.s. you see the conflicts within the regulatory bodies which is unfortunate, and at the end of the day all it means is more and more rules being piled on. and how is it going to work in the next crisis? to me, that's one of the biggest issues. you're taking a very complex system, and in the mere process of adding safeguards, you're adding to the complexity. and when you -- which so what's the solution? give you a global no to knoply on this business? [laughter] >> well, resemble a monopoly. no, i hi it's stepping back -- i think it's stepping back and separating the market. there's a public good aspect that has to be looked at. another simple concept of rolling out identifiers that everybody can say here's morgan stanley's london operations, or here's goldman sachs. and when you have a crisis, everybody -- >> so in the interest of transparency, we've gotten more cloudy. >> you've got it. >> david, when we talked last week on the phone, i was struck by a comment you made about how having worked in washington and

then gone into bridgewater you were struck by how little people in washington understand how markets actually work. [laughter] and i wondered if you could talk about that divide, and, um, and just elaborate a little bit. >> i'd say that as someone who now realizes how little he knew -- [laughter] >> yes. >> i think, well, i think there's sort of two big takeaways now having, sitting on this side of the table and interacting with policymakers and watching some of the challenges. the one is the, the notion of granularity. so on the side of a market participant, really understanding how the economics are working, the economic machine's working, how the flows are working and how that drives market action. in contrast to, i think, what's often the case in the policy making world you're talking about confidence. or sort of vague concepts. a good example of this was leading up to, i guess, 18

months ago talking to some european policymakers, and we had done an analysis of the spanish sovereign debt, and, essentially, the buyers and suppliers at a very granular level. who owns the debt, who sells the debt, what's the likely outcome, what's the gap potentially going to be. and we would have conversation with key policymakers in europe about this. it was obvious, it was a math issue, and they'd say, well, we'll just take steps, we'll make announcements, there'll be confidence as opposed to, wait a second, a math problem, and the math problem doesn't change depending on what the announcements are. so that granularity of understanding of how things are working, i think, is a real challenge. it's a challenge in the u.s. system, it's a challenge in other systems. that's one. i think the second one that's more apparent to me now than it was then is the degree to which design is now destiny. the u.s. case in terms of the response to the financial crisis, you would literally have

paulson and bernanke sort of sorting through what they thought the options were. they'd basically agree on a plan, they'd go to congress, talk to four key people, the minority and ranking in both the house and senate, they'd talk to the president, seven people. if they agreed conceptually where they were headed, that was policy. and they'd push it through and move forward where you compare and contrast that to europe and the challenges of getting ea linement -- alignment, the different role -- >> right. >> you see that playing out in very obvious ways in the way those two systems are responding and then on the other end, of course, is china which is able to snap their fingers and -- >> we only have two parties who are gridlocked. >> exactly. >> right. although it's nice to say that a pretty conservative republican and a very liberal democrat are behind the brown-vitter bill. that suggests there is, perhaps, some bridging that political divide. >> well, i wouldn't read too much into it. [laughter] >> gary, can you just talk a

little bit more about this gap if you perceive it to be in understanding between washington and wall street about how things actually work? >> well, again, i referenced it earlier with dodd-frank being a great example where so much of the detail of dodd-frank has very little to do with the soundness of the financial system. it might be good for some other attributes, but i'm also amused when i look back at when dodd-frank was being rolled out and we were all worried about too big to fail. one of the first pieces passed was a cap on debit fees. had nothing to do with the financial crisis. so you just trace through and i say there, exactly with david, if you want to address an issue being the financial crisis and how to not have it again, again, there is some merit. i come back to what's being proposed, and let's go back to core issue, capital. i reference another one that i find interesting. during the financial crisis, helping companies on the other side involved in that, i found

it interesting. if you take defense, the defense department of the united states or most any other government do scenario testing. today think through war games. if this, then this, then this. all kinds of scenarios. i don't think or if it exists within treasury or fed, you can tell me, david, at least i know it wasn't there five years ago, and that is also a real process for having thought through if this, then this and here and there we take different actions. so one of my fears is about the disconnect in washington, there's a large camp in washington that say we do not want the government to step in again if there is a financial crisis or financial difficulty. and, actually, i believe it is critically important that you know there's a lender of last resort for a system. and this i'd like back over hundreds of years and say it's not just the last five years. if you don't have somebody standing at the very back as a lender of last resort to deal with extremes of crises, you've got an issue. you've got a problem.

so i -- there's two disconnects. one is, i think, off point rather than being on point. >> right. well, i mean, i was struck as a journalist during the financial crisis, and i started at bloomberg the week that bear stearns collapsed, i was struck by both a lack of understanding not just in washington, but also on wall street about what the consequences of lehman brothers going down was going to be. and everybody, everybody sitting around that weekend said, well, we can manage this. and it turned out that it was a lot more complicated than people realized, and all of a sudden money markets are freezing up, and the whole system is collapsing, and what is the government going to do at that point? obviously, you have to step in, be the backer of last resort, bail out the banks or else what are the consequences? and i guess, um, i guess my question is have we really learned anything from that? you talked about scenario -- >> i was going to say, actually -- >> you said the system is a lot safer now. yes, okay, but safe enough? >> well, there, for example, i

guess i have the benefit and the pleasure of being the banker for bear stearns and the banker for lehman brothers. in bear stearns we were clear going into that weekend and the government was clear, we didn't know how all the repos would unwind, because it doesn't freeze in bankruptcy court. >> right. >> we knew we didn't have a solution to that. and also swaps. we didn't know how to quickly figure out how to settle that. so we knew there was a major problem, trillions of dollars, and we couldn't deal with it. so there had to be a solution. the government then went very quickly to address those two issues in the intervening period to say let's get all the data, let's get common source, so i believe there was a belief that the two primary issues in bear stearns had been addressed by the time of lehman. >> right. >> the thing that hadn't been addressed was confidence in the markets to provide commercial paper for security problems that hadn't been addressed. so i think that issue, it's back to war games. it's if you haven't had enough time to think through every she fair owe, if this, then this,

who responds, how do they do, and you'll never contemplate every one, and that's why -- >> but the pentagon always is, their scenarios are always based on fighting the last war. >> that's right. entirely -- always a risk. >> mike, what'd you say? >> sort of like regulations. you're regulating the past crisis. i mean, i think one of the lessons you saw people learn coming out of the 2008 crisis was that you can chop up risk, moviesing around, but risk doesn't disappear. now we're seeing on our side of the world, put everything through a central counterparty. you're concentrating it, and you're assuming it'll be liquidated a bear or lehman brothers, well, you need price discovery, you needily quiddity. so there's this sense that somehow or other i've taken the risk, i've moved it from here to here, it must be gone. it's not gone. i agree with gary, it's, you know, where are the risks? financial stability and transparency and the regulators, i mean, dick berner is doing

great work, but they're struggling with how do you capture the risk in the system, how do you identify, how doou get in front of it? it takes massive amounts of information. hopefully, they'll get there, but you can't lose that fundamental piece that risk doesn't disappear. we're always asked to cap losses when something goes up. you can't cap losses. a major bank goes belly up, the loss is the loss. we can't make it go away. >> right. so that raises the question which is where i started, um, is, is the problem that, um, that some of these banks are too big, or is the problem that they're, um, or is bigness not the problem? i mean, and -- i mean, yes, you're right, you can't make the risk disappear, but there ought to be ways to limit it. you say capital requirements is the best way to do that. but, um, there's clearly a gnawing sense in the public and on capitol hill that we really haven't solved the too big to fail crisis.

and, you know, whether -- i mean, there's numerous proposals, whether it's volcker rule or the proposal in the e.u. or the ring fencing plans in u.k., are any of these going to get at the problems, or is there just some risk out there lurking that we don't even, aren't even addressing in terms of trying to tackle? david, do you want to -- >> well, i'd say there is no single, i don't believe there's a single solution to the problem. so i had laid out, i think there's a mistaken notion that more regulation, more money thrown at regulation, more discretion among regulators is somehow going to eliminate the possibility of some of these bad things happening again which i think is unlikely to be the case. i think it's a combination of the things i mentioned which is creating the right market discipline by showing a path to reasonable resolution. i don't think we're there yet, but there's been progress. it's the capital standards, the capital standards are a humanly important lever and it's regulatory oversight. i think just to add to this, i think there's a big risk in just

not getting on with it. and by that i mean because there's not one size fits all, this thing's going to need to evolve. there's going to need to be understanding and learning because there's consequences of every policy choice. and there's a risk and problems being created by the fact that they haven't been able to move forward whether it's the volcker rule or dodd-frank or basel iii, whatever it is. by getting out there and making a step and then learning from it and evolving it -- >> but another group out there we haven't really talked about, and that's the market, investors. and investors don't seem to like banks in terms of their book value is pretty low. >> well, part of that's the uncertainty, right? part of the reason why banks aren't lending, capital's on the sideline, part of the reasons investors don't see it as attractive is because there's this huge degree of uncertainty associated with the things we've been talking about. so here we are, 2013, five years after the cry us, and we still don't know answers to a lot of

important questions. and that's my point about getting on with it. something, something in place that we can learn about and evolve from and that market participants can adjust to is better, like the, you know, the old 70%, 60% solution implemented and moving is better than this grand plan that no one's acting against because there's so much uncertainty. >> right. peter, do we have any questions from our -- >> we do have some questions in our limited time remaining. the first question i'll put out there, what are the long-term consequences of the federal government buying $85 billion a month of securities? what will happen when the government stops buying? >> so this is the part of washington that we haven't talked about yet, which is the fed, and its low-interest policy, low-rates policy. and, clearly, has a huge impact on wall street and, also, investors all over the world. one of you want to sort of tackle that question and sort of the lurking fear about how do you get out of this? >> i'll make one banking observation. it was necessary here for the economy, interestingly, you can't take it in isolation,

because i instantly think, well, the ecb is in a massive buying program, and now japan is in a massive buying program. europe was cleary necessary to stable -- clearly necessary to stabilize the banking system. japan for different reasons. so i think it's a global issue. slightly to rephrase the question, but i don't think it's a fed issue anymore. i think it's a global issue. i don't believe there's ever been a time in history where you have three of the top four -- arguably, people in china tell me their central bank is push liquidity in true the bank lending. so you've got a global push by central banks of levering up the central banks and pump liquidity. and i think that's -- sorry, i'll put it now to david and say what is the answer? [laughter] >> i think you're right. i think it starts with the fact that we were in a terrible situation across the developed world. massive overindebtedness, an inability to deal with that, a deleveraging process began, so you're faced with bad options. within the context of bad options, the monetization that was undertaken by the federal

reserve and is being undertaken to a much lesser degree by ecb was the least bad thing to do. because it offset the deflationary forces, it stopped a full-blown depression. and so the problems that it's better to have the problems we have which is that the economy is on some modicum of reasonable growth, europe doesn't have the problems we have because they haven't stimulated enough -- >> right. >> -- would be the argument. and now the challenge, and the challenge will not be inflation at least in the near term because monetization has offset the huge deflationary forces that have come through to deleveraging, so there's a creative challenging about how do you over time work down that balance sheet. it's not an easy one, but it's a manageable one. >> and from an investment point of view, do you have a streej about how long we're in this flight path? >> well, the -- >> is it forever? >> deleveragings in general are multidecade endeavors.

so, unfortunately, we're five years into what is likely to be a 10 to 20-year path in the developed world. and the good news for us is given those bad circumstances which were very bad, the u.s. has managed that reasonably well. europe is managing that less well for the reasons i described, and we'll see with japan. it's early. >> and for bridgewater, how do you make money on that? >> well, the key thing is diversification and balance. we're balanced across a number of environmental scenarios because we recognize that the role of policy in terms of pulling those different levers is going to have a huge impact on how the economy performs. >> peter? >> well, i'm going to keep us to the clock. we do have some more questions here, but just to keep us on time i'm going to say thank you to our panelists and, robert, to you, and going to bring our next panel up here because i think it's along the same lines of conversation. robert, final thought? >> i just want to thank you gentlemen for sharing your thoughts in this quick 30-minute format. i think we covered a lot of ground, and i don't know whether

we bridged the divide, but at least we gave it a try. thank you. >> thank you, robert. [applause] >> and, again, going to the call up our next panel here led by my colleague, jessica ant knellly, who's going to lead the discussion here, washington bureau chief for bloomberg news, also managing editor. and joining her on stage, professor robert engel, the professor of management and financial services, the director of the volatility institute at the stern school of business at new york university, a nobel prize winner again, so we've got a lot of nobel prize winners here today. harvey pitt, the former chairman of the securities and exchange commission, and anthony is the founder, co-managing partner of skybridge capital, and he's the author of "the little book of hedge funds." and the conversation here, the investor confidence game, how is washington impacting market confidence? one of the questions we're posing to this panel, and i think, again, most likely a continuation of some of the things we just hard about. and i also want to recognize that john rogers, chief

executive officer of the -- [inaudible] he's guaranteed a question, i'm told. so, john, thank you for joining this conversation as well. with that, it's all yours. >> thanks, peter. and thanks to our panelists. we have had a very active fed and treasury and a congress that has, is often said to govern only from crisis to crisis. so we should have a lot of robust discussion around the impact of washington on investor confidence. be maybe we should start -- maybe we should start with the latest example of a budget impasse, sequestration. 1.2 trillion over nine years as it stands. robert, do you think that investors have a full appreciation for what we're in for? >> well, i don't think they do, actually. i think investors have policy overload. they've been through the debt ceiling crisis, the supercommittee, the fiscal cliff, and by comparison sequestration momentum seem like it's much of -- b doesn't seem

like it's much of a deal at all. it's happening gradually, it means that the politicians aren't busy doing something except maybe tinkering with the air traffic controllers or some other little thing. and so i think investors are willing to give the this a chance. and i don't think they appreciate what sequestration is really going to mean, but i think time is going to tell whether it's a big deal or a small deal. >> we were talking a little earlier before we came on about fiscal stimulus versus austerity and what the appropriate blend is. and so, clearly, when you have a need for demand in the economy, the thought being that you would stimulate. and so when you're taking out some of that stimulus, will it have a contractionary effect on the economy. the answer probably is, yes, and people are not fully appreciating that, in my opinion, because of the federal reserve policies. you put interest rates at zero and then you start the $85 billion buying spree, we did a

calculation at skybridge, 85 billion a month, a trillion dollars in a year is about a 1.15 basis point reduction in the curve, so 115 basis points. so you're taking the curve down, you know, almost one and a quarter percent because you can't go any lower. that is influencing people's investing. it's the reason why the stock market's up, and that's the reason why you're seeing the reflation in the mortgage-backed security space. as long as the fed is hammering down on the interest rates, the investors aren't going to really care much about what's going on on the fiscal side of the equation. >> right. should we be walking that back? >> well, i was just going to say i think there are really, um, two categories of observers. there are the sophisticated investors, and i agree completely with the analysis, and then there's the great unwashed. the great unwashed -- >> i'm also unwashed. sophisticated but unwashed.

[laughter] >> the great unwashed care if their planes take off on time. so they understand sequestration, but only insofar as it affects them. and that, i think, was what the results of the last election were. everybody's in favor of reducing the budget except when it impacts their lives. with respect to what this is doing in terms of investment, i think having these artificial influences is great for the moment, but there's going to be a price we have to pay. and when the stimuluses and the fed's actions are withdrawn, there's going to be a huge price to pay, and people are going to get very, very angry. the one thing we know is they can't keep doing this, and that's the big problem we have. >> well, see, i would not only -- i'm going to pile on here now because what the fed is doing is a performance enhancement drug. so you can think of lance armstrong, barry bonds, you pick

the person, okay? and so when you put a ped into somebody's system, you get side effects. one of the big side effects that we see is food and energy prices are up 8, 9%. you pick the number over a period of time. and if the chairman not careful, he's going to be the fed chairman for wealthy people. because this is an asset reflation thing, but it's eating away the disposable income of the middle class and the lower classes. and so there are pizza pie slices going like this, and they have less disposable income which is why we have no growth in the economy. so we're already seeing the effects of the ped. >> let me give you another interpretation for that. what we're really doing by the quantitative easing is reducing long-term interest rates in the same way the fed has always manipulated short-term interest rates. they've always bought and sold short-term bills to change the money supply. so it's moving now to long-term interest rates. so when they stop, hopefully, it

will be when the economy is stronger. that's the whole goal of this. when the economy is stronger and they start selling these, then that's going to drive up interest rates. but that's exactly what's supposed to happen. and it will be like super monetary policy where they're selling both long and short-term interest rates to soak up the excess demand. and, you know, i think it's actually going to work. >> well, how much do you trust our policymakers to get that timing right? >> we, the fed has been pretty good for most of the last 50 years in getting the monetary policy right, and i would say better in the more recent period than in the older period. i don't -- i actually have more confidence in the fed in getting it right than i do congress. >> i think we all would agree on that. >> well, yeah. [laughter]

it's, um, i guess i have to take a slight degree of issue which i do with a great deal of trepidation. but i think the fed used to be independent. i think after dodd-frank we don't have an independent fed. the fed is now part of the administration. that's what dodd-frank intended it to do. and we now have politicians developing monetary policy. so when i look at this, i have a lot of concerns and a huge lack of confidence that the people who are supposed to be looking at this from a systemic point of view are actually looking at it from a political point of view. >> we're often criticized, many regulators are often criticized as setting rules based on the last crisis rather than anticipating the next one. how do you think they did, dodd-frank?

>> i would give dodd-frank, if i were a college professor, an f. i think we needed regulatory reform, and after dodd-frank we needed even more now than we did when dodd-frank was passed. it is mind-boggling to me that congress would take 2,313 pages to tell the financial services industry how to behave when by analogy god took two tablets and ten commandments to tell the human race how to behave. [laughter] there has to be something wrong with this formula, and all we've done is create a to rahs of -- morass of requirements that are difficult to comprehend and unintended consequences that drip from every page of that statute. >> maybe god was just talking to

the jews. [laughter] >> could be, i don't know. [laughter] >> but i want to address what you said about rules and making rules, okay? how about an add martian that'll make -- administration that'll actually make the rules, okay in you've got the jobs act, and they decided they're not going to make the rules on it. okay, maybe they don't like the idea that hedge funds are going to advertise, but then repeal the jobs act. how about crowd funding? okay, we put the law in place for crowd funding, that will create jobs. well, the sec's decided they're not going to make the rules on that either, and so, you know, make the rules. okay, see, i think the president is going to be at fault here, and i think the historians are going to look back 200 years on the president, and they're going to say in his first term he did some things that were very unsettling from a jurisprudential point of view. and it's surprising to me because i went to law school with him. what did he do? he abrogated 200 or 800 years of contract law with the gm

reorganization. and so the fish thinks from the head down. he has set the tablet for the rest of the administration. they can decide to put the rules in place or not decide to, and that's creating enormous uncertainty in the business community. >> let's talk about that a little more, about business confidence. it's really what drives investor confidence to begin with. what are you seeing in the market, what are you hearing from ceos that you talk to, who come into your class, who invest alongside you, whose companies you invest in? where are we? >>'s -- market's hitting highs all the time. i think, actually, wills a fair amount of confidence -- there is a fair amount of confidence that is in the markets that has not been there for several years. now, i think it can erode pretty quickly, and i think that the gdp numbers we got first quarter and the jobs numbers and what i think is likely to happen second

quarter are going to, going to knock that confidence out the window. if, in fact, we are slowing dramatically. but i think taking the economic policy out of the policymakers' hand which is kind of what has happened, i think, makes business community happy. >> yeah. i think we should look back, and i think it was 2007 as the economy was starting already to tank. i think standard and poor's hit an all-time high. so i look at whatever it is that the market is doing now as, basically, not an indication east of the strength of our economy -- either of the strength of our economy or of investment confidence. it's a reflection of the fact that people can make some money in the short term, and they're

doing that. but the real solutions have to be getting jobs for people, creating more industries and new technologies and so on. and when you look at the actual numbers, i don't see the real growth there. i see a lot of artificiality right now but not a lot of real growth. >> let me agree, actually, with what you just said. i think one of the reasons the market is going up is because what else, where else are you going to put your money? you can't put it short-term fixed income, you can't put it long-term fixed, emerging markets are slowing down, europe's a mess, what's your choice? so i think the stock market is going up kind of a little bit on its own. what's going to happen to the rest of the economy? well, we're not showing the kind of growth that's needed, and i think really the money that's going through this, being cut

through the sequestration could be much more effectively spent to stimulate jobs, to eliminate bolt lnecks -- bottlenecks, improve the ability to get technology workers into the country and all these kinds of things are technical obstacles to our growth. >> again, we're talking about assets, and we're talking about the reflation of assets, and we can grade the fed an incomplete, but they've obviously done a good job of reflating assets. let's address full employment. we have a national unemployment crisis. okay, let me repeat that, we have a national unemployment crisis. you want, i'll talk about the lies, the damn lies and the statistics, well, then the unemployment's 7.6%. you want to talk about the reality of the world we're living in, the country that we love? we all know it's closer to 15%. and it's there for a reason. there is a paralysis in the

american business community. the american business community is very scared of the administration. >> well, what is it going to take to get hiring back up? >> even liberals are scared of the administration. what's it going to takesome. >> what's it going to take. >> number one, how about the $2 trillion that we need to repatriate back into the country that's off the shore of the united states. even senator bill bradley said half of that repatriated brings the unemployment rate down to 5.5%. number two, why don't we really look at the employment crisis that we have and deal with the american small businesses. we are saddling the american small businesses with medicare, obamacare that they don't understand, tax and regulation that they don't understand, we're freezing the small businesses. 65% of the jobs come from the nation's small businesses. those are employment people below 50. that's not bloomberg, that's not even skybridge anymore, okay? we've got to get those people encouraged to hire people. and if you want to salad l them

with -- saddle them with stuff that they don't understand and you want to increase their legal expenses in terms of them talking to regulators to make sure they're regulatory-compliant with everything, well, they're just not going to hire people. there's not enough wealthy people in our society to grow this economy. the consumption has to come from the middle and lower classes to get back to the growth that we would like to have. >> what do you think the impact of the tea party's been on the investment community? [laughter] >> oh, is that a loaded question? [laughter] >> is there one? maybe there isn't. >> i think -- well, i think that the stalemate in washington over the last few years has had a very negative effect on economic policy making and, consequently, on the business community. attributed to the tea party, okay. i didn't do that. i just said the stalemate. >> yeah.

i think our economic and unemployment woes are such that they cannot be treated as if this were a war against drugs where you just say no. the goal has to be to come up with workable solutions. that means people have to compromise. that's what politics is. politics isn't drawing a line in the sand and saying i will not cross that line. and i think that, um, the good news is we have bipartisan support for the drawing of lines. everybody is drawing a line instead of trying to come up with workable solutions. you can't do this by trying to blame the other side. what you have to do is come up with realistic alternatives, and no one seems rg to do that -- willing to do that. >> i think the tea party's a complete disaster. so i'll speak very candidly. but i also think the occupy wall

street movement, which i call the green tea party because they're all into the environment and so forth, i think they're terrible too, okay? and so what's happening here is that we've got more and more polarization, okay, and we have more and more contention, and we've got people focused on staying in power and entrenching themselves in power as opposed to serving the people, okay? and so until we stop that, okay, it's a failure of the political class. it's a bipartisan indictment. both parties are to be blamed. okay, we had coffee a little earlier today. i said if you're a republican, you're about wealth distribution. if you're a democrat, you know what? you're all about discrimination. and someone will say, well, why is that? because you're taking money from the future, and you're paying it to the existing voter in the form of benefits so that you can stay in power. so if you're a democrat, well, you just discriminated against every race, color and creed of the future generation. and if you're a republican, you just redistributed the wealth

from the future to the current. you see, so the labels on both sides, okay, need to be dropped, and we need to focus on the practical solutions. which no one focused on. everybody's entrenched because they want to stay in power. >> all right. give me a practical solution to this problem we have. >> number one, okay, we should have a constitutional amendment, okay, that enforces the congress to abide by the laws that they're setting. why don't we do that, okay? and then you'll see policy clarity very quickly. that's number one. >> robert, you laugh. [laughter] >> of course he's going to do that. look at the stock act. just so everybody knows, the stock act has been watered down by voice vote. where was elizabeth warren to stand up and say, hey, we can't do that. for those of you who don't know what that is, insider trading is allowable by the congress. it's allowable by congressional aides. >> you don't necessarily need a

constitutional amendment. but what congress does need is to be bound by a cost benefit analysis before it issues another single statute. it should be required to go through the exact same discipline that we expect of regulators. and until that happens we're not going to get anything that is even remotely close to being workable. >> you said i was a hedge fund manager, so let me give you a really good idea, okay? 535 congressmen, senators and house -- $10 million each after taxes, all 535, that's $5.35 billion. you get $10 million after cash tax, balance the budget. [laughter] those guys will have that budget balanced in 11 months. [laughter] and they'll be reloading for the extra ten million coming in next year. that's a hedge fund manager's incentive plan, okay? [laughter] this is about incentives, okay? they are incentivized to do what they're doing.

it's very destructive to the fabric of the country that we inherited from our past generationses, okay? if we don't do something about this, okay, in this generation, people are going to look back an us and say what a bunch of far is si cysts, okay? they took all the treasure and plundered it on themselves. >> robert, what do you think? how practical do any of these soundsome. >> that was practical, by the way. [laughter] >> so who's putting up that money, the taxpayers? >> of course. the budget will be completely balanced, and you will create a future better society. i'm making the point, of course that's never going to happen. >> but you also incentivize them to stay in position. >> no, no. six years for the congress, one term for the senate, two terms for the president. you guys can make a forcheck up. you wallet to see the -- fortune. you want to see the resumés show up? it would happen. >> i'm all about incentives.

i'd love to have it come from the voters. i'd love to see the voters better educated, better understand economics, how the economy works how, how the hedge funds work, how the money markets work. i mean, you look at the discussions that led up to the election, they were so simplistic. it's that hard to imagine that voters can actually carefully exercise their rights. >> we have, we have national debates before the election which is a wonderful thing. and then we take the most complex issues, and we give the two candidates two minutes apiece to try and tell us what their solutions are. and what's even worse than doing that is that there are people who actually base their votes on the answers. it's incredible to me. >> well, to be fair, i think you guys got about two minutes each for your solutions to these problems. [laughter] >> i personally liked my --

>> like rubbing for president. >> we are running a little short on time, so maybe we'll go to john for the first question. >> okay. thanks, cesca. well, it's interesting, there's been a remarkable degree of unanimity around having confidence in the federal reserve. there was a comment that the fed's gotten it right for the last 50 years, and i'm old enough to remember the great inflation of the late '60s and '70s, and it seems to me that back in 2006 and '7 the fed was urging us to continue to stay the course just as they were driving the housing market over the cliff, or at least there at scene of the crime. so the question to the panel is why on earth should we feel comfortable investing in what sounds like something of an asset bubble and keeping faith with the fed as they continue to reflate monetary assets? >> sounds like that was of to me. [laughter] i was the one who expressed confidence in the fed. the fed did raise interest rates

in 2004 and '5. it really was probably that increase in interest rates that popped the housing bubble. maybe it was too late. that's, that's the argument. .. >> that was not a good period, but i don't think that you've addressed the question of who

you would rather have making your economic policy. if it's not the fed, do you want it to come out of congress? >> i think you get out a balance portfolio in every scenario, and you can't rely on or think about the effects of the portfolio. if you're balanced, well levered, and in a broad access class, you'll do reasonably well over long periods of time. we can't quibble about the fed. what people do is get excessive and over lever. once they do that, it's game over, typically, there's a knockout punch. >> i think the problem we are witnessing is people make investment decisions in spite of what the fed is doing, in spite of what congress is doing, and in spite of what the administration is saying. that was not the way the system was supposed to work.

people should have confidence in the ones who are creating the regulation, creating the laws, and creating the policy. i think we're seeing a marketplace that's totally devoid of that confidence, and is operating, as we said earlier, under its own juice. >> when are you running for congress? >> [laughter] >> render me speechless on that one. i think these things are, you have to have a calling for public service, and i think that i'm an entrepreneur, and i love the country, and i think i'm best serve by paying a ton of taxes, which i do, and trying to create employees out of as many people as i possibly can. having said that, i love public policy, and i think we have to

stop focusing on left and right and now focus on right and wrong. we want the best practices, dial down the political rhetoric, but you won't see me running for congress any time soon, thank god. [laughter] >> that was the 11th commandment harvey was talking about. don't run for anything. that was the 11th commandment. [laughter] >> we have a governor of pennsylvania on the next panel, maybe he'll offer something. >> another question, why should investors be confident when debt levels are higher than that in the great depression? >> one more time? >> why should investors be confident when economic policies unpredictable and debt levels higher than that in the great depression. >> robert, that's for you. >> sounds like it's for me too. investors are confident because they are so exhausted from the

policy whirlwinds we've been through where the good economic policy has political points of view so it seems like we're in a calm, stable period right now, and maybe the business world can get back to business, and i think it's only a relative calm. >> okay. >> jessica, final word for the panelists? >> we are out of time, thanks very much. >> all right, thank you to our panel, again, for taking questions, interesting discussion. thank you as well. [applause] some thought provoking comments there, harvey pitch well on dad-frank, registering, i'm sure with a few people in the nation's capitol, as all, thank you for the time, and we'll call up the next conversation, my colleagues who covers the white house for bloomberg and governor of

of pennsylvania joining us as well, and duped to go ahead -- do you want to go ahead and take the stage and sit on the far side? that'd be great. one of the best thing is we often reach outside of washington for perspectives on what's happening elsewhere in the country, and we'll get that right now, again, with a perspective in pennsylvania, a state where, is the issue, the itchings of fracking -- the issue of fracking, budget challenges with pension liability questions, and a host of our policy questions that will inform our conversation, and, governor, welcome. it's all yours. >> well, thank you so much for

joining us on the state of the keystone state, so budgets, pensions, and energy. let's start off with the budget, governor. you proposed a $28.4 billion budget back in february, have to be passed by june 30th, but funding is contingent on passive of changes to the state's pension system. you called up a pension crisis. put in perspective how deep the hole is. >> the hole is very deep, and it's not just in pennsylvania. if you look at illinois, california, other states that are facing the same thing, and in pennsylvania right now, we are about 41, 422 billion dollars under funded. i heard the reaction out there. the decisions made over the last ten years of not funding enough, making changes to the benefit of recipients to the two pension systems at the state level, that would be the state employees and the teachers of pennsylvania,

and then changes in the formula to that, and an underperforming market caused the state system to be 42 billion under funded. we have a recovery that we're going through. we have continued to put money into the pension system, and right now, we're on pace, average 62% of all new revenue this year coming in to the general fund going into the budget. >> some of the changes you impose are not without controversy because they object, for example, changes, pension benefits for current employees. >> well, they do. first off, because i was telling this back in pennsylvania is watching this, we have a lot of retired people in pennsylvania, did does not affect retirees at all. >> the current? >> current employees. it would not affect what they accrued to date. there was a multiplier changed in 2001, but we want to change it back to where it was in 2001.

in 2001 when they changed it, it was retroactive so from the date of service, if they went into the service in 1981, they got a benefit of -- that they hadn't actually earned at that point in time, going forward. we don't want to take what hay earned away, but we want to go forward saying we have to go back to, by half a percent, to 2.0 with the legislature and 2.5. that will be the subject the litigation. as we know, every time you make changes, there's litigation. under our constitution as to whether you can make a change like that. antispakeing provisions when it comes to overtime that you can't raise through overtime what your salary was in the last three years. we're going to spread the period to look at the average of the pension to five years rather than three year.

there's other changes we feel would be constitutional also. >> some of the ratings agencies have also done analysis of the proposals, and they're still even threatening downgrades in the next couple years. >> well, and that's -- we continue to work with the legislature. we went to see what kind of willingness we have in the legislature to make changes. i think there is. when i proposed that in february of my budget address, the room was quiet because it literally affects the room, also, with the inter legislature and judiciary, but as you start looking at the fact that 62 #% of all new revenue every year is going into pension increase, for instance, this year, we have 1.6 of a 27.6 billion dollar budget going into pension payments. by the year 16-17. it's 23.4 budget, and you see it

continues to take more and more of the general fund budget, really becoming a pension fund budget. >> well, also, your budget calls for getting the state out of the liquor business. >> well, actually, we're not counting on that in the budget. the separate bill is to end monopolies that the state presently has when it comes to selling wine and liquor in pennsylvania. right now, we control the wholesale and the retail portion of that. >> only two states left; right? >> us and utah. other states have variations of that, but ours is most restrictive. governor rich and thornberg, they attempted to get us out of the business. we have introduced legislation. it's passed the house, first time it's ever passed the house. it's in the senate, and literally, as we speak today, there's one of three hearings

the senate is having whether we can do this. there's questions whether it's revenue neutral because we take money received there into the general fund in addition to the retail tax that we would get, but in my opinion, we have to get pennsylvania out of the business of selling wine and liquor. we have already privatized the beer industry for many, many years, and that is probably the biggest hang up on this. there's union opposition from the clerks in the retail stores, but there is some opposition. we're trying to deal with the opposition, you know, and meet their needs with the beer distributers of pennsylvania where you have to go to buy a case of beer. if you want a 6-pack, go to a bar. if you want a case, go to a distributer. if you want to get it in a grocery store, there's certain stores with the 6-pack of beer,

and i see nods and smiles like you guys are crazy in pennsylvania, and, yes, we are, and we're trying to fix that. >> are you open to a hybrid deal where liquor stores are owned by the state, but private licenses to sell wine and spirits? >> well, in fact, the bill we have right now that's gone over to the senate was not the bill i introduced calling for a slow phaseout to have the liquor store exists, but have wine and spirits in the private sector also, and at a certain point, if the wine and spirit stores can't compete, we close them. that's in the mix at the moment. the one thing i learned -- excuse me -- as governor now is whatever we introduce in the beginning is not nearly what comes out at the end. it goes through a sausage grinder of what laws are, and so

we will see, but the goal is to have it a bill on my desk by june the 30th. >> okay. well, sticking with the budget, if the economy in pennsylvania is improving, the budget has been steadily recovering over the last couple of years, how much of the higher education funding will you will able to restore? >> well, in fact, this year, we are flat lining the higher education funding. we had agreement from the state system of higher education, that's 14 schools, division ii level schools is the easiest ways to explain the schools across pennsylvania, totally owned by the state. they are well known, penn state, pitt, temple, and lincoln university who receive aid from the strait. two years ago, i had to reduce the budget. in fact, i reduced the budget almost $2 billion because we

just did not have the money, and i was not going to increase taxes. we had taken federal stimulus money planted it into the budget, and that money, as you know, stopped coming from washington, and it was not that. a lot of that went to education. in our budget, right now, 40% of the budget of pennsylvania goes to education, k-12 and higher ed. difficult times the last two years, but going into this budget cycle, we talked with the state system, the state related about taking a flat line because that's what they got last year with the idea that they need to control their costs because we were observing their costs continue to go up, especially with some of the universities of a dramatic effect, and that's affecting our children and our parents that are out there funding higher education at this point, and the children are going further and further in debt, so the idea was let's

control our spending right now. education is not recession proof. all of the businesses, all the industries have been out there have gone through recession, had to downsize and control spending. education should have to meet the same thing, but they get it later in the cycle. it says they are going through that right now. i was very pleased they took basically a freeze this year, and they are going to increase tuition and keep it, i think, within 3%. that's a great goal for them to do, and then we can try and grow out of it as the economy of pennsylvania grows, but it then goes back to we got to deal with vengeance. >> one of the other issues you are facing is infrastructure and having to repair roads, bridges in pennsylvania. you have signed grover norquist's no tax pledge to fund the infrastructure projects proposing removing a cap on the

wholesale gasoline tax in five years and 2 #% reduction paid by motorists at the pump over two years. can you make necessary repairs without violating that pledge? >> well, i made the pledge, really to the people of pennsylvania, that i was not going to raise taxes. we are reducing that gas tax at the pump by two cents, and most of you in the room and washington probably understand that the gas tax at the pump is not getting revenues it used to get because of the fuel efficiency of cars. going to the gas pump, and when you buy gas, you got 20 miles to the gallon, now you get 30 miles to the gallon, you don't go as an. revenues are dropping off. at the same time, though, somewhere back in the early 1980s, 1990s, somewhere in there, i forget, we put a cap on wholesale price of gas, and that was at a dollar-25. the wholesale price now is clearly over $3. we're not getting that

additional money at this point in time, and we have suggested we have to take the cap off, think about it more in terms of free market. you know, the industry, the wholesalers have had a pretty good deal having that cap on this, and they are selling it at much higher prices because they pay a tax to a certain point. take that off, we'll see considerable additional revenue. the bill brings in, i think, 1.8 billion over five years, and we're not rushing to bring in a lot in the beginning because it takes a lot lot to get up to speed, the building design of ideas of where you can go, and looking for a longer term growth. >> do you feel constrained in signing the pledge? >> no, people said i couldn't have signed the pledge and did what i did. this is what we're doing. i'm keeping the promise. we're not raising taxes. we're take a false cap off, and then we'll generate the revenue, that's how i look at it, and if

they want to argue with me, argue with me. we'll bring the senate. there's a bill that is more aggressive, and that's his, and going back to the legislature, it's like negotiating. i came in at one point, they came in at another point, and the house has a different perspective. all these pieces of legislation have different interests, different supporters include the legislation to take us out of the liquor and wine business, includes the pension issue, they are all moving pieces of a puzzle that i, you know, believe will be solved with the budget by june 30th. >> let's turn to health care because earlier this month you met with health and human services director, kathleen sebelius and whether states take the affordable care act.

are you closer to make a decision? >> i have more information. i wop say we're any closer at this period of time. first off, i know that i believe in this, and i believe many of the governors of the states believe that we want to provide quality health care, and i want to do it for the people of pennsylvania, but we have to show it's sustainable and that the taxpayers, frankly, can afford it. we're the highest per capita when it comes to payments, average at 7400. surprisingly to me, and maybe to many of you, missouri was number one some of the bigger states was between 4400 and 5400. one of the reasons we're so high is that over the years, not only do we have the mandatory payments to include in medicaid,

but we had opted into many of the optional programs, and that raised our costs. right now in pennsylvania, one in six people are on medicaid. if we were to accept the expansion, it's one in four people on medicaid, and i have to see how that is sustainable, not just through my term and hopefully terms as governor, but the next few governors therefore. we have to afford it. >> when do you think you'll have -- >> we continue to question hhs. we have a number of aspects that we have been talking with them, and whatever we have the information, we'll make a decision. >> do you feel any sort of political pressure, you're a republican governor surrounded by other republican governors from kris -- chris christie in new jersey and one in ohio. >> every state has taken it, and i talked to chris when he took

it, and he sad it was only a hundred thousand more people or something like that to him. for us, i hear between 600 and 800 more people, considerably more money we have to invest. comiews me. -- excuse me. the other thing i look at is the history of federal government copping -- continuing to keep their promises. one of the biggest prokes in education is the federal government not keeping a promise to fund special education at about 48-49% going down to 17%. right now, this administration's saying we'll cover the next three year, and then it goes to 90%. what happens when it goes to 80, to 60, to 50? when it -- where is pennsylvania going to get it? only way is extra tax increases on the people of pennsylvania and businesses of pennsylvania. why i'm trying to keep the levels right now is to increase

the business investment and groaft in pennsylvania. we're starting to see it. additional taxes is not in the best interest. >> you said you want pennsylvania to be the texas of the natural gas. >> yes, i have. >> how? how? >> well, we are becoming that because of the natural gas fields that we have with the term, the number one, but there's three other layers being in the third, and i forget what the fourth is at the moment, and if you measure in btus, our gas fields, our coal fields, our energy in pennsylvania, we're the second largest energy field in the world. we're the fifth largest energy producer in the united states right now and climbing. our electricity prices continue to go down making us attractive to businesses from other states and country to come to pennsylvania. we are doing everything we can to develop our energy industry

in pennsylvania incoming, and you i talked about working with shell to create the et lean cracker facility in western pennsylvania. >> i want to get to that in a second, but i want to ask about the impact because i believe -- let's see -- said it brought in more than $400 million? >> right. >> in the first two years, but 2012 brought in less than 20 # 11, so how can you be getting more for the state, more in revenues out of in? >> well, first off, i didn't put a severance tax on and other states incoming texas did. compare apples to apples. they don't have a corporate net income tax, pennsylvania does. texas do you want have a personal income tax, pennsylvania does. the industries have been paying, they pay the natural gas industry since 2009, i think,

paid over $1.6 billion in taxes to pennsylvania. this would have been andy asian until tax on top, and texas suspended the severance tax for quite a while. what we have done is created an impact fee so that 67% of the -- 63%, excuse me, of a fee on the drilling for a ten-year period goes back to the communities, goes to harrisburg, right back to the communities, not a part of the general fund budget, which, i think, is extremely important because if you know legislatures, money in the general fund budget does not necessarily go back to where it's needed in the community, but it goes to other projects so we have addressed that. the money has gone down a little this year. numbers are not final. there's the price of natural gas, and as it goes up, we see drilling going back up, and, in fact, this year, this quarter,

it's completed, we're ahead of last year. >> give us a sense on a microlevel of how you see fracking really help communities with the impact to the specifics you were eluding to, and then on a bigger picture, the shell plant, how that's going to help the state's overall economy. >> on a microlevel, one of the smaller towns in bradford county pennsylvania reduced profit tax by 50% because of the money returned to them through the process. that's as close as you can bring to the microcommunity. the money can be used by the counties and by the municipalities to fix roads, go into their schools, go into their criminal court system or their court system, a number of uses, fire and safety and everything, so it is really helped those communities. with the et lean cracker facility shell was looking at building in western pennsylvania, it has the

potential for jobs in the construction process, 10,000 construction jobs for five years to western pennsylvania, that's going to be a huge employer, and there after to operate it, 500 jobs, but more importantly, the plastics industry looks to come to pennsylvania and look where the steal mills used to be because that creates plastic, and we won't ship natural gas out or importing that natural gas from other countries, but doing it here, saving considerable money, but reindustrializing western pennsylvania. >> so when you look at the manufacturing loss that you try to rebuild from -- >> this is a human -- it's going to take, three, for, five years to get there, but it's tremendous potential for pennsylvania. >> all right, governor, thank you, and peter, do you have questions? >> i have a couple questions for the governor. this is sent in. as a matter of solvency, how does working for 20 years as a

policemen or firemen and retiring at 42 receiving 100% of pension of your salary ever work? this is unheard of in the private sector and police and firemen pensions is a political third rail you won't even be able to address the question. [laughter] put you on the spot right there. >> wow, you want to repeat that? no, it's not just police and firemen though. it's the legislators, the court system, the teachers, you know, we have 500 school districts in pennsylvania part of the system, and that's why over the long hall, we have a long way to go in the system. the law made a commitment to that, and we have to continue with thatment one of the aspects we are doing, though, is saying that new employees have to go to a 401(k)-style system, and it's great -- actually, opposition to that coming out of the state education association.

>> one more here. do you worry about the work force's ability to capitalize on happier energy given the age of the work force? will you largely be an energy exporter? >> i don't worry about having the work force there because we're already addressing the work force issue. i had a work force investment commission and post secondary education making recommendations working with the schools, with k-12, particularly high school, getting more people over into the trades. we're also working with the community colleges for the state system colleges to create more technical degrees for people to be able to work in the feels, work on the platforms, work in the factories, the facility and so forth, we're in that process right now. i think we'll have the work force there. we do know, and this is a problem in the entire country,

that in the trades, carpenters, plumbers, and so forth, 25% of the people in the trade system are or older. if you talk to a young person, they don't necessarily have to go to college. you know, the average -- i mean, they can get a trade and do better than many of the people graduating from college when it comes to their salary. >> we have several more questions, governor, but we have to wrap it up so we can make room for the next pam to keep ourselves on schedule, but thank you for the time. >> thank you. >> thank you. [applause] >> with that, our thanks to the governor of pennsylvania. we'll bring the next panel up here. [applause] >> i'll introduce the panelists which is "rethinking the business model,: public debt and the private sector," there's a lot of discussion about that in washington and around the country. senator ben cardin, member of the finance committee, a player on a host of policy issues here

in washington. kurt dean, a chief financial officer at ups, and joseph, the chief financial officer and executive vice president for the united states postal service. of course, postal service and the future of the postal service is a hot topic as well here in washington. i know we'll get into that and a lot more, and, bob, the floor is yours. >> thanks. so we have a mixed set of issues talking about the public debt and impact and roll for business models, and we have a group of people here, somebody representing the public sector, senator cardin. we don't blame the debt on you. you're part of the solution, not the problem. we have somebody from the private sector, and then you may want to ask why is the postal service here? well, i think you'll understand what the connection may be and why they are here. of course, it's been in the news, but i want to start with

the issues we've. talking about this morning, and you have been witnessing, probably, a lot of things over the last year or so, but there's been a steady trooping of business leaders from around the country up to capitol hill urging you to do something about the deficit, not just you, but, obviously, all your colleagues. the question is have all these ceos, have they had any impact on the debate? >> well, bob, first of all, thank you trt discussion and thank you for including a member of the senate in the discussion. i thought i was here to referee the two people to the left. >> that's later. >> they are important to my state and the people of maryland and our nation, but it's a real pleasure to be here. answer is yes, they had a major impact. the interesting thing about business leaders coming to capitol hill is their message is simple, and that is congress get it done. reach an agreement. they are more concerned about

the agreement and blue print than the specifics of that decision, but the uncertainty, what will policy be and postal service in the country, the uncertainty affects not just the united states postal service, but ups and other companies trying to figure out the investment strategies for the future, you don't know the tax code, the regulatory system, you don't know the budget, and faced with sequestering, will it be here, won't it be here? we saw that. mail service has a visibility of air traffic, we probably would have found an exception for postal service by now. it is crying out for a solution. business leaders, particularly in the senate, have been there to say, look, we know we have enough support in the senate for a grand bar begin -- bargain, an agreement, it's the best thing with the economy. there's specific issues to address, but more important to

get the job dope. >> continue this line of questioning. we had two deals so far, and now we're sort of in a period where the president wants 1.8 trillion, and i think the senate passed a resolution somewhere in the neighborhood, different composition, republicans want more, and what are business leaders saying now? >> they want a credible plan, a plan that really does manage the deficit, and no one is talking about balancing the budget, but they want a manageable deficit, never grow above 70%, want to see it banseed, understand it has to be sustainable, not something dope one year and change the next year. they are prepared to take a look at the revenues, prepared to take a look -- need to deed with the mandatory spending, so i think it is open what needs to be included, real, blanszed, fair for american's growth, and

they sort of endorsed the of simpson-bowles which does not have to be immediate, as long as it puts us on a path for a manageable debt. >> you mentioned the magic word, "revenues," and, you know, this is somewhat controversial because my understanding is the business round table is open to corporate tax reform as long as it's revenue neutral. do you think you could get something through that would actually be revenue positive and contribute to the deficit without the business community screaming? >> the answer's yes. the business community, i believe, understands that the only way we get a grand bargain is that we have to have more revenue. when ronald reagan was president, when bill clinton was president, we had about 20% of our economy was revenue going into the federal treasury for the federal programs. today, that's a little over 16% so we talk to business leaders who know you have to grow that number, and what they don't want to see is increased tax rates.

they want to look at so-called tax expenditures, 1.2 trillion a year, and we have tax provisions to help some businesses, some individuals, not all, and they understand we have to look at that. they don't want increased races, but see it reduced understanding the burden comes from eliminating the tax expendtures on the corporate side. >> okay, coming back to you later, and you weigh in on this issue between ups and i want to turn to -- forgets about the postal issues, specifically, i just want, in general, we heard this talk, and the senator mentioned it about the uncertainty. >> yeah. >> how's uncertainty about the deficit affecting your business? >> i agree that is the big frustration, i think, in business. you know, if you look another public markets, increased risk and increased uncertainty drives higher return requirement, and so right now, the risk for a lot of businesses is outweighing the

return so i do think that there is a need for clarify, build a road map, and work through things. tax reform is a big one. today, way too many decisions as we expand around the globe. i have to talk to my tax manager, and taxes, you don't want taxes to be the tail wagging the dog. the u.s. is so different than the rest of the world right now, it forces taxes to be part of the decision leading to sub optimized solutions so there's a lot of pieces to the puzzle, but we do think that, you know, the current uncertainty is keeping what is a tremendous amount of capital at bay. balance sheets of most corporations are neutral. most is offsure because of the diff rep issue -- differential in tax rates so we do feel it's more important, at this point, to do something rather than nothing. there is a time, perhaps, in an economy where things is well and stalemate is fine in washington,

but right now, there's too much uncertainty and leadership in the government and private sector is critical. our message is very much it's time to get together work up where they compromise how we do in business all the time, and create a path to the future so businesses invest and move forward. there's latent capacity in the u.s. economy, and in general, the u.s. economy is healthy, but it's held back right now. >> okay, so you carry a lot of stuff. i mean, i'm not going to ask you how much. i'm sure you have an answer if n the back of your head, but what you carry is increasing all the time. why aren't you continuing to invest, and if you are, then how much, really, are you held back by the uncertainty in washington? >> ups is fortunate, we're a prosperous company, continually innovated, and we carry about 6%

of the u.s. gdp in the network at any point in time, and it's all the way from the largest corporations in the world to the small mom and pop business. we see the hesitation for the small and mid sized customers, they don't have international markets to address. we've seen the larger u.s. businesses go global to find new growth outputs, harder to do for small or medium customers, but it's critical to u.s. competitiveness so, you know, the impact it has on ups is right now the u.s. economy's chugging along maybe at a 2% rate or so, nowhere near you expected in app economic recovery, so, yeah, we are growing less. we are not able to expand as rapidly because demand isn't there, but because of the long term perspective, we make investments that may not pay back in the next couple years, so we're still making

investments that are prudent, but it slows the rate of growth and some extent is a break on the economy. >> okay, and in a previous panel; there was a lot of discussion, actually, dispute, about whether the feds are able to manage this excess from quantitative easing, and, essentially, how fast interest rates are going to rise. i'm going to scw you a hypothetical. interest rates are incredibly low, and they have this, all right, we all know they are beginning to go up. we don't know when, all right, but the fed said they are going to go up, all right? so why isn't ups borrowing a ton of money right now, long term right now, stashing it in the bank, all right, and then later icing the money to build? >> well, that's speculating on interest rates, and there's -- takes somebody with better knowledge of the future to do that. that's not ups's goal. we have taken advantage of low interest rates where we need the cash, but, you know, you don't borrow money because it's cheap,

but i, no, eventually, terest rates go up. no one knows exactly when. it's now a bigger issue than just the u.s., and in one of the earlier panels, this was a discussion with japan pumping funds and europe more, it's not just a u.s. phenomena. the world doesn't begin and end within our borders, you know, that's one the catalysts for targets that the cost of debt and capital is low today so you can get better returns, perhaps, elsewhere. there's really two scenarios, and one is bad, the other good. if the situation where rate go up because of inflation because of growth, that's a negative scenario, the nightmare scenario, costs go up, budget increases, corporations are challenged, and that's a stagflation. if interest rates go up because of economic activity increases, that's a win-win. the government gets revenue, hand ms the increase and debt

burden and businesses pay more for debt, but because the robust economy. that scenario we think is likely, and it would be nice to see that coming. >> you prompted a question. i didn't prear this, but, senator, everybody in congress knows interest rates go up eventually; right? we're going to have a fed chairman decision coming up, the president will have to appoint somebody if ben bernanke retires and moves back to a quieter life, is there any particular fed chairman that you're -- that you would like to see or are you worried about a fed chairman that just expanding on a vow of the upcoming appoint? >> congress is schizophrenic on the chairman. what's independent, but yet listen to what we say. we have not quite figured out

how aggressive we want the fed reserve system to be, but what we want is, as you pointed out, we want interest rates to reflect the economy performing well, not reflecting fact that we have not paid attention to our economy, and we're vulnerable today because we have so much debt, and we're growing at way too fast op our debt. that puts us more vulnerable. will interest rates go up? when? we know they go up today, this, in the short term, it will have an incredibly negative impact on our ability, the federal government to be effective in trying to be a partner in economic growth, so for many reasons, we have to bring deficit downment one is that, yes, interest rates, costs today are usually low, and if they go up to a higher level, the burden on our budget is not stean -- sustainable. >> okay, so, joe, timely turning to you, all right?

postal service. well, i learned a few facts on the panel, and actually i was not aware of the extent to which, does anybody know how much the postal service lost last year? lost $16 billion; is that right? >> 15.9 billion. [laughter] >> i rounded up. okay. i read the projections are that at your current rate, you are looking at, perhaps, a 50 billion debt by 2017, and so the obvious question is what are you guys going to do about this? >> there are a couple major elements. 15.9 or $16 billion is a lot of money, but that grows if we are unable to execute the plan. internally, we continue to do

consolidations, unpopular, but, quite frankly, have to be done going done from 400 plants to 415 within the next two years, and we're looking at every aspect of the operation, our post offices, reduced the hours to hours earned by level of activity in the post offices and that's going to take place over 13,000 post offices across the country, and between the two initiatives alone, save $6 billion by 2017 on annual operating basis, we're going to continue to chop away at the administrative expenses, and reduced $4 billion out of administrative expenses by consolidating operations in areas and districts and taking people out of gna, but we also need help from congress. >> did you know he was doing this? >> i hope not. we have to decide what type of mail service do you want in the country? do you want the standard overnight delivery or not?

with the closing of centers, congress is concerned. joe's right, there's serious problems congress needs to dress, the contributions to the employee benefits is outrageous and not in keeping with how the standard should be. they have certain requirements that they need to get relief from, and we understand that, i understand that, but i think the fundamental question is what is -- what -- you is a private sector-public sector person here, what's the responsibility of the public sector? i suggest it is to have universal overnight -- universal mail delivery and timely usually means overnight for most, not all. i understand communications have changed. we're not in the age where mail service was the only way to communicate, and there's a lot more opportunity. what's the response? what is the public responsibility? i think that congress has to respond to give you the certainty that the senate tried to give you their time. >> well, actually, you raiseed

the issue of the digital world. i was going to ask you this later, but i'll ask now. you got a world of e-mail. you got ups sitting over here, fedex could be sitting here. there's more competitors out there. do we need a public postal service? >> you definitely need a postal service, no doubt about it, and the problems they fixed today need to be fixed whether it's part of the federal government or whether it's actually was a prior company, for example, and there are just fundamental differences which don't allow the postal service currently to operate at a profit. one, there's a price cap, and, two there's unfunded mandates to deliver mail six days a week, which as most people in the add yoaps know we attempted to go to five day week mail ery and congress was not happy with that, so they are now working on -- there's a bipartisan, by

cam rail, actually, of committees together working on comprehensionive fixes to the postal service. we just urge that we continue to urge that it takes place very, very quickly. as was mentioned before, the uncertainty in the market was not just the public market, but uncertainty. uncertainty of the postal service, we're the hub of a trillion dollar business in the country over 7% of gdp is represented by this company, this company, fedex, and everything around it. so it's important that we move forward with a solution, a comprehensive solution at the senator mentioned. i'm optimistic we will get there to a point where there's the hub of this network, the postal service, because we deliver billions of packages both for ups, fedex and last mile delivery also. not only do we compete, but we have to cooperate with each other. it's really, really important we take uncertainty out of the market, have a healthy postal service to take up certainty out of the overall hesitance out of

the industry. p plan wing go back to a pln. go into smeommercial operations right now that you're not allowed to? >> yes. there's a number of different things we'd like to have the flexibility to do. most importantly, just for small things which can make a big difference, for example, delivery of beer, wine, and spirits. why would you prohibit the postal service from doing that, yet fedex and ups's was world can do that. there's a couple hundred million here and this, and you chipped away at the problem. the bigger items do relate to making sure that we have the right sized network for the amount of pack caps and mail that you're going to the delivering that we meet the standards that the lawmakers have ultimately agreed upon, whatever they are, and we continue to have flexibility to adopt to the future so we need to have less governance and more self-govern nans. >> do you think congress is

amendable -- i won't ask on privatization because i know the answer, but do you think there's allowing them to do more commercial activity with opposition with their commercial competitors? >> i think the driving force in congress is that we understand the importance of that local post office. we understand the importance of mail delivery, timely fringes our -- timely for the businesses, so we want the postal service viable, have a model that works, and that's why, yes, i think we would look for additional revenue, but the tradeoff is we want to see overnight delivery as the standard. we don't want to see consolidation of the processing centers to a point that you can put a mail in the mailbox in your community and a pretty urban area finding it won't -- it's sent 50-75 miles away to proselsz the next day, and you don't have overnight delivery that i think we're used to.

>> given budge austerity that you have to deal with, that the nation deals with, do you think there's more and more pressure for either privatization or outsourcing of federal activities to save money and so forth? i can start with you, senator, down the road. >> i don't think outsourcing saves money. look at the budget, take a look at how to save money, and i think it's more of a sill soft call issue than a budget -- philosophical issue than a budget issue. ne oversight that should be done by government in the most cost effective way, absolutely. it comes back to the issue of predictability. what should government be doing and not? postal service does not have that clear direction, and you're right, congrs need to agent. >> what's your view? >> i don't think social security a yes -- i don'tty it's a yes-no. as we adapt, react to challenges, and, clearly, the post office has plenty of them, look at what is the core

competency and core skills central to the mission, and then look, frankly, at other things you do within the company. it may be data processing or something else, and are there other businesses that can do that more effectively, so privatization is one extreme. i think prudent outsourcing is something all businesses and functions in government should look at. clearly, the post office already has some of the transportation and other vendors. >> they are outsourced to you. >> right, i think that's prudence, that's where business and government can collaborate. ups works with customers every day to manage it for them, outsources work to us. i think it differs by government department and by business what you do and what you don't outsource. there's horror stories of improper outsourcing if you don't define what you want to do, but i think that's part of adapting, and, you know, facing current chmg --

challenges. >> it is a balancing act. for example, we outsource on the transportation side $6 billion a year to private companies, but we do about $3 billion of internal transportation ourselves, and it makes sense in in a local area where you need more control of the overall routes, but when you fly packages, flying mail, or a long haul, the private sector does it more efficiently. it's a balances act. >> okay, i can't resist this question. there was an earlier panel, i can't which one now, it's been a long morning, talking about these forecasts for the next few quarters and going into next year, and, you know, when alan greenspan was chairman of the fed, it was reported he would sit in the bathtub in the morning, okay, looking at obscure indicators nobody look at, and would fix sate on these as a harbor of what was coming down the pipe. we don't need a bathtub. we have two people here, you carry 7% of gdp.

you carry 6%. you guys have a pulse on the economy in a way that a lot of people do not, and so from your you sit, what do you see for the outlook of the rest of this year? >> i think we are mod -- moderately optimistic for the u.s.. there are drags on the u.s. economy, clearly, we heard a lot d if they rno reded,challenges, then, certainly, theutlook long term is not good, but the one great thing we have seen about the u.s. economy is it is resilient. it can be innovative. it can adopt. you know, the role of government is to support that. if there's anything i learned, been with ups37 years, a domestic player, and we thought the world reinvolved around the u.s. for years, and expanded in over 200 countries, you get a little different view, and you see both the strengths and weaknesses was u.s. economy. we feel good about where the

u.s. is today. there's no birthright to economic superiority to the united states, thoug and our worries are more either gridlocked or tough issues don't get addressed or start building plans that people can move forward on. if that clarity happens, there's pent up potential for the u.s. economy. we know housing is recovery, so, you know, when you contrast some of the challenges in the more complexity in europe to where we are in the u.s., it's not a bad place to be. >> i see peter's coming up here. you want joe to have a chance to answer the forecast question than your question? >> it's very important to our businesses being similar in some ways, and we look at forecasts every single week. our view is the next two to four quarters is relatively like it is in the last four quarters, and we really mail and packages are a leading indicator. i mean, when people take advertising, that's a $17 billion business for us, when you see that start to drop, you know that retail spending is dropping. you know investment in the economy is dropping, ect., so,

essentially, mail is a precursor to industry. luckily, last couple quarters, our ad mail has been up relative to the same quarter last year, and the package business has been up considerably relative to that. we're in a good position right now, but it remains solvent. >> got some good questions for the panel. this is directed to ups. are there any plans to provide a competitive cost effective predictive mail service option for u.s. citizens, private enterprise drives market efficiency. >> yeah, no, ups has no interest in creating a mail product. we think the post office is, you know, well served to do that. the public mandate i think is appropriate. our real goal is to take a broader view of supplying chains, e-commerce, and things that are so critical. yeah, no, we compete with post offices around the globe and the overlaps sometimes are broad, very discreet where we don't compete, but, no, we think, you

know, we remain focused with the goal for us to do as well as we can in the movement of goods. >> a specific question for the postal service. how much impact do you see for the postal it service's clothing line to lessen losses? there's other innovations like that we have not heard about? >> well, -- >> and where can we buy it? >> we have licensed postal brands to a couple retailers who are going to be paying us fees based on what we sell. it's not a big investment. >> i'm going to make notes here. ups too. >> i have not bought my first sweatshirt yet; however, you know, when we are in the position we are, con stricted in a narrow market, things around mail and packages, you do what you can. i won't predict how much money right now. good news, bob, a final question for the senator to put on the spot now with a maryland question specifically. those in maryland making large

amounts of income, say $400,000, what's the right amount they should return to maryland and the federal government? are you comfortable with 50 cents of the marginal dollar going to taxes, if not 50 cents, what's the right number? be specific as you have surely thought a lot about this. [laughter] >> i have no problems dealing with the federal tax code alone with what's happening in the state legislature and local government. i don't know i can answer the question completely. i think each exeunt is different, and local government makes their own decisions, state of maryland recently had a session adjusted some of the revenues, particularly for transportation needs. i am comfortable that the national level, that 20% is the right number, to bring in 20%, s the number when reagan was president and bill clinton was president. demographics changed substantially, but that's the right number. should be raised in a

progressive manner, those able to pay should pay more. the current tax structure is mildly progressive. i don't know if there's a specific line you cross, 39.6% which is the highest rate we have at the federal level. i think that was a decision appropriately made. >> with that, bob, we have about 30 seconds left. let you have the final word with the panelists. >> i just want to thnk them very much. i have a burning question that i'll ask offline. thank you so much for attending today and answering the questions. [applause] >> thank you to the panel and bloomberg government, and with that, i get to conduct the next session up here with one of senator cardin's constituents in the state of maryland, the futures trading commodities commission joining me on stage, and i think the microphone works with me. thank you very much, gentlemen, we appreciate you coming. thank you very much, bob, again, appreciate it, and with that, i'll ask chairman ginsler to

join me, and all the agencies dealing with changes from dodd-frank, the tftc had as much to do as any other federal agencies, and i spoke on several occasions with the chairman about the changes, some still underway at the commission and a host of issues that he's had to -- put you right here -- call these the austin power seats. >> they are big. >> they are kind of big, kind of big, just you, the rest of the commission is not here, but you have been busy this morning over at the commission. >> yeah, yeah. >> first of all, thank you for being here, and i should point out, disclose up front that in the past few days, our parent company has filed a lawsuit against the commodity futures trading commission over a dodd-frank rule -- >> you did, and i'm still here and you gave me a big seat. ..

>> well, we have had this paradigm shift that the market is now coming under transparency. as you said, swap dealers are registered. you all can actually see the transactions for the first time in january this year, it is free, and you can see those transactions. we've been focused on completing these rules and implementing these rules. we're going to start shortly to aggregate that information so that you can see it as well. that's reay t benefit, br public, that aggregated information and that streaming information of transparency. and it lowers costs to