the right model or is the model which some people have written about that when you get to a program, not the individual warrants, but when you get to a program that really encompasses a large portion of people and inevitably a large portion of people who won't have any terrorist implications afterwards. is it not necessary even at the cost of a little risk to the possible type of security for that to be disclosed not in its operational details, but in the fact that yes we do have a bulk program that goes to xyz? i'm wondering about your thoughts, jane, representative harman, and stephanie and anybody else. >> first of all, judge wald,

after decades of service to the country, women warriors are the gold -- women lawyers are the gold standard. >> she said why should we trust nsa or any government agency to put the technical side of this together? why should we and then why do you trust them and i said well, i start with this there are bad guys out there trying to attack us to read what sort of the terrorist piece of this. i want to know who they are and disrupt them before they do that. my assumption is most of them are in some foreign place and are not u.s. persons. but at any rate, some of them could be. so, congress tried to design a system, and i think they did so pretty well.

building in safeguards. court reviewing the congressional oversight. now the system got a lot bigger since 9/11. is it the right size? i don't know. i don't know if it's the right size. but i know i'm not the person, or if i were a member of congress now or even as the slowly beat up president and ceo of the wilson center -- just getting -- i'm not the person to decide what the size is. i'm much better at deciding the safeguards so that whatever size it is, there aren't abuses. it and i'm pretty persuaded we have to have a haystack. i don't know what should be in it. if the question is should everything be in it though, everything shouldn't be in it. what are the right things? somebody, again, with more technical knowledge should decide is subject to review by the court, the fisa court and maybe the supreme court ultimately depending how we structured this and i in for supreme court review so there

has to be standing and provided for somehow. and the congress. congress after all rights of the law so maybe that is an oversimplified version of it. but, back to the harvard law school student -- i trust our government subject to safeguards to do the right thing to keep the country safe. >> let me just clarify or just follow up. okay. that is for instance in 215, one of the criticisms, even by some isolated members of congress come is we don't even know that 215 was meant to income this a bulk selection. and so, the question then comes -- but then one answer is that some people in congress today. i don't know whether, you know, an inner loop was told that this was a contemplated use and so they knew it, etc. but maybe not

until the thing was passed and they began to get. dance. later on the reauthorization set up from the powerpoint of justice. so i'm getting to this question and only because it is a philosophical question and whether or not it could cost the secret law in the public debate about what is really involved. and i understand the security risks to the weekend obviously debate about a lot of security to the question about whether or not there is some level about a should know something that you don't read the ordinary meaning into the very novel and extensive program. >> i don't want to dominate this and again there are very competent people here, but what did i know and when did i know

it's? as we heard in the patriot act, a lot of it was controversy over what the white house requested, the bush white house requested cutback by congress and several sections were sunset as you just discussed where it is the best mechanism i don't know but it requires congressional review. 215 was one of those and they were also controversies about the so-called library position of grandma taking out a library book subject to some kind of scrutiny. but at any rate t of this stuff was deviated. i don't know how many members paid attention. i don't view this as a secret law. what was the process to get the information i think was discoverable either members of congress and i think it was heading and i think that somebody not on the intelligence or the judiciary committee that really wanted to figure out how to 15 works could have found

out. and againcome in the defense of congress, a lot of stuff going on. people get distracted. and this wasn't the public issue that it has become in the recent times. that's, again is why there needs to be a robust privacy and civil liberties commission. this is the kind of issue, the commission hasn't been a fully funding in, well you were not fair when the patriot past but when it was reauthorized or controversial provisions where you were there, you could have. if you had been there and focused attention and held hearings and have done more to educate the congress and the public about what was at stake and influence how the changes were made. >> stephany? >> i just wondered if she had anything to add. >> i will try to narrow it down a little bit to the specific question about an interpretation of a statute like to 15 that authorizes a type of collection

that wouldn't be readily apparent to a surveillance expert who read the statute. putting on my former national security prosecutor hat. so much intelligence oversight does probably have to have an behind closed doors. that being said, i think that we need to push ourselves and the executive branch needs to be pushed, which we saw you doing this morning to figure out how it is possible not to hide interpretations over the law that are perhaps idiosyncratic or novel. when i was thinking about this issue and preparing to testify today, what bothered me in terms of dialogue and exchange between staff members and their

constituencies back into 2009 timeframe was the inability to explain to those constituencies, nongovernmental stakeholders what would have been t to the language of it was amended in a certain way so that there wasn't really meaningful dialogue going on coming an at you had the potential for a constituencies who were very interested in these issues lobbying or supporting language that wasn't necessarily in their interest. and i think that is a bit of a broken process, but a hard problem to cure because the executive branch is going to say there is going to be national security is this legal interpretation tells people that we are collecting telephony

metadata. and that is the route i think we need to push. hispanic mr. dempsey? >> thank you for coming to work these issues through with us. professor kerr, do you have any thoughts on this question of review or call its appeal, you've written extensively on appeals in the criminal context of the court orders for surveillance. in the fisa context but there's some interest in creating some process for getting from the judge to the fisa court of review at least making issues available to the supreme court should they take them or not. what are your thoughts in terms of what would be the best way to structure that or could be structured that is at least as constitutional as the rest of

fisa? >> it is a good question and a difficult one in part because the constitutional question in large part is on an understanding of the search warrant application process and the ex parte application process which is almost entirely unexplored in the case law. how should we think about application for the ex parte court ordered? is that like a case in which case the exercise of the judicial power in the article three case and controversy way or is that just some sort of an extra if she would've goes before the judge that does not require the traditional article article iii? we don't really know. so just thinking from a constitutional standpoint, it's

really difficult to know what the constitutional parameters are in terms of what is permissible. it's just a tremendous gray area and i don't think there will be a lot of certainty one way or another. i tend to be somewhat skeptical that the supreme court specifically could serve a useful role in part because everything the supreme court is doing it on the record, difficult for the court of nine justices to have an oral argument where they are banding about hypothetical on an area where there is a lot of classified issues i just don't know how procedurally that might work. and in part, my idea of the rule of lenity playing a significant rule is a way of avoiding entirely. i think if you have an initial court decisions be one. >> within the rule of lenity -- the government would have the right to appeal still, so you end up with a situation that in

a way you perpetuate the current system where if you rule the supply it's not like you immediately go back to congress. go back to fiscr and the supreme court. >> i suppose i could have the process after the fiscr rather than the supreme court. we have the same problems with the supreme court trying to step in and of course one reason that we've never had this issue is that they've only handled a few cases. so the supreme court has never been in the position to review that. but, i am more optimistic about the idea of having public disclosure of the fisc for the fiscr interpretations of the law combined with some sort of a sunset provision that forces that in congress i'd have a nine justices of the supreme court tried to answer these questions. >> professor vladeck? >> i draw a sharp distinction between original fisa in which i

think is dishonest analogy to the context. and to 15 and 702 which is looking more like a conventional understanding. and the concept of 215 and 702 they had adversity. but in both statutes of the recipient of the order and of the 702 perspective has given me the right to participate the adversary of court to appeal the adverse decisions including the supreme court. so, i think that the adverse in the 702 context is actually satisfied until you get to the appeals question which i was talking about before. and i guess i am just less circumspect because i have an idea how the issue for the search warrant is what the supreme court called an extrajudicial duty. it is a quintessential duty. if the war and has a magistrate

and not just a neutral government officer to sign off on a war and it seems to me that it is a part of the judicial process and that the adverse is justified whether you buy it or not in effect there's a subsequent proceeding in many cases that will allow. >> can you go so far as to say i'm not a constitutional scholar but is it possible to say that because of the fourth amendment but actually the case of the controversy concepts are quite different in the war context because we said even though there is no party the judges do this. this is appropriate for judges even in the absence of the case of controversy and it's right there explicitly in the constitution. no one has ever really asked how do we get a war and between a judge in the first place. stimac may be the answer that is right there.

>> i don't think because the caselaw of the supreme court talking about the natural magistrate requirement has suggested that it doesn't it doesn't need to be a judge or a lawyer it could be somebody that is a clerk of court and could in theory there is a suggestion that somebody inside of the executive branch who could count as a judge for the fourth amendment purposes issuing search warrants and disrespect the difficulty figuring out how to categorize the applications. is it a traditional case, is it something that's just another duty? the fact is you could have the judge issue a search warrant and it takes it from a constitutional standpoint outside of the traditional tripartite system and ask suggestions it may not be a judicial function. but it is a gray area. stimac and it's usually appealable. in federal concept of the government there are

extraordinary concept you can pursue to challenge the application. spec actually traditionally the understanding has been no denial is not appealable. there's been some disagreement in the article iii setting and that is another murky area. >> you have zoomed off into speculation land. stimac i would like to turn to a slightly different topic. the statute requires us to consider the need for specific actions taken by the u.s. government to protect against terrorism and balance that need as against privacy and civil liberties concerns. one thing i think is difficult to articulate is what makes a program effective? it can't simply be that the program is effective if it has thwarted five or ten plots.

and i would throw open to the panelists what other types of metrics for concepts we should be looking to determine whether specific actions or programs were effective. >> well, i don't think that thwarting the fox is the only metric. but having th that program, the right size program whatever that means in effect, and a lot of oversight of the program, oversight also adds value in addition to curbing abuses could help enhance the program in some way could point out some deficiencies and lead to amendment matching the oversight from congress. so, i think that the metrics have to be more complex than this, but i superimpose something i said a couple times.

one is the changing technology, which is very hard for the congress or the courts or the executive branch to keep on top of that which is something that bad guys plotting against us are keeping on top of. so it is an imperative to factor in the changing technology and the other part of it is and again, this isn't directly to your question but it relates to your question. the need to take sure the public supports what we are doing and that again is a role that you had. i do not think that privacy and liberty there is some game and we get more or less as you probably know that. and that's your job is to make sure that we can vote and i think that unless it is perceived that we are getting

both, there is going to be constant anger and second guessing and drastic remedies proposed which at some point might take hold and then we lose both. hispanic i'm not an intelligence analyst so i do hesitate to answer the question. but this morning i believe the general counsel from nsa made an interesting statement which i doubt the government will want to elaborate on publicly, but that was that the internet metadata bulk collection program was ended, and i thought -- that hathathad been public that he sd to indicate that it was ended because it wasn't seen as effective or providing a level of intelligence that the telephony metadata program was. and so, i was very curious -- and i don't expect them to talk about this in public -- but what

was that metric? are they getting bigger pictures of terrorist groups or activities because of what this telephony metadata program is doing versus what the internet program is doing? probably something that you could acquire about behind closed doors. stimac i don't think i thought the change in collection had to do with the fisa court saying that the incidental collection that was going on was outside of the scope of the law and that is why it was cu cutback and what d have been collected was destroyed. i think it's important that it be as precise as possible. and i thought this was a great victory for the public about how oversight works. so i obviously didn't hear the testimony, but i think that is what i imagine he was talking about. >> there are things that can be measured, such as the cost of

all of the storage necessary to hold this haystack that is being built up and the cost of all of the equipment and personnel to do the collection maintenance and searching. there can be other kinds of costs are calculated for protecting all of that. for instance the nsa has spent a lot of money to build the center in utah. how much of that is for this purpose? they can perhaps enter in a classified setting. that's one thing that can be measured. you can measure the number of successes and you can measure the number of failures. hopefully they can produce some number of the measure of false incentives they have investigated and spent a time and effort on. how much has gone into that. from that you can drop some populations as to the cost for success and the cost per failu

failure. they're after is a policy decision as to are we spending enough? are we spending too much for each of these incidences and that requires getting a full accounting of what things have been prevented. apparently the collection is largely being were totally being directed towards anti-terror activities and the accounting that we have seen in a number of thwarted terrorist activities in the u.s. seems to be small relative to the investment involved but that is a decision that you have to get the value and it's a policy decision that certainly beyond my pay grade. >> in the process the supreme court has said that efficacy is not just a function of the government success rate. it's also a function of the cost to the government of providing additional process. and i think it's impossible to divorce the efficacy of the

programs from any attempt to actually figure out whether what the actual downside would be to add additional safeguards and additional protections. that is a part of .-dot -- it's also a part of the lack of false positives on the individual website as well. >> i had a policy question that may have, may or may not have implications for professor kerr and vladeck and anyone that wants to weigh in on this. whatever you want to call it in the fisc, there is an appeal to that, there is something i like about it but it's much, much more competitive in its implementation than the bills or proposals recognize. and as i have been thinking through the many levels of detail that seemed to be implemented, to my mind a lot of adversarialquestions turn on process should have the right to

participate in every single aspect of the proceeding to see every piece of paper presented in the court? there was discussion on the back and forth that goes between the fisc lawyers and the government. should the government be privy to all of that likely would in a regular litigation context? and do you think whether the person has procedural rights or not dictates whether there is an article iii question or not? >> on the policy question, it is not obvious to me that the details of the procedural rights would make a major difference. and in part, that depends on what the role is of the special advocate and when they are brought into the case. i assume we are thinking of once in a while there would be a particularly significant issue of which we would want the

special counsel or however -- >> at say they are only involved in the novel words in the cases. >> i think it's important they be given the full picture so they be given access to all of the underlining facts and earlier you talked about those challenges. but once all of the facts are out there for that counsel it is not obvious to me that there is that much of a need for the procedural rights as long as the issues are fully litigated. that may just be a question that would be in a better position than i to answer. but giving procedural rights would make a difference in the article iii adverse reality. >> say the government couldn't d give access to the special advocate, does that person have a right to a?

to that person hav has a right o object if they talk to the -- departing litigation would have, but what all of those same rights apply or whether the person really just be called upon to provide their expertise but not necessarily provide an adversarial way that is one of the basic questions? >> i suppose there are questions of once you have the right to access the information you have litigation over whether that was fully complied with in the criminal setting like the violation or something like that where the litigation over the major issue leads to the litigation and that i would think is just a practical question of how likely is that to be something that interferes in the core function of the special counsel's. i don't have a strong sense of what the right answer is just giving how it really boils down to would the judges of the fisa court be a priority and make

sure the special counsel is receiving the information or is it some where that would be a priority and i would imagine establishing in a statute this is an important priority and something that the council is entitled to lie to make sure that the fisa court judges do that without the need to require litigation on these issues. but that's a factual issue that may depend on how it works. >> i said briefly the supreme court of -- if i could take a moment, please -- you have the court saying the informational injury in that case suffered by voters was to stand because they couldn't undertake the responsibility without the information. so it seems that he sort of similar kind of procedural that sort of a direct personal stake. i'm not the first to suggest the jurisprudence and exactly in a straight line. but i do think there are procedural issues to work out and much of them would depend on whatever you call this position.

if it is invested with the obligations vis-à-vis those whose communications are intercepted, in which case all of these issues become such more joined. i think there will be no question in that case they would have procedural rights that they would be able to appeal denial by the court. or if you don't, if that is abstract interest in the proceedings. and that would be harder. but i share -- -- most of the work would be done just by having them in the room and then congress could present the obligations not to impose on the council that in the court and then it would be the courts responsibility and ability to hold the government to account if they do not comply with the disclosure obligation. hispanic i wanted her to congresswoman harman on the question of going forward. but challenge congress has enacted legislation that authorizes secret activities it seems almost a contradiction. how do we write the law and authorized programs that we don't want to talk about in public.

and it's illegitimate function and a democratic function. how do we write down an authorization in a program thatm that we can't talk about. >> we talk about the purpose of the program. we can talk about the framework of the program. certainly i recall very specifically in the debate on the fisa amendment in 2,008 that is what we did. maybe a number of members of congress were not paying much attention, but it was out there on the airwaves what the issues were. ..5. there was conversation out there. congress can do that and that should happen. there could be public hearings as there are now public hearings about competing versions of the lawstial fixes for the

that we have. yes, a portion of this is classified. exactly how it works is classified. why do we want to tip our playbook to the bad guys? that can be explained to the public, too. polls show that americans they want their privacy protected, good luck with that. the private sector knows more about america's privacy and the public sector does. but i also want to be secure and want laws that will catch the bad guys and prevent or disrupt plans to hurt us. i think that debate about purposes and framework is probably in the public domain. it should be made clear in the public domain that some of the innards, how to watch works, will be kept classified because we don't want to tip our hand. but again if there is adequate safeguards and if there's transparency in disclosing as has been proposed, how many

searches have been made, how many americans were involved, what were the outcomes is sort of a bulk way, not compromising individual privacy, people should be confident. and just one last point. if we don't do this, if we blow up the bulk protection program -- collection program, as soon as something really bad happens, and by the way, it could have been even with this program, the pendulum is going to go the other way and we're going to start collecting and at our disadvantage all kinds of stuff possible without the safeguards that are built improperly now. >> any additional thoughts? >> one additional thought, and i will borrow from criminal investigative authorities. it took a long time i think to be able to have a good conversation about how to amend

statutes to do with location data. part of the challenge was, there were a lot of opinions that by course varies level discussing how government thought and what authorities the ability to collect location data. overtime, more of those opinions but most of them at the magistrate level but nevertheless with analysis came out. if, in fact, we are able to get to replace where, for example, the our fisa court opinions that are declassified or summarize, we have the basis of a conversation. the facts and legal analysis to have a dialogue, that members can talk about without worry of disclosing classified information, we're interested constituents, stakeholders can bring concerns based on what they see in those opinions. it will take a little while but

that's one way forward. >> or fester vladek, earlier you mentioned 702, one could read the statute to say providers can only challenge the program but not the specific tasking orders. is that your view, and if so do you do that as a shortcoming of the statute? >> to be frank and i think because it's never been litigated i think it could be argued both ways, and i would've hoped that a provider would have tried to litigate it the other direction. we learn from the letter from judge walton said to senator leahy that no one ever challenged it. i do think any opportunity for more presentation of adversarial arguments in the fisa court, at least after the government has been able to obtain the authority, is worth pursuing. and i think we can get anything from the contrary from the government this morning. whether you would need that on

top of a provision for some kind of special advocates i think it's an interesting question because you could have a potential redundancy problem. in the absence of that i think would be a relatively easy sell to congress to do that. i think the artist is getting the recipients to actually use it. i think that's a much more pursuing as well. >> we have about eight or 10 more minutes if people have a couple more questions. >> my first question is for professor kerr. i wonder if you think, given the present status of 215 was originally not known to us, was in operation for many years before it became publicized, now there's a great deal, we know it's there and there's a lot of people going back and forth, several proposed reforms on the hill. and the question is still there, ma at least one of the bills says stop the program, move to a delay bill, move to a different

way of doing it. i'm wondering if you think your two precepts that you laid out earlier, namely sunset and the rule of lenity have any application? if so, what to the present status and debate what to do with 215 right now? >> there is no rule of lenity right now. that wouldn't apply of course. >> there should be or there's some principle that there that could be applied to what do we do with 215 right now. >> certainly my understanding is section 215 sunset, subsection 215, that will have to lead to a debate at some point over the next two years over whether this program is desirable or not and the government will have to make its case. we could wish that it was something that happened in the next few months rather than a few years from now because the

debate is current now and who knows what the picture will be done. so the sunset provision i think has played a very important role over the next two years in figuring out, ultimately, congress answering this question of whether to approve the bulk collection program or not, and if not, what are the alternatives. >> your original explanation of the rule of lenity was that if the this court got something that appeared to be a novel interpretation or appear to be at the extreme edges from an interpretation, they should tell government to go to congress and get a specific application. does that of any application to the present situation? >> if there had been a rule of lenity in place that the court had considered at the time i would think the answer would be that they would not have approved the bulk collection broker under section 215. i think they should not have approved it at least based on

arguments that the tomato for even without a rule of lenity, just considering it as a 50/50 question. so we would not have been in a situation that we are in with the fisa court having already approved programs for putting the difficult burden on those that are trying to amend the other direction. evidence some sort of rule of lenity in place. >> but as it comes up for reauthorization, which it does, i forgot what it is, but do you think that's a point at which the rule of lenity might apply? >> all, i'm thinking of just to be clear, the rule of lenity being, congress instructing the fisa court to interpret the foreign intelligence surveillance act in that way, sort of by default adopting a narrow interpretation of the statute rather than a broad interpretation. >> i thought you suggested that when it came to ask in the beginning, and i'm just saying -- fisc, would that have any application for reauthorization?

they would say this is sort of an extreme and novel interpretation, go back to congress and get a specific authorization. >> it could certainly enable the fisc to back off of an earlier interpretation is that took place. >> i still have one second. a quick one to professor black. want to make sure, 702 is kind of a complicated program, and he can speak for yourself or for any of the ngos that you may have had contact with, how would you characterize the main concern of outside groups about the way 702 operates? i think we all agree they have congressional authorization to begin with, so it's not a 250. 250. >> i wouldn't dare speak for anybody other than myself. >> that's good enough. >> that's my wife's over when. but i'll just say my biggest concern about 702 is the volume

of communications of u.s. persons that are at least ostensibly available to be picked up quote incidentally unquote. 702 bars targeted but seems to contemplate -- the collection of data on a scale that makes the incidental acquisition of u.s. persons communications not just likely but certain. and a very large number of those communications. my biggest concern is the intentional targeting require is a bit disingenuous. >> how would you correct that? >> i think there are a couple of possible ways to do that. they'll get to the same place. one is to not allow the government to file for directive if they have reason to believe that a certain percentage of the intercepted communications will actually involve u.s. persons. one is not just require that but to provide what the baseline minimization requirements are. there are a number of different ways to attack the problem.

i think the threshold issue is that it's just too likely that communications are being accidentally picked up our incidentally picked up even when the government can go after them specifically. i think there are a number of ways to scale back. >> mr. dempsey, any final questions? >> did i hear you correctly to say that you do not think that section 702 bears the weight that is put upon in terms of authorizing the bulk collection program? is that -- and i catch that? >> i was referring to section 215. 215. >> yet, section 215. that's your view? >> i think the arguments that been put forward are not persuasive based on just an understanding of the current statute. and i can say that when the news was disclosed that the bulk collection program had been authorized under section 215, i scratched my head and wondered how on earth did they get their

based on the statute that was written which was understood as a grand jury subpoena power, and on its face required the authority be limited by the grand jury subpoena powers, so on a grand jury subpoena for documents, if it would've been issued, that is a requirement of the section 215 authority. and i imagine a prosecutor going to trying to defend a grand jury subpoena for every piece of information in the entire united states and not getting very far, to put it gently, before a judge in the case that was a motion to quash file. i just don't think it's a persuasive interpretation of the statute based on the arguments that have been put forward so far. >> let me ask you question of minimization. you've written about issues with minimization in the context of government acquisition of stored data in the tech context. do you have thoughts about

minimization in the fisa context, focusing on content collection? particularly where, in the context of where there have been reports, we alluded to them this morning, the government collects stored data in transit. because it's being moved from server to server. and how do we -- what are your thoughts about building a minimization structure that would be constitutionally sound for the fisa side addressing stored content, either stored content that is in storage or stored content that is captured while it's in motion? >> yeah, i think it's a difficult question in part because the meaning of minimization in the national security context strikes me as a

different idea than the meaning of minimization in the criminal setting. were in a criminal say you're worried about making sure information is not ever possessed by the government, never held and never disclosed in public. in the national sector descending into totally different set of concerns. is more is this going to be a part of the database, how long will it be retained. we are more comfortable with the idea of sort of being in a database somewhere subject to certain requirements as to when the database is going to be queried. so one perhaps none after to the question is it strikes me as such a different question that it's not clear to me that the same principles should apply. i would also point out that, for example, the opinion by the judge in some of these issues in section 702, his constitutional analysis was one possible way of approaching. it struck me there's a lot of other ways i could imagine other courts interpreting the same issues. so there's a lot of complicated

issues raised by how broad is the surveillance, how broad do you take the foreign intelligence exception to the fourth amendment, assuming that is an established exception. how probably do take that. there's a lot of murky questions that would regulate that, and it's much more competent i think and a similar criminal setting. >> would you say it's possible we're bumping up against constitutional limits, if there is such a different -- minimization in the criminal comes next is constitutionally premised. it flows from the scope of particularity requirements. so if it's constitutionally based, could we be running up against without robust troop minimization through, it would be running up against constitutional, certainly constitutional issues? i don't know if you go supported a constitutional problems.

>> absolutely. the are a lot of constitutional issues that are implicated here. obtaining content of people's communications which is obviously going to raise fourth amendment questions. there's the reasonableness requirement, how that would apply in the national security setting. there's and only the rights of those that are u.s. persons communicating with of u.s. persons which has been the primary focus in the statute so far. bubut there are also maybe constitutional issues raised when a u.s. person is communicating with a non-us person. that half of the communication is presumed that they constitutional protected communication and that has not yet received much attention at all. there's a lot of important issues that are complicated better certainly implied. >> thank you very much to all the witnesses. >> thanks to the witnesses of the panel and all the with us today as well as the board that made it a string impossible -- possible.

a transcript of hearing will be posted on our website, pclob.gov. i now move that this hearing be adjourned. all in favor say aye. unanimous. they hearing is adjourned at 4:20 p.m. thank you very much. [inaudible conversations] >> taking you outside now to the korean war memorial this veterans day. this is new the lincoln memorial in washington, d.c. and today is november 11, veterans day which originally commemorate the end of world war i. although the treaty of versailles that officially ended the war was signed in july of 1919. fighting had ended seven months earlier at 11 a.m. on novembe november 11, 1918. president wilson proclaimed armistice day a year later. this day became veterans day in 1954 when president eisenhower

expanded the observance to honor veterans of all wars. this memorial to the korean war was dedicated on july 27, 1995, but president clinton. it marked the 42nd anniversary of the korean war and if you look at the memorial from above you can see it's in the form of a triangle intersecting a circle. with walls that about 164 feet long. we just saw the reflection of moment ago. made of more than 100 tons of cabinet from california -- granite from california. the pool of remembered with inscriptions that lists the numbers of soldiers killed, wounded and missing in action. the u.s. lost more than 54,000 people in the korean war, more than 100,000 were wounded and about 8000 still missing. the inscriptions also list human casualties. let's take a look at the people visiting the korean war memorial this morning on this veterans day.

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>> we will be turning later today to the current national security topics with the discussion hosted by the american bar association. top national security experts from homeland security, law enforcement and the legal sector talked about modern-day threats like cyber terrorism. here's a short clip of their discussion. >> leaders of organized crime do not trust jihadists at all. and the reason for that is they are in business to make money. they were used silence and the threat of violence and absolutely depend on public corruption from police, from judges, from legislators. they require corruption to exist and flourish, but there in the business to make money. and if you're in the business of using violence or committing crimes to sustain a political motive, a religious motive, of

the reasons than greed, they don't trust you. you don't think the way they think. they don't want to hear about it. in terms of what spike mentioned about cyber, this part is too. him one of the things we talked about, i was running that during the transition of what occurred after 9/11 in terms of government programs. we saw many things. spike mentioned some the legislative changes and decision directives that went out in the '90s. and that part was true. when i took over in 97 it was right after the time period where in addition to international terrorism and international narcotics trafficking, organized crime was then deemed and labeled a threat to the united states national security. and, therefore, the directive stated that in certain circumstances law enforcement and intelligence community could

cooperate. this was a huge difference given that with the creation of the intelligence community by the national security act of 1947, you have basically a wall go up, and during that era this was the fear of not allowing a gestapo to be great in the united states. not allowing a japanese-style secret police. so the difference was that it created a cia among the other community agencies at the time, and directed that they would not work closely with the fbi to prevent the forming a partnership and becoming all powerful type gustavo. in other words, if i'm running organized crime i can say, this gangster, we will declare him a threat to national security and to every kind of metadata collection, other secret intelligence work that cannot be discovered later and help us in our criminal case.

so that was the barrier that went up. after 9/11 much was made about the culture of the agency. they don't share information. that was nonsense and the public officials have said that over the years are not aware of what they were talking about. spike and i formed a partnership in the late '90s, and after these directives had gone out and become law and become presidential directives, nobody addressed a fundamental, legal fact of our system. and that is called the fourth amendment. when you're going to prosecute someone for a criminal case in the united states, the defendant is entitled to know how you investigate, what was the predication of that investigation, why did you open it, what techniques did you use? did use title iii, wiretapping? what was the basis of its? reveal the affidavits. motions are filed under discovered to reveal all of these thoughts and only a very

limited, miniscule amount of information, basically the identity of a confidential informant that might've been used in an affidavit can be withheld but otherwise the defense is pretty much entitled to everything. the agency is pretty much required to open its books to the defense attorneys to allow the defendant to see that. these directives including later the patriot act did not in my opinion, should not and will never address the fact that a defendant in a system has that right. when we started to try to develop the system to work together, law enforcement and the intel community, we were trying to find out how exactly was this going to work. at the time when the organized crime program i ran an investigation -- we did this man his organization. at the time we are working together. many aspects of it with the intelligence community, and spike and i attended probably

50-100 meetings at nsa headquarters at langley, at fbi headquarters were all of the attorneys and all of the leadership of the criminal programs and intel programs got together and were trying to figure out under what circumstances could we work together. how could we share information. how could we gain assistance from intel community without actually informing the secret alliance that was not required. later, the fbi and guided him and his organization, dismantle them. at the time he was trying to perpetrate $150 million fraud on nasdaq. we prevented that. we did a great deal of good in that case and everything was going just wonderfully, until commend it wasn't even the defense attorneys, it was dj attorneys were going to prosecute and oversee the prosecution, who show up at langley and say, hi, cia, open your books. we want to see do this. we want to see what have you to the fbi, sources of method.

well, they're welcome would soon work out when they did it. and rightfully so. so you to competing interest in our system, the right of a defendant to know what the government did to him or her, and why. and how. and win. and on the other hand the need for our intelligence agencies to protect the very sources of methods they need to ensure our national security. it was not resolve completely in the late '90s. it was not resolved by the patriot act. and i don't think fundamentally that part will ever completely be resolved. it's a very difficult issue, and fortunately for us, terrorist organizations and organized crime organizations are out the world have not formed the allegiance that we thought they might, thankfully. and in terms of cybercrime, some of the groups perpetrating cybercrime, the leaders, the gangsters are old-fashioned. their autocratic. some cases just plain stupid

when it comes to the potential use of the global financial network, stock markets, other means, other than violence. so that's an interesting thing about them. so as long as they're stuck in a world of trying to resort to the knuckle dragging racketeering methods that are tried and true for the last 75 years in organized crime, that's a benefit for us. as we used to say, as i used to say in the late '90s, when john gotti and kevin mitnick get together, look out. snores a leading gangster or organized crime group, if the team up with level a hackers and just the ability to penetrate computer networks, databases systems as spike mentioned, when they're able to do that and then commit extortion against the amazons and against the banks and against the security companies, we will really see jeopardy to our system and to

our government and to the economic engine that drives not just the u.s. at other companies. if i could add one more difference that's important with jihad. the jihadi groups in many cases, they want to overthrow the government, replace it with sharia law or whatever system they believe in, a fundamental system that they want to install. organized crime doesn't want to do that. the gangsters in this country, they want -- they are not patriotic. they want the u.s. to survive and stable because it's a cash cow. if the cow dies, no more milk. so they really want to just suck off and bleed off money from our system and from other companies. way that hurts overseas, particularly we've seen in eastern european countries after the fall of the soviet union, we see it in africa, asia, other parts of the world, but i many countries that do not have the ability to absorb that kind of loss financially or the degree

of penetration of corruption within the system. it does jeopardize the entire government system. we don't see that ability to get it to the fbi a long time, i will admit, to get off its bureaucratic brick and, and then starting in the late '60s, '70s, '80s really go after la cosa nostra while preventing russian speaking eurasian organized crime, asian organized crime, other groups from around the world, african organized crime from getting the same foothold here that la cosa nostra was able to do all those years. and so we were proud and the fbi to be able to have such a role in dismantling and weakening la cosa nostra and preventing the other groups from having that takeover. and it really did enable in 2001 the redeployment of many resources to the counterterrorism program. >> you can watch that entire

forum on national security with a panel on organized crime and another on cybersecurity in about one hour, 12:30 p.m. eastern time. >> congress is out today in recognition of the veterans day holiday. both chambers return tomorrow at 2 p.m. eastern time. the house will consider a series of bills. over in the senate a perio perif general speeches in till 4:30 p.m. when the senate will take up the nomination for the d.c. circuit court of appeals. a procedural vote on the nomination will follow at 5:30 p.m. the senate may hold a test vote on a bill to broaden the fda's oversight of compounding pharmacies. you can watch the house live on c-span, the senate live here on c-span2. >> i have spent a lot of time dealing with the sec in my life.

and it is important that the agency make decisions and make decisions in a timely fashion. there's nothing worse for investment and innovation, job creation, all the things that flow from investment. than businesses not knowing what the rules are. >> the chairman is right. with a slow-moving agency like this, th that deliveries for months, even years on end, it really does create uncertainty. and as we all know, uncertainty is the enemy of business. business needs certainty to be able to invest. if there's one thing we need in the united states, in terms of broadband and communication infrastructure, we need investment with dispatch as the chairman might say. >> sam gustin on the challenges ahead for the new fcc chair, tom

wheeler tonight on "the communicators" at 8 p.m. eastern on c-span2. >> next, look at the economic impact of the 2008 financial crisis with former senior economic advisers from the clinton, bush and obama administration. they talked about lessons learned and their predictions about the economy. the panel as part of an all day conference hosted by the university of chicago's paulson institute and institute of politics. "wall street journal" economic editor david wessel moderated. the discussion lasted about one hour. >> ladies and gentlemen, please welcome austan goolsbee, edward lazear, lawrence summers, phillip swagel and "the wall street journal"'s david wessel. ♪

>> thank you very much. i'm honored to be here with austan goolsbee who was in the obama white house. ed lazear was in the bush white house -- why does. larry summers was in the clinton and obama white house immediately what the press says, either single -- use responsible -- and phillip swagel who was at the treasury during the bush crisis. the bush administration during the crisis. [laughter] >> that's one joke at my expense. we're going to focus a little bit on the economic implications of the christ because there are other things later. as i've told the panel of your i want to think about both what we know now about 2008-2009 that wasn't so clear at the time, but also about 2013 and why we are

where we are. 80, let me start with you because you are -- is chronologically, i think that there are a lot of americans who say basically what happened here was wall street got bailed out and main street dayton. after all, the stock market is back. banks are making money. resolve a lot of unemployment. if somebody walked in off the street today and said to you, you guys, you all did what you thought was right but basically wall street got bailed out and main street dayton. what would you say to the? >> i would start by saying that certain wasn't the coal and i don't think it was the outcome. the goal that president bush had in mind was making sure the economy can function. he was willing to do whatever it took to get that to happen. the central part of the crisis as you know going back, actually 2007 but really when it peaked in september 2000 it was that the financial sector really throws -- froze.

we had to do something quickly to get that moving. that did mean that some people were bailed out. there's no doubt about it. i remember being asked on tv, art you guys would about moral hazard? my response was of course we were worried about the moral hazard. the issue is what the consequences of not dealing with it right now. i think the president and all the people in his administration felt that was really the primary concern. >> austin, what would you say if someone asked you that? >> there were a lot of bailouts. some unnamed chicago that the user when people say that it's more frustration i think without our conditions. they still seem that the. and upon greatest ally. we haven't had growth for a long time and it's hard to dispute. it's hard to figure out what else would we have done, how would we do that. >> larry, let's take this chronologically and that he would be more fun to have you talk about what the bush

administration did. so it's the spring of 2010. the first, the biggest shock is bear stearns goes under. or is sold with a lot of government subsidy to jpmorgan chase. what should we have done after that and we didn't get that my to put us into better shape? >> let me just say something quickly on the previous point. just wars have time to get it if it comes, and appropriate bailouts have regretted beneficiaries. nonetheless, it is the case that if you look at the shareholders of fannie and freddie and wamu, wachovia, bear stearns, lehman, they are zeroed to you look at the shareholders of citigroup and bank of america down 90%. so if you look at the vast

majority of the ceos involved, gone. you could overstate the extent to which everyone was bailed out. look, everybody tends to remember their own prescient comments better than the remember their own not prescient comments, and i am about to be guilty of that. it seemed to me from 2000 -- from the beginning of 2008 onwards, and violently after bear stearns had failed, that the system was very substantially undercapitalized, fragile and at risk. and there were a variety of junctures at which substantial capital could have been raised before bear stearns failed, and

in the early summer, well before lehmann failed when very substantial capital could have been raised. and if you look at capital raised by the major financial institutions, you look at the suspensions of dividends by the major financial institutions, there was essentially none. and it does seem to me that that is a major failure on the part of their managers, in not recognizing the need to shore up the defenses. and it does seem to me that it is a failure of the regulatory community not to have used the authorities they surely possessed, and the moral suasion that was surely at their disposal, to have pressed for very substantial capital raising. it is not that it was impossible to tell him the stock market

that there was potential, very substantial fragility in the financial sector. it is not that it is inconceivable that senators could have been found for lehman in may or june. yes, they couldn't have been found at crisis -- prices that were attractive to management who have been conditioned by the previous environment. but if you look back, that was a moment when both the private and the public sectors, it seems to me, missed an opportunity to take steps that could have at least very substantially attenuated the declines in output. and it goes to an issue which i have to say i am still concerned is with us today. you know, the sec issued a

report the week after bear failed, in which they said there was well-capitalized the day before its failure. now, how do you interpret that? i would interpret that as suggesting that current definitions of regulatory capital are flawed as an indicator of fragility. something similar is true with respect to the capital ratios as reported in judged by regulators for a variety of the other institutions that failed or found themselves in serious trouble. we have seen an enormous argument and presumptive argument about raising capital ratios, and raising liquidity standards. i think that is all very, very much to the good. but i still worry about carrying on the dialogue in terms of the concept that was professing that

institutions were so well-capitalized when they somehow weren't invulnerable, which is all you can really care about. >> so you were there. later he says he made a big mistake between bear stearns and lehman, in not making them raise capital. and you say? >> a lots of things that many people wish could have been done during that period, having some sort of resolution authority, never one. that wasn't possible. going to capitol hill and 16,000 tailbone look at what happened to bear stearns. pretty incredible power. in some instances i think back to the five years ago, the period between the announcement of t.a.r.p. and its inactive. one of the things we a treasure for doing was trying to explain why the problems on wall street mattered from main street. it was preposterous but it was

still, the dialogue was there. lehman is something else. there's just this disconnect, and rewinding to june i think, didn't seem to be a problem. >> but phil, in fairness, i mean, at one level i take your point that it is much easier to see things with 20/20 hindsight. by the way, it is much, much easier to sit -- having done both, it is much, much easier to sit on the outside and write op-ed's about the bold steps that should be taken than is actually undertaken on the inside. so i think that is completely fair and i don't think anybody should be faulted for is that i think everybody did the best they could and they think the country in both administrations frankly was very well served by the people who had positions of responsibility in the financial system.

>> go ahead. >> that said, you said no one in june could have realized how serious it is. i refer you to my op-ed's and the op-ed's have plenty of other people. the op-ed's of plenty of other people who were saying that the system was undercapitalized at that time spent let me be clear. what i mean is going up to fail and spitting nobody had to go up to the hill to tap institutions on the shoulder and say that their regulars were greatly concerned about their situation. that the regulators would publicly call on them to suspend dividends if it did not take steps to raise capital. no authority on the hill spent i'm just not the critical of tim geithner saying he should been going to the firms in doing that. i mean, he was doing a lot of good things, shoring up the

reprocessing and between hank and bob still and others saying you need to raise more capital. that was a regular message from the treasury. >> get any firms raise capital? >> you made the point. >> the statement when obama comes in and he discovers that the economy is a whole heck of a lot worse than he believed, or his economist had led him to believe with a great crystal balls, one thing they did was, what seemed at the time a substantial fiscal stimulus. with the benefit of hindsight, was that the right thing to do? and was about the right size, shape and design given what we know now? >> i think it was not. remember, the obama's deimos was not the first stimulus. it was the second to the first was under the bush administration. that happen with checks that went out in may 2008. we studied that.

we study the effects of that stimulus. they were modest at best and i think that is consistent with historic evidence. the reason i think that everybody was groping for stimulus solution to this is that we were virtually at that point everybody was desperate. it was not really that we felt this was necessarily work but if anybody felt he had to try something spent this is in the bush stimulus the? >> both periods. >> if you have been advising barack obama you would've said based on the bush experience don't to this posting must? >> that's not what i said. what i said was looking at at the time i think everybody felt it was necessary to do something. the question is that i believe it would've been effective, based on historical record i don't think it would have been affected. i don't think it was particularly effective and i think was the wrong strategy. what do i mean by wrong? it was the wrong strategy in it was a short run strategy rather than long run. we are sitting here five years later. this is the long run. at this point we have not put in

motion the kind of growth policies that i think are necessary to get us moving. stimulus is not a growth policy. stimulus as a stopgap policy at best, even if you believe in the most through national income accounting, changing can you take it is not designed to encourage long-term growth. the things that encourage long-term growth are more structure. things like tax system, regulatory structure, economic trade, things like the budget structure. >> the fourth quarter of 2007 the economy is falling at a 9% rate. 18 with steam is not the right medicine bingham when is it the right medicine? >> it's not the right medicine, that's the point. >> my perception of the kind of problems that washington is capable of dealing with is a problem is that everyone gets a court of what they wanted and they staple it together. at the time the debate -- >> a very high ratio. i think for people get

one-eighth of what they want. >> but that idea, as opposed to there is for different things in one of them is correct, and we have to orient around deciding which one is correct and only do that. so when they come in and need for stimulus, i think, we thought the economy was shaky at 3.5% anybody is looking at each other and saying, this is going to be horrible but it turns out it was actually minus 9%. there was a division of opinion at the time. is this going to be a t-shaped recovered where we have a huge downturn and then will come rapidly back? is this going to be long extended painful deleveraging? this is going to be something that will be able to get a bunch of republican votes on? those three camps turning to should this be short run oriented, pulling out of 2010 into 2009? should this be long-term stuff

like infrastructure or structural things? should this be predominantly tax cuts? what ends up happening is some combination of all of those. we will do a little of this and this. after the fact you look back, short run oriented things like cash for clunkers, personal buyer tax credits can i think you say given it wasn't a v-shaped recovery we probably should not have oriented get as much of the money toward moving from 2010 or 2011 into 2090 you do more on the long-term structural site. i think the argument that ended up turning about more than a third of the stimulus into tax cuts, we're going to look back and say that wasn't that effective. because at the moment where but is trying to elaborate, they did the tax cut and try to pay down debt and it didn't get that many republican votes anyway. so some parts of the scene is would've been better off move into others but i think about

that we shouldn't have been doing as much as we could when they come is shrinking 9% to meet is borderline nutty. >> one of the advantages -- larry? >> i would say a few things. first, it was clear that the economy was demand constrained and a priority had to attach the increasing demand, not raising the supply potential of the economy, and that was going to be the case for a number of years. second, i think the policies that were enacted probably were as good as could be done given the political constraints and prevailing attitudes at that time. third, in retrospect it would have been better to have embarked on a longer-term demand expansion program. that was not politically planetary at that moment, because there was great concern about the deficit.

and so stimulus had to be in short run before we could get the to deficit reduction, which was seen as essential by republicans and by a substantial number of democrats on the hill. and so turning it into long run was not a politically viable strategy at that moment. we put as much infrastructure investment into that program as we could convince anybody was plausible, would actually move in two to three years, and that was the political constraints that we were operating on, not long-term deficit reduction. and there was a judgment made which i think was -- >> you mean, the constraint was yet to work about deficit reduction and the longer and?

>> we could about $500 billion of his -- infrastructure in but the spinning would have been coming in 2013 and nobody had an appetite for increased spending in 2013. both because it didn't solve the problem in 2009 and because it made a deficit problem. >> but the benefit of hindsight -- >> a longer-term infrastructure program would have been desirable if it didn't come at the expense of doing short-term stimulus. i don't agree with austan that in the extent is concerned about the tax cuts. first of all i think more of it was spent and he does. second them insofar as people to their tax cuts and use them to pay down debt, that accelerated the deleveraging process which then accelerated the recovery. so i think that targeted tax cuts towards people with high

marginal -- to spin was actually a well advised strategy. i would say one other, i would say one other thing and there will be plenty of my colleagues in the administration i think probably would not share this judgment. i think that in retrospect, a set of judgments that were made to try to do complicated structural things at the same time we were doing stimulus. clean energy, broadband, health information, technology. the more complicated structural things, trying to do them all at once i don't think the results of those efforts have been enormously successful, either in providing stimulus or with respect to their stated objectives which came from

conflating them into a framework that was doing the very rapid the one less thing and this will be the last, i promise. it was a political judgment made which i thought was very reasonable at the time that it was made, but that ex post turned out to be wrong. and that political judgment was that if you frontloaded large amounts of stimulus and you want to get as much stimulus as you could, if i there was a need for more stimulus later, well then, congress would always be happy to provide more funds for stimulus. so part of the reason for the judgment to frontload was an ex ante reason the judgment that was ex post wrong, but if you made a mistake and you wanted more spending you could get it. but if you made a mistake and you got too much spending, he would never be able to undo it. >> phil, i'm going to change the subject little bit. events of event like this is you can do a do over and you can

say, given everything i know now, i might've done something differently. it seems to me one place which we're thinking about is housing. given where we are now in the housing market five years later, how slow the recovery was, how many people are still underwat underwater. with the benefit of hindsight which he didn't have at the time, is there something we could have done differently or more in housing? >> to me that is death of a the right question. i can imagine to moment. i'll pick one under president bush and one under president obama. politically i don't that was visible. imagine in the spring of always doing some massive housing bailout. on the hill and there are people who can speak for themselves, the idea of a massive bailout was told in fear and the tea party sentiments they came out after which would've ended just as well. one could imagine doing that and that would address the underlying problem. totally unfair but you can imagine doing it. in 2009, january, they could

have done it. they had car. basically in the end of the didn't use much hard. there's a sense in which the new administration was prudent at a time when in retrospect they probably had been imprudent. it probably could've gotten away with it spent what do you think, trying to? >> i was just thinking, if we thought about one sector where there was evidence of overseeing it would be housing. most of the real economy by the way does not show any evidence of overheating. up to the spring of 2008. one exception is housing with 2.2 million starts, the average was 1.5. it look like something was going on. the question would have been that in the early 2000 throughout that period were we too lenient on our regulatory policies with respect to housing, with respect and mortgages? in retrospect i think we were. i don't think there's any denying that.

you've got a lot of growth out of it and that was a positive aspect of it but it did have -- >> but once the crisis hit and with all these people underwater. >> there was really little that we could done. we thought about it. the obama administration thought about it and tried it didn't work. they quietly retracted their policy on that and it was because they were essentially not have to the task, and i don't blame them for it either. it was something at that point it was too late. let me go back to what we talked about earlier. i want to pick up on a point because i think the important point here in terms of going forward, housing, you nee name t come in terms of anything we're doing, we have to think about what it is that we want to do in terms of moving the economy. even if you think it's on the demand side, even if you think that it was something that needed to be done immediately. the key issue is whether the kinds of policies that we saw coming out of late 2008 and 2009 with those that would grow the economy over the long run.

the key one thing is taxation of capital. so if you're threatening to raise taxes on capital, if you're threatening to somehow slow down the growth of investment in the economy, that is not a protein and strategy. it's not a strategy that's going to be consistent with high productivity growth and is not a strategy that is consistent with the long run. if i were going back and i was saying what did we do wrong, that's where it would be. >> that's the opposite of what we actually did. we had major tax incentives for investment, and if you remember one of the critiques at the time, which i disagree with, but "the new york times" and others that our problem was we had made the cost of capital to cheat as a people were replacing jobs with machines. -- to cheap. i don't think that was -- >> but on housing -- >> i think, look, the basic situation is, kerry $25 trillion

market which drops the 20 trillion. a bunch of people are now underwater and there's a rubicon river to be crossed, are you going to write down principle are not? there's a lot of people to look back and say why didn't you massive principal reduction to solve the debt overhang problem. there was $750 billion of negative equity in the system. and nobody could beat $700 billion. somebody has to eat it. this is someone that you can count on us, let's count of people staying in on a continuing to make their payments even though they are underwater. banks could not accept $750 billion of losses. the government, there was no way they're going to accept $750 billion of write-downs. so i think anybody who says they should just a more write-downs is being way overly simplistic. we thought all about that.

larry was absolutely 100% precedent at the meeting in january of '09 come one thing to do -- wanted to do everything we could do on housing, fully identify this was going to be one of the biggest debt over and issues. we didn't have the money to do that and there was not any way to do that. >> in retrospect you could've used 209, chart. >> you could not have. -- t.a.r.p. >> i think anybody who speaks with complete confidence about this is a fool. [laughter] this is really hard and ma maybe that there was some better design that could have done this better than the one we found or the one the bush administration found, and certainly the ultimate outcome has been lousy. but a great deal of what he said with confidence is frankly fatuous. here's the problem.

700 -- there's a huge number of people who are underwater. it's easy to say there's poor mr. paulson to mr. paulson is for close to it's terrible for mr. paulson. it's terrible for the bank. it's terrible for everybody. we just wrote mr. paulson's mortgage down, the bank would be better off. mr. paulson would be better off. mr. paulson's community would be better off. why can't those idiots just get it done? it's easy to say the. like somebody came to my office every three days to say the. really, i did understand that completely. here's the problem. the problem is that for every mr. paulson they were about seven mr. wessels. mr. wells will come your also underwater. >> but i'm not a deadbeat. i'm paying my mortgage. spent mr. wells was also underwater. he was underwater about as much as mr. paulson was. he was paying his mortgage and he was doing all of that.

if you announced a program where everybody who stopped paying their mortgage could get a lot of relief, then mr. wessel would stop paying. you would spend a lot of money. you might come to be doing a huge unjust thing. washed all the people who bought houses badly get money relative to all the people who decided to rent or all the people who didn't overpay for houses? so the problem was, how did you target the mr. paulson's without inducing a vast wave of defaults on the part of the mr. wessels quacks and there was caution about setting off an epidemic of male your key in defaults. i think prudent policymakers should have been cautious about that. in the end, what happened was we didn't have any massive way of

voluntary defaults and we didn't reach as many people whether housing assistance as we would have liked. was there an outcome available that was better? perhaps there was, perhaps there wasn't, but you really want to have a government that is prudent about the possibility of setting off a vast wave of defaults. ..

nothing we could have done since then that would have put us in a better place now. there were a lot of things that we could have done now. not just the capital gains tax. the most important thing that we can do is reduce taxes on investments and invest capital. this is an controversy latest standard mainstream economics, public finance economics. most people believe we should be taxing capital. we have a lot of distortions in the system having to do with debt versus equity. those are things that could be and should be remedied. hang on, larry. [laughter] that's my number one. number two i would say if we are thinking about where we need to look for the future, i would be focusing more on trade.

i credit the obama administration with a couple things. first of all getting through the free trade agreements that we have negotiated at the end of the term is a major accomplishment for which they deserve credit. i wish it would have been more aggressive in laying out the future. >> larry, you seem to be moved to speak. [laughter] >> let's get serious here. >> i thought i was serious period. >> i'm all for the free trade agreement. on the high-end estimate of a whole lot of it is a tenth of a percentage of gdp. of the ones, of korea, columbia, of those and a high-end estimate of the rest of it its way under half a% of gdp. so, it's just .. it's just not big. on investment. can we just understand what the

rules were and what the environment was? on equipment, which is about 70 to 75% of the corporate investment, you buy yourself a new car. the first year you buy the car, you get to deduct the whole thing from your taxes. by the way, the interest rate at which you could borrow was less than a has-been since the second world war. so the idea that when you have a record high deductibility and low borrowing costs that somehow the high cost of capital was what was discouraging the investment i have to say it is ludicrous. and by the way, when u.s. businesses why they were not investing they said they were not investing because they didn't have orders and they had the excess capacity so why should you invest when you have substantial excess capacity? we can debate the right kind of corporate tax reform going forward and i think the corporate tax reform is

important and makes a contribution. but in terms of the broad sweep, if you want to take an argument from your side, i think that many people on your site over to this argument, but the argument that this is not the moment for a big regulatory push on bad business practices and that you need to be careful about the tendency that always exists to the new democratic administration for new regulations to becoming from 11 different sources and that may delay some investments and discourage investments from the moment your demand constraints, i think that argument is tends to be very much overdone. but i understand that argument as a legitimate concern into

something that needs to be a focus of economic policy in the sense of confidence is probably the cheapest form of stimulus. but the idea that it costs the capital and taxation, i know that is a standby for one side of the aisle. but it had the single plausible moment in the last 60 years in 2009 -- >> i want to respond to that. larry, i think it was back in 2009. i know that is the period you were concerned about what i'm talking where we are in terms of today and with the policy should be for the future and what we need to do to grow the economy into the future. you may argue that in 2009, it wasn't a lack of demand and it wasn't the fact that capital was to costly. if you pick any other evidence that you want, capital taxation

is without question the most distortionary taxation that you can have because capital is mobile. and if we want to grow the economy, the way that we have to think about growing the economy is moving towards a more efficient tax system. more efficient, you and i might differ a bit on that although fundamentally i think we would differ so much. but if i'm thinking about what is the right policy for the long run, i.e. agree with you cost-benefit analysis as a regulation is important. but to me, the number one concern is what do we do to motivate for the long run period. >> one thing that happens that must be an inevitable and there must be a professor's name associated with this as we go from probably having enough capital in the bank in the system, not enough constraint, not enough supervision, not enough liquidity and then we go and overreact. so, do you think that given where we are now to the whole regulatory architecture, that we

have gone too far and that is a constraint on the economy now? >> look at the sort of extreme parts of .-dot frank. it's a consensus that doesn't make any sense. but on the whole, the additional capital the liquidity requirements they have done a pretty good job overall. but i wouldn't say that it's gone too far. it's not surprising that we had trained in the aftermath of the crisis. the geneva mistake and the tragedy if you will is that the regulator had a love of power before us. it wasn't like there was something that dodd frank gave them the authority to deal withh it after the fact that would have been useful back and 08 but they had the authority back then they just didn't use it. >> did we make it too hard to get credit in 2013?

schematic we are on this circle in which small business people would come to the white house and say we can't give credit that's why we can't grow. then the banks would say it's the banks. the banks have tightened standards. we didn't tighten the standards to read some of them are less creditworthy but nobody -- we kind of went back and forth and then they both agreed okay lets just blame it on the regulators but then you talk to the regulators and we haven't applied any different standard to the banks. so i think it's very hard to fix. >> appeals to me like at least 75% of the tightness of credit has nothing to do with government regulation. it has to do with everybody that just came through such a horrible perk -- period that they are not willing to land at the rates that they were before. this comes froit comes from rege do have to move on those issues

and i worry that if you said we know that we need to get to the capital ratio of 7.5 percent, and we know we are at three but we don't want to mess anything up in the short run, so let's not actually discuss that until sometime in the future i think the chances are that we would never do it period. >> two words, covenant like. that suggests that we are not starving on a general basis right now. there are issues in the mortgage of space where there is too little capital available today, and i think that that is -- there is a danger that in the name of preventing the abuses of the 2003-2006 period we will take steps that will lead to

mortgage credit, too little liquidity that will in turn pressed the prices but for the credit it's mostly the demand side of period. >> this has been a impressive peer over the monetary policy as well. bottom line developed a qualitative easing $3 trillion worth of money printed to buy the bonds did it do something good and was it worth it clacks. >> the first wave was imported and the fed behaved not only responsibly, but also admirably. we have a governor of the bank of england here as well and creditors in the bank as well that were very effective and very helpful. my sense is that we have reached rapidly diminishing returns on this. i don't believe that the economy has healed sufficiently weakened the victory and say that it's the end and time to stop buying assets. the reason for stopping to buy

assets is not that of the economy is in better shape but because the policy is no longer particularly effective. and at this point is these -- i would be inclined at this point but not because the economy is strong. i would be inclined to tak taper because the second necessary position which is the policy work is absent. i don't believe that it's working period. >> larry, do you want to share a view on that? if you want to filibuster, don't do it. [laughter] >> i think if ten years ago you said any economy, not just of the u.s. but the unemployment rate is going to have been 7.5% or above for something like four or five straight years, the growth would have been 2% for four or five straight years and the core inflation is still well below the 2% target. every economist in the world would say obviously you should loosen monetary policy in that environment. if you plug into the formula, it

depends which one you use that says which one should interest rate be? it should be negative 2.5 percent. so all the fed has been trying to do for years is how do we lose in the monetary policy when the interest rate is already bumping around? like a final question of each of you and then we will turn to the audience. one of my concer conservatives t wasn't a v. or view that we have done damage to the potential growth rate of the u.s. economy at the rate of which living standards will increase you do you think that we have dented the financial growth rate, yes or no? >> i don't think so. i look at the innovative parts of the economy and if not more so than in the past period. >> larry, what do you think clacks. >> i don't think we have permanently reduced the rate at the level. so i think that the gdp, as far as one can see, will be on the

order of three or 4% lower than it otherwise would have been at the present value of that is a spectacularly high cost of this episode, which is why we were doing a great deed on almost anything submitting this slack. >> the one thing that i would say is if you look at the data we have permanently reduced the growth rate is 2% rather than close to 3% which is the historic average. but if you ask are the fundamentals still there for long-term growth, i think they are. we haven't significantly depreciated the stock of human capital or depreciated the stock and our ability to create technology is still there. those are the ingredients for rapid growth esp mac austan? >> there was a joke of the serious nation demands a new bubble to invest and restore prosperity. [laughter]

i fear that sometimes we can get into that. the 2,000 expansion was fueled by a bubble. we can't go back to that. so we are going to have slow growth for some period because i was overstating what the actual growth was but i don't think long-run we are getting off the trend. i think if all the fundamentals are there period. >> if you all agree and/or in the glass half-full. we are going to turn to the audience and here's the rule. raise your hand, wait for the microphone, say who you are and remember that a question ends with a question mark. we have a busy programs ask a question. there is one here in the front. the woman in the front and then someone else raised their hands if there is another one it can go to someone on this site here. someone over here, in the back. >> from the university of chicago. my question for the panelist is

while you are both policy makers but also academics, so how much of the policies during the time when you were in the administration were seen in accordance with your academic bearings? and how much of it is a pressure in the environment in other words during the course of the panel, the term like wisdom of hindsight was used a lot. how much of the hindsight was actually foreseeable at the time if your academic standing but was not applicable because of the political environment and other pressure? >> i can say a few words on that because i was the person who would receive the incoming academics and i will just tell two stories of eminent economists. one here and one at harvard. the only thing you need to do is to save lehman brothers and to change the bankruptcy code. turn the debt into equity and

you're done. okay. so the truth to the way the government works. number two is when we were moving to the capital injection -- >> a slow period -- >> we worked hard on that. and a round of th a phone call o academics to say we are about to do this. we are thinking of doing it, what do you think clacks of course we are going to do it and get people on board. as one very eminent academic financial sector was too big and this was just shrinking to the right size. i thought that was a pretty tough way of doing it. don't you think that we should cushion it? >> did all of the academic work prepare you as a policymaker and words were colleagues prepared for this? steam back academic macroeconomics has been in a

lacuna of dynamic equilibrium for 25 years that wasn't connected to any aspect of the problem. there were important academics who had written important things that were influential. they were people like keynes and minsky and people like kindleberger. they mostly had written a long time had written a long time before. so surely the macroeconomic training we oversee very much influenced what we did, but i would say most of what passes for contemporary macroeconomics did not make a positive -- didn't make a positive contribution. >> i agree and disagree with larry. we didn't spend a long time thinking about the business cycle theory to construct the economic policy on the flight in

2007, 2008. the one thing i will say is virtually everything i think i did, and i would venture to say that same is true of my colleagues here, is based on the human capital that you acquire being an academic. we think differently about problems in government than the rest of our colleagues. if you look at the council of economic advisers in the bush and the clinton out of frustration there's a lot more similarity there between me and the political people say in the bush administration. we will get to their voice later. thank god we were not all economists period. >> when you see them talk about politics, beware. we are best at sticking to our knitting and bringing some logical arguments to the table and those usually went out in the long run period. >> you can call on them as he stands up. i will just say it was

surprisingly infrequent that in our discussions, and larry was running the process. the most policy was about what the right policy. the argument by political people that you may want to do it but we can't do that. that's very seldom period. >> the gentleman over here period. >> my question goes to the root cause of the problem. there seems to be almost a consensus of the fundamental problem is not the fundamental cause of the crisis was the highly leveraged home mortgage market and the housing bubble. we know that the government

didn't recognize that in time at least. but what was wrong with the private sector? this was funded by primary investment. how is it? we know what the buyer's motivation was or the seller's motivation was, but what was the buyer's motivation and why didn't they recognize that they were purchasing what quickly became toxic assets? >> what happened to market discipline and? speed mac all financial error has the same root cause. people doing today what they wish they had done yesterday. that is what drives the bubbles. you drive the stocks that have already come up. they sit there in the mortgage market for 40 years whoever wins the most made the most and who ever took more is made more money, and so you go into more

and more ventures and securities because what else can you learn from accept the past and so people extrapolates. so i would argue that virtually all of the financial error has at its roof naïve extrapolations and that's getting past that and all of the great investors and there are some contrary ends who reject those actions of recent experience. speed speed. >> i'm a second-year student at the school of business and my question has been said about the incentives on wall street being

able to blame on the crisis, but to me it seems that the incentive for the politicians in congress and the senate are equally to blame for not taking care of the crisis and now we see the budget mess to get elected and so on and so forth and on the government side for some of the problems in the u.s. at the moment. speed mac. >> we will take a couple more. and then the young man in the front. >> when rahm emanuel spoke of no good crisis should go on wasted was he referring to the opportunity for political gain for one or the other party or the opportunity for our society? >> she can answer that later when he's here. >> my name is john, fourth year at chicago. we talked about a monetary policy and my question is about increasing lending conditions as a top priority and do you think that the policy

paying interest on the reserves has inhibited about and it be discontinued? >> does someone want to do what economists should and doing a talk about politicians? are there bad incentives fo thar the political system? >> i will start with that. i think there are bad incentives. the best incentives actually are held at the white house and the reason is that the president as an executive and everybody works for the president and certainly our role in the administration is to make sure the president did the right thing. congress has different incentives and consists of individuals whose incentives are designed to get attention for the individual. so i don't think that we can rely with all due respect to the people from congress who are here. i don't think we can rely on the congress to do this. the incentives are appropriate but at the executive branch of the required leadership and i think that is -- >> do to make an argument for

democracy. >> the congress roll is making sure the president is the right thing but the leadership has to come from the white house. i think that's how the incentives are designed and it's always been designed that way. they have worked to together a long time but i don't think that you can expect the congress is going to come up with the appropriate kind of mechanism that will further economic growth that has to be an executive branch function. >> there is one overarching incentive policy and that is that you need a lot of money to get and hold off, and therefore politicians are disproportionately responsive to those who finance them, and that centrality of money in our politics is by far the biggest incentive problem. >> do you want to speak quek.

>> i only saw that quoted. larry might know what the context was. >> he meant that it was an opportunity to do things when political obstacles became much more fluid. you can deviate how you should use that mandate but his context was unambiguously clear that it was an opportunity to do things and a classic example was his conviction which i think was right but you could use a substantially more to reform the financial regulation then you ever could have done absent this kind of provocation. >> i would say looking at the beginning of 2009 in the sense of a missed opportunity it's taken in the fiscal stimulus what was needed, i just wonder

if a different kind of stimulus with some of the change that larry hinted at on the high-speed rail and energy and all that might have gone gotten bipartisan support. they say they will oppose anything that president obama suggests, but back at the beginning of 2009 many people were hoping he was going to bring us together and it didn't happen. i'm not blaming one side or the other, there can be fault on both sides but the question is could a different set of choices have brought the country together in a way that didn't happen? >> i've been critical of the democratic parts of the recovery program, but i was there. the senate minority leader said that the basic purpose of his minority leadership was to make sure that the president was not reelected. i think it's not easy to make the case that people in the

administration were prepared to walk a long while to get substantial -- to give substantial support, so i think it would have been much more difficult and the price of doing it would have been much more not in the infrastructure direction but in the tax cut direction that i think would have been fairly problematic period. >> can i pick up on the last question on the policy and whether paying interest on the reserve -- speed mac. >> we were hoping people on the hill. the feeling and the republicans on the hill is the administration didn't walk a mile. it was years of pent-up spending and it came out. for me -- >> the administration comes in

january 20 and they are already holding up many of our economic nominations as we come in. we've had the hearings but i am saying it was quite clear. >> that is completely counterfactual. >> u. were held up for reasons having to do with senator reid and what he did in the past with others