failing firm, you lived through the crisis, the problem isn't when one firm fails, it's that in a crisis, multiple firms fail all at the same time. even if resolution authority works for one firm, how does it work for multiple failing firms all at once? >> it depends how it is used. david mason said something i agree with. he worked hand in glove with me at treasury. what he said is, if you've got the right authorities, no institution needs to be too big to fail. but in the midst of a crisis, almost any institution of size is too big to liquidate quickly. and so really the -- i believe that dodd frank gives regulators, if they have the courage to use it, the ability

to come in and the authority to say, we didn't have -- when lehman went down, to come in and guarantee liabilities or inject capital as part of an orderly resolution process. it doesn't tell you how long the orderly resolution process should last. and i -- i don't believe the public would be as angry if the crisis -- if the economy hadn't turned way down and if they weren't suffering. they wouldn't be as angry if banks were propped up, failed banks in their current form. which is what david got in to with the perception of the american public. they don't understand why an institution fails, should be bailed out, propped up in its current form. i think regulators have an important tool. but i frankly, you know, it's

interesting, when i go through this every time someone says something, i want to do what barney did, stand up and make a comment or interject because the comment was made, well, we don't have orderly liquidation authority, it looks like we have the basics, but we don't have everything fleshed out in a lot of detail. it ain't ever going to be fleshed out in all the detail you need. the key is going to be how those sitting in the seats choose to use it when the moment comes. if they care about being criticized and care about the public reaction, they will fail. one of the things that i saw during the crisis was a big collision between politics, public sentiment and the financial markets. and those people that were sitting beside me, and there weren't a lot of them, that were worried about gee, how is the public going to look at this,

they were worthless, because you didn't have to be much of a genius to know when someone says, how would you like to work on the citigroup rescue. it either fails and we go into an economic nuclear age, we have a disaster. or you participate in a bailout, you get to be investigated and go before congress, and answer all these questions. i had plenty of people -- >> i don't think it was the right pitch. >> it was the right pitch. we had the team around us that were prepared to do it. i'm trying to make the point, the crisis made all of this worse. on a serious note, the regret that i have is that we were never able to have the american people understand that the tarp was for them, it was for main

street, it wasn't for the banks and bankers, the american public is angry, and let me tell you, if you thought that i and the people around me and tim and all the people around him during the bush administration and during the obama administration, had difficult jobs to do, just think how much more difficult it will be today, when chris dodd said, you know, congress wouldn't pass tarp today. twice we went and asked for limited authorities, and twice got them. you wouldn't be able to get those today. >> yeah, i admired senator gregg's optimism, but i can't share it. i don't believe you would have the same -- first of all, a number of people who took the lead on that legislation lost their seats because of it.

secondly, the republican party, i think you saw the leading edge of it in the roosevelt room when you had that discussion, when everyone was -- >> i saw the heart of it -- >> yeah, but it's expanded now. 2010 expanded. rahm was wrong. some of the steps we had to take to right the economy did help fuel the tea party rebellion, and now that's become a major motif in the republican party. let me say one thing, i don't know where these questions will lead, wherever they did lead, i was going to interject this anyway. let me get this out of the way now. i'd like to talk to our friends from the financial sector here and get back to that initial point. ultimately, i don't believe there's a big debate about redistribution.

redistribution is a -- let's set that point aside, there really is a challenge, how do you grow an economy in which there's broader opportunity. and it goes to things like education and investment. continued investment, innovation, energy, and infrastructure, and a whole array of things. if we don't have a strategy to do that, and we're satisfied with increasing poe lairty in our economy, this anger is going going to well. and when it comes time to do things like -- god forbid you guys had to do. or we're trying to build consensus around our institutions, we're not going to be able to do it. everybody has to me a shared interest in seeing policies that will help promote broad growth and opportunity. if we don't do, we're going to pay a high price for that.

>> i want to say one thing, i'm not sure of the answer the debate between rahm emmanuel and judd gregg, where it would be different today. if it would, i think it would be because of how angry the public is i don't think it's republican versus the democrats, as i looked at it, you know -- and i'm not a partisan person. i work so well with the democrats. i think the republicans thought sometimes i was a republican. you work with the leaders and so i do think since the democrats were the leaders, when you look at the senate, we never had an issue with republicans or democrats in the senate. you look at the vote, where we were on the tarp, judd gregg did a fabulous job, just like chris

dodd did, and the senate wasn't an issue. in the house, i do think when you're doing difficult unpopular things, the leaders just stepped up. and nancy pelosi stepped up big time, as did the others. i believe the republican leadership was there. john boehner was there paul ryan was there, the leaders were there, and i think if the republicans were in the majority, we would have worked with them and got through it in a big crisis. the other difference is not the parties, it's the public. i had a good number of politicians say to me. and a good number of the members of the press say to me, the one thing we all underestimated. everyone knew it was going to be a very unpopular vote. no one knew the extent.

you might have known it. i would say that -- i thought both democrats and republicans were shocked at how angry the american people were. and the financial press was too. >> by the way, i quite agree with you that there's opposition on both sides, i guess the experience we just went through was a little unsettling, because we took a huge hit because of the shutdown, we went to the precipice of default and so, i hope you're right that there's a responsibility gene in the leaders and they can overcome the primal forces among them on either side. >> the leaders, i never worry about the leaders, whatever it takes to get to those leaders positions, but it is then their ability to manage the caucuses

and there's no doubt that the -- i think both parties came together, and i think they came together and i can't say it enough, because we had a president who was willing to compromise on the stimulus, we went up there, he sent me up to negotiate it, and we negotiated a deal where there was a refundable tax credit. republicans don't do that. but he did it because he wanted to get money out quickly and he wanted to do whatever it took, and he was willing to compromise to get something done. >> rahm emmanuel made a point, we're making it up as we went along, is that true? and partly as a result of the public anger, have we lost some of the flexibility that enabled you to make it up as you went along? how much of it was a good thing and how much of it was a bad

thing? >> let's talk about crisis decision making. first of all, i was extraordinarily fortunate, because i had two partners who were in the same spot i was from day one from different perspectives in terms of ben and tim. we each knew we didn't want systemically important institutions to fail. we debated tactics. we didn't debate that. we had this huge problem in which we didn't have the necessary authorities. there was no chance we could have gotten congress to act earlier, we were working to try to get the authorities for fanny and freddie since the fall of 2006. and it took them getting ready to go down before we could get it, the house voted down the tarp the second time. excuse me, the first time. thank god it wasn't the second time, you know, or we might not all be sitting here. but the -- so what we had to do

was we had to pull our authorities, make do -- you never have all of the information you want in any business decision and the nature of crisis decision making is to act without enough information and to act doing something that's often very objectionable but it's better than doing nothing. so you're always doing that tradeoff where you're doing -- you have a big, ugly, messy problem, there's never an elegant perfect solution but the key thing which gets to your point, when you get more information or you learn you're wrong, you have to be prepared to change course. and so oftentimes when i get asked, what are the big regrets you got? i go, there's different communications things, i go through the litany.

but you're not saying you regret the major actions or policies? and i say, that's right, because the mistakes that i was part of, we corrected on the battlefield, okay? we sincerely thought we were going to buy liquid assets when we went to congress for authorities, but the situation got a lot worse. we asked for authority also to inject capital. i assumed we would only use that if we were going to nationalize the bank. we hadn't designed a program where that we had never done before. and put capital into 700 banks. when i went to president bush and said guess what, we're going to need to put in capital. he never said, boy, you shouldn't do it, he said, you're going to have to explain that. we told the whole world we're doing what it takes to save the economy. if we had gone to congress and

said we want to nationalize them, there would have been no chance to get that and we didn't think we were going to nationalize them at all. we didn't think we were going to put them in conservativeship. we thought we were going to get the bazooka, we wouldn't use it. we got inside, we got our good friends at morgan stanley, the feds, they came back and said, you have a big problem and so then we -- we changed course and that's what you have to do when your crisis -- if you're -- and barney, in the forward to my paperback book, he wrote that's why congress can't initiate, congress has to give authorities and trust the executive branch. >> the one cautionary note is that there's -- you don't want mistrust between the branches to make that process so brittle that there isn't the flexibility

to act. that's a danger we have to be careful about. >> you betcha. and that's a nice way of saying it undermined my credibility with congress, and it did. and when i -- the last -- there's nothing worse than the last few weeks sitting there doing the things we felt we needed to do. because right up until the end we were making the loan. doing the b of a deal. and i knew that the american people were angry. and were unhappy with tarp. and the fact is, when there's crisis decision making, if the law is too prescriptive, it then becomes very difficult for decision makers to do what they need to do. >> david, how do you chart the

course between that need for flexibility and then the after the fact argument, they were out of control? secretary paulson was king paulson, how do you make that work politically? >> this is what i was speaking to before, and i think this -- we're going to have presidents of different parties at some point and we're going to have different configurations. and we don't want to have this sort of spiral of mistrust so that oversight becomes so overweaning that there's not the flexibility to make the decisions you need to make in a crisis. and i think we're going to have to work at that. part of it is earning back the mutual trust of the public which is taking a big beating in the last five years, so that's why i say as i did at the outset, the

overhang, the aftermath of this crisis can't be measured in the financial markets or where the market is at any given day. it has to go to the health of our economy, families generally, people generally in the economy. and faith in institutions which we have to restore. >> that's what it's all about. to me, that's been the most disappointing to me, because as mervin king said, he said it differently than i say it, but banks make all kinds of mistakes. bankers make all kinds of mistakes. nothing wrong with punishing people if they break the law, of course you should do that and nothing wrong with pointing out their mistakes and blaming them so we can correct them.

but the thing that's wrong if we don't get to the inherent cause. the inherent cause is flawed government policies. there i focused on two things. i focused on, there we still haven't cleaned up our messes. we still have fannie and freddie, the fha, you know, insure close to 90% of residential mortgages. that means the government is basically setting the price of those. and that's issues -- we have problems in the shadow banking market. even more importantly than that, we have to get our economy growing again. and we have to get them growing. the only way you can do that, is with real honest to goodness structure reform. it may be very necessary to raise the rates on higher earners, that will be much more powerful and effective if it's done as part of reform.

we need immigration reform. we need tax reform. there's so much we need to get done to restore our competitiveness. i look at -- i -- something that austan goolsbee said that resinated with me. when you look at what's the potential for our economy, it's still, i think, quite high. but i do believe we're not wanting to repeat the bubble years. and i think when you look at the bubble, between '97 and 2007, the bubble years, median family income was absolutely flat. americans were double their borrowing, borrowing more than they could sustain to maintain their standard of living that was unsustainable. a lot of the jobs weren't real jobs. and the -- they were making product that the american people really couldn't afford to buy. and there was a bubble in

europe, and in some ways there was a manufacturing bubble in china. so stuff that we -- that we didn't need. and so i happen to think after every big downturn, you ask, how much is cyclical, how much is secular? i believe a significant part of this is secular and it's structural. and we can't solve it all, the united states of america, we need to make our system as resilient as we can, and make our economy as competitive as it can, and that's where we need republicans and democrats working together and compromising. >> after all that, everyone talks about flawed government policies and the drive toward home ownershipship as a contribute to the crisis. nonetheless, the majority of risky loans were used not for homeownership but for

refinances, which might tell a broader story of a consumer spending driven economy where a chunk of consumers don't have enough to spend. david, how do you address that? what's the way to start solving that? >> it goes back to the point i was making before. i'm trying to get my arms around the fact that every crisis stems from flawed policy, i think there are other contributory factors. when you have large private players that make irresponsible decisions that impacts on -- >> contributes to it, i'm just saying the root cause, my only point was the root cause. wider residential housing prices, you know, keep going up, because we have you can deduct a million dollar mortgage, deduct interest. fa knee fannie, freddie.

we could talk about it's what mervin talked about. why we had the huge savings glut. we save too little, spend too much. chinese, germans, you know, save too much, spend too little. those kinds of things. it wasn't that there weren't mistakes made by a lot of others. >> but there's no question that's true. and i talked earlier about the long-term economic trends that have been mounting for decades. the marginalization of a lot of middle class jobs you can't turn that back, and you don't want to turn that back. but you have to think forward and think about, what are the opportunities to create jobs that can support a middle class incomes? what happened was, people compensated for the loss of income by borrowing, and that was never a sustainable strategy.

>> i agree with you. i think it is -- i think there's too much that democrats and republicans. when i talk to economists on both sides, they have the same symptom. they would treat it differently. but i think the question is, how you increase the competitiveness of our economy, the growth, all of those kinds of things, which i think was actually declining for decades. you go back -- i gave the ten years of the bubble. you go all the way back to 1977, median family income was only increasing like 6/10 of a% a year, we've had to decline for some time in the country. >> yeah, so -- and i agree with you that there are varying approaches to how to do this, i think the only way ultimately, and i don't know whether it's impossible in this environment, i think it probably isn't in the short term, but is to -- is an

amalgum of things that include both the structural reforms you're talking about, and the kind of investments that are necessary to grow. >> i agree with you. >> audience questions? we have a few minutes left. >> in the year 2000, well before this crisis struck in the clinton administration, cfma was passed, which basically exempted -- not basically, in fact exempted all derivative trading and default swaps from the regulatory agencies and made them supersede all the laws in the country. would you consider that to be a flawed public policy? >> you're asking me to take that question for larry somers aren't you? >> i would say we had a flawed

regulatory structure, which was bifurcated. and i still think we do. i think the fact that we have five regulators all arguing about how to implement dodd frank is one of the reasons why it isn't done yet. i think we have a flawed regulatory structure, to get to the derivatives, you never have -- my view is, there you have complexity, but you never -- to me, we never have a problem when it's a good idea. when it's a bad idea. a bad idea that goes nowhere, but when you can have too much of a good idea. and that was a case for securitization, that was the case with the derivatives market, and, you know, so -- i agree with you we needed more transparency in the derivatives market, and i -- one of the things i applaud about dodd frank is the idea of forcing derivatives contracts on over

the counter -- on clearinghouses, central clearinghouses and exchanges, and i'd be even tougher, i exempting different classes for derivatives, but going back and relitigating history, i think one of the problems we dealt wi with. we had a market that had grown so fast that there just was not the necessary transparently and there was just a big, big problem. >> i think it was almost a rhetorical question, i think, and the answer's, i think history has spoken to the wisdom

of that decision. and i would emphasize, the lack of wisdom. and i think that mary's point was important, too. you can have structures set up to police these or oversee these markets, but if they are inadequate, then you're going to continue to have problems. i wasn't there, so i'm not here to defend that -- >> as soon as i heard the word derivatives, i thought, oh, no, but i think we have time for one more question still. someone else? >> hi, thank you so much for organizing the event today. so you talked about the complexity of regulation, this may be kind of similar to the previous question.

and our professor talked about the check the box compliance that a lot of firms are undergoing, but that doesn't exactly target the big picture issues. and ms. shapiro talked about how hedge funds don't know where to go for regulation, so there's a lot of complexity. and going forward, how do you think the regulation can become less complex, but also more dynamic to really address the underlying issues and maybe even foresee some other risks in different loan types? >> i'm going to differ to secretary. >> i'm going to be brief here, because you could talk for a long time on this. first thing you've got to do is accept the fact that regulation will never find all the problems, never.

it's hard to think that -- and they sure weren't, they weren't able to find the problems. it's hard to believe regulators are going to find problems that the banks can't find in every case. i can tell you, i worked very hard when i got to washington to try to find the problems and we never once thought about the money markets, okay? we could come up with reasons why, but regulators won't find all the problems. so regulation alone won't do it. that's why at the end of the day what you need is a regulatory structure that provides flexibility and gives regulators the powers they need to manage the crisis and maximizes the chance they are going to be able to see the problems in advance. i think we have a -- i applause dodd-frank, because we got some essential powers that were badly needed, but i would say to you,

we still have a regulatory structure that i think is far from optimal. as i said, five regulators falling all over themselves trying to figure out how to write the rules and compete with each other, i just don't think is a way to do it, and i think it's complex. there's a lack of clarity. i said i thought we needed better regulation, not more of regulation. we got some of both, okay? and -- but part of the problem you have is what i think chris dodd and barney frank have said, it takes a while. let me tell you, our system is such that when there's a problem, we shine a light on it, the pendulum swings too far, but we work with the rules. and those rules are going to take time for regulators to implement those rules, adapt them. we've got a poisonous political environment, right? normally you go up for technical corrections bills, you can't do that today. so i