transition to a government that is represented or is supported by the syrian people, that does not include bashar al assad, that does sometimes create tensions as some states view individual entities in the syrian battle space differently than other members of the coalition. and i think we have a strong common view that the political outcome is what we seek. the modalities may differ from one partner to another. the alignments that had been formed early in the civil war in syria were strong alignments that supported various groups to seek to either liberate the syrian people or to take action against the central regime. those alignments have been enduring, but i think we have

worked very hard to manage those alignments so it doesn't create too great a tension. as time goes on, i've seen greater congruence in our views, not less. >> if i could follow one piece, you did mention that you're just back from ankara, the role and the relationship with turkey has been complicated, it's been vital, it's been seen as quite tense at times. it seems you're quite optimistic right now. so, one of my questions there, you see, for example, the kurdish being an effective force fighting within syria, but again, this is sort of just to get to one area where there are differences potentially differences between coalition members on how to approach a particular on-the-ground partner. how do you see that kind of dynamic playing out? >> well, it's -- it's actually been naturally pretty remarkable what the kurdish elements in

syria have done to eliminate daesh from a large segment of the border. there is still a border which is in the hands of daesh and that's problematic, and it's an issue for the whole coalition. but it's also important for us to take into account the very real concerns of the turks in this regard. you know, we're old friends with the turks. we're allies with the turks. we have been in, i think, very constructive conversations with them for some period of time. my last opportunity to visit ankara was yet a continued affirmation of our commitment together to achieve important goals and strategic ends in the region. i left ankara with a continued sense of importance of our relationship with turkey in a bilateral relationship, my sense of the importance of turkey's relationship to the coalition,

but also came away, again, once again, convinced of turkey's importance to the solution to the difficulties, both in the region and in syria in particular. so, in that sense, we're very attentive to turkey's concerns about the issues with which they deal with regard to the kurds. so, we're attentive to their relationship with the pkk. and how they view the pkk. we're attentive to their attention to what happened south of the border with the kurdish forces that were so successful against daesh, and in that regard, we have been very clear on the issue that we do not support the dissolution of syria, we support ultimately a syria that's territorially intact. and a government that is the will of the syrian people. we don't want to see it broken into sectarian or ethnic fragments.

in that regard, we don't support and i don't believe in fact the kurds support in northern syria a separate governmental entity. but we also have been very clear that the elements of the population that have found themselves liberated from daesh in the course of these military activities along the border in the last several months. we have been very clear. the u.s. has been very clear, we expect populations that have been liberated will return to their own system of administration. so turcoman will administer turcoman. arabs will administer arabs. syriaks will administer syriaks. it's important that as a partner that has ultimately been enabled to defeat daesh not become an occupying force but it has become an enabler to defeat daesh. and those individual populations that have been liberated are able to return to the nature of their self-administration that we've seen before. so we're very attentive to how

that has gone. undeniably it has been successful in rolling daesh back. in the course of doing that, kobani has been stabilize. kobani, while there was a large kurdish population there, there was a large free syria that fought inside kobani as well. the ability for us to motivate free syrians to be a credible sunni, arab partner in the future. but we also have taken off the battlefield one of the principal crossing points for daesh. that denied to raqqa has increased pressure on raqqa. forces have movehead down toward raqqa. that's created immediate pressure on the capital of daesh and that's an important outcome for this. we're beginning to see the capacity ultimately for us to

regionally synchronize military activities that can create a more comprehensive strategy across daesh as an entity. not just in one place. not just in ramadi, mosul, tikrit or the syrian border. it is a unified comprehensive, synchronized strategy, or synchronization, and that is beginning to take shape. that's why i'm optimistic. >> can i squeeze in one more? >> one more. >> thank you. you mentioned commitment to the territorial integrity of syria. politics in iraq is always a major question, and you know, in this report we come out saying it is important not to give up on the iraqi state, that we need to see, as you said about syria and iraq, that is able to maintain its integrity. that requires getting the sunnis in. and you talked about there are some sunni fighters that are actually being recruited and actually joining the fight to retake ramadi. but there is a sense and there are people in this town that

would say, you know, we have seen this show before. what is your thought on this concept of functional federalism and on the real willingness for the hard political decisions to be made that could sustain this. this is one of the areas of the greatest skepticism when you step out of iraq and people just sort of look at the situation. >> well, i can understand skepticism. i think we need to give this a chance. prime minister abadi has been in office since the 7th or 8th of september. he came into office, at the moment that iraq that daesh was determined to destroy the territorial integrity of iraq. most of the iraqi territory was already under its boot. thousands of iraqi troops and thousands of iraqi civilians had already been either displaced or slaughtered. so he came in under a very, very difficult moment, and i think in stark contrast to previous

systems of government in iraq, he sees the future of iraq as one that divests authority from the center in order to empower reliable governance in the province. he talked about this, it's functioning federalism. he's been clear. but of course he has a skeptical power base that operates from a long history of concerns about what the other components within the iraqi society really intend to do over time. that skepticism is something that we have to recognize. it's a skepticism that, by committing ourselves to the political process of iraq, in supporting prime minister abadi's effort at functioning federalism, in being quick in the process of stabilization, in the context of liberated populations, it creates the operationalization, the real physical operationalization of functioning federalism.

in a manner that ultimate ly achieves the prime minister's publicly announced objectives. first i'd say, look, let's think about what has happened politically in iraq since the overthrow of the king, and we have not seen democracy in action there. democracy as we would like to see it and democracy as we know it, we have not seen it yet. prime minister abadi is operating under some of the most difficult, political, economic -- economic very importantly and military challenges, as he seeks to make progress in a pressure cooker of political pressure in an economic environment that leaves iraq devoid of resources that it could apply otherwise. and under pressure to defeat daesh to reunify the country and unite iraq. we have to do what we can to support him. we have to recognize that he's

making progress. but recognize this is going to be hard and take a long time. that's why the coalition when we get together, whether it's at 62 or at small group level, the ministerial or directors level, the coalition has yet to walk away from a meeting without affirming the coalition's commitment to the prime minister and territorial integrity and the unification and the unity ultimately of iraq. >> thank you so much, john allen. thank you for your tireless dedication. to this on behalf of the nation, i'd like everyone to thank general allen. remain seated. we'll switch right over to our panel. thank you very much. [ applause ]

good morning. i'm brian katulis. i'm the senior fellow here at the center for american progress. thank all of you for coming. we want to thank general allen for sharing his wisdom and his thoughts on the status of the campaign. what we want to do here is have a bit of a discussion reflecting on what general allen said. then also talk about a report that the center released this morning that assesses the status of the campaign. my role today is to simply moderate the discussion. i'll introduce the panel here. we'll have a couple of remarks from hardin lang and then dr. steven walt, from harvard, and finally sarah margon, a former colleague of ours here at the

center for american progress. our goal here in having this discussion is be as wide ranging as possible. to stimulate all of our thinking. about halfway through, i'll draw you guys in, anyone who has questions into the dialogue and discussion. we'll try to wrap up and get everybody up to lunch. so, first, without further ado, hardin, the floor is yours. where are we, more than a year into this campaign? what does the report say? what are the highlights? what do you think about what general allen said? >> thanks, brian. before i get started, i want to commend folks, some of the work that the other panelists have put out. dr. walt has written an interesting piece. i hope he's going to elaborate on today about foreign policy. about the staying power of isil and what the implications are or are not for our national security. sarah margon of human rights watch has done some look at human rights inside of iraq in realtime and it's not just from

a human rights perspective, but it's quite important from a political perspective. the nature of some of the abuses that are being carried out, they're doing a whole lot to sort further rend the sectarian fabric of the country apart. stepping back to our report, i guess there were a couple of things we were trying to say. the first one, probably was, look, let's take a deep breath, focus on recalibration, and see if we can work a little bit to get the politics right. it's been a rough couple of months for the anti-isil coalition. no doubt about it. general allen is quite upbeat and optimistic about this. we share his enthusiasm, but the events, the fall of ramadi, really did jolt the policy establishment. there's good reason to be concerned. but the first point we would like to make, there has been a lot of reaction to those events. and a number of critics have

said, the fall of ramadi calls into question the strategy of relying on local partners to do this fighting. in essence, the u.s. has to look at deploying significant number of combat troops back into iraq to stiffen the spine of iraqi and take this fight to isil. and one of our big takeaways, the time we have spent in iraq, going back and forth, the u.s. has the most efficient and fear-fighting machine on the face of the planet. but tens and thousands of u.s. troops aren't not going to fix what are fundamentally political problems and the crisis in iraq that led to the creation of isil. there are people on the other side who basically say, as we heard general allen said, look it, iraq is at a stage where it could -- in all likelihood it's going to disintegrate. it's going to break up into statelets, sunni, shia and kurdish. we need to re-adjust the u.s. policy against that.

and what we're saying, none of us are yet convinced we're at a point where it makes sense to short the iraqi state. iraq holding together as a bulk work and having to work to fix the politics of iraq, really does provide the best opportunity for some sort of policy that's going to support the united states and also stabilize the region. i mean, so, where does that leave us? rather than getting into discussions of tactics the additional troops, lilly pads, where they might go and belong, we wanted to focus on the wider politics of iraq, syria and the region. the first step we think at the regional level is to work a bit more on the unity of effort amongst the coalition. general allen and his team have

been doing a great deal of work to stabilize there, but there are still outstanding issues we need to address. of the three coalition flying air strikes, only three are hitting targets in both iraq and syria. you have arab members of the coalition who have struck operations and most of our european allies are focused on iraq. there needs to be more to break this stove pipe and engage the territory as a single theater. efforts to support local partners on the ground and from the air need to be coordinated at a regional level. so say, the iraqi security operation that we saw launched yesterday in anbar needs to be coordinated better with assistance going in to, say, the syrian kurds who have been doing a great deal of fighting in the north. if we can break the politics, though, by the short-term imperatives of defeating isis

discuss to regional stabilities. one of the most interesting things here, if, in the short term we cannot let this crisis go to waste. it's possible that the coalition could provide the architecture for a regional security apparatus or framework. it's not too soon to begin exploring this with our partners. getting into iraq, the general said things about his dedication to functioning federalism. and for us, this really is the heart of the matter. something has to be done that's going to open the door to the sunni arab population to make them feel as though they have a real stake in the future of the country. so far, there have been some important pieces of legislation, the concept of a national guard, but most of the stuff right now is still stuck in the political process and on its own it's not going to be enough to convince sunni arabs to come back in the political fold.

so, we need to be supporting the prime minister to build out and make tangible this concept of functioning federalism. in a way sunni arabs feel and respect that to come back into the fold and affect the way we conduct the campaign. the u.s. made a decision to withhold air support until the iraqi security forces were leading the fight. it's that kind of moment and that kind of posture and policy that we need to constantly reinforce to make sure that the central government is driving the show and those populations that are in areas combat is being undertaken have some confidence that they are representing them. syria remains the hardest part of the puzzle, and there's no

doubt about this. the coalition itself is divided. general allen made some comments about this, but i think he's walking a very delicate tight rope in trying to hold this together. the u.s. strategy has hinged on this program to train and equip 15,000 anti-isis fighters. if we're still at a number of 60 almost a year in, there's clearly a need for review. general allen focused on what we'll need to do to get that process going. but in and of itself, i'm not sure it's going to be sufficient. one thing we're arguing in the report, once we can get this program online, it's going to be necessary for the u.s. government to not only defend those forces when they go back into syria against isil, but they also need to be able to defend them against the regime in damascus which is committed to destroying them. this is a step that we're not willing to make on behalf of our partners there. it's probably about time we do so. finally, i think if we are

willing to step in a more direct way and assert a willingness to defend these partners, it may open up a window of opportunity to re-engage a diplomatic process. i don't think it's going to happen anytime soon. at the moment, the diplomacy is largely stalled. and what we need to do, what we've seen in the past is when there are moments we're willing to engage with the credible threat or use of force, we see the diplomacy process start to reignite. we don't see an end to the civil war any time soon. but creating a framework that could lead to de-escalation over time. all of this is a tall order. we think the administration should work hard to align its military in support of its political strategy rather than focusing on deploying tens of thousands of additional troops. to make this easier, it's

probably important to appoint one person, one commander, one envoy who's really going to be in charge of this effort. general allen has the management of the coalition piece. different commanders in charge of the effort in iraq and a separate set of commanders in charge of the train and equipment effort outside of syria. and being able to coordinate both the diplomatic and the military assistance aspects of this in a coordinated fashion is to be essential to success. the president has warned that it is going to take years for this battle to be won, and one that the region is going to have to embrace. but without proper recalibration of what we're trying to do, i suspect that the fighting against isis is going to prove more longer and drawn out than it needs to be. thank you, brian. >> thanks, hardin. steve, i want to turn to you, first, hardin said, the strategy is fundamentally okay, we just need to recalibrate it. we heard general john allen earlier, your assessment whether you agree or disagree and how you see the snapshot right now where we are. >> first of all, i think the strategy you heard here sounded very familiar to me.a coalition that's

going to wage this conflict. sorry. >> battery just died. >> to wage this particular conflict, it's going to do it by military training of local troops, it's going to do it with some elements of air power and some elaborate, political engineering in societies that we do not understand very well. i think we have seen this movie a couple of times in a couple of different places over the last 20 years. and it's yet to work out particularly well. also we're getting told it's going to take years. i think i heard that message before. so, i would love to believe that this effort is going to succeed in ways that previous efforts had not. i didn't hear anything today that suggested it's being conducted in any particular way. that's my first point. my second point is i think we thought about this problem in somewhat of a wrong way and it made us exaggerate the danger groups like daesh pose. i want to indulge on how we ought to think about it. we ought think of isil as a

revolutionary organization. it's actually creating a revolutionary state. no matter what it calls, that's what it's doing. and we have seen that happen many points in history. going back to the french revolution. to the bowllshevikbolsheviks to revolutionary iran. the good news is that the history of those experiences actually suggest that this is a problem but it's not a mortal threat, because revolutions are really only a serious threat when they happen in a major power, all right. so, the cambodian tragedy was terrible but it didn't launch a movement across the rest of the world. the bolshevik happened. the french revolution was a serious problem because it happened in a great power. but if you look at isis' actual capabilities, it's not likely to spread by conquest, because it's not powerful enough to do that and it's not likely to spread by contagion.

it's not rich enough to support like-minded organizations elsewhere. the message, although it will attract a few foreign fighters, some degree of lone wolves it's not going to be seductive enough or powerful enough to topple governments around the region. in terms of capabilities, right, we hear a lot about the amount of territory they control. most of this territory is empty desert. not particularly valuable. if you calculate up the total gnp of the area isis controls it's between $4 billion and $8 billion. that puts it on par with barbados, guyana. right. that's rich for a terrorist organization, it's very poor for a state. they appear to have $500 million of revenue per year. that's much smaller than the budget of harvard university. no matter what harvard might think about itself, it's not about to take over the world either.

it's not going to spread by conquest because it doesn't have the capabilities to do it. i also don't think it's going to spread by contagion as i indicated. the message is not very attractive, even to most of the world's muslims. they're not going to be able to support like-minded groups with resources in the way, say, the soviet union could and others. the acts of violence that they already conducted are turning off other populations. and other states have lots of way to try to immunize or insulate themselves against that particular danger. in the unlikely event that one or two isis clones might emerge in some other failed state, for example, in libya, i don't think they're going to take orders from al baghdadi and follow him because they'll have their own interests to pursue. again the history of other revolutions suggests that there's actually deep divisions.

whether it's the divisions in the french revolution, the sino-soviet split. or between stalin and trotsky. or any other set of conflicts. we have seen, of course, isis at odds with a number of other extremist organizations as well. so, again, it's not likely to be the kernel of an emerging monolith that we have to worry greatly about. one reason we have coordinating efforts because other countries recognize that the threat is not that great, and there are other concerns that they have that lead them not to coordinate activities against isis, whether it's turkey worrying as much about kurdish independence as they worry about isis. whether it's saudi arabia worrying as much about iran as they worry about isis. what i'm suggesting here is this is a problem, but this is not the kind of global revolutionary

danger that it is sometimes depicted as. finally, the bad news is getting rid of it may not be that easy either. counterrevolutions turn out to be hard to run, too. the more the united states does, the more kinetic our activities the more we reinforce the isis message, make themselves more popular, the more we appear to be backing some of the sectarian tendencies within the baghdad government as well. i conclude from that, therefore that the american role should be -- the american goal should be patient containment and the u.s. role should be as minimal as possible because the larger the american role is, the more popular we are likely to make this movement, and the larger the american role is, the less local actors are actually likely to do because most of them are extremely good at getting uncle sam to do the fighting for them. we can provide weaponry, we can provide intelligence, we can

provide perhaps some modest degree of military training, but this is ultimately a campaign the locals will have to fight and win. the good news is it's not going to be actually that hard. >> thank you, steve. so, sarah, if hardin says tweak the strategy, recalibrate it and steve says, no, we can contain it. patient containment is the order of the day. let's avoid these attempts at social engineering. what is your perspective? where are we and how do you see things? then, we'll get into the discussion. >> i think we're somewhere in the middle. you know, i want to thank you for hosting this and thank you for doing this report. it's been awhile since we have taken a look at where we are. we're about a year out from the campaign and from my perspective, there are some gaps. general allen is open to tweaking things a bit. we have been looking very closely at the campaign in both iraq and syria. and i think what we find, while isis is an incredibly brutal and

horrific group, bringing in new recruits and using social media in ways that has never been used and thwarting the norms that you had, i think what we're looking at is the missing piece in the campaign is very much on where the governments are both in the case of iraq and syria. i want to talk about iraq and then syria. i want to talk about it in terms of a larger strategy. last fall, we put out a report on the town of amerli, which some of you may have seen. what we saw in the aftermath of the u.s. coalition strikes, shia militias ended up ransacking the villages around the town with incredible destruction. none of the homes or residents that were targeted were military targets. it basically was revenge attacks

for historic grievances and ongoing polarization. and sectarianism. there has been very little accountability for those types of actions. we are in the process of working on a report about tikrit. while that may be seen as a success from isis, what we've seen is the burning and destruction of over 1,000 homes in residential areas in tikrit and some of the surrounding villages. so, while you may have the shia militias doing a decent job of clearing -- decent i sort in quotes -- you have a problem of clearing and holding, it's not tied to a larger strategy and the government of iraq hasn't been sufficiently present. both capacity wise and sometimes willing wise. we have documented these ongoing

abuse and destruction that furthers a lot of the grievances and the polarizations that have already existed. the alienation of the sunni community is one of the real reasons we've seen a rise of isis, particularly in iraq. while the prime minister has been clear about his commitment to exclusivity and building a new government, we have seen some backsliding on that. we have seen in part because there are a lot of challenges he faces in baghdad in terms of working with his ministers, we have seen a real challenge in moving forward to build an iraq for everybody. you know, i think the other piece here is that, part of dealing with the militias is ending the cycle of impunity. it's not just the militias but the iraqi security forces as well despite the long history in building the military forces over the years. and so, what we have heard time and time again, during travels in iraq, we'll deal with these other issues as soon as we

destroy and defeat -- defeat and destroy isis. in fact, it's a parallel process. the political part that hardin talked about is so essential to defeating isis and bringing sunnis into the government. the justice ministry has been long known for holding detainees for a very long time and in many cases torturing them not adjudicating fair trials and balance processes. you have an imbalance. on the political and military side. and while the threats are incredibly real and troubling, you know to your point, perhaps more so in the immediate term to the iraqi government and the iraqi people than it is to the united states, nonetheless, the u.s. has engaged in the campaign and is providing significant support. and so, while we have heard a change in statements and some change in language about the need, you know, to address undisciplined acts and for there not to be any revenge, it's

implementation. when i was out in iraq, i spent some time at the peshmerga and i was surprised to find out how adamant they were about the concern, the abuse going on by the militias and there was no accountability. and for the government to take very clear steps to try to bring some of those individuals into jail, to rein in the militias would be a good parallel to training the sunnis and bringing them into the military itself. it's not just about holding them to account. so, that's the iraq side of it. i think, you know, that enables isis to have what some have said to me recently is a growing political constituency. there's not a natural constituency for a group like isis. it grows after isolation from the government.

where they are stuck between a rock and a hard place. what i have heard time and time again on my trip is, i don't like isis but the government is making me terrified as well. and they are going after me as well. when you're stuck in that place, you have to choose the best of two very, very bad options. on the syria side, you know, i think we look consistently at the horrors of isis, but what's missing is what the government is doing. and when you look at our syria policy, as you said, it's really -- i mean i it's short. on details. we see a bombing campaign that is going solely after isis. isis is the symptom, not the root of the problem. in syria. we're training the armed opposition, but, again 60 people that can only going after isis and sign a pledge when they're going to be attacked and

consistently from the air and ground. and trying to get something politically going is dead on arrival. the inattention in the case of syria to what the assad government is doing, outside of rhetoric, is a gift to isis, and frankly to the other incredibly abusive groups that are trying to manipulate the situation. not only does it enable a growth of anti-american sentiment which we have seen time and time again, but it also enables assad to continue his attacks against civilians. if you look at civilian populations, attacks on civilian population they are far more deadly and consistently attacked indiscriminately barrel bombs than by isis. this is not to undermine what isis is doing, but the fact that assad has been pushed to the side while the u.s. goes after isis, isn't going to get us where we need to go. if this is in fact a long term strategy, we're looking at

displacement of unprecedented levels, sometimes because of isis, but more often than not because of the syrian government. we're not actually addressing the root of the problem. it reminds me a lot of when the obama administration returned to afghanistan and pakistan, they said the core of al qaeda is in pakistan. so we're going to go to afghanistan. i thought, well, i get it. you know it's a border -- long border and easy to get through. if the core is in pakistan shouldn't we be shifting our focus to pakistan, not afghanistan? so it's like they're going in the back door but not addressing what the root of the problem is. we've seen time and time again a lot of conversation about syria. we recently saw some briefings at the un on barrel bombs. there is going to be an attempt to revisit what the international community can do which we certainly see, as a positive step. i think i would just say, in

closing, that the silence of the administration on potential next steps is because they think it requires a broad military effort. but maybe that's not the only way forward. and i think, you know while there's pretty clear indication they're not interested to pursue military against president assad. what else needs to happen have stopped as well. i would say while they're looking to tweak and rejigger the anti-isis strategy, looking at what the role of the government -- in the case of iraq where there may be more ability and willingness to work with the government to address a lot of the historic or even alienation and abuse but also looking at how and where you bring in the syrian government prong is hugely important. otherwise you'll just be putting a band aid over this again. we will be replaying this movie again and again and again. we'll be here five years from now saying the same thing while

millions of people are dying and foreign fighters increase and continue to move through pipelines globally, and while the u.s. spends a lot of money, but isn't actually addressing the root of the problem. >> great. thank you, sarah. i think all three of you have set the table for an excellent discussion. i want to note we're running behind on schedule. i think we had planned to close this by 11:30. i'm going to take some questions from the audience. the one question i wanted to ask and we'd be remiss in not asking it. i'll start with steve. given the news of this morning, we were talking about this over coffee, and if all of you could respond, but we'll start with steve. the news of a nuclear deal which the administration i think rightly says this is about the nuclear program and the most effective way to prevent iran from getting a nuclear weapon. what's your analysis though on our topic the impact of the deal potentially on regional dynamics

and how could -- i know it's speculative analysis how it could impact the implementation of anti-isis coalition. >> it's unlikely -- i don't know if you can hear me or not. i think it's unlikely to have a substantial effect on what's going on with isil. i think the administration is going to focus as narrowly as possible on getting the deal approved. i don't think you're going to see this deal then suddenly alter america's approach to dealing with the isil or syria problem. i don't think you're going to suddenly the iranian government get up and say now that we have a nuclear deal with the united states we no longer have any equities about what's happening in baghdad or interest that's happening in a country next to our border. we will completely change our relationship with hezbollah,

assad, et cetera. they have their own set of interests. over time those may be modified moderated, may adjust. that's what i think the administration will bet over the long term. i don't think you're going to see a substantial shift in american policy or iranian policy flowing out of the nuclear agreement. probably not say in the next 12 months or so. >> i think it's probably likely but i think it may be a mistake. we're probably at a moment now -- we are where we are with the deal. it's no secret that iran has continued to engage in reasonably bad behavior in the rest of the region. and there's a question, and many of our regional allies are looking at us over this. can you actually do a deal with the iranians on the nuclear front compartmentalize that and be tougher on us with iranian activities through the region. this is like the ideal moment

for the administration once they have come through and do the deal to begin to quietly reinforce and show we'll be more rebust in how we've sort of allowed or managed iranian activities to spread in the region. i think one of the things we can probably do on this, there will be a lot of attention to the amount of money that iran is going to bring back in its economy as the sanctions come off. and working with folks in the region to make sure that that money doesn't end up funding stuff that leads to -- additional destabilization in the region i think will be quite important. the last thing i want to say, your point about contagion and isil, i don't think it's a question of contagion in the traditional sense that we're worried about isil moving into libya and taking over as a statelet. isis's presence in syria and iraq is destabilizing for those countries and more broadly in the region.

it's less a question about whether or not they're going to take over capture or run jordan, for example and whether or not they will destabilize the region. in the way in which we all kind of fought and hoped that most of what was going on was contained in syria, and then last year it spread into iraq, it's a question less of caliphate expansion and more of destabilization contingent. >> two things, one is most of these places were already quite unstable already. libya didn't need isil in order to have problems. and so i don't think isil will be contributing to that substantially. i think the number of people killed in isis-related events outside syria and iraq outside the area it controlled last time i looked was somewhere between 20,300 people. that's tragic. unfortunate. but that is low level violence. that's not the kind of thing that's going to alter the political fate of those

particular societies in my judgment. on the second point, the sort of role of iran notice how complicated all of this is. in fact we're on the same side with iran vis-a-vis daesh. they don't like them anymore than we do. the saudis and iranians don't agree on anything except they do agree about isil. they are opposed as well. that gets to sort of the contradiction that i think is in the report and a few of the things that sarah said. we don't like assad but assad is their enemy too. we can't decide if we want to get rid of assad more than isil. if isil is the real problem we don't want to support forces that are weakening other enemies of isil. it illustrates how tricky it's going to be to try and manage the various strategic objectives we're trying to accomplish there. >> do you have anything? >> very briefly. we take no position on the agreement. as an organization. i do think what it may do --

it's interesting the president kept saying this is based on verification not based on trust. i think whether and how trust isbe built is an important next step for the u.s. and iran. i think the next issue is you're going to get this out of the way and get it up and running. one of the other issues you've got to do if you've got the regional role they're quite destructive and abusive. you have the domestic role or the domestic issues in iran that play a role. there's a real expectation from many within iran, many sort of average citizens that now rouhani will be able to look at the commitments he made when he became president on domestic issues, juvenile death sentence would be a first one. there's an expectation that they will begin to come full circle from support from the un to look at domestic issues within iran. it seems to me incumbent the role they play regionally will have to be part of that

conversation. it's going to be a lot more of a difficult conversation. i could see them flexing their muscle to say we've got to hold on to this because we just lost that. >> you mentioned the domestic politics in iran. the last question i want to ask -- you're going up to the hill later this afternoon to testify on a different topic. how do you see the lack of action in terms of congress on authorization of the u.s. of force? just the stasis and the stalemate there. what does that mean where the u.s. is at in these campaigns, these are campaigns coming up on the 15th. your anniversary of the 9/11 next year. so how do you see sort of the politics here at home? >> yeah, this may be overly cynical, but i think it's a reflection of the fact that the body politics to include people on the hill ultimately do not regard isis as that serious a problem. definitely a problem something that's worth effort, but not

something where they're getting phone calls every day saying the united states needs to do something like this. for the last ten years, we've seen a sharp decline in public enthusiasm for american intervention. that's reflected in the fact that people on the hill would rather play politics with an authorization than actually get it through. it's forced the administration to, therefore sort of improvise their way to action once they decided that's where they wanted to go. that could be overly cynical but one can rarely be too cynical around here. >> to me it's more an indication of the dysfunction of congress than anything else. there are members of congress who are very focused on making this happen and have tried. it keeps getting used as a political tool to stop or start conversations it doesn't get anywhere. >> we'll open it up for

questions to the panel at this time. please tell us who you are and if you have an affiliation. >> john. general allen talked about the role operations played in daesh's rise, can you talk a little bit about what's needed and what's happening in that realm? >> this is one of the toughest sort of parts of this to crack, right? the state department, you know, has been engaged for quite some time to get a campaign up and running to sort of go toe to toe toeidetoe ideologically in reasons where it has traction. it's important for the united states to play a leadership role in that effort because we don't have a great deal of credibility with that particular audience. this is something that needs to be led by the region.

and the good news here, is what we're beginning to see with the uae, and putting that into place where the uae and others in the region can take a larger leadership role in the counterinformation campaign to me -- it's not going to solve this anytime soon, but it's showing progress in the right direction. >> two at once? >> two at once and then we'll wrap. >> one question for ms. margon. general allen talked about displaced families returning to tikrit. you spoke about thousands of homes being burned in tikrit. and i don't know -- what i'd like to ask is do you have more specific figures on the

repopulation of tikrit? i think that's a barometer of the success. you take it over, but the local populations actually coming back? and for mr. lang, general allen talked about, you know, giving a chance to functioning federalism. and other policies of the iraqi government. normally you would think that we would go in as was the case with the surge, there was military -- it's a multidimensional effort, you would think we would go in with programs, for example, the usaid supporting a government. today usaid is closing down in iraq. i wonder if you could comment about that. i don't think that has come up in discussion. >> we'll take one more question down here. >> thank you.

i have two questions. first question is, with regard to possible kickstarting question is with regard to possible kick starting of the stalemate political negotiations in syria. what role do you see of iran and russia taking such an effort? and my second question has to do with lebanon. neighbor of cyprus and political concentration. what do you say the dangers of lebanon? >> so on the numbers, we don't have exact numbers of who has gone back. it's been one of the things we watch very closely after the victory inn tikrit.

they weren't sure who was running, who the authorities were and how they would be treated when they got home. but also because they weren't sure what they would be going home to. slowly we have seen populations come back. i don't have the incomes. our forth coming report, i can't give you a date. but hopefully within the next month or so we will have this information. to see not just who goes back but how they regain their livelihoods and engage with the authorities and also how they work with the central government in baghdad to rebuild a lot of what has been destroyed. that's going to be something very important to watch. >> great question on usaid. right now the money for assistance that's been channeled in two fronts. one, humanitarian going to people fleeing and this u.n. trust fund. it's been a long time working with the u.n. so i understand the concept and

what it's going to do. the question is whether or not that can be responsive enough to support the kind of political initiatives particularly at the community level that will be necessary to start bringing people back on side. there are offices like the usaid that can do this kind of work. it's not clear to me they have been mobilized in any significant way yet. i don't think that's a question of lack of initiative but whether or not they have been brought in fully to this effort. i think that you identify a core problem with the nature of the campaign. it's not just the u.s. government here but others who can do more to mobilize stabilization funds through the working group of the coalition. but get it on the ground and get it working. there aren't many shops and offices that can operate in these environments. so we need to go to those who can and show proof of life. >> we looked at the republic opinion in the wake of the

decisions upholding the health care law and approving same-sex marriage, among others. we spoke with one of the members of the firm about the findings. this is from today's washington journal. >> hello. >> hi. how are you? >> fine. thank you very much. we are going to talk about the details of this poll. the topic of the supreme court and partisanship. what were you looking for? what did you find? >> well what we found is the public basically -- we gave a choice. we felt the supreme court was acting in a constitutionally sound matter or whether in essence they perceived the court as part answer, like democrats and republicans in congress. essentially two and three think they are acting along partisan lines. moderates and conservatives basically see them as partisans.

a little less among liberals. in fact, that's the only real divide among the public where liberals tend to see them as acting in a constitutionally sound matter. but everyone of every type and description, with the exception of liberals say they are split with republicans and democrats. in essence almost like politicians in robes. >> were these responses specifically tied to decisions about same-sex marriage decisions about subsidies under the health care law or overall people were asked about these things? >> we asked this question in the past in a somewhat different form. 10 times, actually. this time we thought we might see something split on political grounds by congress when we asked in terms of the affordable care act, also known as obama care. half the people heard that.

half the people heard whether the same-sex marriage decision whether they were split on political grounds or act anything a constitutional matter. the learning was the split is the same. it didn't make that much different. two in three americans think they act like republicans and democrats in congress rather than acting in a serious and constitutional matter. >> mr. green, one of the things we talk about here on c-span and other people talked about as well is the idea of cameras in the supreme court. you asked questions about it. what did you find? >> this has been so interesting over the six years. majority have always supported cameras in the supreme court. but what we're finding is that support is actually up 15%. it's bounced around a little bit. it's never dropped a lot of the 60s, low 60s.

how basically three in four americans, and this includes americans of every type and description. doesn't matter if they are liberal, old, young, they are virtually identical percentages they would like to have tv coverage of the supreme court. >> when the term -- when the matter of lifetime appointments, which is how supreme court justices are chosen and what they get did the public think that was a good thing or a bad thing? >> well, that's another thing that i found really fascinating about these numbers. most people when asked in essence do you strongly agree or strongly disagree that the u.s. supreme court justices should serve lifetime appointments they break 60/40. when you give a specific alternative, then the support gets really strong. in essence, we get essentially

four in five americans would prefer -- and we tested this particular alternative. there's been others. we tested an 18-year appointment with the potential for reappointment. in other words, if somebody couldn't serve as long as 36 years. in any case, that -- when you give them something specific the public knows what they want, which is they would much prefer these guys are serving long terms rather than lifetime apartments. >> robert green, you asked participants to talk about the educational background of the justices. why did you do that and what did you find out? >> well, we just thought it would be interesting to see that whether in fact we basically mentioned -- set up in essence that most -- well, all the justices are basically come from harvard, yale or columbia law

school. and whether in fact they felt justices -- future justices would ideally come from some different background. we found very strong 4 listen 1 support for different backgrounds rather than, if you would, the ivy league law schools. interestingly, the older you are, the more likely you are to follow the court. 50 and over voters as well as non-voters by enormous margins. 8-1 want justices to come from a different background. the only americans slightly more likely to support ivy league traditionalism would be the younger ones. not that they don't also break toward wanting justices from a different background. but at least the margins are a little closer there. in essence, americans want something different. one thing about this is what we were looking at is strangely if

you saw justice scalia's descent in terms of same-sex marriage he looked at some of this. we wrote the question before any of that happened and have asked the question several times over the years. so they really want term limits -- pardon me, they would prefer terms and they would prefer the supreme court justices came from different and broader backgrounds than what they do today. >> much more information available on this recent poll done by pen sean and burr land. robert green joining us to talk about it. mr. green, thanks for your time. >> thank you, sir. >> up next on c-span3, a look at the dodd/frank financial regulations five years after they were signed into law. we'll hear from house financial services chair jeb henserling on the law. and thomas perez talks about

regulating retirement financial advisers. later, a discussion on islamic extremism. >> when congress is in session, c-span3 brings you more of the best access to congress with live coverage of hearings, news conferences, and key public affairs events. and every weekend it's american history tv traveling to historic sites, discussions with authors and historians, and eyewitness accounts of events that define the nation. c-span3, coverage of congress, and the american history tv. >> president obama signed the dodd financial regulation into law five years ago. up next, a panel talks about the different provisions of the law including the creation of the consumer financial protection board, and the financial stability oversight council. the american enterprise institute hosted this event.

>> good afternoon ladies and gentlemen. i'm alex pollack. it's my pleasure to welcome you here on july 21st the unhappy fifth birthday of the dodd/frank act to our conference on what should be done to reform it. 100% predictable feature and financial cycles is after a crisis there's political and regulatory overreaction. always. so with the dodd/frank act which, as you know a truly remarkable 6th flores sense of regulatory bureaucracy and deadweight costs. unchecked and unbalanced authority to bureaucrats.

all the while utterly failing to address the blunders which were so important. are we stuck in the bureaucratic mire and can we fix it? if so, how in particular? you're about to hear how from our expert panel. let me introduce them in the order they will speak. as we proceed through the panel, we will be working our way through the various titles of dodd/frank. first will be my colleague, peter wallison, who is arthur f. barnes chaired fellow at aei. peter co-directs a program on financial studies and pew financial reform task force and

served on the inquiry commission where he wrote a very enlightening and highly controversial descent. he was white house council to president reagan, general counsel of the treasury department and practiced corporate law. financial crisis was spawned by the financial -- the financial crisis spawned dodd/frank. but do you understand what spawned the financial crisis? buy peter's book hidden in plain sight in case you haven't yet. >> our second speaker, senior director of global affairs strategy and public policy at bloom berg, where he covers policy issues in europe, asia, and the u.s. equity fixed income and

derivatives markets and the impact of capital or the lack thereof, i assume. on market structure. chris is special counsel and policy adviser of the commodity futures trading commission, including the time of the implementation of title vii of dodd/frank and worked for the house committee. next will be j.w.whitt at george mason university. senior scholar on federal markets. previously j.w. was on the staff of the financial services committee in washington, d.c. he has written extensively on corporate law with his academic work appearing in the journal on regulation, journal of corporate law, and university of pennsylvania journal of business law and other journals.

our concluding panelist will be mark calabria director of financial regulation studies at the kato institute. previously mark spent seven years on the staff of the senate banking committee where he drafted significant portions of the housing and economic recovery act of 2008. that's the act that established a new regulatory regime for fannie mae and freddie mac, just in time to put them into conservatorship. mark also worked at the department of housing harvard's joint center for housing studies, the national association of home builders and the national association of realtors, as well as the census bureau. as you can see he is very experienced in the government housing complex. and therefore well prepared to reform it. each panelist will speak for 12 to 15 minutes, after which we will give them a chance to react to each other's comments or

clarify points. after that we'll open the floor to your questions until about 2:30. at that point, peter wallison will address our key note speaker of the house financial services committee. so on to our panel. and, peter, you have the floor. >> thank you very much, alex. i'm going to start with just a little bit of background on the act and then cover titles one and two all in 12 to 15 minutes. reforming the dodd/frank act will be difficult because most of the public has never heard of it and continues to believe that the financial crisis was caused by in sufficient regulation of wall street. in reality, the financial crisis was caused by the government's own housing policies, which forced a major reduction in mortgage underwriting standards. by 2008 more than half of all mortgages in the united states,

that was 31 million loans, were either subprime or otherwise riski. and of those 76% were on the books of government agencies, primarily fannie mae and freddie mac, the two government sponsored enterprises that dominated the mortgage market. that chart, which some of you were close enough can actually see, gives you a visual representation of what it looked like. everything on the left, blue, is fannie and freddie. above that is fha federal housing administration. above that other agencies also doing the same thing, v.a., and some of the agriculture credit agencies also make loans. on the right the black, is the private sector's contribution, which is about 24%. and we'll get to that in a minute. the remaining 24%, and that's the black on the right of these

mortgages were on the books of the private sector. and when all of these mortgages began to default that is the ones fannie and freddie made or bought and the ones that the private sector bought when all of them began to default in unprecedented numbers fannie and freddie became solvent, as we know. and many of the financial firms that bought these mortgages also got into trouble. and some failed. now, instead of reforming the government's housing policies, which would have seemed to have been the right way to proceed here, the obama administration sought to punish the private financial sector with the dodd/frank act, which was one of the most restrictive regulatory laws since the new deal. in effect the congress and administration were attack the symptoms rather than the disease. i don't have time to discuss all the details. but if you have interest in really understanding why we had a financial crisis as alex

suggested, it is in my book, called hidden in plain sight, published in january. this is an historically slow recovery from the recession that followed the financial crisis. and we can see the slow recovery here. again, if you can see it from where you're sitting. you can see that the red line which is the recovery from the 2009 recession that followed the financial crisis, is a real outlier in terms of all the other recoveries from financial crises we have had before. now, why would this be? supporters of the administration's policy argue that slow rovers generally follow a financial crises. but recent academic work has disproved this. two respected academics looked at all 27 recessions. the u.s. encountered since the

1800s and found that those that followed financial crises actually recovered faster than those that were originated for other causes. there were three exceptions to this rule. the great depression, the period from 1989 to 1991 when the s&l industry collapsed and the most recent period which of course followed the great financial crisis. these three periods had much in common. and we studied them carefully. there were all periods when the government adopted new regulations and controls over the economy, those in the new deal are of course legendary as is the endless depression they produced. those in 1989 to 1991 included two regulatory laws. reform, recovery and enforcement act known as firea and the fdic

known as fidicia. now we have the granddaddy of them all dodd/frank act. this strongly suggests that the dodd/frank act is responsible for the slow recovery from the 2009 recession. just like its predecessors. moreover, because of the huge costs that it has imposed on the financial system, it is likely the dodd/frank act wet blanket will stifle economic growth in this country for many years to come. unfortunately, dodd/frank seems to have become something of an icon for progressives led by elizabeth warren. they will not agree to any changes, even small ones. now, most lawmakers have heard enough from their constituents to know that the act has been destructive and impeded economic growth. but democrats are very reluctant to support any changes for fear

of rousing the progressive base. in today's conference, my colleagues and i here on the platform will discuss some of the most problematic provisions of the dodd/frank all. not all but the most problematic ones. the title one authority from the financial stability oversight council, which i will call fsoc. that designate systemically important financial institutions which most of you, if you follow this, know as i sifiss. the liquidation authority in title two, the volcker rule in title six, derivatives in title 7, utilities in title 8, enforcement powers for sec in title 9. and the qualified residential mortgage rating agencies and the consumer financial protection bureau in titles 9 and 10. but i will start with titles 1 and 2.

title 1 gives the fsoc authority to designate certain large nonbank firms as sifis. the sifi idea is based on the notion that all large financial firms were are interconnected. you'll hear this all the time. you'll read it in the papers. they're all inter connected. and if one fails, this is the theory, it will drag down others. that's why sifis have to be specially regulated by the fed under dodd/frank to reduce their risk of failing. however, we can see from looking at what happened after lehman brothers, and this may seem counter intuitive, after lehman brothers failed, that this idea is wrong. no other large financial institution failed as a result of on lehman's failure. and this is true even though lehman was one of the largest nonbank financial firms and a major player in the credit

default swap mark. and also its bankruptcy occurred at a time when market participants were very worried about market in stability. this shows that large nonbank financial firms are not dangerously interconnected. and if one of them were to fail it would not drag down others. so there's no need to designate nonbank firms as sifis and no need to save them when they fail. since designating firms of sifis is unnecessary and extends the too big to fail to other areas beyond banking fsoc designation authority should be repealed. title 2 of the act is called the orderly liquidation authority and provides extraordinary power for the fdic to resolve large failing financial firms, including banks and nonbanks.

from what i said earlier about lehman, it should be clear there is no need for a special system for resolving or rescuing nonbanks. they can fail and be resolved in bankruptcy without harm to the rest of the economy. lehman's bankruptcy caused chaos to be sure. but that was because it represented the government's complete reversal of a policy of rescuing large firms that market participants thought the government had established with the rescue of bear stearns about six months earlier. until the sunday before lehman filed for bankruptcy, the treasury and the fed thought they had a buyer for the firm. when that fell through, the government had no plan b. it refused to put up the

necessary funds so lehman's bankruptcy became inevitable. although lehman's bankrupt lawyer was contacted earlier in the preceding week he was not authorized to draw any papers until late on sunday before the filing on monday morning. because of this government bumbling, any opportunity to keep lehman operating under section -- chapter 11 of the bankruptcy laws, was lost. still, while chaos resulted from lehman's bankruptcy, i want to repeat no other large financial institution failed. now, there is one group however, whose failure could cause a systemic event. these are the very largest banks. say those in the trillion dollar category. because of their role in the payroll system, and they perform other services in the financial area, it could be important to keep the largest banks from failing. the fdic suggested that it would

do this through a process it calls single point of entry. spoe. and which i will pronounce as spoe. under spoe strategy the fdic said it would use dodd/frank powers to take over the holding company of an operating bank and use the resources of the holding company to recapitalize the bank. thus the bank would keep operating and would no longer be a danger of creating some sort of systemic default. the idea has attracted a lot of favorable attention. but there's one big problem. as pool kubiak, my aei colleague and i showed in a recent paper it doesn't work for the largest 12 banks. the very were ones that might actually be too big to fail. the fdic may have assumed if a major bank fails the holding

company would also become insolvent so the fdic could take it over under dodd/frank. unfortunately, none of the holding companies of the largest banks becomes insolvent if its subsidiary bank is wiped out completely. if its investment in the capital of a subsidiary bank is completely wiped out, all of them have other subsidiaries and other activities that keep them solvent. if they're not insolvent, title 2 of dodd/frank does not authorize the fdic to take them over. so the fdic's spoe strategy will not work. now, this is important because the fdic will then have to take over a failing bank in the old-fashioned way and resolve it in the only way the agency apparently knows how. and that is by selling it to a healthy bank. the trouble with that is that in an era when people are concerned about too big to fail, that won't work either.

it will just make the buyer bank that much bigger. thus dodd/frank does not do the one thing that proponents claim it would certainly do and that is eliminate too big to fail for the very largest banks. there is a way to solve this problem. the largeest banks can be made virtually fail safe by loading contributions of equity capital to their holding company. that's the best solution to the tbtf problem too big to fail problem. but to put it into effect, title 2 would have to be essentially replaced. even elizabeth warren and president obama will have to recognize that dodd/frank must be amended in this way if it is to accomplish its most important purpose. thanks very much.

>> thanks, peter. chris. >> thank you, alex and peter very much for inviting me here today. it's a pleasure and honor to be here. so i'm going to briefly discuss the volcker rule and the new derivatives rules. and i want everybody to have a political context. because both were highly a little bit sized. getting through congress and once they were put into implementation in the agency process. dodd/frank directed regularities to make substantial changes to the structure of the capital markets without understanding the consequences of those actions. some consequences have been good and some consequences have been bad. some of the good is that you have risk management procedures that have totally changed the industry and the way it operates, which i'll go into later. the bad was that dodd/frank is row managing trading behavior and that is impacting liquidity. as a result we no longer have

freely functioning capital markets, but what we do have is a capital market that has been centrally planned by washington regulators who are terrified of risk. the volcker rule was put into place by a third agree amendment. there was no hearing to discuss what this would do to our capital markets. the policy, although it might be designed to achieve good is to prevent banks from using deposits backed by the fdic and cheap credit from the fed to finance speculative risk taking. when you hear casino bam gambling by the president or washington leaders this is what they're talking about. after 950 pages of rule make we have corporate bonds, asset backed securities and investments in certain funds. it permits markets by customer accounts through a myriad of

rules. we have to ask if the policy was designed to stop trading, why are banks still doing it? the volcker rule allows prop trading in muni debt and u.s. agencies. you have to step back and say is that good for the system? if the idea was to stop people from using tax payer funds to trade, why is it you can invest in a detroit municipal bond and not ibm corporate bond. we should think about that. it's a good question. but the practical impact of the rule goes to the heart of what market making is. when washington chooses to micromanage decisions it makes compliance very, very difficult. there's no reliable way to distinguish customer acts and a bank's own account. because of this any rule that limits prop trading must inevitably limit marketing and customer liquidity. the ambiguity is forcing people to err on the side of caution and pull back.

this led to corporate bond inventory. so much so blackrock said the corporate bond market is broken. it decreased 77% since 2007. that's been aided by the volcker rule and other rules put in place by dodd/frank. title 7 was a derivatives rule. this, again was highly a little bit sized in congress and then when the implementation period occurred. it requires reporting of derivative transactions, clear them at clearing houses, entirely new registered entity, and margin on unclear trades. these rules were rushed, put through and forced down everybody's throat at five rules a week just because the only way that you can implement ideology is through 200 and 500-page rule

makings. this also revealed attention that is there to this day. which is the chairman at the time chairman against her wanted to overlay the swaps market in the mind-set and the mold of equities. but the staff only understood futures. equities are a horizontal market with many trading platforms. futures is a vertical market. so there's a disconnect in the rules which made it very confusing, which caused over 100 no action letters to be issued. and basically forced people to pull back from the market when trading first happened in 2012. now, trading has gone up a little bit from last year and this year. but there still isn't a substantial amount of liquidity people were hoping for. what you have seen is a bifurcation of liquidity pools. the euro dollar swap market, inter dealer market is in europe and you can't find it here. some of these rules put in place

were done outside on the apa. staff letters on the eve before a rule was going to come into implementation was put into place. it causes compliance officers to stop traders from doing anything in the marketplace. one of these rules -- or one of these policies was actually a good idea. it was called straight through proceedings. it glows through the a clearinghouse. there is no operational risk in the system. it's a good idea. but it should not have been put forth in an e-mail to clearinghouses telling them they had 60 seconds with which to accept a trade. the day before trading goes into place, staff issues guidance on this same topic, which causes confusion all over the markets. so there are ways to follow the apa and have public comment and prepare the public. not a lot of that was done in this situation. then there is the seth rule

making. interstate commerce. any means of interstate commerce. fax, phone, e-mail, et cetera. but what the chairman thought it meant was order book trading. but for my boss's amendment at the last hour we would have had a seth with order books. they have not taken hold in the market to this day. even though a false narrative said put products out there we'll trade them, don't worry about it, that hasn't happened. so when you end up with we have an rfq, our personal request quotes get them back and executes. the order book is empty. i commend the white paper that goes into a lot of depth on this topic. so where did that leave the cfdc? there is a provision that allows for cross-border regulation for derivatives trading. the idea is the u.s. will lead and everybody else will follow. well that's not true. and commissioner giancarlo said

they are being used as a weapon of choice. the u.s. claimed we have to extend our rules into the eu and elsewhere because we know best how to regulate and other regulators will not act in our best interest to prevent risk from flowing back to the united states. i can tell you i've gone to europe numerous times the last three years. each time i go they laugh at me. oh yeah, wasn't it you who imported your mortgage crisis into europe? we have to think about these things before we make policy like that. that interferes with international relations. a couple more things i know to talk about. there's been basis risks that's been created. basis risks is when you have a risk, you want to hedge the total risk. in order to do that you need a swap product. or use a futures product. but the future could leave you with almost 85% of your risk hedge and 15% just sits there and you absorb the risk.

you pass it on to consumers. you pass it on in your prices. also, it sits there on your balance sheet. so we don't know how much of that is out there, but that is starting to happen. the other thing the derivative rules did is really put the hurt on futures commission margins. they caused prices to go up so much it wasn't profitable. another thing we have to question that we can look at later. one good thing that these rules did is they did bring some price discovery through to the marketplace and there is a product, one product that is trading 93% electronically, cds investment grade. so that's very good. but the uptake hasn't been what was sold in congress or during the implementation period. so where does that leave us? central bankers took this time to watch and see what happened. politicians didn't break up the global banks. they just didn't do it.

but as time passed, they have become emboldened. they are using a complex web of trading, margin liquidity and margin rules to discourage risk taking into the markets and force an end to the global banking model. the global banking model was bred indicated on holding companies being able to transfer risks among affiliates and servicing large clients all over the world. they don't like that. the view is based on this simple fact. they believe they can contain any risks in their own jurisdiction and they can't regulate them outside their borders. so all these rules are designed to create that shift away from global branch bank to go fully capitalized subsidiaries under a holding company. this results in internal bifurcation of global trading and collateral functions. it makes you not just look at it a screen and click and be done with the trade and it goes to the back office but to think

how do i collateralize that. how do i source it? what's the cost of it. fixed income and derivatives are inextricably intertwined. so it is reshaping the entire industry. it's good because you understand the cost of the trade and the transaction all the way through. it's a little bit more risk management discipline. it is also good because you are analyzing your customer relationships and product offerings. some product offerings are disappearing, like single name cdss. this is bad because you are analyzing your customers. some of your customers, not the big ones are being told you don't have access to liquidity any. the regulations flowing from dodd/frank have also forced market participants to use only u.s. treasury and agency debt to collateralize their trades. they force banks to hold u.s. debt ascap a tal and they permit u.s. debt to be prop traded. why? why is it that u.s. debt gets

the sack row cinct level? why was it necessary to create an artificial demand for u.s. debt. is it designed to apiece the housing industrial complex by creating a permit spigot to prop up the housing market? i don't know, but we should ask. is it because regularities were directed to create an incentive to buy our debt because of a political need to continue to finance deficit spend something we should ask. is it because regulators believe the u.s. debt is not subject to market forces in it's a question worth asking. whatever the reason one thing is clear, the health and stability of our financial system is based on price systems of u.s. debt. if we have another flash crash that causes foreign investors are reevaluate our treasury markets, we could have a big problem. with an $18 trillion deficit, our debt is hardly risk free.

this regulatory planned market system is dangerous because it concentrates one form or debt on everyone's balance sheet across the system. and if markets move in an unexpected way, everyone will be holding the same wrong-way risk at the same time. now, that should ring a bell here. because that's exactly what happened in 2007 and 2008 with the mortgage products. and i doubt -- i highly debt the fed and congress will sit by and do nothing. s as for tkod frank, margin volcker rules will continue to exacerbate. the basis risk that i referred to in the derivative markets will only become a concern when prices move against market participants and force selling through margin calls. but one thing is clear to me. margin calls and large price movements will become the new normal. government rules are trading

decisions in the capital markets and decreasing liquidity and other asset classes. the net effect of all this forced change has been a decrease in sustainable sustainable liquidity in the u.s. swap and the corporate bond markets. and now even in our u.s. treasury markets. thanks. [ applause ]. >> thank you, chris. you made a lot of points but you want i.d. to comment on one. it is quite clear governments always promote government debt. and the employees of governments, that is to say regulators, always promote government debt or the sponsored agencies of the government. and i think that's a big problem. j.w. >> all right thanks. i'm going to talk about title 8 and 9 in 15 minutes, which is a challenge. because i think there are hundreds of pages together. start with title 8. >> the chair is sure you will meet your challenge. >> yes. title 8 is a provision that is i think probably inspired by some

of the central clearing provisions in title 7. title 8 provides for the designation of financial market utilities that are deemed to be systemically significant by the fsoc. platforms provide for settlement clearing or payment systems. so a wide variety of types of fmus, dttc, which provides a settlement system for the trading of securities to the clearinghouses chips program interbank payment program. title 8 does two things essentially. it's said that when god closes a door he opens a window. here when regulators close a door they open a window. in this case it's the discount window at the federal reserve. so what designated fmu is

deemed -- once deemed an fmu becomes designated for a special regulatory regime from either the federal reserve or in some cases for the sec and cdc. and they have automatic access to the federal reserve discount window, here to for limited to commercial banks. there could have been another way to i think run this railroad. if title 7 and rule makings under title 7 allowed for more freedom in ownership of clearing and settlement systems you would have firms more willing to pony up to provide any liquidity needs of these firms. but the way title 7 was implemented there were very dangerous restrictions place said on the ability of these entities -- the ability of private parties to take ownership in central clearing entities. i also have some concerns generally about the motion of the federal reserve as a

regulator, particularly of payment systems. because think about this okay. the federal reserve is the primary regulator of its primary competitor, the chip system run by the clearinghouse association. the federal reserve is also the primary regulator of the clients, federal reserve and chips. it it is a competitor and primary regulator of many. i think that's central planning. i don't think the federal reserve manages those conflicts particularly well. george is here from kato. he has written about the fact that we don't need a central bank to run a wholesale payment system. the private sector can do it pretty well and has done it for a long time competing with the fed. on a transaction basis does it much more cheaply than the federal reserve. and to see that just go take a tour of one of the regional fed

banks there. they're pretty nice places with private cafeterias even better than aeis, if that's possible. and i will close title 8, my colleagues have both written about a dangerous provision tucked away in title 8 that allows for activity-based designation. and under their read, which i think is a very reasonable read and that provision in title 8, it could allow for potentially unfettered regulation of industries not intended to be regulated by dodd/frank, like, for instance, credit unions. it can be used as a method to regulate asset managers on an tif'd-based basis. so i would think very carefully about those provisions in title 8. let me move on to title 9. title 9 in dodd/frank is sort of a grab bag of securities and corporate governance provision and other things. if you have never been to a kids

party, at the end you always get a grab bag. it is just a bag full of junk. it is is full of items that make no sense to each other. nobody really knows what to do with them. and that's the best description i can give -- that's right. a lot of sweeteners. in title 9. so just to run over a couple of them, there are new enforcement powers for the sec and particularly with respect to civil penalties. i have some concerns about those powers particularly in the hands of the current enforcement regime at the sec look at the recent stories about what i would call scandal of due process scandal at the sec in terms of moving cases internally to administrative law judges making the appeals process much more difficult for litigants. by the way, the administrative law judges not surprisingly, enjoys much better win rate. so i have some concerns about those powers in the current regime's hands.

whistle-blower award provisions in title 9. for those companies have internal compliance regimes that want to fix problems as soon as they are reported. they go straight to the sec to get a piece of the reward. i think there are unintended problems resulting there. and speaking to the corporate governance provisions in title 9. let me point anyone interested in this to a book that came out around 2000 called "working capital." it is an accounting term. buff this was funded by union in looking how to further welfare agenda. so the working man's capital at work. it has a number of ideas included in title 9. so this is a 10-year-old ideas that they sort of saw a window to implement these particularly pay ratio disclosures. and they took it. and i think that's evidence enough that title 9 had very

little to do with the financial crisis. so in terms of particular corporate governsance provisions we have an advisory vote on the executive compensation. we have disclosure of the ratio of ceo pay to the pay of the average worker. what does that have to do with the financial health of the firm? i don't know. in fact, it is potentially damaging to the health of the firm because it is intended i think to discourage firms from metering executive compensation to financial, you know results. it's intended to implement a social welfare agenda on half of the unions. there's no other way to describe that. i think it's very dangerous. if you want to have that debate have it in another form other than the regulatory system is my review. there is a proxy access provision in title 9 of dodd/frank. this was the first rule make sec chose to do. and it was quickly defeated in

court on the basis of lack of severe cost analysis, which resulted in the commitment at the sec. so in that sense it was good. i have done an empirical study on the rule with my colleague at george mason tom stratman. we do a study of implementation and find it cost billions of dollars in shareholder losses. what's a better way to run a railroad here? what's the alternative? i would suggest that state-based competition and corporate chartering is. a lot of scholars suggested there are problems. delaware has been a dominant player. delaware takes a view of the market for corporate control as

a disciplining advice. believe me the fact that they hired me means delaware is not perfect. i think a better way to run a railroad is to get rid of the federal overhang. i think you have to eliminate the williams act as well, which is a constraint on the market for corporate control. i think if you do that or at a minimum change those provisions to optional for firms to opt into. before you tell me that's politically impossible, there are provisions to dodd/frank that are optional like the option of an independent chairman. number two you recognize the right of firms to provide for mandatory arbitration of shareholder claims which i think the act already provides. according to our interpretation of the act already provide. but the sec hasn't gotten the memo. they still refuse to accelerate

your registration if you have such a provision. carlisle found that out recently. you need federal recognition of that right. a federal cot fiction of the internal affairs as a binding constraint on the sec from using its discretionary regulatory authority to impede innovation and state corporation law. if you do those three things you get a much more robust state chartering system. then i think when you combine that with a very exciting world of crowd funding, that is coming pretty soon and free market security lawyer, this is the only exciting thing i have seen in the last 75 years of securities regulation. i think you need a new way of doing corporate governance state chartering competition to innovate at the scale and speed that crowd funding will require. i think these three provisions will sort of encourage the kind of innovation we need to see in corporate governance.

and i think crowd funding will be the first form where we see that happen if we can do that. one experiment i would point to in how it can work, if you have the freedom to do it from the federalover lay, there's one very small inspection that trade generally are energy companies. nysc exempts these firms from a couple of the listing requirements, including some board committee requirements. as a result, what we have seen is an incredible amount in government structures for master limited partnerships. one of the trade-offs we see is rather than things like fiduciary duty litigation and particularly structures for committees, we see a regime in which mlps distribute all their excess capital every quarter to shareholders. they don't need participation corporate democracy. they just get their money every quarter. if the mlp needs new money, it

has to raise it from public markets. i think the more -- the less federal overhang we have the more we will see in governance. it is an experiment that shows us why. i will close with one last thing i think we could see. if we have incentives to innovate in corporate governance which it inhibits, i think we could see cities get involved as well as states. why not silicon valley. inclement bar is more motivated than anyone to come up with whatever innovations. i can't even think of them. that's how innovation works. i think it is probably best equipped to deal with particular needs of on those kinds of firms. so i think it could be a very interesting world. it requires a couple of things. cod fiction already in the law.

recognition of arbitration right. it is already a right. thirdly, a switch to optional for provisions and socs, title 9 and with respect to the williams act. that's already an approach that some parts of title 9 has taken. i think it's perfectly reasonable and exciting. i think in these uber lift crowd funding world i think we need a modern corporate governance system. and getting rid of the overhang will be key there. >> thanks. mark. while mark is getting up there, j.w. mentioned the unpredictability of future innovation, of course. surely the financial stability oversight council can predict all of this innovation. >> right, sure. >> mark.

>> i have a comment i think i have heard a new phrase. free market securities lawyer. >> there's two. hopefully a growing trend. first, let me thank peter and alex. i really appreciate the invitation. as laid out, we're going to be taking different sections. i will take parts of title 9 that j.w. did not talk about. and title 10. more specifically, the credit rating agencies. you think about moody's standard & poor's, fitch. and then i will talk at the end about the qualified mortgage rule and qualified residential mortgage rule. before i start, you know, i would like to just quickly bat aside what i think is a common strong man i hear. i'm sure many of the rooms we hear that you know skep tiptics want to go back. that's ridiculous. i don't know anybody who likes financial crises. certainly i have seen people who enjoyed them.

i'm not sure i saw barney frank happier than when they were doing the t.a.r.p. the concern is really whether these things work or not. and i think we could hopefully put aside all the straw man spin we're going to hear today. before i talk about those issues, i want to associate myself with what has been said by my colleagues. i stated two weeks ago before the committee that i do not believe dodd/frank has made us safer, neuer do i believe it ended bailouts. it's not just an issue of reducing burden some cost regulation. it is bringing stability to our financial system. again, i don't think dodd/frank does that. so let me get to the rating agencies. this is actually something where dodd/frank tries to go in the right direction. unlike previous housing booms and busts, like the savings and loan crisis the recent one was particularly tied to our capital markets. and i think it made it much more destructive in the same way, not forgetting the savings and loan

crisis was expensive. we had a recession. as peter mention said one of the three recessions that took longer than usual was the post savings and loan crisis. again, there was something special about this one. to be one of the things that was something was securitization and the way our mortgage and houses markets were lincolnedked to capital markets. it would have been impossible without the ratings agencies. what we witness said was outsourcing of due diligence. and of course let me first say i think the rating agencies provide valuable in sights. they certainly have an important role. but i also believe it works best when there is a diversity of perspectives. we don't just rely on one particular viewpoint. so section 939 of dodd/frank gives a nod to this problem. you should remove statutory references to the rating agencies. unfortunately, that removal ended there. dodd/frank required, of course regulators to do a study.

i forget the number of studies in dodd/frank. it is almost 400 required rule makings and other studies. what is required from the the regulators is do studies about the reliance on the radiance. there's no requirement for the regulators to reach certain conclusion. there's no requirement for the regulators to reduce the reliance. and sadly the regulators have chosen to increase it in many instances. so that would be not a big deal if most of the reliance on our laws came from statutory rather than regulation but that's not the case. the vast majority of reliance comes for the decision of regulators, and dodd-frank doesn't change that. so to me where we have a fig leaf we needed a forest. we needed reform of the agencies. the first thing we needed was to prohibit regulators from outsourcing their job to the rating agency. the notion a bank regulator would look under the hood and say this is aaa rated and my job

is done, it ends there. to me it's just ridiculous. that's the demand side. the supply side is just as bad. sadly dodd-frank gets this wrong as well. dodd-frank actually increases barriers to entry in such as those found in section 936. so i give dodd-frank a very small amount of credit for recognizing the problem with the rating agencies but unfortunately they completely missed the ball on it and fell far short of where they needed to go. an area however, that dodd-frank gets completely wrong in my opinion is the role of consumer protection and the crisis in the subsequent creation of the consumer financial protection bureau. so while of course there was fraud, i don't think anybody would deny that. of course, there was abuse. i think it's more likely the case that acid bubbles generate fraud and abuse more than the other way around. i think it's also important to think about it in this way, asset bubbles come from credit

being too cheap not too expensive. so let me maybe walk you through quickly what an example would be. if you assume a fixed monthly payment or expand a monthly payment when you bid for a house, the problem is borrowers were having fees and interest rates added on, that means they could only bid less for the same amount of house and stay within the same monthly payment rather than the other way around. if consumers were being gouged, that would have pushed housing prices down, not up. so again i think we need to think critically about that. i also mentioned the turn in housing prices, the influction point in housing projects. so housing price declines caused the defaults rather than the other way around being the mayor driver. so again i would emphasize we did not see a failure of consumer protection. we saw, as peter mentioned, a

coordinated federal effort to for underlying stalndards across the board. i think we can all stipulate most of the non-bank lenders had nothing to do with the crisis. i don't think joe and paul argues that payday lenders and auto dealers and debt collectors caused the financial crisis, yet, that's who they are going after. so you don't see them going after fan flee and freddie. you see them going after the unrelated industries that have zero to do with the crisis. that's not to stay the industries may or may not have needed different levels of regulation. but again what we saw, most of dodd-frank was a bait and switch. it was okay, we're going to end bailouts. we're going to predict a system. but don't look while we put all this unrelated stuff in here that has nothing to do with it. sometimes i hear the argument that we needed to create the cfbb so banks would have a level playing field with nonbanks. let's first start with the

observation there's not a level playing field anyhow. the small consumer guys they don't have access to ensured guaranteed deposits. they're not going to get bailed out. the argument that poor little citi bank will have to compete with cash america and we need the cfp to protect it strikes me as ridiculous. so let's emphasize a lot of focus on people who had nothing to do with the crisis. to me one of the most dangerous precedents is the mechanism of cdfp. the consumer agency is off budget. it's funded essentially by the earnings of the federal reserve. quite frapgly every federal agency should be on budget. i also think this is a direct violation of our constitution that requires appropriations to be done by law. the notion that we would allow an agency to set its own budget and determine its own funding to me is really offensive to our good government structures and what congress was elected to do. this might come as a surprise given our current budget situation.

but members of congress were elected to make hard decisions about spending. a dollar that goes to here is a dollar that doesn't go to health care or whatever. and what is the stop us from it? why don't we have peanut subsidies or whatever. and then we don't have to worry about ever raising taxes again? i've occasionally heard that we need to do this, you know, we need to take it out of the appropriations process to protect it from bank lobbyists. i think what this means is they're trying to protect it from democratic accountability. every agency gets lobbied. and they i can encourage you to go up there in some time. in no way would that provide justification for taking dod out of the justification process. let me note a more troublings a sect p its engaged in a massive data collection effort. it might put nsa to shame.

they are working towards coverage of 90% of credit card accounts. let manye quote the great defender of free speech, justice william douglas. a checking account may well record the beliefs as fully as the transcripts of his phone records. of course today's checking accounts or credit cards and debit accounts. and of course, the notion that it's not going to look at the data. i will certainly say is an organization that accepts donations from credit cards. the last thing i would want to think about is looking to see how he gives to kato institute. i certainly think that's troubling. and unfortunately a long trend in this country of using bank examination records to abuse political opponents. i will be sad to say this would not be new if it does happen. hopefully they're not listening too closely. to those who care about the fourth amendment, which i do, and i hope most of us do and care about protecting consumer

privacy, i don't think there's a bigger threat. given this financial collection also leaves consumers very vulnerable today that security breaches. i assume i'm not alone in the room in being a former federal employee who got data being hacked. so to me it's unfortunately doing hackers a great service by consolidating all the credit card data in one place. that will be a real risk. and they recognize this in the audits. that it leaves consumers at risk of having their data hacked. so to me again dodd-frank missed an important opportunity to rationalize our flawed consumer finance laws. instead of those laws transferred to an unaccountable agency whose bureaucrats can force their efforts on consumers. the agency will do what the federal government has done to mortgage market, which is peter

demonstrated, royally screwed it up. let me spend my last few minutes talking about the qualified residential mortgage rules. so this is something i think there's great agreement on. even if you look at peter and the other dissents and the majority opinion. there's actually one consistent observation from all of the committee members. and that's problems underwriting in the mortgage market. that's agreed upon. what's not agreed upon is why. so dodd-frank does recognize the special role. unfortunately dodd-frank and the regulators in this instance screwed that up, too. the qualified mortgage is an extension of the truth and lending act. both contained substantial liability. the qualified mortgage is essentially targeted at helping to generate consumer class

actions next time around. i will note with the qm for my friends in the lending industry who thought it was hard to foreclose this time around, you ain't seen nothing yet. it will be very difficult, if near impossible to foreclose in the next downturn. the only avenue for avoiding this is to meet the safe harbor provisions. so to meet one of the twisted ironies of dodd-frank is that one of the reasons for the public demand for action and passage is the american public was asked to bail out the mortgage market. what do we have today as a result of dodd-frank? over 90% is directly on the bhak backs of the taxpayers. so again these things could have worked out well. i will note he said last year he saw them as the most significant parts of dodd-frank.

the the liability was always going to be an issue, but these could have done something to reduce mortgage they certainly started out well with down payment and credit standards. but unfortunately the regulators caved to pressure and would ultimately ended up with a gutted qrm that even barney frank says was mishandled. so why is that necessarily? so one of the debates is what exactly mortgage products cause the crisis. some of my friends in the consumer advocacy world told you caused by prepayment penalties and low documentation, and exploded arms. i would point you to a number of analyses that gao has done. certainly an objective party in this instance, as well as a number of other empirical studies. even the results are quite clear. the main drivers of default -- i would like to say this as a side. you can even look at the studies by organization by