happens, i wrote an opinion piece in the wall street journal about goldman sachs. there is a curious incident, this became curious in retrospect. in september, lehman brothers had collapsed and aig was teetering. the fed wanted to prevent an aig from collapsing. goldman sachs said that their exposure to aig was not material. that is fine. in the middle of march, it turns out that all of the initial $85 billion of the bailout -- bailout money went to goldman sachs.

well how do you reconcile? this goldman receiving 7 billion had no exposure to a aig. goldman was an empty creditor. goldman bought credit to default swaps from aig from, quote, large financial constitution's so care terribly much what happens to aig and it indeed was quite aggressive in terms of calling for collateral from aig. >> but it didn't work. >> what was interesting is it did work for goldman but it illustrates this issue, social issue. >> we are still wondering where the bottom is on aig. islamic and using this to illustrate the concerns you have

is as a public policy matter we should be concerned about these creditors who used to care about ensuring our worst stay out of bankruptcy. that they have much less incentive to do that and that in today's world -- >> we better corrected. >> we might want to consider correcting that. >> thank you very much mr. chair. >> i would like to add if that is okay for a moment. >> please do. >> it's important we think about the reasons why a company might want to use credits the fall swaps or a bank for that matter. for example i could be in the supply chain of an industry and worry the company to whom i supply goods or services may not actually perform and might go into default. the ability to buy credit-default swaps against that company makes it much more

economically attractive for me to enter into a long-term sal agreement to provide goods and services to that company. i don't own the bonds but i do have a position over time as being a creditor of the company as a supplier to them. another ex sable, and this one strikes home because we lend money to a variety of companies around a world in the united states, companies to the biggest fortune 500. there is often no market for credit to default swaps for midsized companies. if i want to be a significant lender to a portion of the economy where i observed a substantial amount of industry risk for the airlines let's say i want to lend money to a regional carrier, i can't buy a credit default swap on the regional carrier blight can buy a credit defaults flops on american airlines, delta and

others. it would help me manage the industry specific risk that i have and most importantly that reduces the cost of capital for the midsize company visa fi the large companies of credit defaults will play a very important role allowing pension plans and other lenders to midsize companies in america, to allow them to reduce industry specific risk and reduce the cost of capital of companies in america that have created the most jobs over the last 30 years. >> mr. pickel, i think for buddy -- >> he deserves a good answer. as briefly as possible. >> i would say in the derivative space for 25 years the developments were on market risks, interest rates, currency, equity, commodities where you are managing risk. credit risk is a relatively new derivative and i would say we are still understanding some implications of that and i think

that professor hu's work has been interesting in that regard. i would say regarding that empty creditor issue, the fact is every time somebody is going into the market and buying protection which is what he's suggesting someone is doing he's sending signals your business plan isn't working, the yellow light is getting brighter and brighter and so when it comes to the end and somebody says time is up, i am not going to continue to lend to you i think that's a natural evolution but it's certainly understand that. i would also mention the credit stifel swaps are becoming embedded in various ways. if they are being used for pricing loans. it was done with the rollback of scotland extension of credit by the u.k. government and today in "the wall street journal" it was mentioned s&p has developed additional means of providing information on credit exposure to the marketplace that

incorporates credit defaults slops so we see continuing evolution and about to be encouraged. >> jury quickly senator joe hans deserves his round and at the end of we have time we will -- >> i'm not worried about to people on one side or another of the market so if somebody wants to buy and sell -- you've heard but symbols of the utility of the credit devolve swaps. the concern i have is the small airline, the small company doesn't have it treated market that we can use to price these contracts. so, again we have the lawyer poker scenario which is you have a trader firm on one side and they've decided the implied spread on the debt of this company is a good way to price redefault contract. the trouble is most people on wall street trade these instruments like options. the use them for delta hedging, various expose sirs and these are great examples, they have wonderful utility but the problem is i suspect the pricing

is wrong in other words it's not priced like insurance so when that contract goes into default and the provider of protection has to come up with the money you've got to ask yourself going back to the question about the supervision of dealers, is that person doing the work so they are actually cognizant what the cost of the fault is this is the spread on the bond. lehman brothers, you could have bought protection of lehman brothers before it failed at 7%. the next week you had to come up with 97% of cash. so it is a pricing issue that i think is at the core. it's not whether there is utility. polis obviously utility and these strategies. >> i'm hoping somebody can answer this question. this whole bank of business kind of an artful term but this entire business arena, what percentage would be of that

classification that's not easily valued? >> i think most over-the-counter contracts don't have a problem in that regard if you're talking about energy, currency, whatever it is if there is a vigorous trade market it's easy to come up with a derivative. but if it is a very complex derivative. but when you were talking about a liquid corporate bonds or loans to corporations if you're talking about a complex structured asset two or three levels of packaging away from the reference asset it's supposed to be derived from that creates complexities in terms of pricing that i think is daunting and i will tell you now there are very few firms on the street that if the people, the resources and money to do the work. let me give you an example -- >> doesn't that get to the point i was raising on the previous questioning? you know, you've now got a whole regulatory scheme. you've got somebody that's going

to regulate and they are hired and paid -- and they are probably going to take the safe route and say i am not sure understand this. i am not sure it can be valued. it's 100 million-dollar contract. we want capital. >> and that's appropriate. >> okay, so isn't that just another way -- how will capital be posted in a circumstance like this if you have the capitol you probably either alone or not alone and it's a bad deal you wouldn't want it. but anyway, what i am getting to is this, doesn't that basically put that segment of this arena out of business? >> it may and i am not sure that wouldn't be inappropriate and i assure my colleagues will disagree that most people on

wall street are competent to be a rating agency. and if you are talking about calculating probability of the fault of the company or security, that is not a trivial exercise. it takes a lot of work and i don't think most people will st. dewitt. they look at the bloomberg terminal and by consensus the have all agreed to split on the bloomberg terminal is the price you're going to deal with three is right or not. >> you know i would say to you, mr. whalen, listening to your testimony from a sterile standpoint and saying if it's that kind of risk maybe it should that's probably okay unless that's the only regional airline in town. and when that one goes away, guess what? air transportation for western nebraska goes away. >> i don't know any airlines that can't hedge their fuel

costs -- >> i'm not talking about fuel costs but you know what i'm getting at here. there are always unintended consequences and i just want to understand. if we are going to put a lot of little guys out of business tell me that. >> here's the thing i want your little guy to have the same facility of pricing a contract as the dealer. how do we do that? that goes to transparency but if i have transparency of an instrument that's still opaque even after of legislated transparency than i have a problem. >> and the tools that we have been given i think in the end is when to be the capitol requirement. that's the alternate protection, and we, when you talk about what we require, treasurys, to me like you're talking about cash. you're probably not going to take something very risky, right? >> i think the standardized tests to bring those down over time though i really do.

>> in the credit to default swap area we have introduced a very high degree of standardization to the first point about which of the contracts would be most standardized and i think in the credit-default swaps base we do have contracts that will be easily to move into the clear environment perhaps more so in two and electronically traded or exchanged treated environment so those things are in place and yes people look to bloomberg screens but it is a collective view of the marketplace and not a rise on wall street. we have active dealers around the world who are expressing views on these contracts and it is that collective reflection of the market judgment that indicates the spread at any particular point in time. >> i think the question you are opposing about capital and will the regulation of this market increase the amount of capital required in the marketplace the answer is not as clear-cut as one might imagine is in today's

market structure if i buy credit protection contract from goldman sachs, i am just as likely to eliminate line economic risk but not my counterpart risk by closing the contract with morgan stanley. i will still be was in march and as a customer to both of the firm's. it's incredibly inefficient. if i had a central clearing house i would open the contract with goldman clearinghouse, morgan stanley to a clearing house and i would have no capital as a customer out the door any longer. i would actually have capital that comes to me. i think it is a very important concept to under the stand when we think of clearing houses this wouldn't in any way increase the amount of capital demanded of the system as a whole because the tremendous efficiency inherent in netting. the other key concept we should keep in mind is price

transparency will most favored the smaller less frequent users of derivatives, citadel, the other world's largest asset managers. we can price of the derivatives we commonly trade with a great degree of precision but we have a tremendous investment infrastructure to do so. for smaller companies that's outside of their range of capabilities. but in exchange, a visible exchange traded price gives the cfo of a small company confidence and part of what we want our capital markets to do is to create confidence and all americans that the markets are fair. they are transparent and they are just because that reduces the cost of capital for every company in america. >> mr. griffin i will wrap up with this, mr. chairman, i appreciate your patience.

nobody is going to disagree with you were last speech. that is about as motherhood and apple pie as we can get. nobody disagrees with that. it's like i said, i just want to know if this is where we are headed what impact is it going to have on the marketplace from the small to the very large. my experience is the very large survive and they get bigger. >> actually, you would be surprised where every analysis on this ends up. today the largest dealers have the defacto monopoly in the business. it's because of their credit rating privilege as credit intermediaries to almost every contract they durham extraordinary economic profits. where there is a clearinghouse for it simply in the options market, the occ act as a clearinghouse for all listed transactions.

you find there is a vibrant, incredibly vibrant market of small trading firms that had a tremendous amount of liquidity to the marketplace. citadel for example the single largest in the united states. we started from scratch seven years ago with zero market presence. our ability to get to number one was because of a lack of barriers to entry. we were allowed to compete on a level playing field with other incumbents. in the credit devolve swap interest markets the barriers are enormous. who would want to take as a counterparty anyone but quote on quote the firm's view today has systemically important or too big to fail. >> here is again to wrap up the second time here is what i would ask. if there are that many small firms that are going to benefit from this my address is on line, my phone number is online.

mr. pickel, you probably represent some big and small people. i hope they overwhelm me with letters over the next 72 hours or e-mails saying mike, this is great. we want this to happen. because of the am worried and concerned and i don't want this in the end to create a situation where literally by our regulatory effort we have damaged and created a very phenomena that this hearing is for and that is the big just got bigger to the point literally we are all scratching out ahead about the too big to fail. i think if we look back in 20 years and found out that is where we ended up that would be a tragedy. thanks for your patience. i really appreciate that. >> i want to thank you all, gentlemen. if there are additional

questions by the colleagues -- live in also, professor hu has been trying to get recognized. can i give you a minute? >> [inaudible] >> all right. put on your microphone. >> i think that these clearinghouse of arrangements we are moving into will reduce systemic risk. they will reduce the profits in the sense now available to the derivative dealers. it will be cheaper for everybody in terms of the standardized products. i think one of the very interesting issue used to think about in connection with these clearinghouse arrangements and the data that we are going to be requiring of all derivatives in terms of customized derivatives for instance one of the issues is how to solve this informational a senate trade between regulators and regulated so for instance in terms of this general movement to more

information being provided to the regulators to what extent should regulators actually ask for modeling information? regulators can't develop them, can't understand how to value these things on like citadel. to what extent should they require this information and if we require this proprietary information how do we maintain safeguards in terms of respecting the proprietary nature and so i think that this is the start of a very long process. >> thank you. you had the last word this evening but not the last word because it is a long process the this testimony has been excellent. some of my colleagues might have written questions which they would forward within two weeks please respond. all of your written testimony as part of the record and by thank you all for excellent testimony and your presence this afternoon and i will adjourn the hearing. thank you.

[inaudible conversations] >> you are watching public affairs programming on c-span. next we will hear from the son of the former shah of iran. topics on "wshingt-- washington

journal" include health care and iran. [captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute] >> july 4 weekend, see an unfamiliar side of george washington. join us for this conversation live on "book tv." >> now, remarks by the former crown prince of the iran, reza pahlavi. he talks about the political unrest in iran and the islamic revolution. from the national press club, this is over one hour long. >> good morning.

thank you very much for coming, welcome to the national press club. i am peter hickmon. i was never fortunate enough to be stationed in iran. buca. before introducing the speaker, some announcements -- there will be a sound files of this speaker made available through the website. people may purchase up to the broadcast operations center of the club, 202-262-7510. turn off any blackberries or cell phones, and tomorrow, the speaker is the secretary-general of the organization of the islamic conference.

his topic is "u.s.-muslim world relations and the contributions to that." there is material on the table outside related to this newspaper. the newspaper, as you know, is the former crown prince of iran, the son of the late shah of iran. reza welcome back to the press club. we are very you could be here. i sent welcome back, because mr. pawlenty has spoken at the nbc -- because reza pahlavi has spoken to the npc at least once before. i want to thank for her role in arranging this speaker, his office and all those who i've met and hussein i cannot pronounce correctly. he would give us his view on

the post-election relations in iran. he thinks it reflects a fundamental change in attitude of the iranian people to the islamic regime, and has ideas on what the west should do about it. after he speaks, he will take your questions. line up at dtw alternating marker fronts, go left and right. -- line up at the two alternating microphones, go left and right. we have this room until all o'clock 30. afterwards, -- until all o'clock 30. afterwards, if you will be available for interviews at the end of the hall. as you leave, please add your name to the signing sheet outside. thank you very much. >> ladies and gentlemen, thank you all for coming. thank you for your time and attention to the cry for freedom

and democracy on the streets of iran. i cannot -- i can tell you firsthand how much my compatriots are appreciative of your generous attention to their plight. the best i can do for you today is to recount what my fellow iranians tell me about their conditions, hopes, and fears. bear in mind that for the great majority of iranians born after the islamic revolution, the unfolding events are the most significant transformation -- transforming experience of their collective memory. the courage of the conviction gives hope for peace and democracy, in the most troubling region of the world. on the other hand, their defeat

will encourage extremism from the shores of the lavon to to the energy juggler of the world. at the very least, it will threaten regional tranquillity and global economic recovery through fears of terrorism, a slowdown of globalization, and steeply higher energy prices. at worst, fanatical tyrants who know that that feature is against them may come at their present course on their terms, a nuclear holocaust. which will it be? that is the question of the debt. -- that is the question of the day. my request to you is to not underestimate the role you play in the outcome. international media are already

the information artery, connecting different parts of the freedom movement in iran. that is why the regime has ominously warned media that only officially report -- officially approve reports to be dispatched of the country. having restricted the return path of media, they are also jamming electronic transmissions and restricting internet traffic into the country. but it is the third leg of communication from people the people, from one resistance cell with another, from leaders to supporters inside, of which the regime is most fearful. they cannot fight people who stand together. only an information blackout can isolate individuals so that they can be addressed separately. thus, -- so that they can be

oppressed separately. thus, the outcome of the struggle will depend on your ability, the free media, to fight their blackout with the light of information. your second contribution is keeping your political leaders informed about the brutal violence of the regime's playclothes thugs against unarmed people. your government have insisted that they would not interfere in iran's internal affairs. i applaud that. any such attempt will give the timon's the excuse they need -- ctyrants the excuse they need to paper over their own differences. but that is not all they do. they are taping -- painting every statement in defense of

human rights as foreign interference, benefiting from the confusion between the two. it is vital, it is vital that the free world not fall for such cruel cynicism in the name of realpolitik. the universal declaration of human rights knows no national boundaries. its defense is not only a matter of ethics, but a mutual obligation of all governments who are its signatories. it is also in their interest. no one, no one will benefit from close in his or her eyes to knives and cables cutting into the faces and now it's up the young and the old -- the faces and mouths of the young and old.