sustaining public support for our way of life including the many wonderful frow documents we enjoy depeppeds on people believeing the promise of a future and providing retirement security cannot have their nest eggs broken and scrambled every five or six years. in the politics, it's all about the economy. right. now i think that's the easy part. now let me talk about some key principals i believe are important componnents of our financial design and regulatory

systems. first, we must clearly acknowledge the need to have proper infa structure. without those infrastructures to facilitate the timely flow to enable the formed decisions, markets become disfunctional. effective regulation, oversight and enforcement are also key ingredients of sound market. while all of this may seem rather obvious, it was precisely the absence of many of these basic features from rapidly growing segments from the credit and derivatives market that were at the heart of the credit crisis that

blossomed into a global crisis. with the benefit of hind sight we can now see problems and failures. >> unfortunately, the regulatory systems, coupled with the deregulatory philosophy by key policy makers may have made it difficult, if not, impossible to reign in the unsound practices. once the risk become more estimate, the sheer complexity of many structured products and derivatives and the pricing on these instruments compounded the problems. a result was not only a freezing but also a loss of public confidence in financial institutions in the capitol market in a certain extent. in short, we cannot again allow

huge, unregulated markets. in modern times, capitolism depends on regulation of institutions and market participants and on the institution of corporate functions. far from constraining markets, these are essential elements in the essential operation in the public trust. in my world, the absence of these elements makes our task very, very challenging. i like to set the scene for a few of my observations. for some of the most difficult accounting and reporting issues emanating from the financial crisis stem at least in part from the lack of proper regulation and risk management,

unsound lending practices. under such conditions, accounting and valueation are significantly challenged. proper accounting and valueation require that companies identify and understand and correctly value wait risk and returns and be able to ascertain exchange prices. it is not surprising many of our issues we have had to deal with over the last 18 months surround the determination of values and inactive markets and the use of off-balance structures and the overall timelyness and disclosure of

risk. regulatory reporting by banks and policy by bank regulators are accounting standards. the impact on financial institutions are vital to the effective operation of the financial system in our economy there seems to be a bit of confusion in the media some times and elsewhere about the relationship of the accounting standards we set. we do not determine regulatory capitol. bank regulators do. however, under the laws enacted by congress, the determination of regulatory capitol by the bank regulators does start with the gap numbers.

the regulators have discretion to discuss those and have other tools to address the concentration of risk at regulated institution. the regulators have a natural interest in the accounting standards we set. likewise investors have an impact on the regulatory requirements and in actions. in that regard, i would like to commend the fed and bank regulators with the rault of the resent bank tests. as the policy and investors or citizens of this great country, we all share a deep interest in the strength and stability of our financial system and the

economy. public policy in the focus of the setting and regulation in helping achieve these goals are some what different. our focus is on the communication of relevant transparent and unbiased financial transparent si. that information is aimed at informing financial decisions across the economy. the reporting contributes to financial security by reducing the level of uncertainity in the system. the equally important regulation on banks on overall financial stability of the system. now, given our different

missions and focus, it's not surprising that we would have different perspectives on different accounting and reporting matters. for example, bank regulators may be less excited about the use of fair value measurements because it is concerned with the impacts of regulatory capitol. while we as standard setters use such information to understand and evaluate financial condition, risk and performance of the institution. my experience has been that while working together and sharing perspectives, we can't often find common ground and meet the needs of other regulators while reporting to investors. in some cases, the reporting treatment may not properly

receive the objective to reporting to the investors in the capitol market. in some cases, transparency is important. it's not spornt to avert the needs of the requirement. it is a public policy goal to ensure the proper regulation in the economy, there for preserving the7u separate publ policy missions of accounting policy setting and the securities regulators in terms of investor regular laggetselations in terms of safety and soundness are in my view important in regulatory reform. the goals should be in working with a close bond in sound reporting with investors are not suborder nated in the

objectives of the regulation and on the other hand that the regulators are not inappropriately hand cuth cuffed by the requirements that they perform the treatment to gap. i would support the treatment of decoup ling. my next concern is that this be perceived by the public as valid. they must not stifel innovation. i believe that the reports needs to convince the american public that we need to take the steps necessary to move beyond the capitol practices and mind sets that have sparked widespread outrage. while the taxpayer funded bail outs of major institutions and

major companies were necessary to avert deeper harm to the ee condition my to our society, the phenomenon is frout with danger and perceived as downright unfair. current reforms must have an eye of reducing this in the future. there's been similar issues associated with executive excess compensation. there are many excellent c.e.o.s of u.s. corporations they add tremendous value to their share holders, employees and society. but i think it rubs people the

wrong way when an executive gets paid millions and then after they have run the company into the ground, they are given $50 million to leave. my concern has been that these kind of practices were eating away at the fabric of our society. i'm hardened that there now seems to be more widespread recognition of this problem. don't get me wrong, i am not in favor of the government setting and enforcing specific pay levels in the private sector but the investing public does need to see the private sector is addressing this issue either through improvements or by other means. success should be awarded, failure should not.

it has revealed the problem that's can result in regulatory gaps across international financial markets. resolving these problems and preventing them from happening again requires active coordination across the financial capitols of the world. while the single global markets regulate across the international capitol market is not realistic in the foreseeable future. much can be achieved by a continue ued focus by groups like g 20, the financial stability board to develop solutions to regulatory

problems in global financial markets. in that regard, the u.s. continues for the foreseeable future to be the single largest national economy in the world. we have the largest capitol market in the world. our actions and miss steps and economic welt being have an impact on the rest of the world. we have been accused by foreign partners of toxic securities. now after having seen the s&l crisis and.com bouble, foreign markets question our ability to run sound practices and

regulatory systems. the strong actions to shore up our financial system signal to the rest of the world our commitment to act forcefully in the crisis.l.

being an active and constructive part pant. we need to be credible seeking to inject the good aspect of our dna where appropriate while being careful to avoid trying to dictate to others or in part outdated parts of our system while taking care of business at home and citizens of the world. recognizing the potential benefit that's could result from having the single set of accounting standards. we have devoted substantial

time and effort to work with the national accounting to work with the respective standards. we slife to take care of business at home. riding these two horses is not always easy and sometimes requires timely actions in terms of improving u.s. gas in an area while also working in the longer term of global solutions. those are my views of the terms of the reform of our financial and regulatory systems. i believe significant reforms are needed. they should have as the primary objective bidding a solid, sustainable platform through properly functioning financial markets that maintain the confidence in our system and way of life. the reform should be guided by key principals to ensuring

proper infa structure, to promoating outcomes and operating properly in a global context. let me emphasize while i've used the thoughts i've offered today as important themes and desireable outcomes that should be born in mind, i'm not asserting that these are the only critical matters that need to be addressed. i believe we are up to the challenge. >> i remind myself of a boy with two medals pinned to his chest. he got the silver medal for singing and the gold one for stopping.

so i'll,ñn stop and thank you f listening to my thoughts today. thank you. [applause] >> ok. now for our final round, we'll see if he wins the m.p.c. mug. you mentioned that much of the financial collapse was affected by accounting procedures. are stronger controls really going to make a difference? why or why not? >> i do think there are many causes of what happened. i appointed in my speech to the lacks lending practices. various people will determine as to why that occurred. i have appointed to the packaging of those loans into complex derivatives and

spreading those around the world in unregulated market the systems do not work well. in order to do that, you need proper infrastructure, transparency and operation. you can't operate good markets without those elements. that's one of my real key points. >> should glass speigle be reinstated? >> people have to believe that the system works properly and that there are conflicts of

interest built into it. some people believe that by removing the walls between investment banking and banking and created the too big to fail phenomenon. i would try to judge those questions. it is perceived by people as something functioning and is trustworthy in a system that you'll say, gee, this makes sense, i trust it. >> who or what specifically shoulders the most blame for last year's market collapse? >> the wall of shame is large. i'll probably leave it there. as i said, across the whole

chain, there have been issues and failures. i think at the heart of it was that we got into some practices as it turned out. some basic assumptions about how the world would self regulate and the like. that took many people by surprise. >> if you consider the march congressional hearing to be politic alleysation of accounting, do you see the obama reform plan in the same light. if not, why not? >> the march hearings, i've testified maybe 20 times on the hill.

lawmakers and other policy makers have a natural interest and a responsibility to understand what we are doing. >> ultimately to congress, that's an important way the system works. i don't view those as in doing so to the accounting but included in the resent good-20 declaration and a lot of the

key things. >> you didn't name names when you accused major companies and trade groups of politic excerizing accounting standards and getting in the interest of. so in the interest of disclosure and transparency, please name names. i understand -- i don't welcome it. i understand that people will -- in what they view to be their interest try to get the answer they want. if they don't get it from us or

the sec, they do often take their views to congress. now, with that introduction, i'll give you one good example. three letter insurance company that begins with a and÷ ends with g. a little over a year ago, probably april of -- these things blend when you are having a good time. 2008, the n.c.o.o. of aig, it was well-known he spent some time trying to convince lawmakers there was no problem with the credit default swaps they had entered into and that it was all this bogus

accounting. we are now some $50 billion plus into aig. the accounting was really the first sign to alert people of the problems there. there are trade groups that represent financial institutions, a number of them that -- again, in your introduction, they have views that the accounting ought to be one way or the other. that was part of the hearing in march. again, i'm not going to tell them to stop that. the risk is that the perception can be if too much of that goes on, it does make people think that the politics are to bend the accounting rules. that is dangerous. we create the rule or in bending the rule is not appropriate.

>> with the new era of tarp and government ownership, do you have any concerns of financial transparency? >> it is very important. we talk about transparent si to the owners of the business, the investors, people who invest capitol. all of us are now investors in that business. i think transparency is very important. it's important to understand what happens with our money and how they are using it and the like. a side note, about three weeks ago, i went to china. we have an active program with the folk who's set accounting and auditing regulation at the ministry of finance in china. they've had an exchange with us

learning how we do things. this time, i went over and as kind of a sign of the times, i said give me all of your disclosure rules you use in state controlled enter prize. there may be something we can learn now. >> give your thoughtsy on the obama plan and disclosure of reform to the o.t.c. derriff tiff markets. >> i'm not going to get into whether there should be a consumer protection agency or not. i do think consumer protection are very important.

we need some real infaw structures. we are built systems for corporate reporting that underline corporate entities and bonds. >> why or why wouldn't it be a good idea to have one. >> i'm not going to say whether having a single agency spread into different places makes sense. i do believe there is a real need for some review fo