undefined power -- that are very carefully defined and limited. the ones we are creating that are new are modeled on a regime established and tested for banks over the decades. >> i agree that bankruptcy is probably the best -- i am talking about even beyond the banking system, of firms that are not necessarily banks but are deemed for some reason to be too big to fail or a systemic risk. i think that is the thing we are concerned about. >> but these are all about choices. i think many of us share the basic objectives. it was not good for the country to allow a very large, very risky, complex institutions to operate effectively as banks, outside all the protections put

in place for banks during the great depression and the crisis that preceded it. that was a terrible mistake. it. that was a terrible mistake. so institutions that effectively our thanks to chris, could imperil the system need to have constraints in the routt line -- >> that will get another round. mr. silvers. >> why don't you finish that sentence? maybe you've lost -- maybe you've lost it in the interim -- >> it's one of the hardest problems to solve, and people want to know what the boundaries are, but the scope of this is, but again, what caused this crisis, what made it so severe was we allowed an entire separate system of effectively banks operating on just without constraint on risk-taking that were adequate, you know, this is investment banks, aig, insurance companies, we could say frannie and friday, too, and without the

protection we put in place to mitigate the panics. it was the classic mistake of the government. that is something we have to fix as part of that and better to manage failure with quasi banks and boasted of institutions. >> and mr. secretary is it your view the bill in the house to try understand the administration supports that that bill provides this fdic model quasi bankruptcy process with no provision for aig-like provisions other than to transition a field for into an fdic like resolution process? is that -- is that a fair statement? >> that is a fair statement. >> let me just say that this issue that has just been gone through is great concern to me. i've looked closely at that bill. i thought earlier drafts were inadequate in respect of this and did run the risk of another aig. i think the bill in front of congress today is the right one and i think your leadership on this has been very helpful.

let me return to the broad discussion about panics and bronze and so forth in the context of aig. i want to understand better the argument and you are making. are you saying that the reason why the counterpart to aig had to be made whole was not because the threat or the namib holding would fail but because of the threat that if anybody was not made a hole in a crowded derivatives transaction then there would be a broad disintermediation in derivatives markets? is that -- is that your concern? >> i think that you are mostly right but what we see it slightly differently. if any -- aig defaulted on any single counterparts in derivatives or any other contractual obligation that would force the generalized be felt, downgrade, the system would collapse. not because that collapse would have been cataclysmic for the system as a whole.

>> default is an interesting term here. the fault is a form of legal term where the person who has the obligation asserts the party hasn't paid and in that circumstance -- in that circumstance perhaps can try to insist on payment and enforce bankruptcy. is it your view that in a negotiated hair cut would have had the same impact? because that would not have been the default. people negotiator cuts all the time between commercial parties. >> they do but that's the point. remember, this is not like there were three people. that had the total exposure of counterparties and derivatives to aig. there were tens and tens of counterparties on the derivatives, it may be hundreds. there were thousands of other counterparties at stake in this context. no one but have been willing to individually volunteer a concession without it being

extended to all of the counterparties in similar positions. it is a simple thing. it's like flipping a switch. either the firm is able to pay and avoid default, or eight courts default and downgrading collapse. >> is your view -- is your view that aig is from? that they appear to be quite -- the seem quite convinced that there was an opportunity to negotiate not redefault, but a concession on the part of the major parties the chair mentioned? >> the real world does not work this way. you can't run a strategy on the hope that people will be nice and decided they are going to voluntarily give up a set of contractual obligations and if they are unwilling to do it then you're only choice is that you not pay and take -- >> so your concern was the default of aig, not the broad run and the derivative market

but or was it both? >> i think just think about what happened after lehman brothers. it is the simplest way to think about it. what happened to lehman brothers, they failed. they defaulted. >> then you're seeing the issue was the defense of aig. i want to understand whether you believe that the derivatives markets in a crisis our markets where everyone has to get 100 cents on the door of the time. >> in a financial panic, in a generalized financial ron, if you see cascading defaults like this on any type of contractual financial contract, that will accelerate cannot mitigate the panic. again, nothing would have been better if there was a solution in place in this case where you could have negotiated instead about comes that left the taxpayer with less exposure of losses that has no realistic prospect of success in a financial panic of this magnitude. resolution of 40 but mix of the trees is a little bit easier. but there are no good choices in a panic like that. >> i would conclude after

derivatives -- if derivatives are the kind of instrument that are having the kind of importance in the markets in which 100 cents on the dollar is necessary in a crisis we need to regulate them as such. >> and impose sweeping changes to how derivatives are treated and regulated under markets because of that risk. >> thank you. superintendent neiman? >> i would like to me in on the aig issue just to confirm that there is not necessarily a consensus on this viewpoint on the panel but also more importantly to delve into it a bit deeper. and also to encourage everyone to read the t.a.r.p. report not because necessarily the lessons learned but because it does outline the sequencing of defense that led up to and describe the transaction. mauney reading of the report says that once the government decided that aig was too big to fail they had no longer have leverage over negotiating on

those haircuts. that is a different situation and was faced the municipal issuers months earlier. i think also indicated very clearly that the issues around violating contractual obligations once the government decided to prevent a default also treating u.s. counter priest offered him for an counterparties would have raised significant issues utilizing the supervisory powers of the federal reserve to use that leverage to force negotiation i think what also have raised significant concerns. and last the issue you raised of decreasing the downgrades, the impact that would have on the american tax payer and the global system. so you know, i would encourage everybody to read that report because of the descriptions and the kill switch to my knowledge were not clearly outlined up to the issuance of the report but

take this agreement with lessons learned and in my opinion it is we did not have the right tools for resolution of an institution of that nature and that is why it is so critical that we have resolution authority to deal with systemically institutions. >> well said and i think you said they're right. i think it is important to recognize it is a good thing for the country and this is going to happen for years to come. people are going to pour over every decision we made. they are going to look very carefully tall of those judgments. it is of course harder to judge the benefit of hindsight whether it is possible and a lot of it is going to be hard for anyone to appreciate who has not lived through minute by minute what was happening in that acute series of financial panics with of good choices for us. our job was to make a set of choices among unpalatable deeply offensive basic choices and to do what was best for what we thought was best at that stage.

but i respect the efforts to come back and look over this again. a lot will happen in the future. we are born to cooperate because the american people deserve to try to understand that, but again, understand no one can really appreciate the range of choices available at the time and that is one reason why we have to work so hard to make sure we have bitter twist in the future. resolution of 40 to allow the firms to fail without taxpayers being exposed to the risk of loss, and that we do countries undertaking the future that can help mitigate the moral hazard riss pc. >> before moving on to another subject i would like to use my remaining time. can you give us an update on aig particularly what we are reading in the press about issues of risk of losing individuals resulting from a compensation directives? >> there is risk of that as you expect and you've seen.

i would see in general the management, the new board management institution are working very hard and effectively to strengthen the underlining insurance business is there for improving the prospect of the taxpayer being repaid and bringing down the risk in the financial product division that took the institution the edge of collapse. that has come down very dramatically overall scale of exposure and derivatives are about half of the peak level but that is the basic strategy. >> is it something that we should be concerned about at this time? the impact to the american tax payer if there is walls of critical employees? >> absolutely. i mean, we need people who are capable of running these businesses. the taxp

>> now the latest on the economic stimulus. over $301 billion has been committed to states to spend on stimulus projects. that is up $1 billion from last week. over $149 billion have been paid out for those projects. at c-span.org/stimulus, you will find links to government and watchdog groups tracking the spending. >> by a vote of 60-34, the senate has cleared the way for a final vote on the fiscal year 2010 spending bill. the house senate spending compromise totals just over one trillion dollars. 400 $47 billion in operating budget, and about 600 of $2 billion in payments for federal

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>> there is just about a month left to enter c-span's 2010 studentcam contest. the top price is five dozen dollars. just create a five-eight minute video on one of our country's greatest drinks, are a challenge the country faces. enter before midnight january 20 it. winning entries will be shown on c-span. don't wait another minute. >> this week on "the communicators," an insider perspective. >> this week our guest is the president and ceo of at&t's mobile and consumer markets. he joins us from our studio in new york. thank you for being wus