within 60 days would be accomplished by either returning assets to investors or to pay benefits to retired members. near as pension and health funds that were affected by the acts of bernard madoff are facing insolvency. the securities and exchange commission was not able to identify the fraud that took place in a timely manner, which it -- which resulted in much more significant losses as the criminal act progressed. . >> i strongly urge the

consideration for multiple investor groups or any multi employer investments to be considered as an individual investor and that could be funded in this manner. i urge the pension plans be allowed the proper time frame before the pension protection act to protect losses. thank you good much for your time. >> next summer we will hear from dr. john coffee, the professor of law. buc>> thank you chairman. i am pleased to be here, but disappointed on this earth -- this first anniversary that so little has been done to prevent future ponzi schemes.

they appear to cost americans. before we even heard of this, the ponzi scheme losses were 9.6 billion. this is not a trivial problem. it is a recurrent problem. i think that it will continue as long as the government persists in allowing investment advisers to be their own custodian. i will put this in a sentence because it is not the topic today. investment advisers are prevented from using a self custodian. he used his own brokerage from -- firm. they were serving as the watchdog. when you are your own watchdog, nothing works. they have taken some modest

efforts to discourage the use, but have backed off under industry pressure. we need a true watchdog and that can only come from requiring a custodian. we will move on to the securities investor protection act. i want to make three projections. all of them involve compromises, line drawing, and all of them will be paid for. i think we have to make some compromises because insurance as costly -- is costly. every member of this panel has told you that the definition of customer is too limited. i agree that you can expand it. this is just one customer. there are larger private pensions.

but looking at who to protect, we should see who is the most injured. in my judgment, i think that is the pensioner. such pensioners suffer concentrated loss and smaller pensioners do not have the capacity to monitor. they hire somebody like made off to be their investment adviser. who will suffer the most lost? who is most able? were you to expand the definition of the customer, it would be the smaller pension fund. i would define contribution

plans because that is where it falls on the independent individual. i think that you can define customer to include smaller plans, but you have to put some financial limit on it. that will be painful. the second point is equally controversial. these are clawback skirted these will use the conveyance actions to go after those people received the very large distributions. this will bring suits totaling $15 million. that is 15 billion total losses

that is estimated of roughly 19 billion. fraudulent conveyance strategies have the capability of restoring as much as 80% of the investor's total losses. that is not to say that he will get 80%. maybe, if he brings the suits, he will get 35 percent. but even 5 billion dwarfs any other source of recovery that the injured investors will receive. therefore, i am advising you that you should be very careful. we will put them in one common pool. the languages that has been offered, the language that says you cannot bring in a fraudulent conveyance action unless the customer did not have a legitimate expectation that the assets in his account belonged to him is really language that

i think means you have to show that this person was a co- conspirator of laid-off. that would reduce this recovery to well under $1 billion. that doesn't mean you cannot do something. this is a matter of line drawing. i but suggest we start with who the victims are that would be most injured. i would focus first on charitable organizations. if you look at section 548, it has long been given immunity. charitable contributions are not an issue, here. here, they are charities that are trying to get their own money back.

the principle is there. charitable organizations are a special category and i would suggest that if you were born to do anything, you extend the immunity of charitable organizations beyond the contribution and say that a charitable organization cannot be sued unless it can be shown that they have actual knowledge of the fraud or it was established by the court, himself. no one has explained their purpose they go back to the time of queen elizabeth. they go back very long time and they serve the fundamental purpose. they prevent a crook from choosing the victims that will bear the loss. they can still decide how to prevent some from recovering and letting others bear the loss. if we do not have this statute,

we will create very strong incentives for the court to decide who will be the real victims. i do not think we want to do that. i think you can use a statute that uses different language. today, anyone that is sood is under the bankruptcy code. you have to show not just subject of good faith, but that you had the good faith of an objective, reasonable person i think that my time is out. i want to congratulate your chairman. for the first time, congress is trying to try to move it from being a strange, non insurance system to a true system that will charge risk adjusted prince. if you want to do that because otherwise good brokers are subsidizing crooked brokers.

on that note, i will stop. >> i want to thank all the witnesses for their testimony. each and every one of you told a compelling story. any of the questions, particularly mind, i will play devil's advocate if you will. i am not intending to downplay your suffering. i'm trying to get to some of the core issues that we will have to decide. this is not an absolute guarantee. so often, we run into whether you're a victim or a fraud for a market, people want to be made whole. it is natural human instinct. the problem is, that with the crisis we have gone through in the past year, depending on who

makes the estimations, the loss in the united states was somewhere between seven trillion and 14 trillion dollars in capital. if you have been an investor in one of the major banks in the united states the went from $50 a share to two dollars a share, some people would say it was fraud. it has not been proven, but there would have been great disappointment and there would been a temptation. and they will say they were counting on the for something. -- that for something. that is not a bad argument. i do not fault you for having it. who among us will turn over the

assets of their homes, their pension funds and their bank accounts to make them more whole. i do not see a long line out here. they have not shown up for this testimony to suggest that they're willing to provide their fair share of your loss. i doubt that they will. our decision will go to the question of if it is intended to have a system that has no risk. if we are that, then we really should not have pension funds with the investment advisers, we should have a government pension fund that you pay in and someone lives that money to the united states government at a low rate. if you want to get the advantage in the free market system of the extraordinary upside, there are risks to the market.

you may say that you did not lose your money in the market, we lost it in the fraud. that is part of the market. it may be vicious and it may be that you did not understand or know, but there is no way in the world that you can say that it was the government's responsibility. our system does not say that. it is each individual responsibility to protect their assets as the will. i was here when the enron disaster occurred and that their people invested their life savings in their 401k and it disappeared overnight to the tune of hundreds if not millions of dollars. we were all sorry for them. but they had to take their licks. that is our system.

it is not the best -- i still think it is the best system in the world. it doesn't feel that way if you're losing side. -- if you are on the losing side. we just cannot guarantee everybody is insured or everybody is guaranteed a return. i do not know how we do it. i do not see how our system or for that opportunity. if we work to tax for the loss of 14 trillion dollars in capital, what would it be per head? it would be extraordinary what each american will have to come up with. probably all of us have lost in some way. you have lost a great deal. there is no question about it.

what do we do? we have done several things. we have provided changes in the investment protection act that will require certain actions. it will go up the information ladder and the leadership ladder. all of those things. there is not an awful lot in their relief -- in theire. that is a tough situation if we were to honor $500,000 per pensioner member of the pension fund, we would soon in the guaranty corporation. we just do not have the funds in there to do it. i do not think that was never

the intent. i think we probably have to have much more lively -- and i think it will result -- we have to have closer ieyes. those individuals that did not know that madoff and had your funds. i will leave with this. my time has expired. if you think in terms of real estate, you can go out and buy a $500,000 home and you could buy it from your lawyer, your doctor, you're minister, your piece -- your priest, rabbi or your friend. if you're not sensitized enough

to have searched out that that individual is your own, you find out that the person that purported to be the owner did not own it and i've got news for you. you lost it. you cannot sue the government. you cannot hold anybody else responsible what difference is that from a couldn't -- from a pension fund? it is really the same policy. our hearts go out to people who lose their life savings because of a fraud perpetrated by someone who appeared to have respectability, but the federal law does not provide that because you have to register with the sec and they are supposed to test out and investigate, it does not say

that the guarantees all frauds. in some respects, if you look back, historically, it is better than it was in 1929. i know. -- i hope it will be better tomorrow. it is not going to be perfect. those of us that have the desire are going to be grossly disappointed. we wanted to have this hearing because so many of the fellow members of the committee have expressed their thoughts on the subject. they're looking for a remedy and the commitment that i had made to them is that we will work as hard as we can to close some of the holes in the system. we're not going to solve this.

you will not be happy with the end result. this is far and above what we can possibly provide as protection for a and we will work towards getting equity and fairness. there is no equity and there is no complete fairness in this world. it is a tough world. the gentleman from new jersey, mr. garrett. >> what we can try to do from the government's perspective is try to make sure that there was justice. we need to strive in order to get justice. everyone should be held accountable for executing their

own due diligence in their investments. this changes from who your from the proverbial lowly the and the union official who might have more resources and the little old lady would be. the level of due diligence as core to be responsible. we do expect the due diligence. that is your responsibility. added to that this will that is reliant. when you do your due diligence, looking to the sec, have they

done their job? you are relying on them to do their job. when you look to -- that is before the factory at the should be able to look to others to do their job. this is the whole issue. there is a bill on the floor this week. this creates a moral hazard, if you will. by relying on the government, as you did, because the government says there were to protect you, you have the right to rely on them. maybe you would have done more due diligence, but we told you that you could rely on it. also, we set this up and you rely on it. because we set those entities up, the bill that we will be

voting on expansiveness those intrusions by the government. you may even say that you would be more reliant on the government. for example, one of the comments from one of the people that i've put in the record, everyone except for mr. coffee on this panel believes that we should not have clawback. >> is that correct? one of the testimonies was from a lady. they said that it should begin with the sec. maybe we should be pulling back from them.

we're not asking much from them. in fact, we are doubling their salary and their appropriations and saying believe that -- and saying that hopefully there will make changes. you want to look at what is coming down on the floor today. we should be holding them accountable for what they did wrong in the past and hold them accountable for the failures that were made before we give them any more money, which should make sure that the make changes. mr. hornbeck says that they had paid only $1.2 million so far. >> i can explain that.

the trustee's legal fees, the legal fees have been approved for the first 15 weeks at the rate of a million dollars a week. he is running again at a million dollars a week. if you project that for a year, it would be $50 million a year. mr. hornbeck has said that the novel legal fees were going back generations. mr. hornbeck had said that those expenses are running at the way of a million dollars a week. >> this is one of those cases. there is almost an incentive for things to move on an expedited basis and because you have a pretty good feed. >> there is an inherent conflict

of interest. >> i just want to make one statement. some of these aspects may have had in a tax of getting more fees in. we did suggest that they might want to come and testify or at least be at the hearing. they declined to do so. we would like to hear from them. i think i am on board were most of -- where most of your. what you do not want to do is come up with language that has any wiggle room in it. you have to go to the aggravation of hiring a lawyer when they really should not have to go through that aggravation. they would not have mass lawsuits.

it would be very targeted. i would think that that target would be very limited. is that where you were going? >> knott in the charitable organizations, there was potential. >> i think you could move from the current bid fake defense which is based on a reasonable person to more. you do not want an overly zealous issue. i just remembered that he is suing. this is a zero sum game between some large investors and smaller investors.

i hope he is able to recover a good deal. >> remember that some of those are not villains. >> i would assume that the vast majority of them are not billons ireckless. we do not want people to incur the expense. >> if you are negligent, you do not get the good faith defense. >> we will next year from the german from new york. >> we do not really know the full extent of the number of victims. what we do know is that the first victim was the public trust, the trust of people in their government, the trust of people and us -- in us.

they have every reasonable write an expectation that they were going to. we know the number of claims that have been filed. we know the number of people who had been named. we know the number of entities that are on the list. but as we can see, from one local union, they are named as a victim, but a lot of these groups and organizations to represent thousands and thousands and thousands of americans, some of whom think they are very lucky because they had no stake. they do. a lot of people do not understand this issue. they do not look sympathetically

at the victims. these are people that they think that more money than they did. this is part of what we call blame the victims' mentality. that is the victim's fault the fair the predicament that they are in and nothing could really be further from the truth to it there is no way. how many of you knew mr. madoff? only the person that was the victim. that is the problem. how could they do due diligence? maybe we should take away the right of the government to do due diligence.

maybe we should let the little old lady from peoria be able to do but due diligence and go impersonally to audit mr. maalot. every citizen should be able to do due diligence. how do we do it? we do it by doing what we did you have people with badges make announcements that other people trust. that is what we do in a sophisticated financial system. everybody can investigate anything. you do not have a right. the only people who think in this mentality are people who are not victims. they think there were lucky and some of them are not. there are so many victims here that we do not even contemplate

because you put money in your bank in your bank invests in a brokerage. we know the first line of defense because those are all public. but if your bank invested in a brokerage and they invested in madoff, the system loses all this money obviously, there is not love of money in this insurance fund that people thought that they had to make them hold to the extent of $500,000. those people have that much money. we have a mess on our hands. we have a large group of american investors who were robbed by mr. mann of -- mr.

madoff. they were devastated by the irs if they paid taxes on the money that they thought they had. they didn't have the investment returns and the government then robbed them by charging them tax that they can only go back a few years. so many of them are being raped by the provision. for reliably, understandably, thinking they have this money in their account that they did not have in there and then they spend it to live on. that is what it was for. i have met people that had

contempt for the victims. i represent the north shore of long island. the country clubs that he belonged to and thousands of people who thought that they were lucky to know such a nice man who was so reliable and receive all the accolades that society could heap upon an individual who is making a company and returning investments for so many years. these are the people of thought they were lucky -- these are the people that thought they were lucky. they were further ripped apart because they personally knew this guy who they thought was this wonderful human being, and

how lucky were they? now, they are personally devastated because of the abuse. to those people who look upon the victims and said they're lucky they are not there, they really do not get it. some of them are involved in this fraud personally with their finances. we have to be able to somehow do better. i see that my time has expired. almost everybody on the panel, or most of us at the hearing have selected witnesses that appeared before us today so that we understand who the victims

really are. keep in mind that what we have to do is try to fix the system so that it makes sense and brings the thing that i think that we all know. we cannot treat everybody equally. we set people against each other like a bunch. which group is luckier? it behooves us to figure it out. i think that despite the fact that this is remarkable, i think we will have a lot more questions for the next panel. i think that we all look forward to hearing from them. i think the people that have come here today to share their tragic stories with america and to keep in mind that we all

share some culpability in the situation that we all find ourselves in. >> i just want to throw out the figure that i mentioned. if the loss that we suffered in the last recession, 14 trillion dollars, it would break down to $46,666 per man, woman and child bear in mind what that would mean if we tried to make up for everybody is losses. that money was lost by a lot of people in a lot of different ways. even if it is just half that, it is $23,000 for every man and woman.

again, i want to relive the anxiety of being in law school class. i have questions for you. i agree with the overriding principles that you were enunciating. we also have competing principles. one of the main purposes of the organization is to maintain consumer confidence to give them some reasonable assurance that there -- if they invest in good faith and they do use reasonable diligence, with the stock collapses, but as part of the game. when i look at the website, it gives the mission. and they step in as quickly as possible and work to return to the customer's cash.

without this, then might lose their securities. it does have the caveat, but it goes on to say it is basically

underfunded insurance. that is awfully cheap. when you look at this insurance, you should look at what most small-business is due. they may spend 1 percent of their revenue is on surer to bonds.

this has been an awfully cheap form of insurance. it could happen again. in the old days, when this was set up, most investors were individual investors. at that has changed. only about 25% of investors are individual retail investors. most of them collect -- invest selectively. i agree entirely that we cannot give insurance to everyone. i think that if we tried to give insurance to hedge fund investors, it would look like socialism for the rich. we could recognize that if we will make any change, we will make the most of the victims. in answer to the final part of your question, i think there has been some misrepresentation. i think the fcc is consistent.

it has just never come up before in this dramatic a way. >> any time you get beyond the specifics of the law, you're taking a chance. it is a very risky path. let me just ask, if both of you could address the issue, paying taxes on money you never received. but the legislation that is proposed would carry these losses forward and back and that would reduce some of the bite. i think we should be very sympathetic in that context. >> there are two things that i would like we are not seeking a

total bailout. all we are seeking is that the scc comply with the law. we are seeking five under thousand dollars in insurance that we were promised. i am not asking for coverage for indirect investors because i do not think the statute contemplates that. but the statute clearly contemplates that a customer the deposits money with a broker for the purchase of -- for the purpose of purchasing securities is entitled to $500,000 in insurance. that is what the statute says. that is what the fcc has said. when a customer had a statement that showed the purchase of real securities, the customer was entitled to replace securities up to $500,000, even if it tripled in value.

how can we trust our government if the president, if even the securities were never purchased, even if those securities tripled in value, they would replace the securities up to $500,000. we relied upon a lot. with respect to the taxes, there is no question that, economically, the internal revenue service was the largest beneficiary because he was generating short-term capital gains and people were paying taxes on the income they thought they were receiving at the highest tax rate of i think that the internal revenue service and congress have done a great deal to help investors on the tax side.

senator schumer proposed a bill in the senate. it will give investors a great deal of relief. we are not asking for 100%. on the civic issue, we are asking up to be required to comply with a lot. >> i would like to make just one final statement. i have real concerns about a trusty being able to receive $1 million a week in legal fees. it encourages that. the fact that the appearance of a conflict of interest to pay someone. i just wanted on the record. >> -- i just wanted on the

record. . >> i want to take the conversation in a different direction it seems that -- that there is a dialogue going with all due respect, this is dominating the dialogue. man make a couple comments? >> the -- you'll get a response. >> will now hear from the gentle lady from new york. >> thank you, mr. chairman. thank you for holding this hearing. i agree with some of my colleagues on the committee and i disagree with others. the bill but is on the floor today and tomorrow was put in place because the government has

failed in many ways. it is our job to protect the average citizen. i will give you a chance to talk about what you want to talk about, because i have to say that my husband was a stockbroker for close to 30 years. he used to come home all the time and say that brokers should not get commissions. it only drives them to line their pockets. what we have seen in the last two years, there has been a slow deterioration and large corporations. if anything, we have seen that with the meltdown of the economy. we have seen victims and as far as helping some of those the victim's with tax breaks, they

do not have any money left. the money is gone. the ones that were injured, i am one of those that will read anything that comes into my house. i am not lawyer and i do not understand it all. if i asked my broker a question, he has to look up the answer. as far as consumer beware, we try to trust built -- businesses i will let him speak about anything he wants. >> a couple of conference. remember the camel trying to put their nose in the tent the example? that is where the director of brand -- direct investors are. i totally understand the issues.

this is very -- with the indirect investor, they are not going to get any benefit, anyway. i think that this is not so much a legal issue as it is an issue of fairness. your distinguishing between the direct investor on one hand and the indirect investor on the other hand and now there is a further definition and that is the pension fund investors. everybody lost their money that the same way, with the same fraud. i cannot speak about the wealth of the direct investors.

i can really only speak about the wealth of the directors and our particular had fund. these are people that have worked all their lives and accumulated enough money to invest in hedge fund in a level that was over the minimum required. they are not rich by any means, to the extent that they might have more investable -- invested in liquid assets. that may well be right. from the standpoint of this discussion in, to distinguish between those people who have created many jobs over the years, but to distinguish between the hedge fund investors in the direct

investor seems to be totally unfair and inappropriate. i think that congressman ackerman a distance. the intent, let me say that another way. my reading of the discussion in 1970, when the senator said that this legislation will protect all americans, all americans from brokerage firm of fraud is what was intended. whoever drafted the legislative -- the was the intent.

what is happening is just what you said. you have got group say against group be against groups see. -- you have got group 8 against group -- you have got group a against group b against group c . you have taken the time and effort to allow this group. thank you. >> our next group >> i think that it is clear that the hearts of every member takes it for the experiences that have been

suffered. i think that we also, despite the fact that they tipped the fcc off to the fact that madoff was pulling off aid ponzi scheme. they ignored it and he was allowed to do it. although i do not think it is realistic to expect that we can never have laws that guarantee people will become criminals and will not try and exploit individuals, the deterrent to that is swift and sure punishment. i am very sad to say, that to this day, despite the numerous

inquiries, the testimony and investigations, i do not know that anyone has have their wrist slapped yet. i do not think anybody has been fired. we just do not know. the only way to deter criminal activity, when you find it, you must have swift and sure punishment. you must have been swift and sure punishment if you want to deter this. we have plenty of laws that were violated. he would not be any more of a crook if we had another couple of were violated.

it could not have been much worse. i think that we need to do this. the whole reason that this economy is in the dump that it is in now, it boils down to greed is a lack of respect for your policy and four fellow man. it is putting the dollar first. a lot of people have the right to be greedy, but they have the right -- they do not have the right to steal from other people. until we see that, until we see that there is justice dealt out for everybody, is just for to

encourage more activities >> our next witness is mr. klein. >> part of the frustration most americans have is the fact that there has not been enough punishment. accountability is one thing. those people need to be removed if they cannot do the job. they're one of the people providing regulation. the decisions were made. this should have been shot down a long time ago.

people make four decisions and those people need to be punished. i do not think that there is not punishment for people that break the laws. he could not have done this by himself. i do not accept that. there are too many other people involved in this process. it sends a very strong message. i think you for your testimony. one of the problems that i see is that there seems to be some inconsistency by the sec. people need to know that the symbol mean something. they need to know that it means something if we look back at the original language, and there is

a federal regulation that says that the rules provide in accordance with the " of a customer, based upon the written confirmation. it seems pretty obvious to me did your statement look like any other statement? >> i think that the answer is probably yes. there probably were not any big signals going the other way. this set of expectations that you had, in one of the interpretations, and i guess i will ask miss chapman this question. this of this lack of precedent, there is no case law that talks about the interpretation meaning

that if an investor told the broker to purchase pacific securities, that seems to be very clear case where we could come in, but if you did not have that line of securities requested, and most of us don't. that does not seem to be covered. do you have a thought? >> the first i learned was when i saw the written testimony and i have to tell this body that there is no authority in the statute for the fcc's position. nowhere does it say that the full protections of the statute are reserved for customers who make their own investment decisions, but not for

customers who rely upon financial advisers. if you analyze the economics of what they are suggesting, instead of protecting investors, which is what we found them to do, they are protecting the industry funded insurance company because the vast majority of americans do not make their own investment decisions. my clients are in their '70s, '80s and '90s. they do not have the capacity to decide if they should buy something on one day and sell it the next day. they go to brokers and make those decisions for them. they invest through fidelity or ban guard and they buy funds and those fund managers make investment decisions for them. >> is it your view and that -- view that millions of investors

gave authority to investment house and not have been covered by april broker. they would not be covered for the full 500,000. the purpose of the statute was to instill confidence in the capital markets. if the fdic, tomorrow, decided that we do not ensure the accounts. . .

. . . . test test r. clear clear

>> i think for reasons connected to this style i'm talking about. >> the second case is nato expansion. here we have a very powerful consensus against the idea. this wasn't the exception. i do recall a lot of historians, not at all shy. it was said, i have never in my life met a policy decision by the government met with more powerful disagreement than nato.

if we pushed them into central europe, that russia would align with china. russia democracy would collapse. overall that it would result in a very significant cost to the united states. >> this is a sit u wages where you have the power inevitably

balanced. this is featured prominently in the argument of historians. this was to a different setting. the world was not by pole ar. although russia did take a cour course. everyone if you take today's russia and say, that's why we have today's russia.

it's a vague dispute. finally in the 2:00 i have left, a very interesting case of iraq. here we have a buildup and a short window to develop their argument. the window for scholars to figure out what's happening and come up with codes and arguments. the scholars that oppose this are exactly the same people who

exhibihed. they argue that had this was a bad idea.

>> to conclude, now going over by a minute. i would say the overall scholarly performance in these three episodes are not amazing. to agree the scholar would have gone a wry, the disconnect between making decisions in these circumstances, i would say

that the implication is number one, we scholars frequency criticize policy makers. my paper would add weight on my part. i think we could do better. it will involve a very, very difficult trick in uniting the general with the particular which is the hardest job a scholar has to do. thank you for those cruel by fair comments. thanks to all three panelists and the papers as well, which i commend to you. we have a bit less than 1 hour. i feared we would have a lot

less than 1 hour. >> if we agree that there is such a thing as a disruptive moment or political scientists talk about critical junctions. how do you know you are in one of these at the time?

we choose for obvious reasonses, 1989. one question is 1989, soviet union is still around. maybe 1991 is more operative. or 9/11, how much of a turning point was 9/11.

second, how do you decide how much leeway it will have anybody care to look at that. >> i talk about how international relations that draw on a couple of differences. this is an argument made. i talk about the concept of punctuated. he talked about great changes that happened overtime.

the long shadow casts itself, so that policy in response to a crisis has response afterwards in response to your question how do you know if you are at a punch you'll moment. if you don't know you are in one, you ain't. the brooder question is to the

challenge makers. get off the mark quickly. tieking is of the essence. that is in the hands looking at the same time the berlin wall had broken.

on that fact. if someone had said that didn't reach. the mow meant yum carried forward it strikes me as an event one could plan for. the world order in terms of the world economy. i didn't mention nato.

i never would have predicted that expansion would fall to that degree. everything that went before that for decade after decade would have told you that's extremely unlikely this are thing that's happen in the world that tell us we are wrong. things you think are ab slight

absolutely critical, you deal with and go from there. >> that's a great question. sf you are just saying hind sooikt. the work i did comparing governmental and non-dporm al entities. >> in answer to your question,

how do you know? i have to say looking back, i am struck by how long it took them to realize that much of the stuff this they thought they knew based on the cold war experience didn't apply to the great power politics anymore. the question on 9/12 is are we in a world that we have estimated we are between great

actors and states. fundamentally weaker. where i part is because of all the stuff they are doing. if they weren't doing all the country terrorism they are doing. >> i disagree with mary that 9/11 was a punchationnal moment as was the berlin wall. what was it then?

we factor in the history of the last eight years. i often think to myself that i would have done the same thing. the political costs say that this is just not going to happen again. you just can't do that.

for the purposes of calling the punchation that will history. it seems to me that 9/11 does fall in that category. >> let's open it up for questions. one of the interesting questions. i really enjoyed these presentations. are there other turning points

in once this started in a serious way, a lot of these other events became much more likely. as historians or political scientists, do you think there are missed moments in post world

war ii history? >> i do. i think the cold car began to end in east asia. everybody in the scene was not thought of that way. it sticks with the misconception of what the chinese are going to do sooner or later. it makes it less of an earth shaterring event simply because

it is what we would expect or predict. >> you are right. these are two dissimilar events. to it seems to be away to control these moments. a u neeks moment where the long term and short term combine. suddenly in this triggering

event, it's to even the most obtuse that things have changed. the night of november 9th, the morning of september 11th. i'm not thinking of these as the spans. the moments the world afterward sees very different. when it comes together and now we have to change and do everything differently.

you are right by the way that was one of the few historians. it was not a popular point of view in the mid 1990s. the one that really concerns me do you think when you look back this one of the tributes that

act out in the decade. the course of the overwhelming support also a few people worked on afghanistan. they could actually argue along those loins.

i have no skom arly warrant for answering your question. i studied the immediate post rather than studying how non-government al securities update. they started to argue that we were diverting resources from the necessary resources from al qaeda. this goes back to a point made. they were for some people on the left that said we should have

this go through the un and have osama handed over to international court. that was not the feeling of the mainstream. they just never thought this would work. they thought they would have to go to troops. they thought it would be a half a million troops. when it worked to their credit. the scholars said holy moely. these guys discern credit for the strategy. they are paying off these people and doing special ops. how much it seemed to be a smashing success. there was a widespread applauds when it didn't seem to work. >> i can remember going to nyu

for a series i can't imagine an american president going back to the taliban. that was treated with a lot of hostility. the other response to 9/11. i think someone in the earlier said al gore might have gone

into afghanistan, he would have fought the war in iraq. i still believe that those two wars were fundamentally different. i've been keeping a list. >> this is for bill. i wish you would explain who are some of these people who expand more. then we are going to take the north part. it was surprising to everybody how successful that was. being able to predict that. it was a question when you mentioned baker talking about

russia into nate owe. this is an article that argues that every single alliance in europe was designed in part to control the allies. that as the main point. those weren't against enemies. nate owe is commonly said to keep the americans and russians down. germans would agree with that in so many sense. you can talk about nate owe to include. talk about that idea. >> your question to me, the paper has a lot of foot notes. an even lengthier foot note about where was the thinking of the class at various points in this game.

if you look, you will see that people who where skeptical. they weren't just realize international relist. they were studying the politics. >> end on that strong note. the issue of nate owe turned out

to be huge. when i started to write this book, i did not expect it it become clear to me that this was part of the dperm an reun if i indication process. the question in this time period is even a separate organization, which is a two plus four. certainly, that's a component of it. on the question of expanding

nato. it comes up very early. the discussion about moving nato eastwards into east germany. i had read a lot of places that no one had thought of expanding it in eastern europe. i have a tab with myself that no one talks about going forward to eastern europe. the current holder of the record talked about hungry. very early on, there's discussion about gnat owe moving

into eastern europe. not saying gnat owe membership but partnership. the calls are received. the whole issue pushed off the a againeda by saddam hussein. there's enough that gosh chafe picks up on it. baker says well, this isn't the phase where he's trying to come up with structures. he's come up with the common european home. you guys are the g 7 and ec 12. security council. baker said that's not only going to work. and the soviet union.

baker says that's in the realm of fantasy. he keeps saying, why don't we think about this? it comes up but it's never taken seriously in the west baker then says where i finally come down in the book i find that

justified or you say no, nato was and is all it should be in a military alliance. the point of a military alliance is to create security for the members. i can see the just if i indication for not expanding but i can see the way for expanding. but it should be carried through to the end. >> if one looks at the definition of great nations, one

of the criteria along with a great beforeder is a vibrant strong economy. if we look at times that have changed with our great nation, brought to our attention, both a long term deficit trend as well as a short term blow to our economy. i should ask, should that date be a piece along the lines of berlin wall 9/11 that have

fekted our nation that way. it's important if you are an analyst to set benchmarks. if you think i want to start rethinking fundamentalist moments. the reason is that's and old fashioned way to think about these things. that's a different way i have talked about. don't you think that the most powerful actors, some of them

should be changing their strategies in 1989, what we were gaining with each passing event. with each passing bit of evidence by what the soviet union would or wouldn't do. the major power of the other poll in a bipolar system. i don't see as a result of the financial crisis china, russia, japan, india, dramatically changing their fundamental

approach. if we want to take a date, the stock market crash in 1929, the british could no longer hold the world economy together and the u.s. could not do so. the u.s. acted with extraordinary vigor to extend the financial bleeding also still a year later coming up with old regulations that would prevent it from happening again.

you can't turn to china. a, you have to rely on the u.s. and work on leaders. you have to pass a lot along. kind of like the poker player passing things on to the rest of them. you do well in good times and in bad times. i think it's an important level.

bruce, i'm not clear what your assumptions are. i understand what you are saying about the realist assumptions and about north korea but what are you trying to say about the assumptions of policy makers in 1989 and 2001. you are saying it is not threats and interest or values. something about their assumptions. i'd like to have a clearer idea of what those assumptions were. my question to you is the following, you seem to want to have it both ways. you are saying on the one hand that in the long run, the architecture created in 1989 was a free fab architecture that missed the moment in the sense that it didn't provide for a

long term saektry answer. there's a strong element that's critical of the long term architecture created. you are very quick to say it was the only possible architecture. how do you reconcile these two things or what are the implications of those starments. >> bill, my question to you is just on your third or fourth example of iraq where you you are critical of school ars. you say that the policy makers had it more correct than the scholars. it seems to me it arrived in the decision to go ahead in iraq.

there for, it was not a prudent decision to take.

i did not make myself clear there. i guess if i say, i a grow. really by 1950, the fundamentals of our relationship with the soviet union were hammered out. it just delayed the reckoning with the inevitable. >> there was no way the system could compete.

the soviet troops wouldn't be mobilized and such. a man named gorbachev not a very good answer to your question. it's a tough question. i think we need to subject our own assumptions to examination

all the time i don't mean to say the mixed moment. the article in the book is a mixed response. . at some point, it had some potential to succeed. the slow boat.

struggling to the team. he changes his mind. the first emersion everywhere but east germany, he realizes he can have a better option it's a massive shift. before then, it's so terrible.

once you get this quickening of the teem poe, then you have to do thepre fab. i see the papers beg exchanged. it's hard to offer a

differenting opinion i'm trying to look at the alternative patterns and why they would be viable. i try to be very careful we'd be better off asking would we be more free in taking russia to nate owe.

i tried limitity to the more specific forecast on that front, if you want to look at apre policy criticism they were not talking about several things. i'm trying to see how unbalanced they seem to be. they look more impressive in hind sooith. that said, many of the

criticism. i'm a little critical of those. compared to the other groups. they look relatively clear in hind sooith. in this case, you are not deploying in your own efforts. they are looking specifically at what do we know whether saddam husain was rational or not. that's what they spent 90% of

their time on. interestingly, it wasn't their great power analysis or any of that stuff. the analysis that looks best in hind sight is the one least connected >> thank you. time is really running out. i'm going to ask that the next two to ask their questions in a row, we may have to stop at that point. i apologize if you have a question we didn't get to. kyle and then don.

>> i like your point. you call them punctuational moments. i like to suggest that one of the big punctuation al moments the united states missed was the reaction of the government after the taking of the hostages in iran in 1979. when you look back, that was a transformationnal moment we did so little in that time just wandering what explanation you provide if any why any particular blue print won out versus the others. from your research, if you have anything to say on what can

explain what types of blue prints are likely to win out. one possibility dismissed that one possibility behind but there's certainly a viable alternative to that. >> we use that as a framework to try to reestablish the order. that basically identifies what the book is about. i tried to imagine scenarios under which the other models could have succeeded the idea of restoring the status of 1945

that becomes more likely if there's a serious out break of violence. which starts to look a lot more possible. there's even a brush with the stage of terror in the 1990s there is fully violence used. the troops. they are not getting paid regularly. they have their dependents there. it's not clear that they would obey gosh .

you have soviets shooting at germans. you have more new kwlee ar weapons per square mile. what else are you going to do? you probably wouldn't have 1945 restores entirely. there is a ven u in which that happens. 9 modal seems to be viable because the federation of german ledders thought it was behind 9 policy that seemed to me to about a viable alternative. you see similar sent i meants

throughout eastern europe and the soviet union. one thing that emerged to me is a real die cot my. the people who bring down the wall and end communism, those are not the people who shaped the post cold world war. the economic issues and the euros would be a part of this story. if they have gotten their act together so in a central europe should be permanently

demilitarized. >> the only democratic leader was strongly opposed. if they had ever gotten their act together and come up with some alternative that perhaps could have gel. . he said, we were aware of all of these other alternatives. our job was to keep the pace moving. one of the virtues is that it is already there. you don't waist any time conceptualizing. people in the east knew what they were doing. they wanted it. they saw the western lifestyle. when push came shove, it was really the end game in the competition, east german voted in overwhelming numbers for

prefab >> the most powerful country in the world wanted prefab. the most powerful country in europe wanted prefab. >> let me make one last 30-second comment. .